UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
(Mark
One)
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o
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REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
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OR
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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for
the fiscal year ended December 31, 2007
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission
file number: 1-14554
BANCO
SANTANDER-CHILE
(d/b/a
Santander, Banco Santander, Banco Santander Santiago, and Santander
Santiago)
(Exact
name of Registrant as specified in its charter)
SANTANDER-CHILE
BANK
(d/b/a
Santander, Banco Santander, Santander Santiago Bank, and Santander
Santiago)
(Translation
of Registrant’s name into English)
Chile
(Jurisdiction
of incorporation)
Bandera
140
Santiago,
Chile
Telephone:
011-562 320-2000
(Address
of principal executive offices)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
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Name
of each exchange on which registered
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American
Depositary Shares, each representing the right to receive 1,039 Shares of
Common
Stock without par value
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New
York Stock Exchange
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Shares
of Common Stock, without par value*
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New
York Stock Exchange
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*
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Santander-Chile’s
shares of common stock are not listed for trading, but only in connection
with the registration of the American Depositary Shares pursuant to the
requirements of the New York Stock
Exchange.
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Securities
registered or to be registered pursuant to Section 12(g) of the
Act:
None
(Title of
Class)
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:
7.375%
Subordinated Notes due 2012
Indicate
the number of outstanding shares of each class of common stock of Banco
Santander-Chile at December 31, 2007, was:
188,446,126,794
Shares of Common Stock, without par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
x Yes o No
If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
o Yes x No
Note –
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
their obligations under those Sections.
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
x Yes o No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer x Accelerated
filer o Non-Accelerated
filer o
Indicate by check mark which basis of
accounting the registrant has used to prepare the financial statements included
in this filing:
o U.S. GAAP
o International Financial Reporting
Standards as issued by the International Accounting Standards
Board
x Other
If “Other” has been checked in response
to the previous question, indicate by check mark which financial statement
item the registrant has
elected to follow.
o Item
17 x Item 18
If this is
an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
o Yes
x No
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Page
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1
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2
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4
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PART I |
5 |
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5
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5
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21
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37
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38
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99
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110
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113
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114
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115
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136
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158
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159
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159
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159
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159
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161
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161
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161
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162
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162
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162
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PART III |
162 |
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162
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162
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162
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We have
made statements in this Annual Report on Form 20-F that constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements appear throughout this report and include
statements regarding our intent, belief or current expectations
regarding:
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asset
growth and alternative sources of
funding
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growth
of our fee based business
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·
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exposure
to market risks:
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projected
capital expenditures
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our
financial condition
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·
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our
results of operation
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The
sections of this Annual Report which contain forward-looking statements include,
without limitation, “Item 3: Key Information—Risk Factors,” “Item 4: Information
on the Company—Strategy,” “Item 5: Operating and Financial Review and
Prospects,” “Item 8: Financial Information—Legal Proceedings,” and “Item 11:
Quantitative and Qualitative Disclosures About Market Risk.” Our forward-looking
statements also may be identified by words such as “believes,” “expects,”
“anticipates,” “projects,” “intends,” “should,” “could,” “may,” “seeks,” “aim,”
“combined,” “estimates,” “probability,” “risk,” “VaR,” “target,” “goal,”
“objective,” “future” or similar expressions.
You should
understand that the following important factors, in addition to those discussed
elsewhere in this Annual Report and in the documents which are incorporated by
reference, could affect our future results and could cause those results or
other outcomes to differ materially from those expressed in our forward looking
statements:
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changes
in capital markets in general that may affect policies or attitudes
towards lending to Chile or Chilean
companies
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changes
in economic conditions
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·
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the
monetary and interest rate policies of the Central
Bank
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unanticipated
turbulence in interest rates
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movements
in foreign exchange rates
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movements
in equity prices or other rates or
prices
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changes
in Chilean and foreign laws and
regulations
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·
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competition,
changes in competition and pricing
environments
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·
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our
inability to hedge certain risks
economically
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·
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the
adequacy of loss allowances
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·
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changes
in consumer spending and saving
habits
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·
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unanticipated
increases in financing and other costs or the inability to obtain
additional debt or equity financing on attractive
terms
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·
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changes
in, or failure to comply with, banking
regulations
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our
ability to successfully market and sell additional services to our
existing customers
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·
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disruptions
in client service
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·
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implementation
of new technologies
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·
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an
inaccurate or ineffective client segmentation
model
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You should
not place undue reliance on such statements, which speak only as of the date
that they were made.
The forward looking statements contained in this document speak only as
of the date of this Annual Report, and we do not undertake to update any
forward-looking statement to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
As used in
this Annual Report, “Santander-Chile”, “the Bank”, “we,” “our” and “us” mean
Banco Santander-Chile and its consolidated subsidiaries, the bank resulting from
the merger of Santiago and Old Santander-Chile.
When we
refer to “Santiago” in this Annual Report, we refer to Banco Santiago and its
consolidated subsidiaries prior to its merger with Old Santander-Chile. When we
refer to “Old Santander-Chile” in this Annual Report, we refer to the former
Banco Santander-Chile and its consolidated subsidiaries, which ceased to exist
upon its merger into Santiago, effected on August 1, 2002.
When we
refer to “Banco Santander Spain” or “Santander Spain”, we refer to our parent
company Banco Santander, S.A.
As used in
this Annual Report, the term “billion” means one thousand million
(1,000,000,000).
In this
Annual Report, references to “$”, “US$”, “U.S. dollars” and “dollars” are to
United States dollars, references to “Chilean pesos,” “pesos” or “Ch$” are to
Chilean pesos and references to “UF” are to Unidades de
Fomento. The UF is an
inflation indexed Chilean monetary unit with a value in Chilean pesos that
changes daily to reflect changes in the official Consumer Price Index (“CPI”) of
the Instituto Nacional de
Estadísticas (the Chilean National Institute of Statistics) for the
previous month. See “Item 5: Operating and Financial Review and Prospects” and
Note 1(d) to the Audited Consolidated Financial Statements.
In this
Annual Report, references to the Audit Committee are to the Bank’s Comité de Directores y
Auditoría.
In this
Annual Report, references to “BIS” are to the Bank for International Settlement,
and references to “BIS ratio” are to the capital adequacy ratio as calculated in
accordance with the Basel Capital Accord.
Currency
and Accounting Principles
Santander-Chile
is a Chilean bank and maintains its financial books and records in Chilean pesos
and prepares its Audited Consolidated Financial Statements in conformity with
generally accepted accounting principles in Chile and the rules of the Superintendencia de Bancos e
Instituciones Financieras de Chile (the Superintendency of Banks and
Financial Institutions, which is referred to herein as the “Superintendency of
Banks”), which together differ in certain significant respects from generally
accepted accounting principles in the United States (“U.S. GAAP”). References to
“Chilean GAAP” in this Annual Report are to accounting principles generally
accepted in Chile, as supplemented by the applicable rules of the
Superintendency of Banks. See Note 28 to the Audited Consolidated Financial
Statements of Santander-Chile as of December 31, 2006 and 2007, and for the
years ended December 31, 2005, 2006 and 2007, contained elsewhere in this Annual
Report (together with the notes thereto, the “Audited Consolidated Financial
Statements”) for a description of the principal differences between Chilean GAAP
and U.S. GAAP, as they relate to Santander-Chile, and a reconciliation to U.S.
GAAP of net income and shareholders’ equity.
Pursuant
to Chilean GAAP, amounts expressed in the Audited Consolidated Financial
Statements and all other amounts included elsewhere throughout this Annual
Report for all periods expressed in Chilean pesos are expressed in constant
Chilean pesos as of December 31, 2007. See Note 1(c) to the Audited Consolidated
Financial Statements.
Loans
Unless
otherwise specified, all references herein (except in the Audited Consolidated
Financial Statements) to loans are to loans and financial leases before
deduction for loan loss allowance, and, except as otherwise specified, all
market share data presented herein are based on information published
periodically by the Superintendency of Banks. Non performing loans include loans
for which either principal or interest is overdue, and which do not accrue
interest. Restructured loans for which no payments are overdue are not
ordinarily classified as non performing loans. Past due loans include, with
respect to any loan, only the portion of principal and interest that is overdue
for 90 or more days, and do not include the installments of such loan that are
not overdue or that are overdue for less than 90 days, unless legal proceedings
have been commenced for the entire outstanding balance according to the terms of
the loan, in which case the entire loan is considered past due within 90 days
after initiation of such proceedings. This practice differs from that normally
followed in the United States, where the amount classified as past due would
include the entire amount of principal and interest on any and all loans which
have any portion overdue. See “Item 5: F. Selected Statistical
Information—Classification of Loan Portfolio Based on the Borrower’s Payment
Performance.”
According
to the regulations established by the Superintendency of Banks, Santander-Chile
is required to charge-off commercial loan installments no later than 24 months
after being classified as past due, if unsecured, and if secured, no later than
36 months after being classified as past due. When an installment of a past due
corporate loan (whether secured or unsecured) is charged-off, we must charge-off
all installments which are overdue, notwithstanding our right to charge-off the
entire amount of the loan. Once any amount of a loan is charged off, each
subsequent installment must be charged off as it becomes overdue,
notwithstanding our right to charge-off the entire amount of the loan. In the
case of past due consumer loans, a similar practice applies, except that after
the first installment becomes three months past due, Santander-Chile must
charge-off the entire remaining part of the loan. We may charge-off any loan
(whether commercial or consumer) before the first installment becomes overdue,
but only in accordance with special procedures established by the
Superintendency of Banks. Loans are charged off against the loan loss reserve to
the extent of any required allowances for such loans; the remainder of such
loans is charged off against income. See “Item 5: F. Selected Statistical
Information—Analysis of Loan Loss Allowance.”
Outstanding
loans and the related percentages of Santander-Chile’s loan portfolio consisting
of corporate and consumer loans in the section entitled “Item 4: B. Business
Overview” are categorized based on the nature of the borrower. Outstanding loans
and related percentages of the loan portfolio of Santander-Chile consisting of
corporate and consumer loans in the section entitled “Item 5: F. Selected
Statistical Information” are categorized in accordance with the reporting
requirements of the Superintendency of Banks, which are based on the type and
term of loans.
Effect
of Rounding
Certain
figures included in this Annual Report and in the Audited Consolidated Financial
Statements have been rounded for ease of presentation. Percentage figures
included in this Annual Report have not in all cases been calculated on the
basis of such rounded figures but on the basis of such amounts prior to
rounding. For this reason, certain percentage amounts in this Annual Report may
vary from those obtained by performing the same calculations using the figures
in the Audited Consolidated Financial Statements. Certain other amounts that
appear in this Annual Report may not sum due to rounding.
Economic
and Market Data
In this
Annual Report, unless otherwise indicated, all macro economic data related to
the Chilean economy is based on information published by the Banco Central de Chile (the
“Central Bank”), and all market share and other data related to the Chilean
financial system is based on information published by the Superintendency of
Banks and our analysis of such information. Information regarding the
consolidated risk index of the Chilean financial system as a whole is not
available.
Exchange
Rates
This
Annual Report contains translations of certain Chilean peso amounts into U.S.
dollars at specified rates solely for the convenience of the reader. These
translations should not be construed as representations that the Chilean peso
amounts actually represent such U.S. dollar amounts, were converted from U.S.
dollars at the rate indicated in preparing the audited consolidated financial
statements, could be converted into U.S. dollars at the rate indicated, were
converted or will be converted at all.
Unless
otherwise indicated, all the U.S. dollar amounts at any year end or for any full
year have been translated from Chilean pesos based on the interbank market rate
published by Reuters at 1:30pm on the last business day of the year. The market rate informed by
Reuters on December 31, 2007, was Ch$497.78 per US$1.00. Our subsidiaries use
the first observed exchange rate published by the Central Bank of Chile for 2008
on Jan. 2, 2008. The
observed exchange rate reported by the Central Bank on December 31, 2007, was
Ch$495.82 per US$1.00 and Ch$496.89 on Jan. 2, 2008. The Federal Reserve Bank of
New York does not report a noon buying rate for the Chilean peso. For more
information on the observed exchange rate. See “Item 3: A. Selected Financial
Data—Exchange Rates.”
Not
Applicable.
Not
Applicable.
A.
Selected Financial Data
The
following table presents historical financial information about us as of the
dates and for each of the periods indicated. The following table should be read
in conjunction with, and is qualified in its entirety by reference to, our
Audited Consolidated Financial Statements appearing elsewhere in this Annual
Report. Our Audited Consolidated Financial Statements are prepared in accordance
with Chilean GAAP, which differs in certain significant respects from U.S. GAAP.
Note 28 to our Audited Consolidated Financial Statements provides a description
of the material differences between Chilean GAAP and U.S. GAAP and a
reconciliation to U.S. GAAP of net income for the years ended December 31, 2005,
2006 and 2007, and shareholders’ equity at December 31, 2006 and
2007.
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At
and for the years ended December 31,
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(in
millions of constant Ch$ of December 31, 2007)(1)
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(in
thousands of US$)(1)(2)
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CONSOLIDATED
INCOME STATEMENT DATA
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Chilean
GAAP:
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Net
interest revenue (3)
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352,656 |
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539,896 |
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599,801 |
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657,806 |
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825,616 |
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1,658,596 |
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Provisions
for loan losses
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|
(78,549 |
) |
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|
(91,809 |
) |
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|
(69,706 |
) |
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|
(132,175 |
) |
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(182,411 |
) |
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(366,449 |
) |
Total
fees and income from services, net
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130,303 |
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137,527 |
|
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151,813 |
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174,643 |
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192,925 |
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387,571 |
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Other
operating income, net (3)
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185,832 |
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15,838 |
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(14,606 |
) |
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20,030 |
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(79,726 |
) |
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(160,163 |
) |
Other
income and expenses, net
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2,338 |
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(4,614 |
) |
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(23,553 |
) |
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(3,846 |
) |
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6,423 |
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12,904 |
|
Operating
expenses
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|
(291,574 |
) |
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(305,004 |
) |
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(306,170 |
) |
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(332,293 |
) |
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(342,684 |
) |
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(688,425 |
) |
Loss
from price-level restatement
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(8,973 |
) |
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(13,623 |
) |
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(19,902 |
) |
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(14,807 |
) |
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(56,325 |
) |
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(113,152 |
) |
Income
before income taxes
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|
292,033 |
|
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|
278,211 |
|
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317,677 |
|
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369,358 |
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363,818 |
|
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730,881 |
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Income
(taxes) benefits
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|
(50,889 |
) |
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(52,202 |
) |
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(54,671 |
) |
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(62,529 |
) |
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(55,171 |
) |
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|
(110,834 |
) |
Net
income
|
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241,144 |
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|
226,009 |
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263,006 |
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306,829 |
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308,647 |
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620,047 |
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Net
income per share (7)
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1.28 |
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1.20 |
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1.40 |
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1.63 |
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|
1.64 |
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0.00329 |
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Net
income per ADS (4)(7)
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1,329.55 |
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1,246.10 |
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1,450.09 |
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1,691.71 |
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1,701.73 |
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3.42 |
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Dividends
per share (5)
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0.98 |
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1.28 |
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1.20 |
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0.90 |
|
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|
1.06 |
|
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|
0.00106 |
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Dividends
per ADS (5)
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1,015.89 |
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1,329.55 |
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1,246.10 |
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|
942.55 |
|
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|
1,099.61 |
|
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|
2.21 |
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Weighted-average
shares outstanding (in millions)
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|
|
188,446.1 |
|
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|
188,446.1 |
|
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188,446.1 |
|
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|
188,446.1 |
|
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|
188,446.1 |
|
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|
— |
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|
|
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U.S.
GAAP:
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|
|
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|
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|
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|
Net
interest income (6)
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|
|
328,930 |
|
|
|
510,003 |
|
|
|
606,874 |
|
|
|
678,572 |
|
|
|
807,291 |
|
|
|
1,621,783 |
|
Provision
for loan losses
|
|
|
(99,945 |
) |
|
|
(74,052 |
) |
|
|
(70,835 |
) |
|
|
(132,175 |
) |
|
|
(191,189 |
) |
|
|
(384,083 |
) |
Net
income
|
|
|
208,220 |
|
|
|
226,160 |
|
|
|
248,011 |
|
|
|
253,468 |
|
|
|
227,604 |
|
|
|
457,237 |
|
Net
income per Share (7)
|
|
|
1.10 |
|
|
|
1.20 |
|
|
|
1.32 |
|
|
|
1.35 |
|
|
|
1.21 |
|
|
|
0.00243 |
|
Net
income per ADS (4)(7)
|
|
|
1,148.02 |
|
|
|
1,246.93 |
|
|
|
1,367.41 |
|
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|
1,397.50 |
|
|
|
1,254.90 |
|
|
|
2.52 |
|
Weighted-avg.
shares outstanding (in millions)
|
|
|
188,446.10 |
|
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|
188,446.10 |
|
|
|
188,446.10 |
|
|
|
188,446.10 |
|
|
|
188,446.1 |
|
|
|
— |
|
Weighted-avg.
ADS outstanding (in millions)
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
— |
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CONSOLIDATED
BALANCE SHEET DATA
|
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|
|
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Chilean
GAAP:
|
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Cash
and due from banks
|
|
|
1,146,529 |
|
|
|
1,078,060 |
|
|
|
1,344,000 |
|
|
|
1,173,682 |
|
|
|
1,291,634 |
|
|
|
2,594,789 |
|
Investments
(8)
|
|
|
2,229,537 |
|
|
|
2,261,837 |
|
|
|
1,369,429 |
|
|
|
1,090,920 |
|
|
|
1,819,266 |
|
|
|
3,654,759 |
|
Loans,
net of allowances
|
|
|
8,680,393 |
|
|
|
9,602,618 |
|
|
|
10,967,834 |
|
|
|
12,479,044 |
|
|
|
13,236,214 |
|
|
|
26,590,491 |
|
Loan
loss allowances
|
|
|
(195,998 |
) |
|
|
(197,008 |
) |
|
|
(162,234 |
) |
|
|
(187,014 |
) |
|
|
(232,766 |
) |
|
|
(467,608 |
) |
Derivatives
(9)
|
|
|
— |
|
|
|
— |
|
|
|
449,953 |
|
|
|
400,416 |
|
|
|
780,775 |
|
|
|
1,568,514 |
|
Other
assets (3)
|
|
|
333,402 |
|
|
|
475,492 |
|
|
|
659,445 |
|
|
|
803,730 |
|
|
|
1,094,841 |
|
|
|
2,199,447 |
|
Total
assets (6)
|
|
|
12,723,280 |
|
|
|
13,722,924 |
|
|
|
14,790,662 |
|
|
|
15,947,792 |
|
|
|
18,222,730 |
|
|
|
36,608,000 |
|
Deposits
|
|
|
6,439,090 |
|
|
|
7,670,933 |
|
|
|
8,860,279 |
|
|
|
10,091,122 |
|
|
|
10,821,355 |
|
|
|
21,739,232 |
|
Other
interest-bearing liabilities
|
|
|
3,950,509 |
|
|
|
3,597,911 |
|
|
|
3,118,682 |
|
|
|
2,817,251 |
|
|
|
3,713,460 |
|
|
|
7,460,043 |
|
Derivatives
(9)
|
|
|
— |
|
|
|
— |
|
|
|
420,975 |
|
|
|
382,403 |
|
|
|
778,217 |
|
|
|
1,563,375 |
|
Shareholders'
equity
|
|
|
1,185,353 |
|
|
|
1,172,996 |
|
|
|
1,186,962 |
|
|
|
1,337,992 |
|
|
|
1,438,042 |
|
|
|
2,888,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
12,310,365 |
|
|
|
13,447,843 |
|
|
|
14,737,134 |
|
|
|
15,776,131 |
|
|
|
17,883,856 |
|
|
|
35,727,229 |
|
Long-term
borrowings
|
|
|
2,793,310 |
|
|
|
2,052,132 |
|
|
|
1,566,415 |
|
|
|
1,703,576 |
|
|
|
2,597,095 |
|
|
|
5,217,355 |
|
Shareholders'
equity
|
|
|
2,107,428 |
|
|
|
2,097,439 |
|
|
|
2,082,730 |
|
|
|
2,169,921 |
|
|
|
2,196,797 |
|
|
|
4,413,191 |
|
Goodwill
|
|
|
866,526 |
|
|
|
866,526 |
|
|
|
866,526 |
|
|
|
866,526 |
|
|
|
866,526 |
|
|
|
1,740,781 |
|
|
|
At
and for the year ended
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability
and performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin (10)
|
|
|
3.0 |
% |
|
|
4.5 |
% |
|
|
4.7 |
% |
|
|
4.7 |
% |
|
|
5.8 |
% |
Return
on average total assets (11)
|
|
|
1.8 |
% |
|
|
1.7 |
% |
|
|
1.8 |
% |
|
|
1.9 |
% |
|
|
1.9 |
% |
Return
on average shareholders’ equity (12)
|
|
|
22.1 |
% |
|
|
20.2 |
% |
|
|
24.1 |
% |
|
|
24.8 |
% |
|
|
23.4 |
% |
Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shareholders’ equity as a percentage of average total
assets
|
|
|
8.1 |
% |
|
|
8.2 |
% |
|
|
7.4 |
% |
|
|
7.8 |
% |
|
|
8.0 |
% |
Total
liabilities as a multiple of shareholders’ equity
|
|
|
9.7 |
|
|
|
11.7 |
|
|
|
12.1 |
|
|
|
11.9 |
|
|
|
12.7 |
|
Credit
Quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
loans as a percentage of total loans (13)
|
|
|
3.6 |
% |
|
|
3.7 |
% |
|
|
2.6 |
% |
|
|
2.9 |
% |
|
|
3.3 |
% |
Allowance
for loan losses as percentage of total loans
|
|
|
2.2 |
% |
|
|
2.0 |
% |
|
|
1.5 |
% |
|
|
1.5 |
% |
|
|
1.7 |
% |
Past
due loans as a percentage of total loans (14)
|
|
|
2.2 |
% |
|
|
1.5 |
% |
|
|
1.1 |
% |
|
|
0.8 |
% |
|
|
0.9 |
% |
Operating
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses/operating revenue (15)
|
|
|
43.6 |
% |
|
|
44.0 |
% |
|
|
41.5 |
% |
|
|
39.0 |
% |
|
|
36.5 |
% |
Operating
expenses/average total assets
|
|
|
2.2 |
% |
|
|
2.2 |
% |
|
|
2.1 |
% |
|
|
2.1 |
% |
|
|
1.9 |
% |
Ratio
of earnings to fixed charges (16):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including
interest on deposits
|
|
|
1.81 |
|
|
|
1.77 |
|
|
|
1.65 |
|
|
|
1.61 |
|
|
|
1.43 |
|
Excluding
interest on deposits
|
|
|
2.34 |
|
|
|
2.26 |
|
|
|
2.46 |
|
|
|
2.56 |
|
|
|
2.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP(17):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability
and performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin (18)
|
|
|
2.8 |
% |
|
|
4.3 |
% |
|
|
4.8 |
% |
|
|
4.8 |
% |
|
|
5.7 |
% |
Return
on average total assets (19)
|
|
|
1.6 |
% |
|
|
1.8 |
% |
|
|
1.7 |
% |
|
|
1.6 |
% |
|
|
1.4 |
% |
Return
on average shareholders’ equity (20)
|
|
|
9.9 |
% |
|
|
10.8 |
% |
|
|
11.9 |
% |
|
|
11.7 |
% |
|
|
10.4 |
% |
Ratio
of earnings to fixed charges (16):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including
interest on deposits
|
|
|
1.83 |
|
|
|
1.87 |
|
|
|
1.71 |
|
|
|
1.60 |
|
|
|
1.38 |
|
Excluding
interest on deposits
|
|
|
2.35 |
|
|
|
2.43 |
|
|
|
2.51 |
|
|
|
2.52 |
|
|
|
1.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation
Rate(21)
|
|
|
1.1 |
% |
|
|
2.4 |
% |
|
|
3.7 |
% |
|
|
2.6 |
% |
|
|
7.8 |
% |
Revaluation
(devaluation) rate (Ch$/US$) at period end (21)
|
|
|
(15.9 |
%) |
|
|
(6.6 |
%) |
|
|
(8.1 |
%) |
|
|
3.9 |
% |
|
|
(7.2 |
%) |
Number
of employees at period end
|
|
|
7,535 |
|
|
|
7,380 |
|
|
|
7,482 |
|
|
|
8,184 |
|
|
|
9,174 |
|
Number
of branches and offices at period end (22)
|
|
|
345 |
|
|
|
315 |
|
|
|
364 |
|
|
|
413 |
|
|
|
467 |
|
(1)
|
Except
per share data, percentages and ratios, share numbers, employee numbers
and branch numbers.
|
(2)
|
Amounts
stated in U.S. dollars at and for the year ended December 31, 2007, have
been translated from Chilean pesos at the interbank
market exchange rate of Ch$497.78 = US$1.00 as of December 31,
2007. See “Item 3: A. Selected Financial Data—Exchange Rates” for more
information on the observed exchange
rate.
|
(3)
|
In
accordance with Circular No. 3345 issued by the Superintendency of Banks,
which became effective on June 30, 2006, the accounting standards for
valuing financial instruments acquired for trading or investment purposes,
including derivative instruments on the balance sheets, were amended. The
new accounting standards require that these instruments be carried at
their market or fair value, and the historical differences in valuation of
such instruments recognized with respect to any dates prior to 2006 be
adjusted directly against the Bank’s equity. Banks were required
to adopt the new accounting standards set forth in Circular No. 3345 in
preparing their financial statements at and for the six-months ended June
30, 2006, and going forward. In order to implement these new accounting
standards, we have created a new line item “derivatives” under both
“assets” and “liabilities” in our consolidated balance sheet, and
reclassified certain other items within other assets, other liabilities,
financial instruments, interest income, interest expenses and other
operating income, net, in our consolidated balance sheet and income
statement at and for the year ended December 31, 2006. For comparison
purposes, we have also retrospectively reclassified these items at
December 31, 2005, but did not retrospectively apply the new accounting
standards to these items. We did not reclassify
any of these items at any date or for any period prior to 2005. See “Item 5: A.
Accounting Standards for Financial Investments and
Derivatives.”
|
(4)
|
1
ADS = 1,039 shares of common stock.
|
(5)
|
The
dividends per share of common stock and per ADS are determined based on
the previous year’s net income. The dividend per ADS is calculated on the
basis of 1,039 shares per ADS.
|
(6)
|
Net
interest income and total assets on a U.S. GAAP basis have been determined
by applying the relevant U.S. GAAP adjustments to net interest income and
total assets presented in accordance with Article 9 of Regulation S-X. See
Note 28 to our Consolidated Financial Statements at and for the years
ended December 31, 2003 and 2004, and Note 28 of our
|
|
Consolidated
Financial Statements for the year ended December 31, 2005, 2006 and 2007,
included in our Annual Report on Form
20-F. |
(7)
|
Net
income per share and per ADS in accordance with U.S. GAAP has been
calculated on the basis of the weighted-average number of shares or ADSs,
as applicable, outstanding during the
period.
|
(8)
|
Includes
principally Chilean government securities, corporate securities, other
financial investments and investment collateral under agreements to
repurchase (reverse repo).
|
(9)
|
For
figures at December 31, 2006 and 2007, derivatives are valued at market
price and classified as a separate line item on the balance sheet. Our
derivatives holdings at December 31, 2005, have been reclassified from
“other assets” and “other liabilities” to “derivatives”, but have not been
marked to market as would be required under currently applicable
accounting principles. At prior dates, derivatives are classified under
“other assets” or “other liabilities”, and generally recorded at net
notional amount.
See “Item 5: A. Accounting Standards for Financial Investments and
Derivatives” and Note 1 of our Consolidated Financial
Statements.
|
(10)
|
Net
interest revenue divided by average interest earning assets (as presented
in “Item 5: F. Selected Statistical
Information”).
|
(11)
|
Net
income divided by average total assets (as presented in “Item 5: F.
Selected Statistical Information”).
|
(12)
|
Net
income divided by average shareholders’ equity (as presented in “Item 5:
F. Selected Statistical
Information”).
|
(13)
|
Substandard
loans in the old rating system included all loans rated B- or worse. In
the new loan risk classification system which took effect in 2004,
substandard loans include all consumer and mortgage loans rated B- or
worse and all commercial loans rated C2 or worse. See “Item 5: F. Selected
Statistical Information—Analysis of Substandard Loans and Amounts Past
Due.” Therefore, the historical figures in 2003 are not strictly
comparable to figures in 2004, 2005, 2006 or
2007.
|
(14)
|
Past
due loans are loans the principal or interest amount of which is overdue
for 90 or more days, and do not include the installments of such loans
that are not overdue or that are less than 90 days overdue, unless legal
proceedings have been commenced for the entire outstanding balance
according to the terms of the loan.
|
(15)
|
Operating
revenue includes “Net interest revenue,” “Total fees and income from
services, net” and “Other operating income,
net.”
|
(16)
|
For
the purpose of computing the ratios of earnings to fixed charges, earnings
consist of earnings before income tax and fixed charges. Fixed charges
consist of gross interest expense and the proportion deemed representative
of the interest factor of rental
expense.
|
(17)
|
The
following ratios have been calculated using U.S. GAAP figures except for
net interest margin.
See footnote 18 regarding calculation of net interest
margin.
|
(18)
|
Net
interest margin has been determined by applying the relevant U.S. GAAP
adjustments to net interest income for the years ended December 31, 2003,
2004, 2005, 2006 and 2007, presented in accordance with Article 9 of
Regulation S-X divided by average interest earning assets calculated on a
Chilean GAAP basis.
See Note 28(y) to our Consolidated Financial Statements at and for
the years ended December 31, 2002, 2003 and 2004, and Note 28(v) of our
Consolidated Financial Statements for the years ended December 31, 2005,
2006 and 2007.
|
(19)
|
Net
income divided by average total assets. Average total assets were
calculated as an average of the beginning and ending balances for each
year, and total assets on a U.S. GAAP basis have been determined by
applying the relevant U.S. GAAP adjustments to total assets presented in
accordance with Article 9 of Regulation S-X. See Note 28 to our Audited
Consolidated Financial Statements.
|
(20)
|
Average
shareholders’ equity was calculated as an average of the beginning and
ending balances for each year. Shareholders’ equity on a U.S. GAAP basis
has been determined by applying the relevant U.S. GAAP adjustments to
shareholders’ equity presented in accordance with Article 9 of Regulation
S-X. See Note 28 to our Audited Consolidated Financial
Statements.
|
(21)
|
Based
on information published by the Central
Bank.
|
(22)
Figures prior to 2005 do not include special payment centers.
Exchange
Rates
Chile has
two currency markets, the Mercado Cambiario Formal, or
the Formal Exchange Market and the Mercado Cambiario Informal,
or the Informal Exchange Market. According to Law 18,840, the organic law of the
Central Bank, and the Central Bank Act (Ley Orgánica Constitucional del
Banco Central de Chile), the Central Bank determines which purchases and
sales of foreign currencies must be carried out in the Formal Exchange Market.
Pursuant to Central Bank regulations which are currently in effect, all
payments, remittances or transfers of foreign currency abroad which are required
to be effected through the Formal Exchange Market may be effected with foreign
currency procured outside the Formal Exchange Market. The Formal Exchange Market
is comprised of the banks and other entities so authorized by the Central Bank.
The conversion from pesos to U.S. dollars of all
payments
and distributions with respect to the ADSs described in this Annual Report must
be transacted at the spot market rate in the Formal Exchange Market. Current
regulations require that the Central Bank be informed of certain transactions
and that they be effected through the Formal Exchange Market.
Purchases
and sales of foreign currencies performed may be legally carried out in the
Informal Exchange Market. The Informal Exchange Market reflects transactions
carried out at informal exchange rates by entities not expressly authorized to
operate in the Formal Exchange Market. There are no limits imposed on the extent
to which the rate of exchange in the Informal Exchange Market can fluctuate
above or below the observed exchange rate. On December 31, 2007, and March 31,
2008, the exchange rate in the Informal Exchange Market as published by Reuters
at 1:30pm on these days was Ch$497.78 and Ch$436.15, or 0.4% and -0.67%,
respectively, more expensive than the published observed exchange rate for such
date of Ch$495.82 and Ch$439.09, respectively, per US$1.00.
The
following table sets forth the annual low, high, average and period end observed
exchange rate for U.S. dollars for each of the following periods, as reported by
the Central Bank. We make no representation that the Chilean peso or the U.S.
dollar amounts referred to herein actually represent, could have been or could
be converted into U.S. dollars or Chilean pesos, as the case may be, at the
rates indicated, at any particular rate or at all.
|
|
Daily Observed Exchange Rate Ch$ Per US$(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
593.10 |
|
|
|
758.21 |
|
|
|
691.54 |
|
|
|
599.42 |
|
2004
|
|
|
559.21 |
|
|
|
649.45 |
|
|
|
609.55 |
|
|
|
559.83 |
|
2005
|
|
|
509.70 |
|
|
|
592.75 |
|
|
|
559.86 |
|
|
|
514.21 |
|
2006
|
|
|
511.44 |
|
|
|
549.63 |
|
|
|
530.26 |
|
|
|
534.43 |
|
2007
|
|
|
493.14 |
|
|
|
548.67 |
|
|
|
522.69 |
|
|
|
495.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
2007
|
|
|
495.49 |
|
|
|
506.79 |
|
|
|
499.28 |
|
|
|
495.82 |
|
January
2008
|
|
|
463.58 |
|
|
|
498.05 |
|
|
|
480.90 |
|
|
|
465.30 |
|
February
2008
|
|
|
458.02 |
|
|
|
476.44 |
|
|
|
467.22 |
|
|
|
458.02 |
|
March
2008
|
|
|
431.22 |
|
|
|
454.94 |
|
|
|
442.94 |
|
|
|
439.09 |
|
April
2008
|
|
|
433.98 |
|
|
|
459.16 |
|
|
|
446.43 |
|
|
|
459.16 |
|
May
2008
|
|
|
461.49 |
|
|
|
479.66 |
|
|
|
470.10 |
|
|
|
479.66 |
|
June
2008 (throughout June 25)
|
|
|
479.54 |
|
|
|
505.11 |
|
|
|
490.32 |
|
|
|
505.11 |
|
(2)
|
Exchange
rates are the actual low and high, on a day-by-day basis for each
period.
|
(3)
|
The
average of monthly average rates during the
year.
|
(4)
|
As
reported by the Central Bank the first business day of the following
period.
|
Dividends
Under the
current General Banking Law, a Chilean bank may only pay a single dividend per
year (i.e., interim
dividends are not permitted). Santander-Chile’s annual dividend is proposed by
its Board of Directors and is approved by the shareholders at the annual
ordinary shareholders’ meeting held the year following that in which the
dividend is generated. For example, the 2007 dividend must be proposed and
approved during the first four months of 2008. Following shareholder approval,
the proposed dividend is declared and paid. Historically, the dividend for a
particular year has been declared and paid no later than one month following the
shareholders’ meeting. Dividends are paid to shareholders of record on the fifth
day preceding the date set for payment of the dividend. The applicable record
dated for the payment of dividends to holders of ADSs will, to the extent
practicable, be the same.
Under the
General Banking Law a bank must distribute cash dividends in respect of any
fiscal year in an amount equal to at least 30% of its net income for that year,
as long as the dividend does not result in the infringement of minimal capital
requirements. The
balances of our distributable net income are generally retained for use in our
business (including for the maintenance of any required legal reserves).
Although our Board of Directors currently intends to pay regular annual
dividends, the amount of dividend payments will depend upon,
among
other factors, our then current level of earnings, capital and legal reserve
requirements, as well as market conditions, and there can be no assurance as to
the amount or timing of future dividends.
Dividends
payable to holders of ADSs are net of foreign currency conversion expenses of
the Bank of New York as depositary (the “Depositary”) and will be subject to the
Chilean withholding tax currently at the rate of 35% (subject to credits in
certain cases as described in “Item 10: E. Taxation—Material Tax Consequences of
Owning Shares of Our Common Stock or ADSs).
Under the
Foreign Investment Contract (as defined herein), the Depositary, on behalf of
ADS holders, is granted access to the Formal Exchange Market to convert cash
dividends from Chilean pesos to U.S. dollars and to pay such U.S. dollars to ADS
holders outside Chile, net of taxes, and no separate registration by ADS holders
is required. In the past, Chilean law required that holders of shares of Chilean
companies who were not residents of Chile to register as foreign investors under
one of the foreign investment regimes contemplated by Chilean law in order to
have dividends, sale proceeds or other amounts with respect to their shares
remitted outside Chile through the Formal Exchange Market. On April 19, 2001,
the Central Bank deregulated the Exchange Market eliminating the need to obtain
approval from the Central Bank in order to remit dividends, but at the same time
this eliminated the possibility of accessing the Formal Exchange Market. These
changes do not affect the current Foreign Investment Contract, which was signed
prior to April 19, 2001, which grants access to the Formal Exchange Market with
prior approval of the Central Bank. See “Item 10: D. Exchange
Controls.”
The
following table presents dividends declared and paid by us in nominal terms in
the following years:
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
206,975 |
|
|
|
1.10 |
|
|
|
1,141.16 |
|
|
|
100 |
|
2005
|
|
|
198,795 |
|
|
|
1.05 |
|
|
|
1,096.06 |
|
|
|
100 |
|
2006
|
|
|
155,811 |
|
|
|
0.83 |
|
|
|
859.06 |
|
|
|
65 |
|
2007
|
|
|
185,628 |
|
|
|
0.99 |
|
|
|
1,023.46 |
|
|
|
65 |
|
2008
|
|
|
200,620 |
|
|
|
1.06 |
|
|
|
1,106.12 |
|
|
|
65 |
|
(1)
|
Million
of nominal pesos.
|
(2)
|
Calculated
on the basis of 188,446 million
shares.
|
(3)
|
Calculated
on the basis of 1,039 shares per
ADS.
|
(4)
|
Calculated
by dividing dividend paid in the year by net income for the previous
year.
|
B.
Capitalization and Indebtedness
Not
applicable.
C.
Reasons for the Offer and Use of Proceeds
Not
applicable.
D.
Risk Factors
You should
carefully consider the following risk factors, as well as all the other
information presented in this Annual Report before investing in securities
issued by us. The risks and uncertainties described below are not the only ones
that we face. Additional risks and uncertainties that we do not know about or
that we currently think are immaterial may also impair our business operations.
Any of the following risks, if they actually occur, could materially and
adversely affect our business, results of operations, prospects and financial
condition.
We are
subject to market risks that are presented both in this subsection and in “Item
5: Operating and Financial Review and Prospects” and “Item 11: Quantitative and
Qualitative Disclosures about Market Risk.”
Risks
Associated with Our Business
Increased
competition and industry consolidation may adversely affect results of our
operations.
The
Chilean market for financial services is highly competitive. We compete with
other Chilean private sector domestic and foreign banks, with Banco del Estado,
a public sector bank, with department stores and the larger supermarket chains
that make consumer loans and sell other financial products to a large portion of
the Chilean population. The lower middle to middle income segments of the
Chilean population and the small and medium sized corporate segments have become
the target markets of several banks, and competition in these segments is likely
to increase. As a result, net interest margins in these segments are likely to
decline. Although we believe that demand for financial products and services
from individuals and for small and medium sized companies will continue to grow
during the remainder of the decade, we cannot assure you that net interest
margins will be maintained at their current levels.
We also
face competition from non-bank and non-finance competitors (principally
department stores and the larger supermarket chains) with respect to some of our
credit products, such as credit cards, consumer loans and insurance brokerage.
In addition, we face competition from non-bank finance competitors, such as
leasing, factoring and automobile finance companies, with respect to credit
products, and from mutual funds, pension funds and insurance companies, with
respect to savings products. For the time being, banks continue to be the main
suppliers in Chile for leasing, factoring and mutual funds, and the insurance
sales business has seen rapid growth.
The
increase in competition within the Chilean banking industry in recent years has
led to, among other things, consolidation in the industry. We expect the trends
of increased competition and consolidation to continue and result in the
formation of new large financial groups. Consolidation, which can result in the
creation of larger and stronger competitors, may adversely affect our financial
condition and results of operations by decreasing the net interest margins we
are able to generate. In addition, Law No. 19,769 allows insurance companies to
participate and compete with banks in the residential mortgage and credit card
businesses.
Our
allowances for impairment losses may not be adequate to cover our future actual
losses to our loan portfolio.
At
December 31, 2007, our allowance for impairment losses on loans was Ch$232,766
million, and the ratio of our allowance for impairment losses to total loans was
1.73%. The amount of allowances is based on our current assessment of and
expectations concerning various factors affecting the quality of our loan
portfolio. These factors include, among other things, our borrowers’ financial
conditions, repayment abilities and repayment intentions, the realizable value
of any collateral, the prospects for support from any guarantor, Chile’s
economy, government macroeconomic policies, interest rates and legal and
regulatory environment. Many of these factors are beyond our control. If our
assessment of and expectations concerning the above mentioned factors differ
from actual developments, or if the quality of our loan portfolio deteriorates
or the future actual losses exceed our estimates, our allowance for impairment
losses may not be adequate to cover actual losses and we may need to make
additional provisions for impairment losses, which may materially and adversely
affect our results of operations and financial condition.
Our
exposure to individuals and small businesses could lead to higher levels of past
due loans, allowances for loan losses and charge-offs.
A
substantial number of our customers consist of individuals (approximately 42.7%
of the value of the total loan portfolio at December 31, 2007) and, to a lesser
extent, small and medium sized companies (those with annual sales of less than
US$2.2 million) which comprised approximately 15.8% of the value of the total
loan portfolio at December 31, 2007. As part of our business strategy, we seek
to increase lending and other services to small companies and individuals. Small
companies and individuals are, however, more likely to be adversely affected by
downturns in the Chilean economy than large corporations and high income
individuals. In
addition, at December 31, 2007, our residential mortgage loans, both, financed
by mortgage bonds and otherwise totaled Ch$3,328,786 million, representing 24.7%
of our total loans (27.1% of total loans excluding contingent loans. See “Item
5: F. Selected Statistical Information—Loan Portfolio” and “Item 5: F. Selected
Statistical Information—Loans by Economic Activity” for a description and
presentation of residential mortgages in the balance sheet). If the economic
conditions and real estate market in Chile experience a significant downturn,
our asset quality, results of operations and financial condition may be
materially and adversely affected. Economic activities in Chile may
slow down in
2008 given
the volatility of international markets and the possible slow down of the world
economic growth as a result of the credit crisis that is affecting the U.S.
economy. At the same time, higher energy costs and a restrictive interest rate
environment due to higher inflation could also negatively affect the economy. As
a result of these factors, in the future we may experience higher levels of past
due loans, which could result in higher provisions for loan losses. There can be
no assurance that the levels of past due loans and subsequent write offs will
not be materially higher in the future.
If
we are unable to maintain the quality of our loan portfolio, our financial
condition and results of operations may be materially and adversely
affected.
At
December 31, 2007, our past due loans were Ch$116,654 million, and the ratio of
our past due loans to total loans was 0.87%. For additional information on our
asset quality, see “Item 5: F. Selected Statistical Information—Analysis of
Substandard Loans and Amounts Past Due.” We seek to continue to improve
our credit risk management policies and procedures. However, we cannot assure
you that our credit risk management policies, procedures and systems are free
from any deficiency. Failure of credit risk management policies may result in an
increase in level of non performing loans and adversely affect the quality of
our loan portfolio. In addition, the quality of our loan portfolio may also
deteriorate due to various other reasons, including factors beyond our control.
If such deterioration were to occur, it would materially and adversely affect
our financial conditions and results of operations.
The
value of the collateral securing our loans may not be sufficient, and we may be
unable to realize the full value of the collateral securing our loan
portfolio.
The value
of the collateral securing our loan portfolio may significantly fluctuate or
decline due to factors beyond our control, including macroeconomic factors
affecting Chile’s economy. However, we may not have current information on the
value of collateral, which may result in an inaccurate assessment for impairment
losses of our loans secured by such collateral. If this were to occur, we may
need to make additional provisions to cover actual impairment losses of our
loans, which may materially and adversely affect our results of operations and
financial condition.
Additionally,
there are certain provisions under Chilean law that may affect our ability to
foreclose or liquidate residential mortgages granted to us by our customers if
the affected real estate has been declared as “family property” by a court.
Also, foreclosure will be extremely limited if any party using the real estate
has filed with a court a petition requesting that such real estate be declared
as family property.
The
growth of our loan portfolio may expose us to increased loan
losses.
From
December 31, 2002, to December 31, 2007, our aggregate loan portfolio (on an
unconsolidated combined basis) grew by 45.6% in real terms to Ch$13,468,981
million (US$27.2 billion), while our consumer loan portfolio grew by 143.7% in
nominal terms to Ch$2,003,125 million (US$4,040 million), excluding lines of
credit and calculated in accordance with the loan classification system of the
Superintendency of Banks. Because the method of classification of loans used by
the Superintendency of Banks for its public information differs in minor
respects from that used by us for internal accounting purposes, the foregoing
figures may differ from the figures included in our financial statements. The
further expansion of our loan portfolio (particularly in the consumer, small and
mid sized companies and real estate segments) can be expected to expose us to a
higher level of loan losses and require us to establish higher levels of
provisions for loan losses.
Our
loan portfolio may not continue to grow at the same rate.
There can
be no assurance that in the future our loan portfolio will continue to grow at
the same or similar rates as the historical growth rate. A reversal of the rate of
growth of the Chilean economy, a slowdown in the growth of customer demand, an
increased in market competition or changes in governmental regulations, could
adversely affect the rate of growth of our loan portfolio and our risk index
and, accordingly, increase our required allowances for loan losses.
The
effectiveness of our credit risk management is affected by the quality and scope
of information available in Chile.
In
assessing customers’ creditworthiness, we rely largely on the credit information
available from our own internal databases, the Superintendency of Banks, Dicom
(a nationwide credit bureau) and other sources. Due to limitations on
the availability of information and the developing information infrastructure in
Chile, our assessment of the credit risks associated with a particular customer
may not be based on complete, accurate or reliable information. In addition,
although we have been improving our credit scoring systems to better assess
borrowers’ credit risk profiles, we cannot assure you that our credit scoring
systems collect complete or accurate information reflecting the actual behavior
of customers or that their credit risk can be assessed correctly. Without
complete, accurate and reliable information, we have to rely on other publicly
available resources and our internal resources, which may not be effective. As a
result, our ability to effectively manage our credit risk may be materially and
adversely affected.
Fluctuations
in the rate of inflation may affect our results of operations.
Inflation
in Chile gained momentum in 2007. In 2007, inflation reached 7.8% compared to
2.6% in 2006. High levels of inflation in Chile could adversely affect the
Chilean economy and have an adverse effect on our business, financial condition
and results of operations.
Our assets
and liabilities are denominated in Chilean pesos, UF and foreign currencies. The
UF is revalued in monthly cycles. On each day in the period beginning the tenth
day of the current month through the ninth day of the succeeding month, the
nominal peso value of the UF is indexed up (or down in the event of deflation)
in order to reflect a proportional amount of the change in the Chilean Consumer
Price Index during the prior calendar month. For more information regarding the
UF see “Item 5: F. Selected Statistical Information—Average Balance Sheets,
Income Earned from Interest-Earning Assets And Interest Paid on Interest Bearing
Liabilities.” Although we currently benefit inflation in Chile, due to the
current structure of our assets and liabilities (i.e., a significant portion of
our loans are indexed to the inflation rate, but there are no corresponding
features in deposits, or other funding sources that would increase the size of
our funding base), there can be no assurance that our business, financial
condition and result of operations in the future will not be adversely affected
by changing levels of inflation, including from extended periods of inflation
that adversely affect economic growth or periods of deflation.
Our
results of operations are affected by interest rate volatility.
Our
results of operations depend to a great extent on our net interest revenue. In
2007, net interest revenue represented 87.9% of our operating revenue. Changes
in market interest rates could affect the interest rates earned on our interest
earning assets differently from the interest rates paid on our interest bearing
liabilities leading to a reduction in our net interest revenue or result in a
decrease in customer’s demand for our loan or deposit products. Interest rates are highly
sensitive to many factors beyond our control, including the reserve policies of
the Central Bank, deregulation of the financial sector in Chile, domestic and
international economic and political conditions and other factors. Any changes
in interest rates could adversely affect our business, our future financial
performance and the price of our securities. The following table
shows the yields on the Chilean government’s 90-day notes as reported by the
Central Bank of Chile at year end for the last five years.
|
|
Period-end
90
day note (%)
|
2003
|
|
2.58
|
2004
|
|
2.32
|
2005
|
|
4.75
|
2006
|
|
5.10
|
2007
|
|
6.15
|
Since
our principal sources of funds are short-term deposits, a sudden shortage of
funds could cause an increase in costs of funding and an adverse effect on our
revenues. The restrictions on the exposure of Chilean pension funds may affect
our access to funding.
Customer
deposits are our primary source of funding. At December 31, 2007, 79.5% of our
customer deposits had remaining maturities of one year or less, or were payable
on demand. A significant portion of our assets have longer maturities, resulting
in a mismatch between the maturities of liabilities and the maturities of
assets. If a substantial number of our depositors withdraw their demand deposits
or do not roll over their time deposits upon maturity, our liquidity position,
results of operations and financial condition may be materially and adversely
affected. We cannot
assure you that in the event of a sudden or unexpected shortage of funds in the
banking system, any money markets in which we operate will be able to maintain
levels of funding without incurring high funding costs or the liquidation of
certain assets. If this were to happen, our results of operations and financial
condition may be materially and adversely affected.
Chilean
regulations impose restrictions on the share of assets that a Chilean pension
fund management company (Administrador de Fondos de
Pension, an “AFP”) may allocate to a single issuer, which is currently 7%
per fund managed by an AFP (including any securities issued by the issuer and
any bank deposits with the issuer). If the exposure of an AFP to a single issuer
exceeds the 7% limit, the AFP is required to reduce its exposure below the limit
within three years. At December 31, 2007, the aggregate exposure of AFPs to us
was approximately US$7.7 billion or 6.5% of their total assets, and the largest
exposure of a single AFP to us was 7.2% of its total assets. If the exposure of
any AFP to us exceeds the regulatory limit, we would need to seek alternative
sources of funding, which could be more expensive and, as a consequence, may
have a material adverse effect on our financial condition and results of
operations.
Pension
funds must also comply with other investment limits. Recently approved
legislation in Chile (Reformas
al Mercado de Capitales II (also known as MK2) relaxed the limits on
making investments abroad in order to permit pension funds to further diversify
their investment portfolios. In 2007, the limit on making investments abroad was
increased from 30% to 45%. In 2009 this limit will increase to 60% and in 2011
it will reach 80%. As a result, pension funds may change the composition of
their portfolios, including reducing their deposits with local banks. At
December 31, 2007, 32.7% of the Bank’s time deposits were from AFPs. Although
the legislation referred to above is intended to promote a gradual relaxation of
the investment limits, and we may be able to substitute the reduced
institutional funds with retail deposits, there can be no assurance that this
occurrence will not have a material adverse impact on our business, financial
condition and results of operations.
We
may be unable to meet requirements relating to capital adequacy.
We are
required by the General Banking Law to maintain regulatory capital of at least
8% of our risk-weighted assets, net of required loan loss allowance and
deductions, and paid in capital and reserves (“basic capital”) of at least 3% of
our total assets, net of required loan loss allowances. As a result of the
merger between Old Santander-Chile and Santiago, we were required to maintain a
minimum regulatory capital to risk weighted assets ratio of 12%, which was
reduced to 11% as of January 1, 2005. At December 31, 2007, the ratio of our
basic capital to total assets, net of loan loss allowance, was 6.0%, and the
ratio of our regulatory capital to risk weighted assets, net of loan loss
allowance and deductions, was 12.2%. Certain developments could affect our
ability to continue to satisfy the current capital adequacy requirements
applicable to us, including:
|
·
|
the
increase of risk-weighted assets as a result of the expansion of our
business;
|
|
·
|
the
failure to increase our capital
correspondingly;
|
|
·
|
losses
resulting from a deterioration in our asset
quality;
|
|
·
|
declines
in the value of our investment instrument
portfolio;
|
|
·
|
changes
in accounting rules;
|
|
·
|
and
changes in the guidelines regarding the calculation of the capital
adequacy ratios of banks in Chile. In 2010, the Chilean banks will most
likely adopt the guidelines set forth under Basel II with adjustments
incorporated by the Superintendency of Banks. This should result in a
different level of minimum capital
|
|
|
required
to be maintained by the Bank. No assurance can be given that this will not
have a material impact on the Bank’s capitalization
ration. |
We may
also be required to raise additional capital in the future in order to maintain
our capital adequacy ratios above the minimum required levels. Our ability to
raise additional capital may be limited by numerous factors, including: our
future financial condition, results of operations and cash flows; any necessary
government regulatory approvals; our credit ratings; general market conditions
for capital raising activities by commercial banks and other financial
institutions; and domestic and international economic, political and other
conditions.
If we
require additional capital in the future, we cannot assure you that we will be
able to obtain such capital on favorable terms, in a timely manner or at all.
Furthermore, the Superintendency of Banks may increase the minimum capital
adequacy requirements applicable to us. Accordingly, although we currently meet
the applicable capital adequacy requirements, we may face difficulties in
meeting these requirements in the future. If we fail to meet the capital
adequacy requirements, we may be required to take corrective actions. These
measures could materially and adversely affect our business reputation,
financial condition and results of operations. In addition, if we are unable to
raise sufficient capital in a timely manner, the growth of our loan portfolio
and other risk weighted assets may be restricted, and we may face significant
challenges in implementing our business strategy. As a result, our prospects,
results of operations and financial condition could be materially and adversely
affected.
Our
business is highly dependant on proper functioning and improvement of
information technology systems.
Our
business is highly dependant on the ability of our information technology
systems to accurately process a large number of transactions across numerous and
diverse markets and products in a timely manner. The proper functioning of our
financial control, risk management, accounting, customer service and other data
processing systems is critical to our business and our ability to compete
effectively. We have backup data for our key data processing systems that could
be used in the event of a catastrophe or a failure of our primary systems, and
have established alternative communication networks where available. However, we
do not operate all of our redundant systems on a real time basis and cannot
assure you that our business activities would not be materially disrupted if
there were a partial or complete failure of any of these primary information
technology systems or communication networks. Such failures could be caused by,
among other things, software bugs, computer virus attacks or conversion errors
due to system upgrading. In addition, any security breach caused by unauthorized
access to information or systems, or intentional malfunctions or loss or
corruption of data, software, hardware or other computer equipment, could have a
material adverse effect on our business, results of operations and financial
condition.
Our
ability to remain competitive and achieve further growth will depend in part on
our ability to upgrade our information technology systems and increase our
capacity on a timely and cost effective basis. Any substantial failure to
improve or upgrade information technology systems effectively or on timely basis
could materially and adversely affect our competitiveness, results of operations
and financial condition.
Operational
problems or errors can have a material adverse impact on our business, financial
condition and results of operations.
Santander-Chile,
like all large financial institutions, is exposed to many types of operational
risks, including the risk of fraud by employees and outsiders, failure to obtain
proper internal authorizations, failure to properly document transactions,
equipment failures and errors by employees. Fraud or other misconduct by
employees or third parties may be difficult to detect and prevent and could
subject us to financial losses and sanctions imposed by governmental authorities
as well as seriously harm our reputation. Although Santander-Chile
maintains a system of operational controls, there can be no assurance that
operational problems or errors will not occur and that their occurrence will not
have a material adverse impact on our business, financial condition and results
of operations.
Banking
regulations may restrict our operations and thereby adversely affect our
financial condition and results of operations.
We are
subject to regulation by the Superintendency of Banks. In addition, we are
subject to regulation by the Central Bank with regard to certain matters,
including reserve requirements and interest rates and foreign exchange
mismatches and market risks . During the Chilean financial crisis of 1982 and
1983, the Central Bank and the Superintendency of Banks strictly controlled the
funding, lending and general business matters of the banking industry in
Chile.
Pursuant
to the Ley General de Bancos,
Decreto con Fuerza de Ley No. 3 de 1997, or the General Banking Law, all
Chilean banks may, subject to the approval of the Superintendency of Banks,
engage in certain businesses other than commercial banking depending on the risk
associated with such business and the financial strength of the bank. Such
additional businesses include securities brokerage, mutual fund management,
securitization, insurance brokerage, leasing, factoring, financial advisory,
custody and transportation of securities, loan collection and financial
services. The General Banking Law also applies to the Chilean banking system a
modified version of the capital adequacy guidelines issued by the Basel
Committee on Banking Regulation and Supervisory Practices and limits the
discretion of the Superintendency of Banks to deny new banking licenses. There
can be no assurance that regulators will not in the future impose more
restrictive limitations on the activities of banks, including us, than those
currently in effect. Any such change could have a material adverse effect on our
financial condition or results of operations.
Historically,
Chilean banks have not paid interest on amounts deposited in checking accounts.
However, since June 1, 2002, the Central Bank allows banks to pay interest on
checking accounts. Currently, there are no applicable restrictions on the
interest that may be paid on checking accounts. We have begun to pay interest on
some checking accounts under certain conditions. If competition or other factors
lead us to pay higher interest rates on checking accounts, to relax the
conditions under which we pay interest or to increase the number of checking
accounts on which we pay interest, any such change could have a material adverse
effect on our financial condition or results of operations.
We must
maintain higher regulatory capital to risk-weighted assets than other banks in
Chile. The merger of Old Santander-Chile and Santiago required a special
regulatory preapproval of the Superintendency of Banks, which was granted on May
16, 2002. The resolution granting this preapproval imposed a mandatory minimum
regulatory capital to risk weighted assets ratio of 12% for the merged bank
compared to the 8% minimum for other banks in Chile. Effective January 1, 2005,
the Superintendency of Banks lowered our minimum regulatory capital to risk
weighted assets ratio to 11%. Although we have not failed in the past to comply
with our capital maintenance obligations, there can be no assurance that we will
be able to do so in the future.
Beginning
January 1, 2009, Chilean banks will adopt accounting standards more congruent
with International Accounting Standards and we will be restating 2008 figures
under these new accounting principles. Although the exact impact of this change
is still under discussion, there can be no assurance that this will not have a
material impact on our financial condition or results of operation.
We
are subject to regulatory inspections and examinations.
We are
also subject to various inspections, examinations, inquiries, audits and other
regulatory requirements by Chilean regulatory authorities. We cannot assure you that
we will be able to meet all the applicable regulatory requirements and
guidelines, or that we will not be subject to sanctions, fines and other
penalties in the future as a result of non compliance. If sanctions, fines and
other penalties are imposed on us for failure to comply with applicable
requirements, guidelines or regulations, our business, financial condition,
results of operations and our reputation and ability to engage in business may
be materially and adversely affected.
Risks
Relating to Chile
Our
growth and profitability depend on the level of economic activity in
Chile.
A
substantial amount of our loans are to borrowers doing business in Chile.
Accordingly, the recoverability of these loans in particular, our ability to
increase the amount of loans outstanding and our results of operations and
financial condition in general, are dependent to a significant extent on the
level of economic activity in Chile. Our results of operations and financial
condition could be affected by changes in economic or other policies of the
Chilean government, which has exercised and continues to exercise a substantial
influence over many aspects of the private sector, or other political or
economic developments in Chile. We cannot assure you that the Chilean economy
will continue to grow in the future or that those future developments in or
affecting Chile’s exports will not materially and adversely affect our business,
financial condition or results of operations.
Economic
and political problems encountered by other countries may adversely affect the
Chilean economy, our results of operations and the market value of our
securities.
The prices
of securities issued by Chilean companies, including banks, are to varying
degrees influenced by economic and market considerations in other countries. We
cannot assure you that future developments in or affecting the Chilean economy,
including consequences of economic difficulties in other markets, will not
materially and adversely affect our business, financial condition or results of
operations.
We are
directly exposed to risks related to the weakness and volatility of the economic
and political situation in other parts of the world, mainly, the United States,
Europe, China, Brazil and Argentina. A significant economic deterioration in one
of these countries or regions could result in lower economic growth in Chile,
lower loan growth, an increase our loan allowances, and therefore, this could
affect our financial results, our results of operations and the price of our
securities. The recent cuts in gas exports from Argentina to Chile could also
adversely affect economic growth in Chile as the prices of alternate sources of
energy have risen strongly in recent periods and this may increase inflation
rates in Chile. Chile is also involved in an international litigation with Peru
regarding maritime borders.
At
December 31, 2007, approximately 3.1% of our loans were held abroad and 0.37% of
our loans were comprised of loans to companies in Latin American countries. We
cannot assure you that crisis and political uncertainty in other Latin American
countries will not have an adverse effect on Chile, the price of our securities
or our business.
Currency
fluctuations could adversely affect our financial condition and results of
operations and the value of our securities.
Any future
changes in the value of the Chilean peso against the U.S. dollar could affect
the dollar value of our securities. The peso has been subject to large
devaluations and appreciations in the past and could be subject to significant
fluctuations in the future. Our results of operations may be affected by
fluctuations in the exchange rates between the peso and the dollar despite our
policy and Chilean regulations relating to the general avoidance of material
exchange rate exposure. In order to avoid material exchange rate exposure, we
enter into forward exchange transactions. The following table shows the value of
the Chilean peso relative to the U.S. dollar as reported by the Central Bank at
year end for the last four years.
|
|
Exchange
rate (Ch$)
Year-end
|
|
Devaluation
(Revaluation) (%)
|
2003
|
|
599.42
|
|
(15.9%)
|
2004
|
|
559.83
|
|
(6.6%)
|
2005
|
|
514.21
|
|
(8.1%)
|
2006
|
|
534.43
|
|
3.9%
|
2007
|
|
495.82
|
|
(7.2%)
|
2008
(as per June 11)
|
|
485.61
|
|
(2.1%)
|
We may
decide to change our policy regarding exchange rate exposure. Regulations that
limit such exposures may also be amended or eliminated. Greater exchange rate
risk will increase our exposure to the devaluation of the peso, and any such
devaluation may impair our capacity to service foreign currency obligations and
may, therefore, materially and adversely affect our financial condition and
results of operations. Notwithstanding the existence of general policies and
regulations that limit material exchange rate exposures, the economic policies
of the Chilean government and any future fluctuations of the peso against the
dollar could affect our financial condition and results of
operations.
Furthermore,
Chilean trading in the shares underlying our ADSs will be conducted in pesos.
Cash distributions with respect to our shares of common stock are received in
Chilean pesos by the Depositary which then will convert such amounts to U.S.
dollars at the then prevailing exchange rate for the purpose of making payments
in respect of our ADSs. If the value of the Chilean peso falls relative to the
U.S. dollar, the dollar value of our ADSs and any distributions to be received
from the Depositary will be reduced. In addition, the Depositary will incur
customary current conversion costs (to be borne by the holders of our ADSs) in
connection with the conversion and subsequent distribution of dividends or other
payments.
Chile’s
banking regulatory and capital markets environment is continually evolving and
may change.
Changes in
banking regulations may materially and adversely affect the bank’s business,
financial condition and results of operations. Chilean laws, regulations,
policies and interpretations of laws relating to the banking sector and
financial institutions are continually evolving and changing. In 2007
regulations governing the Chilean capital markets were approved (Reformas al Mercado de Capitales
II; also known as MK2). These modifications, among other things, modified
certain provisions set forth in the General Banking Law. Under new legislation,
the limit in terms of regulatory capital that banks are allowed to grant
unsecured loans to one individual or entity was increased to 10% of regulatory
capital and 30% of the regulatory capital of the bank if the amount that exceeds
said 10% corresponds to loans secured by collateral with an aggregate value
equal to or higher than such excess. Previously, these limits were set at 5% and
25%, respectively. Although any such increase may increase our lending activity,
it may also increase the risks associated with the growth of our loan portfolio
and increase competition as the number of banks that can compete in the
corporate segment increases as they are less constrained by this
requirement. See “Item
3: Risk Factors—Risks Associated with Our Business—The growth of our loan
portfolio may expose us to increased loan losses.”
In
addition, changes in the investment limits abroad on behalf of Chilean pension
funds and the modification to minimum capital requirements to be introduced in
line with Basel II requirements may materially and adversely affect the bank’s
business, financial condition and results of operations. See “Item 3: Risk
Factors—Risks Associated with Our Business—Since our principal sources of funds
are short-term deposits, a sudden shortage of funds could cause an increase in
costs of funding and an adverse effect on our revenues. The restrictions on the
exposure of Chilean pension funds may affect our access to funding” and “—We may
be unable to meet requirements relating to capital adequacy.”
A
worsening of labor relations in the Chile could impact our
business.
Labor
relations in industries such as the copper and salmon industry have worsened
leading to prolonged work stoppage, which has affected their respective output.
As of December 31, 2007, on a consolidated basis we had 9,174 employees of which
41.1% were unionized. In March 2007, a new collective bargaining agreement
became effective that will expire on March 1, 2011, but this may be negotiated
ahead of schedule if management and union agree to. We generally apply the terms
of our collective bargaining agreement to unionized and non-unionized employees.
We have traditionally enjoyed good relations with our employees and their
unions, but we cannot assure you that in the future a strengthening of
cross-industry labor movements will not materially and adversely affect our
business, financial condition or results of operations.
Any
downgrading of Chile debt credit rating for domestic and international debt by
international credit rating agencies may adversely affect our business, our
future financial performance, stockholder’s equity and the price of our shares
and ADSs.
Our
ratings are equivalent to the Chilean sovereign ratings. In 2007, Moody’s and
Standard and Poor’s improved their rating for the Republic of Chile and also for
us. Any adverse revisions to Chile’s credit ratings for domestic and
international debt by international rating agencies may adversely affect our
ratings, and our business, future financial performance, stockholder’s equity
and the price of our equity shares and ADSs.
Chile
has different corporate disclosure and accounting standards than those you may
be familiar with in the United States.
We prepare
our financial statements in accordance with Chilean GAAP, which requires
management to make estimates and assumptions with respect to certain matters
that are inherently uncertain. The consolidated financial statements include
various estimates and assumptions, including but not limited to the adequacy of
the allowance for loan losses, estimates of the fair value of certain financial
instruments, the selection of useful lives of certain assets and the valuation
and recoverability of goodwill and deferred taxes. We evaluate these estimates
and judgments on an ongoing (mark-to-market) basis. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances. Actual results in
future periods could differ from those produced by such estimates and
assumptions, and if these differences were significant enough, our reported
results of operations would be affected materially.
Accounting,
financial reporting and securities disclosure requirements in Chile differ from
those in the United States. Accordingly, the information about us available to
you will not be the same as the information available to
shareholders
of a U.S. financial institution. There are also material differences between
Chilean and U.S. accounting and financial reporting standards. As a result,
Chilean financial statements and reported earnings generally differ from those
reported based on U.S. accounting and reporting standards.
As a
regulated financial institution, we are required to submit to the
Superintendency of Banks unaudited unconsolidated balance sheets and income
statements, excluding any note disclosure, prepared in accordance with Chilean
GAAP and the rules of the Superintendency of Banks on a monthly basis. Such
disclosure differs in a number of significant respects from information
generally available in the United States with respect to U.S. financial
institutions.
The
securities laws of Chile, which govern open or publicly listed companies such as
us, have as a principal objective promoting disclosure of all material corporate
information to the public. Chilean disclosure requirements, however, differ from
those in the United States in some material respects. In addition, although
Chilean law imposes restrictions on insider trading and price manipulation,
applicable Chilean laws are different from those in the United States and in
certain respects the Chilean securities markets are not as highly regulated and
supervised as the U.S. securities markets.
Our
status as a controlled company and a foreign private issuer exempts us from
certain of the corporate governance standards of the New York Stock Exchange
(“NYSE”), limiting the protections afforded to investors.
We are a
“controlled company” and a “foreign private issuer” within the meaning of the
NYSE corporate governance standards. Under the NYSE rules, a controlled company
is exempt from certain NYSE corporate governance requirements. In addition, a
foreign private issuer may elect to comply with the practice of its home country
and not to comply with certain NYSE corporate governance requirements, including
the requirements that (1) a majority of the Board of Directors consist of
independent directors, (2) a nominating and corporate governance committee be
established that is composed entirely of independent directors and has a written
charter addressing the committee's purpose and responsibilities, (3) a
compensation committee be established that is composed entirely of independent
directors and has a written charter addressing the committee's purpose and
responsibilities and (4) an annual performance evaluation of the nominating and
corporate governance and compensation committees be undertaken. We currently use
these exemptions and intend to continue using these exemptions. Accordingly, you
will not have the same protections afforded to shareholders of companies that
are subject to all NYSE corporate governance requirements.
Chile
imposes controls on foreign investment and repatriation of investments that may
affect your investment in, and earnings from, our ADSs.
Equity
investments in Chile by persons who are not Chilean residents have generally
been subject to various exchange control regulations which restrict the
repatriation of the investments and earnings therefrom. In April 2001, the
Central Bank eliminated the regulations that affected foreign investors except
that investors are still required to provide the Central Bank with information
related to equity investments and conduct such operations within Chile’s Formal
Exchange Market. The ADSs are subject to a contract, dated May 17, 1994, among
the Depositary, us and the Central Bank (the “Foreign Investment Contract”) that
remains in full force and effect. The ADSs continue to be
governed by the provisions of the Foreign Investment Contract subject to the
regulations in existence prior to April 2001. The Foreign Investment
Contract grants the Depositary and the holders of the ADSs access to the Formal
Exchange Market, which permits the Depositary to remit dividends it receives
from us to the holders of the ADSs. The Foreign Investment
Contract also permits ADS holders to repatriate the proceeds from the sale of
shares of our common stock withdrawn from the ADR facility, or that have been
received free of payment as a consequence of spin offs, mergers, capital
increases, wind ups, share dividends or preemptive rights transfers, enabling
them to acquire the foreign currency necessary to repatriate earnings from such
investments. Pursuant to Chilean law, the Foreign Investment Contract cannot be
amended unilaterally by the Central Bank, and there are judicial precedents
(although not binding with respect to future judicial decisions) indicating that
contracts of this type may not be abrogated by future legislative changes or
resolutions of the Advisory Council of the Central Bank. Holders of shares of
our common stock, except for shares of our common stock withdrawn from the ADS
facility or received in the manner described above, are not entitled to the
benefits of the Foreign Investment Contract, may not have access to the Formal
Exchange Market, and may have restrictions on their ability to repatriate
investments in shares of our common stock and earnings therefrom.
Holders of
ADSs are entitled to receive dividends on the underlying shares to the same
extent as the holders of shares. Dividends received by holders of ADSs will be
paid net of foreign currency exchange fees and expenses of the Depositary and
will be subject to Chilean withholding tax, currently imposed at a rate of 35.0%
(subject to credits in certain cases). If for any reason, including changes in
Chilean law, the Depositary were unable to convert Chilean pesos to U.S.
dollars, investors would receive dividends and other distributions, if any, in
Chilean pesos.
We cannot
assure you that additional Chilean restrictions applicable to holders of our
ADSs, the disposition of the shares underlying them or the repatriation of the
proceeds from such disposition or the payment of dividends will not be imposed
in the future, nor can we advise you as to the duration or impact of such
restrictions if imposed.
ADS
holders may not be able to effect service of process on, or enforce judgments or
bring original actions against, us, our directors or our executive officers,
which may limit the ability of holders of ADSs to seek relief against
us.
We are a
Chilean corporation. None of our directors are residents of the United States
and most of our executive officers reside outside the United States. In
addition, a substantial portion of our assets and the assets of our directors
and executive officers are located outside the United States. As a result, it
may be difficult for ADS holders to effect service of process outside Chile upon
us or our directors and executive officers or to bring an action against us or
such persons in the United States or Chile to enforce liabilities based on U.S.
federal securities laws. It may also be difficult for ADS holders to enforce in
the United States or in Chilean courts money judgments obtained in United States
courts against us or our directors and executive officers based on civil
liability provisions of the U.S. federal securities laws. If a U.S. court grants
a final money judgment in an action based on the civil liability provisions of
the federal securities laws of the United States, enforceability of this money
judgment in Chile will be subject to the obtaining of the relevant "exequatur"
(i.e., recognition and enforcement of the foreign judgment) according to Chilean
civil procedure law currently in force, and consequently, subject to the
satisfaction of certain factors. The most important of these factors are the
existence of reciprocity, the absence of a conflicting judgment by a Chilean
court relating to the same parties and arising from the same facts and
circumstances and the Chilean courts’ determination that the U.S. courts had
jurisdiction, that process was appropriately served on the defendant and that
enforcement would not violate Chilean public policy. Failure to satisfy any of
such requirements may result in non-enforcement of your rights.
We
cannot assure you of the accuracy or comparability of facts, forecasts and
statistics contained in this report with respect to Chile, its economy and
global banking industries.
Facts,
forecasts and statistics in this document relating to Chile, Chile’s economy and
Chilean global banking industries, including market share information, are
derived from various official and other publicly available sources generally
believed to be reliable. However, we cannot guarantee the quality and
reliability of such official and other sources of materials. In addition, these
facts, forecasts and statistics have not been independently verified by us and,
therefore, we make no representation as to the accuracy of such facts, forecasts
and statistics, which may not be consistent with other information compiled
within or outside of Chile and may not be complete or up to date. We have taken
reasonable care in reproducing or extracting the information from such sources.
However, because of possible flawed or ineffective methodologies underlying the
published information or discrepancies between the published information and
market practice and other problems, these facts, forecasts or statistics may be
inaccurate and may not be comparable from period to period or to facts,
forecasts or statistics produced for other economies, and you should not unduly
rely upon them.
Risks
Relating to our ADSs
There
may be a lack of liquidity and market for our shares and ADSs.
The ADSs
are listed and traded on the NYSE. The common stock is listed and traded on the
Santiago Stock Exchange, the Chile Electronic Stock Exchange and the Valparaiso
Stock Exchange, which we refer to collectively as the Chilean Stock Exchanges,
although the trading market for the common stock is small by international
standards. At December 31, 2007, we had 188,446,126,794 shares of common stock
outstanding. The Chilean securities markets are substantially smaller, less
liquid and more volatile than major securities markets in the United States.
According to Article 14 of the Ley de Mercado de Valores, Ley No.
18,045, or the Chilean Securities Market Law, the Superintendencia de Valores y
Seguros, or the Superintendency of Securities and Insurance, may suspend
the offer, quotation or trading of shares of any company listed on one or more
Chilean Stock Exchanges for up to 30
days if,
in its opinion, such suspension is necessary to protect investors or is
justified for reasons of public interest. Such suspension may be extended for up
to 120 days. If, at the expiration of the extension, the circumstances giving
rise to the original suspension have not changed, the Superintendency of
Securities and Insurance will then cancel the relevant listing in the registry
of securities. In addition, the Santiago Stock Exchange may inquire as to any
movement in the price of any securities in excess of 10% and suspend trading in
such securities for a day if it deems necessary.
Although
the common stock is traded on the Chilean Stock Exchanges, there can be no
assurance that a liquid trading market for the common stock will continue.
Approximately 23.09% of our outstanding common stock is held by the public
(i.e., shareholders other than Banco Santander Spain and its affiliates),
including our shares that are represented by ADSs trading on the NYSE. A limited trading market in
general and our concentrated ownership in particular may impair the ability of
an ADS holder to sell in the Chilean market shares of common stock obtained upon
withdrawal of such shares from the ADR facility in the amount and at the price
and time such holder desires, and could increase the volatility of the price of
the ADSs.
You
may be unable to exercise preemptive rights.
The Ley Sobre Sociedades Anónimas, Ley
No. 18,046 and the Reglamento de Sociedades
Anónimas, which we refer to collectively as the Chilean Companies Law,
and applicable regulations require that whenever we issue new common stock for
cash, we grant preemptive rights to all of our shareholders (including holders
of ADSs), giving them the right to purchase a sufficient number of shares to
maintain their existing ownership percentage. Such an offering would not be
possible unless a registration statement under the U.S. Securities Act of 1933
(“Securities Act”), as amended, were effective with respect to such rights and
common stock or an exemption from the registration requirements thereunder were
available.
Since we
are not obligated to elect to make a registration statement available with
respect to such rights and the common stock, you may not be able to exercise
your preemptive rights. If a registration statement is not filed or an
applicable exemption is not available, the Depositary will sell such holders’
preemptive rights and distribute the proceeds thereof if a premium can be
recognized over the cost of any such sale.
You
may have fewer and less well defined shareholders’ rights than with shares of a
company in the United States.
Our
corporate affairs are governed by our estatutos, or by-laws, and
the laws of Chile. Under such laws, our shareholders may have fewer or less well
defined rights than they might have as shareholders of a corporation
incorporated in a U.S. jurisdiction. For example, under legislation applicable
to Chilean banks, our shareholders would not be entitled to appraisal rights in
the event of a merger or other business combination undertaken by
us.
A.
History and Development of the Company
Overview
We are the
largest bank in Chile in terms of total assets, total deposits, loans and
shareholders’ equity. At December 31, 2007, we had total assets of Ch$18,222,730
million (US$36,608 million), loans net of allowances outstanding of
Ch$13,236,214 million (US$26,590 million), deposits of Ch$10,821,355 million
(US$21,739 million) and shareholders’ equity of Ch$1,438,042 million (US$2,889
million). As of December 31, 2007, we employed 9,174 people (on a consolidated
basis) and had the largest private branch network in Chile with 467 branches
(includes payment centers Santander SuperCaja and auxiliary tellers). Our
headquarters are located in Santiago and we operate in every major region of
Chile.
We provide
a broad range of commercial and retail banking services to our customers,
including Chilean peso and foreign currency denominated loans to finance a
variety of commercial transactions, trade financing, foreign currency forward
contracts, credit lines and a variety of retail banking services, including
mortgage financing. We seek to offer our customers a wide range of products
while providing high levels of service. In addition to our traditional banking
operations, we offer a variety of financial services including financial
leasing, financial advisory services, mutual fund management, securities
brokerage, insurance brokerage and investment management.
The legal
predecessor of Santander-Chile was Banco Santiago (“Santiago”). Santiago was
incorporated by public deed dated September 7, 1977 granted at the Notary Office
of Alfredo Astaburuaga Gálvez. Santiago received its permission to incorporate
and function as a bank by Resolution No. 118 of the Superintendency of Banks on
October 27, 1977. Santiago’s by-laws were approved by Resolution No. 103 of the
Superintendency of Banks on September 22, 1977. In January 1997, Santiago merged
with Banco O’Higgins with Santiago being the surviving entity. In 1999, Santiago became a
controlled subsidiary of Banco Santander Spain. As of June 30, 2002,
Santiago was the second largest private sector bank in Chile in terms of total
assets, deposits, loans and shareholders’ equity.
Old
Santander-Chile was established as a subsidiary of Banco Santander Spain in
1978. In 1982, Old Santander-Chile acquired a significant portion of the assets
and liabilities of Banco Español-Chile, a domestic bank that had become
insolvent. In July 1996, Old Santander-Chile was merged into Banco Osorno y la
Unión becoming “Banco Santander-Chile”, the third largest private bank in terms
of outstanding loans at that date.
On August
1, 2002, Santiago and Old Santander Chile merged, whereby the latter ceased to
exist and Santander-Chile (formerly known as Santiago) being the surviving
entity.
Our
principal executive offices are located at Bandera 140, Santiago, Chile. Our
telephone number is +562-320-2000 and our website is www.santandersantiago.cl.
None of the information contained on our website is incorporated by reference
into, or forms part of, this Annual Report. Our agent for service of process in
the United States is Puglisi & Associates.
Relationship
with Banco Santander Spain
We believe
that our relationship with our controlling shareholder, Banco Santander Spain,
offers us a significant competitive advantage over our peer Chilean banks. Banco
Santander Spain is one of the largest financial groups in Latin America, in
terms of total assets measured on a region-wide basis. It is the largest
financial group in Spain and is a major player elsewhere in Europe, including
the United Kingdom through its Abbey subsidiary and Portugal, where it is the
third-largest banking group.
Through Santander Consumer it also operates a leading consumer finance
franchise in the United States as well as in Germany, Italy, Spain, and several
other European countries.
Our
relationship with Banco Santander Spain provides us with access to the group’s
client base, while its multinational focus allows us to offer international
solutions to our clients’ financial needs. We also have the benefit of
selectively borrowing from Banco Santander Spain’s product offerings in other
countries as well as benefiting from their know-how in systems management. We
believe that our relationship with Banco Santander Spain will also enhance our
ability to manage credit and market risks by adopting policies and know-how
developed by Banco Santander Spain. Our internal auditing function has been
strengthened and is more independent from management as a result of the addition
of an internal auditing department that concurrently reports directly to our
Audit Committee and the audit committee of Banco Santander Spain. We believe
that this structure leads to improved monitoring and control of our exposure to
operational risks.
Banco
Santander Spain’s support includes the assignment of managerial personnel to key
supervisory areas of Santander-Chile, like Risks, Auditing, Accounting and
Financial Control. Santander-Chile does not pay any management fees to Banco
Santander Spain in connection with these support services.
B.
Organizational Structure
Banco
Santander Spain controls Santander-Chile through its holdings in Teatinos Siglo
XXI Inversiones Ltda. and Santander-Chile Holding, which are controlled
subsidiaries. This gives Banco Santander Spain control over 76.91% of the shares
of the Bank and actual participation when excluding minority shareholders that
participate in Santander Chile Holding is 76.74%.
|
|
|
|
|
|
|
Teatinos
Siglo XXI Inversiones Ltda.
|
|
|
78,108,391,607 |
|
|
|
41.45 |
% |
Santander
Chile Holding
|
|
|
66,822,519,695 |
|
|
|
35.46 |
% |
Management
Team
The chart
below sets forth the names and areas of responsibility of our senior commercial
managers.
The chart
below sets forth the names and areas of responsibilities of our operating
managers.
C.
Business Overview
We have
467 total branches, 256 of which operated under the Santander brand name, 109
under the Santander Banefe brand name, 42 that operate under the brand name
SuperCaja, 18 that operate under the BancaPrime brand name and 42 auxiliary and
payment centers. We
provide a full range of financial services to corporate and individual
customers. We divide our clients into the following segments: (i) Retail, (ii)
Institutional, (iii) Middle-market, and (iv) Global Banking and
Market.
The Retail
segment is comprised of the following sub-segments:
Lower-middle to middle-income
(Santander Banefe), consisting of individuals with monthly income between
Ch$120,000 (US$241) and Ch$400,000 (US$ 805), which are served through our
Santander Banefe branch network. This segment accounts for 4.7% of our loans at
December 31, 2007. This segment offers customers a range of products, including
consumer loans, credit cards, auto loans, residential mortgage loans, debit card
accounts, savings products, mutual funds and insurance
brokerage.
Middle- and upper-income,
consisting of individuals with a monthly income greater than Ch$400,000
(US$805). Clients in this segment account for 38.0% of our loans at December 31,
2007, and are offered a range of products, including consumer loans, credit
cards, auto loans, commercial loans, foreign trade financing, residential
mortgage loans, checking accounts, savings products, mutual funds and insurance
brokerage.
Small businesses, consisting
of small companies with annual sales less than Ch$1,200 million (US$2.4
million). At December 31, 2007, small companies represented approximately 15.8%
of our total loans outstanding. Customers in this segment are offered a range of
products, including commercial loans, leasing, factoring, foreign trade, credit
cards, mortgage loans, checking accounts, savings products, mutual funds and
insurance brokerage.
The
Institutional segment is comprised of:
Institutional organizations,
such as universities, government agencies, municipalities and regional
governments. At December 31, 2007, these clients represented 1.7% of our total
loans outstanding and offer customers a range of products, including commercial
loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking
accounts, cash management, savings products, mutual funds and insurance
brokerage.
The
Middle-market segment is comprised of mid-sized companies, companies in the real
estate sector and large companies as follows:
Mid-sized companies,
consisting of companies with annual sales over Ch$1,200 million (US$2.4 million)
and up to Ch$3,500 million (US$7.0 million). Customers in this segment are
offered a wide range of products, including commercial loans, leasing,
factoring, foreign trade, credit cards, mortgage loans, checking accounts, cash
management, treasury services, financial advisory, savings products, mutual
funds and insurance brokerage. At December 31, 2007, these clients represented
8.3% of our total loans outstanding.
Real estate, including all
companies in the real estate sector. At December 31, 2007, these clients
represented 4.8% of our total loans outstanding. To clients in the real estate
sector we offer apart from traditional banking services, specialized services
for financing primarily residential projects in order to increase the sale of
residential mortgage loans.
Large companies, consisting
of companies with annual sales over Ch$3,500 million (US$7.0 million). Customers
in this segment are offered a wide range of products, including commercial
loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking
accounts, cash management, treasury services, financial advisory, savings
products, mutual funds and insurance brokerage. At December 31, 2007, these
clients represented 8.5% of our total loans outstanding.
The Global
Banking and Markets segment is comprised of:
Wholesale banking, consisting
of companies that are foreign multinationals or part of a large Chilean economic
group with sales over Ch$3,500 million (US$7.0 million). At December 31, 2007,
these clients represented 16.6% of our total loans outstanding. Customers in
this segment are offered a wide range of products, including commercial loans,
leasing, factoring, foreign trade, mortgage loans, checking accounts, cash
management, treasury services, financial advisory, savings products, mutual
funds and insurance brokerage.
The Treasury Division
provides sophisticated financial products mainly to companies in the wholesale
banking and the middle market segments. This includes products such as
short-term financing and funding, securities brokerage, interest rate and
foreign currency derivatives, securitization services and other tailor made
financial products. The Treasury division also manages the Bank’s trading
positions as well as the non-trading investment portfolio.
The table
below sets forth our lines of business and certain statistical information
relating to each of them for the year ended December 31, 2007. Please see Note
28(y) to our Audited Consolidated Financial Statements for details of revenue by
business segment in the last three years.
At
and for the year ended December 31, 2007
(in
millions of constant Ch$ as of December 31, 2007)
Segment
|
|
Loans
|
|
|
Net
interest revenue
|
|
|
Fees
|
|
|
Net
loan loss allowances (1)
|
|
|
Financial
transactions, net (2)
|
|
|
Net
segment contribution (3)
|
|
Individuals
|
|
|
5,744,801 |
|
|
|
452,136 |
|
|
|
123,877 |
|
|
|
(148,771 |
) |
|
|
-
|
|
|
|
427,242 |
|
Santander
Banefe
|
|
|
633,299 |
|
|
|
152,625 |
|
|
|
27,631 |
|
|
|
(71,692 |
) |
|
|
-
|
|
|
|
108,564 |
|
Middle-upper
income
|
|
|
5,111,502 |
|
|
|
299,511 |
|
|
|
96,246 |
|
|
|
(77,079 |
) |
|
|
-
|
|
|
|
318,678 |
|
SMEs
|
|
|
2,133,312 |
|
|
|
160,909 |
|
|
|
37,596 |
|
|
|
(31,510 |
) |
|
|
-
|
|
|
|
166,995 |
|
Institutional
|
|
|
228,716 |
|
|
|
12,048 |
|
|
|
2,041 |
|
|
|
(29 |
) |
|
|
-
|
|
|
|
14,060 |
|
Total
Retail
|
|
|
8,106,829 |
|
|
|
625,093 |
|
|
|
163,514 |
|
|
|
(180,310 |
) |
|
|
-
|
|
|
|
608,297 |
|
Middle-market
|
|
|
2,914,782 |
|
|
|
89,095 |
|
|
|
14,856 |
|
|
|
(612 |
) |
|
|
-
|
|
|
|
103,339 |
|
Mid-sized
companies
|
|
|
1,116,642 |
|
|
|
37,438 |
|
|
|
7,962 |
|
|
|
(1,325 |
) |
|
|
-
|
|
|
|
44,075 |
|
Real
estate
|
|
|
649,250 |
|
|
|
15,145 |
|
|
|
1,491 |
|
|
|
(300 |
) |
|
|
-
|
|
|
|
16,336 |
|
Large
companies
|
|
|
1,148,890 |
|
|
|
36,512 |
|
|
|
5,403 |
|
|
|
1,013 |
|
|
|
-
|
|
|
|
42,928 |
|
Global
Banking and Markets
|
|
|
2,269,392 |
|
|
|
87,189 |
|
|
|
13,635 |
|
|
|
215 |
|
|
|
12,639 |
|
|
|
113,678 |
|
Wholesale
|
|
|
2,242,510 |
|
|
|
44,268 |
|
|
|
8,297 |
|
|
|
400 |
|
|
|
|
|
|
|
52,965 |
|
Treasury
|
|
|
26,882 |
|
|
|
42,921 |
|
|
|
5,338 |
|
|
|
(185 |
) |
|
|
12,639 |
|
|
|
60,713 |
|
Others
(4)
|
|
|
177,977 |
|
|
|
24,239 |
|
|
|
920 |
|
|
|
(1,704 |
) |
|
|
(46,952 |
) |
|
|
(23,497 |
) |
Total
|
|
|
13,468,980 |
|
|
|
825,616 |
|
|
|
192,925 |
|
|
|
(182,411 |
) |
|
|
(34,313 |
) |
|
|
801,817 |
|
Other
operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,413 |
) |
Other
income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,423 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(342,684 |
) |
Price
level restatement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,325 |
) |
Net
income before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363,818 |
|
|
(1)
Includes gross provisions for loan losses, net of releases on
recoveries.
|
|
(2)
Includes the net gains from trading, net mark-to-market gains and net
foreign exchange transactions.
|
|
(3)
Equal to the sum of net interest revenue, net fee income and net financial
transactions, minus net provision for loan
losses.
|
|
(4)
Includes contribution of other Bank subsidiaries and other non-segmented
items such as interbank loans. Financial transactions, net included in
Others is the results from inflation and interest rate
hedging.
|
Operations
through Subsidiaries
Today, the
General Banking Law permits us to provide directly the leasing and financial
advisory services we could formerly offer only through our subsidiaries, to
offer investment advisory services outside of Chile and to undertake activities
we could not formerly offer directly or through subsidiaries, such as factoring,
securitization, foreign investment funds, custody and transport of securities
and insurance brokerage services. For the year ended December 31, 2007, our
subsidiaries collectively accounted for approximately 11.8% of our consolidated
net income. The assets and operating income of these subsidiaries as of and for
the year ended December 31, 2007, represented 5.7% and 8.7% of our total assets
and operating income, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santander
Leasing S.A (1)
|
|
|
99.50 |
|
|
|
— |
|
|
|
99.50 |
|
|
|
99.50 |
|
|
|
— |
|
|
|
99.50 |
|
Santiago
Corredores de Bolsa Ltda. (2)
|
|
|
99.19 |
|
|
|
0.81 |
|
|
|
100.00 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Santander
Investment S.A. Corredores de Bolsa (2)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50.59 |
|
|
|
0.41 |
|
|
|
51.00 |
|
Santander
Asset Management S.A. Administradora General de Fondos (3)
|
|
|
99.96 |
|
|
|
0.02 |
|
|
|
99.98 |
|
|
|
99.96 |
|
|
|
0.02 |
|
|
|
99.98 |
|
Santander
S.A. Agente de Valores
|
|
|
99.03 |
|
|
|
— |
|
|
|
99.03 |
|
|
|
99.03 |
|
|
|
— |
|
|
|
99.03 |
|
Santander
S.A. Sociedad Securitizadora (4)
|
|
|
99.64 |
|
|
|
— |
|
|
|
99.64 |
|
|
|
99.64 |
|
|
|
— |
|
|
|
99.64 |
|
Santander
Corredora de Seguros Ltda. (5)
|
|
|
99.99 |
|
|
|
— |
|
|
|
99.99 |
|
|
|
99.99 |
|
|
|
— |
|
|
|
99.99 |
|
Santander
Servicios de Recaudación y Pagos Ltda.
|
|
|
99.90 |
|
|
|
0.10 |
|
|
|
100.00 |
|
|
|
99.90 |
|
|
|
0.10 |
|
|
|
100.00 |
|
|
(1)
|
Formerly,
Santiago Leasing S.A.
|
|
(2)
|
In
2007, the Board of Directors approved the merger between Santiago
Corredores de Bolsa Ltda, a subsidiary of the Bank, and Santander
Investment S.A. Corredores de Bolsa, an indirect subsidiary of Banco
Santander Spain.
As a result of the proposed merger, the Bank owns 51.0% of the
merged entity.
|
|
(3)
|
Formerly,
Santander Santiago S.A. Administradora General de
Fondos
|
|
(4)
|
Formerly,
Santander Santiago S.A. Sociedad Securitizadora
|
|
(5)
|
Formerly, Santander
Santiago Corredora de Seguros
Ltda.
|
In 2008, the Board of Directors has
approved the merger of Santander Corredora de Seguros Ltda. with Santander
Leasing S.A. and the merged entity will be called Santander Corredora de Seguros
S.A. We expect the merger to be concluded in July 2008.
Competition
Overview
The
Chilean financial services market consists of a variety of largely distinct
sectors. The most important sector, commercial banking, includes a number of
privately-owned banks and one public-sector bank, Banco del Estado (which
operates within the same legal and regulatory framework as the private sector
banks). The private-sector banks include local banks and a number of
foreign-owned banks which are operating in Chile. The Chilean banking system is
comprised of 24 private-sector banks and one public-sector bank. Five
private-sector banks along with the state-owned bank together accounted for
79.9% of all outstanding loans by Chilean financial institutions at December 31,
2007.
The
Chilean banking system has experienced increased competition in recent years
largely due to consolidation in the industry and new legislation. Effective
November 29, 2007, Scotiabank Sud Americano merged with Banco del Desarrollo,
while at January 1, 2008, Banco de Chile merged with Citibank Chile. We also
face competition from non-bank and non-finance competitors (principally
department stores) with respect to some of our credit products, such as credit
cards, consumer loans and insurance brokerage. In addition, we face competition
from non-bank finance competitors, such as leasing, factoring and automobile
finance companies, with respect to credit products, and mutual funds, pension
funds and insurance companies, with respect to savings products. Currently,
banks continue to be the main suppliers of leasing, factoring and mutual funds,
and the insurance sales business has grown rapidly.
As shown
in the following table, we are the market leader in practically every banking
service in Chile:
|
|
Market
Share
at
December 31,
2006
|
|
|
Market
Share
at
December 31,
2007
|
|
|
Rank
as of
at
December 31,
2007
|
|
Commercial
loans
|
|
|
18.7 |
% |
|
|
17.5 |
% |
|
|
2 |
|
Consumer
loans
|
|
|
26.7 |
|
|
|
26.2 |
|
|
|
1 |
|
Mortgage
loans (residential and general purpose)
|
|
|
24.2 |
|
|
|
23.4 |
|
|
|
1 |
|
Residential
mortgage loans
|
|
|
25.9 |
|
|
|
24.8 |
|
|
|
2 |
|
Foreign
trade loans (loans for export, import and contingent)
|
|
|
21.5 |
|
|
|
22.0 |
|
|
|
1 |
|
Total
loans
|
|
|
22.3 |
|
|
|
21.1 |
|
|
|
1 |
|
Deposits
(1)
|
|
|
22.0 |
|
|
|
21.3 |
|
|
|
1 |
|
Mutual
funds (assets managed)
|
|
|
22.1 |
|
|
|
21.5 |
|
|
|
2 |
|
Credit
card accounts
|
|
|
35.8 |
|
|
|
36.0 |
|
|
|
1 |
|
Checking
Accounts (1)
|
|
|
27.1 |
|
|
|
27.9 |
|
|
|
1 |
|
Branches
(2)
|
|
|
20.3 |
|
|
|
20.2 |
|
|
|
1 |
|
ATM
locations (3)
|
|
|
28.6 |
|
|
|
30.8 |
|
|
|
1 |
|
Source:
Superintendency of Banks
|
(2)
According to latest data available as of November
2007.
|
|
(3)
According to latest data available as of December 2007. Excluding
special-service payment centers.
|
|
(4)
According to latest data available as of September
2007.
|
Our market
share in Chile’s commercial loan market decreased from December 31, 2006, to
December 31, 2007, and we ranked the second in this market at December 31, 2007.
This is primarily due to our reduction of relatively low yielding large
corporate portfolio.
The
following tables set out certain statistics comparing our market position to
that of our peer group, defined as the five largest banks in Chile in terms of
shareholders’ equity as of December 31, 2007.
Loans
As of
December 31, 2007, our loan portfolio was the largest among Chilean banks. Our
loan portfolio on a stand-alone basis represented 21.1% of the market for loans
in the Chilean financial system at such date. The following table sets forth our
and our peer group’s market shares in terms of loans at the dates
indicated.
|
|
At
December 31, 2007
|
|
|
At
December 31, 2006
|
|
Loans
|
|
Ch$
million
|
|
|
US$
million
|
|
|
Market
Share
|
|
|
Market
Share
|
|
Santander-Chile
|
|
|
13,442,328 |
|
|
|
27,111 |
|
|
|
21.1 |
% |
|
|
22.3 |
% |
Banco
de Chile
|
|
|
11,761,218 |
|
|
|
23,721 |
|
|
|
18.5 |
|
|
|
18.0 |
|
Banco
del Estado
|
|
|
8,187,822 |
|
|
|
16,514 |
|
|
|
12.8 |
|
|
|
13.3 |
|
Banco
de Crédito e Inversiones
|
|
|
7,877,412 |
|
|
|
15,888 |
|
|
|
12.4 |
|
|
|
12.4 |
|
BBVA,
Chile
|
|
|
5,310,119 |
|
|
|
10,710 |
|
|
|
8.3 |
|
|
|
8.1 |
|
Corpbanca
|
|
|
4,345,435 |
|
|
|
8,764 |
|
|
|
6.8 |
|
|
|
6.3 |
|
Others
|
|
|
12,810,762 |
|
|
|
25,838 |
|
|
|
20.1 |
|
|
|
19.6 |
|
Chilean
financial system
|
|
|
63,735,096 |
|
|
|
128,545 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Source:
Superintendency of Banks
Deposits
On a stand
alone basis, we had a 21.3% market share in deposits, ranking the first place
among banks in Chile at December 31, 2007. Deposit market share is based on
total time and demand deposits at the respective dates. The following table sets
forth our and our peer group’s market shares in terms of deposits at the dates
indicated.
|
|
At December
31, 2007
|
|
|
At
December 31, 2006
|
|
Deposits
|
|
Ch$
million
|
|
|
US$
million
|
|
|
Market
Share
|
|
|
Market
Share
|
|
Santander-Chile
|
|
|
10,799,111 |
|
|
|
21,780 |
|
|
|
21.3 |
% |
|
|
22.1 |
% |
Banco
de Chile
|
|
|
8,669,331 |
|
|
|
17,485 |
|
|
|
17.1 |
|
|
|
17.7 |
|
Banco
del Estado
|
|
|
7,713,725 |
|
|
|
15,558 |
|
|
|
15.2 |
|
|
|
15.4 |
|
Banco
de Crédito e Inversiones
|
|
|
6,279,831 |
|
|
|
12,666 |
|
|
|
12.4 |
|
|
|
12.6 |
|
BBVA,
Chile
|
|
|
4,113,902 |
|
|
|
8,297 |
|
|
|
8.1 |
|
|
|
8.0 |
|
Corpbanca
|
|
|
2,755,194 |
|
|
|
5,557 |
|
|
|
5.4 |
|
|
|
4.6 |
|
Others
|
|
|
10,375,646 |
|
|
|
20,926 |
|
|
|
20.5 |
|
|
|
19.5 |
|
Chilean
financial system
|
|
|
50,706,740 |
|
|
|
102,268 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Source:
Superintendency of Banks
Shareholders’
equity
With
Ch$1,438,042 million (US$2,889 million) in shareholders’ equity, at December 31,
2007, we were the largest commercial bank in Chile in terms of shareholders’
equity. The following table sets forth our and our peer group’s shareholders’
equity at December 31, 2006 and 2007.
|
|
At
December 31, 2007
|
|
|
At
December 31, 2007
|
|
Equity(1)
|
|
Ch$
million
|
|
|
US$
million
|
|
|
Market
Share
|
|
|
Market
Share
|
|
Santander-Chile
|
|
|
1,438,042 |
|
|
|
2,889 |
|
|
|
20.7 |
% |
|
|
21.8 |
% |
Banco
de Chile
|
|
|
1,051,393 |
|
|
|
2,121 |
|
|
|
15.2 |
|
|
|
14.6 |
|
Banco
del Estado
|
|
|
582,492 |
|
|
|
1,175 |
|
|
|
8.4 |
|
|
|
8.9 |
|
Banco
de Crédito e Inversiones
|
|
|
703,934 |
|
|
|
1,420 |
|
|
|
10.1 |
|
|
|
10.3 |
|
BBVA,
Chile
|
|
|
366,748 |
|
|
|
740 |
|
|
|
5.3 |
|
|
|
5.2 |
|
Corpbanca
|
|
|
484,674 |
|
|
|
978 |
|
|
|
7.0 |
|
|
|
7.6 |
|
Others
|
|
|
2,312,462 |
|
|
|
4,664 |
|
|
|
33.3 |
|
|
|
31.5 |
|
Chilean
financial system
|
|
|
6,939,745 |
|
|
|
13,997 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Source:
Superintendency of Banks.
(1)
|
Percentage
of total shareholders’ equity of all Chilean
banks.
|
Efficiency
For the
year ended December 31, 2007, we were the most efficient bank in our peer group.
The following table sets forth our and our peer group’s efficiency ratio
(defined as operating expenses as a percentage of operating revenue, which is
aggregate of net interest revenue, fees and income from services (net) and other
operating income (net) for the year indicated.
Efficiency
ratio
|
|
As
of December 31, 2007
|
|
|
As
of December 31, 2006
|
|
|
|
%
|
|
|
%
|
|
Santander-Chile
|
|
|
37.9 |
% |
|
|
40.6 |
% |
Banco
de Chile
|
|
|
45.8 |
|
|
|
51.1 |
|
Banco
del Estado
|
|
|
57.0 |
|
|
|
59.0 |
|
Banco
de Crédito e Inversiones
|
|
|
51.1 |
|
|
|
53.7 |
|
BBVA,
Chile
|
|
|
62.7 |
|
|
|
66.6 |
|
Corpbanca
|
|
|
42.4 |
|
|
|
50.1 |
|
Chilean
financial system
|
|
|
48.7 |
% |
|
|
52.1 |
% |
Source:
Superintendency of Banks, on a stand alone basis
Return
on average equity
As of
December 31, 2007, we were the second most profitable bank in our peer group (as
measured by return on average equity) and the most capitalized bank as measured
by the BIS ratio. The following table sets forth our and our peer group’s return
on average equity for the year ended December 31, 2006 and 2007, and BIS ratio
at the dates indicated:
|
|
Return
on average equity
at December
31,
|
|
|
BIS
Ratio
at December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
Santander-Chile
|
|
|
23.4 |
% |
|
|
24.8 |
% |
|
|
12.2 |
% |
|
|
12.6 |
% |
Banco
de Chile
|
|
|
27.7 |
|
|
|
25.5 |
|
|
|
10.7 |
|
|
|
10.7 |
|
Banco
del Estado
|
|
|
9.2 |
|
|
|
9.9 |
|
|
|
10.8 |
|
|
|
11.1 |
|
Banco
de Crédito e Inversiones
|
|
|
21.7 |
|
|
|
22.6 |
|
|
|
10.4 |
|
|
|
10.3 |
|
BBVA,
Chile
|
|
|
9.8 |
|
|
|
10.0 |
|
|
|
10.3 |
|
|
|
10.3 |
|
Corpbanca
|
|
|
11.6 |
|
|
|
9.5 |
|
|
|
11.3 |
|
|
|
13.6 |
|
Chilean
Financial System
|
|
|
16.0 |
% |
|
|
16.7 |
% |
|
|
12.2 |
% |
|
|
12.5 |
% |
Source:
Superintendency of Banks, except Santander-Chile. Calculated by dividing annual
net income by monthly average equity. For Santander-Chile, the average equity is
calculated on a daily basis by the Bank (see “Item 5: F. Selected Statistical
Information—Average Balance Sheets, Income Earned from Interest-Earning Assets
And Interest Paid on Interest Bearing Liabilities”).
Asset
Quality
At
December 31, 2007, on a stand alone basis, we had the second lowest loan loss
allowance to total loans ratio in our peer group. The following table sets forth
our and our peer group’s loan loss allowance to total loans ratio as defined by
the Superintendency of Banks at the dates indicated.
|
|
Loan
Loss allowances/total loans
at
December 31,
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
Santander-Chile
|
|
|
1.71 |
% |
|
|
1.46 |
% |
Banco
de Chile
|
|
|
1.34 |
|
|
|
1.48 |
|
Banco
del Estado
|
|
|
1.97 |
|
|
|
1.67 |
|
Banco
de Crédito e Inversiones
|
|
|
1.32 |
|
|
|
1.27 |
|
BBVA,
Chile
|
|
|
0.99 |
|
|
|
1.14 |
|
Corpbanca
|
|
|
1.27 |
|
|
|
1.40 |
|
Chilean
financial system
|
|
|
1.58 |
% |
|
|
1.48 |
% |
Source:
Superintendency of Banks
D.
Regulation and Supervision
General
In Chile,
only banks may maintain checking accounts for their customers, conduct foreign
trade operations, and together with non-banking financial institutions, accept
time deposits. The principal authorities that regulate financial institutions in
Chile are the Superintendency of Banks and the Central Bank. Chilean banks are
primarily subject to the General Banking Law and secondarily, to the extent not
inconsistent with this statute, the provisions of the Chilean Companies Law
governing public corporations, except for certain provisions which are expressly
excluded.
The modern
Chilean banking system dates from 1925 and has been characterized by periods of
substantial regulation and state intervention, as well as periods of
deregulation. The most recent period of deregulation commenced in 1975 and
culminated in the adoption of a series of amendments to General Banking Law.
That law, amended most recently in 2001, granted additional powers to banks,
including general underwriting powers for new issues of certain debt and equity
securities and the power to create subsidiaries to engage in activities related
to banking, such as brokerage, investment advisory and mutual fund services,
administration of investment funds, factoring, securitization products and
financial leasing services.
The
Central Bank
The
Central Bank is an autonomous legal entity created by the Chilean Constitution.
It is subject to the Chilean Constitution and its own ley orgánica constitucional,
or organic constitutional law. To the extent not inconsistent with the Chilean
Constitution or the Central Bank’s organic constitutional law, the Central Bank
is also subject to private sector laws (but in no event is it subject to the
laws applicable to the public sector). It is directed and administered by a
Board of Directors composed of five members designated by the President of
Chile, subject to the approval of the Senate.
The legal
purpose of the Central Bank is to maintain the stability of the Chilean peso and
the orderly functioning of Chile’s internal and external payment system. The
Central Bank’s powers include setting reserve requirements, regulating the
amount of money and credit in circulation, establishing regulations and
guidelines regarding finance companies, foreign exchange (including the Formal
Exchange Market) and banks’ deposit-taking activities.
The
Superintendency of Banks
Banks are
supervised and controlled by the Superintendency of Banks, an independent
Chilean governmental agency. The Superintendency of Banks authorizes the
creation of new banks and has broad powers to interpret and enforce legal and
regulatory requirements applicable to banks and financial companies.
Furthermore, in case of noncompliance with such legal and regulatory
requirements, the Superintendency of Banks has the ability to impose sanctions.
In extreme cases, it can appoint, with the prior approval of the Board of
Directors of the Central Bank, a provisional administrator to manage a bank. It
must also approve any amendment to a bank’s by-laws or any increase in its
capital.
The
Superintendency of Banks examines all banks from time to time, generally at
least once a year. Banks are also required to submit their financial statements
monthly to the Superintendency of Banks, and a bank’s financial statements are
published at least four times a year in a newspaper with countrywide coverage.
In addition, banks are required to provide extensive information regarding their
operations at various periodic intervals to the Superintendency of Banks. A
bank’s annual financial statements and the opinion of its independent auditors
must also be submitted to the Superintendency of Banks.
Any person
wishing to acquire, directly or indirectly, 10.0% or more of the share capital
of a bank must obtain the prior approval of the Superintendency of Banks. Absent
such approval, the acquiror of shares so acquired will not have the right to
vote. The Superintendency of Banks may only refuse to grant its approval, based
on specific grounds set forth in the General Banking Law.
According
to Article 35bis of the
General Banking Law, the prior authorization of the Superintendency of Banks is
required for:
|
·
|
the
merger of two or more banks;
|
|
·
|
the
acquisition of all or a substantial portion of a banks’ assets and
liabilities by another bank;
|
|
·
|
the
control by the same person, or controlling group, of two or more banks;
or
|
|
·
|
a
substantial increase in the existing control of a bank by a controlling
shareholder of that bank.
|
Such prior
authorization is required solely when the acquiring bank or the resulting group
of banks would own a significant market share in loans, defined by the
Superintendency of Banks to be more than 15.0% of all loans in the Chilean
banking system. The intended purchase, merger or expansion may be denied by the
Superintendency of
Banks; or,
if the acquiring bank or resulting group would own a market share in loans
determined to be more than 20.0% of all loans in the Chilean banking system, the
purchase, merger, or expansion may be conditioned on one or more of the
following:
|
·
|
that
the bank or banks maintain regulatory capital higher than 8.0% and up to
14.0% of their risk-weighted
assets;
|
|
·
|
that
the technical reserve established in article 65 of the General Banking Law
be applicable when deposits exceed one and a half times the resulting
bank’s paid-in capital and reserves;
or
|
|
·
|
that
the margin for interbank loans be reduced to 20.0% of the resulting bank’s
regulatory capital.
|
If the
acquiring bank or resulting group would own a market share in loans determined
by the Superintendency of Banks to be more than 15% but less than 20%, the
authorization will be conditioned on the bank or banks maintaining a regulatory
capital not lower than 10% of their risks-weighted assets for the period
specified by the Superintendency of Banks, which may not be less than one year.
The calculation of the risk-weighted assets is based on a five-category risk
classification system applied to a bank’s assets that is based on the Basel
Committee recommendations.
Pursuant
to the regulations of the Superintendency of Banks, the following ownership
disclosures are required:
|
·
|
a
bank is required to inform the Superintendency of Banks of the identity of
any person owning, directly or indirectly, 5.0% or more of such banks’
shares;
|
|
·
|
holders
of ADSs must disclose to the Depositary the identity of beneficial owners
of ADSs registered under such holders’
names;
|
|
·
|
the
Depositary is required to notify the bank as to the identity of beneficial
owners of ADSs which such Depositary has registered and the bank, in turn,
is required to notify the Superintendency of Banks as to the identity of
the beneficial owners of the ADSs representing 5.0% or more of such banks’
shares; and
|
|
·
|
bank
shareholders who individually hold 10.0% or more of a bank’s capital stock
and who are controlling shareholders must periodically inform the
Superintendency of Banks of their financial
condition.
|
Limitations
on Types of Activities
Chilean
banks can only conduct those activities allowed by the General Banking Law:
making loans, accepting deposits and, subject to limitations, making investments
and performing financial services. Investments are restricted to real estate for
the bank’s own use, gold, foreign exchange and debt securities. Through
subsidiaries, banks may also engage in other specific financial service
activities such as securities brokerage services, equity investments,
securities, mutual fund management, investment fund management, financial
advisory and leasing activities. Subject to specific limitations and the prior
approval of the Superintendency of Banks and the Central Bank, Chilean banks may
own majority or minority interests in foreign banks.
Since June
1, 2002, Chilean banks are allowed to offer a new checking account product that
pays interest. The Superintendency of Banks also stated that these accounts may
be subject to minimum balance limits and different interest rates depending on
average balances held in the account and that banks may also charge fees for the
use of this new product. For banks with a solvency score of less than A the
Central Bank has also imposed additional caps to the interest rate that can be
paid.
On June 5,
2007, pursuant to Law 20.190, new regulations became effective authorizing the
banks to operate with a more full range of derivatives such as, futures,
options, swaps, forwards and other derivative instruments or contracts subject
to specific limitations established by the Central Bank of Chile. Previously,
Banks were able to operate with derivatives, but subject to more restrictive
guidelines.
Deposit
Insurance
The
Chilean government guarantees up to 90.0% of the principal amount of certain
time and demand deposits and savings accounts held by natural persons with a
maximum value of UF120 per person (Ch$2,354,719 or US$4,749 at December 31,
2007) per calendar year in the entire financial system.
Reserve
Requirements
Deposits
are subject to a reserve requirement of 9.0% for peso and foreign
currency-denominated demand deposits and 3.6% for UF, peso and foreign
currency-denominated time deposits (with terms of less than one year). For
purposes of calculating the reserve obligation, banks are authorized to deduct
daily from their foreign currency denominated liabilities, the balance in
foreign currency of certain loans and financial investments held outside of
Chile, the most relevant of which include:
|
·
|
cash
clearance account, which should be deducted from demand deposit for
calculating reserve requirement;
|
|
·
|
certain
payment orders issued by pension
providers;
|
|
·
|
the
amount set aside for “technical reserve” (as described below), which can
be deducted from reserve
requirement.
|
The
Central Bank has statutory authority to require banks to maintain reserves of up
to an average of 40.0% for demand deposits and up to 20.0% for time deposits
(irrespective, in each case, of the currency in which they are denominated) to
implement monetary policy. In addition, to the extent that the aggregate amount
of the following types of liabilities exceeds 2.5 times the amount of a bank’s
regulatory capital, a bank must maintain a 100% “technical reserve” against
them: demand deposits, deposits in checking accounts, or obligations
payable on sight incurred in the ordinary course of business, and in general all
deposits unconditionally payable immediately.
Minimum
Capital
Under the
General Banking Law, a bank is required to have a minimum of UF800,000
(approximately Ch$15,698 million and US$31.6 million as of December 31, 2007) of
paid-in capital and reserves, regulatory capital of at least 8% of its risk
weighted assets, net of required allowances, and paid in capital and reserves of
at least 3% of its total assets, net of required allowances.
Regulatory
capital is defined as the aggregate of:
|
·
|
a
bank’s paid-in capital and reserves, excluding capital attributable to
subsidiaries and foreign branches or capital
básico;
|
|
·
|
its
subordinated bonds, valued at their placement price (but decreasing by
20.0% for each year during the period commencing six years prior to
maturity), for an amount up to 50.0% of its basic capital;
and
|
|
·
|
its
voluntary allowances for loan losses for an amount of up to 1.25% of risk
weighted-assets.
|
Capital
Adequacy Requirements
According
to the General Banking Law, each bank should have regulatory capital of at least
8.0% of its risk-weighted assets, net of required allowances. The calculation of
risk weighted assets is based on a five-category risk classification system for
bank assets that is based on the Basel Committee recommendations. As of 2009,
the third pillar of Basel II should become effective in Chile, which includes
the implementation of capital limits with market risk and operational
risk-weighted assets. These changes must be approved by Congress as it involves
a modification to the General Banking Law.
Banks
should also have capital
básico, or basic capital, of at least 3.0% of their total assets, net of
allowances. Basic capital is defined as a bank’s paid-in capital and reserves
and is similar to Tier 1 capital except that it does not include net income for
the period.
Starting
in 2008, banks will be able to include net income for the period as basic
capital, net of a 30% deduction for minimum dividends accrued.
Within the
scope of Basel II in Chile, further changes in regulation may occur. See “Risk
Factors—Risks
Relating to Chile—Chile’s banking
regulatory and capital markets environment is continually evolving and may
change.”
Lending
Limits
Under the
General Banking Law, Chilean banks are subject to certain lending limits,
including the following material limits:
|
·
|
A
bank may not extend to any entity or individual (or any one group of
related entities), except for another financial institution, directly or
indirectly, unsecured credit in an amount that exceeds 10.0% of the bank’s
regulatory capital, or in an amount that exceeds 30.0% of its regulatory
capital if the excess over 10.0% is secured by certain assets with a value
equal to or higher than such excess. This limits were raised from 5.0% and
25.0%, respectively, in 2007 by the Reformas al Mercado de
Capitales II (also known as MK2). In the case of financing
infrastructure projects built by government concession the 10.0% ceiling
for unsecured credits is raised to 15.0% if secured by a pledge over the
concession, or if granted by two or more banks or finance companies which
have executed a credit agreement with the builder or holder of the
concession;
|
|
·
|
a
bank may not extend loans to another financial institution subject to the
General Banking Law in an aggregate amount exceeding 30.0% of its
regulatory capital;
|
|
·
|
a
bank may not directly or indirectly grant a loan whose purpose is to allow
an individual or entity to acquire shares of the lender
bank;
|
|
·
|
a
bank may not lend, directly or indirectly, to a director or any other
person who has the power to act on behalf of the bank;
and
|
|
·
|
a
bank may not grant loans to related parties (including holders of more
than 1.0% of its shares) on more favorable terms than those generally
offered to non-related parties. Loans granted to related parties are
subject to the limitations described in the first bullet point above. In
addition, the aggregate amount of loans to related parties may not exceed
a bank’s regulatory capital.
|
In
addition, the General Banking Law limits the aggregate amount of loans that a
bank may grant to its employees to 1.5% of its regulatory capital, and provides
that no individual employee may receive loans in excess of 10.0% of this 1.5%
limit. Notwithstanding these limitations, a bank may grant to each of its
employees a single residential mortgage loan for personal use once during such
employee’s term of employment.
Allowance
for Loan Losses
Chilean
banks are required to provide to the Superintendency of Banks detailed
information regarding their loan portfolio on a monthly basis. The
Superintendency of Banks examines and evaluates each financial institution’s
credit management process, including its compliance with the loan classification
guidelines. Banks are classified into four categories: 1, 2, 3 and 4. Each
bank’s category depends on the models and methods used by the bank to classify
its loan portfolio, as determined by the Superintendency of Banks. Category 1
banks are those banks whose methods and models are satisfactory to the
Superintendency of Banks. Category 1 banks will be entitled to continue using
the same methods and models they currently have in place. A bank classified as a
category 2 bank will have to maintain the minimum levels of reserves established
by the Superintendency of Banks while its Board of Directors will be made aware
of the problems detected by the Superintendency of Banks and required to take
steps to correct them. Banks classified as categories 3 and 4 will have to
maintain the minimum levels of reserves established by the Superintendency of
Banks until they are authorized by the Superintendency of Banks to do otherwise.
We are classified in category 1.
Under our
loan classification categories loans are divided into: (i) consumer loans
(including loans granted to individuals for the purpose of financing the
purchase of consumer goods or payment of services); (ii) residential mortgage
loans (including loans granted to individuals for the purchase, construction or
improvements of residential
real
estate, in which the value of the property covers at least 100% of the amount of
the loan); and (iii) commercial loans (includes all loans other than consumer
loans and residential mortgage loans). A detailed description of
the models established for determining loan loss allowances s discussed in “Item
5: F. Selected Statistical Information—Classification of Loan Portfolio” and in
Note 1 of our Audited Consolidated Financial Statements.
Capital
Markets
Under the
General Banking Law, banks in Chile may purchase, sell, place, underwrite and
act as paying agents with respect to certain debt securities. Likewise, banks in
Chile may place and underwrite certain equity securities. Bank subsidiaries may
also engage in debt placement and dealing, equity issuance advice and securities
brokerage, as well as in financial leasing, mutual fund and investment fund
administration, investment advisory services and merger and acquisition
services. These subsidiaries are regulated by the Superintendency of Banks and,
in some cases, also by the Superintendency of Securities and Insurance, the
regulator of the Chilean securities market, open-stock corporations and
insurance companies.
Legal
Provisions Regarding Banking Institutions with Economic
Difficulties
The
General Banking Law provides that if specified adverse circumstances exist at
any bank, its Board of Directors must correct the situation within 30 days from
the date of receipt of the relevant financial statements. If the Board of
Directors is unable to do so, it must call a special shareholders’ meeting to
increase the capital of the bank by the amount necessary to return the bank to
financial stability. If the shareholders reject the capital increase, or if it
is not effected within the term and in the manner agreed to at the meeting, or
if the Superintendency of Banks does not approve the Board of Directors’
proposal, the bank will be barred from increasing its loan portfolio beyond that
stated in the financial statements presented to the Board of Directors and from
making any further investments in any instrument other than in instruments
issued by the Central Bank. In such a case, or in the event that a bank is
unable to make timely payment in respect of its obligations, or if a bank is
under provisional administration of the Superintendency of Banks, the General
Banking Law provides that the bank may receive a two-year term loan from another
bank. The terms and conditions of such a loan must be approved by the directors
of both banks, as well as by the Superintendency of Banks, but need not be
submitted to the borrowing bank’s shareholders for their approval. In any event,
a creditor bank cannot grant interbank loans to an insolvent bank in an amount
exceeding 25.0% of the creditor bank’s regulatory capital. The Board of
Directors of a bank that is unable to make timely payment of its obligations
must present a reorganization plan to its creditors in order to capitalize the
credits, extend their respective terms, condone debts or take other measures for
the payment of the debts. If the Board of Directors of a bank submits a
reorganization plan to its creditors and such arrangement is approved, all
subordinated debt issued by the bank, whether or not matured, will be converted
by operation of law into common stock in the amount required for the ratio of
regulatory capital to risk-weighted assets not to be lower than 12.0% . If a
bank fails to pay an obligation, it must notify the Superintendency of Banks,
which shall determine if the bank is solvent.
Dissolution
and Liquidation of Banks
The
Superintendency of Banks may establish that a bank should be liquidated for the
benefit of its depositors or other creditors when such bank does not have the
necessary solvency to continue its operations. In such case, the Superintendency
of Banks must revoke a bank’s authorization to exist and order its mandatory
liquidation, subject to agreement by the Central Bank. The Superintendency of
Banks must also revoke a bank’s authorization if the reorganization plan of such
bank has been rejected twice. The resolution by the Superintendency of Banks
must state the reason for ordering the liquidation and must name a liquidator,
unless the Chilean Superintendency of Banks assumes this responsibility. When a
liquidation is declared, all checking accounts and other demand deposits
received in the ordinary course of business, are required to be paid by using
existing funds of the bank, its deposits with the Central Bank or its
investments in instruments that represent its reserves. If these funds are
insufficient to pay these obligations, the liquidator may seize the rest of the
bank’s assets, as needed. If necessary and in specified circumstances, the
Central Bank will lend the bank the funds necessary to pay these obligations.
Any such loans are preferential to any claims of other creditors of the
liquidated bank.
Obligations
Denominated in Foreign Currencies
Foreign
currency denominated obligations of Chilean banks are subject to various limits
and obligations. The regulations of the Central Bank do not permit the
difference, whether positive or negative, between a bank’s assets and
liabilities denominated in any foreign currency (including assets and
liabilities denominated in U.S. dollars but
payable in
pesos, as well as those denominated in pesos and indexed to the U.S. dollar
exchange rate) to exceed 20% of the bank’s paid-in capital and reserves; except
in the case where the balance of such assets exceeds the balance of such
liabilities and the excess difference does not exceed the bank’s allowances and
reserves denominated in such foreign currency (excluding profits to be remitted
abroad). Santander-Chile must also comply with various regulatory and internal
limits regarding exposure to movements in foreign exchange rates (See “Item 11:
Quantitative and Qualitative Disclosures About Market Risks”).
Investments
in Foreign Securities
Under
current Chilean banking regulations, banks in Chile may grant loans to foreign
individuals and entities and invest in certain securities of foreign issuers.
Chilean banks may only invest in equity securities of foreign banks and certain
other foreign companies which may be affiliates of the bank or which would be
complementary to the bank’s business if such companies were incorporated in
Chile. Banks in Chile may also invest in debt securities traded in formal
secondary markets. Such debt securities must be (1) securities issued or
guaranteed by foreign sovereign states or their central banks or other foreign
or international financial entities, and (2) bonds issued by foreign companies.
A Bank may invest up to 5% of its regulatory capital in securities of foreign
issuers. Such securities must have a minimum rating as follows.
Table
1
|
|
|
Moody’s
|
P2
|
Baa3
|
Standard
and Poor’s
|
A3
|
BBB-
|
Fitch
IBCA
|
F2
|
BBB-
|
Duff
& Phelps
|
D2
|
BBB-
|
Thomson
Bank Watch
|
TBW2
|
BBB
|
In the
event that the sum of the investments in foreign securities which have a: (i)
rating below that indicated in Table 1 above, and equal or exceeds the ratings
mentioned in the Table 2 below; and (ii) loans granted to other entities
resident abroad exceed 20% (and 30% for banks with a BIS ratio equal or
exceeding 10%), of the regulatory capital of such bank, the excess is subject to
a mandatory reserve of 100%.
Table
2
|
|
|
Moody’s
|
P2
|
Ba3
|
Standard
and Poor’s
|
A3
|
BB-
|
Fitch
IBCA
|
F2
|
BB-
|
Duff
& Phelps
|
D2
|
BB-
|
Thomson
Bank Watch
|
TBW2
|
B
|
In
addition, banks may invest in foreign securities for an additional amount equal
to a 70% of their regulatory capital which ratings are equal or exceeds those
mentioned in the following Table 3. This limit constitutes an additional margin
and it is not subject to the 100% mandatory reserve.
Additionally,
a Chilean Bank may invest in foreign securities whose rating is equal or exceeds
those mentioned in the following Table 3 in: (i) term deposits with foreign
banks; and (ii) securities issued or guaranteed by sovereign states or their
central banks or those securities issued or guaranteed by foreign entities
within the Chilean State; such investment will be subject to the limits by
issuer up to 30% and 50%, respectively, of the regulatory capital of the Chilean
bank that makes the investment.
Table
3
|
|
|
Moody’s
|
P1
|
Aa3
|
Standard
and Poor’s
|
A1+
|
AA-
|
Fitch
IBCA
|
F1+
|
AA-
|
Duff
& Phelps
|
D1+
|
AA-
|
Thomson
Bank Watch
|
TBW1
|
BB
|
Chilean
banks may invest in securities without ratings issued or guaranteed by sovereign
states or their central banks and structured notes issued by investment banks
with a rating equal or above that in the immediately preceding Table 3, which
return is linked with a corporate or sovereign note with a rating equal or above
that in Table 2.
Subject to
specific conditions, a bank may grant loans in U.S. dollars to subsidiaries or
branches of Chilean companies located abroad, to companies listed on foreign
stock exchanges authorized by the Central Bank and, in general, to individuals
and entities domiciled abroad, as long as the Central Bank is kept informed of
such activities.
New
Regulations Regarding Market Risk
In 2005,
the Superintendency of Banks introduced new market risk limits and measures for
Chilean banks. On an unconsolidated basis the Bank must separate its balance
sheet into two separate categories: trading portfolio (Libro de Negociación) and
non-trading, or permanent, portfolio (Libro de Banca). The trading
portfolio as defined by the Superintendency of Banks includes all instruments
that are valued for accounting purposes at market prices, free of any
restrictions or immediate sale and frequently bought and sold by the Bank or
maintained with the intention of selling them in the short-term in order to
profit from short-term price variations. The non-trading portfolio is defined as
all instruments in the balance sheet not considered in the trading portfolio
(See Item 11: Quantitative and Qualitative Disclosure about Market Risk—Market
Risk).
U.S.
Anti-Money Laundering, Anti-Terrorist Financing, and Foreign Corrupt Practices
Act Regulations
The Bank,
as a foreign private issuer whose securities are registered under the Exchange
Act, is subject to the U.S. Foreign Corrupt Practices Act (“FCPA
Act”). The FCPA Act generally prohibits such issuers and their
directors, officers, employees and agents from using any means or
instrumentality of U.S. interstate commerce in furtherance of any offer or
payment of money to any foreign official or political party for the purpose of
influencing a decision of such person in order to obtain or retain business. It
also requires that the issuer maintain books and records and a system of
internal accounting controls sufficient to provide reasonable assurance that
accountability of assets is maintained and accurate financial statements can be
prepared. Penalties, fines and imprisonment can be imposed for violations of the
FCPA Act.
Furthermore,
the Bank is subject to a variety of U.S. anti-money laundering and
anti-terrorist financing laws and regulations, such as the Bank Secrecy Act of
1970, as amended, and the USA PATRIOT ACT of 2001, as amended, and a violation
of such laws and regulations may result in substantial penalties, fines and
imprisonment.
E.
Property, Plants and Equipment
We are
domiciled in Chile and own our principal executive offices located at Bandera
140, Santiago, Chile. We also own nine other buildings in the vicinity of our
headquarters and we rent seven other buildings. At December 31, 2007, we
owned the locations at which 43% of our branches were located. The remaining
branches operate at rented locations. We believe that our
existing physical facilities are adequate for our needs.
Main
properties as of December 31, 2007
|
|
|
|
Central
Offices
|
|
|
|
Own
|
|
|
10 |
|
Rented
|
|
|
7 |
|
Total
|
|
|
17 |
|
|
|
|
|
|
Branches
(1)
|
|
|
|
|
Own
|
|
|
177 |
|
Rented
|
|
|
243 |
|
Total
|
|
|
411 |
|
|
|
|
|
|
Other
property (2)
|
|
|
|
|
Own
|
|
|
71 |
|
Rented
|
|
|
4 |
|
Total
|
|
|
75 |
|
(1)
|
Some
branches are located inside central office buildings and other properties.
Including these branches the total number of branches is 415. Special
payment centers are included in Other
property.
|
(2)
|
Consists
mainly of parking lots, mini-branches and property owned by our
subsidiaries.
|
The
following table sets forth a summary of the main computer hardware and other
systems-equipment that we own.
|
|
|
Mainframe
|
IBM
|
Back-end,
Core-System Altair, Payment means and foreign trade.
|
Midrange
|
IBM
|
Interconnections
between Mainframe and mid-range
|
Midrange
|
Stratus
SUN/Unix
SUN/UNIX
|
Tellers
Interconnections
applications Credit & debit cards
Treasury,
MIS, Work Flow, Accounting
|
Midrange
|
IBM
|
WEB
|
Desktop
|
IBM
|
Platform
applications
|
Call
Center
|
Avaya
Genesys
Nice
Periphonics
|
Telephone
system
Integration
Voice/data
Voice
recorder
IVR
|
The main
software systems that we use are:
|
|
|
|
|
Core-System
|
|
ALTAMIRA
|
|
Accenture
|
Data
base
|
|
DB2
|
|
IBM
|
Data
base
|
|
Oracle
|
|
Oracle
|
Data
base
|
|
SQL
Server
|
|
Microsoft
|
WEB
Service
|
|
Internet
Information Server
|
|
Microsoft
|
Message
Service
|
|
MQSeries
|
|
IBM
|
Transformation
|
|
MQIntegrator
|
|
IBM
|
As of the
date of the filing of this Annual Report on 20-F, we do not have any unresolved
comments from the Securities and Exchange Commission staff regarding our
periodical reports under the Exchange Act.
A.
Accounting Standards for Financial Investments and Derivatives
In
accordance with Circular No. 3345 issued by the Superintendency of Banks, which
became effective on June 30, 2006, the accounting standards for valuing
financial instruments acquired for trading or investment purposes, including
derivative instruments on the balance sheets, were amended. The new accounting
standards require that these instruments be carried at their market or fair
value, and the historical differences in valuation of such instruments
recognized with respect to any dates prior to 2006 be adjusted directly against
the Bank’s equity.
The
following table summarizes the primary changes to the accounting standards as a
result of our implementation of Circular No. 3345.
|
Before
changes to
accounting
principles
|
After
changes to accounting
principles
|
Derivatives
|
· foreign
exchange forward contracts
|
· valued
at closing spot exchange rate, initial discount/premium amortized over the
life of contract
|
recognized
at fair value;
trading
contracts:
· recorded
at market/fair value on the balance sheet
· revaluation
gains or losses recorded as gains or losses from trading
activities
hedge
contracts:
· fair
value hedges: hedged assets and liabilities are also recognized
at fair value; revaluation gains or losses on both derivatives and hedged
items are recognized as “gains/losses from trading activities” on the
income statement
· cash
flow hedges: effective portion of revaluation gains or losses
on hedged risk recognized in shareholders’ equity (such amount is
recognized in income statement when the offsetting changes hedged affect
income statement); ineffective portion of revaluation gains or losses
recognized in income statement
|
· forward
contracts between U.S. dollars and Ch$/UF
|
· valued
at closing spot exchange rate, initial discount/premium amortized over the
life of contract
|
· interest
rate swaps
|
·
difference between interest income/expense recorded in net income
in the period when agreement is settled in cash;
· fair
value and revaluation gains or losses are not recognized
· net
nominal amounts are recorded under “other assets” or “other
liabilities”
|
|
Before
changes to
accounting
principles
|
After
changes to accounting
principles
|
Other
financial investments
|
·
non-permanent investments (Trading instruments)
|
·
recognized at fair value on balance sheet; revaluation gains or
losses and realized gains or losses are recognized in income statements
under “gains/losses from trading activities”; interest income and
indexation adjustments are reported as “interest revenue”
|
· No
changes
|
· permanent
investments (Available-for-Sale
investment instruments)
|
·
recognized at fair value on balance sheet; revaluation gains or
losses are reported under shareholders’ equity, and recognized in income
statement under “gains/losses from trading activities” when sold or
impaired
|
· line
item “available-for-sale” portfolio changed from
“permanent”
|
|
|
· Held-to-maturity
investment instruments
|
·
N/A
|
· New
category; recorded at cost plus accrued interest and adjustments, less
allowance for impairment
|
The net
effect of the accounting changes on our net income for the year ended December
31, 2006, was a gain of Ch$13,516 million. For comparison purposes, we have also
retrospectively reclassified these items for the years ended December 31, 2004
and 2005, but did not
retrospectively apply the new accounting standards to these items. As a result,
our results of operations and financial condition at and for the year ended
December 31, 2006 and 2007, are not entirely comparable to those at any prior
periods reported by us.
In
connection with our implementation of the new accounting standards, for the year
ended December 31, 2006 and 2007, interest revenue and interest expense no
longer include the translation gain or loss of financial assets and liabilities
indexed to foreign currencies. Such gain or loss is now classified as results of
foreign exchange transactions. Amounts reported for the years ended December 31,
2004 and 2005, have been reclassified on a comparable basis. Gains or losses on
investments in mutual funds have also been reclassified from net interest income
to other operating income as a part of these new accounting standards. For the
years ended December 31, 2004 and 2005, this line item has also been
reclassified.
For the
year ended December 31, 2006 and 2007, gains and losses on forward transactions
have been classified as net gains (losses) on trading activities. In prior
periods, such transactions were not marked to market and the difference between
the interest paid and received on a specified notional amount was recorded under
“foreign exchange transactions, net”. Such amounts for the years ended December
31, 2004 and 2005, have been reclassified to net gains (losses) on trading
activities in order to be more comparable to the results for the year ended
December 31, 2006 and 2007, but have not been retroactively adjusted to reflect
the fair value of these instruments.
B.
Critical Accounting Policies
We prepare
our financial statements in accordance with Chilean GAAP, which requires
management to make estimates and assumptions with respect to certain matters
that are inherently uncertain. We also reconcile our financial statements to
U.S. GAAP (see Note 28 to our Audited Consolidated Financial Statements) and are
required to make estimates and assumptions in this reconciliation process.
Certain critical accounting policies, in particular those relating to goodwill
and intangible assets, are only applicable for U.S. GAAP purposes. Our
consolidated financial statements include various estimates and assumptions,
including but not limited to the adequacy of the allowance for loan losses,
estimates of the fair value of certain financial instruments, the selection of
useful lives of
certain
assets and the valuation and recoverability of goodwill. We evaluate these
estimates and assumptions on an ongoing basis. Management bases its estimates
and assumptions on historical experience and on various other factors that are
believed to be reasonable under the circumstances. Actual results in future
periods could differ from those estimates and assumptions, and if these
differences were significant enough, our reported results of operations would be
affected materially.
We believe
that the following are the more critical judgment areas or involve a higher
degree of complexity in the application of the accounting policies that
currently affect our financial condition and results of operations.
Derivative
activities
At
December 31, 2006 and 2007, derivatives are valued at market price on the
balance sheet and the net unrealized gain (loss) on derivatives is classified as
a separate line item on the income statement. In prior periods, the notional
amounts were carried off the balance sheet. Our derivative holdings at December
31, 2005, have been reclassified from “other assets” and “other liabilities” to
“derivatives”, but have not been marked to market as would be required under
currently applicable accounting principles.
Pursuant
to the new accounting standards, banks must mark to market derivatives. A
derivative financial instrument held for trading purposes must be marked to
market and the unrealized gain or loss recognized in the income statement. New accounting standards
have also been adopted for derivatives held for hedging purposes with effect for
the six months ended June 30, 2006, and thereafter, changes in book value of
hedged items are included in the mark-to-market and trading line items, except
to the extent set forth below.
The
Superintendency of Banks recognizes three kinds of hedge accounting: (i) cash
flow hedges, (ii) fair value hedges and (iii) hedging of foreign
investments.
|
·
|
When
a cash flow hedge exists, the fair value movements on the part of the
hedging instrument that is effective are recognized in equity. Any
ineffective portion of the fair value movement on the hedging instrument
is recognized in the income
statement.
|
|
·
|
When
a fair value hedge exists, the fair value movements on the hedging
instrument and the corresponding fair value movements on the hedged item
are recognized in the income statement. Hedged items in the balance sheet
are presented at their market value in
2006.
|
|
·
|
When
a hedge of foreign investment exposure exists (i.e. investment in a
foreign branch), the fair value movements on the part of the hedging
instrument that is effective are recognized in equity. Any ineffective
portion of the fair value movement on the hedging instrument is recognized
in the income statement.
|
We enter
into forward contracts for our own account and for the accounts of our
customers. The values of the forward contracts are marked to market on a monthly
basis and the revaluation gain or loss is recognized in the line item
mark-to-market and trading activities. Previously, they were classified as
foreign exchange transactions, except gains or losses on UF/Ch$ forwards, which
were classified as net interest income.
Allowance
for loan losses
Chilean
banks are required to maintain loan loss allowances in amounts determined in
accordance with the regulations issued by the Superintendency of Banks. Under
these regulations, we must classify our portfolio into various categories of
payment capability. The minimum amount of required loan loss allowances is
determined based on fixed percentages of estimated loan losses assigned to each
category. As of January 1, 2006, we have improved our credit scoring systems for
consumer and mortgage loans. The new credit scoring system considers both the
length of time by which the loan is overdue and the borrower’s risk profile,
which includes the borrower’s overall indebtedness and credit behavior under the
obligations to third parties. (See “Item 5: F. Selected Statistical
Information—Loan Portfolio—Classification of Loan Portfolio.”
In 2006,
we improved our internal provisioning models by not only focusing on
non-performance, but introducing statistical models that take into account a
borrower’s credit history and indebtedness levels. Group ratings that determine
loan loss allowances based only on non-performance are being phased out and
replaced by statistical scoring systems. Commencing in December 2006, we no
longer analyze large commercial loans on a group basis. All large commercial
loans have since been rated on an individual basis. For large commercial loans,
leasing
and factoring, we assign a risk category level to each borrower and his
respective loans. We consider the following risk factors in classifying a
borrower’s risk category: (i) the borrower’s industry or sector, (ii) owners or
managers, (iii) financial condition, (iv) payment ability and (v) payment
behavior. Further improvements were made in 2007, mainly the back testing period
used in determining a client’s risk profile was expanded from 12 to 21
months. For a detailed
description of the models we use to determine loan loss allowances for
commercial loans. See “Item 5: F. Selected Statistical Information—Loan
Portfolio—Classification of Loan Portfolio—Allowances for large commercial
loans.” Group assessment for loan loss allowances is permitted for a large
number of borrowers whose individual loan amounts are relatively
insignificant.
Currently, we use group analysis to determine loan loss allowances for
certain types of loans, such as loans to small- and mid-sized companies and
commercial loans to individuals. (See “Item 5: F. Selected Statistical
Information—Loan Portfolio—Classification of Loan Portfolio—Allowances for group
evaluations on small- and mid-sized commercial loans.”)
Goodwill
and Intangible Assets with Indefinite Useful Lives
Under U.S.
GAAP, we have significant intangible assets consisting of goodwill and
trademarks. We record all assets and liabilities acquired in purchase
acquisitions, including goodwill and other acquired intangibles, at their fair
value. These include amounts pushed down from Santander Chile Holding, S.A. and
Teatinos Siglo XXI, S.A., each a direct or indirect subsidiary of Banco
Santander Spain, and, together, our majority shareholders. In 2006, we decided to
change our branding strategy to increasing the use of the brand “Santander” and
phasing out the brand “Santiago” in a 5 year period. In 2007 we completed the
phasing out of the “Santiago” brand ahead of schedule in accordance with policy
set by our parent company in 2007 regarding the Santander brand worldwide. As a
result, we have decided to fully amortize the brand “Santiago” in
2007.
Goodwill
and indefinite lived assets are no longer amortized over their estimated useful
lives using straight line and accelerated methods, and are subject to at least
an annual impairment review. The initial goodwill and intangibles recorded and
subsequent impairment analysis requires management to make subjective judgments
concerning estimates of how the acquired asset will perform in the future using
a discounted cash flow analysis. Additionally, estimated cash flows may extend
beyond ten years and, by their nature, are difficult to determine. Events and
factors that may significantly affect the estimates include, among others,
competitive forces, customer behavior and attrition, changes in revenue growth
trends, cost structures and technology and changes in interest rates and
specific industry or market sector conditions. For a further discussion of
accounting practices for goodwill and intangible assets with indefinite useful
lives under U.S. GAAP. See Note 28 to our Audited Consolidated Financial
Statements.
Differences
between Chilean and United States Generally Accepted Accounting
Principles
Accounting
principles generally accepted in Chile vary in certain important respects from
the accounting principles generally accepted in the United States. Such
differences involve certain methods for measuring the amounts shown in the
consolidated financial statements, as well as additional disclosures required by
accounting principles generally accepted in the United States and the accounting
treatment of the merger.
Note 28 to
our Audited Consolidated Financial Statements presents a description of the
significant differences between Chilean GAAP and U.S. GAAP. Note 28(ac) sets forth
recent accounting pronouncements under U.S. GAAP.
C.
Operating Results
Chilean
Economy
All of our
operations and substantially all of our customers are located in Chile.
Accordingly, our financial condition and results of operations are substantially
dependent upon economic conditions prevailing in Chile. In 2007, Chile’s GDP growth
accelerated to 5.1% compared to 4.0% in 2006. The strength of the global economy
in 2007 continued to benefit Chile’s economy despite the rise in international
oil prices. The export sector’s GDP increased by 9.2% in 2007. Exports totaled
US$43.9 billion and increased 23.5%. This positive external scenario has also
led to strong growth of internal consumption and investment demand that grew
7.8% in 2007 and 6.0% in 2006. The average unemployment rate decreased to 7.5%
in 2007 compared to 8.0% in 2006 and 9.3% in 2005. GDP growth in 2007 was
hampered by the rising costs of energy due to higher oil prices, the restraints
to energy supply provoked by a strong drought and the virtual elimination of gas
exports from Argentina which has led to a strong
rise in
electricity production costs, especially in the second half of 2007. The chart below graphs GDP
growth by sector.
GDP
growth in 2007 by Sector
Source:
Banco Central de Chile
CPI
Inflation in 2007 spiked upward reaching 7.8% compared to 2.6% in 2006 and 3.7%
in 2005. The strong rise in international oil prices and the impact on utility
prices and staple goods caused by the prolonged drought, explain this rise in
inflation. As a result,
the Central Bank accelerated the pace of interest rate increases in the past
year. The overnight
interbank rate set by the Central Bank as of June 2008 was set at 6.75%, 150
basis points higher than the rate at year-end 2006. This rise in interest rates
also led to a 2.1% appreciation of the Chilean peso against the U.S. dollar.
Long-term real interest rates on the other hand descended in 2007. The yield on
the Chilean Central Bank’s 10-year note in real terms was 2.98% compared to
3.02% as of December 31, 2006. This trend also reversed in 2008 as inflation
increased yields on long-term notes have risen significantly. The real yield on
Chilean 10 year notes increased from 2.98% at December 31, 2007 to 3.40% as of
June 11, 2008.
Despite
these developments in 2007 at the macroeconomic level, economic activities in
Chile may slow down in 2008 given the volatility of international markets and
the possible slow down of the world economic growth given the possible recession
that may affect the U.S. economy. GDP growth in 2008 in Chile is expected to
slowdown to approximately 4% as a result of higher energy costs, a slow down in
the global economy as a result of the credit crisis and the higher interest rate
environment due to higher inflation.
Impact
of Inflation
Inflation
impacts our results of operations. High levels of inflation in Chile could
adversely affect the Chilean economy and have an adverse effect on our business,
financial condition and results of operations. Negative inflation rates also
negatively impact our results.
In 2007, the inflation rate in Chile was 7.8% compared to 2.6% in 2006
and 3.7% in 2005. There
can be no assurance that Chilean inflation will not change significantly from
the current level. Although we currently benefit from moderate levels of
inflation in Chile, due to the current structure of our assets and liabilities
(i.e., a significant portion of our loans are indexed to the inflation rate, but
there are no corresponding features in deposits or other funding sources that
would increase the size of our funding base), there can be no assurance that our
business, financial condition and result of operations in the future will not be
adversely affected by changing levels of inflation. In summary:
|
·
|
UF-denominated assets and
liabilities. Our assets and liabilities are denominated in Chilean
pesos, UF and foreign currencies. The UF is revalued in monthly cycles. On
each day in the period beginning the tenth day of the current month
through the ninth day of the succeeding month, the nominal peso value of
the UF is indexed up (or down in the event of deflation) in order to
reflect a proportional amount of the change in
|
|
|
the
Chilean Consumer Price Index during the prior calendar month. One UF
equaled to Ch$17,974.81 at December 31, 2005, Ch$18,336.38 at December 31,
2006, and Ch$19,622.66 at December 31, 2007. The effect of any
changes in the nominal peso value of our UF-denominated assets and
liabilities is reflected in our results of operations as an increase (or
decrease, in the event of deflation) in interest revenue and expense,
respectively. Our net interest revenue will be positively affected by an
inflationary environment to the extent that our average UF-denominated
assets exceed our average UF-denominated liabilities. Our net interest
revenue will be negatively affected by inflation in any period in which
our average UF-denominated liabilities exceed our average UF-denominated
assets. Our average UF-denominated assets exceeded our average
UF-denominated liabilities by Ch$2,871,535 million in 2007 compared to
Ch$2,758,228 million in 2006. See “Item 5: F. Selected Statistical
Information—Average Balance Sheets, Income Earned from Interest-Earning
Assets And Interest Paid on Interest Bearing Liabilities.” In general, the
Bank has more UF-denominated financial assets than UF-denominated
financial liabilities. In the year ended December 31, 2007, the interest
gained on interest earning assets denominated in UF increased 71.5%
compared to 2006 as a result of the higher inflation rates in 2007 and
2006 and the larger amount of assets over liabilities denominated in UFs.
The interest paid on these liabilities increased by 130.4% during this
period. |
|
·
|
Price level
restatement. Chilean GAAP requires that financial statements be
restated to reflect the full effects of loss in the purchasing power of
the Chilean peso on the financial position and results of operations of
reporting entities. The Bank must adjust its capital, fixed assets and
other non financial assets for variations in price levels. Since the
Bank’s capital is generally larger than the sum of fixed and other non
financial assets, in an inflationary economy, the Bank would record a loss
from price level restatement. For the year ended
December 31, 2007, the loss from price level restatement totaled Ch$56,325
million compared to Ch$14,807 million in 2006. The inflation rate used for
calculating price level restatement was 7.44% in 2007 and 2.12% in
2006.
|
|
·
|
Inflation hedge. A key
component of our asset and liability policy is the management of interest
rate risk. The Bank’s assets generally have a longer maturity than our
liabilities. As the Bank’s mortgage portfolio grows, the maturity gap
tends to rise as these loans, which are denominated in UF, have a longer
maturity than the average maturity of our funding base. As most of long
term financial instruments and mortgage loans are denominated in UF and
most deposits in nominal pesos, the increase in mortgage lending
increments the Bank’s exposure to inflation and to interest rate risk. The
size of this gap is limited by internal and regulatory guidelines in order
to avoid excessive potential losses due to strong shifts in interest rates
(see “Item 11: Quantitative and Qualitative Disclosures About Market
Risk”). In order to keep this duration gap below regulatory limits the
Bank issues long term bonds denominated in UF or interest rate swaps. The
financial cost of the bonds is recorded as interest expense, but the
financial cost of these swaps is included in the net results from trading
and marks to market. In 2007, the financial cost of the swaps taken in
order to hedge for inflation and interest rate risk totaled Ch$42,465
million compared to Ch$12,899 million in 2006. This higher cost was a
direct result of the higher inflation rate in these two
periods.
|
|
|
|
|
Inflation
sensitive income
|
|
|
|
|
|
|
|
|
|
|
|
(In
million of constant Chilean pesos at
December
31, 2007)
|
|
Interest
gained on UF assets
|
|
|
468,001 |
|
|
|
802,579 |
|
|
|
71.5 |
% |
Interest
paid on UF liabilities
|
|
|
(191,746 |
) |
|
|
(441,703 |
) |
|
|
130.4 |
% |
Inflation/
interest rate risk hedge
|
|
|
(12,899 |
) |
|
|
(42,465 |
) |
|
|
229.2 |
% |
Price
level restatement
|
|
|
(14,807 |
) |
|
|
(56,325 |
) |
|
|
280.4 |
% |
Net
Gain
|
|
|
248,549 |
|
|
|
262,086 |
|
|
|
5.4 |
% |
|
·
|
Peso denominated assets and
liabilities. Interest rates prevailing in Chile during any period
primarily reflect the inflation rate during the period and the
expectations of future inflation. The sensitivity of our peso denominated
interest earning assets and interest bearing liabilities to changes to
such prevailing rates varies. (See “Item 5: C. Operating Results—Interest
Rates”). We maintain a substantial amount of non interest bearing peso
denominated demand deposits. Because such deposits are not sensitive to
inflation, any decline in the rate of inflation would adversely affect our
net interest margin on inflation indexed assets
|
|
|
funded
with such deposits, and any increase in the rate of inflation would
increase the net interest margin on such assets. (See “Item 11:
Quantitative and Qualitative Disclosures About Market Risk”). The ratio of
the average of such demand deposits to average interest-earning assets was
16.4%, 13.9% and 15.3% for the years ended December 31, 2005, 2006 and
2007, respectively. |
Interest
Rates
Interest
rates earned and paid on our assets and liabilities reflect, to a certain
degree, inflation, expectations regarding inflation, changes in short term
interest rates set by the Central Bank and movements in long term real rates.
The Central Bank manages short term interest rates based on its objectives of
balancing low inflation and economic growth. Because our liabilities generally
reprice sooner than our assets, changes in the rate of inflation or short term
rates in the economy are reflected in the rates of interest paid by us on our
liabilities before such changes are reflected in the rates of interest earned by
us on our assets. Therefore, when short term interest rates fall, our net
interest margin is positively impacted, but when short term rates increase, our
interest margin is negatively affected. At the same time, our net interest
margin tends to be adversely affected in the short term by a decrease in
inflation rates since generally our UF-denominated assets exceed our
UF-denominated liabilities. (See “Item 5: C. Operating Results—Impact of
Inflation—Peso-denominated Assets and Liabilities”). An increase in long term
rates has a positive effect on our net interest margin, because our interest
earning assets generally have longer tenors than our interest bearing
liabilities. In addition, because our peso denominated liabilities have
relatively short repricing periods, they are generally more responsive to
changes in inflation or short term rates than our UF-denominated liabilities. As
a result, during periods when current inflation or expected inflation exceeds
the previous period’s inflation, customers often switch funds from
UF-denominated deposits to peso denominated deposits, which generally bear
higher interest rates, thereby adversely affecting our net interest
margin.
Foreign
Exchange Fluctuations
The
Chilean government’s economic policies and any future changes in the value of
the Chilean peso against the U.S. dollar could adversely affect our financial
condition and results of operations. The Chilean peso has been subject to
significant devaluation in the past and may be subject to significant
fluctuations in the future. In 2005, the Chilean peso appreciated by 8.1%
against the dollar. In
2006, the Chilean peso depreciated by 3.9% against the U.S. dollar and in 2007
the peso appreciated 7.2% against the U.S. dollar. (See “Item 3: A. Selected
Financial Data—Exchange Rates”). A significant portion of our assets and
liabilities are denominated in foreign currencies, principally the U.S. dollar,
and we historically have maintained and may continue to maintain material gaps
between the balances of such assets and liabilities. Because such assets and
liabilities, as well as interest earned or paid on such assets and liabilities,
and gains and losses realized upon the sale of such assets, are translated to
Chilean pesos in preparing our financial statements, our reported income is
affected by changes in the value of the Chilean peso relative to foreign
currencies (principally the U.S. dollar).
Foreign
currencies denominated obligations of Chilean banks are subject to various
limits and obligations.
The regulations of the Central Bank do not permit the difference, whether
positive or negative, between a bank’s assets and liabilities denominated in any
foreign currency (including assets and liabilities denominated in U.S. dollars
but payable in Chilean pesos, as well as those denominated in Chilean pesos and
indexed to the U.S. dollar exchange rate) to exceed 20% of the Bank’s paid in
capital and reserves; except in the case where the balance of such assets
exceeds the balance of such liabilities and the excess difference does not
exceed the Bank’s allowances and reserves denominated in such foreign currency
(excluding profits to be remitted abroad). The Bank also uses a
sensitivity analysis to limit the potential loss in net interest income
resulting from fluctuations of interest rates on U.S. dollar denominated assets
and liabilities and a VaR model to limit foreign currency trading risk (see
“Item 11: Quantitative and Qualitative Disclosures About Market
Risk”).
Results
of Operations for the Years Ended December 31, 2005, 2006 and 2007
The
following discussion is based upon and should be read in conjunction with the
Audited Consolidated Financial Statements. The Audited Consolidated Financial
Statements have been prepared in accordance with Chilean GAAP (including the
rules of the Superintendency of Banks relating thereto), which differ in certain
significant respects from U.S. GAAP. Note 26 to the Audited Consolidated
Financial Statements describes the principal differences between Chilean GAAP
and U.S. GAAP and includes a reconciliation to U.S. GAAP of our net income for
the years ended December 31, 2005, 2006 and 2007, and of our shareholders’
equity at December 31,
2006 and
2007. The Audited Consolidated Financial Statements have been restated in
constant Chilean pesos of December 31, 2007. See Note 1(c) to the Audited
Consolidated Financial Statements.
Introduction
The
following table sets forth the principal components of our net income for the
years ended December 31, 2005, 2006 and 2007.
|
|
For
the year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005/2006 |
|
|
|
2006/2007 |
|
|
|
(in
millions of constant Ch$ as of
December
31, 2007)
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
revenue
|
|
|
1,093,557 |
|
|
|
1,255,814 |
|
|
|
1,665,527 |
|
|
|
3,345,910 |
|
|
|
14.8 |
% |
|
|
32.6 |
% |
Interest
expense
|
|
|
(493,756 |
) |
|
|
(598,008 |
) |
|
|
(839,911 |
) |
|
|
(1,687,314 |
) |
|
|
21.1 |
% |
|
|
40.5 |
% |
Net
interest revenue
|
|
|
599,801 |
|
|
|
657,806 |
|
|
|
825,616 |
|
|
|
1,658,596 |
|
|
|
9.7 |
% |
|
|
25.5 |
% |
Provision
for loan losses
|
|
|
(69,706 |
) |
|
|
(132,175 |
) |
|
|
(182,411 |
) |
|
|
(366,449 |
) |
|
|
89.6 |
% |
|
|
38.0 |
% |
Fees
and income from services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
and other services income
|
|
|
186,286 |
|
|
|
213,081 |
|
|
|
237,927 |
|
|
|
477,976 |
|
|
|
14.4 |
% |
|
|
11.7 |
% |
Other
services expense
|
|
|
(34,473 |
) |
|
|
(38,438 |
) |
|
|
(45,002 |
) |
|
|
(90,405 |
) |
|
|
11.5 |
% |
|
|
17.1 |
% |
Total
fees and income from services, net
|
|
|
151,813 |
|
|
|
174,643 |
|
|
|
192,925 |
|
|
|
387,571 |
|
|
|
15.0 |
% |
|
|
10.5 |
% |
Other
operating income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain (loss) from trading and brokerage
|
|
|
(67,224 |
) |
|
|
107,775 |
|
|
|
(126,738 |
) |
|
|
(254,606 |
) |
|
|
— |
% |
|
|
— |
% |
Foreign
exchange transactions, net
|
|
|
77,766 |
|
|
|
(52,332 |
) |
|
|
92,425 |
|
|
|
185,674 |
|
|
|
— |
% |
|
|
— |
% |
Others,
net
|
|
|
(25,148 |
) |
|
|
(35,413 |
) |
|
|
(45,413 |
) |
|
|
(91,231 |
) |
|
|
40.8 |
% |
|
|
28.2 |
% |
Total
other operating income, net
|
|
|
(14,606 |
) |
|
|
20,030 |
|
|
|
(79,726 |
) |
|
|
(160,163 |
) |
|
|
— |
% |
|
|
— |
% |
Other
income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income, net
|
|
|
(24,152 |
) |
|
|
(4,528 |
) |
|
|
9,799 |
|
|
|
19,686 |
|
|
|
(81.3 |
%) |
|
|
— |
% |
Income
attributable to investments in other companies
|
|
|
745 |
|
|
|
844 |
|
|
|
(1,321 |
) |
|
|
(2,654 |
) |
|
|
13.3 |
% |
|
|
— |
% |
Losses
attributable to minority interest
|
|
|
(146 |
) |
|
|
(162 |
) |
|
|
(2,055 |
) |
|
|
(4,128 |
) |
|
|
11.0 |
% |
|
|
1,168.5 |
% |
Total
other income and expenses
|
|
|
(23,553 |
) |
|
|
(3,846 |
) |
|
|
6,423 |
|
|
|
12,904 |
|
|
|
(83.7 |
%) |
|
|
— |
% |
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
salaries and expenses
|
|
|
(152,749 |
) |
|
|
(171,605 |
) |
|
|
(176,095 |
) |
|
|
(353,761 |
) |
|
|
12.3 |
% |
|
|
2.6 |
% |
Administrative
and other expenses
|
|
|
(110,359 |
) |
|
|
(119,202 |
) |
|
|
(121,546 |
) |
|
|
(244,177 |
) |
|
|
8.0 |
% |
|
|
2.0 |
% |
Depreciation
and amortization
|
|
|
(43,062 |
) |
|
|
(41,486 |
) |
|
|
(45,043 |
) |
|
|
(90,488 |
) |
|
|
(3.7 |
%) |
|
|
8.6 |
% |
Total
operating expenses
|
|
|
(306,170 |
) |
|
|
(332,293 |
) |
|
|
(342,684 |
) |
|
|
(688,426 |
) |
|
|
8.5 |
% |
|
|
3.1 |
% |
Loss from
price-level
restatement
|
|
|
(19,902 |
) |
|
|
(14,807 |
) |
|
|
(56,325 |
) |
|
|
(113,152 |
) |
|
|
(25.6 |
%) |
|
|
280.4 |
% |
Income
before income taxes
|
|
|
317,677 |
|
|
|
369,358 |
|
|
|
363,818 |
|
|
|
730,881 |
|
|
|
16.3 |
% |
|
|
(1.5 |
%) |
Income
taxes
|
|
|
(54,671 |
) |
|
|
(62,529 |
) |
|
|
(55,171 |
) |
|
|
(110,834 |
) |
|
|
14.4 |
% |
|
|
(11.8 |
%) |
Net
income
|
|
|
263,006 |
|
|
|
306,829 |
|
|
|
308,647 |
|
|
|
620,047 |
|
|
|
16.7 |
% |
|
|
0.6 |
% |
(1)
|
Amounts
stated in U.S. dollars at and for the year ended December 31, 2007, have
been translated from Chilean pesos at the exchange rate of Ch$497.78 =
US$1.00 as of December 31, 2007. See “Item 3: A. Selected Financial
Data—Exchange Rates” for more information on exchange
rate.
|
2007 and 2006. Net income for
the year ended December 31, 2007, increased by 0.6% to Ch$308,647 million
compared to Ch$306,829 million for the year ended December 31, 2006. Our net
interest income increased by 25.5% to Ch$825,616 million for the year ended
December 31, 2007, compared to 2006, and fee income grew by 10.5% to Ch$192,925
million in 2007 compared to 2006. Net interest revenue growth was led by an
increase in net interest revenue from our retail banking and middle-market
segments, the improved funding mix and the higher
inflation
rate in 2007 compared to 2006. The average balance of our interest-earning
assets increased by 1.0% in 2007 compared to 2006. Our net interest margin
increased 110 basis points to 5.8% compared to 4.7% in 2006.
These
results were partially offset by a 38.0% increase in provision for loan losses
which was mainly due to loan growth in higher yielding, but riskier retail
segments. At the same time the Bank continued to improve its provisioning model
for consumer loans. Specifically, in 2007 the Bank lengthened the time period
used for statistically determining the risk level of consumer loans from 12 to
21 months of history.
As a result, in 2007 the Bank recognized a one-time provision expense of
Ch$14,444 million. Increased gross provisions for loan losses were
partially offset by a 53.8% rise in loan loss recoveries which was mainly driven
by the gains recorded from two large sales of
charged-off loans performed in 2007. These sales totaled an extraordinary gain
of Ch$23,517 million in 2007.
Furthermore,
total other operating income in 2007 totaled a loss of Ch$79,726 million
compared to a gain of Ch$20,030 million in 2006. This loss was mainly due to a
30.1% rise in other operating losses resulting from higher sales force and
client expenses. At the same time, the results from trading and mark-to-market
totaled a loss of Ch$34,313 million compared to a gain of Ch$55,443 million in
2006. This was mainly due to a loss of Ch$42,465 million from inflation hedging
which partially offsets the higher gain from net interest revenue due to the
positive impact of higher inflation rates.
Operating
expenses increased 3.1% in 2007 and the efficiency ratio improved to 36.5% in
2007 from 39.0% in 2006. In 2006, operating expenses include a one-time expense
of Ch$9,263 million as a result of our payment of an end of negotiation bonus in
conjunction with the signing of the new collective bargaining agreement in the
fourth quarter of 2006. Excluding this item, operating expenses increased 6.1%
driven by the increase in the Bank’s headcount, client base and distribution
network.
Non-operating
income totaled a gain of Ch$6,423 million compared to a loss of Ch$3,846
million. This better result was mainly due to lower level of provisions for
other contingencies and a decrease in charge-offs of repossessed
assets.
Income tax
expenses declined 11.8% in 2007 compared to 2006 as a result of increased tax
deferrals.
Finally,
the loss from price level restatement increased 280.4% to Ch$56,325 million due
to the higher inflation rate in 2007 compared to 2006.
2006 and 2005. Net income for
the year ended December 31, 2006, increased by 16.7% compared to the year ended
December 31, 2005, primarily reflecting the growth of the Chilean economy, which
continued to fuel loan growth and banking activities, especially in the higher
yielding retail banking segments, which in turn has led to the growth of our net
interest revenue and fee income. Our net interest revenue increased by 9.7% and
fee income grew by 15.0% in 2006 compared to 2005. Net interest revenue growth
was led by an increase in net interest revenue from our retail banking and
middle-market segments. Net interest revenue from the retail banking segment
increased by 24.2% in 2006 compared to 2005. The average balance of our
interest-earning assets increased by 10.6% in 2006 compared to 2005. As a
result, our net interest margin remained stable at 4.7% in 2006 compared to
2005. Total net fee income increased by 15.0% for the year ended December 31,
2006, compared to 2005. Fees from the retail banking segment increased by 38.8%
in 2006 compared to 2005, mainly due to increases in fees from checking
accounts, lines of credit and insurance brokerage and credit card fees.
The
increases in net interest revenue and fee income were partially offset by an
89.6% increase in provisions for loan losses for the year ended December 31,
2006, compared to 2005, primarily due to an 80.3% increase in net provision
expense in the retail banking segment.
Operating
expenses in 2006 increased by 8.5% compared to 2005, which was primarily due to
a 12.3% rise in personnel salaries and expenses as a result of our payment of an
end of negotiation bonus in conjunction with the signing of the new collective
bargaining agreement in the fourth quarter of 2006. Administrative expenses
increased by 8.0% for the same periods, reflecting an increase in expenses as a
result of the expansion of our distribution network. Our efficiency ratio,
despite higher costs, continued to improve, reaching a record low of 39.0% for
the year ended December 31, 2006, compared to 41.5% in 2005.
We
recorded a net gain of Ch$20,030 million for the year ended December 31, 2006,
under total other operating income, net, compared to a loss of Ch$14,606 million
for 2005. Results in 2006 included a gain from trading
activities
of Ch$13,516 million as a result of our adoption of the new accounting standards
for valuing financial instruments. See “Item 5: A. Accounting Standards for
Financial Investments and Derivatives.”
The net
loss recorded in other income and expenses, net, decreased by 83.7% in 2006
compared to 2005, primarily due to a lower level of provisions for other
contingencies.
Net
interest revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005/2006 |
|
|
|
2006/2007 |
|
|
|
(in
millions of constant Ch$ as of December 31, 2007,
except percentages)
|
|
Total
individuals
|
|
|
299,148 |
|
|
|
357,178 |
|
|
|
452,136 |
|
|
|
19.4 |
% |
|
|
26.6 |
% |
SMEs
|
|
|
100,625 |
|
|
|
139,515 |
|
|
|
160,909 |
|
|
|
38.6 |
% |
|
|
15.3 |
% |
Institutional
lending
|
|
|
7,134 |
|
|
|
10,218 |
|
|
|
12,048 |
|
|
|
43.2 |
% |
|
|
17.9 |
% |
Total
retail
|
|
|
406,907 |
|
|
|
506,911 |
|
|
|
625,093 |
|
|
|
24.6 |
% |
|
|
23.3 |
% |
Total
middle-market
|
|
|
57,300 |
|
|
|
79,312 |
|
|
|
89,095 |
|
|
|
38.4 |
% |
|
|
12.3 |
% |
Global
banking & markets
|
|
|
112,082 |
|
|
|
67,632 |
|
|
|
87,189 |
|
|
|
(39.7 |
%) |
|
|
28.9 |
% |
Other
|
|
|
23,512 |
|
|
|
3,951 |
|
|
|
24,239 |
|
|
|
(83.2 |
%) |
|
|
513.4 |
% |
Net
interest revenue
|
|
|
599,801 |
|
|
|
657,806 |
|
|
|
825,616 |
|
|
|
9.7 |
% |
|
|
25.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
interest-earning assets
|
|
|
12,711,098 |
|
|
|
14,052,350 |
|
|
|
14,192,078 |
|
|
|
10.6 |
% |
|
|
1.0 |
% |
Average
non-interest-bearing demand deposits
|
|
|
2,090,323 |
|
|
|
1,958,651 |
|
|
|
2,171,605 |
|
|
|
(6.3 |
%) |
|
|
10.9 |
% |
Net
interest margin (1)
|
|
|
4.7 |
% |
|
|
4.7 |
% |
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
Average
shareholders’ equity and average non-interest-bearing demand deposits to
total average interest-earning assets
|
|
|
25.0 |
% |
|
|
22.7 |
% |
|
|
24.6 |
% |
|
|
|
|
|
|
|
|
(1)
|
Net
interest margin is net interest revenue divided by average
interest-earning assets.
|
2006 and 2007. In 2007, net
interest revenue increased 25.5% compared to 2006, totaling Ch$825,616 million.
During this period, the Bank focused on increasing spreads in various business
segments in order to improve profitability. At the same time, an improved
funding mix and higher inflation also boosted net interest revenue. As a result,
the Bank’s net interest margin increased 110 basis points to 5.8%. The average
nominal rate earned on loans (excluding past due and contingent loans) was 13.2%
in 2007 compared to 10.3% earned on interest-earning assets in 2006. The average
real rate earned on loans was 4.9% in 2007 compared to 2.1% in 2006. The gross
nominal spread (nominal rate earned on interest earning assets minus nominal
rate paid on interest bearing liabilities) increased 70 basis points in 2007 to
3.9%. The gross real spread (real rate earned on interest earning assets minus
the real rate paid on interest bearing liabilities) 170 basis points in 2007,
reaching 4.4%.
(%)
|
|
Year
Ended
December
31, 2006
|
|
|
Year
Ended
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
loans (1)
|
|
|
2.1 |
% |
|
|
10.3 |
% |
|
|
4.9 |
% |
|
|
13.3 |
% |
Average
interest earning assets
|
|
|
7.3 |
% |
|
|
8.9 |
% |
|
|
3.0 |
% |
|
|
11.7 |
% |
|
|
|
4.6 |
% |
|
|
5.7 |
% |
|
|
(1.4 |
%) |
|
|
7.8 |
% |
Spread
(2)
|
|
|
2.7 |
% |
|
|
3.2 |
% |
|
|
4.4 |
% |
|
|
3.9 |
% |
(1)
Excludes contingent and past due loans
(2) Avg.
interest earning assets and Avg. liabilities
The
increase in net interest revenue was primarily attributable to an increase in
net interest revenue from various business segments in line with the Bank’s
strategy of increasing spreads across the board in anticipation of higher future
funding costs as rates rise in a higher inflationary environment. During the
year the Bank also raised spreads in order to maintain adequate profitability
taking into account the higher credit risk involved, especially in the retail
segments.
Net
interest revenue from the retail banking segment increased by 23.3% to
Ch$625,093 million in 2007, with increases of 26.6% in the individuals segment
and 15.3% in the SMEs segment.
Loans to higher yielding retail banking segments increased by 4.9% in
2007 compared to 2006.
Net
interest revenue from the middle-market segment increased by 12.3%, primarily
due to the Bank’s focus on improving profitability by rising spreads, albeit
with lower loan growth in the year. Loans in the middle-market segment increased
1.3% in the year.
In Global
Banking & Markets net interest revenue increased 28.9%, primarily due to the
higher short-term interest rate and inflation rate environment which increased
the yield of the Bank’s fixed income portfolio. The Bank’s average financial
investment portfolio decreased 17.3%, but interest earned on this portfolio
increased 14.1%.
The higher
inflation rate in 2007 compared to 2006 also had a positive effect on the growth
rate of net interest revenue and margins. In 2007, the inflation rate in Chile
was 7.8% compared to 2.6% in 2006. Our net interest revenue will be positively
affected by an inflationary environment to the extent that our average
UF-denominated assets exceed our average UF-denominated liabilities. Our net
interest revenue will be negatively affected by inflation in any period in which
our average UF-denominated liabilities exceed our average UF-denominated assets.
Our average UF-denominated assets exceeded our average UF-denominated
liabilities by Ch$2,871,535 million in 2007 compared to Ch$2,758,228 million in
2006. See “Item 5: C. Operating Results—Impact of Inflation” for a quantitative
disclosure of the impact of inflation on our results.
An
improved funding mix also helped to sustain margins despite a higher short-term
interest rate environment. The ratio of the average balance of free funds (non
interest bearing demand deposits and shareholders’ equity) to the average
balance of interest earning assets also increased from 13.9% in 2006 to 15.3% in
2007. Therefore, as short-term rates increased and inflation also rose, the
return on average free funds expanded.
|
|
Central
Bank reference rate (%)
|
|
|
Period-end
90
day note (%)
|
|
2005
|
|
|
4.50 |
|
|
|
4.75 |
|
2006
|
|
|
5.00 |
|
|
|
5.10 |
|
2007
|
|
|
6.00 |
|
|
|
6.15 |
|
Source:
Banco Central de Chile
The
principal factors negatively affecting the net interest margin was the increase
in short term interest rates. As interest-bearing liabilities generally have
shorter terms than interest earning assets, a rise in short term rates has a
negative effect on our funding costs. The higher inflation rate accelerated the
pace of short-term interest rate increases in the year. The overnight interbank
rate set by the Central Bank increased 100 basis points in 2007. The average 90 day Central
Bank rate, a benchmark rate for deposits, increased in nominal terms from 4.83%
in 2006 to 5.18% in 2007.
2005 and 2006. Net interest
revenue for the year ended December 31, 2006, increased by 9.7% compared to
2005, mainly reflecting a 10.6% increase in average interest-earning assets.
The
increase in net interest revenue was primarily attributable to an increase in
net interest revenue from our retail banking and middle-market segments. Net
interest revenue from the retail banking segment increased by 24.2% with
increases of 19.4% in the individuals segment and 38.6% in the SMEs segment. Loans to higher yielding
retail banking segments increased by 20.7% in 2006 compared to 2005. Net
interest revenue from the middle-market segment increased by 38.4%, primarily
due to a 14% increase in the average balance of the loans and increased net
interest spread in this segment. In the global banking and markets segments, net
interest revenue decreased 39.7%, primarily due to lower interest income from
the Treasury primarily reflecting the Bank’s strategy of shifting the asset mix
to higher yielding assets. Total financial investments decreased by 20.3% from
December 31, 2005, to December 31, 2006. The average balance of
financial investments decreased by 31.0% from 2005 to 2006.
This
change in asset mix was the principal factor positively affecting the net
interest margin. The increase in average interest-earning assets was primarily
attributable to a 15.0% increase in average balance of loans. This growth in
lending was driven by the stable economic environment and an increase in our
market share in retail lending. Our total loan market share decreased by 30
basis points from 22.6% as of December 31, 2005, to 22.3% as
of
December 31, 2006.
Market share in lending to individuals increased from 25.2% as of
December 31, 2005, to 26.2% as of December 31, 2006, led by a 101 basis point
increase in residential mortgage lending and a 111 basis point increase in
consumer lending market share.
At the
same time, higher interest rates on short-term debt also helped to increase
margins in 2006, notwithstanding the decline in long-term rates.
The
principal factors negatively affecting the net interest margin were the decrease
in inflation rates, the increase in short term interest rates and a decrease in
the ratio of the average balances of non interest bearing demand deposits and
shareholders’ equity to interest earning assets.
Inflation
in 2006, measured by the annual variation of the UF, was 2.01% in 2006 compared
to 3.8% in 2005. As a
result, the nominal rate earned on UF-denominated interest-earning assets
declined from 8.6% in 2005 to 7.0% in 2006. See “Item 5: C. Operating
Results—Impact of Inflation” for a quantitative disclosure of the impact of
inflation on our net interest income.
As
interest-bearing liabilities generally have shorter terms than interest earning
assets, a rise in short term rates has a negative effect on our funding costs.
The Central Bank’s overnight reference rate reached 5.25% as of December 31,
2006, compared to 4.5% as of December 31, 2005. The average 90 day Central
Bank rate, a benchmark rate for deposits, increased in nominal terms from 3.53%
in 2005 to 4.83% in 2006. The average nominal rate paid on interest-bearing
liabilities increased from 5.3% in 2005 to 5.7% in 2006. The average nominal
rate paid on time deposits, which represented 64.8% of our average
interest-bearing liabilities in 2006, increased from 4.7% in 2005 to 5.6% in
2006.
As short
term interest rates increased, so did the attractiveness of time deposits,
thereby increasing the costs of our funding mix. Average balance of time
deposits increased by 23.2% in 2006 compared to 2005. Average balance of time
deposits represented 64.8% of our average interest-bearing liabilities in 2006,
compared to 60.2% in 2005. In addition, we lengthened the maturities of time
deposits with institutional investors in order to partially offset the negative
effects caused by the rising short-term interest rate environment.
The ratio
of the average balance of free funds (non interest bearing demand deposits and
shareholders’ equity) to the average balance of interest earning assets also
decreased from 25.0% in 2005 to 22.7% in 2006, primarily as a result of the
increase in short-term rates. This was partially offset by the increase in the
spread earned on the free funds as a result of the rising interest rate
environment.
Provision
for loan losses
Under our
loan classification categories loans are divided into: (i) consumer loans
(including loans granted to individuals for the purpose of financing the
purchase of consumer goods or payment of services); (ii) residential mortgage
loans (including loans granted to individuals for the purchase, construction or
improvements of residential real estate, in which the value of the property
covers at least 100% of the amount of the loan); and (iii) commercial loans
(includes all loans other than consumer loans and residential mortgage
loans).
In 2006,
we improved our internal provisioning models by not only focusing on
non-performance, but introducing statistical models that take into account a
borrower’s credit history and indebtedness levels. Group ratings that determine
loan loss allowances based only on non-performance are being phased out and
replaced by statistical scoring systems. Commencing in December 2006, we no
longer analyze large commercial loans on a group basis. All large commercial
loans have since been rated on an individual basis. For large commercial loans,
leasing and factoring, we assign a risk category level to each borrower and his
respective loans. We consider the following risk factors in classifying a
borrower’s risk category: the borrower’s industry or sector, owners or managers,
financial condition, payment ability and payment behavior.
Group
assessment for loan loss allowances is permitted for a large number of borrowers
whose individual loan amounts are relatively insignificant. Currently, we use group
analysis to determine loan loss allowances for certain types of loans, such as
loans to small- and mid-sized companies and commercial loans to
individuals.
Commencing
in 2006, we improved and modified the methodology for analyzing consumer and
mortgage loans. All consumer and mortgage loans are assigned a provisioning
level on an individual borrower basis using a more automated and sophisticated
statistical model which considers a borrower’s credit history, including any
defaults
on obligations to other creditors, as well as the overdue periods with respect
to loans granted by us. Once the borrower’s rating is determined, the allowance
for consumer or mortgage loans is calculated based on the risk category and the
respective provisioning ratio which is directly related to the aging of the
loan. Further enhancements were implemented in 2007. The Bank now differentiates
between old and new clients when determining a client’s risk profile for
consumer loans. All loans are assigned a provision at the moment a loan is
granted depending on the risk profile of the client. Secondly, the time period
used for statistically considering a consumer loan mature, in order to determine
the risk level of consumer loans, was extended from 12 to 21 months of
history. All loans are
assigned a provision at the moment a loan is granted.
For a
detailed description of the models we use to determine loan loss allowances, see
“Item 5: F. Selected Statistical Information—Loans by Economic
Activity—Classification of Loan Portfolio.”
For
statistical information with respect to our substandard loans and reserves for
probable loan losses, see “Item 5: F. Selected Statistical Information—Analysis
of Substandard Loans and Amounts Past Due” and “Item 5: F. Selected Statistical
Information—Analysis of Loan Loss Allowances,” as well as Note 7 to the Audited
Consolidated Financial Statements. The amount of provision charged to income in
any period consists of net provisions established for possible loan losses, net
of recoveries on loans previously charged off.
The
following table sets forth, for the years indicated, certain information
relating to our provision expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005/2006 |
|
|
|
2006/2007 |
|
|
|
(in
millions of constant Ch$ as of December 31, 2007,
except percentages)
|
|
Provision
expenses
|
|
|
29,733 |
|
|
|
(28,594 |
) |
|
|
(59,047 |
) |
|
|
— |
% |
|
|
106.5 |
% |
Charge-offs
|
|
|
(150,021 |
) |
|
|
(154,150 |
) |
|
|
(201,124 |
) |
|
|
2.8 |
% |
|
|
30.5 |
% |
Recoveries
for loans previously charged off
|
|
|
50,582 |
|
|
|
50,569 |
|
|
|
77,760 |
|
|
|
(0.0 |
%) |
|
|
53.8 |
% |
Provision
expenses, net
|
|
|
(69,706 |
) |
|
|
(132,175 |
) |
|
|
(182,411 |
) |
|
|
89.6 |
% |
|
|
38.0 |
% |
Year-end
loans
|
|
|
11,130,068 |
|
|
|
12,666,058 |
|
|
|
13,468,980 |
|
|
|
13.8 |
% |
|
|
6.3 |
% |
Substandard
loans (1)
|
|
|
291,743 |
|
|
|
371,184 |
|
|
|
438,585 |
|
|
|
27.2 |
% |
|
|
18.2 |
% |
Past-due
loans
|
|
|
116,894 |
|
|
|
99,445 |
|
|
|
116,654 |
|
|
|
(14.9 |
%) |
|
|
17.3 |
% |
Loan
loss allowance
|
|
|
162,234 |
|
|
|
187,014 |
|
|
|
232,766 |
|
|
|
15.3 |
% |
|
|
24.5 |
% |
Substandard
loans / Year-end loans
|
|
|
2.6 |
% |
|
|
2.9 |
% |
|
|
3.3 |
% |
|
|
|
|
|
|
|
|
Past
due loans / Year-end loans
|
|
|
1.1 |
% |
|
|
0.8 |
% |
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
Expected
loan loss ratio (2)
|
|
|
1.5 |
% |
|
|
1.5 |
% |
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
Coverage
ratio (3)
|
|
|
138.8 |
% |
|
|
188.1 |
% |
|
|
199.5 |
% |
|
|
|
|
|
|
|
|
(1)
|
Substandard
loans are all mortgage and consumer loans rated B- or worse and all
commercial loans rated C2 or worse. In the new loan rating system,
substandard loans include all consumer and mortgage loans rated B- or
worse and all commercial loans rated C2 or
worse.
|
(2)
|
Loan
loss allowance divided by year end
loans.
|
(3)
|
Loan
loss allowance divided by past due
loans.
|
2007 and 2006. Net provision
expenses for loan losses totaled Ch$182,411 million for the year ended December
31, 2007, an increase of 38.0% compared to 2006, primarily due to an increase in
provision expense and charge-offs. Provision expense rose
106.5% to Ch$59,047 million in 2007 compared to 2006. This growth in provision
expenses was due to:
(i) the Bank recognized an
extraordinary provision expense of Ch$14,444 million directly related to the
further improvements made to the provisioning model for consumer loans.
Specifically, the time period used for statistically considering a consumer loan
mature, in order to determine the risk level of consumer loans, was extended
from 12 to 21 months of history. For a detailed description
of the models we use to determine loan loss allowances, see “Item 5: F. Selected
Statistical Information—Loan by Economic Activity—Classification of Loan
Portfolio;” and
(ii) the
increase in the Bank’s expected loan loss ratio from 1.5% in 2006 to 1.7% in
2007 in line with the increase in retail lending which is higher yielding, but
requires higher provision expense. The expected loan loss ratio is calculated
according to the guidelines set by the Superintendency of Banks and our Board. This
ratio is the
main
determinant of loan loss allowances. Loan loss allowances must be equal to the
loan loss ratio multiplied by total loans; and
(iii) loan
growth. The Bank’s provisioning model based on risk profiles requires every loan
to have a provision attached according to risk profile or rating. Therefore as
the loan book grows provision expenses increases.
Charge-offs
increased by 30.5% in 2007 compared to 2006, primarily as a result of the growth
of our consumer loan portfolio, for which credit risk is higher and loans are
requested to be written off within much shorter periods than the rest of the
loan portfolio.
Charge-offs of the consumer loan portfolio increased by 50.2% to
Ch$165,029 million. The segment of the Bank which has experienced the largest
deterioration in asset quality has been the middle income individual segment.
This segment has been hit by the rise in inflation, as this affects a larger
portion of their income levels (food, schools, health, mortgage, etc.) This was partially
offset by the 14.7% decrease in charge-offs in the mortgage loan portfolio and
the 19.1% decline in charge-offs in the commercial loan portfolio.
The
following table shows charge-offs by Santander-Chile by type of
loan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005/2006 |
|
|
|
2006/2007 |
|
|
|
(in
millions of constant Ch$ as of December 31, 2007,
except percentages)
|
Consumer
loans
|
|
|
73,214 |
|
|
|
109,853 |
|
|
|
165,029 |
|
|
|
50.0 |
% |
|
|
50.2 |
% |
Mortgage
loans
|
|
|
7,858 |
|
|
|
6,220 |
|
|
|
5,308 |
|
|
|
(20.8 |
%) |
|
|
(14.7 |
%) |
Commercial
loans
|
|
|
68,949 |
|
|
|
38,077 |
|
|
|
30,787 |
|
|
|
(44.8 |
%) |
|
|
(19.1 |
%) |
Total
charge-offs
|
|
|
150,021 |
|
|
|
154,150 |
|
|
|
201,124 |
|
|
|
2.8 |
% |
|
|
30.5 |
% |
Recoveries
on loans previously charged off increased 53.8% in 2007 compared to 2006. This
rise was mainly due to two large sales of loans previously charged off in the
year. These sales resulted in a gain of Ch$25,792 million.
Overall
asset quality indicators remained healthy in 2007. The ratio of past due loans
as a percentage of total loans reached 0.9% compared to 0.8% at year-end 2006.
Total substandard loans as a percentage of total loans increased from 2.9% at
year-end 2006 to 3.3% at year-end 2007, mainly due to the change in loan mix
towards higher yielding retail loans, which generally present relatively higher
risk than other retail loans. The coverage ratio of past due loans increased
from 188.1% at year-end 2006 to 199.5% at year-end 2007.
The
following table sets forth, for the years indicated, the components of our net
provision expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005/2006 |
|
|
|
2006/2007 |
|
|
|
(in
millions of constant Ch$ as of December 31, 2007,
except percentages)
|
|
Total
individuals
|
|
|
(56,143 |
) |
|
|
(109,323 |
) |
|
|
(148,771 |
) |
|
|
94.7 |
% |
|
|
36.1 |
% |
SMEs
|
|
|
(16,908 |
) |
|
|
(22,390 |
) |
|
|
(31,510 |
) |
|
|
32.4 |
% |
|
|
40.7 |
% |
|
|
|
(17 |
) |
|
|
516 |
|
|
|
(29 |
) |
|
|
-- |
% |
|
|
-- |
% |
Total
retail
|
|
|
(73,068 |
) |
|
|
(131,197 |
) |
|
|
(180,310 |
) |
|
|
79.6 |
% |
|
|
37.4 |
% |
Total
middle-market
|
|
|
1,196 |
|
|
|
(774 |
) |
|
|
(612 |
) |
|
|
-- |
% |
|
|
(20.9 |
%) |
Global
banking & markets
|
|
|
2,106 |
|
|
|
755 |
|
|
|
215 |
|
|
|
(64.2 |
%) |
|
|
(71.5 |
%) |
|
|
|
60 |
|
|
|
(959 |
) |
|
|
(1,704 |
) |
|
|
-- |
% |
|
|
77.7 |
% |
Provision
expense, net
|
|
|
(69,706 |
) |
|
|
(132,175 |
) |
|
|
(182,411 |
) |
|
|
89.6 |
% |
|
|
38.0 |
% |
(1)
Consists primarily of additional allowances on loans which are not assigned to
any of the above types or segments, if any, and provisions for repossessed
assets.
Provision
expense increased by 37.4% in the retail banking segment, mainly as a result of
the growth of our retail loan portfolio, for which credit risk is higher and
provisions are required to be made within much shorter periods than the rest of
the loan portfolio. The segment of the Bank which has experienced the largest
deterioration in asset quality has been the middle income individual segment.
This segment has been hit by the rise in inflation, as
this
affects a larger portion of their income levels (food, schools, health,
mortgage, etc.) Net provision expense
in the rest of the segments remained relatively stable, reflecting the generally
healthy credit quality indicators in those segments.
We expect
provisions for loan losses to increase in future periods in line with the
overall growth of our loan portfolio and our increased lending to small
companies and individuals which poses a higher risk of default than lending to
traditional corporate and commercial customers. See “Item 3: D. Risk
Factors—Risks Associated with our Business—Our exposure to individuals and small
businesses could lead to higher levels of past due loans, allowances for loan
losses and charge-offs” and “—The growth of our loan portfolio may expose us to
increased loan losses.”
2006 and 2005. Net provision
expenses for loan losses increased 89.6% compared to 2005, primarily due to
increase in provision expense and charge-offs. Provision expense increased
by 79.6% in the retail banking segment, mainly as a result of the growth of our
retail loan portfolio, for which credit risk is higher and provisions are
required to be made within much shorter periods than the rest of the loan
portfolio. Charge-off
of the consumer loan portfolio increased by 50.0% in 2006 compared to 2005.
Provision expense in the SME segment increased in line with loan growth in this
segment. Net provision expense in the rest of the segments remained relatively
stable, reflecting the generally healthy credit quality indicators in those
segments.
The Bank’s
risk index or expected loan loss ratio, which is calculated according to the
guidelines, set by the Superintendency of Banks and our Board, increased from
1.46% in 2005 to 1.48% in 2006. This index is the main determinant of loan loss
allowances. Loan loss allowances must be equal to the risk index multiplied by
total loans. As the loan portfolio increased by 13.8% in 2006 and the risk index
rose 2 basis points, required loan loss allowances rose 15.3%. See “Item 5: F.
Selected Statistical Information—Loan by Economic Activity—Classification of
Loan Portfolio.”
Charge-offs
increased by 2.8% in 2006 compared to 2005, primarily as a result of the growth
of our consumer loan portfolio, for which credit risk is higher and loans become
loss within much shorter periods than the rest of the loan portfolio. Charge-offs of the consumer
loan portfolio increased by 50.0%. This was partially offset by the 44.8%
decrease in charge-offs in the commercial loan portfolio. In 2005, the Bank
charged off various commercial loans that had been previously restructured and
that bear no interest. See “Item 5: F. Selected Statistical Information—Analysis
of Loan Loss Allowances” and “Item 5: F. Selected Statistical
Information—Classification of Loan Portfolio Based on the Borrower’s Payment
Performance.” These loans were already classified as D2 and were 90% provisioned
for. Therefore, this increase in charge-offs was offset by the subsequent
release of provisions recorded in 2005.
In
addition, recoveries on loans previously charged off remained effectively stable
in 2006 compared to 2005. Our recovery department is currently being reorganized
and expanded in order to keep up with the growth in our retail lending
business.
Overall
asset quality indicators remained healthy in 2006. Past due loans at December
31, 2006, decreased by 14.9% compared to December 31, 2005. Past due loans as a
percentage of total loans decreased from 1.05% at December 31, 2005, to 0.79% at
December 31, 2006. Substandard loans increased by 27.2%, primarily due to an
increase in substandard consumer loans, which rose mainly as a result of loan
growth in this product. Total substandard loans as a percentage of total loans
increased from 2.62% at year-end 2005 to 2.93% at year-end 2006, mainly due to
the change in loan mix towards higher yielding retail loans, which generally
present relatively higher risk than other retail loans.
Fee
income
The
following table sets forth certain components of our income from services (net
of fees paid to third parties directly connected to providing those services,
principally fees relating to credit card processing and ATM network
administration) in the years ended December 31, 2005, 2006 and
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005/2006 |
|
|
|
2006/2007 |
|
|
|
(in
million of constant Ch$ as of December 31, 2007,
except
percentages)
|
|
Checking
accounts & lines of credit
|
|
|
45,586 |
|
|
|
57,729 |
|
|
|
57,674 |
|
|
|
26.6 |
% |
|
|
(0.1 |
%) |
Mutual
fund services
|
|
|
20,709 |
|
|
|
21,530 |
|
|
|
29,654 |
|
|
|
4.0 |
% |
|
|
37.7 |
% |
Collection
and administration of insurance policies
|
|
|
22,130 |
|
|
|
24,962 |
|
|
|
29,096 |
|
|
|
12.8 |
% |
|
|
16.6 |
% |
Credit
cards
|
|
|
15,167 |
|
|
|
20,037 |
|
|
|
22,965 |
|
|
|
32.1 |
% |
|
|
14.6 |
% |
Automatic
teller cards
|
|
|
14,890 |
|
|
|
15,333 |
|
|
|
16,222 |
|
|
|
3.0 |
% |
|
|
5.8 |
% |
Insurance
brokerage
|
|
|
9,032 |
|
|
|
12,245 |
|
|
|
12,006 |
|
|
|
35.6 |
% |
|
|
(2.0 |
%) |
Stock
brokerage
|
|
|
1,777 |
|
|
|
1,497 |
|
|
|
7,261 |
|
|
|
(15.8 |
%) |
|
|
385.0 |
% |
Sales
and purchase of foreign currencies
|
|
|
7,111 |
|
|
|
6,400 |
|
|
|
5,640 |
|
|
|
(10.0 |
%) |
|
|
(11.9 |
%) |
Office
banking
|
|
|
1,483 |
|
|
|
2,796 |
|
|
|
2,823 |
|
|
|
88.5 |
% |
|
|
1.0 |
% |
Letters
of credit, guarantees, pledges and other contingent loans
|
|
|
3,026 |
|
|
|
2,710 |
|
|
|
2,645 |
|
|
|
(10.4 |
%) |
|
|
(2.4 |
%) |
Payment
agency services
|
|
|
3,095 |
|
|
|
2,870 |
|
|
|
2,549 |
|
|
|
(7.3 |
%) |
|
|
(11.2 |
%) |
Underwriting
|
|
|
2,560 |
|
|
|
1,445 |
|
|
|
1,480 |
|
|
|
(43.6 |
%) |
|
|
2.4 |
% |
Bank
drafts and fund transfers
|
|
|
277 |
|
|
|
670 |
|
|
|
306 |
|
|
|
141.9 |
% |
|
|
(54.3 |
%) |
Savings
accounts
|
|
|
262 |
|
|
|
272 |
|
|
|
237 |
|
|
|
3.8 |
% |
|
|
(12.9 |
%) |
Custody
and trust services
|
|
|
699 |
|
|
|
392 |
|
|
|
(121 |
) |
|
|
(43.9 |
%) |
|
|
(130.9 |
%) |
Other
|
|
|
4,009 |
|
|
|
3,755 |
|
|
|
2,488 |
|
|
|
(6.3 |
%) |
|
|
(33.7 |
%) |
Total
|
|
|
151,813 |
|
|
|
174,643 |
|
|
|
192,925 |
|
|
|
15.0 |
% |
|
|
10.5 |
% |
2006 and 2007. Total net fee
income increased by 10.5% to Ch$192,925 million for the year ended December 31,
2007, compared to 2006. The positive economic environment and the growth of the
Bank’s client base led to an overall increase in the usage and penetration of
bank products in 2007.
The Bank’s total retail banking client base increased by 14.1% in 2007,
totaling 2.8 million clients. The number of retail clients with a checking
account increased by 13.8% in 2007, reaching 565 thousand. Retail clients
(excluding Santander Banefe) who are cross sold, which are defined as clients
with a checking account who also uses at least four other banking products,
increased by 16.2% at December 31, 2007, compared to December 31, 2006. In
Santander Banefe, the number of cross sold clients (clients who also use at
least two other products) rose by 18.0% at December 31, 2007, compared to
December 31, 2006.
Fees from
checking accounts and lines of credit decreased 0.1% in 2007 compared to 2006.
In the beginning of 2007, Chile introduced a regulatory change that prohibited
banks from charging certain fees to checking account holders for bad check
clearance. In the future we do not rule out further regulatory changes that may
have a significant impact on fees from our checking accounts and lines of
credit. However, our
market share in checking accounts continued to rise reaching 27.9% as of
November 2007 compared to 27.1% as of November 2006. In 2007, the Bank opened
34.8% of all new checking accounts in Chile.
Fees from
our mutual fund asset management subsidiary increased by 37.7%. Total assets
under management increased by 25.8% to Ch$2,632,654 million (US$5.3 billion) at
December 31, 2007, compared to December 31, 2006.
Fees from
collection and administration of insurance policies increased by 16.6% for the
year ended December 31, 2007, compared to 2006, primarily due to the growth of
our retail loan book that has led to an increase in collection of insurance
premiums on these loans on behalf of insurance companies. This growth was
partially offset by the 2.0% decrease in insurance brokerage fees mainly due
increased competition in this business segment.
Credit
card fees increased by 14.6% in 2007 compared to 2006. We were the market leader
in bank credit card accounts, with a 36.0% market share at year-end 2007
compared to 35.8% market share as of December 31, 2006. The number of our credit
card customer accounts increased by 16.2% to 1,102,630 at December 31, 2007,
compared to December 31, 2006. The transaction volumes of credit cards issued by
us, measured in UFs, increased by 12.5% in 2007 compared to 2006. The rise in
credit card fees is partially offset by the other credit card expenses reflected
in “Other operating losses, net.”
The 5.8%
rise in ATM fees was mainly driven by the increase in the number of ATMs
installed by the Bank. As of December 31, 2007, the Bank had 2,004 ATMs compared
to 1,588 ATMs as of December 31, 2006. The rise in ATMs was offset by increased
competition in order to obtain favorable ATM locations.
Stock
brokerage fees experienced a 385% increase in 2007 compared to the corresponding
period in 2006, primarily due to the completion of the merger between Santiago
Corredores de Bolsa Ltda, a subsidiary of the Bank, and Santander Investment
S.A. Corredores de Bolsa, a non-consolidated affiliate of the Bank, in the first
half of 2007. Given the Bank now owns 50.6% of the merged entity and Santander
Investment S.A. Corredores de Bolsa had a higher market share in the stock
brokerage business than the Bank’s subsidiary, fees from stock brokerage
increased significantly in this period.
The
decrease in fees from payment agency services, letters of credit, guarantees,
pledges and other contingent loan fees, fees from the sale and purchase of
foreign currencies, underwriting fees and other fees was mainly due to increased
competitive pressure in the Corporate and Middle-market segments. This was
offset by a higher return on cash management services provided to these
customers, which was reflected in our net interest income. At the same time many
of these services are being performed on-line through our office banking system,
which increased 1.0% in 2007 compared to 2006. Fees from the sale and purchase
of foreign currencies were also negatively affected by the appreciation of the
Chilean peso against the dollar.
The
following table set forth, for the years indicated, a breakdown of our fee
income by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005/2006 |
|
|
|
2006/2007 |
|
|
|
in
million of constant Ch$ as of December 31, 2007,
except
percentages
|
|
Total
individuals
|
|
|
81,715 |
|
|
|
111,174 |
|
|
|
123,877 |
|
|
|
36.1 |
% |
|
|
11.4 |
% |
SMEs
|
|
|
20,560 |
|
|
|
30,805 |
|
|
|
37,596 |
|
|
|
49.8 |
% |
|
|
22.0 |
% |
Institutional
lending
|
|
|
1,792 |
|
|
|
1,290 |
|
|
|
2,041 |
|
|
|
(28.0 |
%) |
|
|
58.2 |
% |
Total
retail
|
|
|
104,067 |
|
|
|
143,269 |
|
|
|
163,514 |
|
|
|
37.7 |
% |
|
|
14.1 |
% |
Total
middle-market
|
|
|
9,251 |
|
|
|
15,022 |
|
|
|
14,856 |
|
|
|
62.4 |
% |
|
|
(1.1 |
%) |
Global
Banking & Markets
|
|
|
8,204 |
|
|
|
9,496 |
|
|
|
13,635 |
|
|
|
15.7 |
% |
|
|
43.6 |
% |
Other
|
|
|
30,291 |
|
|
|
6,856 |
|
|
|
920 |
|
|
|
(77.4 |
%) |
|
|
(86.6 |
%) |
Total
|
|
|
151,813 |
|
|
|
174,643 |
|
|
|
192,925 |
|
|
|
15.0 |
% |
|
|
10.5 |
% |
By
segment, changes in our fee income also reflect the increase in retail banking
products. Retail banking fees increased 14.1% in 2007 compared to 2006, mainly
due to the rise in fees from mutual funds, credit cards and the collection and
administration of insurance policies.
Fees in
the middle market decreased 1.1% in 2007 compared to 2006, reflecting the
decline in fees from payment agency services, letters of credit, guarantees,
pledges and other contingent loan fees, fees from the sale and purchase of
foreign currencies and underwriting fees. This was offset by a higher
return on cash management services provided to these customers and office
banking fees.
Fees from
the middle market and global banking increased 43.6% mainly due to improvements
in segmentation, which also explains the 86.6% decreases in other non-segmented
fees.
2005 and 2006. Total net fee
income increased by 15.0% for the year ended December 31, 2006, compared to
2005. The positive economic environment and the bank’s successful marketing
efforts led to an overall increase in the usage and penetration of bank products
in 2006. The Bank’s total retail banking client base increased by 11.8% in 2006,
totaling 2.4 million clients. The number of retail clients with a checking
account increased by 23.0% in 2006, reaching 496 thousand. Middle- and
upper-income individual clients, who are cross sold, which are defined as
clients with a checking account who also uses at least four other banking
products, increased by 30.8% at December 31, 2006, compared to December 31,
2005. In Santander Banefe, the number of cross sold clients (clients who also
use at least two other products) rose by 18.1% at December 31, 2006, compared to
December 31, 2005.
Fees from
checking accounts and lines of credit increased by 26.6%, primarily as a result
of the growth of our checking accounts and credit lines. These products are
offered together and, therefore, are being analyzed as a single product. Our market share in
checking accounts at November 2006, the last figure available, was 27.1%
compared to 25.5% at November 2005. In this same period, our checking account
base increased by 17.1%, compared to the 10.3% increase in the market as a
whole.
Fees from
collection and administration of insurance policies increased by 12.8% for the
year ended December 31, 2006, compared to 2005, primarily due to the growth of
our mortgage loan book and lower than estimated claim rates, which results in
higher administration fees paid by insurers to us.
Fees from
our mutual fund asset management subsidiary increased by 4.0%. Total assets
under management increased by 35.9% at December 31, 2006, compared to December
31, 2005.
Credit
card fees increased by 32.1% in 2006 compared to 2005. We were the market leader
in bank credit card accounts, with a 35.8% market share as of December 31, 2006.
The transaction volumes of credit cards issued by us, measured in UFs, increased
by 12.9% in 2006 compared to 2005. The number of our credit card customer
accounts increased by 16.0% to 948,918 at December 31, 2006, compared to
December 31, 2005. The rise in credit card fees is partially offset by the other
credit card expenses reflected in “Other operating losses, net.”
The 3.0%
rise in ATM fees was mainly driven by the increase in the number of ATMs
installed by the Bank. As of December 31, 2006, the Bank had 1,588 ATMs compared
to 1,422 as of December 31, 2005. The rise in ATMs was offset by increased
competition in order to obtain ATM locations with large retailers.
Insurance
brokerage fees increased by 35.6% for the year ended December 31, 2006, compared
to 2005. This was mainly as a result of an industry-wide expansion of insurance
brokerage business as banks have successfully introduced simple and low cost
insurance products to the market.
The
decrease in fees from payment agency services, letters of credit, guarantees,
pledges and other contingent loan fees, fees from the sale and purchase of
foreign currencies, underwriting fees and other fees was mainly due to increased
competitive pressure in the Corporate and Middle-market segments. This was
offset by an increase in the sales of derivatives and other treasury services,
which were included in “Other operating income” and a higher return on cash
management services provided to these customers, which was reflected in our net
interest income.
Office
banking fees increased by 88.6% in 2006 compared to 2005 as the Bank has also
sought to increase the coverage and pricing of its on-line corporate banking
services in order to offset the decrease in collection fees.
By
segment, changes in our fee income also reflects the increase in retail banking
products. Retail banking fees increased by 37.7% in 2006 compared to 2005,
mainly due to the rise in fees from checking accounts, lines of credit,
insurance brokerage and credit cards.
Fees from
the middle market increased by 62.4% in 2006 compared to 2005, led by the
increase in office banking services and the reclassification of the fees from
the mutual fund asset management from “other” fee income to fees from the middle
market in 2006.
Fees from
global banking and markets increased 15.7%, reflecting the increase in treasury
services and office banking.
Other
operating income (expenses), net
The
following table sets forth information regarding our other operating income
(expenses), net in the years ended December 31, 2005, 2006 and
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005/2006 |
|
|
|
2006/2007 |
|
|
|
(in
millions of constant Ch$ as of December 31, 2007,
except percentages)
|
|
Net
gains from trading and mark-to-market
|
|
|
(67,224 |
) |
|
|
107,775 |
|
|
|
(126,738 |
) |
|
|
-- |
% |
|
|
-- |
% |
Foreign
exchange transactions, net
|
|
|
77,766 |
|
|
|
(52,332 |
) |
|
|
92,425 |
|
|
|
-- |
% |
|
|
-- |
% |
Sub-total,
market related income
|
|
|
10,542 |
|
|
|
55,443 |
|
|
|
(34,313 |
) |
|
|
425.9 |
% |
|
|
-- |
% |
Other
operating losses, net
|
|
|
(25,148 |
) |
|
|
(35,413 |
) |
|
|
(45,413 |
) |
|
|
40.8 |
% |
|
|
28.2 |
% |
Total
other operating income
|
|
|
(14,606 |
) |
|
|
20,030 |
|
|
|
(79,726 |
) |
|
|
-- |
% |
|
|
-- |
% |
2006 and 2007. Total other
operating income, net, amounted to a loss of Ch$79,726 million for the year
ended December 31, 2007, compared to a gain of Ch$20,030 million in 2006. Total
other operating income, net, consists primarily of (i) the results of our
Treasury Department’s trading and hedging activities and financial transactions
with customers as well the results of our Financial Management division, and
(ii) other operating income and
expenses
primarily relating to repossessed assets that have not been charged-off, sales
force expenses and other expenses relating to the Bank’s marketing and
promotional efforts.
Net gains
from trading activities and mark-to-market adjustments and foreign exchange
transactions totaled a loss of Ch$34,313 million compared to a gain of Ch$55,443
million in 2006. This line item in 2007 included: (i) a loss of Ch$131,020
million from mark-to-market adjustments of our derivatives portfolio and, (ii) a
gain of Ch$4,282 million from mark-to-market adjustments and realized gains made
in the securities portfolio. The net result from foreign exchange transactions
totaled a gain of Ch$92,425 million in 2007. These results mainly included the
translation gain or loss of assets and liabilities denominated in foreign
currencies (excluding derivatives), which was largely offset by the hedged
positions with derivatives. Our exposure to the foreign currency market is
limited by guidelines of the Central Bank and our Market Risk Department (see
“Item 11: Quantitative and Qualitative Disclosures about Market
Risk”).
In order
to more easily comprehend the market related income, we present the following
table that separates the results between Treasury and Financial Management.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
million of constant Chilean pesos at
December
31, 2007)
|
|
Treasury
|
|
|
64,585 |
|
|
|
12,639 |
|
|
|
(80.4 |
%) |
Financial
Management
|
|
|
(9,142 |
) |
|
|
(46,952 |
) |
|
|
413.6 |
% |
Total
market related income
|
|
|
55,443 |
|
|
|
(34,313 |
) |
|
|
-- |
% |
The 80.4%
decrease in market related income from our Treasury Division was mainly due to:
(i) a one-time gain of Ch$13,516 million recognized in 2006 as a result of the
adoption of new accounting standards reflecting recognizing financial
instruments at fair value, which resulted in a gain from trading activities and
(ii) lower gains from our market making and proprietary trading results. The
Bank’s trading positions were negatively affected by the movements of real
interest rates, especially in the fourth quarter of 2007. This was partially
offset by the results of Santander Global Connect, which includes foreign
exchange and derivatives products sold to clients.
The area
of Financial Management (Gestión Financiera) carries
out the function of managing the structural interest rate risk, the structural
position in inflation indexed assets and liabilities, shareholders’ equity and
liquidity. The aim of Financial Management is to inject stability and recurrence
into the net interest income of commercial activities and to assure the Bank
complies with internal and regulatory limits regarding liquidity, regulatory
capital, reserve requirements and market risk. The 413.6% increase in the loss
recognized by Financial Management was mainly due to derivatives that hedge for
inflation and interest rate risk. In 2007, the financial cost of the swaps taken
in order to hedge for inflation and interest rate risk totaled Ch$42,465 million
compared to Ch$12,899 million in 2006. This higher cost was a direct result of
the higher inflation rate in these two periods (see “Item 5: C. Operating
Results—Impact of Inflation”). As the Bank’s mortgage portfolio grows, the
maturity gap tends to rise as these loans, which are denominated in UF, have a
longer maturity than the average maturity of our funding base. As most of long
term financial instruments and mortgage loans are denominated in UF and most
deposits in nominal pesos, the increase in mortgage lending increments the
Bank’s exposure to inflation and to interest rate risk. The size of this gap is
limited by internal and regulatory guidelines in order to avoid excessive
potential losses due to strong shifts in interest rates (see “Item 11:
Quantitative and Qualitative Disclosures About Market Risk”). In order to keep
this duration gap below regulatory limits the bank issues long term bonds
denominated in UF or interest rate swaps. The financial cost of the bonds is
recorded as interest expense, but the financial cost of these swaps is included
in the net results from trading and mark-to-market.
In 2007,
other operating losses, net, increased by 28.2% to Ch$45,413 million compared to
2006. Total sales force expenses increased 30.0% mainly as a result of our sales
efforts in retail banking. Expenses relating to our credit card business
increased by 70.0% to Ch$9,172 million for the year ended December 31, 2007,
compared to 2006, primarily as a result of higher expenses related to promotions
to augment credit card usage. These increased costs were offset by increased
fees from our credit cards.
Customer
service expenses, which consist primarily of expenses paid to third parties for
transporting funds for corporate customers as part of cash management
agreements, and the costs of our call center, increased by 24.0% to Ch$14,505
million in 2007 compared to 2006. This was offset by positive performance of our
cash management
business.
We generate fees for collection and corporate e-banking services and generate
interest income on the floating balances of these clients. The growth of these
expenses also reflects the shift towards more efficient sales channels such as
our call center compared to the outsourced sales force.
The
results from the sales and expenses in maintaining repossessed assets increased
215.9% to Ch$2,859 million.
2005 and 2006. Total other
operating income, net, amounted to a gain of Ch$20,030 million for the year
ended December 31, 2006, compared to a loss in 2007. Total other operating
income, net, consists primarily of (i) the results of our Treasury Department’s
trading and hedging activities and financial transactions with customers, and
(ii) other operating income and expenses primarily relating to repossessed
assets that have not been charged-off, sales force expenses and other expenses
relating to the Bank’s marketing and promotional efforts.
Net gains
from trading activities and mark-to-market adjustments and foreign exchange
transactions, net for the years ended December 31, 2006 and 2005, are not
strictly comparable since 2006 figures include the mark-to-market adjustments of
derivatives. In accordance with Circular No. 3345 issued by the Superintendency
of Banks, effective January 1, 2006, the accounting standards for valuing
financial instruments acquired for trading or investment purposes, including
derivative instruments, were amended. In summary, we must record our derivatives
portfolio at fair value, and hedge accounting was introduced. (See “Item 5: A.
Accounting Standards for Financial Investments and Derivatives” and “—B.
Critical Accounting Policies”). Results in 2006 included a gain of Ch$13,516
million following the adoption of new accounting standards reflecting
recognizing financial instruments at fair value, which resulted in a gain from
trading activities. If we had applied the new accounting standards for the year
ended December 31, 2005, the net effect on our results would have been a gain of
Ch$7,527 million (this figure has been calculated based on the adjustment under
US GAAP for hedge accounting. See Note 26(m)-Derivatives).
In 2006,
other operating losses, net, increased by 40.8% compared to 2005. This was
primarily due to our increased business activities, which resulted in increases
in credit card related expenses and other customer related expenses. Expenses
relating to our credit card business increased by 117.7% for the year ended
December 31, 2006, compared to 2005, primarily as a result of relatively higher
premium rates on fraud insurance covering some of our new cards and an increase
in the membership fees paid to Transbank, the company collectively owned by
major banks in Chile which runs credit card payment networks in Chile. These increased costs
were offset by increased fees from our credit cards.
Customer
service expenses, which consist primarily of expenses paid to third parties for
transporting funds for corporate customers as part of cash management
agreements, and the costs of our call center, increased by 105.0% in 2006
compared to 2005. This was offset by positive performance of our cash management
business. We generate fees for collection and corporate e banking services and
generate interest income on the floating balances of these clients. The growth
of these expenses also reflects the shift towards more efficient sales channels
such as our call center compared to the outsourced sales force.
The
results from the sales and expenses in maintaining repossessed assets decreased
by 78.2% in 2006 compared to 2005.
Other
income and expenses, net
The
following table sets forth information regarding our operating expenses in the
years ended December 31, 2005, 2006 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005/2006 |
|
|
|
2006/2007 |
|
|
|
(in
millions of constant Ch$ as of December 31, 2007,
except percentages)
|
|
Non-operating
income (loss), net
|
|
|
(24,152 |
) |
|
|
(4,528 |
) |
|
|
9,799 |
|
|
|
(81.3 |
%) |
|
|
-- |
% |
Income
attributable to investments in other companies
|
|
|
745 |
|
|
|
844 |
|
|
|
(1,321 |
) |
|
|
13.3 |
% |
|
|
-- |
% |
Losses
attributable to minority interest
|
|
|
(146 |
) |
|
|
(162 |
) |
|
|
(2,055 |
) |
|
|
11.0 |
% |
|
|
1,168.5 |
% |
Total
|
|
|
(23,553 |
) |
|
|
(3,846 |
) |
|
|
6,423 |
|
|
|
(83.7 |
%) |
|
|
-- |
% |
2006 and 2007. Other income
and expenses, net, totaled Ch$6,423 million in 2007 compared to a loss of
Ch$3,846 million in 2006.
This variation was mainly due to: (i) a 35.7% increase in recovery of
previous year expenses, which totaled Ch$9,113 million, (ii) a gain of Ch$2,080
million recognized from the sale of a share the Bank held in the Santiago Stock
Exchange and the sale of 17,000 shares of Mastercard, (iii) a 45.4% decrease in
charge-offs of repossessed assets, (iv) a 92.8% decrease in provisions for other
contingencies. These contingencies are mainly related to non credit risks,
including non specific contingencies, tax contingencies and other non credit
contingencies or impairments. In 2007, these provisions totaled Ch$504
million.
This was
partially offset by the Ch$1,321 million loss recognized by the Bank in income
attributable to investment in other companies. This loss was mainly due to a
Ch$2,505 million loss recognized by the company Administrador Financiero
Transantiago S.A. The Bank owns 20% of this company that is in charge of busfare
clearing and financial management services for Santiago’s new transportation
network. This network was completely overhauled in 2007, resulting in
inefficient service that affected this company’s results. The larger losses
attributable to minority interest was mainly due to the merger between Santiago
Corredores de Bolsa Ltda, a subsidiary previously owned 100% by the Bank, and
Santander Investment S.A. Corredores de Bolsa, an indirect subsidiary of Banco
Santander Spain in 2007.
As a result of the proposed merger, the Bank owns 51.0% of the merged
entity. (See Note 17 to
our Audited Consolidated Financial Statements).
2005 and 2006. The net loss
recorded in other income and expenses, net, decreased by 83.7% in 2006 compared
to 2005, primarily due to a lower level of provisions for other contingencies.
These contingencies are mainly related to non credit risks, including non
specific contingencies, tax contingencies and other non credit contingencies or
impairments. In 2006, these provisions decreased 67.8% compared to 2005. The
lower non-operating loss was also due to a lower level of charge-offs of
repossessed assets that decreased 36.2% compared to 2005. This was
partially offset by a 52.6% decrease in gains from the sales of repossessed
assets previously charged off. (See Note 17 to our Audited Consolidated
Financial Statements).
Operating
expenses
The
following table sets forth information regarding our operating expenses in the
years ended December 31, 2005, 2006 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005/2006 |
|
|
|
2006/2007 |
|
|
|
(in
millions of constant Ch$ as of December 31, 2007,
except percentages)
|
|
Personnel
salaries and expenses
|
|
|
(152,749 |
) |
|
|
(171,605 |
) |
|
|
(176,095 |
) |
|
|
12.3 |
% |
|
|
2.6 |
% |
Administrative
expenses
|
|
|
(110,359 |
) |
|
|
(119,202 |
) |
|
|
(121,546 |
) |
|
|
8.0 |
% |
|
|
2.0 |
% |
Depreciation
and amortization
|
|
|
(43,062 |
) |
|
|
(41,486 |
) |
|
|
(45,043 |
) |
|
|
(3.7 |
%) |
|
|
8.6 |
% |
Total
|
|
|
(306,170 |
) |
|
|
(332,293 |
) |
|
|
(342,684 |
) |
|
|
8.5 |
% |
|
|
3.1 |
% |
Efficiency
ratio(1)
|
|
|
41.5 |
% |
|
|
39.0 |
% |
|
|
36.5 |
% |
|
|
|
|
|
|
|
|
(1)
|
The
efficiency ratio is the ratio of total operating expenses to total
operating revenue. Total operating revenue consists of net interest
revenue, income from services, net, and other operating income,
net.
|
2006 and 2007. Operating
expenses in 2007 increased by 3.1% compared to 2006. The 2.6% rise in personnel
salaries and expenses was mainly due to the 16.6% rise in average headcount in
2007 compared to 2006. This was offset by the end of negotiation bonus paid in
conjunction with the signing of the new collective bargaining agreement in the
fourth quarter of 2006. This new collective bargaining agreement became
effective on March 1, 2007, and will expire on March 1, 2011. As a part of this
process, an end of negotiation bonus was paid, which resulted in a one-time cost
of Ch$9,263 million in 2006. Excluding this item personnel expenses increased
8.5% and total operating expenses increased 6.1%.
Administrative
expenses increased 2.0% in 2007 compared to 2006 mainly as a result of large
expenses related to our expansion of the distribution network. This also explain
the rise in depreciations and amortizations. Our efficiency ratio,
despite higher costs, continued to improve, reaching a record low of 36.5% for
the year ended December 31, 2007, compared to 39.0% in 2006. We expect
personnel, administrative expenses and depreciation to grow at a higher pace in
future periods as a result of our strategy to expand our retail banking business
and higher
inflation
as wages are indexed to CPI. The pace of expansion of our branch and ATM network
in the medium-term may vary with fluctuations in the outlook of the Chilean
economy.
2005 and 2006. Operating
expenses in 2006 increased by 8.5% compared to 2005. The 12.3% rise in personnel
salaries and expenses was mainly due to the above mentioned end of negotiation
bonus paid in conjunction with the signing of the new collective bargaining
agreement in the fourth quarter of 2006. Personnel costs also grew as a result
of the 5.4% rise in average headcount in 2006 compared to 2005 and an increase
in bonuses paid to business teams for reaching business targets. Our efficiency
ratio, despite higher costs, continued to improve, reaching a record low of
39.0% for the year ended December 31, 2006, compared to 41.5% in 2005.
Administrative expenses increased by 8.0% for the same periods, reflecting an
increase in expenses as a result of the expansion of our distribution network.
Depreciation and amortization expenses decreased by 3.7% in 2006 compared to
2005. In the fourth quarter of 2005, the Bank accelerated the depreciation of
obsolete IT projects, which resulted in the decline in depreciation expense in
2006. Our efficiency
ratio, representing operating expenses divided by operating income, improved
from 41.5% in 2005 to a record low of 39.0% in 2006.
Loss
from price level restatement
2006 and 2007. The loss from
price level restatement totaled Ch$56,325 million in 2007, an increase of 280.4%
compared to 2006. We must adjust our capital, fixed assets and other assets for
the variations in price levels. Because our capital is larger than the sum of
our fixed and other assets, price level restatement usually results in a loss
and fluctuates with the inflation rate. The inflation rate used for calculating
price level restatement increased in 2007 compared to 2006 (7.44% in 2007 and
2.12% in 2006), resulting in a higher loss from price level restatement. The
higher loss from price level restatement is also partially offset by the
positive impact of inflation on net interest income. (See “Item 5: C. Operating
Results—Impact of Inflation”).
2005 and 2006. The loss from
price level restatement decreased 25.6% compared to 2005. We must adjust our
capital, fixed assets and other assets for the variations in price levels.
Because our capital is larger than the sum of our fixed and other assets, price
level restatement usually results in a loss and fluctuates with the inflation
rate. The inflation rate used for calculating price level restatement decreased
in 2006 compared to 2005 (2.12% in 2006 and 3.62% in 2005), resulting in a lower
loss from price level restatement. This was partially offset by an increase in
the gap between equity and other assets as we decreased our dividend payment in
2006. The lower loss from price level restatement is also partially offset by
the negative impact on net interest income due to lower inflation
rates.
Income
tax
Our income
tax expense decreased by 11.8% to Ch$55,171 million for the year ended December
31, 2007, compared to 2006, primarily due to higher gain from deferred taxes in
the year. In 2007 the Bank recognized Ch$11,487 million in deferred tax gains
compared to a tax expense of Ch$3,030 million from deferred taxes in 2006. The
effective tax rate for 2007 was 15.2% and 16.9% in 2006. The statutory corporate tax
rate was 17% (see Note 20 of our Consolidated Financial
Statements).
2005 and 2006. Our income tax
expense increased by 14.4% for the year ended December 31, 2006, compared to
2005, primarily due to a 16.3% growth of income before taxes. The effective tax
rate for 2006 was 16.9%, compared to 17.2% for 2005. The statutory corporate tax
rate was 17%.
D.
New Accounting Format in 2008
Circular
No. 3410 issued by the Superintendency of Banks, which became effective on
January 1, 2008, dictated new accounting formats for financial statements. The
new accounting formats are congruent with International Accounting Standards,
but do not imply a change in accounting standards. Banks are required to adopt
the new accounting formats in 2008. The main changes are presented in the table
below. These changes do not involve a change to accounting principles and will
not impact net income compared to figures that have been presented in the twelve
month period ended December 31, 2006 and 2007. Beginning January 1, 2009,
Chilean banks will adopt accounting standards more congruent with International
Accounting Standards.
Main
changes
Income
statement
|
Previous
format
Items
that were re-classified
|
New
format
Where
items have been reclassified
|
Net
interest income
|
1
Interest income contingent operations
2
Interest income trading portfolio
|
5
Interest income derivatives for hedging
|
Provision
expense
|
3
Provisions for repossessed assets
4
Sale of charge-off loans
|
|
Fee
income
|
|
1
Interest income contingent operations
|
Market
related income
|
5
Interest income derivatives for hedging
|
2
Interest income trading portfolio
4
Sale of charge-off loans
|
Other
op. expenses
|
6
Sales force expenses
|
3
Provisions for repossessed assets
|
Operating
expenses
|
|
6
Sales force expenses in administrative expenses
|
Main
changes
Balance
sheet
|
Previous
format
Items
that change
|
New
format
What
change will be
|
Assets
Liabilities
|
1
Contingent loans
2
Past due loans
3
Loan loss allowances
4
Shareholders’ Equity
|
1
Contingent loans are held off balance sheet
2
Included in each loan product. Not disclosed separately. We disclose it
for information purposes
3
Loans are presented net of loan loss allowances. We disclose it separately
for information purposes
4
Shareholders’ Equity will include a provision for future dividends of 30%
of net income. Liabilities will also include a new item “Provision for
dividends”. Shareholders’ equity also includes minority
interests
|
E.
Liquidity and Capital Resources
Sources
of Liquidity
Santander-Chile’s
liquidity depends upon its (i) capital, (ii) reserves and (iii) financial
investments, including investments in government securities. To cover any
liquidity shortfalls and to augment its liquidity position, Santander-Chile has
established lines of credit with foreign and domestic banks and also has access
to Central Bank borrowings.
The
following table sets forth our contractual obligations and commercial
commitments by time remaining to maturity. The Bank as of the date of the filing
of this 20-F has no significant purchase obligations. At December 31, 2007, the
scheduled maturities of our contractual obligations and of other commercial
commitments, including accrued interest, were as follows:
|
|
|
|
|
Due after 1
year but
within 3 years
|
|
|
Due after 3
years
but
within 6 years
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 2007)
|
|
Deposit
and other obligations (1)
|
|
|
6,270,194 |
|
|
|
1,528,645 |
|
|
|
77,128 |
|
|
|
11,913 |
|
|
|
7,887,880 |
|
Mortgage
finance bonds
|
|
|
57,428 |
|
|
|
92,792 |
|
|
|
115,631 |
|
|
|
168,424 |
|
|
|
434,275 |
|
Subordinated
bonds
|
|
|
- |
|
|
|
- |
|
|
|
133,679 |
|
|
|
364,537 |
|
|
|
498,216 |
|
Bonds
|
|
|
- |
|
|
|
337,120 |
|
|
|
319,292 |
|
|
|
568,595 |
|
|
|
1,225,007 |
|
Chilean
Central Bank borrowings:
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Credit
lines for renegotiations of Loans
|
|
|
3,972 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,972 |
|
Other
Central Bank borrowings
|
|
|
142,370 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
142,370 |
|
Borrowings
from domestic financial institutions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Investments
sold under agreements to Repurchase
|
|
|
166,281 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
166,281 |
|
Foreign
borrowings
|
|
|
608,875 |
|
|
|
357,018 |
|
|
|
129,578 |
|
|
|
- |
|
|
|
1,095,471 |
|
Derivatives
|
|
|
90,982 |
|
|
|
158,554 |
|
|
|
148,674 |
|
|
|
380,007 |
|
|
|
778,217 |
|
Other
obligations
|
|
|
137,439 |
|
|
|
4,943 |
|
|
|
4,022 |
|
|
|
1,464 |
|
|
|
147,868 |
|
Total
cash obligations
|
|
|
7,477,541 |
|
|
|
2,479,072 |
|
|
|
928,004 |
|
|
|
1,494,940 |
|
|
|
12,379,557 |
|
(1)
Excludes
demand deposit accounts and saving accounts.
Operational
Leases
Certain
bank premises and equipment are leased under various operating leases. Future
minimum rental commitments as of December 31, 2007, under non-cancelable leases
are as follows:
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Due
within 1 year
|
|
|
10,093 |
|
Due
after 1 year but within 2 years
|
|
|
7,073 |
|
Due
after 2 years but within 3 years
|
|
|
5,238 |
|
Due
after 3 years but within 4 years
|
|
|
3,477 |
|
Due
after 4 years but within 5 years
|
|
|
1,559 |
|
Due
after 5 years
|
|
|
402 |
|
Total
|
|
|
27,842 |
|
Other
Commercial Commitments
At
December 31, 2007, the scheduled maturities of other commercial commitments,
including accrued interest, were as follows:
Other
Commercial Commitments
|
|
|
|
|
Due after 1
year but
within 3 years
|
|
|
Due after 3
years
but
within 6 years
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 2007)
|
|
Letters
of credit
|
|
|
193,996 |
|
|
|
19,388 |
|
|
|
23,277 |
|
|
|
- |
|
|
|
236,661 |
|
Guarantees
|
|
|
586,546 |
|
|
|
28,398 |
|
|
|
12,698 |
|
|
|
- |
|
|
|
627,642 |
|
Other
commercial commitments
|
|
|
325,135 |
|
|
|
915 |
|
|
|
|
|
|
|
- |
|
|
|
326,050 |
|
Total
other commercial commitments
|
|
|
1,105,677 |
|
|
|
48,701 |
|
|
|
35,975 |
|
|
|
- |
|
|
|
1,190,353 |
|
Capital
and Reserves
We
currently have regulatory capital in excess of the minimum requirement under the
current Chilean regulations. According to the General Banking Law, a bank should
have regulatory capital of at least 8% of its risk weighted assets, net of
required loan loss allowances, and paid in capital and reserves (i.e., the basic capital, as
defined above) of at least 3% of its total assets, net of required loan loss
allowances. For these purposes, the regulatory capital of a bank is the sum of
(1) the bank’s basic capital, (2) subordinated bonds issued by the bank valued
at their placement price for an amount up to 50% of its basic capital; provided
that the value of the bonds shall decrease by 20% for each year that elapses
during the period commencing six years prior to their maturity, and (3) its
voluntary allowances for loan losses, for an amount of up to 1.25% of its risk
weighted assets. The merger of Old Santander-Chile and Santiago required a
special regulatory preapproval of the Superintendency of Banks, which was
granted on May 16, 2002. The resolution granting this preapproval imposed a
regulatory capital to risk weighted assets ratio of 12% for the merged bank.
This indicator was reduced to 11% by the Superintendency of Banks effective
January 1, 2005. For purposes of weighing the risk of a bank’s assets, the
General Banking Law considers five different categories of assets, based on the
nature of the issuer, the availability of funds, the nature of the assets and
the existence of collateral securing such assets.
The
following table sets forth our regulatory capital at the dates indicated. See
Note 13 to our financial statements for a description of the minimum capital
requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of constant Ch$ as
of December 31,
2007, except percentages)
|
|
Base
net capital
|
|
|
1,031,163 |
|
|
|
1,129,395 |
|
3%
of total assets net of provisions
|
|
|
(495,637 |
) |
|
|
(560,816 |
) |
Excess
over minimum required equity
|
|
|
535,526 |
|
|
|
568,579 |
|
Base
net capital as a percentage of the total assets, net of
provisions
|
|
|
6.2 |
% |
|
|
6.0 |
% |
Regulatory
capital
|
|
|
1,524,308 |
|
|
|
1,602,432 |
|
11%
of risk-weighted assets
|
|
|
(1,326,302 |
) |
|
|
(1,439,641 |
) |
Excess
over minimum required equity
|
|
|
198,006 |
|
|
|
162,791 |
|
Regulatory
capital as a percentage of risk-weighted assets
|
|
|
12.6 |
% |
|
|
12.2 |
% |
In 2009,
the Superintendence of Banks and the Chilean Congress should approve new capital
requirements for Chilean banks in line with Basel II accord, which among other
amendments require banks to set aside capital for market and operational risks.
This could have a significant impact on minimum capital
requirements.
Financial Investments
The
following table sets forth our investment in Chilean government and corporate
securities and certain other financial investments at the dates indicated.
Financial investments that have a secondary market are carried at market value.
All other financial investments are carried at acquisition cost, plus accrued
interest and indexation readjustments, as applicable.
a)
Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2007)
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
Central
Bank securities
|
|
|
409,626 |
|
|
|
804,086 |
|
Chilean
Treasury Bonds
|
|
|
43,536 |
|
|
|
117,240 |
|
Other
securities
|
|
|
383 |
|
|
|
- |
|
Subtotal
|
|
|
453,545 |
|
|
|
921,326 |
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
Time
deposits in Chilean financial institutions
|
|
|
3,819 |
|
|
|
10,039 |
|
Mortgage
finance bonds
|
|
|
24,914 |
|
|
|
32,713 |
|
Chilean
financial institutions bonds
|
|
|
47 |
|
|
|
7,742 |
|
Chilean
corporate bonds
|
|
|
24,240 |
|
|
|
11,541 |
|
Other
Chilean securities
|
|
|
7,805 |
|
|
|
15,343 |
|
Other
foreign securities
|
|
|
172,667 |
|
|
|
6,927 |
|
Subtotal
|
|
|
233,492 |
|
|
|
84,305 |
|
Total
|
|
|
687,037 |
|
|
|
1,005,631 |
|
b)
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2007)
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
Central
Bank securities
|
|
|
83,522 |
|
|
|
336,866 |
|
Chilean
Treasury Bonds
|
|
|
670 |
|
|
|
109,194 |
|
Other
securities
|
|
|
19,909 |
|
|
|
- |
|
Subtotal
|
|
|
104,101 |
|
|
|
446,060 |
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
Mortgage
finance bonds
|
|
|
239,239 |
|
|
|
273,010 |
|
Central
Bank and Government Foreign Securities
|
|
|
- |
|
|
|
60,565 |
|
Other
Foreign securities
|
|
|
27,444 |
|
|
|
- |
|
Subtotal
|
|
|
266,683 |
|
|
|
333,575 |
|
Total
|
|
|
370,784 |
|
|
|
779,635 |
|
c)
Held-to-maturity
No
financial investments were classified as held-to-maturity as of December 31,
2006 and 2007.
The
following table sets forth an analysis of our investments at December 31, 2007,
by remaining maturity and the weighted average nominal rates of such
investments.
|
|
Weighted average Nominal
Rate
|
After one year but within five
years
|
Weighted average Nominal
Rate
|
After five years but within ten
years
|
Weighted average Nominal
Rate
|
|
Weighted average Nominal
Rate
|
|
Weighted average Nominal
Rate
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
Held
for Trading
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
Central
Bank securities
|
257,807
|
4.1
|
352,048
|
3.5
|
136,835
|
3.2
|
57,396
|
3.0
|
804,086
|
3.6
|
Chilean
Treasury Bonds
|
867
|
4.7
|
8,826
|
4.5
|
70,411
|
3.5
|
37,136
|
3.2
|
117,240
|
3.5
|
Others
securities
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
Time
deposits in Chilean financial institutions
|
7,350
|
4.7
|
2,689
|
6.8
|
|
|
|
|
10,039
|
5.2
|
Mortgage
finance bonds
|
91
|
3.9
|
617
|
4.3
|
2,299
|
4.0
|
29,706
|
3.9
|
32,713
|
3.9
|
Chilean
financial institutions bonds
|
|
|
|
|
4,501
|
5.3
|
3,241
|
4.2
|
7,742
|
4.8
|
Chilean
corporate bonds
|
|
|
7,625
|
7.0
|
3,916
|
3.9
|
|
|
11,541
|
6.0
|
Other
Chilean securities
|
15,343
|
|
|
|
|
|
|
|
15,343
|
|
Others
foreign securities
|
|
|
|
|
|
5.0
|
|
|
|
5.0
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
Investments
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
Central
Bank securities
|
78,284
|
2.0
|
151,972
|
6.1
|
103,553
|
4.4
|
3,057
|
2.9
|
336,866
|
4.6
|
Chilean
Treasury Bonds
|
18,282
|
4.7
|
28,870
|
4.1
|
43,779
|
5.6
|
18,263
|
3.2
|
109,194
|
3.8
|
Others
securities
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
Mortgage
finance bonds
|
60
|
4.2
|
2,294
|
3.8
|
11,465
|
3.9
|
259,191
|
4.1
|
273,010
|
4.1
|
Others
foreign securities
|
|
5.1
|
|
|
|
5.0
|
|
|
|
5.1
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Credit
Risk Ratings
The Bank
also has credit ratings from three international agencies.
|
|
|
Long-term
bank deposits
|
|
A2
|
Senior
bonds
|
|
Aa3
|
Subordinated
debt
|
|
Aa3
|
Bank
Deposits in Local Currency
|
|
Aa2
|
Bank
financial strength
|
|
B-
|
Short-term
deposits
|
|
P-1
|
Outlook
|
|
Stable
|
|
|
|
Long-term
Foreign Issuer Credit
|
|
A+
|
Long-term
Local Issuer Credit
|
|
A+
|
Short-term
Foreign Issuer Credit
|
|
A-1
|
Short-term
Local Issuer Credit
|
|
A-1
|
Outlook
|
|
Stable
|
|
|
|
Foreign
Currency Long-term Debt
|
|
A+
|
Local
Currency Long-term Debt
|
|
A+
|
Foreign
Currency Short-term Debt
|
|
F1
|
Local
Currency Short-term Debt
|
|
F1
|
Individual
rating
|
|
B
|
Outlook
|
|
Stable
|
Working
Capital
As a bank,
we satisfy our working capital needs through general funding, the majority of
which derives from deposits and other borrowings from the public. (See “Item 5:
E. Liquidity and Capital Resources—Deposits and Other Borrowings”). In our
opinion, our working capital is sufficient for our present needs.
Liquidity
Management
Liquidity
management seeks to ensure that, even under adverse conditions, we have access
to the funds necessary to cover client needs, maturing liabilities and capital
requirements. Liquidity risk arises in the general funding for our financing,
trading and investment activities. It includes the risk of unexpected increases
in the cost of funding the portfolio of assets at appropriate maturities and
rates, the risk of being unable to liquidate a position in a timely manner at a
reasonable price and the risk that we will be required to repay liabilities
earlier than anticipated.
Our
general policy is to maintain liquidity adequate to ensure our ability to honor
withdrawals of deposits, make repayments of other liabilities at maturity,
extend loans and meet our own working capital needs. Our minimum amount of
liquidity is determined by the statutory reserve requirements of the Central
Bank. Deposits are subject to a statutory reserve requirement of 9% for demand
deposits and 3.6% for Chilean peso, UF-denominated and foreign currency
denominated time deposits with a term of less than a year. (See “Item 4: D.
Regulation and Supervision”). The Central Bank has statutory authority to
increase these percentages to up to 40% for demand deposits and up to 20% for
time deposits. In addition, a 100% special reserve (reserva técnica) applies to
demand deposits, deposits in checking accounts, other demand deposits received
or obligations payable on sight and incurred in the ordinary course of business,
other than deposits unconditionally payable immediately or within a term of less
than 30 days and other time deposits payable within 10 days. This special
reserve requirement applies to the amount by which the total of such deposits
exceeds 2.5 times the amount of a bank’s regulatory capital. Interbank loans are
deemed to have a maturity of more than 30 days, even if payable within the
following 10 days.
The
Central Bank also requires us to comply with the following liquidity
limits:
·
|
Our
total liabilities with maturities of less than 30 days cannot exceed our
total assets with maturities of less than 30 days by an amount greater
than our capital. This limit must be calculated in local currency and
foreign currencies together as one
gap.
|
·
|
Our
total liabilities with maturities of less than 90 days cannot exceed our
total assets with maturities of less than 90 days by more than twice of
our capital. This limit must be calculated in local currency and foreign
currencies together as one gap.
|
We have
set other liquidity limits and ratios that minimize liquidity risk. See “Item
11: Quantitative and Qualitative Disclosure About Market Risk.”
Cash
Flow
The tables below set forth our main
sources of cash. The subsidiaries are not an important source of cash flow for
us and therefore have no impact on our ability to meet our cash obligations. No
legal or economic restrictions exist on the ability of subsidiaries to transfer
funds to us in the form of loans or cash dividends as long as these subsidiaries
abide by the regulations of the Ley de Sociedad
Anónimas regarding loans to
related parties and minimum dividend payments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of constant Ch$ as
of
December 31, 2007)
|
|
Net cash provided by operating
activities
|
|
|
358,433 |
|
|
|
467,772 |
|
|
|
547,980 |
|
Cash provided by operating activities
increased by Ch$80,208 million in 2007 compared to 2006 despite net income only rising by
Ch$1,818 million as increases in business activity was partially offset by an
increase in two relevant non-cash expenses: (i) provision for loan losses and
(ii) price level restatement.
The Ch$109,339 million rise in cash provided by operating activities
in 2006 compared to 2005 was mainly due to an increase in
business activity and a decrease in the net change in interest
accruals in the same period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of constant Ch$ as
of
December 31, 2007)
|
|
Net cash provided by (used in)
investing activities
|
|
|
(733,299 |
) |
|
|
(1,284,454 |
) |
|
|
(1,588,064 |
) |
Net cash used in investing activities in
2007 totaled Ch$1,588,064 million compared to
Ch$1,284,454 million due to a higher growth of interest earning assets in 2007
compared to 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of constant Ch$ as
of
December 31, 2007)
|
|
Net cash provided by (used in)
financing activities
|
|
|
637,121 |
|
|
|
653,626 |
|
|
|
1,156,430 |
|
In 2007, the net case from financing activities
increased Ch$502,804 million compared to 2006 due to larger proceeds from bonds
issued in the year.
Deposits
and Other Borrowings
The
following table sets forth our average daily balance of liabilities for the
years ended December 31, 2005, 2006 and 2007, in each case together with the
related average nominal interest rates paid thereon.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total
Average
Liabilities
|
|
|
|
|
|
|
|
|
% of Total
Average
Liabilities
|
|
|
|
|
|
|
|
|
% of Total
Average
Liabilities
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007, except
percentages)
|
|
Savings
accounts
|
|
|
126,896 |
|
|
|
0.9 |
% |
|
|
4.3 |
% |
|
|
113,724 |
|
|
|
0.7 |
% |
|
|
1.3 |
% |
|
|
97,873 |
|
|
|
0.6 |
% |
|
|
6.2 |
% |
Time
deposits
|
|
|
5,578,890 |
|
|
|
37.7 |
% |
|
|
4.7 |
% |
|
|
6,878,120 |
|
|
|
43.5 |
% |
|
|
5.6 |
% |
|
|
7,221,846 |
|
|
|
43.6 |
% |
|
|
7.5 |
% |
Central
Bank borrowings
|
|
|
138,754 |
|
|
|
0.9 |
% |
|
|
3.7 |
% |
|
|
90,359 |
|
|
|
0.6 |
% |
|
|
5.1 |
% |
|
|
115,129 |
|
|
|
0.7 |
% |
|
|
5.6 |
% |
Repurchase
agreements
|
|
|
567,134 |
|
|
|
3.8 |
% |
|
|
5.0 |
% |
|
|
586,667 |
|
|
|
3.7 |
% |
|
|
4.9 |
% |
|
|
596,131 |
|
|
|
3.6 |
% |
|
|
6.5 |
% |
Mortgage
finance bonds
|
|
|
881,875 |
|
|
|
6.0 |
% |
|
|
9.4 |
% |
|
|
621,444 |
|
|
|
3.9 |
% |
|
|
7.5 |
% |
|
|
473,126 |
|
|
|
2.9 |
% |
|
|
12.4 |
% |
Other
interest bearing liabilities
|
|
|
1,966,217 |
|
|
|
13.2 |
% |
|
|
5.6 |
% |
|
|
2,318,502 |
|
|
|
14.7 |
% |
|
|
6.2 |
% |
|
|
2,256,925 |
|
|
|
13.6 |
% |
|
|
8.4 |
% |
Subtotal
interest bearing liabilities
|
|
|
9,259,766 |
|
|
|
62.5 |
% |
|
|
5.3 |
% |
|
|
10,608,816 |
|
|
|
67.1 |
% |
|
|
5.7 |
% |
|
|
10,761,030 |
|
|
|
65.0 |
% |
|
|
7.8 |
% |
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
2,090,323 |
|
|
|
14.1 |
% |
|
|
|
|
|
|
1,958,651 |
|
|
|
12.4 |
% |
|
|
|
|
|
|
2,171,605 |
|
|
|
13.1 |
% |
|
|
|
|
Contingent
liabilities
|
|
|
960,937 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
1,020,384 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
1,050,692 |
|
|
|
6.3 |
% |
|
|
|
|
Other
non-interest bearing liabilities
|
|
|
1,407,631 |
|
|
|
9.5 |
% |
|
|
|
|
|
|
989,257 |
|
|
|
6.2 |
% |
|
|
|
|
|
|
1,248,080 |
|
|
|
7.6 |
% |
|
|
|
|
Shareholders’
equity
|
|
|
1,090,930 |
|
|
|
7.4 |
% |
|
|
|
|
|
|
1,235,728 |
|
|
|
7.8 |
% |
|
|
|
|
|
|
1,317,199 |
|
|
|
8.0 |
% |
|
|
|
|
Subtotal
non-interest bearing liabilities
|
|
|
5,549,821 |
|
|
|
37.5 |
% |
|
|
|
|
|
|
5,204,020 |
|
|
|
32.9 |
% |
|
|
|
|
|
|
5,787,576 |
|
|
|
35.0 |
% |
|
|
|
|
Total
liabilities
|
|
|
14,809,587 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
15,812,836 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
16,548,606 |
|
|
|
100.0 |
% |
|
|
|
|
Our most
important source of funding is our time deposits. Average time deposits
represented 43.6% of our average total liabilities and shareholders’ equity in
2007. Our current funding strategy is to continue to utilize all sources of
funding in accordance with their costs, their availability and our general asset
and liability management strategy. Special emphasis is being placed on
lengthening the maturities of time deposits with institutional clients and
increasing in general our deposits from retail customers. We also intend to continue
to broaden our customer deposit base and to emphasize core deposit funding. We
have also followed the strategy in 2007 of increasing senior and subordinated
bonds to increase the duration of liabilities and fund the growth of the
mortgage portfolio. We believe that broadening our deposit base by increasing
the number of account holders has created a more stable funding
source.
Composition
of Deposits and Other Commitments
The
following table sets forth the composition of our deposits and similar
commitments at December 31, 2005, 2006 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Checking
accounts
|
|
|
1,597,407 |
|
|
|
1,787,172 |
|
|
|
1,984,910 |
|
Other
demand liabilities
|
|
|
733,272 |
|
|
|
820,027 |
|
|
|
880,903 |
|
Savings
accounts
|
|
|
120,056 |
|
|
|
108,351 |
|
|
|
97,155 |
|
Time
deposits
|
|
|
6,360,653 |
|
|
|
7,315,038 |
|
|
|
7,790,725 |
|
Other
commitments (1)
|
|
|
48,892 |
|
|
|
60,534 |
|
|
|
67,662 |
|
Total
|
|
|
8,860,280 |
|
|
|
10,091,122 |
|
|
|
10,821,355 |
|
(1)
Includes
primarily leasing accounts payable relating to purchases of
equipment.
Maturity
of Deposits
The
following table sets forth information regarding the currency and maturity of
our deposits at December 31, 2007, expressed in percentages of our total
deposits in each currency category. UF-denominated deposits are similar to
peso-denominated deposits in all respects, except that the principal is
readjusted periodically based on variations in the Chilean consumer price
index.
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
2.0 |
|
|
|
- |
|
|
|
- |
|
|
|
0.9 |
|
Savings
accounts
|
|
|
- |
|
|
|
2.8 |
|
|
|
- |
|
|
|
1.2 |
|
Time
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing
within 3 months
|
|
|
62.1 |
|
|
|
19.8 |
|
|
|
84.7 |
|
|
|
47.6 |
|
Maturing
after 3 but within 6 months
|
|
|
11.8 |
|
|
|
16.5 |
|
|
|
14.8 |
|
|
|
14.2 |
|
Maturing
after 6 but within 12 months
|
|
|
13.4 |
|
|
|
25.1 |
|
|
|
0.4 |
|
|
|
16.3 |
|
Maturing
after 12 months
|
|
|
10.7 |
|
|
|
35.8 |
|
|
|
0.1 |
|
|
|
19.8 |
|
Total
time deposits
|
|
|
98.0 |
|
|
|
97.2 |
|
|
|
100.0 |
|
|
|
97.9 |
|
Total
deposits
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
The
following table sets forth information regarding the maturity of our outstanding
time deposits in excess of US$100,000 at December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Time
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing
within 3 months
|
|
|
1,728,761 |
|
|
|
627,472 |
|
|
|
940,327 |
|
|
|
3,296,560 |
|
Maturing
after 3 but within 6 months
|
|
|
372,583 |
|
|
|
556,665 |
|
|
|
175,689 |
|
|
|
1,104,937 |
|
Maturing
after 6 but within 12 months
|
|
|
448,138 |
|
|
|
792,832 |
|
|
|
4,252 |
|
|
|
1,245,222 |
|
Maturing
after 12 months
|
|
|
333,326 |
|
|
|
1,094,374 |
|
|
|
212 |
|
|
|
1,427,912 |
|
Total
time deposits
|
|
|
2,882,808 |
|
|
|
3,071,343 |
|
|
|
1,120,480 |
|
|
|
7,074,631 |
|
Short-term
Borrowings
The
principal categories of our short-term borrowings are amounts borrowed under
foreign trade lines of credit, domestic interbank loans, Central Bank borrowings
and repurchase agreements. The table below presents the amounts outstanding at
each year-end indicated and the weighted-average nominal interest rate for each
such year by type of short-term borrowing.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
Average
Nominal
Interest
Rate
|
|
|
|
|
|
Weighted-
Average
Nominal
Interest
Rate
|
|
|
|
|
|
Weighted-
Average
Nominal
Interest
Rate
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007, except for rate
data)
|
|
Balances
under repurchase agreements
|
|
|
54,616 |
|
|
|
1.8 |
% |
|
|
21,412 |
|
|
|
4.9 |
% |
|
|
166,281 |
|
|
|
6.5 |
% |
Central
Bank borrowings
|
|
|
190,038 |
|
|
|
2.1 |
% |
|
|
144,418 |
|
|
|
5.1 |
% |
|
|
142,370 |
|
|
|
5.6 |
% |
Domestic
interbank borrowings
|
|
|
2,774 |
|
|
|
1.6 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Borrowings
under foreign trade credit lines
|
|
|
1,134,485 |
|
|
|
4.0 |
% |
|
|
771,397 |
|
|
|
7.7 |
% |
|
|
608,875 |
|
|
|
13.4 |
% |
Total
short-term borrowings
|
|
|
1,381,913 |
|
|
|
2.4 |
% |
|
|
937,227 |
|
|
|
6.6 |
% |
|
|
917,526 |
|
|
|
10.9 |
% |
The
following table shows the average balance and the average nominal rate for each
short-term borrowing category for the years indicated.
|
|
For the year Ended December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Nominal Interest
Rate
|
|
|
|
|
|
Average Nominal Interest
Rate
|
|
|
|
|
|
Average Nominal Interest
Rate
|
|
|
|
(in millions of constant Ch$ as of
December 31, 2007, except for rate
data)
|
|
Balances under repurchase
agreements
|
|
|
567,134 |
|
|
|
5.0 |
% |
|
|
586,667 |
|
|
|
4.9 |
% |
|
|
596,131 |
|
|
|
6.5 |
% |
Central Bank
borrowings
|
|
|
138,754 |
|
|
|
3.7 |
% |
|
|
90,359 |
|
|
|
5.1 |
% |
|
|
115,129 |
|
|
|
5.6 |
% |
Domestic interbank
borrowings
|
|
|
45,726 |
|
|
|
3.6 |
% |
|
|
52,961 |
|
|
|
5.1 |
% |
|
|
-- |
|
|
|
-- |
|
Borrowings under foreign trade
credit lines
|
|
|
342,528 |
|
|
|
9.6 |
% |
|
|
1,230,766 |
|
|
|
5.4 |
% |
|
|
1,095,196 |
|
|
|
13.4 |
% |
Total short-term
borrowings
|
|
|
1,094,142 |
|
|
|
5.0 |
% |
|
|
1,960,753 |
|
|
|
6.9 |
% |
|
|
1,806,456 |
|
|
|
10.6 |
% |
The following table presents the maximum
month-end balances of our principal sources of short-term borrowings during the years
indicated.
|
|
Maximum
2005
Month-End
Balance
|
|
|
Maximum
2006
Month-End
Balance
|
|
|
Maximum
2007
Month-End
Balance
|
|
|
|
(in millions of constant Ch$ as of
December 31, 2007)
|
|
Balances under repurchase
agreements
|
|
|
636,914 |
|
|
|
469,654 |
|
|
|
201,600 |
|
Central Bank
borrowings
|
|
|
406,858 |
|
|
|
327,222 |
|
|
|
427,568 |
|
Domestic interbank
borrowings
|
|
|
47,170 |
|
|
|
4,058 |
|
|
|
4,822 |
|
Borrowings under foreign trade
credit lines
|
|
|
540,581 |
|
|
|
1,887,354 |
|
|
|
1,423,567 |
|
Total short-term
borrowings
|
|
|
1,631,523 |
|
|
|
2,688,288 |
|
|
|
2,057,557 |
|
Total
Borrowings
Our
long-term and short-term borrowings are summarized below. Borrowings are
generally classified as short-term when they have original maturities of less
than one year or are due on demand. All other borrowings are classified as
long-term, including the amounts due within one year on such borrowings. The
following table sets forth, at the dates indicated, the components of our
borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Central
Bank borrowings
|
|
|
- |
|
|
|
142,370 |
|
|
|
142,370 |
|
Credit
lines for renegotiations of loans
|
|
|
- |
|
|
|
3,972 |
|
|
|
3,972 |
|
Balances
under repurchase agreements
|
|
|
- |
|
|
|
166,281 |
|
|
|
166,281 |
|
Mortgage
finance bonds
|
|
|
376,847 |
|
|
|
57,428 |
|
|
|
434,275 |
|
Other
borrowings: bonds
|
|
|
1,225,007 |
|
|
|
- |
|
|
|
1,225,007 |
|
Subordinated
bonds
|
|
|
498,216 |
|
|
|
- |
|
|
|
498,216 |
|
Foreign
borrowings
|
|
|
486,596 |
|
|
|
608,875 |
|
|
|
1,095,471 |
|
Other
obligations
|
|
|
10,429 |
|
|
|
137,439 |
|
|
|
147,868 |
|
Total
borrowings
|
|
|
2,597,095 |
|
|
|
1,116,365 |
|
|
|
3,713,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2006)
|
|
Central
Bank borrowings
|
|
|
- |
|
|
|
144,418 |
|
|
|
144,418 |
|
Credit
lines for renegotiations of loans (a)
|
|
|
- |
|
|
|
5,458 |
|
|
|
5,458 |
|
Balances
under repurchase agreements
|
|
|
- |
|
|
|
21,412 |
|
|
|
21,412 |
|
Mortgage
finance bonds (b)
|
|
|
499,288 |
|
|
|
70,365 |
|
|
|
569,653 |
|
Other
borrowings: bonds (c)
|
|
|
606,513 |
|
|
|
1,225 |
|
|
|
607,738 |
|
Subordinated
bonds (d)
|
|
|
483,611 |
|
|
|
43,292 |
|
|
|
526,903 |
|
Foreign
borrowings (e)
|
|
|
101,303 |
|
|
|
771,397 |
|
|
|
872,700 |
|
Other
obligations (f)
|
|
|
12,863 |
|
|
|
56,106 |
|
|
|
68,969 |
|
Total
borrowings
|
|
|
1,703,578 |
|
|
|
1,113,673 |
|
|
|
2,817,251 |
|
(a) Credit
lines for renegotiations of loans
Central
Bank borrowings include credit lines for the renegotiations of loans and other
Central Bank borrowings. These credit lines were provided by the Central Bank
for the renegotiations of loans due to the need to refinance debts as a result
of the economic recession and crisis of the banking system in the early 1980’s.
The lines for the renegotiations, which are considered long-term, are related
with mortgage loans linked to the UF index and bore a real annual interest rate
of 3.0% and 3.0% as of December 31, 2006 and 2007, respectively. The following
table sets forth, at the dates indicated, our credit lines for renegotiations of
loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2007)
|
|
Total
credit lines for renegotiations of loans
|
|
|
5,458 |
|
|
|
3,972 |
|
The maturities of the outstanding
amounts due under these credit lines, which are considered long-term, are as
follows:
|
|
|
|
|
|
(in millions of constant Ch$ as
of
December 31, 2007)
|
|
Due within 1
year
|
|
|
3,972 |
|
Total
|
|
|
3,972 |
|
(b)
Mortgage finance bonds
These
bonds are used to finance the granting of mortgage loans. The outstanding
principal amounts of the bonds are amortized on a quarterly basis. The range of
maturities of these bonds is between five and twenty years. The bonds are linked
to the UF index and bear a real weighted-average annual interest rate of 4.6%.
The following table sets forth the remaining maturities of our mortgage finance
bonds at December 31, 2007.
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2007)
|
Due
within 1 year
|
|
|
57,428
|
|
Due
after 1 year but within 2 years
|
|
|
47,461 |
|
Due
after 2 years but within 3 years
|
|
|
45,331 |
|
Due
after 3 years but within 4 years
|
|
|
41,456 |
|
Due
after 4 years but within 5 years
|
|
|
36,951 |
|
Due
after 5 years
|
|
|
205,648 |
|
Total
mortgage finance bonds
|
|
|
434,275 |
|
(c)
Bonds
The
following table sets forth, at the dates indicated, our issued bonds.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2007)
|
|
Santiago
bonds, Series A,B,C,D and F
|
|
|
9,862 |
|
|
|
- |
|
Santander
bonds denominated in UF
|
|
|
368,277 |
|
|
|
1,025,758 |
|
Santander
bonds denominated in US$
|
|
|
229,599 |
|
|
|
199,249 |
|
Total
bonds
|
|
|
607,738 |
|
|
|
1,225,007 |
|
Santiago
bonds include series A, B, C and F issued by the former Santiago S.A. and series
B and D issued by the former Banco O’Higgins prior to its merger with the Bank
in 1997. These bonds are intended to finance loans that have a maturity of
greater than one year, are linked to the UF index and bear a weighted-average
annual interest rate of 7.0% with interest and principal payments due
semi-annually.
On
December 17, 2004, Santiago Leasing S.A., ceded through public deed a total of
UF 3,041,102 (Ch$59,675 million at December 31, 2007) in bonds to Banco
Santander-Chile. These bonds are linked to the UF index and bear an annual
interest rate of 5.6%. At December 31, 2006 and 2007, the balance was included
in Santander bonds linked to the UF.
Santander
bonds include bonds issued by the former Banco Santander-Chile and bonds issued
by the Bank since August 2002.
On October
5, 2005, the Bank issued bonds denominated in UF in an aggregate principal
amount of UF8,000,000, which bear an average annual interest rate of
3.0%.
On May 25,
2006, the Bank issued bonds denominated in UF in an aggregate principal amount
of UF6,000,000, which bear an average annual interest rate of 4.6%.
On August
17, 2006, the Bank issued senior bonds denominated in UF in an aggregate
principal amount of UF895,000, which bear an average annual interest rate of
3.7%.
On
December 9, 2004, the Bank issued senior bonds denominated in U.S. dollars in an
aggregate principal amount of US$400 million. These bonds carry a nominal
interest rate of LIBOR plus 0.35% per annum (5.35% and 5.50% at December 2006
and 2007). The interest is payable quarterly and the principal is to be paid
after a term of 5 years.
During
2007, the Bank issued senior bonds in the local market for a total of UF 34
million (Ch$667,170 million as of December 31, 2007). Below is a detail of the
bonds issued.
Senior bonds
2007
Series
|
Amount
|
|
Maturity
|
Interest
rate (%)
|
O
|
UF 5,000,000
|
|
4
years
|
3.30%
per year , simple
|
P
|
UF 3,000,000
|
|
7
years
|
3.50%
per year, simple
|
Q
|
UF 2,000,000
|
|
9
years
|
3.70%
per year, simple
|
R
|
UF 2,000,000
|
|
20
years
|
3.90%
per year, compounded
|
S
|
UF 2,000,000
|
|
30
years
|
4.10%
per year, compounded
|
T
|
UF 5,000,000
|
|
4
years
|
3.30%
per year, simple
|
U
|
UF 5,000,000
|
|
6
years
|
3.70%
per year, simple
|
V
|
UF 5,000,000
|
|
10
years
|
3.90%
per year, simple
|
W
|
UF 5,000,000
|
|
10
years
|
4.10%
per year, simple
|
|
UF
34,000,000
|
|
|
|
The
maturities of these bonds are as follows:
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2007)
|
|
Due
within 1 year
|
|
|
- |
|
Due
after 1 year but within 2 years
|
|
|
199,249 |
|
Due
after 2 years but within 3 years
|
|
|
137,872 |
|
Due
after 3 years but within 4 years
|
|
|
209,543 |
|
Due
after 4 years but within 5 years
|
|
|
9,390 |
|
Due
after 5 years
|
|
|
668,953 |
|
Total
bonds
|
|
|
1,225,007 |
|
(d)
Subordinated bonds
The
following table sets forth, at the dates indicated, the balances of our
subordinated bonds.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2007)
|
|
Santiago
bonds denominated in US$ (1)
|
|
|
45,880 |
|
|
|
- |
|
Santander
bonds denominated in US$ (2) (3)
|
|
|
292,433 |
|
|
|
263,676 |
|
Santiago
Bonds linked to the UF (4)
|
|
|
52,664 |
|
|
|
47,401 |
|
Santander
Bonds linked to the UF (5) (6) (7)
|
|
|
135,926 |
|
|
|
187,139 |
|
Total
subordinated bonds
|
|
|
526,903 |
|
|
|
498,216 |
|
(1)
|
On
July 17, 1997, the former Banco Santiago issued subordinated bonds
denominated in U.S. dollars in an aggregate principal amount of US$300
million. The bonds carry a nominal interest rate of 7.0% per annum, with
semi-annual interest payments and one repayment of principal after a term
of 10 years. These were paid in full in
2007.
|
(2)
|
On
January 16, 2003, the Bank completed the voluntary exchange for its new
subordinated bonds, which will mature in 2012. A total of
US$221,961,000 in principal of the Santiago bonds was offered and redeemed
by the Bank. The
bonds carry a nominal interest rate of 7.375% per annum, with semi-annual
interest payments and one repayment of principal after a term of 10
years.
|
(3)
|
On
December 9, 2004, the Bank issued subordinated bonds denominated in U.S.
dollars in an aggregate principal amount of US$300 million. These bonds
carry a nominal interest rate of 5.375% per annum, with semi-annual
interest payments and one repayment of principal after a term of 10
years.
|
(4)
|
The
Series C and E Bonds outstanding as of December 31, 2005 and 2006, are
intended for the financing of loans with a maturity of greater than one
year. They are
linked to the UF index and carry an annual interest rate of 7.5% and 6.0%
respectively, with interest and principal payments due
semi-annually.
|
(5)
|
Includes
Series C, D and E Bonds, which are linked to the UF index and carry an
annual interest rate of 7.0%, with interest and principal payments due
semi-annually.
|
(6)
|
During
2006, the Bank issued subordinated bonds denominated in UF in an aggregate
principal amount of UF5,000,000, which bear an average annual rate of
4.4%.
|
(7)
|
During
2007, the Bank issued subordinated bonds in the local market for a total
of UF 4 million (Ch$78,491 million as of December 31, 2007). Below is a
detail of the bonds issued.
|
Subordinated
bonds
Series
|
Amount
|
Maturity
|
Interest
rate (%)
|
Z
|
UF
2,000,000
|
25
años
|
No
interest
|
|
X
|
UF
2,000,000
|
25
años
|
4.00%
per year, simple
|
|
|
UF
4,000,000
|
|
|
|
The
maturities of these bonds, which are considered long-term, are as
follows.
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2007)
|
|
Due
within 1 Year
|
|
|
- |
|
Due
after 1 year but within 2 years
|
|
|
- |
|
Due
after 2 years but within 3 years
|
|
|
- |
|
Due
after 3 years but within 4 years
|
|
|
17,349 |
|
Due
after 4 years but within 5 years
|
|
|
116,330 |
|
Due
after 5 years
|
|
|
364,537 |
|
Total
subordinated bonds
|
|
|
498,216 |
|
(e)
Foreign borrowings
These are
short-term and long-term borrowings from foreign banks. The maturities of these
borrowings are as follows.
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2007)
|
|
Due
within 1 Year
|
|
|
608,875 |
|
Due
after 1 year but within 2 years
|
|
|
241,588 |
|
Due
after 2 years but within 3 years
|
|
|
115,430 |
|
Due
after 3 years but within 4 years
|
|
|
129,578 |
|
Due
after 4 years but within 5 years
|
|
|
- |
|
Due
after 5 years
|
|
|
- |
|
Total
foreign borrowings
|
|
|
1,095,471 |
|
The
foreign borrowings are denominated principally in U.S. dollars, and are
principally used to fund the Bank’s foreign trade loans, and bear an annual
average interest rate of 5.3% and 1.3% at December 31, 2006 and 2007,
respectively.
(f)
Other obligations
Other
obligations are summarized as follows.
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2007)
|
|
|
|
|
|
|
Due
within 1 Year
|
|
|
38,808 |
|
Due
after 1 year but within 2 years
|
|
|
2,785 |
|
Due
after 2 years but within 3 years
|
|
|
2,158 |
|
Due
after 3 years but within 4 years
|
|
|
1,915 |
|
Due
after 4 years but within 5 years
|
|
|
1,294 |
|
Due
after 5 years
|
|
|
2,277 |
|
Total
long term obligations
|
|
|
49,237 |
|
Amounts
due to credit card operators
|
|
|
23,497 |
|
Acceptance
of letters of credit
|
|
|
75,134 |
|
Total
short-term obligations
|
|
|
98,631 |
|
Total
other obligations
|
|
|
147,868 |
|
Other
Off-Balance Sheet Arrangements and Commitments
We are
party to transactions with off balance sheet risk in the normal course of our
business. These transactions expose us to credit risk in addition to amounts
recognized in the consolidated financial statements.
These
transactions include commitments to extend credit not otherwise accounted for as
contingent loans, such as overdraft protection and credit card lines of credit.
Such commitments are agreements to lend to a customer at a future date, subject
to the customer compliance with the contractual terms. The aggregate amount of
these commitments was Ch$2,480,684 million at December 31, 2007, which will be
financed with our deposit base. Since a substantial portion of these commitments
is expected to expire without being drawn upon, the total amount of commitments
does not necessarily represent our actual future cash requirements. We use the
same credit policies in making commitments to extend credit as we do for
granting loans. In the opinion of our management, our outstanding commitments do
not represent an unusual credit risk.
From time
to time, the Bank enters into agreements to securitize certain assets by selling
those assets to unconsolidated and unaffiliated entities, which then sell debt
securities secured by those assets. These sales are non recourse to the Bank.
However, in the past, the Bank has occasionally purchased a subordinated bond
issued by the unconsolidated entity. At December 31, 2007, we did not hold any
of these subordinated bonds in our investment portfolio.
Asset
and Liability Management
Please
refer to “Item 11: Quantitative and Qualitative Disclosure about Market
Risk—Asset and Liability Management” regarding our policies with respect to
asset and liability management.
Capital
Expenditures
The
following table reflects capital expenditures in each of the three years ended
December 31, 2005, 2006 and 2007:
|
|
For
the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Land
and Buildings
|
|
|
6,105 |
|
|
|
10,892 |
|
|
|
12,872 |
|
Machinery
and Equipment
|
|
|
11,398 |
|
|
|
8,352 |
|
|
|
8,512 |
|
Furniture
and Fixtures
|
|
|
4,097 |
|
|
|
4,410 |
|
|
|
4,987 |
|
Vehicles
|
|
|
929 |
|
|
|
898 |
|
|
|
390 |
|
Other
|
|
|
1,035 |
|
|
|
2,437 |
|
|
|
3,362 |
|
Total
|
|
|
23,564 |
|
|
|
26,989 |
|
|
|
30,123 |
|
The
increase in capital expenditures in 2007 compared to 2006 was mainly due to the
investment in branches and ATMs. In 2008, we expect a similar level of
investment in expanding our distribution network.
F.
Selected Statistical Information
The
following information is included for analytical purposes and should be read in
conjunction with our financial statements as well as the discussion in “Item 5:
Operating and Financial Review and Prospects.” Pursuant to Chilean GAAP, the
financial data in the following tables for all periods through December 31,
2006, have been restated in constant Chilean pesos as of December 31, 2007. The
UF is linked to, and is adjusted daily to, reflect changes in the previous
month’s Chilean consumer price index. See Note 1(c) to our financial
statements.
Average
Balance Sheets, Income Earned from Interest-Earning Assets and Interest Paid on
Interest-Bearing Liabilities
The
average balances for interest-earning assets and interest-bearing liabilities,
including interest and readjustments received and paid, have been calculated on
the basis of daily balances for us on an unconsolidated basis. Such average
balances are presented in Chilean pesos, UFs and in foreign currencies
(principally U.S. dollars). Figures from our subsidiaries have been calculated
on the basis of monthly balances. The average balances of our subsidiaries,
except Santander S.A. Agente de Valores , have not been categorized by currency.
As such it is not possible to calculate average balances by currency for such
subsidiaries on the basis of daily, weekly or monthly balances.
The
nominal interest rate has been calculated by dividing the amount of interest and
principal readjustment due to changes in the UF index (gain or loss) during the
period by the related average balance, both amounts expressed in constant pesos.
The nominal rates calculated for each period have been converted into real rates
using the following formulas:
Where:
Rp
= real average rate for peso-denominated assets and
liabilities (in Ch$ and UF) for the period;
Rd = real
average rate for foreign currency-denominated assets and liabilities for the
period;
Np = nominal
average rate for peso-denominated assets and liabilities for the
period;
Nd = nominal
average rate for foreign currency-denominated assets and liabilities for the
period;
D =
devaluation rate of the Chilean peso to the U.S. dollar for the period;
and
I = inflation
rate in Chile for the period (based on the variation of the Chilean Consumer
Price Index).
The real
interest rate can be negative for a portfolio of peso-denominated loans when the
inflation rate for the period is higher than the average nominal rate of the
loan portfolio for the same period. A similar effect could occur for a portfolio
of foreign currency denominated loans when the inflation rate for the period is
higher than the sum of the devaluation rate for the period and the corresponding
average nominal rate of the portfolio.
The
formula for the average real rate for foreign currency denominated assets and
liabilities (Rd) reflects a gain or loss in purchasing power caused by the
difference between the devaluation rate of the Chilean peso and the inflation
rate in Chile during the period.
The
following example illustrates the calculation of the real interest rate for a
dollar-denominated asset bearing a nominal annual interest rate of 10.0% (Nd =
0.10), assuming a 5.0% annual devaluation rate (D = 0.05) and a 12.0% annual
inflation rate (I = 0.12):
In the
example, since the inflation rate was higher than the devaluation rate, the real
rate is lower than the nominal rate in dollars. If, for example, the annual
devaluation rate were 15.0%, using the same numbers, the real rate in Chilean
pesos would be 12.9%, which is higher than the nominal rate in U.S. dollars.
Using the same numbers, if the annual inflation rate were greater than 15.5%,
the real rate would be negative.
Contingent
loans (consisting of guarantees and open and unused letters of credit) have been
treated as interest-earning assets. Although the nature of the income derived
from such assets is similar to a fee, Chilean banking regulations require that
such income be accounted for as interest revenue. As a result of this treatment,
the comparatively low rates of interest earned on these assets have a distorting
effect on the average interest rate earned on total interest-earning
assets.
The real
rate for contingent loans has been stated as the nominal rate, since we do not
have an effective funding obligation for these loans. The foreign exchange gains
or losses on foreign currency-denominated assets and liabilities have not been
included in interest revenue or expense. Similarly, interest on financial
investments does not include trading gains or losses on these investments.
Interest is not recognized during periods in which loans are past due. However,
interest received on past due loans includes interest on such loans from the
original maturity date.
Non-performing
loans that are overdue for 90 days or less have been included in each of the
various categories of loans, and therefore affect the various averages.
Non-performing loans consist of loans as to which either principal or interest
is overdue (i.e., non
accrual loans) and restructured loans earning no interest. Non-performing loans
that are overdue for 90 days or more are shown as a separate category of loans
(“Past due loans”). Interest and/or indexation readjustments received on all
non-performing U.S. dollar-denominated loans during the periods are included as
interest revenue. However, all peso-denominated loans that are classified as
non-performing do not accrue interest or indexation adjustments as interest
revenue.
Included
in interbank deposits are checking accounts maintained in the Central Bank and
foreign banks. Such assets have a distorting effect on the average interest rate
earned on total interest-earning assets because currently balances maintained in
Chilean peso amounts do not earn interest, and the only balances held in a
foreign currency that earn interest are those maintained in U.S. dollars, but
those only earn interest on the amounts that are legally required to be held for
liquidity purposes. Additionally, this account includes interest earned by
overnight investments. Consequently, the average interest earned on such assets
is comparatively low. We maintain these deposits in these accounts to comply
with statutory requirements and to facilitate international business, rather
than to earn income.
The
monetary gain or loss on interest-earning assets and interest-bearing
liabilities is not included as a component of interest revenue or interest
expense because inflation effects are taken into account in the calculation of
real interest rates.
The
average balances for 2005 have been reclassified for comparative purposes in
line with the changes made to the financial statements for those years under the
new accounting standards adopted in 2006 regarding Financial Investments and
Derivatives.
The
following tables show, by currency of denomination, average balances and, where
applicable, interest amounts and real rates for our assets and liabilities for
the years ended December 31, 2005, 2006 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interbank
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
41,521 |
|
|
|
1,800 |
|
|
|
0.7 |
% |
|
|
4.3 |
% |
|
|
24,313 |
|
|
|
1,338 |
|
|
|
3.3 |
% |
|
|
5.5 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
11,129 |
|
|
|
802 |
|
|
|
3.5 |
% |
|
|
7.2 |
% |
|
|
7,063 |
|
|
|
470 |
|
|
|
4.4 |
% |
|
|
6.7 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
52,650 |
|
|
|
2,602 |
|
|
|
1.3 |
% |
|
|
4.9 |
% |
|
|
31,376 |
|
|
|
1,808 |
|
|
|
3.6 |
% |
|
|
5.8 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Financial
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
550,403 |
|
|
|
32,314 |
|
|
|
2.2 |
% |
|
|
5.9 |
% |
|
|
717,843 |
|
|
|
47,625 |
|
|
|
4.4 |
% |
|
|
6.6 |
% |
|
|
648,790 |
|
|
|
55,849 |
|
|
|
1.1 |
% |
|
|
8.6 |
% |
UF
|
|
|
662,601 |
|
|
|
58,255 |
|
|
|
5.0 |
% |
|
|
8.8 |
% |
|
|
600,713 |
|
|
|
49,398 |
|
|
|
6.0 |
% |
|
|
8.2 |
% |
|
|
644,669 |
|
|
|
84,436 |
|
|
|
5.3 |
% |
|
|
13.1 |
% |
Foreign
currencies
|
|
|
1,358,066 |
|
|
|
45,276 |
|
|
|
(8.3 |
%) |
|
|
3.3 |
% |
|
|
1,104,673 |
|
|
|
64,510 |
|
|
|
7.7 |
% |
|
|
5.8 |
% |
|
|
710,387 |
|
|
|
44,080 |
|
|
|
(8.3 |
%) |
|
|
6.2 |
% |
Subtotal
|
|
|
2,571,070 |
|
|
|
135,845 |
|
|
|
(2.6 |
%) |
|
|
5.3 |
% |
|
|
2,423,229 |
|
|
|
161,533 |
|
|
|
6.3 |
% |
|
|
6.7 |
% |
|
|
2,003,846 |
|
|
|
184,365 |
|
|
|
(0.9 |
%) |
|
|
9.2 |
% |
Commercial
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
3,326,667 |
|
|
|
463,999 |
|
|
|
10.0 |
% |
|
|
13.9 |
% |
|
|
3,982,715 |
|
|
|
616,584 |
|
|
|
13.1 |
% |
|
|
15.5 |
% |
|
|
4,238,656 |
|
|
|
698,148 |
|
|
|
8.4 |
% |
|
|
16.5 |
% |
UF
|
|
|
4,168,931 |
|
|
|
361,501 |
|
|
|
4.9 |
% |
|
|
8.7 |
% |
|
|
5,169,911 |
|
|
|
362,434 |
|
|
|
4.8 |
% |
|
|
7.0 |
% |
|
|
5,525,904 |
|
|
|
656,830 |
|
|
|
4.1 |
% |
|
|
11.9 |
% |
Foreign
currencies
|
|
|
688,105 |
|
|
|
27,470 |
|
|
|
(7.8 |
%) |
|
|
4.0 |
% |
|
|
734,250 |
|
|
|
43,724 |
|
|
|
7.8 |
% |
|
|
6.0 |
% |
|
|
838,385 |
|
|
|
49,181 |
|
|
|
(8.6 |
%) |
|
|
5.9 |
% |
Subtotal
|
|
|
8,183,703 |
|
|
|
852,970 |
|
|
|
5.9 |
% |
|
|
10.4 |
% |
|
|
9,886,876 |
|
|
|
1,022,742 |
|
|
|
8.4 |
% |
|
|
10.3 |
% |
|
|
10,602,945 |
|
|
|
1,404,159 |
|
|
|
4.8 |
% |
|
|
13.2 |
% |
Mortgage
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
568 |
|
|
|
37 |
|
|
|
2.7 |
% |
|
|
6.4 |
% |
|
|
496 |
|
|
|
40 |
|
|
|
5.8 |
% |
|
|
8.0 |
% |
|
|
2,785 |
|
|
|
233 |
|
|
|
0.9 |
% |
|
|
8.4 |
% |
UF
|
|
|
813,557 |
|
|
|
88,247 |
|
|
|
7.0 |
% |
|
|
10.8 |
% |
|
|
590,000 |
|
|
|
52,629 |
|
|
|
6.7 |
% |
|
|
8.9 |
% |
|
|
426,195 |
|
|
|
58,176 |
|
|
|
5.8 |
% |
|
|
13.7 |
% |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
814,125 |
|
|
|
88,284 |
|
|
|
7.0 |
% |
|
|
10.8 |
% |
|
|
590,496 |
|
|
|
52,669 |
|
|
|
6.7 |
% |
|
|
8.9 |
% |
|
|
428,980 |
|
|
|
58,409 |
|
|
|
5.7 |
% |
|
|
13.6 |
% |
Contingent
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
163,467 |
|
|
|
2,079 |
|
|
|
(2.3 |
%) |
|
|
1.3 |
% |
|
|
218,149 |
|
|
|
2,976 |
|
|
|
(0.7 |
%) |
|
|
1.4 |
% |
|
|
252,616 |
|
|
|
3,088 |
|
|
|
(5.8 |
%) |
|
|
1.2 |
% |
UF
|
|
|
241,950 |
|
|
|
2,352 |
|
|
|
(2.6 |
%) |
|
|
1.0 |
% |
|
|
286,722 |
|
|
|
3,070 |
|
|
|
(1.0 |
%) |
|
|
1.1 |
% |
|
|
275,980 |
|
|
|
3,137 |
|
|
|
(5.9 |
%) |
|
|
1.1 |
% |
Foreign
currencies
|
|
|
553,038 |
|
|
|
1,054 |
|
|
|
(11.1 |
%) |
|
|
0.2 |
% |
|
|
513,165 |
|
|
|
957 |
|
|
|
2.0 |
% |
|
|
0.2 |
% |
|
|
519,060 |
|
|
|
893 |
|
|
|
(13.5 |
%) |
|
|
0.2 |
% |
Subtotal
|
|
|
958,455 |
|
|
|
5,485 |
|
|
|
(7.4 |
%) |
|
|
0.6 |
% |
|
|
1,018,036 |
|
|
|
7,003 |
|
|
|
0.5 |
% |
|
|
0.7 |
% |
|
|
1,047,656 |
|
|
|
7,118 |
|
|
|
(9.6 |
%) |
|
|
0.7 |
% |
Past
due loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
54,744 |
|
|
|
8,371 |
|
|
|
11.3 |
% |
|
|
15.3 |
% |
|
|
50,673 |
|
|
|
10,059 |
|
|
|
17.4 |
% |
|
|
19.8 |
% |
|
|
59,170 |
|
|
|
11,476 |
|
|
|
11.1 |
% |
|
|
19.4 |
% |
UF
|
|
|
74,895 |
|
|
|
- |
|
|
|
(3.5 |
%) |
|
|
- |
|
|
|
49,976 |
|
|
|
- |
|
|
|
(2.1 |
%) |
|
|
- |
|
|
|
47,511 |
|
|
|
- |
|
|
|
(6.9 |
%) |
|
|
- |
|
Foreign
currencies
|
|
|
1,456 |
|
|
|
- |
|
|
|
(11.3 |
%) |
|
|
- |
|
|
|
1,688 |
|
|
|
- |
|
|
|
1.8 |
% |
|
|
- |
|
|
|
1,970 |
|
|
|
- |
|
|
|
(13.6 |
%) |
|
|
- |
|
Subtotal
|
|
|
131,095 |
|
|
|
8,371 |
|
|
|
2.6 |
% |
|
|
6.4 |
% |
|
|
102,337 |
|
|
|
10,059 |
|
|
|
7.6 |
% |
|
|
9.8 |
% |
|
|
108,651 |
|
|
|
11,476 |
|
|
|
2.8 |
% |
|
|
10.6 |
% |
Total
interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
4,137,370 |
|
|
|
508,600 |
|
|
|
8.4 |
% |
|
|
12.3 |
% |
|
|
4,994,189 |
|
|
|
678,622 |
|
|
|
11.2 |
% |
|
|
13.6 |
% |
|
|
5,202,017 |
|
|
|
768,794 |
|
|
|
6.8 |
% |
|
|
14.8 |
% |
UF
|
|
|
5,973,063 |
|
|
|
511,157 |
|
|
|
4.8 |
% |
|
|
8.6 |
% |
|
|
6,704,385 |
|
|
|
468,001 |
|
|
|
4.8 |
% |
|
|
7.0 |
% |
|
|
6,920,259 |
|
|
|
802,579 |
|
|
|
3.9 |
% |
|
|
11.6 |
% |
Foreign
currencies
|
|
|
2,600,665 |
|
|
|
73,800 |
|
|
|
(8.8 |
%) |
|
|
2.8 |
% |
|
|
2,353,776 |
|
|
|
109,191 |
|
|
|
6.5 |
% |
|
|
4.6 |
% |
|
|
2,069,802 |
|
|
|
94,154 |
|
|
|
(9.7 |
%) |
|
|
4.5 |
% |
Subtotal
|
|
|
12,711,098 |
|
|
|
1,093,557 |
|
|
|
3.2 |
% |
|
|
8.6 |
% |
|
|
14,052,350 |
|
|
|
1,255,814 |
|
|
|
7.3 |
% |
|
|
8.9 |
% |
|
|
14,192,078 |
|
|
|
1,665,527 |
|
|
|
3.0 |
% |
|
|
11.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007, except for rate
data)
|
|
NON-INTEREST-EARNING
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
640,148 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
369,839 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
394,673 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
15,664 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,260 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,595 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
655,812 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
385,099 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
412,268 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Reserves
for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ch$
|
|
|
(184,069 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(166,397 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(205,786 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
(184,069 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(166,397 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(205,786 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Fixed
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ch$
|
|
|
215,563 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
244,451 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
237,476 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
215,563 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
244,451 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
237,476 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ch$
|
|
|
246,925 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
732,896 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
556,310 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
23,756 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
30,769 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
341,174 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
1,140,502 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
533,668 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,015,086 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
1,411,183 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,297,333 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,912,570 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
non-interest earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ch$
|
|
|
918,567 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,180,789 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
982,673 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
23,756 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
30,769 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
341,174 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
1,156,166 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
548,928 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,032,681 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
2,098,489 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,760,486 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,356,528 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
TOTAL
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
5,055,937 |
|
|
|
508,600 |
|
|
|
- |
|
|
|
- |
|
|
|
6,174,978 |
|
|
|
678,622 |
|
|
|
- |
|
|
|
- |
|
|
|
6,184,690 |
|
|
|
768,794 |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
5,996,819 |
|
|
|
511,157 |
|
|
|
- |
|
|
|
- |
|
|
|
6,735,154 |
|
|
|
468,001 |
|
|
|
- |
|
|
|
- |
|
|
|
7,261,433 |
|
|
|
802,579 |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
3,756,831 |
|
|
|
73,800 |
|
|
|
- |
|
|
|
- |
|
|
|
2,902,704 |
|
|
|
109,191 |
|
|
|
- |
|
|
|
- |
|
|
|
3,102,483 |
|
|
|
94,154 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
14,809,587 |
|
|
|
1,093,557 |
|
|
|
- |
|
|
|
- |
|
|
|
15,812,836 |
|
|
|
1,255,814 |
|
|
|
- |
|
|
|
- |
|
|
|
16,548,606 |
|
|
|
1,665,527 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
462 |
|
|
|
3 |
|
|
|
(2.9 |
%) |
|
|
0.6 |
% |
|
|
639 |
|
|
|
10 |
|
|
|
(0.5 |
%) |
|
|
1.6 |
% |
|
|
665 |
|
|
|
11 |
|
|
|
(5.4 |
%) |
|
|
1.7 |
% |
UF
|
|
|
126,434 |
|
|
|
5,400 |
|
|
|
0.6 |
% |
|
|
4.3 |
% |
|
|
113,085 |
|
|
|
1,457 |
|
|
|
(0.8 |
%) |
|
|
1.3 |
% |
|
|
97,208 |
|
|
|
6,055 |
|
|
|
(1.1 |
%) |
|
|
6.2 |
% |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
126,896 |
|
|
|
5,403 |
|
|
|
0.6 |
% |
|
|
4.3 |
% |
|
|
113,724 |
|
|
|
1,467 |
|
|
|
(0.8 |
%) |
|
|
1.3 |
% |
|
|
97,873 |
|
|
|
6,066 |
|
|
|
(1.2 |
%) |
|
|
6.2 |
% |
Time
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
2,345,452 |
|
|
|
103,079 |
|
|
|
0.7 |
% |
|
|
4.4 |
% |
|
|
3,617,765 |
|
|
|
222,506 |
|
|
|
3.9 |
% |
|
|
6.2 |
% |
|
|
3,622,601 |
|
|
|
220,828 |
|
|
|
(1.3 |
%) |
|
|
6.1 |
% |
UF
|
|
|
2,293,491 |
|
|
|
136,168 |
|
|
|
2.2 |
% |
|
|
5.9 |
% |
|
|
2,254,295 |
|
|
|
105,458 |
|
|
|
2.5 |
% |
|
|
4.7 |
% |
|
|
2,473,893 |
|
|
|
267,483 |
|
|
|
3.1 |
% |
|
|
10.8 |
% |
Foreign
currencies
|
|
|
939,947 |
|
|
|
23,174 |
|
|
|
(9.1 |
%) |
|
|
2.5 |
% |
|
|
1,006,060 |
|
|
|
47,448 |
|
|
|
6.6 |
% |
|
|
4.7 |
% |
|
|
1,125,352 |
|
|
|
51,810 |
|
|
|
(9.7 |
%) |
|
|
4.6 |
% |
Subtotal
|
|
|
5,578,890 |
|
|
|
262,421 |
|
|
|
(0.3 |
%) |
|
|
4.7 |
% |
|
|
6,878,120 |
|
|
|
375,412 |
|
|
|
3.9 |
% |
|
|
5.6 |
% |
|
|
7,221,846 |
|
|
|
540,121 |
|
|
|
(1.1 |
%) |
|
|
7.5 |
% |
Central
Bank borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
124,276 |
|
|
|
4,027 |
|
|
|
(0.4 |
%) |
|
|
3.2 |
% |
|
|
35,325 |
|
|
|
1,866 |
|
|
|
3.1 |
% |
|
|
5.3 |
% |
|
|
110,852 |
|
|
|
5,987 |
|
|
|
(1.9 |
%) |
|
|
5.4 |
% |
UF
|
|
|
14,478 |
|
|
|
1,069 |
|
|
|
3.6 |
% |
|
|
7.4 |
% |
|
|
55,034 |
|
|
|
2,735 |
|
|
|
2.8 |
% |
|
|
5.0 |
% |
|
|
4,277 |
|
|
|
418 |
|
|
|
2.2 |
% |
|
|
9.8 |
% |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
138,754 |
|
|
|
5,096 |
|
|
|
0.1 |
% |
|
|
3.7 |
% |
|
|
90,359 |
|
|
|
4,601 |
|
|
|
2.9 |
% |
|
|
5.1 |
% |
|
|
115,129 |
|
|
|
6,405 |
|
|
|
(1.7 |
%) |
|
|
5.6 |
% |
Repurchase
agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
259,948 |
|
|
|
7,858 |
|
|
|
(0.6 |
%) |
|
|
3.0 |
% |
|
|
412,044 |
|
|
|
19,781 |
|
|
|
2.6 |
% |
|
|
4.8 |
% |
|
|
426,328 |
|
|
|
29,872 |
|
|
|
(0.4 |
%) |
|
|
7.0 |
% |
UF
|
|
|
208,398 |
|
|
|
11,451 |
|
|
|
1.8 |
% |
|
|
5.5 |
% |
|
|
12,209 |
|
|
|
611 |
|
|
|
2.8 |
% |
|
|
5.0 |
% |
|
|
32,954 |
|
|
|
1,625 |
|
|
|
(2.3 |
%) |
|
|
4.9 |
% |
Foreign
currencies
|
|
|
98,788 |
|
|
|
9,342 |
|
|
|
(2.9 |
%) |
|
|
9.5 |
% |
|
|
162,414 |
|
|
|
8,246 |
|
|
|
6.9 |
% |
|
|
5.1 |
% |
|
|
136,849 |
|
|
|
7,315 |
|
|
|
(9.0 |
%) |
|
|
5.3 |
% |
Subtotal
|
|
|
567,134 |
|
|
|
28,651 |
|
|
|
(0.1 |
%) |
|
|
5.0 |
% |
|
|
586,667 |
|
|
|
28,638 |
|
|
|
3.8 |
% |
|
|
4.9 |
% |
|
|
596,131 |
|
|
|
38,812 |
|
|
|
(2.5 |
%) |
|
|
6.5 |
% |
Mortgage
finance bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
881,875 |
|
|
|
82,612 |
|
|
|
5.5 |
% |
|
|
9.4 |
% |
|
|
621,444 |
|
|
|
46,341 |
|
|
|
5.2 |
% |
|
|
7.5 |
% |
|
|
473,126 |
|
|
|
58,591 |
|
|
|
4.6 |
% |
|
|
12.4 |
% |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
881,875 |
|
|
|
82,612 |
|
|
|
5.5 |
% |
|
|
9.4 |
% |
|
|
621,444 |
|
|
|
46,341 |
|
|
|
5.2 |
% |
|
|
7.5 |
% |
|
|
473,126 |
|
|
|
58,591 |
|
|
|
4.6 |
% |
|
|
12.4 |
% |
Other
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
42,130 |
|
|
|
1,609 |
|
|
|
0.2 |
% |
|
|
3.8 |
% |
|
|
52,310 |
|
|
|
2,774 |
|
|
|
3.1 |
% |
|
|
5.3 |
% |
|
|
35,715 |
|
|
|
2,532 |
|
|
|
(0.3 |
%) |
|
|
7.1 |
% |
UF
|
|
|
222,189 |
|
|
|
34,792 |
|
|
|
11.6 |
% |
|
|
15.7 |
% |
|
|
458,198 |
|
|
|
35,144 |
|
|
|
5.4 |
% |
|
|
7.7 |
% |
|
|
804,503 |
|
|
|
107,531 |
|
|
|
5.5 |
% |
|
|
13.4 |
% |
Foreign
currencies
|
|
|
1,701,898 |
|
|
|
73,172 |
|
|
|
(7.5 |
%) |
|
|
4.3 |
% |
|
|
1,807,994 |
|
|
|
103,631 |
|
|
|
7.6 |
% |
|
|
5.7 |
% |
|
|
1,416,707 |
|
|
|
79,853 |
|
|
|
(8.8 |
%) |
|
|
5.6 |
% |
Subtotal
|
|
|
1,966,217 |
|
|
|
109,573 |
|
|
|
(5.1 |
%) |
|
|
5.6 |
% |
|
|
2,318,502 |
|
|
|
141,549 |
|
|
|
7.1 |
% |
|
|
6.2 |
% |
|
|
2,256,925 |
|
|
|
189,916 |
|
|
|
(3.5 |
%) |
|
|
8.4 |
% |
Total
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
2,772,268 |
|
|
|
116,576 |
|
|
|
0.6 |
% |
|
|
4.2 |
% |
|
|
4,118,083 |
|
|
|
246,937 |
|
|
|
3.8 |
% |
|
|
6.0 |
% |
|
|
4,196,161 |
|
|
|
259,230 |
|
|
|
(1.2 |
%) |
|
|
6.2 |
% |
UF
|
|
|
3,746,865 |
|
|
|
271,492 |
|
|
|
3.5 |
% |
|
|
7.2 |
% |
|
|
3,514,265 |
|
|
|
191,746 |
|
|
|
3.3 |
% |
|
|
5.5 |
% |
|
|
3,885,961 |
|
|
|
441,703 |
|
|
|
3.7 |
% |
|
|
11.4 |
% |
Foreign
currencies
|
|
|
2,740,633 |
|
|
|
105,688 |
|
|
|
(7.8 |
%) |
|
|
3.9 |
% |
|
|
2,976,468 |
|
|
|
159,325 |
|
|
|
7.2 |
% |
|
|
5.4 |
% |
|
|
2,678,908 |
|
|
|
138,978 |
|
|
|
(9.2 |
%) |
|
|
5.2 |
% |
Total
|
|
|
9,259,766 |
|
|
|
493,756 |
|
|
|
(0.7 |
%) |
|
|
5.3 |
% |
|
|
10,608,816 |
|
|
|
598,008 |
|
|
|
4.6 |
% |
|
|
5.7 |
% |
|
|
10,761,030 |
|
|
|
839,911 |
|
|
|
(1.4 |
%) |
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as f December 31, 2007, except for rate
data)
|
|
NON-INTEREST-BEARING
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
demand deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
2,090,323 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,958,610 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,171,559 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
37 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
21 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
2,090,323 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,958,651 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,171,605 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Contingent
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
163,466 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
218,149 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
252,616 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
241,950 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
286,722 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
275,980 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
555,521 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
515,513 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
522,096 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
960,937 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,020,384 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,050,692 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
non-interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
738,720 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
650,520 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
918,851 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
454,110 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
175,902 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
227,932 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
214,801 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
162,835 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
101,297 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
1,407,631 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
989,257 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,248,080 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
1,090,930 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,235,728 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,317,199 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
1,090,930 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,235,728 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,317,199 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
non-interest-bearing liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
4,083,439 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,063,007 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,660,225 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
696,060 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
462,661 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
503,937 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
770,322 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
678,352 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
623,414 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
5,549,821 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,204,020 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,787,576 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
6,855,707 |
|
|
|
116,576 |
|
|
|
|
|
|
|
|
|
|
|
8,181,090 |
|
|
|
246,937 |
|
|
|
|
|
|
|
|
|
|
|
8,856,386 |
|
|
|
259,230 |
|
|
|
|
|
|
|
|
|
UF
|
|
|
4,442,925 |
|
|
|
271,492 |
|
|
|
|
|
|
|
|
|
|
|
3,976,926 |
|
|
|
191,746 |
|
|
|
|
|
|
|
|
|
|
|
4,389,898 |
|
|
|
441,703 |
|
|
|
|
|
|
|
|
|
Foreign
currencies
|
|
|
3,510,955 |
|
|
|
105,688 |
|
|
|
|
|
|
|
|
|
|
|
3,654,820 |
|
|
|
159,325 |
|
|
|
|
|
|
|
|
|
|
|
3,302,322 |
|
|
|
138,978 |
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,809,587 |
|
|
|
493,756 |
|
|
|
|
|
|
|
|
|
|
|
15,812,836 |
|
|
|
598,008 |
|
|
|
|
|
|
|
|
|
|
|
16,548,606 |
|
|
|
839,911 |
|
|
|
|
|
|
|
|
|
Changes
in Net Interest Revenue and Interest Expense: Volume and Rate
Analysis
The
following table allocates, by currency of denomination, changes in our interest
revenue and interest expense between changes in the average volume of
interest-earning assets and interest-bearing liabilities and changes in their
respective nominal interest rates for 2007 compared to 2006 and 2006 compared to
2005. Volume and rate variances have been calculated based on movements in
average balances over the period and changes in nominal interest rates on
average interest-earning assets and average interest-bearing
liabilities.
|
|
Increase
(Decrease) from 2005 to 2006
Due
to Changes in
|
|
|
Net Change
|
|
|
Increase
(Decrease) from 2006 to 2007
Due
to Changes in
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interbank
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
(746 |
) |
|
|
484 |
|
|
|
(200 |
) |
|
|
(462 |
) |
|
|
(1,338 |
) |
|
|
(1,338 |
) |
|
|
1,338 |
|
|
|
(1,338 |
) |
UF
|
|
|
(293 |
) |
|
|
(62 |
) |
|
|
23 |
|
|
|
(332 |
) |
|
|
(470 |
) |
|
|
(470 |
) |
|
|
470 |
|
|
|
(470 |
) |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
(1,039 |
) |
|
|
422 |
|
|
|
(177 |
) |
|
|
(794 |
) |
|
|
(1,808 |
) |
|
|
(1,808 |
) |
|
|
1,808 |
|
|
|
(1,808 |
) |
Financial
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
9,830 |
|
|
|
4,203 |
|
|
|
1,278 |
|
|
|
15,311 |
|
|
|
(4,581 |
) |
|
|
14,168 |
|
|
|
(1,363 |
) |
|
|
8,224 |
|
UF
|
|
|
(5,441 |
) |
|
|
(3,768 |
) |
|
|
352 |
|
|
|
(8,857 |
) |
|
|
3,614 |
|
|
|
29,281 |
|
|
|
2,143 |
|
|
|
35,038 |
|
Foreign
currencies
|
|
|
(8,448 |
) |
|
|
34,032 |
|
|
|
(6,350 |
) |
|
|
19,234 |
|
|
|
(23,025 |
) |
|
|
4,036 |
|
|
|
(1,441 |
) |
|
|
(20,430 |
) |
Subtotal
|
|
|
(4,059 |
) |
|
|
34,467 |
|
|
|
(4,720 |
) |
|
|
25,688 |
|
|
|
(23,992 |
) |
|
|
47,485 |
|
|
|
(661 |
) |
|
|
22,832 |
|
Commercial
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
91,505 |
|
|
|
51,019 |
|
|
|
10,061 |
|
|
|
152,585 |
|
|
|
39,624 |
|
|
|
39,408 |
|
|
|
2,532 |
|
|
|
81,564 |
|
UF
|
|
|
86,799 |
|
|
|
(69,241 |
) |
|
|
(16,625 |
) |
|
|
933 |
|
|
|
24,957 |
|
|
|
252,081 |
|
|
|
17,358 |
|
|
|
294,396 |
|
Foreign
currencies
|
|
|
1,842 |
|
|
|
13,506 |
|
|
|
906 |
|
|
|
16,254 |
|
|
|
6,201 |
|
|
|
(652 |
) |
|
|
(92 |
) |
|
|
5,457 |
|
Subtotal
|
|
|
180,146 |
|
|
|
(4,716 |
) |
|
|
(5,658 |
) |
|
|
169,772 |
|
|
|
70,782 |
|
|
|
290,837 |
|
|
|
19,798 |
|
|
|
381,417 |
|
Mortgage
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
(5 |
) |
|
|
9 |
|
|
|
(1 |
) |
|
|
3 |
|
|
|
183 |
|
|
|
2 |
|
|
|
8 |
|
|
|
193 |
|
UF
|
|
|
(24,249 |
) |
|
|
(15,676 |
) |
|
|
4,307 |
|
|
|
(35,618 |
) |
|
|
(14,612 |
) |
|
|
27,906 |
|
|
|
(7,747 |
) |
|
|
5,547 |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
(24,254 |
) |
|
|
(15,667 |
) |
|
|
4,306 |
|
|
|
(35,615 |
) |
|
|
(14,429 |
) |
|
|
27,908 |
|
|
|
(7,739 |
) |
|
|
5,740 |
|
Contingent
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
695 |
|
|
|
151 |
|
|
|
51 |
|
|
|
897 |
|
|
|
470 |
|
|
|
(309 |
) |
|
|
(49 |
) |
|
|
112 |
|
UF
|
|
|
435 |
|
|
|
239 |
|
|
|
44 |
|
|
|
718 |
|
|
|
(115 |
) |
|
|
189 |
|
|
|
(7 |
) |
|
|
67 |
|
Foreign
currencies
|
|
|
(76 |
) |
|
|
(23 |
) |
|
|
2 |
|
|
|
(97 |
) |
|
|
11 |
|
|
|
(74 |
) |
|
|
(1 |
) |
|
|
(64 |
) |
Subtotal
|
|
|
1,054 |
|
|
|
367 |
|
|
|
97 |
|
|
|
1,518 |
|
|
|
366 |
|
|
|
(194 |
) |
|
|
(57 |
) |
|
|
115 |
|
Past
due loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
(622 |
) |
|
|
2,496 |
|
|
|
(186 |
) |
|
|
1,688 |
|
|
|
1,687 |
|
|
|
(231 |
) |
|
|
(39 |
) |
|
|
1,417 |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
(622 |
) |
|
|
2,496 |
|
|
|
(186 |
) |
|
|
1,688 |
|
|
|
1,687 |
|
|
|
(231 |
) |
|
|
(39 |
) |
|
|
1,417 |
|
Total
interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
100,657 |
|
|
|
58,362 |
|
|
|
11,003 |
|
|
|
170,022 |
|
|
|
36,045 |
|
|
|
51,700 |
|
|
|
2,427 |
|
|
|
90,172 |
|
UF
|
|
|
57,250 |
|
|
|
(88,508 |
) |
|
|
(11,898 |
) |
|
|
(43,156 |
) |
|
|
13,375 |
|
|
|
308,985 |
|
|
|
12,216 |
|
|
|
334,576 |
|
Foreign
currencies
|
|
|
(6,682 |
) |
|
|
47,515 |
|
|
|
(5,442 |
) |
|
|
35,391 |
|
|
|
(16,813 |
) |
|
|
3,311 |
|
|
|
(1,534 |
) |
|
|
(15,037 |
) |
Total
|
|
|
151,225 |
|
|
|
17,369 |
|
|
|
(6,337 |
) |
|
|
162,257 |
|
|
|
32,607 |
|
|
|
363,996 |
|
|
|
13,109 |
|
|
|
409,711 |
|
|
|
Increase
(Decrease) from 2005 to 2006
Due
to Changes in
|
|
|
Net Change
|
|
|
Increase
(Decrease) from 2006 to 2007
Due
to Changes in
|
|
|
Net Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
1 |
|
|
|
4 |
|
|
|
2 |
|
|
|
7 |
|
|
|
0 |
|
|
|
1 |
|
|
|
0 |
|
|
|
2 |
|
UF
|
|
|
(570 |
) |
|
|
(3,771 |
) |
|
|
398 |
|
|
|
(3,943 |
) |
|
|
(205 |
) |
|
|
5,587 |
|
|
|
(784 |
) |
|
|
4,598 |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
(569 |
) |
|
|
(3,767 |
) |
|
|
400 |
|
|
|
(3,936 |
) |
|
|
(205 |
) |
|
|
5,588 |
|
|
|
(784 |
) |
|
|
4,600 |
|
Time
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
55,916 |
|
|
|
41,175 |
|
|
|
22,336 |
|
|
|
119,427 |
|
|
|
297 |
|
|
|
(1,972 |
) |
|
|
(3 |
) |
|
|
(1,678 |
) |
UF
|
|
|
(2,327 |
) |
|
|
(28,877 |
) |
|
|
494 |
|
|
|
(30,711 |
) |
|
|
10,273 |
|
|
|
138,281 |
|
|
|
13,470 |
|
|
|
162,025 |
|
Foreign
currencies
|
|
|
1,630 |
|
|
|
21,156 |
|
|
|
1,488 |
|
|
|
24,274 |
|
|
|
5,626 |
|
|
|
(1,129 |
) |
|
|
(134 |
) |
|
|
4,363 |
|
Subtotal
|
|
|
55,219 |
|
|
|
33,454 |
|
|
|
24,318 |
|
|
|
112,990 |
|
|
|
16,196 |
|
|
|
135,180 |
|
|
|
13,333 |
|
|
|
164,710 |
|
Central
Bank borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
(2,882 |
) |
|
|
2,539 |
|
|
|
(1,817 |
) |
|
|
(2,161 |
) |
|
|
3,990 |
|
|
|
42 |
|
|
|
89 |
|
|
|
4,121 |
|
UF
|
|
|
2,995 |
|
|
|
(349 |
) |
|
|
(979 |
) |
|
|
1,666 |
|
|
|
(2,523 |
) |
|
|
2,649 |
|
|
|
(2,443 |
) |
|
|
(2,317 |
) |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
113 |
|
|
|
2,190 |
|
|
|
(2,796 |
) |
|
|
(495 |
) |
|
|
1,467 |
|
|
|
2,691 |
|
|
|
(2,354 |
) |
|
|
1,804 |
|
Repurchase
agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
4,598 |
|
|
|
4,621 |
|
|
|
2,704 |
|
|
|
11,923 |
|
|
|
686 |
|
|
|
9,090 |
|
|
|
315 |
|
|
|
10,091 |
|
UF
|
|
|
(10,780 |
) |
|
|
(1,016 |
) |
|
|
957 |
|
|
|
(10,840 |
) |
|
|
1,039 |
|
|
|
(9 |
) |
|
|
(15 |
) |
|
|
1,014 |
|
Foreign
currencies
|
|
|
6,017 |
|
|
|
(4,326 |
) |
|
|
(2,786 |
) |
|
|
(1,096 |
) |
|
|
(1,298 |
) |
|
|
436 |
|
|
|
(69 |
) |
|
|
(931 |
) |
Subtotal
|
|
|
(165 |
) |
|
|
(721 |
) |
|
|
875 |
|
|
|
(13 |
) |
|
|
427 |
|
|
|
9,517 |
|
|
|
231 |
|
|
|
10,174 |
|
Mortgage
finance bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
(24,397 |
) |
|
|
(16,850 |
) |
|
|
4,976 |
|
|
|
(36,271 |
) |
|
|
(11,060 |
) |
|
|
30,617 |
|
|
|
(7,307 |
) |
|
|
12,250 |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
(24,397 |
) |
|
|
(16,850 |
) |
|
|
4,976 |
|
|
|
(36,271 |
) |
|
|
(11,060 |
) |
|
|
30,617 |
|
|
|
(7,307 |
) |
|
|
12,250 |
|
Other
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
389 |
|
|
|
625 |
|
|
|
151 |
|
|
|
1,165 |
|
|
|
(880 |
) |
|
|
933 |
|
|
|
(296 |
) |
|
|
(243 |
) |
UF
|
|
|
36,956 |
|
|
|
(17,750 |
) |
|
|
(18,855 |
) |
|
|
351 |
|
|
|
26,561 |
|
|
|
26,099 |
|
|
|
19,726 |
|
|
|
72,386 |
|
Foreign
currencies
|
|
|
4,561 |
|
|
|
24,379 |
|
|
|
1,520 |
|
|
|
30,460 |
|
|
|
(22,428 |
) |
|
|
(1,723 |
) |
|
|
373 |
|
|
|
(23,778 |
) |
Subtotal
|
|
|
41,906 |
|
|
|
7,254 |
|
|
|
(17,184 |
) |
|
|
31,976 |
|
|
|
3,253 |
|
|
|
25,309 |
|
|
|
19,803 |
|
|
|
48,365 |
|
Total
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
58,022 |
|
|
|
48,964 |
|
|
|
23,376 |
|
|
|
130,361 |
|
|
|
4,093 |
|
|
|
8,094 |
|
|
|
105 |
|
|
|
12,292 |
|
UF
|
|
|
1,877 |
|
|
|
(68,613 |
) |
|
|
(13,009 |
) |
|
|
(79,748 |
) |
|
|
24,085 |
|
|
|
203,224 |
|
|
|
22,647 |
|
|
|
249,956 |
|
Foreign
currencies
|
|
|
12,208 |
|
|
|
41,209 |
|
|
|
222 |
|
|
|
53,638 |
|
|
|
(18,100 |
) |
|
|
(2,416 |
) |
|
|
170 |
|
|
|
(20,346 |
) |
Total
|
|
|
72,107 |
|
|
|
21,560 |
|
|
|
10,589 |
|
|
|
104,251 |
|
|
|
10,078 |
|
|
|
208,902 |
|
|
|
22,922 |
|
|
|
241,902 |
|
Interest-Earning
Assets: Net Interest Margin
The
following table analyzes, by currency of denomination, the levels of average
interest-earning assets and net interest earned by Santander-Chile, and
illustrates the comparative margins obtained, for each of the years indicated in
the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
in millions of constant Ch$ as of December 31, 2007, except
percentages)
|
|
Total
average interest-earning assets
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
4,137,370 |
|
|
|
4,994,189 |
|
|
|
5,202,017 |
|
UF
|
|
|
5,973,063 |
|
|
|
6,704,385 |
|
|
|
6,920,259 |
|
Foreign
currencies
|
|
|
2,600,665 |
|
|
|
2,353,776 |
|
|
|
2,069,802 |
|
Total
|
|
|
12,711,098 |
|
|
|
14,052,350 |
|
|
|
14,192,078 |
|
Net
interest earned (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
392,024 |
|
|
|
431,685 |
|
|
|
509,564 |
|
UF
|
|
|
239,665 |
|
|
|
276,255 |
|
|
|
360,876 |
|
Foreign
currencies
|
|
|
(31,888 |
) |
|
|
(50,134 |
) |
|
|
(44,824 |
) |
Total
|
|
|
599,801 |
|
|
|
657,806 |
|
|
|
825,616 |
|
Net
interest margin (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
9.5 |
% |
|
|
8.6 |
% |
|
|
9.8 |
% |
UF
|
|
|
4.0 |
% |
|
|
4.1 |
% |
|
|
5.2 |
% |
Foreign
currencies
|
|
|
(1.2 |
%) |
|
|
(2.1 |
%) |
|
|
(2.2 |
%) |
Total
|
|
|
4.7 |
% |
|
|
4.7 |
% |
|
|
5.8 |
% |
Net
interest margin, excluding contingent loans (2) (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
9.9 |
% |
|
|
9.0 |
% |
|
|
10.3 |
% |
UF
|
|
|
4.2 |
% |
|
|
4.3 |
% |
|
|
5.4 |
% |
Foreign
currencies
|
|
|
(1.6 |
%) |
|
|
(2.7 |
%) |
|
|
(2.9 |
%) |
Total
|
|
|
5.1 |
% |
|
|
5.0 |
% |
|
|
6.3 |
% |
(1)
|
Net
interest earned is defined as interest revenue earned less interest
expense incurred.
|
(2)
|
Net
interest margin is defined as net interest earned divided by average
interest-earning assets.
|
(3)
|
Pursuant
to Chilean GAAP, Santander-Chile also includes contingent loans as
interest-earning assets. See “Item 5: F. Selected Statistical
Information—Loan Portfolio—Contingent
Loans.”
|
Return
on Equity and Assets; Dividend Payout
The
following table presents certain information and selected financial ratios for
Santander-Chile for the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of constant Ch$ as of
December 31, 2007,
except for
percentages)
|
|
Net income
|
|
|
263,006 |
|
|
|
306,829 |
|
|
|
308,647 |
|
Average total
assets
|
|
|
14,809,587 |
|
|
|
15,812,836 |
|
|
|
16,548,606 |
|
Average shareholders’
equity
|
|
|
1,090,930 |
|
|
|
1,235,728 |
|
|
|
1,317,199 |
|
Net income as a percentage
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total
assets
|
|
|
1.8 |
% |
|
|
1.9 |
% |
|
|
1.9 |
% |
Average shareholders’
equity
|
|
|
24.1 |
% |
|
|
24.8 |
% |
|
|
23.4 |
% |
Average shareholders’ equity as a
percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total
assets
|
|
|
7.4 |
% |
|
|
7.8 |
% |
|
|
8.0 |
% |
Declared cash
dividend
|
|
|
170,952 |
|
|
|
199,439 |
|
|
|
n/a |
|
Dividend payout ratio, based on
net income
|
|
|
65 |
% |
|
|
65 |
% |
|
|
n/a |
|
Loan
Portfolio
The
following table analyzes our loans by product type. Except where otherwise
specified, all loan amounts stated below are before deduction for loan loss
allowances. Total loans reflect our loan portfolio, including principal amounts
of past due loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Commercial
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
commercial loans
|
|
|
2,927,125 |
|
|
|
3,583,411 |
|
|
|
4,010,294 |
|
|
|
4,349,409 |
|
|
|
4,657,869 |
|
Foreign
trade loans
|
|
|
504,016 |
|
|
|
562,225 |
|
|
|
561,487 |
|
|
|
796,964 |
|
|
|
812,696 |
|
Interbank
loans
|
|
|
166,638 |
|
|
|
148,914 |
|
|
|
213,568 |
|
|
|
162,762 |
|
|
|
45,961 |
|
Leasing
contracts
|
|
|
503,252 |
|
|
|
570,973 |
|
|
|
728,374 |
|
|
|
821,280 |
|
|
|
879,731 |
|
Other
outstanding loans
|
|
|
965,370 |
|
|
|
1,520,230 |
|
|
|
2,255,967 |
|
|
|
2,880,962 |
|
|
|
3,346,318 |
|
Subtotal
commercial loans
|
|
|
5,066,401 |
|
|
|
6,385,753 |
|
|
|
7,769,690 |
|
|
|
9,011,377 |
|
|
|
9,742,575 |
|
Mortgage
loans backed by mortgage bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1,046,370 |
|
|
|
658,651 |
|
|
|
454,308 |
|
|
|
353,669 |
|
|
|
267,403 |
|
Commercial
|
|
|
694,065 |
|
|
|
388,462 |
|
|
|
242,097 |
|
|
|
168,327 |
|
|
|
117,944 |
|
Subtotal
mortgage loans
|
|
|
1,740,435 |
|
|
|
1,047,113 |
|
|
|
696,405 |
|
|
|
521,996 |
|
|
|
385,347 |
|
Consumer
loans
|
|
|
905,497 |
|
|
|
1,227,748 |
|
|
|
1,527,284 |
|
|
|
1,934,465 |
|
|
|
2,033,125 |
|
Past
due loans
|
|
|
198,175 |
|
|
|
149,011 |
|
|
|
116,893 |
|
|
|
99,445 |
|
|
|
116,654 |
|
Subtotal
|
|
|
7,910,508 |
|
|
|
8,809,625 |
|
|
|
10,110,272 |
|
|
|
11,567,283 |
|
|
|
12,277,701 |
|
Contingent
loans (1)
|
|
|
965,885 |
|
|
|
990,002 |
|
|
|
1,019,796 |
|
|
|
1,098,775 |
|
|
|
1,191,279 |
|
Total
loans (2)
|
|
|
8,876,393 |
|
|
|
9,799,627 |
|
|
|
11,130,068 |
|
|
|
12,666,058 |
|
|
|
13,468,980 |
|
(1)
|
For
purposes of loan classification, contingent loans are considered as
commercial loans.
|
(2)
|
All
of the above categories except mortgage loans, past due loans and
contingent loans are combined into “Loans” as reported in the tables set
forth under “Item 5: F. Selected Statistical Information—Average Balance
Sheets, Income Earned from Interest-Earning Assets And Interest Paid on
Interest Bearing Liabilities.”
|
The loan
categories are as follows:
Commercial loans are
long-term and short-term loans granted in Chilean pesos, on an adjustable or
fixed rate basis, primarily to finance working capital or investments.
Starting January 1,
2004, checking overdraft lines for companies are classified as commercial
loans.
Foreign trade loans are fixed
rate, short-term loans made in foreign currencies (principally US$) to finance
imports and exports.
Interbank loans are fixed
rate, short-term loans to financial institutions that operate in
Chile.
Leasing contracts are
agreements for the financial leasing of capital equipment and other
property.
Other outstanding loans
mainly include mortgage loans (fixed and variable rate) that are
inflation-indexed long-term loans with monthly payments of principal and
interest secured by a real property mortgage. These are financed by our general
borrowings. Other outstanding loans also include factoring operations. Previous
to 2004, this line item also included checking account overdrafts, which as of
January 1, 2004, were classified as commercial or consumer loans depending on
their origin.
Mortgage loans backed by mortgage
bonds are inflation-indexed, fixed rate, long-term loans with monthly
payments of principal and interest secured by a real property mortgage that are
financed with mortgage finance bonds. At the time of approval, these types of
mortgage loans cannot be more than 75% of the lower of the purchase price or the
appraised value of the mortgaged property or such loan will be classified as a
commercial loan. Mortgage bonds are general obligations of the Bank, which is
liable for all principal and accrued interest on such bonds. In addition, if the
issuer of a mortgage finance bond becomes insolvent, the General Banking Law’s
liquidation procedures provide that these types of mortgage loans with their
corresponding mortgage bonds shall be auctioned as a unit and the acquirer must
continue paying the mortgage finance bonds under the same conditions as the
original issuer.
Consumer loans are loans to
individuals, granted in Chilean pesos, generally on a fixed rate basis, to
finance the purchase of consumer goods or to pay for services. They also include
credit card balances subject to interest charges. Starting January 1, 2004,
checking overdraft lines for individuals are classified as commercial
loans.
Past due loans include, with
respect to any loan, the amount of principal or interest that is overdue for 90
days or more, and does not include the installments of such loan that are not
overdue or that are overdue for less than 90 days, unless legal proceedings have
been commenced for the entire outstanding balance according to the terms of the
loan.
Contingent loans consist of
guarantees granted by us in Ch$, UF and foreign currencies (principally US$), as
well as open and unused letters of credit. (Unlike U.S. GAAP, Chilean GAAP
requires such loans to be included on a bank’s balance sheet.)
Any
collateral provided generally consists of a mortgage on real estate, a pledge of
marketable securities, a letter of credit or cash. The existence and amount of
collateral generally vary from loan to loan.
Maturity
and Interest Rate Sensitivity of Loans
The
following table sets forth an analysis by type and time remaining to maturity of
our loans at December 31, 2007.
|
|
|
|
|
Due
after 1 year but up to 5 years
|
|
|
|
|
|
Total
balance at December 31, 2007
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Commercial
loans
|
|
|
2,146,710 |
|
|
|
1,536,883 |
|
|
|
974,276 |
|
|
|
4,657,869 |
|
Consumer
loans
|
|
|
1,191,066 |
|
|
|
816,253 |
|
|
|
25,806 |
|
|
|
2,033,125 |
|
Mortgage
loans
|
|
|
48,036 |
|
|
|
156,504 |
|
|
|
180,807 |
|
|
|
385,347 |
|
Leasing
contacts
|
|
|
235,717 |
|
|
|
444,719 |
|
|
|
199,295 |
|
|
|
879,731 |
|
Foreign
trade loans
|
|
|
673,000 |
|
|
|
89,800 |
|
|
|
49,896 |
|
|
|
812,696 |
|
Interbank
loans
|
|
|
45,961 |
|
|
|
- |
|
|
|
- |
|
|
|
45,961 |
|
Other
outstanding loans
|
|
|
435,082 |
|
|
|
597,263 |
|
|
|
2,313,973 |
|
|
|
3,346,318 |
|
Past
due loans
|
|
|
116,654 |
|
|
|
- |
|
|
|
- |
|
|
|
116,654 |
|
Subtotal
|
|
|
4,892,226 |
|
|
|
3,641,422 |
|
|
|
3,744,053 |
|
|
|
12,277,701 |
|
Contingent
loans
|
|
|
942,382 |
|
|
|
236,443 |
|
|
|
12,454 |
|
|
|
1,191,279 |
|
Total
loans
|
|
|
5,834,608 |
|
|
|
3,877,865 |
|
|
|
3,756,507 |
|
|
|
13,468,980 |
|
The
following tables present the interest rate sensitivity of outstanding loans due
after one year at December 31, 2006, (not including contingent loans). (See also
“Item 5: C. Operating Results—Interest Rates.”)
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Variable
Rate
|
|
|
|
Ch$
|
|
|
18,687 |
|
UF
|
|
|
1,283,968 |
|
Foreign
currencies
|
|
|
383 |
|
Subtotal
|
|
|
1,303,038 |
|
Fixed
Rate
|
|
|
|
|
Ch$
|
|
|
2,023,781 |
|
UF
|
|
|
3,919,620 |
|
Foreign
currencies
|
|
|
139,036 |
|
Subtotal
|
|
|
6,082,437 |
|
Total
|
|
|
7,385,475 |
|
Loans
by Economic Activity
The
following table sets forth, at the dates indicated, an analysis of our loan
portfolio based on the borrower’s principal economic activity. Loans to
individuals for business purposes are allocated to their economic activity. The
table does not reflect outstanding contingent loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007, except for
percentages)
|
|
Agriculture,
Livestock, Agribusiness, Fishing
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
and livestock
|
|
|
326,793 |
|
|
|
2.8 |
|
|
|
370,891 |
|
|
|
3.0 |
|
Fruit
|
|
|
110,749 |
|
|
|
0.9 |
|
|
|
112,594 |
|
|
|
0.9 |
|
Forestry
and wood extraction
|
|
|
113,676 |
|
|
|
1.0 |
|
|
|
66,830 |
|
|
|
0.5 |
|
Fishing
|
|
|
102,224 |
|
|
|
0.9 |
|
|
|
109,733 |
|
|
|
0.9 |
|
Subtotal
|
|
|
653,442 |
|
|
|
5.6 |
|
|
|
660,048 |
|
|
|
5.3 |
|
Mining
and Petroleum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining
and quarries
|
|
|
46,379 |
|
|
|
0.4 |
|
|
|
51,488 |
|
|
|
0.4 |
|
Natural
gas and crude oil extraction
|
|
|
35,618 |
|
|
|
0.3 |
|
|
|
107,029 |
|
|
|
0.9 |
|
Subtotal
|
|
|
81,997 |
|
|
|
0.7 |
|
|
|
158,517 |
|
|
|
1.3 |
|
Manufacturing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tobacco,
food and beverages
|
|
|
151,565 |
|
|
|
1.3 |
|
|
|
170,135 |
|
|
|
1.4 |
|
Textiles,
clothing and leather goods
|
|
|
57,839 |
|
|
|
0.5 |
|
|
|
52,686 |
|
|
|
0.4 |
|
Wood
and wood products
|
|
|
71,543 |
|
|
|
0.7 |
|
|
|
71,459 |
|
|
|
0.6 |
|
Paper,
printing and publishing
|
|
|
69,414 |
|
|
|
0.6 |
|
|
|
120,723 |
|
|
|
1.0 |
|
Oil
refining, carbon and rubber
|
|
|
119,586 |
|
|
|
1.0 |
|
|
|
104,184 |
|
|
|
0.8 |
|
Production
of basic metal, non minerals, machine and equipment
|
|
|
139,893 |
|
|
|
1.2 |
|
|
|
154,848 |
|
|
|
1.3 |
|
Other
manufacturing industries
|
|
|
37,488 |
|
|
|
0.3 |
|
|
|
43,726 |
|
|
|
0.4 |
|
Subtotal
|
|
|
647,328 |
|
|
|
5.6 |
|
|
|
717,761 |
|
|
|
5.9 |
|
Electricity,
Gas and Water
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity,
gas and water
|
|
|
99,232 |
|
|
|
0.9 |
|
|
|
88,984 |
|
|
|
0.7 |
|
Subtotal
|
|
|
99,232 |
|
|
|
0.9 |
|
|
|
88,984 |
|
|
|
0.7 |
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
buildings
|
|
|
399,274 |
|
|
|
3.4 |
|
|
|
398,218 |
|
|
|
3.2 |
|
Other
constructions
|
|
|
389,036 |
|
|
|
3.4 |
|
|
|
380,438 |
|
|
|
3.1 |
|
Subtotal
|
|
|
788,310 |
|
|
|
6.8 |
|
|
|
778,656 |
|
|
|
6.3 |
|
Commerce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
406,531 |
|
|
|
3.5 |
|
|
|
426,665 |
|
|
|
3.5 |
|
Retail,
restaurants and hotels
|
|
|
553,041 |
|
|
|
4.8 |
|
|
|
659,244 |
|
|
|
5.4 |
|
Subtotal
|
|
|
959,572 |
|
|
|
8.3 |
|
|
|
1,085,909 |
|
|
|
8.9 |
|
Transport,
Storage and Communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transport
and storage
|
|
|
296,778 |
|
|
|
2.6 |
|
|
|
303,739 |
|
|
|
2.5 |
|
Communications
|
|
|
139,445 |
|
|
|
1.2 |
|
|
|
176,331 |
|
|
|
1.4 |
|
Subtotal
|
|
|
436,223 |
|
|
|
3.8 |
|
|
|
480,070 |
|
|
|
3.9 |
|
Financial
Services, Insurance and Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
insurance and companies
|
|
|
658,189 |
|
|
|
5.7 |
|
|
|
566,862 |
|
|
|
4.6 |
|
Real
estate and other services provided to companies
|
|
|
353,414 |
|
|
|
3.0 |
|
|
|
348,126 |
|
|
|
2.8 |
|
Subtotal
|
|
|
1,011,603 |
|
|
|
8.7 |
|
|
|
914,988 |
|
|
|
7.4 |
|
Community,
Social and Personal Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community,
social and personal services
|
|
|
1,927,487 |
|
|
|
16.7 |
|
|
|
2,007,192 |
|
|
|
16.4 |
|
Subtotal
|
|
|
1,927,487 |
|
|
|
16.7 |
|
|
|
2,007,192 |
|
|
|
16.4 |
|
Consumer
Credit
|
|
|
1,954,622 |
|
|
|
16.9 |
|
|
|
2,056,790 |
|
|
|
16.8 |
|
Residential
Mortgage Loans
|
|
|
3,007,467 |
|
|
|
26.0 |
|
|
|
3,328,786 |
|
|
|
27.1 |
|
Total
|
|
|
11,567,283 |
|
|
|
100.0 |
|
|
|
12,277,701 |
|
|
|
100.0 |
|
At
December 31, 2007, foreign country loans totaled Ch$417,596 million,
representing 2.3% of our total assets. No single foreign country
represents more than 1% of our assets.
Credit
Review Process
The Risk
Division, our credit analysis and risk management group, is largely independent
of our Commercial Division. Risk evaluation teams interact regularly with our
clients. For larger transactions, risk teams in our headquarters work directly
with clients when evaluating credit risks and preparing credit applications.
Various credit approval committees, all of which include Risk Division and
Commercial Division personnel, must verify that the appropriate qualitative and
quantitative parameters are met by each applicant. Each committee’s powers are
defined by our Board of Directors.
In
addition, Banco Santander Spain is involved in the credit approval process of
our largest loans and borrowers. If a single borrower or an economic group owes
us an aggregate amount in excess of US$40 million, any additional loan to such
borrower or member of such group must be reviewed by Banco Santander Spain. Once
a year, the Executive Committee of Banco Santander Spain reviews those loans
booked by us in excess of US$40 million.
Credit
Approval: Corporate
In
preparing a credit proposal for a corporate client, Santander-Chile’s personnel
verify such parameters as debt servicing capacity (including, usually, projected
cash flows), the company’s financial history and projections for the economic
sector in which it operates. The Risk Division is closely involved in this
process, and prepares the credit application for the client. All proposals
contain an analysis of the client’s strengths and weaknesses, a rating and a
recommendation. Credit limits are determined not on the basis of outstanding
balances of individual clients, but on the direct and indirect credit risk of
entire financial groups. For example, a corporation will be evaluated together
with its subsidiaries and affiliates.
Credit
Approval: Retail Banking
Retail
loans are evaluated and approved by the Risk for Individuals, Micro businesses
and Small Businesses Division. The majority of loans to individuals are approved
by the Standardized Risk Area. The credit evaluation process is based
on an evaluation system known as Garra for Banco Santander and
Syseva for Santander
Banefe, both process are decentralized, automated and are based on a scoring
system which incorporates our Credit Risk Policies.
The credit
evaluation process is based on the gathering of information to determine a
client’s financial stability, payment capacity and commercial nature. The
following parameters are used to evaluate an applicant’s credit risk: (i)
income, (ii) length of current employment, (iii) indebtedness, (iv) credit
reports and (v) background information, which is accessed by means of internal
and external databases. Operations which cannot be approved by Garra or Syseva are sent to the
Approval Center, a centralized area that carries out yearly analyses and
renewals of credit lines and credit cards and evaluates higher risk
credits.
The
following table lists our committees from which credit approval is required
depending on total risk exposure:
Approved
By
|
Maximum
approval in
Thousands
of US$
|
Executive
Credit Committee
|
>20,000
|
Loan
Credit Committee
|
20,000
|
Business
Segment Committee
|
8,000-10,000
|
Large
Companies
|
10,000
|
Real
estate sector
|
10,000
|
Medium
sized companies
|
8,000
|
Regional
Committee
|
5,000
|
Branch
committee
|
300
|
Companies
|
300
|
Mortgage
|
120
|
Persons
|
30
|
The
following table lists Santander Banefe’s personnel from whom credit approval is
required, depending upon total risk exposure. These attributions are granted
based on specific training processes given by the Risk Division and according to
the experience and professional background of the employee.
|
Range
in US$
(Excludes
mortgage loans)
|
Risk
Division Manager
|
>
12,500
|
Assistant
Risk Division Managers
|
6,250-12,500
|
Zone
Manager
|
3,125-6,250
|
Branch
Assistant Manager
|
1,550-3,125
|
Credit
Analyst
|
1,170-1,550
|
Commercial
Executive
|
0-1,170
|
The
Executive Credit Committee is comprised of the Chairman of the Board, three
additional Board members, the Corporate Legal Counsel, the CEO, the Manager of
Global Banking, the Corporate Director of Risk and two senior members of the
Credit Risk department that present the loans being reviewed. This committee
reviews the loan positions reviewed by the Senior Credit Committee above US$10
million and approves those loan positions greater than US$20 million. In
addition, any loan position above US$40 million must also be reviewed by Banco
Santander Spain’s credit committee.
The Loan
Credit Committee is comprised of the CEO, the Manager of the Wholesale segment,
the Manager of the Medium sized companies segment, General Counsel, the
Corporate Director of Credit Risk and the Manager of Credit Admissions. The Loan
Credit Committee reviews and will either approve or deny transactions in the
range of US$8 million to US$20 million that have been previously approved by one
of the Business Segment Committees: (i) Large Companies, (ii) Medium sized
Companies and (iii) Real Estate. The Regional Committees have a maximum approval
of up to US$5 million. The regional committees oversee the branch networks
outside of Santiago. At the branch level, the maximum approval is US$300,000 for
companies, US$30,000 for individuals and US$120,000 for mortgages. For the lower
level committees, credit granting authority varies according to the seniority
and experience of the committee members, and the values indicated represent
upper limits. All committees include at least two bank officers from the
commercial and credit areas.
We also
have a department designated to monitor the quality of the loan portfolio on a
continuous basis. The purpose of this special supervision is to maintain
constant scrutiny of the portions of the portfolio that represent the greatest
risk and to anticipate any deterioration. Based on this ongoing review of the
loan portfolio, we believe we are able to detect problem loans and make a
decision on client’s status. This includes measures such as reducing or
extinguishing a loan, or requiring better collateral from the client. The
control systems require that these loans be reviewed at least three times per
year for those clients in the lowest category of credit watch.
Classification
of Loan Portfolio
Chilean
banks are required to provide to the Superintendency of Banks detailed
information regarding their loan portfolio on a monthly basis. The
Superintendency of Banks examines and evaluates each financial institution’s
credit management process, including its compliance with the loan classification
guidelines. Banks are classified into four categories: 1, 2, 3 and 4. Each
bank’s category depends on the models and methods used by the bank to classify
its loan portfolio, as determined by the Superintendency of Banks. Category 1
banks are those banks whose methods and models are satisfactory to the
Superintendency of Banks. Category 1 banks will be entitled to continue using
the same methods and models they currently have in place. A bank classified as a
category 2 bank will have to
maintain
the minimum levels of reserves established by the Superintendency of Banks while
its Board of Directors will be made aware of the problems detected by the
Superintendency of Banks and required to take steps to correct them. Banks
classified as categories 3 and 4 will have to maintain the minimum levels of
reserves established by the Superintendency of Banks until they are authorized
by the Superintendency of Banks to do otherwise. We are classified in category
1.
Under the
classifications effective January 1, 2004, loans are divided into: (i) consumer
loans (including loans granted to individuals for the purpose of financing the
acquisition of consumer goods or payment of services); (ii) residential mortgage
loans (including loans granted to individuals for the acquisition, construction
or repair of residential real estate, in which the value of the property covers
at least 100% of the amount of the loan); and (iii) commercial loans (includes
all loans other than consumer loans and residential mortgage
loans).
In
accordance with the regulations, which became effective as of January 1, 2004,
the models and methods used to classify our loan portfolio must follow the
following guiding principles, which have been established by the Superintendency
of Banks and approved by our Board of Directors. In 2006, these models were
improved and various changes introduced. Since then, not only have
our internal provisioning models focused on non-performance, we have also
introduced statistical models that take into account a borrower’s credit history
and indebtedness levels.
Group ratings that determine loan loss allowances based only on
non-performance are being phased out and replaced by statistical scoring
systems.
Allowances
for large commercial loans
For large
commercial loans, leasing and factoring, the Bank assigns a risk category level
to each borrower and his respective loans. The Bank considers the following risk
factors within the analysis: industry or sector of the borrower, owners or
managers of the borrower, their financial situation, their payment capacity and
payment behavior. The Bank assigns one of the following risk categories to each
loan and borrower:
|
i.
|
Classifications
A1, A2 and A3, correspond to borrowers with no apparent credit
risk.
|
|
ii.
|
Classifications
B, correspond to borrowers with some credit risk but no apparent
deterioration of payment capacity.
|
|
iii.
|
Classifications
C1, C2, C3, C4, D1 and D2 correspond to borrowers whose loans have
deteriorated.
|
For loans
classified as A1, A2, A3 and B, the Bank assigns a specific level of risk to
each borrower and, therefore, amount of loan loss allowance is determined on a
case by case basis. All
commercial loans for Companies, including leasing and factoring, have since been
rated using a model for evaluating and calculating provisions on an individual
basis. Since a debtor’s
behavior varies over time, in order to determine the provisions, it is necessary
to make a distinction between normal debtors and deteriorated
debtors.
Debtor
Classes
Two debtor
classes have been determined based on debtors’ credit behavior in order to
calculate loan loss allowance:
|
·
|
Normal
Debtors: Debtors that are current on their payment obligations and show no
sign of deterioration in their credit quality.
|
|
·
|
Deteriorated
Debtors: Debtors that present some degree of non-payment in the Bank;
which include debtors whose loan balances with us of 5% or more have been
non-performing for more than three months, whose loans with us have been
charged off or administered by our Recovery Unit, or classified as
Precontenciosos (PRECO or
Deteriorated)
|
Definition
of Expected Loan Loss = Loan Loss Allowance
The
expected loss is obtained by multiplying all risk factors defined in the
following equation:
EL = Expected
Loss
|
PNP=Probability
of Non-Performing
|
EXP = Exposure
|
SEV = Severity
|
EL =
Expected Loss. The expected loss is how much could be lost in the event a debtor
does not perform the obligations under the loan.
PNP =
Probability of Non-performing.
This variable, expressed as a percentage, indicates the probability that
a debtor will default next year. This percentage is associated with the internal
rating we give to each debtor, which is determined by analyzing such parameters
as debt servicing capacity (including, usually, projected cash flows), the
company’s financial history, the solvency and capacity of shareholders and
management, and projections for the economic sector in which it operates. The
internal rating can be different from ratings obtained from external third
parties.
EXP =
Exposure. This corresponds to the value of commercial loans without discounting
the value of guarantees or collateral.
SEV =
Severity. This is the effective loss rate for debtors in the same segment, which
is determined statistically based on the historical effective losses for the
Bank for each segment.
Determination
of loan loss allowance according to Borrower Class
Normal
Debtors
|
·
|
The
loan loss allowance for each debtor is calculated based on the Expected
Loss equation (EL = PNP * EXP *
SEV).
|
|
·
|
A
risk category is assigned to each debtor based on the PNP summarized in
the following table:
|
|
|
|
|
Loan
Loss Allowance (Pre-Dec. 2006)
|
|
Loan
loss allowance as of and after Dec. 2006
|
External
Classification> AA-
|
|
A1
|
|
0%
|
|
Determined
by a model
on
an
individual
basis
|
PNP
≤ 1%
|
|
A2
|
|
0%
|
|
1%
< PNP ≤ 4%
|
|
A3
|
|
0.5%
|
|
PNP
> 4%
|
|
B
|
|
1.0%
|
|
Note:
The classification is no longer tied to a particular level of allowance. For
example, now an A1 could have a 0.1% allowance or a 0.2% allowance. The
allowance is determined by the PNP which is directly associated to the internal
rating each client receives. All loans have an assigned allowance regardless of
classification level.
Deteriorated
Debtors
For loans
classified in Categories C1, C2, C3, C4, D1 and D2, the Bank must have the
following levels of allowance:
|
|
|
|
|
C1
|
|
Up
to 3%
|
|
2%
|
C2
|
|
More
than 3% up to 19%
|
|
10%
|
C3
|
|
More
than 19% up to 29%
|
|
25%
|
C4
|
|
More
than 29% up to 49%
|
|
40%
|
D1
|
|
More
than 49% up to 79%
|
|
65%
|
D2
|
|
More
than 79%
|
|
90%
|
(1)
|
Represents
percentages of the required allowance to the aggregate amount of principal
and accrued but unpaid interest of the
loan.
|
Allowances
for consumer loans
The
classification of consumer is directly related to the aging of the installment.
The following table sets forth our methodology for analyzing consumer loans
prior to 2006.
|
|
Consumer
loans overdue status
|
|
Allowances
as a percentage of aggregate exposure (1)
|
Category
|
|
|
|
|
|
|
|
(Days)
|
|
|
A
|
|
—
|
|
—
|
|
—%
|
B
|
|
1
|
|
30
|
|
1
|
B-
|
|
31
|
|
60
|
|
20
|
C
|
|
61
|
|
120
|
|
60
|
D
|
|
121
|
|
>121
|
|
90
|
(1)
|
In
effect until December 31, 2005. Represents the
percentages of the required allowance to the aggregate amount of the
principal and accrued but unpaid interest of loans. Starting January 1,
2006, the risk category is determined by days of non-payment. However, the
classification does not determine loan loss allowance
levels.
|
Commencing
in 2006, the Bank improved and modified the methodology for analyzing consumer
loans. All consumer and
are now assigned an allowance level on an individual borrower basis utilizing a
more automated and sophisticated statistical model and considering borrower’s
credit history, including any defaults on obligations to other creditors, as
well as the overdue periods on the loans borrowed from the Bank. Further enhancements were
implemented in 2007.
The Bank now differentiates between old and new clients when determining
a client’s risk profile for consumer loans and those that have gone through some
type of renegotiation in the past in the financial system. All loans are
assigned a provision at the moment a loan is granted depending on the risk
profile of the client. Secondly, the time period used for statistically
considering a consumer loan mature in order to determine the risk level of
consumer loans was extended from 12 to 21 months of history. The latter change
signified a one-time provision expense of Ch$14,444 million in 2007. The
following table sets forth the allowances for consumer loan that depends on the
client’s profile.
|
|
|
|
Not-Renegotiated
|
|
|
Renegotiated
|
|
Loan
type
|
|
Allowance
%
|
|
New
Clients
|
|
|
Old
Clients
|
|
|
New
Clients
|
|
|
Old
Clients
|
|
Consumer
|
|
Profile
1
|
|
|
51.3 |
% |
|
|
39.1 |
% |
|
|
24.3 |
% |
|
|
30.2 |
% |
|
|
Profile
2
|
|
|
28.6 |
% |
|
|
15.2 |
% |
|
|
17.5 |
% |
|
|
25.8 |
% |
|
|
Profile
3
|
|
|
16.2 |
% |
|
|
9.0 |
% |
|
|
8.2 |
% |
|
|
14.9 |
% |
|
|
Profile
4
|
|
|
13.0 |
% |
|
|
4.8 |
% |
|
|
—
|
|
|
|
8.0 |
% |
|
|
Profile
5
|
|
|
7.7 |
% |
|
|
2.7 |
% |
|
|
—
|
|
|
|
1.2 |
% |
|
|
Profile
6
|
|
|
5.9 |
% |
|
|
1.2 |
% |
|
|
—
|
|
|
|
—
|
|
|
|
Profile
7
|
|
|
2.3 |
% |
|
|
0.4 |
% |
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
for mortgage loans
The
classification of mortgage loans is directly related to the aging of the
installment. The following table sets forth our methodology for analyzing
consumer and mortgage loans prior to 2006.
|
|
Residential
mortgage loans overdue status
|
|
Allowances
as a percentage of aggregate exposure (1)
|
Category
|
|
|
|
|
|
|
|
(Days)
|
|
|
A
|
|
—
|
|
—
|
|
—%
|
B
|
|
1
|
|
180
|
|
1
|
B-
|
|
181
|
|
>181
|
|
20
|
C
|
|
—
|
|
—
|
|
60
|
D
|
|
—
|
|
—
|
|
90
|
(1)
|
In
effect until December 31, 2005. Represents the percentages of the required
allowance to the aggregate amount of the principal and accrued but unpaid
interest of loans. Starting January 1, 2006, the risk category is
determined by days of non-payment. However, the classification does not
determine loan loss allowance
levels.
|
Commencing
in 2006, the Bank improved and modified the methodology for analyzing mortgage
loans. All mortgage loans are now assigned an allowance level on an individual
borrower basis utilizing a more automated and sophisticated statistical model
and considering borrower’s credit history, including any defaults on obligations
to other creditors, as well as the overdue periods on the loans borrowed from
the Bank. Once the rating of the client is determined, the allowance for
mortgage loans is calculated using a risk category and related allowance to loan
ratio which is directly related to the overdue periods. The following table sets
forth the allowance to loan ratios on loans based on overdue time.
|
|
|
|
|
|
|
|
|
1-30 |
|
|
|
31-60 |
|
|
|
61-120 |
|
|
|
121-180 |
|
|
|
181-360 |
|
|
|
361-
720 |
|
|
>720
|
|
Mortgage
|
Profile
1
|
|
|
0.3 |
% |
|
|
0.5 |
% |
|
|
1.2 |
% |
|
|
2.4 |
% |
|
|
6.8 |
% |
|
|
14.1 |
% |
|
|
28.3 |
% |
|
Profile
2
|
|
|
1.5 |
% |
|
|
1.6 |
% |
|
|
2.5 |
% |
|
|
4.4 |
% |
|
|
6.8 |
% |
|
|
14.1 |
% |
|
|
28.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents
the percentage of required allowance amount to the aggregate amount of the
principal and accrued but unpaid interest on the loan. These percentages
may vary as the model is improved.
|
Allowances
for group evaluations on small and mid-sized commercial loans
|
·
|
Allowances
for group evaluations are permitted for a large number of borrowers whose
individual loan amounts are relatively insignificant. These models are
intended to be used primarily to analyze commercial loans to individuals
and small companies.
|
|
·
|
Levels
of required reserves are to be determined by the Bank, according to the
estimated loss that may result from the loans, by classifying the loan
portfolio using one or both of the following
models:
|
|
i.
|
A
model based on the characteristics of the borrowers and their outstanding
loans. Borrowers
and their loans with similar characteristics will be placed into groups
and each group will be assigned a risk
level.
|
|
ii.
|
A
model based on the behavior of a group of loans. Loans with analogous
past payment histories and similar characteristics will be placed into
groups and each group will be assigned a risk level. Currently, the Bank
is utilizing group analysis for determining the loan loss for certain
types of loans such as lending to small and mid-sized companies and
commercial loans to individuals.
|
Additional
reserves
Banks are
permitted to establish allowances above the limits described above only to cover
specific risks that have been authorized by their Board of Directors. Voluntary
reserves that cover no specific risk are no longer permitted.
Analysis
of Santander-Chile’s Loan Classification
The
following tables provide statistical data regarding the classification of our
loans at the end of each of the last five years.
|
|
|
At
December 31, 2003
(in
millions of constant Ch$ as of December 31, 2007, except
percentages)
|
|
Category
|
|
|
|
|
|
|
|
|
Residential
Mortgage Loans
|
|
|
|
|
|
Percentage
of Evaluated Loans
|
|
A
|
|
|
|
3,412,521 |
|
|
|
725,498 |
|
|
|
1,444,630 |
|
|
|
5,582,649 |
|
|
|
69.7 |
% |
B
|
|
|
|
1,856,490 |
|
|
|
111,025 |
|
|
|
136,772 |
|
|
|
2,104,287 |
|
|
|
26.3 |
% |
B-
|
|
|
|
117,324 |
|
|
|
36,112 |
|
|
|
44,845 |
|
|
|
198,281 |
|
|
|
2.5 |
% |
C
|
|
|
|
32,587 |
|
|
|
28,879 |
|
|
|
2,740 |
|
|
|
64,206 |
|
|
|
0.8 |
% |
D
|
|
|
|
37,021 |
|
|
|
18,045 |
|
|
|
2 |
|
|
|
55,068 |
|
|
|
0.7 |
% |
Total
of evaluated loans
|
|
|
|
5,455,943 |
|
|
|
919,559 |
|
|
|
1,628,989 |
|
|
|
8,004,491 |
|
|
|
100.0 |
% |
Total
loans
|
|
|
|
6,327,844 |
|
|
|
919,559 |
|
|
|
1,628,989 |
|
|
|
8,876,392 |
|
|
|
|
|
Percentage
evaluated
|
|
|
|
86.2 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
90.2 |
% |
|
|
|
|
|
|
|
At
December 31, 2004
(in
millions of constant Ch$ as of December 31, 2007, except
percentages)
|
|
Category
|
|
|
|
|
|
|
|
|
Residential
Mortgage Loans
|
|
|
|
|
|
Percentage
of Evaluated Loans
|
|
A
|
|
|
|
- |
|
|
|
1,037,678 |
|
|
|
1,910,034 |
|
|
|
2,947,712 |
|
|
|
30.1 |
% |
A1
|
|
|
|
475,568 |
|
|
|
- |
|
|
|
- |
|
|
|
475,568 |
|
|
|
4.9 |
% |
A2 |
|
|
|
4,076,689 |
|
|
|
- |
|
|
|
- |
|
|
|
4,076,689 |
|
|
|
41.6 |
% |
A3 |
|
|
|
727,391 |
|
|
|
- |
|
|
|
- |
|
|
|
727,391 |
|
|
|
7.4 |
% |
B |
|
|
|
714,488 |
|
|
|
106,619 |
|
|
|
98,431 |
|
|
|
919,538 |
|
|
|
9.4 |
% |
B- |
|
|
|
- |
|
|
|
37,628 |
|
|
|
42,244 |
|
|
|
79,872 |
|
|
|
0.8 |
% |
C |
|
|
|
- |
|
|
|
34,981 |
|
|
|
2,364 |
|
|
|
37,345 |
|
|
|
0.4 |
% |
C1 |
|
|
|
288,992 |
|
|
|
- |
|
|
|
- |
|
|
|
288,992 |
|
|
|
2.9 |
% |
C2 |
|
|
|
62,943 |
|
|
|
- |
|
|
|
- |
|
|
|
62,943 |
|
|
|
0.6 |
% |
C3 |
|
|
|
35,713 |
|
|
|
- |
|
|
|
- |
|
|
|
35,713 |
|
|
|
0.4 |
% |
C4 |
|
|
|
27,072 |
|
|
|
- |
|
|
|
- |
|
|
|
27,072 |
|
|
|
0.3 |
% |
D |
|
|
|
- |
|
|
|
22,400 |
|
|
|
1 |
|
|
|
22,401 |
|
|
|
0.2 |
% |
D1 |
|
|
|
28,712 |
|
|
|
- |
|
|
|
- |
|
|
|
28,712 |
|
|
|
0.3 |
% |
D2 |
|
|
|
69,677 |
|
|
|
- |
|
|
|
- |
|
|
|
69,677 |
|
|
|
0.7 |
% |
Total
of evaluated loans |
|
|
|
6,507,245 |
|
|
|
1,239,306 |
|
|
|
2,053,074 |
|
|
|
9,799,625 |
|
|
|
100.0 |
% |
Total
loans |
|
|
|
6,507,245 |
|
|
|
1,239,306 |
|
|
|
2,053,074 |
|
|
|
9,799,625 |
|
|
|
|
|
Percentage
evaluated |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
At
December 31, 2005
(in
millions of constant Ch$ as of December 31, 2007, except
percentages)
|
|
Category
|
|
|
|
|
|
|
|
|
Residential
Mortgage Loans
|
|
|
|
|
|
Percentage
of Evaluated Loans
|
|
A |
|
|
|
- |
|
|
|
1,264,085 |
|
|
|
2,362,015 |
|
|
|
3,626,100 |
|
|
|
32.6 |
% |
A1 |
|
|
|
470,257 |
|
|
|
- |
|
|
|
- |
|
|
|
470,257 |
|
|
|
4.3 |
% |
A2 |
|
|
|
4,514,435 |
|
|
|
- |
|
|
|
- |
|
|
|
4,514,435 |
|
|
|
40.6 |
% |
A3 |
|
|
|
1,016,594 |
|
|
|
- |
|
|
|
- |
|
|
|
1,016,594 |
|
|
|
9.1 |
% |
B |
|
|
|
713,840 |
|
|
|
160,708 |
|
|
|
132,783 |
|
|
|
1,007,331 |
|
|
|
9.1 |
% |
B- |
|
|
|
- |
|
|
|
50,099 |
|
|
|
29,444 |
|
|
|
79,543 |
|
|
|
0.7 |
% |
C |
|
|
|
- |
|
|
|
39,295 |
|
|
|
2,027 |
|
|
|
41,322 |
|
|
|
0.4 |
% |
C1 |
|
|
|
203,608 |
|
|
|
- |
|
|
|
- |
|
|
|
203,608 |
|
|
|
1.8 |
% |
C2 |
|
|
|
43,711 |
|
|
|
- |
|
|
|
- |
|
|
|
43,711 |
|
|
|
0.4 |
% |
C3 |
|
|
|
22,191 |
|
|
|
- |
|
|
|
- |
|
|
|
22,191 |
|
|
|
0.2 |
% |
C4 |
|
|
|
15,057 |
|
|
|
- |
|
|
|
- |
|
|
|
15,057 |
|
|
|
0.1 |
% |
D |
|
|
|
- |
|
|
|
27,306 |
|
|
|
- |
|
|
|
27,306 |
|
|
|
0.2 |
% |
D1 |
|
|
|
25,999 |
|
|
|
- |
|
|
|
- |
|
|
|
25,999 |
|
|
|
0.2 |
% |
D2 |
|
|
|
36,614 |
|
|
|
- |
|
|
|
- |
|
|
|
36,614 |
|
|
|
0.3 |
% |
Total
of evaluated loans
|
|
|
|
7,062,306 |
|
|
|
1,541,493 |
|
|
|
2,526,269 |
|
|
|
11,130,068 |
|
|
|
100.0 |
% |
Total
loans |
|
|
|
7,062,306 |
|
|
|
1,541,493 |
|
|
|
2,526,269 |
|
|
|
11,130,068 |
|
|
|
|
|
Percentage
evaluated |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
As
of December 31, 2006
(in
millions of constant Ch$ as of December 31, 2007, except for
percentages)
|
|
Category
|
|
|
|
|
|
|
|
|
Residential
Mortgage Loans
|
|
|
|
|
|
Percentage
of Evaluated Loans
|
|
A |
|
|
|
- |
|
|
|
1,598,134 |
|
|
|
2,830,330 |
|
|
|
4,428,464 |
|
|
|
35.0 |
% |
A1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
A2 |
|
|
|
5,501,457 |
|
|
|
- |
|
|
|
- |
|
|
|
5,501,457 |
|
|
|
43.4 |
% |
A3 |
|
|
|
1,751,055 |
|
|
|
- |
|
|
|
- |
|
|
|
1,751,055 |
|
|
|
13.8 |
% |
B |
|
|
|
163,584 |
|
|
|
182,015 |
|
|
|
131,285 |
|
|
|
476,884 |
|
|
|
3.8 |
% |
B- |
|
|
|
- |
|
|
|
67,156 |
|
|
|
21,249 |
|
|
|
88,405 |
|
|
|
0.7 |
% |
C |
|
|
|
- |
|
|
|
68,193 |
|
|
|
34,217 |
|
|
|
102,410 |
|
|
|
0.8 |
% |
C1 |
|
|
|
137,014 |
|
|
|
- |
|
|
|
- |
|
|
|
137,014 |
|
|
|
1.1 |
% |
C2 |
|
|
|
23,738 |
|
|
|
- |
|
|
|
- |
|
|
|
23,738 |
|
|
|
0.2 |
% |
C3 |
|
|
|
20,521 |
|
|
|
- |
|
|
|
- |
|
|
|
20,521 |
|
|
|
0.2 |
% |
C4 |
|
|
|
24,283 |
|
|
|
- |
|
|
|
- |
|
|
|
24,283 |
|
|
|
0.2 |
% |
D |
|
|
|
- |
|
|
|
39,048 |
|
|
|
15,468 |
|
|
|
54,516 |
|
|
|
0.4 |
% |
D1 |
|
|
|
28,396 |
|
|
|
- |
|
|
|
- |
|
|
|
28,396 |
|
|
|
0.2 |
% |
D2 |
|
|
|
28,915 |
|
|
|
- |
|
|
|
- |
|
|
|
28,915 |
|
|
|
0.2 |
% |
Total
of evaluated loans |
|
|
|
7,678,963 |
|
|
|
1,954,546 |
|
|
|
3,032,549 |
|
|
|
12,666,058 |
|
|
|
100.0 |
% |
Total
loans |
|
|
|
7,678,963 |
|
|
|
1,954,546 |
|
|
|
3,032,549 |
|
|
|
12,666,058 |
|
|
|
|
|
Percentage
evaluated |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
As
of December 31, 2007
(in
millions of constant Ch$ as of December 31, 2007, except for
percentages)
|
|
Category
|
|
|
|
|
|
|
|
|
Residential
Mortgage Loans
|
|
|
|
|
|
Percentage
of Evaluated Loans
|
|
A |
|
|
|
- |
|
|
|
1,716,521 |
|
|
|
3,055,967 |
|
|
|
4,772,488 |
|
|
|
35.5 |
% |
A1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
A2 |
|
|
|
6,279,856 |
|
|
|
- |
|
|
|
- |
|
|
|
6,279,856 |
|
|
|
46.7 |
% |
A3 |
|
|
|
1,334,366 |
|
|
|
- |
|
|
|
- |
|
|
|
1,334,366 |
|
|
|
9.9 |
% |
B |
|
|
|
169,762 |
|
|
|
154,051 |
|
|
|
180,220 |
|
|
|
504,033 |
|
|
|
3.7 |
% |
B- |
|
|
|
- |
|
|
|
66,839 |
|
|
|
31,211 |
|
|
|
98,050 |
|
|
|
0.7 |
% |
C |
|
|
|
- |
|
|
|
71,416 |
|
|
|
55,906 |
|
|
|
127,322 |
|
|
|
0.9 |
% |
C1 |
|
|
|
139,652 |
|
|
|
- |
|
|
|
- |
|
|
|
139,652 |
|
|
|
1.0 |
% |
C2 |
|
|
|
23,548 |
|
|
|
- |
|
|
|
- |
|
|
|
23,548 |
|
|
|
0.2 |
% |
C3 |
|
|
|
19,293 |
|
|
|
- |
|
|
|
- |
|
|
|
19,293 |
|
|
|
0.1 |
% |
C4 |
|
|
|
30,164 |
|
|
|
- |
|
|
|
- |
|
|
|
30,164 |
|
|
|
0.2 |
% |
D |
|
|
|
- |
|
|
|
43,172 |
|
|
|
21,112 |
|
|
|
64,284 |
|
|
|
0.5 |
% |
D1 |
|
|
|
40,520 |
|
|
|
- |
|
|
|
- |
|
|
|
40,520 |
|
|
|
0.3 |
% |
D2 |
|
|
|
35,404 |
|
|
|
- |
|
|
|
- |
|
|
|
35,404 |
|
|
|
0.3 |
% |
Total
of evaluated loans |
|
|
|
8,072,565 |
|
|
|
2,051,999 |
|
|
|
3,344,416 |
|
|
|
13,468,980 |
|
|
|
100.0 |
% |
Total
loans |
|
|
|
8,072,565 |
|
|
|
2,051,999 |
|
|
|
3,344,416 |
|
|
|
13,468,980 |
|
|
|
|
|
Percentage
evaluated |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
Classification
of Loan Portfolio Based on the Borrower’s Payment Performance
Accrued
interest and UF indexation adjustments from overdue loans are recognized only
when, and to the extent, received. Non performing loans include loans as to
which either principal or interest is overdue, and which do not accrue interest.
Restructured loans as to which payments are not overdue are not ordinarily
classified as non performing loans. Past due loans include, with respect to any
loan, only the portion of principal or interest that is overdue for 90 or more
days, and do not include the installments of such loan that are not overdue or
that are overdue for less than 90 days, unless legal proceedings have been
commenced for the entire outstanding balance according to the terms of the loan,
in which case the entire loan is considered past due within 90 days of the
beginning of such proceedings. This practice differs from that normally followed
in the United States, where the amount classified as past due would include the
entire amount of principal and interest on any and all loans which have any
portion overdue.
According
to the regulations established by the Superintendency of Banks, we are required
to write off commercial loan installments not later than 24 months after being
classified as past due, if unsecured, and if secured, not later than 36 months
after being classified as past due. When an installment of a past due commercial
loan (either secured or unsecured) is written off, we must write off all
installments which are overdue, notwithstanding our right to write off the
entire amount of the loan. Once any amount of a loan is written off, each
subsequent installment must be written off as it becomes overdue,
notwithstanding our right to write off the entire amount of the loan. In the
case of past due consumer loans, a similar practice applies, except that after
the first installment becomes past due for six-months, we must write off the
entire remaining part of the loan. We may write off any loan (commercial or
consumer) before the first installment becomes overdue only in accordance with
special procedures
established
by the Superintendency of Banks. In certain circumstances we must write off an
overdue loan (commercial or consumer) sooner than the terms set forth above.
Loans are written off against the loan loss reserve to the extent of any
required allowances for such loans; the remainder of such loans is written off
against income.
In
general, legal collection proceedings are commenced with respect to consumer
loans once they are overdue for 90 days and, with respect to mortgage loans,
once they are past due for 120 days. Legal collection proceedings are always
commenced within one year of such loans becoming past due, unless the bank
determines that the size of the past due amount does not warrant such
proceedings. In addition, the majority of our commercial loans are short–term,
with single payments at maturity. Past due loans are required to be covered by
individual loan loss reserves equivalent to 100.0% of any unsecured portion
thereof. See “Item 4: Information of the Company—Selected Statistical
Information—Loan Loss Allowances—Individual Loan Loss Allowances.”
The
following table sets forth as of December 31 of each of the last five years the
amounts that are current as to payments of principal and interest and the
amounts overdue:
Total
Loans
The
following table sets forth a loan aging schedule at the end of each of the last
five years. Amounts
shown as overdue and past due include only installments that are overdue or past
due and not the aggregate principal amount of such loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Current
|
|
|
8,611,305 |
|
|
|
9,600,671 |
|
|
|
10,949,992 |
|
|
|
12,502,890 |
|
|
|
13,270,561 |
|
Overdue
for 1-29 days
|
|
|
43,426 |
|
|
|
33,389 |
|
|
|
41,206 |
|
|
|
42,063 |
|
|
|
52,811 |
|
Overdue
for 30-89 days
|
|
|
23,486 |
|
|
|
16,554 |
|
|
|
21,976 |
|
|
|
21,660 |
|
|
|
28,954 |
|
Overdue
for 90 days or more (“past due”)
|
|
|
198,175 |
|
|
|
149,011 |
|
|
|
116,894 |
|
|
|
99,445 |
|
|
|
116,654 |
|
Total
loans
|
|
|
8,876,392 |
|
|
|
9,799,625 |
|
|
|
11,130,068 |
|
|
|
12,666,058 |
|
|
|
13,468,980 |
|
Overdue
loans expressed as a percentage of total loans
|
|
|
3.0 |
% |
|
|
2.0 |
% |
|
|
1.6 |
% |
|
|
1.3 |
% |
|
|
1.5 |
% |
Past
due loans as a percentage of total loans
|
|
|
2.2 |
% |
|
|
1.5 |
% |
|
|
1.1 |
% |
|
|
0.8 |
% |
|
|
0.9 |
% |
We suspend
the accrual of interest and readjustments on all overdue loans. The amount of
interest that would have been recorded on overdue loans if they had been
accruing interest was Ch$6,459 million, Ch$5,465 million and Ch$3,069 million
for the years ended December 31, 2005, 2006 and 2007, respectively. Accrued
interest and UF indexation adjustments from overdue loans are recognized only
when, and to the extent, received.
Loans
included in the previous table which have been restructured and that bear no
interest are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Ch$
|
|
|
16,393 |
|
|
|
20,852 |
|
|
|
1,672 |
|
|
|
1,708 |
|
|
|
1,165 |
|
Foreign
currency
|
|
|
5,280 |
|
|
|
10,733 |
|
|
|
1,745 |
|
|
|
29,515 |
|
|
|
75,502 |
|
UF
|
|
|
3,370 |
|
|
|
4,907 |
|
|
|
8,184 |
|
|
|
2,762 |
|
|
|
16,356 |
|
Total
|
|
|
25,043 |
|
|
|
36,492 |
|
|
|
11,601 |
|
|
|
33,985 |
|
|
|
93,023 |
|
The amount
of interest that would have been recorded on these loans for the years ended
December 31, 2005, 2006 and 2007, if these loans had been earning a market
interest rate was Ch$441 million, Ch$2,229 million and Ch$6,593 million,
respectively.
Loan
Loss Allowances
The
following table sets forth our balance of loan loss allowances, the minimum
allowances to be established by us in accordance with the regulations of the
Superintendency of Banks and our total loan loss allowances expressed
as a
percentage of total loans. Amounts at December 31, 2003, were determined under
the regulations then in effect, and amounts at December 31, 2004, 2005, 2006 and
2007, were determined under the new rules.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007, except
percentages)
|
|
Reserves
based on the requirements of the Superintendency of Banks
|
|
|
166,876 |
|
|
|
197,008 |
|
|
|
162,234 |
|
|
|
187,014 |
|
|
|
232,776 |
|
Reserves
based on 0.75%
|
|
|
66,573 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Individual,
global and additional loan loss allowances
|
|
|
195,583 |
|
|
|
197,008 |
|
|
|
162,234 |
|
|
|
187,014 |
|
|
|
232,766 |
|
Minimum
reserves required
|
|
|
195,583 |
|
|
|
197,008 |
|
|
|
162,234 |
|
|
|
187,014 |
|
|
|
232,766 |
|
Voluntary
reserves
|
|
|
416 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
loan loss allowances
|
|
|
195,999 |
|
|
|
197,008 |
|
|
|
162,234 |
|
|
|
187,014 |
|
|
|
232,766 |
|
Total
loan allowances as a percentage of total loans
|
|
|
2.2 |
% |
|
|
2.0 |
% |
|
|
1.5 |
% |
|
|
1.5 |
% |
|
|
1.7 |
% |
Analysis
of Substandard Loans and Amounts Past Due
The
following table analyzes our substandard loans (i.e., all of the loans included
in categories B-, C and D) and past due loans and the allowances for loan losses
existing at the dates indicated. Substandard loans in the old rating system
included all loans rated B- or worse. In the new loan rating system, substandard
loans include all consumer loans and mortgage loans rated B- or worse and all
commercial loans rated C2 or worse. Therefore, the figure for substandard loans
in 2003 are not comparable to the figures in the following years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007, except
percentages)
|
|
Total
loans
|
|
|
8,876,392 |
|
|
|
9,799,625 |
|
|
|
11,130,068 |
|
|
|
12,666,058 |
|
|
|
13,468,980 |
|
Substandard
loans (1)
|
|
|
317,554 |
|
|
|
363,735 |
|
|
|
291,743 |
|
|
|
371,184 |
|
|
|
438,585 |
|
Substandard
loans as a percentage of total loans
|
|
|
3.58 |
% |
|
|
3.71 |
% |
|
|
2.62 |
% |
|
|
2.93 |
% |
|
|
3.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
past due (2)
|
|
|
198,175 |
|
|
|
149,011 |
|
|
|
116,894 |
|
|
|
99,445 |
|
|
|
116,654 |
|
To
the extent secured (3)
|
|
|
67,775 |
|
|
|
48,621 |
|
|
|
47,987 |
|
|
|
46,945 |
|
|
|
60,184 |
|
To
the extent unsecured
|
|
|
130,400 |
|
|
|
100,390 |
|
|
|
68,907 |
|
|
|
52,500 |
|
|
|
56,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
past due as a percentage of total loans
|
|
|
2.23 |
% |
|
|
1.52 |
% |
|
|
1.05 |
% |
|
|
0.79 |
% |
|
|
0.87 |
% |
To
the extent secured (3)
|
|
|
0.76 |
% |
|
|
0.50 |
% |
|
|
0.43 |
% |
|
|
0.37 |
% |
|
|
0.45 |
% |
To
the extent unsecured
|
|
|
1.47 |
% |
|
|
1.02 |
% |
|
|
0.62 |
% |
|
|
0.41 |
% |
|
|
0.42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
loss allowances as a percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
|
2.21 |
% |
|
|
2.01 |
% |
|
|
1.46 |
% |
|
|
1.48 |
% |
|
|
1.73 |
% |
Total
loans excluding contingent loans
|
|
|
2.48 |
% |
|
|
2.24 |
% |
|
|
1.60 |
% |
|
|
1.62 |
% |
|
|
1.90 |
% |
Total
amounts past due
|
|
|
98.90 |
% |
|
|
132.21 |
% |
|
|
138.79 |
% |
|
|
188.06 |
% |
|
|
199.54 |
% |
Total
amounts past due-unsecured
|
|
|
150.31 |
% |
|
|
196.24 |
% |
|
|
235.44 |
% |
|
|
356.214 |
% |
|
|
412.19 |
% |
(1)
|
Substandard
loans in the old rating system included all loans rated B- or worse. In
the new loan rating system, substandard loans include all consumer and
mortgage loans rated B- or worse and all commercial loans rated C2 or
worse. Therefore, figures as of December 31, 2003, are not entirely
comparable to the numbers in the following periods.
|
(2)
|
Represents
only the past due amounts. In accordance with
Chilean regulations, past due loans that are those overdue for 90 days or
more as to any payments of principal or
interest.
|
(3)
|
Security
generally consists of mortgages on real estate, pledges of marketable
securities, letters of credit or
cash.
|
Analysis
of Loan Loss Allowances
The
following table analyzes our loan loss allowances and changes in the allowances
attributable to write-offs, provisions, allowances released, allowances on loans
acquired and the effect of price-level restatement on loan loss allowances.
Chilean GAAP requires that the loan loss allowance be debited the full amount of
all charge-offs (irrespective of whether the charged-off loan was fully
provisioned) and simultaneously credited the same amount through the taking of a
new provision. The net effect of these two entries, which are included in the
table below under “charge-offs” and “allowances established,” respectively, is
to leave the loan loss allowance unchanged following the charge-off of a loan.
Subsequently, at the end of each calendar month, loan loss allowances are
released to the extent not needed. Such releases, which are included in the
table below under “allowances released,” therefore include any amounts relating
to provisions originally made in respect of loans that have been charged
off.
|
|
For
the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007, except
percentages)
|
|
Loan
loss allowances at beginning of the year
|
|
|
197,193 |
|
|
|
195,999 |
|
|
|
197,008 |
|
|
|
162,234 |
|
|
|
187,014 |
|
Release
of allowances upon charge-offs (1)
|
|
|
(116,776 |
) |
|
|
(135,798 |
) |
|
|
(150,021 |
) |
|
|
(154,150 |
) |
|
|
(201,124 |
) |
Allowances
established (2)
|
|
|
145,887 |
|
|
|
164,819 |
|
|
|
176,950 |
|
|
|
221,420 |
|
|
|
306,669 |
|
Allowances
released (3)
|
|
|
(28,445 |
) |
|
|
(22,863 |
) |
|
|
(54,820 |
) |
|
|
(39,123 |
) |
|
|
(46,843 |
) |
Price-level
restatement (4)
|
|
|
(1,860 |
) |
|
|
(5,149 |
) |
|
|
(6,883 |
) |
|
|
(3,367 |
) |
|
|
(12,950 |
) |
Loan
loss allowances at end of year
|
|
|
195,999 |
|
|
|
197,008 |
|
|
|
162,234 |
|
|
|
187,014 |
|
|
|
232,766 |
|
Ratio
of charge-offs to total loans
|
|
|
1.3 |
% |
|
|
1.4 |
% |
|
|
1.3 |
% |
|
|
1.2 |
% |
|
|
1.5 |
% |
Loan
loss allowances at end of period as a percentage of total
loans
|
|
|
2.2 |
% |
|
|
2.0 |
% |
|
|
1.5 |
% |
|
|
1.5 |
% |
|
|
1.7 |
% |
(1)
|
Reflects
release of loan loss allowance equal to the entire amount of loans charged
off, including any portion of such loans with respect to which no
allowance had been established prior to the
charge-off.
|
(2)
|
Includes,
in addition to provisions made in respect of increased risk of loss during
the period, provisions made to replace allowances released upon charge-off
of loans. See Note (1) to this
table.
|
(3)
|
Represents
the amount of loan loss allowances released during the year as a
consequence of reduction in the level of risk existing in the loan
portfolio, including as a result of improvement in the credit risk
classification of borrowers and the charge-off of
loans.
|
(4)
|
Reflects
the effect of inflation on the allowances for loan losses at the beginning
of each period, adjusted to constant pesos of December 31,
2007.
|
The
following table shows charge-offs by Santander-Chile by type of
loan.
|
|
For
the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Consumer
loans
|
|
|
66,534 |
|
|
|
93,154 |
|
|
|
73,214 |
|
|
|
109,853 |
|
|
|
165,029 |
|
Residential
Mortgage loans
|
|
|
5,231 |
|
|
|
4,458 |
|
|
|
7,858 |
|
|
|
6,220 |
|
|
|
5,308 |
|
Commercial
loans
|
|
|
45,011 |
|
|
|
38,186 |
|
|
|
68,949 |
|
|
|
38,077 |
|
|
|
30,787 |
|
Total
|
|
|
116,776 |
|
|
|
135,798 |
|
|
|
150,021 |
|
|
|
154,150 |
|
|
|
201,124 |
|
The
following table shows recoveries by Santander-Chile by type of
loan.
|
|
For
the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Commercial
loans
|
|
|
17,504 |
|
|
|
23,805 |
|
|
|
17,014 |
|
|
|
16,471 |
|
|
|
28,999 |
|
Consumer
loans
|
|
|
20,384 |
|
|
|
28,279 |
|
|
|
31,013 |
|
|
|
31,158 |
|
|
|
44,438 |
|
Residential
mortgage loans
|
|
|
1,615 |
|
|
|
2,465 |
|
|
|
2,555 |
|
|
|
2,940 |
|
|
|
4,323 |
|
Loans
reacquired from the Central Bank
|
|
|
18 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
39,521 |
|
|
|
54,549 |
|
|
|
50,582 |
|
|
|
50,569 |
|
|
|
77,760 |
|
Based on
information available regarding our borrowers, we believe that our loan loss
allowances are sufficient to cover known potential losses and losses inherent in
a loan portfolio of the size and nature of our loan portfolio.
Allocation
of the Loan Loss Allowances
The
following tables set forth, at December 31 of each of the last five years, the
proportions of our required minimum loan loss allowances that were attributable
to our commercial, consumer and residential mortgage loans, and the amount of
voluntary allowances (which are not allocated to any particular category) at
each such date.
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
amount as a percentage of loans in category
|
|
|
Allowance
amount as a percentage of total loans
|
|
|
Allowance
amount as a percentage of total allocated allowances
(2)
|
|
|
|
|
|
Allowance
amount as a percentage of loans in category
|
|
|
Allowance
amount as a percentage of total loans
|
|
|
Allowance
amount as a percentage of total allocated allowances
(2)
|
|
Commercial
loans
|
|
|
124,938 |
|
|
|
1.97 |
% |
|
|
1.41 |
% |
|
|
66.42 |
% |
|
|
117,288 |
|
|
|
1.80 |
% |
|
|
1.20 |
% |
|
|
62.73 |
% |
Consumer
loans
|
|
|
51,164 |
|
|
|
5.56 |
% |
|
|
0.57 |
% |
|
|
27.21 |
% |
|
|
58,835 |
|
|
|
4.75 |
% |
|
|
0.60 |
% |
|
|
31.47 |
% |
Residential
mortgage loans
|
|
|
11,989 |
|
|
|
0.74 |
% |
|
|
0.14 |
% |
|
|
6.37 |
% |
|
|
10,853 |
|
|
|
0.53 |
% |
|
|
0.11 |
% |
|
|
5.80 |
% |
Total
allocated allowances
|
|
|
188,091 |
|
|
|
2.12 |
% |
|
|
2.12 |
% |
|
|
100.00 |
% |
|
|
186,976 |
|
|
|
1.91 |
% |
|
|
1.91 |
% |
|
|
100.00 |
% |
Leasing
|
|
|
7,492 |
|
|
|
0.08 |
% |
|
|
0.08 |
% |
|
|
|
|
|
|
10,032 |
|
|
|
0.10 |
% |
|
|
0.10 |
% |
|
|
|
|
Voluntary
allowances
|
|
|
416 |
|
|
|
0.01 |
% |
|
|
0.01 |
% |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Total
allowances
|
|
|
195,999 |
|
|
|
2.21 |
% |
|
|
2.21 |
% |
|
|
|
|
|
|
197,008 |
|
|
|
2.01 |
% |
|
|
2.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
amount as a percentage of loans in category
|
|
|
Allowance
amount as a percentage of total loans
|
|
|
Allowance
amount as a percentage of total allocated allowances
(2)
|
|
|
|
|
|
Allowance
amount as a percentage of loans in category
|
|
|
Allowance
amount as a percentage of total loans
|
|
|
Allowance
amount as a percentage of total allocated allowances
(2)
|
|
Commercial
loans
|
|
|
76,426 |
|
|
|
1.08 |
% |
|
|
0.69 |
% |
|
|
49.73 |
% |
|
|
67,194 |
|
|
|
0.88 |
% |
|
|
0.53 |
% |
|
|
37.32 |
% |
Consumer
loans
|
|
|
68,826 |
|
|
|
4.46 |
% |
|
|
0.62 |
% |
|
|
44.78 |
% |
|
|
105,563 |
|
|
|
5.40 |
% |
|
|
0.83 |
% |
|
|
58.63 |
% |
Residential
mortgage loans
|
|
|
8,431 |
|
|
|
0.33 |
% |
|
|
0.07 |
% |
|
|
5.49 |
% |
|
|
7,294 |
|
|
|
0.24 |
% |
|
|
0.06 |
% |
|
|
4.05 |
% |
Total
allocated allowances
|
|
|
153,683 |
|
|
|
1.38 |
% |
|
|
1.38 |
% |
|
|
100.00 |
% |
|
|
180,051 |
|
|
|
1.42 |
% |
|
|
1.42 |
% |
|
|
100.00 |
% |
Leasing
|
|
|
8,551 |
|
|
|
0.08 |
% |
|
|
0.08 |
% |
|
|
|
|
|
|
6,963 |
|
|
|
0.06 |
% |
|
|
0.06 |
% |
|
|
|
|
Voluntary
allowances
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Total
allowances
|
|
|
162,234 |
|
|
|
1.46 |
% |
|
|
1.46 |
% |
|
|
|
|
|
|
187,014 |
|
|
|
1.48 |
% |
|
|
1.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
amount as a percentage of loans in category
|
|
|
Allowance
amount as a percentage of total loans
|
|
|
Allowance
amount as a percentage of total allocated allowances
(2)
|
|
Commercial
loans
|
|
|
79,782 |
|
|
|
0.99 |
% |
|
|
0.59 |
% |
|
|
35.50 |
% |
Consumer
loans
|
|
|
135,602 |
|
|
|
6.61 |
% |
|
|
1.01 |
% |
|
|
60.34 |
% |
Residential
mortgage loans
|
|
|
9,349 |
|
|
|
0.28 |
% |
|
|
0.07 |
% |
|
|
4.16 |
% |
Total
allocated allowances
|
|
|
224,733 |
|
|
|
1.67 |
% |
|
|
1.67 |
% |
|
|
100.00 |
% |
Leasing
|
|
|
8,033 |
|
|
|
0.06 |
% |
|
|
0.06 |
% |
|
|
|
|
Voluntary
allowances
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Total
allowances
|
|
|
232,766 |
|
|
|
1.73 |
% |
|
|
1.73 |
% |
|
|
|
|
(1)
|
In
millions of constant Chilean pesos as of December 31,
2007.
|
(2)
|
Based
on our loan classification, as required by the Superintendency of Banks
for the purpose of determining the loan loss
allowance.
|
A.
Directors and Senior Management
Directors
We are
managed by our Board of Directors, which, in accordance with our by-laws,
consists of 11 directors and two alternates who are elected at annual ordinary
shareholders’ meetings. The current members of the Board of Directors were
elected by the shareholders in the ordinary shareholders’ meeting held on April
22, 2008. Members of the Board of Directors are elected for three-year terms.
The term of each of the current board members expires in April of 2011.
Cumulative voting is permitted for the election of directors. The Board of
Directors may appoint replacements to fill any vacancies that occur during
periods between elections. If any member of the Board of Directors resigns
before his or her term has ended, and no other alternate director is available
to take the position at the next annual ordinary shareholders’ meeting a new
replacing member will be elected. Our executive officers are appointed by the
Board of Directors and hold office at its discretion. Scheduled meetings of the
Board of Directors are held monthly. Extraordinary meetings can be held when
called in one of three ways: by the Chairman of the Board of Directors, by three
directors with the consent of the Chairman of the Board of Directors or by the
majority of directors. None of the members of our Board of Directors has a
service contract which entitles any Director to any benefits upon termination of
employment with Santander-Chile.
Our
current directors are as follows:
|
|
|
|
Mauricio
Larraín Garcés
|
Chairman
and Director
|
Asset
and Liability Committee
Executive
Credit Committee
Marketing
and Communications Committee
|
April
2011
|
Marcial
Portela Alvarez
|
First
Vice Chairman and Director
|
—
|
April
2011
|
Carlos
Olivos Marchant
|
Second
Vice Chairman and Director
|
Audit
Committee
Executive
Credit Committee
|
April
2011
|
Víctor
Arbulú Crousillat
|
Director
|
Audit
Committee
|
April
2011
|
Marco
Colodro Hadjes
|
Director
|
Asset
and Liability Committee
Executive
Credit Committee
|
April
2011
|
Lucía
Santa Cruz Sutil
|
Director
|
—
|
April
2011
|
Juan
Manuel Hoyos Martínez de Irujo
|
Director
|
—
|
April
2011
|
Roberto
Méndez Torres
|
Director
|
Executive
Credit Committee
Marketing
and Communications Committee
|
April
2011
|
Benigno
Rodríguez Rodríguez*
|
Director
|
Audit
Committee
|
April
2011
|
Roberto
Zahler Mayanz
|
Director
|
Asset
and Liability Committee
|
April
2011
|
Claudia
Bobadilla Ferrer
|
Director
|
—
|
April
2011
|
Raimundo
Monge Zegers
|
Alternate
Director
|
—
|
April
2011
|
Jesús
Zabalza Lotina
|
Alternate
Director
|
—
|
April
2011
|
*
- resigned on June 24, 2008.
Mauricio Larraín Garcés is
our Chairman. He is a member of the Asset and Liability Committee, the Executive
Credit Committee and the Marketing and Communication Committee. He is also
President of Santander Chile Holding S.A. and Universia Chile S.A. He is a
director of the Asociación de
Bancos e Instituciones Financieras de Chile and the Santiago Stock
Exchange. He is also a member of the Council of Paz Ciudadana and was a former
President of ICARE. Mr.
Larraín began working at Santander-Chile in 1989. Previous to that he was Intendente (Director) of the
Superintendency of Banks, Manager of External Debt at the Banco Central de Chile
and a Senior Finance Specialist at the World Bank in Washington. He holds
degrees in Law from Universidad Católica de Chile and from Harvard
University.
Marcial Portela Alvarez
became a Director on May 6, 1999 and Vice Chairman of the Board on May 18, 1999.
He currently oversees all of Banco Santander Spain’s investments in Latin
America and was the Director of Comercialización (Medios) at Banco Santander
from November 1998 until the formation of Banco Santander Spain. In the past, he
was the Vice Chairman of Telefonica España and the Managing Director of Banco
Argentaria and also worked at several other banks, including Banco Exterior,
Caja Postal, Banco Hipotecario and BBV. Mr. Portela holds a degree in Sociology
from the University of Lovaina and a Political Science degree from the
Universidad de Madrid.
Carlos Olivos Marchant is
Second Vice-Chairman of the Board since 2007 and has been a Board member since
the merger was consummated in 2002. He is Chairman of the Audit Committee and a
member of the Executive Credit Committee. He was Chairman of the Board of
Santiago since 1987 until the date of the merger, and he was Vice Chairman of
that board since March 31, 1998. He is a partner in the law firm Guerrero,
Olivos, Novoa y Errazuriz. From 1981 to 1983, Mr. Olivos served as General
Counsel of the Central Bank of Chile, and from 1984 to 1986 he served as
Chairman of the Board of Directors of Banco Osorno. Mr. Olivos holds a law
degree from the Universidad de Chile and a Masters of Jurisprudence from New
York University School of Law.
Benigno Rodríguez Rodríguez
became a Director on March 19, 1996 and was Second Vice-Chairman of the Board of
Banco Santander-Chile until 2007. He is a member of the Audit Committee and
holds the position of Financial Expert. He is currently a member of the Instituto de Censores Jurados de
Cuentas y Registros de Auditores del Colegio de Economistas de España. He
served as Vice Chairman of the Board of Santiago from April 17, 2002 through the
date the merger was consummated. Before that he served as Santiago’s Director of
Management Information Systems. He is a director of Santander Chile Holding
S.A., Aurum S.A. and Altec Chile. He was a former Adjunct Director of Santander
Central Hispano. Mr. Rodriguez holds a degree in Economics from the Universidad
Complutense of Madrid. Mr. Rodriguez resigned from the Bank’s Board on June 24,
2008, effective as of the same day.
Víctor Arbulú Crousillat
became a Director on May 6, 1999. He is a member of the Audit Committee and has
been designated as a Financial Expert. He is also director of Aurum S.A. He was
a Managing Director of JPMorgan, member of its European management committee and
Chief Executive Officer for Spain and Portugal from 1988 until 1998. He has
worked for JPMorgan for over 25 years in various positions in Europe, North
America and Latin America. Mr. Arbulu also worked for the Inter-American
Development Bank. Mr. Arbulu holds a degree in Engineering and a Masters of
Business Administration.
Marco Colodro Hadjes became a
Director on April 19, 2005. Mr. Colodro is a member of the Executive Credit
Committee. Mr. Colodro
was President of the Board of Telefónica Chile and a Director of Codelco. He is
a former chairman of TVN (national television network) and former vice chairman
of Banco del Estado (state bank). He was also owner of Agencia de Valores Alfa
S.A. Prior to that he was Foreign Trade Director at the Central Bank of Chile.
Mr. Colodro holds a degree in Economics from Universidad de Chile, and has
post-graduate studies from the University of Paris.
Lucía Santa Cruz Sutil became
a Director on August 19, 2003. Ms. Santa Cruz holds a degree in History and a
Masters Degree in Philosophy from Oxford University. She is the Dean of the
College of Liberal arts of the Universidad Adolfo Ibañez. Ms. Santa Cruz is also
a director of Universia Chile S.A. She is also on the Board of Compañía de
Seguros Generales y de Vida La Chilena Consolidada and Fundación Minera
Escondida. She is also on the Advisory Board of Nestle Chile and the Fundación
Educacional Santa Teresa de Avila. She is also a member of the Self-Regulation
Committee for Insurance Companies in Chile.
Juan Manuel Hoyos Martínez de
Irujo was the Managing Director of McKinsey & Company in Spain
between 1997 and 2004. He was also President of the Client Committee of this
company’s Board. Currently, he is in charge of partner development worldwide and
is still part of the Board of the firm. His consulting career has
been focused in the areas of strategy and organization of corporations,
especially in the telecommunications, banking and metallurgy sectors. He has
worked with companies in Spain, USA, Latin America, United Kingdom, Portugal and
Africa. He is an Economist from the Universidad Complutense de Madrid and he has
an MBA in Finance and Accounting from Columbia University. He began his career
in 1978 at McKinsey & Company, where he was named partner in 1984 and
Director in 1991.
Roberto Méndez Torres is a
former member of the Board of Old Santander-Chile, to which he was appointed in
1996. He is a member of the Executive Credit Committee and the Marketing and
Communication Committee. He is also vice-Chairman of Universia S.A. He is a professor of
Economics at Universidad Católica de Chile. He is a Director of AFP Capital. He
has been Advisor to Grupo Santander-Chile since 1989. Mr. Méndez is President
and Director of Adimark Chile Gfk. He graduated with a degree in Business from
Universidad Católica de Chile, and holds an MBA and a Ph.D. from the Graduate
School of Business at Stanford University.
Roberto Zahler Mayanz became
a Director on August 31, 1999. He is a member of the Asset and Liability
Committee. Currently, he is President of Zahler & Co, a consulting firm. He
is also director of Air Liquide-Chile and member of the CLAAF or the Latin
American Committee for Financial Affairs. He was formerly President of the Board
of Siemens Chile. He was also a visiting professor at the IMF’s Research
Department. Between 1991 and 1996 he was President of the Central Bank of Chile
and Vice-President from 1989-1991. He also serves as a consultant for the World
Bank, the IDB, the IMF and the International Bank of Settlements. Mr. Zahler has
also provided technical assistance to various Central Banks and Finance
Ministries in most countries of Latin America, Indonesia and Kosovo. Mr. Zahler
holds a degree in Business Administration from the Universidad de Chile and a
Masters in Economics from the University of Chicago.
Claudia Bobadilla Ferrer was
elected to the Board in April 2006. She is CEO of Fundación País Digital, a
member of the Executive Committee of Innovation and Technology of ICARE, council
member of Endeavor Chile and Executive Director of the Chile-Japón Siglo XXI
Committee. She was also founder and President of Comunidad Mujer, an
organization dedicated to increasing women’s participation in the workforce. She
is also Director of Innova Chile CORFO and a member of the council of Fundación
Chilena del Pacífico. She was previously Director of Legal Affairs at Terra
Networks Chile S.A. She is a lawyer from the Universidad Diego
Portales.
Raimundo Monge Zegers became
an Alternate Director on April 29, 2003. He is Corporate Director of Strategic
and Financial Planning for Grupo Santander-Chile and is CEO of Santander-Chile
Holding S.A. and Santander Inversiones Ltda. He is also President of Santander
S.A. Sociedad Securitizadora and Santander Factoring S.A. He is a director of
Aurum S.A., Santander Multimedios S.A., Santander Asset Management Chile S.A.
and Santander Corrdores de Seguros S.A. Mr. Monge has a degree in business from
the Universidad Católica de Chile and a MBA from the University of California,
Los Angeles.
Jesús Zabalza Lotina became a
Director on April 19, 2005. He has worked for 22 years in the Spanish financial
systems, and served as CEO in Banco Viscaya, Banco Hipotecario, Caja Postal and
La Caixa. He as also served as director in several affiliate companies on La
Caixa and Telefónica in Spain. He is Managing Director of America’s División of
Santander Group for retail banking, and vice president of the Spanish
Association of Finance Executives (AEEF). He also serves as Chairman of the
Board of Santander Colombia and Director of Banco Santander Bancorp in Puerto
Rico. Mr. Zabalza holds a degree in Industrial Engineering from the University
of Bilbao.
On June
24, 2008, Benigno Rodriguez resigned from the Board of Banco Santander Chile and
simultaneously from the Bank’s Audit Committee. The Board has nominated Mr. Vittorio Corbo as
new member of the Board of Directors to replace Mr. Rodriguez. This nomination
is expected to be ratified in the board meeting to be held on July 22, 2008.
Vittorio Corbo was an
advisor to the Bank between 1991 and 1995 and a member of the Board of Santander
Chile between 1995 and 2003. In 2003, Mr. Corbo was named President of Chile’s
Central Bank. Following the end of this tenure, Mr. Corbo has been named to
various boards and is currently a Senior Investigator at the Centro de Estudio
Públicos (CEP), a local think tank. He holds a business degree from Universidad
de Chile and a Ph.D. in Economics from the Massachusetts Institute of
Technology.
Senior
Management
Our senior
managers are as follows:
|
|
|
|
|
Oscar
von Chrismar
|
|
Chief
Executive Officer
|
|
August
1, 2003
|
Guillermo
Sabater
|
|
Corporate
Financial Controller
|
|
July
1, 2006
|
José
Manuel Manzano
|
|
Corporate
Director of Risk
|
|
July
1, 2007
|
Ignacio
Centenera
|
|
Corporate
Director of Internal Audit
|
|
January
1, 2007
|
Francisco
Murillo
|
|
Corporate
Director Human Resources
|
|
February
21, 2008
|
Claudio
Melandrí
|
|
Retail
Banking
|
|
February
21, 2008
|
Joaquín
Quirante
|
|
Global
Banking and Markets
|
|
March
11, 2008
|
José
Luis Silva
|
|
Santander
Banefe Consumer Division
|
|
August
23, 2007
|
Andrés
Heusser
|
|
Middle-market
Banking
|
|
October
1, 2004
|
Roberto
Jara
|
|
Chief
Accounting Officer
|
|
July
18, 2002
|
Juan
Fernández
|
|
Administration
and Operations
|
|
July
18, 2002
|
Gonzalo
Romero
|
|
General
Counsel
|
|
July
18, 2002
|
Oscar von Chrismar C. became
the CEO of Santander-Chile in August 2003 after being Manager of Global Banking
following the merger. Prior to that he was the former CEO of Old Santander-Chile
since September 1997, after being General Manager of Banco Santander-Peru since
September 1995. Mr. von Chrismar is also Director of Santander Corredora de
seguros S.A. Prior to that, Mr. von Chrismar was the manager of the Finance
Division of Santander-Chile, a position he had held since joining
Santander-Chile in 1990. Mr. von Chrismar holds an Engineering degree from the
Universidad de Santiago de Chile.
Guillermo Sabater is the
Corporate Financial Controller of Santander-Chile, and is in charge of the
Accounting and Financial Control Departments. He has held this position since
July 2006. Previously, Mr. Sabater was responsible for Risk and Management
Control at Santander Consumer (the European Consumer Finance Division of
Santander Group) at the Madrid headquarters and Internal Audit Manager of the
Group. Mr. Sabater has an Economics and Business Administration degree from
C.U.N.E.F. (Universidad Complutense of Madrid).
José Manuel Manzano was
appointed became Corporate Director of Risk in July 2007. Prior to that he was
Corporate Director of Human Resources for Santander-Chile since October 31,
2002. Previously, he served as Manager of Human Resources for Old
Santander-Chile since 1999. He was also General Manager of Santander Fund
Management and Managing Director of Bancassurance. He is also a Director of
Santander Chile Holding and Santander S.A. Sociedad Securitizadora. Mr. Manzano
holds an MBA and a degree in Business from Universidad Católica de
Chile.
Ignacio Centenera is the
Corporate Director of Internal Auditing, a position he has held since January
2007. Prior to that Mr. Centenera was Manager in the Global Accounting Risk
Department and Manager of Internal Auditing at Banesto. Mr. Centenera has a Law
Degree from the Universidad Autónoma de Madrid, an MBA from the University of
Houston and a Master de
Desarrollo Directivo from the Instituto de Empresas in
Madrid.
Francisco Murillo was
appointed Corporate Director of Human Resources for Santander-Chile on February
21, 2008. Mr. Murillo has worked in Grupo Santander Chile since 1993. Previously
he served as Corporate Director of Santander Asset Management and President of
Bansander AFP. He was also the former CEO and Chief Investment Officer of
Bansander AFP. Mr. Murillo is President of Santander Asset Management S.A.
Administradora de General de Fondos, President of Santander Seguros de Vida
S.A., President of Santander Seguros Generales S.A., Director of Santander Chile
Holding, Director of Aurum S.A., Director of Santander Asset Management Chile
S.A., CEO of Teatinos Siglo XXI Inversiones Ltda and CEO of Aurum S.A. Mr.
Murillo has a Business Degree from the Universidad Adolfo Ibañez.
Claudio Melandrí is our
Retail Banking Manager since February 21, 2008. He started his career at
Santander-Chile in 1990 becoming a regional branch manager and manager of
Santander-Chile’s branch network. He was also a Vice-President at Banco
Santander Venezuela from 2005 to 2007. In 2007, he was appointed Corporate
Director of Human Resources of Banco Santander-Chile. He is also on the Board of
Santander Seguros de Vida S.A. and Santander Seguros Generales S.A. Mr. Melandrí
has a Business Degree from the Universidad Técnologica
Metropolitana.
Joaquin Quirante was
appointed the Manager of Global Banking and Markets, that includes wholesale
banking and treasury services, on March 11, 2008. Mr. Quirante began working for
Santander in 2004 and was the Global Manager of Debt Capital Markets. Previous
to working at Santander, Mr. Quirante worked 9 years at Bank of America where he
also lead the Debt Capital Markets Group for Southern Europe. He also was a
vice-president of Risk for the Bank of America in the UK and worked in the
International Division of Argentaria. Mr. Quirante is an economist from the
Universidad Complutense de Madrid and has a MBA from IESE.
José Luis Silva became
Manager of the Santander Banefe Division of Santander-Chile in August 2007.
Prior to that he was a Commercial Director in the Americas Division of Grupo
Santander, CEO of Banco Santa Cruz in Bolivia, Commercial Manager of Banco
Santander in Perú, Manager of Consumer Finance at Credisur in Perú and Manager
of International Banking at Banco O´Higgins in Chile. Mr. Silva is also a member
of the Board of Santander Seguros de Vida S.A. and Santander Seguros Generales
S.A. Mr. Silva is a civil engineer from the Universidad Católica de
Chile.
Andrés Heusser is our Middle
Banking Manager. He has held the same position in the Old Santander-Chile since
1990, when he joined the Santander Group. Mr. Heusser is also President of
Santander Corredora de Seguros S.A. and is on the Board of Santander
Factoring S.A. Mr. Heusser holds a degree in business from the Universidad de
Santiago and an MBA from the Universidad Adolfo Ibáñez.
Roberto Jara is our Chief
Accounting Officer. He is the former Chief Accounting Officer at Old
Santander-Chile, a position he held from March 1998 until August 2002, when the
merger with Santiago was consummated. He joined Old Santander-Chile in 1978 and
held several positions there, such as Sub-Manager of Budget and Costs and Chief
of IT Projects. Mr. Jara is a CPA and holds a degree in Tax Management from
Universidad Adolfo Ibañez.
Juan Fernández is our manager
of Administration and Operations. He is the former Manager of Administration and
Cost Control of Old Santander-Chile, a position he held from April 1999 until
August 2002, when the merger with Santiago was consummated. Mr. Fernández is
also Director of Santander Chile Holding S.A., Aquanima Chile S.A., Santander
Factoring S.A., Altec S.A., Bansa Santander S.A. and Santander Investment S.A.
Corredores de Bolsa. Previously Mr. Fernández served as Manager for Accounting
and Administration of Old Santander-Chile since January 1993. Prior to that, Mr.
Fernández held positions at Banchile Agencia de Valores y Subsidiarias, and at
JPMorgan in Santiago and Madrid.
Gonzalo Romero is our General
Counsel, a position he has held since July 18, 2002. He is also a director of
Santander S.A. Sociedad Securitizadora. Mr. Romero, a lawyer, joined Old
Santander-Chile in February 1997 as General Counsel. He was the General Manager
of Banco Concepción from 1991 to 1996 and the General Counsel of Banco
Concepción from 1986 to 1990. He has a degree in Law from the Universidad de
Chile.
B. Compensation
For the
year ended December 31, 2007, the aggregate amount of compensation paid by us to
all of our directors was Ch$578 million, including attendance fees and monthly
stipends. For the year ended December 31, 2007, the aggregate amount of
compensation paid by us to all of our executive officers and our management
members was Ch$25,818 million (US$52.2 million). At our annual shareholder
meeting held on April 22, 2008, shareholders approved a monthly stipend per
director of UF 209 (US$8,285). This amount will be increased by UF 25 per month
(US$991) if a Board member is named to one or more committees of the Board. In addition, we pay certain
directors professional service fees for the consulting services they rendered to
us in their fields of expertise. For the year ended December 31, 2007, payments
to our directors for consulting fees totaled Ch$533 million (US$1.1
million).
Santander
Spain has set up remuneration systems tied to the performance of the stock
market price of the shares of Santander Spain based on the achievement of two
targets: appreciation of its share price and growth in earnings per share, in
both cases based on a sample of comparable banks. These targets were
achieved.
In this
regards, certain high level executive of Santander Chile do participate in this
global incentive-retention program implemented by Santander Spain. This
consisted of giving to qualifying executives a fixed number of options on shares
of Santander Spain, if the following parameters were met: (i) share price
evolution in top 10 compared to 30 other global banks, (ii) earnings per share
growth in top 10 compared to 30 other global banks, (iii) that Banco Santander
Chile achieved its commercial and financial budget targets in the last two years
and (iv) that the executive achieved his personal targets in the last two years,
and remained employed with the Bank until the end of the incentive program. At
December 31, 2007, these targets were achieved, and hence the vesting
requirements
had been
met and even though the exercise period (from January 15, 2008 to January 15,
2009) was still open, the Bank recorded the entire cost of the program against
net income as at December 31, 2007. This program represented a total cost of
Ch$1,598 million (US$3.2 million) for the Bank, that correspond to the fair
value of the equity instruments granted, which was charged to income in the
specific period in which the beneficiaries provided their services to Santander
Chile. At December 31, 2007, 104 executives of the Bank were included and
3,659,900 options on Santander Spain shares at a price of €9.09 correspond to
them. There are no significant differences between Chilean GAAP and US GAAP in
this regard, except for the additional disclosure required by the latter. See
Note 28(ac) to our Audited Consolidated Financial Statements. This program had
no dilutive effect for Santander Chile minority shareholders.
The fair
value of each option granted is calculated at the grant date. In order to value
incentive-retention plan shares two valuation reports were performed by two
multinational investment banks. These experts used the Black-Scholes equity
option pricing model considering the following parameters: the expected life of
the options, interest rates, volatility, exercise price, market price and
dividends of Santander Spain shares and the shares of comparable banks. The fair
value of the options granted was calculated as the average value resulting from
the two valuations.
|
|
Euros
|
|
|
Date of
|
Date of
|
|
Number of
|
Exercise
|
Employee
|
Number
|
Commencement
|
Expiry
of
|
|
Options/
Shares
|
Price
|
Group
|
of Persons
|
of Exercise
Period
|
Exercise
Period
|
|
|
|
|
|
|
|
Plans
outstanding at 1 January 2005
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Options granted (Plan
I06)
|
3,938,700
|
9.09 (**)
|
Managers
|
112
|
Jan 15, 2008
|
Jan 15,
2009
|
Options
exercised
|
-
|
-
|
|
|
|
|
Options cancelled or not
exercised
|
|
-
|
|
|
|
|
Plans
outstanding at December 31, 2005
|
3,938,700
|
9.09
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercised
|
-
|
-
|
|
|
|
|
Options cancelled, net (Plan
I06)
|
(115,600)
|
9.09
|
Managers
|
(4)
|
Jan 15, 2008
|
Jan 15,
2009
|
Plans
outstanding at December 31, 2006
|
3,823,100
|
9.09
|
|
|
|
|
|
|
|
|
|
|
|
Shares granted (Plan
I09)
|
281,187
|
-
|
Managers
|
181
|
Jun 23,
2007
|
Jul 31, 2009
|
Shares granted (Plan
I10)
|
417,413
|
-
|
Managers
|
181
|
Jun 23,
2007
|
Jul 31, 2010
|
Options cancelled, net (Plan
I06)
|
(163,200)
|
9.09
|
Managers
|
(4)
|
Jan 15, 2008
|
Jan 15, 2009
|
Plans
outstanding at December 31, 2007
|
4,358,500
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
Plan
I06
|
3,659,900
|
9.09
|
|
|
|
|
Plan
I09
|
281,187
|
-
|
|
|
|
|
Plan
I10
|
417,413
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(**) The
exercise price of the options under Plan I06 is €9.09 per share, which is the
weighted average of the daily average market price of the Bank’s shares on the
continuous market in the first 15 trading days of January 2005. This was the
criterion established in the resolution approving Plan I06 adopted at the Annual
General Meeting of Santander Spain held on June 18, 2005.
Long-term
incentive policy
During
2007, the Parent Company’s Board of Directors approved a long-term incentive
policy for the period 2008-2010 aimed at Santander Spain’s executive directors
and certain executive personnel in Spain and other
Santander
Group companies. Certain high level executive of Santander Chile participate in
this global Performance Share Plan implemented by Parent Company. This program
had no dilutive effect for Santander Chile minority shareholders.
Performance
Share Plan
This
multi-annual incentive plan is payable in shares of Santander Spain. The
beneficiaries of the plan are the executive directors and other members of
senior management, together with any other Group executives determined by the
Board of Directors of Santander Spain or, when delegated by its Executive
Committee.
This plan
will involve successive three-year cycles of share deliveries to the
beneficiaries, so that each year one cycle will begin and, from 2009 onwards,
another cycle will also end. The aim is to establish an adequate sequence
between the end of the incentive program linked to the previous Plan and the
successive cycles of this plan. Thus, the first two cycles will commence in July
2007, the first cycle having duration of two years (PI09) and the second cycle
having a standard three-year term (PI10).
For each
cycle, a maximum number of shares of Santander Spain are established for each
beneficiary who remains in the Bank’s employ for the duration of the plan. The
targets, which, if met, will determine the number of shares to be delivered, are
defined by comparing Santander Spain’s performance with that of a benchmark
group of financial institutions and are linked to two parameters, namely Total
Shareholder Return (TSR) and growth in Earnings per Share (EPS). These
parameters each have a 50% weighting in determining the percentage of shares to
be delivered. In addition, the executives of Santander Chile must also meet
their local commercial and earnings goals in order to receive this benefit and
the Bank must also reach other commercial and earnings targets set by the Parent
Company.
The
ultimate number of shares to be delivered will be determined in each of the
cycles by the degree of achievement of the targets on the third anniversary of
commencement of each cycle (with the exception of the first cycle, for which the
second anniversary will be considered), and the shares will be delivered within
a maximum period of seven months from the end of the cycle. This number will
range from the maximum percentage of shares, if Santander Spain, for each of the
measures considered (TSR and EPS growth), ranks within the third quartile of the
Benchmark Group, including the 75th percentile, to 30% of the maximum number of
shares if it is placed at the median (50th percentile). If Santander Santander
ranks below the median, all assignments of shares will be rendered null and
void.
At
December 31, 2007, the maximum number of shares to be delivered was 698,600 to
181 executives of Santander Chile (for a total of 281,187 for the first cycle
(PI09) and 417,413 for the second cycle (PI10)). The fair value of the equity
instruments granted under these plans was Ch$619 million (US$1.2 million), and
this amount is charged to “Personnel expenses” in the specific period in which
the beneficiaries provide their services to the Bank.
The fair
value was calculated as follows:
It was
assumed that the beneficiaries will remain employed by Santander Group companies
during the term of each plan.
|
·
|
The
fair value of the 50% relating to the Bank’s relative TSR position was
determined on the basis of the report of an independent expert whose
assessment was based, inter alia, on the following
variables:
|
|
·
|
Expected
volatility: determined on the basis of the historical volatility over a
two-year period for PI09 and a three-year period for PI10. In the case of
the Bank, the average volatility used was 16.25% for PI09 and 15.67% for
PI10.
|
|
·
|
Annual
dividend yield: based on the data for the last two/three years before July
1, 2007. In the case of the Bank, this yield stood at 3.23% for PI09 and
3.24% for PI10.
|
|
·
|
Risk-free
interest rate: return on Treasury Bonds (zero coupon) offered on July 1,
2007, for a period of two years for PI09 (4.473%) and three years for PI10
(4.497%).
|
|
·
|
Monte
Carlo valuation model: performance of 10,000 simulations to determine the
TSR of each of the companies in the Benchmark Group, taking into account
the aforementioned variables. The results (each of which represents the
delivery of a number of shares) are classified in decreasing order by
calculating the weighted average and discounting the amount at the
risk-free interest rate. Application of the simulation model results in
percentage values of 42.7% for PI09 and 42.3% for PI10 (second cycle),
which are applied to 50% of the value of the shares granted, in order to
determine the cost per books of the TSR-based portion of the incentive.
Since this valuation refers to a market condition, it cannot be adjusted
after the grant date.
|
|
·
|
In
view of the high correlation between TSR and EPS, it was considered
feasible to extrapolate that, in a high percentage of cases, the TSR value
is also valid for EPS. Therefore, it was determined that the fair value of
the portion of the plans linked to the Bank’s relative EPS position, i.e.
of the remaining 50% of the shares granted, was the same as that of the
50% corresponding to the TSR. Since this valuation refers to a non-market
condition, the number of shares expected to vest shall be reviewed and
adjusted on a yearly basis.
|
In 2007,
the management of Banco Santander Spain accorded to grant each active employee
working for Banco Santander Spain or an entity controlled by Banco Santander
Spain as of June 2007 a one-time gift of 100 shares in Banco Santander Spain to
celebrate its 150th
anniversary. This program had no costs for Santander-Chile.
We also
pay bonuses to our administrative, supervisory and management personnel based on
pre-defined goals (mainly commercial but also including items such as customer
satisfaction) and our overall performance in the year. These bonuses are
provisioned for monthly, according to the degree of accomplishment of our
budget. We also give bonuses throughout the year to commercial teams for
performance in other commercial contests. None of the members of our Board of
Directors has a service contract which would entitle any Director to any
benefits upon termination of employment with Santander-Chile. Santander-Chile
currently does not have any profit-sharing arrangements with its employees.
There is no system for the granting of options or securities of Santander-Chile
to employees.
C. Board
Practices
Summary
Comparison of Corporate Governance Standards and NYSE Listed Company
Standards
As a
“Foreign Private Issuer” under the United States Securities Exchange Act of 1934
(“Exchange Act”) that is listed on the NYSE, we are required to provide a brief
general summary of the significant ways in which our corporate governance
standards, which are dictated by Chilean corporate law, differ from those
followed by U.S. companies under NYSE listing standards.
Please
note that because more than 50% of our voting power is held by another company,
Banco Santander Spain, S.A., we would be permitted to elect certain exemptions
under NYSE corporate governance standards. Specifically, as a U.S. company, we
could elect to be exempted from the requirements (i) that we have a majority of
independent directors (as defined by the NYSE), (ii) that we have a
nominating/corporate governance committee meeting certain conditions, and (iii)
that we have a compensation committee meeting certain requirements. Because as a
U.S. company we would not be required to follow these standards, we do not
discuss the differences, if any, between these provisions and our own corporate
governance procedures in the table below.
The table
below summarizes the significant differences between our corporate governance
standards and those required by the NYSE for listed U.S. companies.
NYSE
Listed Company Requirement
|
|
Santander-Chile
Corporate Governance Standard
|
Non-management
directors must meet at regularly scheduled executive sessions without
management.
|
|
Under
Chilean law, a company’s executive officers may not serve as such
company’s directors. As a result, our board consists entirely of
“non-management” directors, making separate meetings
unnecessary.
|
|
|
|
Shareholders
must be given the opportunity to vote on all equity-compensation plans and
material revisions thereto.
|
|
Shareholders’
vote is not required for any equity-compensation plans other than those
for the directors. Our compensation policies currently do not provide for
|
NYSE
Listed Company Requirement |
|
Santander-Chile
Corporate Governance Standard |
|
|
equity
compensation, therefore do not trigger shareholders’ vote. |
|
|
|
Listed
companies must adopt and disclose corporate governance
guidelines.
|
|
We
follow the corporate governance guidelines established under Chilean laws,
a summary of which is included in this 20-F.
|
|
|
|
Listed
companies must adopt and disclose a code of business conduct and ethics
for directors and employees, and promptly disclose any waivers of the code
for directors or executive officers.
|
|
We
have a code of business ethics and conduct which must be signed by all
employees and are included as exhibits to this
20-F.
|
Summary
of Corporate Governance Standards
Santander-Chile
has adopted diverse measures to promote good corporate governance. Among the
measures adopted are:
|
·
|
Board
of Directors mainly composed of professionals not related to Banco
Santander Spain, our parent
company.
|
|
·
|
Active
participation of Directors in main committees of the
Bank.
|
|
·
|
All
personnel must subscribe to a code of ethics and good conduct. Those who
interact directly with the capital markets must also subscribe to an
additional code of conduct.
|
|
·
|
Segregation
of functions in order to assure adequate management of risks. Commercial
areas separated from back office areas. Risk management independent of
commercial areas. Main credit decisions taken in
committees.
|
|
·
|
Internal
Auditing Area clearly independent from the
Administration.
|
|
·
|
The
Bank also has an Internal Compliance Division that oversees the
fulfillment of the Bank’s codes of
conduct.
|
Santander-Chile
has a commitment to transparency. This includes:
|
·
|
Equal
treatment for all shareholders. One share = one
vote.
|
|
·
|
Monthly
publication of the Bank’s results by the Superintendency of
Banks.
|
|
·
|
Quarterly
report of a detailed analysis of Bank results published by us at least 30
days after the close of each interim quarter and 40 days after close of
the full year.
|
|
·
|
Quarterly
conference call open to the public.
|
|
·
|
All
information relevant to the public available immediately on the web page
www.santander.cl.
|
|
·
|
Ample
and periodic coverage of the Bank by international and local stock
analysts.
|
|
·
|
The
Bank has five credit risk ratings by five independent rating agencies,
domestic and international.
|
Audit
Committee
|
|
|
Carlos
Olivos
|
|
Chairman
|
Benigno
Rodríquez. R.*
|
|
Vice
Chairman and Financial Expert
|
Víctor
Arbulú. C.
|
|
Member
and Financial Expert
|
*
On June 24, 2008, Mr. Rodriguez resigned from the Board and Audit Committee of
Banco Santander Chile. His seat on the Audit Committee will be vacant until a
replacement is nominated and approved during the Bank’s next board meeting,
which is expected to be held in July 2008.
The Audit
Committee (Comité de
Directores y Auditoría) is comprised of three members of the Board of
Directors. The General
Secretary is the Committee Secretary. The Chief Executive
Officer, General Auditor and other persons from the Bank can be invited to the
meetings if necessary and presents on specific matters. This Committee’s primary
responsibility is to support the Board of Directors in the continuous
improvement of our system of internal controls, which includes reviewing the
work of both the external auditors and the Internal Audit Department. The
committee is also responsible for analyzing observations made by regulatory
entities of the Chilean financial system about us and for recommending measures
to be taken by our management in response. This committee also performs
functions of a remuneration committee as established in Chilean Law, and reviews
annually the salary and bonus programs for the executive officers of the
Bank. The external
auditors are recommended by this committee to our Board of Directors and
appointed by our shareholders at the annual shareholders’ meeting.
Additionally
this committee is responsible for:
|
·
|
Presenting
to the Board of Directors a list of candidates for the selection of an
external auditor.
|
|
·
|
Presenting
to the board or directors a list of candidates for the selection of rating
agencies.
|
|
·
|
Overseeing
and analyzing the results of the external audit and the internal
reviews.
|
|
·
|
Coordinating
the activities of internal auditing with the external auditors’
review.
|
|
·
|
Analyzing
the interim and year-end financial statements and reporting the results to
the Board of Directors.
|
|
·
|
Analyzing
the external auditors’ reports and their content, procedures and
scope.
|
|
·
|
Analyzing
the rating agencies’ reports and their content, procedures and
scope.
|
|
·
|
Obtaining
information regard the effectiveness and reliability of the internal
control systems and procedures.
|
|
·
|
Analyzing
the information systems performance, its sufficiency, reliability and use
in connection with decision-making
processes.
|
|
·
|
Obtaining
information regarding compliance with the company’s policies regarding the
due observance of laws, regulations and internal rules to which the
company is subject.
|
|
·
|
Obtaining
information and resolve conflict interest matters and investigating
suspicious and fraudulent
activities.
|
|
·
|
Analyzing
the reports of the inspection visits, instructions and presentations of
the Superintendency of Banks.
|
|
·
|
Obtaining
information, analyzing and verifying the company’s compliance with the
annual audit program prepared by the internal audit
department.
|
|
·
|
Informing
the Board of Directors of accounting changes and their
effect.
|
|
·
|
Examining
on an annual basis the compensation plans of high level executives and
managers.
|
Asset
and Liability Committee
|
|
|
Mauricio
Larraín
|
|
Chairman
|
Roberto
Zahler
|
|
Member
|
Marco
Colodro
|
|
Member
|
The Comité de Activos y Pasivos
or the Asset and Liability Committee (the “ALCO”), following guidelines set by
the Board of Directors, Santander Central Hispano’s Global Risk Department, is
responsible for establishing Santander-Chile’s policies, procedures and limits
with respect to market risks and monitoring the overall performance in light of
the risks assumed. The ALCO constantly monitors whether these policies are
fulfilled. Santander-Chile’s Market Risk and Control Department and the
Financial Management Division carry out the day-to-day risk management of the
trading and non-trading activities of Santander-Chile.
The
composition of the Asset and Liabilities Management Committee includes the
Chairman of the Board, two members of the Board, the Chief Executive Officer,
the Manager of the Financial Management Division, the Manager of Market Risk,
the Manager of Proprietary Trading, the Financial Controller and other senior
members of management. Senior members of Santander-Chile’s Finance Division meet
monthly on a formal basis with the Asset and Liabilities Management Committee
and outside consultants.
Executive
Credit Committee
|
|
|
Mauricio
Larraín
|
|
Chairman
|
Carlos
Olivos
|
|
Member
|
Roberto
Méndez
|
|
Member
|
Marco
Colodro
|
|
Member
|
The
Executive Credit Committee is comprised of the Chairman of the Board, three
additional Board members, the Corporate Legal Counsel, the CEO, the Manager of
Global Banking, the Corporate Director of Risk, the Manager of Corporate
Banking, the Manager of Middle Market and two senior members of the Credit Risk
department that present the loans being reviewed for approval. This committee
confirms the loan positions reviewed by the Senior Loan Committee, with approval
rights up to the maximum exposure permitted by the General Banking
Law.
Marketing
and Communications Committee
|
|
|
Mauricio
Larraín
|
|
Chairman
|
Roberto
Méndez
|
|
Member
|
The
Marketing and Communications Committee is comprised of the Chairman of the Board
and an additional Board member, the CEO, the Manager of Retail Banking, the
Manager of Santander Banefe, the Manager of Human Resources, the Manager of
Corporate Communications, the Manager of Marketing and other senior managers of
the Bank. This committee reviews and confirms all matters related to products,
corporate image and communications.
D. Employees
As of
December 31, 2007, on a consolidated basis we had 9,174 employees, 8,739 of whom
were bank employees and 435 of whom were employees of our subsidiaries. With
respect to the average number of employees for the Bank only, during the year
ended December 31, 2006 and 2007, we had an average of 7,837 and 8,912
employees, respectively. We have traditionally enjoyed good relations with our
employees and their unions. Of the total headcount, 3,775 or 41.1% were
unionized. In March 2007, a new collective bargaining agreement became effective
and will expire on March 1, 2011, but this may be negotiated ahead of schedule
if management and union agree to. The primary terms of the new collective
bargaining agreement include improved employee benefits relating to
scholarships, sick days and insurance coverage for employees and a 5% increase
in salaries as of May
2007 for
employees with gross monthly incomes below Ch$800,000 (US$1,500). Furthermore,
we agreed to award an end-of-negotiation bonus based on the level of salaries,
and non-executive employees will receive an additional special bonus based on
each employee’s years of service at the Bank. The payment of these bonuses
represented a total cost of US$20 million, which was paid when negotiations
terminated at year-end 2006. We generally apply the terms of our collective
bargaining agreement to unionized and non-unionized employees. The following
chart summarizes the number of employees employed by the bank.
|
|
|
|
Executives
|
|
|
653 |
|
Professionals
|
|
|
4,161 |
|
Administrative
|
|
|
4,360 |
|
Total
|
|
|
9,174 |
|
E.
Share Ownership
As of
December 31, 2007, the following directors and executives held shares in
Santander-Chile:
|
|
|
Mauricio
Larraín G
|
|
568
|
Juan
Fernández F
|
|
35,536
|
No
director or executive officer owns more than 1% of the shares of
Santander-Chile.
Santander-Chile
currently does not have any arrangements for involving employees in its capital
and there is no systematic arrangement for grant of options or shares or
securities of Banco Santander-Chile to them. However, our parent company
gave each employee 100 shares in Banco Santander Spain in 2007.
A. Major
Shareholders
As of
December 31, 2007, Santander-Chile’s largest shareholders were the
following:
|
|
|
|
|
|
|
Teatinos
Siglo XXI Inversiones Ltda.*
|
|
|
78,108,391,607 |
|
|
|
41.45 |
% |
Santander
Chile Holding
|
|
|
66,822,519,695 |
|
|
|
35.46 |
% |
* Formerly
know as Teatinos Siglo XXI S.A.
Banco
Santander Spain controls Santander-Chile through its holdings in Teatinos Siglo
XXI Inversiones Ltda. and Santander-Chile Holding, which are controlled
subsidiaries of Banco Santander Spain. As of December 31, 2007, Banco Santander
Spain directly or indirectly owned or controlled 99.5% of Santander-Chile
Holding directly or indirectly owned or controlled 100% of Teatinos Siglo XXI
S.A. This gives Banco Santander Spain control over 76.91% of the shares of the
Bank, and actual participation, when excluding minority shareholders, of 76.73%
at December 31, 2007.
Banco
Santander Spain is in a position to cause the election of a majority of the
members of Santander-Chile’s Board of Directors, to determine its dividend and
other policies and to determine substantially all matters to be decided by a
vote of shareholders.
Banco Santander Spain holds ordinary shares to which no special voting
rights are attached. Each share represents one vote and there are no
shareholders with different voting rights.
The number
of outstanding shares of Santander-Chile (of which there is only one class,
being ordinary shares) at December 31, 2007, was 188,446,126,794 shares, without
par value. Santander-Chile’s shares are listed for trading on the Chilean Stock
Exchanges and on the NYSE in connection with the registration of ADRs. The
market capitalization of Santander-Chile at the same date was Ch$4,651,046
million (US$9,308 million), representing 188,446,126,794 shares of common stock.
At December 31, 2007, Santander-Chile had 13,505 holders registered in Chile,
including the Bank of New York, as Depositary (the “Depositary”) of
Santander-Chile’s American
Depositary
Share Program. As of December 31, 2007, there were a total of 7 ADR holders on
record. Since some of these ADRs are held by nominees, the number of record
holders may not be representative of the number of beneficial
holders.
Other than
the information disclosed in this section, there are no arrangements in the
knowledge of Santander-Chile, which can result in a change of control of
Santander-Chile.
B. Related
Party Transactions
The
Chilean Companies Law requires that our transactions with related parties be on
a market basis, that is, on similar terms to those customarily prevailing in the
market. We are required
to compare the terms of any such transaction to those prevailing in the market
at the date the transaction is to be entered into. Directors of companies that
violate this provision are liable for losses resulting from such
violations.
In
addition, under the Chilean Companies Law, a company may not enter into a
transaction in which one or more of its directors has a direct or indirect
interest unless (i) such transaction has received the prior approval of the
company’s Board of Directors and (ii) the terms of such transaction are
consistent with the terms of transactions of a similar type prevailing in the
market.
If it is not possible to make this determination, the board
may appoint two independent evaluators. The evaluators’ final
conclusions must be made available to shareholders and directors for a period of
20 business days, during which shareholders representing 5% or more of the
issued voting shares may request the board to call a shareholders’ meeting to
resolve the matter, with the agreement of two thirds of the issued voting shares
required for approval.
For purposes of this regulation, the law considers the amount of a
proposed transaction to be material if (1) it exceeds 1% of the company’s net
worth (provided that it also exceeds 2,000UF) or (2) it exceeds 20,000
UF.
All
resolutions approving such transactions must be reported to the company’s
shareholders at the next annual shareholders’ meeting. Violations of this
provision may result in administrative, criminal or civil liability to the
corporation, the shareholders and/or third parties who suffer losses as a result
of such violation.
Loans
granted to related parties
Related
party loans, all of which are current, are as follows:
|
|
As
of December 31, 2007
|
|
|
|
Loans
|
|
|
Collateral
Pledged
|
|
|
|
Ch$mn
|
|
|
Ch$mn
|
|
|
|
|
|
|
|
|
Operating
companies
|
|
|
88,510 |
|
|
|
50,404 |
|
Investment
companies
|
|
|
185,812 |
|
|
|
29,419 |
|
Individuals
|
|
|
30,175 |
|
|
|
28,629 |
|
Total
|
|
|
304,497 |
|
|
|
108,452 |
|
(1)
|
Includes
companies whose purpose is to hold shares in other
companies.
|
(2)
|
Includes
debt obligations that are individually equal to or greater than UF 3,000,
equivalent to Ch$59 million (US$118,995) as of December 31, 2007. Includes
loans to certain executive officers. All of the loans to the executive
officers were made in our ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other
persons, and did not involve more than the normal risk of collectability
or present other unfavorable
features.
|
Under the
Chilean General Banking Law, Chilean banks are subject to certain lending
limits, including the following:
|
·
|
a
bank may not extend to any person or legal entity (or group of related
entities), directly or indirectly, unsecured loans in an amount that
exceeds 5.0% of the bank’s regulatory capital, or secured loans in an
amount that exceeds 25.0% of its regulatory capital. In the case of
foreign export trade finance, this 5.0% ceiling is raised to: 10.0% for
unsecured financing, 30.0% for secured financing. This ceiling is raised
to 15.0% for loans granted to finance public works under the concessions
system contemplated in the Decree
|
|
|
with
Force of Law 164 of 1991, of the Ministry of Public Works, provided that
either the loan is secured on the concession, or the loan is granted as
part of a loan syndication; |
|
·
|
a
bank may not grant loans bearing more favorable terms than those generally
offered by banks in the same community to any entity (or group of related
entities) that is directly or indirectly related to its owners or
management;
|
|
·
|
a
bank may not extend loans to another bank in an aggregate amount exceeding
30.0% of its regulatory capital;
|
|
·
|
a
bank may not directly or indirectly grant a loan the purpose of which is
to allow the borrower to acquire shares in the lending
bank;
|
|
·
|
a
bank may not lend, directly or indirectly, to a Director or any other
person who has the power to act on behalf of the bank, or to certain
related parties;
|
|
·
|
a
bank may not grant loans to individuals or legal entities involved in the
ownership or management of the bank, whether directly or indirectly
(including holders of 1.0% or more of its shares), on more favorable terms
than those generally offered to non related parties. Loans may not be
extended to senior executives and to companies in which such individuals
have a participation of 5.0% or more of the equity or net earnings in such
companies. The aggregate amount of loans to related parties may not exceed
a bank’s regulatory capital; and
|
|
·
|
the
maximum aggregate amount of loans that a bank may grant to its employees
is 1.5% of its regulatory capital, and no individual employee may receive
loans in excess of 10.0% of such 1.5% limit. These limitations do not
apply to a single home mortgage loan for personal use per term of
employment of each employee.
|
We are not
aware of any loans to any related parties exceeding the above lending
limits.
Other
transactions with related parties
During the
years ended December 31, 2007, the Bank had the following significant income
(expenses) from services provided to (by) related parties:
|
|
Year ended
December 31, 2007
|
|
Company
|
|
|
|
|
|
Ch$
million
|
|
Redbanc
S.A. (payment for administering ATM network)
|
|
|
(3,967 |
) |
Transbank
S.A. (payments for administering credit card network)
|
|
|
(6,871 |
) |
Santander
G.R.C. Ltda. (collection services)
|
|
|
(3,218 |
) |
Santander
Chile Holding S.A. (rent)
|
|
|
33 |
|
Santander
Factoring S.A. (rent)
|
|
|
52 |
|
Bansa
Santander S.A. (rent and sale of repossessed assets)
|
|
|
(2,506 |
) |
AFP
Bansander S.A (rent)
|
|
|
137 |
|
Altec
S.A. (technology services)
|
|
|
(6,103 |
) |
Santander
Investment Chile S.A. (rent)
|
|
|
95 |
|
Altavida
Cia. De Seguro De Vida S.A. (rent and payment of life insurance policies
relating to certain loans)
|
|
|
(1,675 |
) |
Santander
Cia. de Seguros Generales S.A. (rent and payment of life insurance
policies relating to certain loans)
|
|
|
(821 |
) |
Plaza
El Trebol S A (rent)
|
|
|
(68 |
) |
Other
(1)
|
|
|
130 |
|
Total
|
|
|
(24,782 |
) |
(1)
|
Consists
primarily of payment of stipend to Board
members.
|
On January
15, 2007, Santander Investment S.A. Corredores de Bolsa, an affiliate of Banco
Santander Chile controlled by Santander Spain, approved the merger between
Santiago Corredores de Bolsa Limitada, a subsidiary of Banco Santander Chile,
into Santander Investment S.A. Corredores de Bolsa, effective January 1, 2007.
Santander Investment S.A. Corredores de Bolsa, as of January 15, 2007, became a
subsidiary of Banco Santander Chile and the legal successor of Santiago
Corredores de Bolsa Limitada.
The merger
of Santiago Corredores de Bolsa Limitada and Santander Investment S.A.
Corredores de Bolsa was accounted as a business combination of entities under
common control, thus, the lower value determined in the transaction was recorded
as a charge to the Bank’s shareholders’ equity in an amount of Ch$1,903
million.
C. Interests
of Experts and Counsel
Not
applicable.
A. Consolidated
Statements and Other Financial Information
Financial
Information
See
Item 18.
Legal
Proceedings
On August
26, 1992, a lawsuit was filed by the Chilean Internal Revenue Service against
the Bank. On December
13, 2007, the Bank paid Ch$423 million to the Chilean Revenue Service,
concluding this contingency.
Our
General Counsel was indicted by the national treasury in a lawsuit regarding the
repayment by Inverlink Corredores de Bolsa of a Ch$980 million (equivalent to
US$1.8 million) loan made to it by Banco Santander-Chile. Repayment was made by
tendering to Banco Santander-Chile a cashier’s check issued by another bank in
favor of Banco Santander-Chile. The Bank was not legally
required to verify the legitimacy of the funds used to obtain the cashier’s
check and, authenticity of the cashier’s check and, accordingly, cashed it in
satisfaction of its loan to Inverlink. Subsequently, the Bank
learned that the cashier’s check had been obtained from the issuing bank by
Inverlink Corredores de Bolsa with
funds fraudulently obtained from CORFO. The Bank actively cooperated with the
investigation and agreed to pay Ch$980 million to CORFO. In Janaury 2007, the
courts approved the motion to end this
trial against our General Counsel. The national treasury appealed this
ruling. In November 2007,
the courts
approved and ratified definitively the motion to end this trial against our
General Counsel.
In
addition, we are subject to certain claims and are party to certain legal and
arbitration proceedings incidental to the normal course of our business
including claims for alleged operational errors. We do not believe that the
liabilities related to such claims and proceedings are likely to have,
individually or in the aggregate, a material adverse effect on our consolidated
financial condition or results of operations. Nevertheless, based on
management’s individual analysis of each proceeding, we have made provisions in
the amount reported as “Provisions for lawsuit and other” in Note 10(b) of our
Consolidated Financial Statements. Other than the proceedings described above,
there are no material proceedings in which any of our directors, any members of
our senior management or any of our affiliates is either a party adverse to us
or to our subsidiaries or has a material interest adverse to us or our
subsidiaries.
Dividends
and dividend policy
See “Item
3: A. Selected Financial Data—Dividends.”
B. Significant
Changes
None.
A. Historical
Trading Information
The table
below shows, for the periods indicated, the annual, quarterly and monthly high
and low closing prices (in nominal Chilean pesos) of the shares of our common
stock on the Santiago Stock Exchange and the annual, quarterly and monthly high
and low closing prices (in U.S. dollars) as reported by the NYSE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Price History
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
15.30 |
|
|
|
12.65 |
|
|
|
24.65 |
|
|
|
17.05 |
|
2004
|
|
|
18.20 |
|
|
|
13.30 |
|
|
|
33.90 |
|
|
|
23.55 |
|
2005
|
|
|
22.75 |
|
|
|
17.11 |
|
|
|
45.86 |
|
|
|
30.40 |
|
2006
|
|
|
26.20 |
|
|
|
19.60 |
|
|
|
51.46 |
|
|
|
37.40 |
|
2007
|
|
|
27.10 |
|
|
|
21.25 |
|
|
|
55.30 |
|
|
|
41.76 |
|
Quarterly
Price History
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
|
25.09 |
|
|
|
21.60 |
|
|
|
49.85 |
|
|
|
43.10 |
|
2nd
Quarter
|
|
|
23.20 |
|
|
|
19.60 |
|
|
|
46.80 |
|
|
|
37.40 |
|
3rd
Quarter
|
|
|
24.00 |
|
|
|
19.75 |
|
|
|
46.50 |
|
|
|
37.66 |
|
4th
Quarter
|
|
|
26.20 |
|
|
|
22.90 |
|
|
|
51.46 |
|
|
|
44.69 |
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
|
26.75 |
|
|
|
24.35 |
|
|
|
51.14 |
|
|
|
46.75 |
|
2nd
Quarter
|
|
|
27.10 |
|
|
|
24.49 |
|
|
|
53.13 |
|
|
|
48.39 |
|
3rd
Quarter
|
|
|
25.40 |
|
|
|
21.25 |
|
|
|
50.74 |
|
|
|
41.76 |
|
4th
Quarter
|
|
|
26.21 |
|
|
|
21.75 |
|
|
|
55.30 |
|
|
|
43.99 |
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
|
24.86 |
|
|
|
20.00 |
|
|
|
53.37 |
|
|
|
45.58 |
|
Monthly
Price History
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
2007
|
|
|
24.49 |
|
|
|
22.80 |
|
|
|
51.20 |
|
|
|
46.75 |
|
January
2008
|
|
|
24.86 |
|
|
|
20.00 |
|
|
|
51.70 |
|
|
|
45.58 |
|
February
2008
|
|
|
24.00 |
|
|
|
21.25 |
|
|
|
53.37 |
|
|
|
47.11 |
|
March
2008
|
|
|
22.67 |
|
|
|
20.82 |
|
|
|
52.39 |
|
|
|
48.96 |
|
April
2008
|
|
|
23.55 |
|
|
|
22.49 |
|
|
|
54.34 |
|
|
|
50.40 |
|
May
2008
|
|
|
24.46 |
|
|
|
22.80 |
|
|
|
54.60 |
|
|
|
51.02 |
|
June
2008 (as per June 24, 2008)
|
|
|
23.91 |
|
|
|
21.20 |
|
|
|
51.47 |
|
|
|
43.53 |
|
B. Plan
of Distribution
Not
applicable
C. Nature
of Trading Market
Nature
of Trading Market
Shares of
our common stock are traded on the Chilean Stock Exchanges. Each ADS represents
1,039 shares of common stock. ADRs have been issued pursuant to the Deposit
Agreement, dated as of August 1, 2002, among Santander-Chile, the Depositary and
all holders from time to time of ADRs. As of December 31, 2006, 25,957,667 ADSs
were outstanding (equivalent to 26,970,016,013 shares of common stock or 14.3%
of the total number of issued shares of common stock).
D. Selling
Shareholders
Not
Applicable.
E. Dilution
Not
Applicable.
F. Expenses
of the Issue
Not
Applicable.
A. Share
Capital
Not
applicable.
B. Memorandum
and Articles of Association
The legal
predecessor of Santander-Chile was Banco Santiago (Santiago). Santiago was
incorporated by public deed dated September 7, 1977 granted at the Notary Office
of Alfredo Astaburuaga Gálvez. Santiago received its permission to incorporate
and function as a bank by Resolution No. 118 of the Superintendency of Banks on
October 27, 1977. The Bank’s by-laws were approved by Resolution No. 103 of the
Superintendency of Banks on September 22, 1977. In January 1997, Santiago merged
with Banco O’Higgins’ with Santiago as the surviving entity. In 1999, Santiago
became a controlled subsidiary of Banco Santander Spain.
On May 24,
2007, we have changed our by-laws insofar as our official name shall be Banco
Santander-Chile (formerly: Banco Santander Chile) and that the Bank may also use
the following names: Banco Santander Santiago, Santander Santiago, Banco
Santander, or Santander (formerly only: Banco Santander Santiago and Santander
Santiago.)
Shareholder
rights in a Chilean bank that is also an open stock (public) corporation are
governed by (1) the corporation’s estatutos, which effectively
serve the purpose of both the articles or certificate of incorporation and the
by-laws of a company incorporated in the United States, (2) the General Banking
Law and (3) to the extent not inconsistent with the General Banking Law, by the
provisions of Chilean Companies Law applicable to open stock corporations,
except for certain provisions that are expressly excluded. Article 137 of the
Chilean Companies Law provides that all provisions of the Chilean Companies Law
take precedence over any contrary provision in a corporation’s estatutos. Both the Chilean
Companies Law and our estatutos provide that legal
actions by shareholders against us (or our officers or directors) to enforce
their rights as shareholders or by one shareholder against another in their
capacity as such are to be brought in Chile in arbitration proceedings,
notwithstanding the plaintiff’s right to submit the action to the ordinary
courts of Chile.
The
Chilean securities markets are principally regulated by the Superintendency of
Securities and Insurance under the Chilean Securities Market Law and the Chilean
Companies Law. In the case of banks, compliance with these laws is supervised by
the Superintendency of Banks. These two laws provide for disclosure
requirements, restrictions on insider trading and price manipulation and
protection of minority investors. The Chilean Securities Market Law sets forth
requirements relating to public offerings, stock exchanges and brokers, and
outlines disclosure requirements for companies that issue publicly offered
securities. The Chilean Companies Law sets forth the rules and requirements for
establishing open stock corporations while eliminating government supervision of
closed (closely-held) corporations. Open stock (public) corporations are those
with 500 or more shareholders, or companies in which 100 or more shareholders
own at least 10.0% of the subscribed capital (excluding those whose individual
holdings exceed 10.0%), and all other companies that are registered in the
Securities Registry of the Superintendency of Securities and
Insurance.
Board
of Directors
The Board
of Directors has 11 regular members and 2 alternate members, elected by
shareholder vote at General Shareholders’ Meetings. The directors may be either
shareholders or non-shareholders of the Company.
A director
remains in office for three years and may be reelected indefinitely. If for any reason, the
General Shareholders’ Meeting where the newly appointments of directors are to
be made is not held, the duties of those
serving as
such shall be extended until their replacements are designated, in which case,
the Board of Director shall convene a Meeting at the earliest possible time in
order to effect the appointments.
The
directors are entitled to compensation for the performance of their duties. The
amount of their compensation is determined annually by the General Shareholders’
Meeting. In addition, payments in the form of wages, fees, travel accounts,
expense accounts, dues as representatives of the Board of Directors and other
cash payments, payments in kind or royalties of any sort whatsoever, may be paid
to certain directors for the performance of specific duties or tasks in addition
to their functions as directors imposed upon them specifically by the General
Shareholders’ Meeting. Any special compensation is authorized or approved at the
General Shareholders’ Meeting, and for that purpose, a detailed and separate
entry shall be made in the Annual Report, which shall expressly indicate the
complete name of each of the directors receiving special
compensation.
Without
prejudice to any other incapacity or incompatibility established by law, the
following may not be directors: (a) those persons who have been sentenced or are
being tried, either as principals or accessories, for crimes punishable with a
penalty of temporary or permanent suspension from or incapacity to hold public
office; (b) those persons who have been declared bankrupt and have not been
rehabilitated; (c) members of the House of Representatives and the Senate; (d)
directors or employees of any other financial institution; employees appointed
by the President of the Republic and employees or officers of (i) the State,
(ii) any public service, public institution, semi-public institution, autonomous
entity or state-controlled company (any such entity a “Public Entity”) or (iii)
any enterprise, corporation or public or private entity in which the State or a
Public Entity has a majority interest, has made capital contributions, or is
represented or participating, provided that persons holding positions in
teaching activities in any of the above entities may be directors; and (f) the
Bank’s employees, which shall not prevent a director from holding on a temporary
basis and for a term not to exceed ninety days the position of General Manager.
Chief Executive Officers may not be elected as directors.
For
purposes of the appointment of directors, each shareholder shall have the right
to one vote per share for purposes of appointing a single person, or to
distribute his votes in between candidates as he may deem convenient, and the
persons obtaining the largest number of votes in the same and single process
shall be awarded positions, until all positions have been filled. The election
of the regular and alternate board members shall be carried out separately. For
purposes of the casting of the vote, the Chairman and the Secretary, together
with any other persons that may have been previously designated by the Meeting
to sign the minutes thereof, shall issue a certificate giving evidence of the
oral votes of shareholders attending, following the order of the list of
attendance being taken.
Each
shareholder shall be entitled, however, to cast his vote by means of a ballot
signed by him, stating whether he signs for his own account or as a
representative. This entitlement notwithstanding, in order to expedite the
voting process, the Chairman of the Bank or the Superintendency, as the case may
be, is entitled to order that the vote be taken alternatively or by oral vote or
by means of ballots. At the time of polling, the Chairman may instruct that the
votes be read aloud, in order for those in attendance to count for themselves
the number of votes issued and verify the outcome of the voting
process.
The
Secretary tabulates the votes and the Chairman announces those who have obtained
the largest majorities until all the director positions have been filled. The
Secretary places the documents evidencing the outcome of the count, duly signed
by the persons charged with the duty of verifying the number of votes issued,
together with the ballots delivered by the shareholders who did not vote orally,
in an envelope which shall be closed and sealed with the corporate seal and
shall remain deposited with the Bank for a least two years.
Every
appointment of directors, or any changes in the appointment of directors, shall
be transcribed into a public deed before a notary public, published in a
newspaper of Santiago and notified to the Superintendency of Banks and Financial
Institutions, by means of the filing of a copy of the respective public deed.
Likewise, the appointments of General Manager, Manager and Deputy Managers shall
be communicated and transcribed into a public deed.
If a
director ceases to be able to perform his or her duties, whether by reason of
conflict of interest, limitation, legal incapacity or bankruptcy, impossibility,
resignation or any other legal cause, the vacancy shall be filled as follows:
(a) the positions of regular directors shall be filled by an alternate director;
and (b) the positions of alternate directors vacated upon the application of (a)
above, and the positions of regular directors if a regular director’s position
can not be filled pursuant to clause (a) because both alternate members have
already become regular members, shall be filled by the Board of Directors on its
first meeting after the vacancy occurs. Board members
appointed
pursuant to clause (b) will remain in the position until the next General
Shareholders’ Meeting, where the appointment may be ratified, in which case, the
replacement director will remain in his or her position until the expiration of
the term of the director he or she replaced.
The
alternate directors may temporarily replace regular directors in case of their
absence or temporary inability to attend a board meeting, or in a definitive
manner in case of vacancy. The alternate board members are always entitled to
attend and speak at board meetings. They will be entitled to vote at such
meetings only when a regular member is absent and such alternate member acts as
the absent member’s replacement.
During the
first meeting following the General Shareholders’ Meeting, the Board of
Directors shall elect in separate votes from among its members, a Chairman, a
First Vice Chairman and a Second Vice Chairman. In the event of a tie, the
appointment shall be decided by lottery.
The Board
of Directors meet in ordinary sessions at least once a month, held on pre-set
dates and times determined by the Board. Extraordinary meetings are held
whenever called by the Chairman, whether at his own will or upon the request of
three or more directors, so long as the Chairman determines in advance that the
meeting is justified, except if the request is made by the absolute majority of
the directors in office, in which case the meeting shall be held without such
prior determination. The extraordinary meetings may only address those matters
specifically included in the agenda for the extraordinary meeting, except that,
if the meeting is attended by all the directors in office, they may agree
otherwise by a unanimous vote. Extraordinary meetings shall be called by means
of a written instrument signed by the Chairman or the Secretary or his alternate
and delivered to each of the directors at least three days prior to the date set
for the meeting.
The quorum
for the Board of Directors’ Meeting is six of its members. Resolutions shall be
adopted by the affirmative vote of the absolute majority of the attending
directors. In the event of a tie, the person acting as the Chairman of the
meeting shall cast a deciding vote.
Directors
having a vested interest in a negotiation, act, contract or transaction that is
not related to the bank business, either as principal or as representative of
another person, shall communicate such fact to the other directors. If the
respective resolutions are approved by the Board, it shall be in accordance to
the prevailing fair market conditions and director’s interest must be disclosed
at the next General Shareholders’ Meeting.
The
discussions and resolutions of the Board of Directors shall be recorded in a
special book of minutes maintained by the Secretary. The relevant minutes shall
be signed by the directors attending the meeting and by the Secretary, or his
alternate. If a director determines that the minutes for a meeting are
inaccurate or incomplete, he is entitled to record an objection before actually
signing the minutes. The resolutions adopted may be carried out prior to the
approval of the minutes at a subsequent meeting. In the event of death, refusal
or incapacity for any reason of any of the directors attending to sign the
minutes, such circumstance shall be recorded at the end of the minutes stating
the reason for the impediment.
The
directors are personally liable for all of the acts they effect in the
performance of their duties. Any director who wishes to disclaim responsibility
for any act or resolution of the Board of Directors must to record his
opposition in the minutes, and the Chairman must report the opposition at the
following General Shareholders’ Meeting.
The Board
will represent the Bank in and out of court and, for the performance of the
Bank’s business, a circumstance that will not be necessary to prove before third
parties, it will be empowered with all the authorities and powers of
administration that the law or the by-laws do not set as exclusive to the
General Shareholders’ Meeting, without being necessary to grant any special
power of attorney, even for those acts that the law requires to do so. This
provision is notwithstanding the judicial representation of the Bank that is
part of the General Manager’s authorities. The Board may delegate part of its
authority to the General Manager, to the Managers, Deputy Managers or Attorneys
of the Bank, a Director, a Commission of Directors, and for specifically
determined purposes, in other persons.
Meetings
and Voting Rights
An
ordinary annual meeting of shareholders is held within the first four months of
each year. The ordinary annual meeting of shareholders is the corporate body
that approves the annual financial statements, approves all dividends in
accordance with the dividend policy determined by our Board of Directors, elects
the Board of
Directors
and approves any other matter that does not require an extraordinary
shareholders’ meeting. The last ordinary annual meeting of our shareholders was
held on April 22, 2008.
Extraordinary meetings may be called by our Board of Directors when
deemed appropriate, and ordinary or extraordinary meetings must be called by our
Board of Directors when requested by shareholders representing at least 10.0% of
the issued voting shares or by the Superintendency of Banks. Notice to convene
the ordinary annual meeting or an extraordinary meeting is given by means of
three notices which must be published in a newspaper of our corporate domicile
(currently Santiago) or in the Official Gazette in a prescribed manner, and the
first notice must be published not less than 15 days nor more than 20 days in
advance of the scheduled meeting. Notice must also be mailed 15 days in advance
to each shareholder and given to the Superintendency of Banks and the Chilean
Stock Exchanges. Currently, we publish our official notices in the El Mercurio
newspaper of Santiago.
The quorum
for a shareholders’ meeting is established by the presence, in person or by
proxy, of shareholders representing at least an absolute majority of the issued
shares. If a quorum is not present at the first meeting, the meeting can be
reconvened (in accordance with the procedures described in the previous
paragraph) and, upon the meeting being reconvened, shareholders present at the
reconvened meeting are deemed to constitute a quorum regardless of the
percentage of the shares represented. The shareholders’ meetings pass
resolutions by the affirmative vote of an absolute majority of those voting
shares present or represented at the meeting. The vote required at any
shareholders’ meeting to approve any of the following actions, however, is a
two-thirds majority of the issued shares:
·
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a
change in corporate form, spin-off or
merger;
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·
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an
amendment of the term of existence, if any, and the early dissolution of
the bank;
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·
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a
change in corporate domicile;
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·
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a
decrease of corporate capital previously approved by the Superintendency
of Banks, provided it is not reduced below the legal minimum
capital;
|
·
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a
decrease in the number of directors previously approved by the
Superintendency of Banks;
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·
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the
approval of contributions and appraisal of properties other than cash, in
those cases where it is permitted by the General Banking
Act;
|
·
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the
amendment of authority of the general shareholders’ meeting or the
restriction of the authority of the Board of
Directors;
|
·
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the
transfer of 50.0% or more of the corporate assets, regardless of whether
it includes liabilities, or the implementation or amendment of any
business plan that contemplates the transfer of 50.0% or more of the
corporate assets;
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·
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a
change in the manner of distribution of profits established in the
by-laws;
|
·
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any
non-cash distribution in respect of the
shares;
|
·
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the
repurchase of shares of stock in the Bank;
or
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·
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the
approval of material related-party transactions when requested by
shareholders representing at least 5.0% of the issued and outstanding
shares with right to vote if they determine that the terms and conditions
of those transactions are not favorable to the interests of the bank or if
two independent assessments of those transactions requested by the Board
materially differ from each other.
|
Shareholders
may accumulate their votes for the election of directors and cast all of their
votes in favor of one person.
In
general, Chilean law does not require a Chilean open stock corporation to
provide the level and type of information that U.S. securities laws require a
reporting company to provide to its shareholders in connection with a
solicitation of proxies. However, shareholders are entitled to examine the books
of the bank within the 15-day period before the ordinary annual meeting. Under
Chilean law, a notice of a shareholders’ meeting listing matters to be
addressed
at the meeting must be mailed not fewer than 15 days prior to the date of such
meeting, and, in cases of an ordinary annual meeting, shareholders holding a
prescribed minimum investment must be sent an Annual Report of the bank’s
activities which includes audited financial statements. Shareholders who do not
fall into this category but who request it must also be sent a copy of the
bank’s Annual Report. In addition to these requirements, we regularly provide,
and management currently intends to continue to provide, together with the
notice of shareholders’ meeting, a proposal for the final annual
dividend.
The
Chilean Corporations Law provides that whenever shareholders representing 10.0%
or more of the issued voting shares so request, a Chilean company’s Annual
Report must include, in addition to the materials provided by the Board of
Directors to shareholders, such shareholders’ comments and proposals in relation
to the company’s affairs. Similarly, the Chilean Corporations Law provides that
whenever the Board of Directors of an open stock corporation convenes an
ordinary shareholders’ meeting and solicits proxies for that meeting, or
distributes information supporting its decisions, or other similar material, it
is obligated to include as an annex to its Annual Report any pertinent comments
and proposals that may have been made by shareholders owning 10.0% or more of
the company’s voting shares who have requested that such comments and proposals
be so included.
Only
shareholders registered as such with us on the fifth business day prior to the
date of a meeting are entitled to attend and vote their shares. A shareholder
may appoint another individual (who need not be a shareholder) as his proxy to
attend and vote on his behalf. Every shareholder entitled to attend and vote at
a shareholders’ meeting has one vote for every share subscribed. Each share
represents one vote and there are no special classes of shares with different
rights. Our by-laws do not include any condition that is more significant than
required by law to change the right of shareholders.
Capitalization
Under
Chilean law, the shareholders of a company, acting at an extraordinary
shareholders’ meeting, have the power to authorize an increase in such company’s
capital. When an investor subscribes for issued shares, the shares are
registered in such investor’s name, even if not paid for, and the investor is
treated as a shareholder for all purposes except with regard to receipt of
dividends and the return of capital, provided that the shareholders may, by
amending the by-laws, also grant the right to receive dividends or distributions
of capital. The investor becomes eligible to receive dividends and returns of
capital once it has paid for the shares (if it has paid for only a portion of
such shares, it is entitled to reserve a corresponding pro-rata portion of the
dividends declared and/or returns of capital with respect to such shares unless
the company’s by-laws provide otherwise). If an investor does not pay for shares
for which it has subscribed on or prior to the date agreed upon for payment, the
company is entitled under Chilean law to auction the shares on the stock
exchange and collect the difference, if any, between the subscription price and
the auction proceeds. However, until such shares are sold at auction, the
subscriber continues to exercise all the rights of a shareholder (except the
right to receive dividends and return of capital).
Article 22
of the Chilean Corporations Law states that the purchaser of shares of a company
implicitly accepts its by-laws and any agreements adopted at shareholders’
meetings.
Approval
of Financial Statements
Our Board
of Directors is required to submit our audited financial statements to the
shareholders annually for their approval. The approval or rejection of such
financial statements is entirely within our shareholders’ discretion. If our
shareholders reject our financial statements, our Board of Directors must submit
new financial statements not later than 60 days from the date of such rejection.
If our shareholders reject our new financial statements, our entire Board of
Directors is deemed removed from office and a new Board of Directors is elected
at the same meeting. Directors who individually approved such rejected financial
statements are disqualified for re-election for the ensuing period.
Registrations
and Transfers
We act as
our own registrar and transfer agent, as is customary among Chilean companies.
In the case of jointly owned shares, an attorney-in-fact must be appointed to
represent the joint owners in dealings with us.
Dividend,
Liquidation and Appraisal Rights
Under the
Chilean Corporations Law, Chilean companies are generally required to distribute
at least 30.0% of their earnings as dividends.
In the
event of any loss of capital, no dividends can be distributed so long as such
loss is not recovered. Also, no dividends of a bank above the legal minimum can
be distributed if doing so would result in the bank exceeding its ratio of
risk-weighted assets to regulatory capital or total assets.
Dividends
that are declared but not paid by the date set for payment at the time of
declaration are adjusted from the date set for payment to the date such
dividends are actually paid, and they accrue interest.
We may
declare a dividend in cash or in shares. When a share dividend is declared above
the legal minimum (which minimum must be paid in cash), our shareholders must be
given the option to elect to receive cash. Our ADS holders may, in the absence
of an effective registration statement under the Securities Act or an available
exemption from the registration requirement thereunder, effectively be required
to receive a dividend in cash. See “Item 10: B. Memorandum and Articles of
Incorporation—Preemptive Rights and Increases of Share Capital.”
In the
event of our liquidation, the holders of fully paid shares would participate
equally and pro rata, in proportion to the number of paid-in shares held by
them, in the assets available after payment of all creditors.
In
accordance with the General Banking Law, our shareholders do not have appraisal
rights.
Ownership
Restrictions
Under
Article 12 of the Chilean Securities Market Law and the regulations of the
Superintendency of Banks, shareholders of open stock corporations are required
to report the following to the Superintendency of Securities and Insurance and
the Chilean Stock Exchanges:
·
|
any
direct or indirect acquisition or sale of shares that results in the
holder’s acquiring or disposing, directly or indirectly, 10.0% or more of
an open stock corporation’s share capital;
and
|
·
|
any
direct or indirect acquisition or sale of shares or options to buy or sell
shares, in any amount, if made by a holder of 10.0% or more of an open
stock corporation’s capital or if made by a director, liquidator, main
officer, general manager or manager of such
corporation.
|
In
addition, majority shareholders must include in their report whether their
purpose is to acquire control of the company or if they are making a financial
investment. A beneficial owner of ADSs representing 10.0% or more of our share
capital will be subject to these reporting requirements under Chilean
law.
Under
Article 54 of the Chilean Securities Market Law and the regulations of the
Superintendency of Securities and Insurance, persons or entities intending to
acquire control, directly or indirectly, of an open stock corporation,
regardless of the acquisition vehicle or procedure, and including acquisitions
made through direct subscriptions or private transactions, are also required to
inform the public of such acquisition at least 10 business days before the date
on which the transaction is to be completed, but in any case, as soon as
negotiations regarding the change of control begin (i.e., when information and
documents concerning the target are delivered to the potential acquiror) through
a filing with the Superintendency of Securities and Insurance, the stock
exchanges and the companies controlled by and that control the target and
through a notice published in two Chilean newspapers, which notice must
disclose, among other information, the person or entity purchasing or selling
and the price and conditions of any negotiations.
Prior to
such publication, a written communication to such effect must be sent to the
target corporation, to the controlling corporation, to the corporations
controlled by the target corporation, to the Superintendency of Securities and
Insurance, and to the Chilean stock exchanges on which the securities are
listed.
In
addition to the foregoing, Article 54A of the Chilean Securities Market Law
requires that within two business days of the completion of the transactions
pursuant to which a person has acquired control of a publicly traded company, a
notice shall be published in the same newspapers in which the notice referred to
above was published and notices shall be sent to the same persons mentioned in
the preceding paragraphs.
The
provisions of the aforementioned articles do not apply whenever the acquisition
is being made through a tender or exchange offer.
Title XXV
of the Chilean Securities Market Law on tender offers and the regulations of the
Superintendency of Securities and Insurance provide that the following
transactions must be carried out through a tender offer:
·
|
an
offer which allows a person to take control of a publicly traded company,
unless (i) the shares are being sold by a controlling shareholder of such
company at a price in cash which is not substantially higher than the
market price and the shares of such company are actively traded on a stock
exchange and (ii) those shares are acquired (a) through a capital
increase, (b) as a consequence of a merger, (c) by inheritance or (d)
through a forced sale; and
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·
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an
offer for a controlling percentage of the shares of a listed company if
such person intends to take control of the parent company (whether listed
or not) of such listed company, to the extent that the listed company
represents 75.0% or more of the consolidated net worth of the parent
company.
|
In
addition, Article 69bis
of the Companies Law requires that whenever a controlling shareholder acquires
two thirds of the voting shares of a listed company, such controlling
shareholder must offer to purchase the remaining shares from the minority
shareholders in a tender offer.
Article
200 of the Chilean Securities Market Law prohibits any shareholder that has
taken control of a publicly traded company to acquire, for a period of 12 months
from the date of the transaction in which it gained control of the publicly
traded company, a number of shares equal to or greater than 3.0% of the
outstanding issued shares of the target without making a tender offer at a price
per share not lower than the price paid at the time of taking control. Should
the acquisition from the other shareholders of the company be made on a stock
exchange and on a pro rata basis, the controlling shareholder may purchase a
higher percentage of shares, if so permitted by the regulations of the stock
exchange.
Title XV
of the Chilean Securities Market Law sets forth the basis to determine what
constitutes a controlling power, a direct holding and a related party. The
Chilean Securities Market Law defines control as the power of a person or group
of persons acting (either directly or through other entities or persons)
pursuant to a joint action agreement, to direct the majority of the votes at the
shareholders’ meetings of the corporation, to elect the majority of members of
its Board of Directors, or to influence the management of the corporation
significantly. Significant influence is deemed to exist in respect of the person
or group of persons with an agreement to act jointly that holds, directly or
indirectly, at least 25.0% of the voting share capital, unless:
·
|
another
person or group of persons acting pursuant to joint action agreement,
directly or indirectly, controls a stake equal to or greater than the
percentage controlled by such person or group of
persons;
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·
|
the
person or group does not control, directly or indirectly, more than 40.0%
of the voting share capital and the percentage controlled is lower than
the sum of the shares held by other shareholders holding more than 5.0% of
the share capital (either directly or pursuant to a joint action
agreement); or
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·
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in
cases where the Superintendency of Securities and Insurance has ruled
otherwise, based on the distribution or atomization of the overall
shareholding.
|
According
to the Chilean Securities Market Law, a joint action agreement is an agreement
among two or more parties which, directly or indirectly, own shares in a
corporation at the same time and whereby they agree to participate with the same
interest in the management of the corporation or in taking control of the same.
The law presumes that such an agreement exist between:
·
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a
principal and its agents;
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·
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spouses
and relatives within certain degrees of
kinship;
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·
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entities
within the same business group; and
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·
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an
entity and its controller or any of the members of the
controller.
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Likewise,
the Superintendency of Securities and Insurance may determine that a joint
action agreement exists between two or more entities considering, among other
things, the number of companies in which they participate and the frequency with
which they vote identically in the election of directors, appointment of
managers and other resolutions passed at extraordinary shareholders’
meetings.
According
to Article 96 of the Chilean Securities Market Law, a business group is a group
of entities with such ties in their ownership, management or credit liabilities
that it may be assumed that the economic and financial action of such members is
directed by, or subordinated to, the joint interests of the group, or that there
are common credit risks in the credits granted to, or in the acquisition of
securities issued by, them. According to the Chilean Securities Market Law, the
following entities are part of the same business group:
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|
a
company and its controller;
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·
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all
the companies with a common controller together with that
controller;
|
·
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all
the entities that the Superintendency of Securities and Insurance declares
to be part of the business group due to one or more of the following
reasons:
|
·
|
a
substantial part of the assets of the company is involved in the business
group, whether as investments in securities, equity rights, loans or
guaranties;
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·
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the
company has a significant level of indebtedness and the business group has
a material participation as a lender or
guarantor;
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·
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any
member of a group of controlling entities of a company mentioned in the
first two bullets above and there are grounds to include it in the
business group; or
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·
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the
company is controlled by a member of a group of controlling entities and
there are grounds to include it in the business
group.
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Article 36
of the General Banking Law states that as a matter of public policy, no person
or company may acquire, directly or indirectly, more than 10.0% of the shares of
a bank without the prior authorization of the Superintendency of Banks, which
may not be unreasonably withheld. The prohibition would also apply to beneficial
owners of ADSs. In the absence of such authorization, any person or group of
persons acting in concert would not be permitted to exercise voting rights with
respect to the shares or ADSs acquired. In determining whether or not to issue
such an authorization, the Superintendency of Banks considers a number of
factors enumerated in the General Banking Law, including the financial stability
of the purchasing party.
According
to Article 35bis of the
General Banking Law, the prior authorization of the Superintendency of Banks is
required for:
·
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the
merger of two or more banks;
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·
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the
acquisition of all or a substantial portion of a banks’ assets and
liabilities by another bank;
|
·
|
the
control by the same person, or controlling group, of two or more banks;
or
|
·
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a
substantial increase in the existing control of a bank by a controlling
shareholder of that bank.
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This prior
authorization is only required when the acquiring bank or the resulting group of
banks would own a significant market share in loans, defined by the
Superintendency of Banks to be more than 15.0% of all loans in the Chilean
banking system. The intended purchase, merger or expansion may be denied by the
Superintendency of Banks; or, if the acquiring bank or
resulting group would own a market share in loans determined to be more than
20.0% of all loans in the Chilean banking system, the purchase, merger, or
expansion may be conditioned on one or more of the following:
·
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the
bank or banks maintaining regulatory capital higher than 8.0% and up to
14.0% of risk-weighted assets;
|
·
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the
technical reserve established in Article 65 of the General Banking Law
being applicable when deposits exceed one and a half times the resulting
bank’s paid-in capital and reserves;
or
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·
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the
margin for interbank loans be reduced to 20.0% of the resulting bank’s
regulatory capital.
|
If the
acquiring bank or resulting group would own a market share in loans determined
by the Superintendency of Banks to be more than 15% but less than 20%, the
authorization will be conditioned on the bank or banks maintaining a regulatory
capital not lower than 10% of their risks weighted assets for the period
specified by the Superintendency of Banks, which may not be less than one year.
The calculation of the risk weighted assets is based on a five category risk
classification system applied to a bank’s assets that is based on the Basel
Committee recommendations.
According
to the General Banking Law, a bank may not grant loans to related parties on
terms more favorable than those generally offered to non-related parties.
Article 84 No. 2 of the General Banking Law and the regulations issued by the
Superintendency of Banks creates the presumption that natural persons who are
holders of shares and who beneficially own more than 1.0% of the shares are
related to the bank and imposes certain restrictions on the amounts and terms of
loans made by banks to related parties. This presumption would also apply to
beneficial owners of ADSs representing more than 1.0% of the shares. Finally,
according to the regulations of the Superintendency of Banks, Chilean banks that
issue ADSs are required to inform the Superintendency of Banks if any person,
directly or indirectly, acquires ADSs representing 5.0% or more of the total
amount of shares of capital stock issued by such bank.
Article
16bis of the General
Banking Law provides that the individuals or legal entities that, individually
or with other people, directly control a bank and who individually own more than
10.0% of its shares must send to the Superintendency of Banks reliable
information on their financial situation in the form and in the opportunity set
forth in Resolution No. 3,156 of the Superintendency of Banks.
Preemptive
Rights and Increases of Share Capital
The
Chilean Corporations Law provides that whenever a Chilean company issues new
shares for cash, it must offer its existing shareholders the right to purchase a
number of shares sufficient to maintain their existing ownership percentages in
the company. Pursuant to this requirement, preemptive rights in connection with
any future issue of shares will be offered by us to the Depositary as the
registered owner of the shares underlying the ADSs. However, the Depositary will
not be able to make such preemptive rights available to holders of ADSs unless a
registration statement under the Securities Act is effective with respect to the
underlying shares or an exemption from the registration requirements thereunder
is available.
We intend
to evaluate, at the time of any preemptive rights offering, the practicality
under Chilean law and Central Bank regulations in effect at the time of making
such rights available to our ADS holders, as well as the costs and potential
liabilities associated with registration of such rights and the related shares
of common stock under the Securities Act, and the indirect benefits to us of
thereby enabling the exercise by all or certain holders of ADSs of their
preemptive rights and any other factors we consider appropriate at the time, and
then to make a decision as to whether to file such registration statement. We
cannot assure you that any registration statement would be filed. If we do not
file a registration statement and no exemption from the registration
requirements under the Securities Act is available, the Depositary will sell
such holders’ preemptive rights and distribute the proceeds thereof if a premium
can be recognized over the cost of such sale. In the event that the Depositary
is not able, or determines that it is not feasible, to sell such rights at a
premium over the cost of any such sale, all or certain holders of ADSs may
receive no value for such rights. Non-U.S. holders of ADSs may be able to
exercise their preemptive rights regardless of whether a registration statement
is filed. The inability of all or certain holders of ADSs to exercise preemptive
rights in respect of shares of common stock underlying such ADSs could result in
such holders not maintaining their percentage ownership of the common stock
following such preemptive rights offering unless such holder made additional
market purchases of ADSs or shares of common stock.
Under
Chilean law, preemptive rights are exercisable or freely transferable by
shareholders during a period that cannot be less than 30 days following the
grant of such rights. During such period, and for an additional 30-day period
thereafter, a Chilean corporation is not permitted to offer any unsubscribed
shares for sale to third parties on terms which are more favorable than those
offered to its shareholders. At the end of such additional 30-day period, a
Chilean open stock corporation is authorized to sell unsubscribed shares to
third parties on any terms, provided they
are sold
on a Chilean stock exchange. Unsubscribed shares that are not sold on a Chilean
stock exchange can be sold to third parties only on terms no more favorable for
the purchaser than those offered to shareholders.
Description
of American Depositary Shares
This
section summarizes all of the material provisions of the Amended and Restated
Deposit Agreement, dated as of August 1, 2002, among Banco Santander-Chile
(formerly known as Banco Santiago), the Depositary, and the holders of ADRs from
time to time pursuant to which the American Depositary Receipts (which we refer
to as ADRs) were issued. We refer to this agreement as the “deposit agreement.”
We do not, however, describe every aspect of the deposit agreement. You should
read the deposit agreement for a more detailed description of the terms of the
ADRs. Additional copies of the deposit agreement are available for inspection at
the Corporate Trust Office of the Depositary, which is presently located at 101
Barclay Street, New York, New York 10286.
American
Depositary Receipts
The
Depositary will issue ADRs evidencing American Depositary Shares (which we refer
to as ADSs) pursuant to the deposit agreement. Each ADS will represent 1,039
shares of our common stock deposited with us, as custodian. An ADR may represent
any number of ADSs. Only persons in whose names ADRs are registered on the books
of the Depositary will be treated by the Depositary and us as holders of
ADRs.
Pursuant
to the terms of the deposit agreement, holders, owners and beneficial owners of
ADRs will be subject to any applicable disclosure requirements regarding
acquisition and ownership of shares of common stock or ADSs representing shares
of our common stock as are applicable pursuant to the terms of our estatutos or Chilean laws, as
each may be amended from time to time. See “Item 10: B. Memorandum and Articles
of Association—Ownership Restrictions” for a description of the disclosure
requirements applicable to shares of common stock and the consequences of
noncompliance. The Depositary has agreed, subject to the terms and conditions of
the deposit agreement, to comply with our instructions as to such
requirements.
Deposit
and Withdrawal of Common Stock
Upon
written order of the depositor, the Depositary will execute and deliver to the
persons specified in the written order, an ADR or ADRs registered in the name of
such person or persons for the number of ADSs issuable in respect of such
deposit, subject to the terms of the deposit agreement and upon
the:
·
|
deposit
with the custodian of the required number of shares of common stock
accompanied by any appropriate instrument of transfer or endorsement in
the form satisfactory to the
custodian;
|
·
|
delivery
of such certifications and payments as may be required by the custodian or
the Depositary;
|
·
|
payment
of the required fees, charges and taxes;
and
|
·
|
if
required by the Depositary and as applicable, the delivery to the
Depositary of an agreement or instrument providing full transfer to the
custodian or its nominee of any dividend or right to subscribe shares or
to receive other property or the proxy or proxies entitling the custodian
to vote on the shares.
|
The
execution and delivery of the ADRs will take place at any of the Depositary’s
designated transfer offices.
The
Depositary will not accept for deposit any shares of common stock unless it
receives evidence of necessary regulatory approvals, if any.
The
Depositary may issue ADRs against rights to receive shares from us, any of our
agents or a central clearing agency approved in writing by us. The Depositary
may issue ADRs against other rights to receive shares only if:
·
|
such
other rights are fully collateralized (marked to market daily) with cash
or U.S. government securities until such shares of common stock are
deposited;
|
·
|
each
applicant for such ADRs represents in writing that it owns such shares,
has assigned all beneficial right, title and interest in such shares to
the Depositary and will hold such shares for the account of the Depositary
until delivery of the shares following the Depositary’s
request;
|
·
|
such
transaction may be terminated by the Depositary on no more than five
business days’ notice; and
|
·
|
all
ADRs issued against rights to receive shares represent no more than 20.0%
of the shares actually deposited. The Depositary may retain any
compensation received by it in connection with these transactions,
including without limitation, earnings on such
collateral.
|
Notwithstanding
any other provisions of the deposit agreement or the ADR to the contrary,
holders of ADRs are entitled to withdraw the deposited shares at any time,
subject only to:
·
|
temporary
delays caused by closing the transfer books of the Depositary or
us;
|
·
|
temporary
delays caused by the deposit of shares of common stock in connection with
voting at a shareholders’ meeting or the payment of
dividends;
|
·
|
the
payment of fees, taxes and similar charges;
and
|
·
|
compliance
with any U.S. or foreign laws or governmental regulations relating to the
ADRs or to the withdrawal of the deposited
shares.
|
ADR
holders are entitled to receive from the custodian’s office in Chile, after they
surrender ADRs at the Depositary’s office and pay any fees, governmental charges
and taxes provided in the deposit agreement:
·
|
any
other property that the surrendered ADRs evidence the right to receive;
and
|
·
|
a
certificate from the custodian stating that the applicable deposited
shares are being transferred to the person or persons specified by the
surrendering holder and that the Depositary waives in favor of such person
the right of access to the formal exchange market relating to such
withdrawn shares.
|
At its
discretion, the Depositary may deliver the property that the ADR holders
surrendering ADRs have the right to receive (other than the certificates
representing the shares) at its office. At the request, risk and expense of the
ADR holder surrendering ADRs, deposited shares and other proper documents of
title may be forwarded from our office in Chile to the Depositary’s office for
delivery to the surrendering holders. In the event the Depositary determines
that there is a reasonable possibility that a tax would be imposed upon the
withdrawal of shares in exchange for surrendered ADRs, it may require that the
withdrawing investor provide satisfactory security to it in an amount sufficient
to cover the estimated amount of the tax.
Dividends,
Other Distributions and Rights
The
Depositary is required to convert promptly into dollars and transfer to the
United States all cash dividends and other cash distributions denominated in
Chilean pesos (or any other currency other than dollars) that it receives in
respect of the deposited shares, to the extent that it can do so on a reasonable
basis and subject to Chilean law and the Foreign Investment Contract. The
Depositary is also required to distribute the amount received in dollars to the
holders of ADRs upon an averaged or other practicable basis without regard to
any distinctions among holders on account of exchange restrictions or the date
of delivery of any ADR or ADRs or otherwise. The amount distributed by the
Depositary will be reduced by any amounts to be withheld by us, the Depositary
or by us acting as custodian, including amounts on account of any applicable
taxes and certain other expenses. For further information regarding applicable
taxes, see “Item 10: E. Taxation.”
If the
Depositary determines that in its judgment any currency other than dollars
received by it cannot be converted on a reasonable basis and transferred, or if
the Foreign Investment Contract shall cease to be in effect or the rights of the
Depositary thereunder shall be restricted or suspended, the Depositary, may
after consultation with us, distribute such foreign currency received by it or
hold such foreign currency (without liability for interest) for the respective
accounts of the ADR holders entitled to receive the same.
If we
declare a dividend in or free distribution of additional shares, the Depositary
may (with our approval) and shall (if we so request), distribute to the ADR
holders (in proportion to the number of ADSs evidenced by their respective ADRs)
additional ADRs evidencing an aggregate number of ADSs that represents the
number of shares
of common
stock received in such dividend or free distribution. Instead of delivering ADRs
of fractional ADSs, the Depositary will sell the amount of shares represented by
the aggregate of such fractions and will distribute the net proceeds to holders
of ADRs in accordance with the deposit agreement. If additional ADRs (other than
ADRs for fractional ADSs) are not so distributed, each ADS shall thereafter also
represent the additional shares distributed.
If we
offer (or cause to be offered) to the holders of shares any rights to subscribe
for additional shares of common stock or any rights of any other nature, the
Depositary shall, after consultation with us, have discretion:
·
|
as
to the procedure followed to make such rights available to ADR
holders;
|
·
|
in
disposing of such rights for the benefit of such owners and making the net
proceeds available in dollars to holders;
or
|
·
|
if
the Depositary may not make such rights available or dispose of such
rights and make the proceeds available, allowing the rights to lapse
unexercised (without incurring liability to any person as a consequence
thereof);
|
provided
that the Depositary will, at our request, either:
·
|
if
it determines that it is lawful and feasible to do so, make such rights
available to ADR holders by means of warrants or employ such other method
as it may deem feasible in order to facilitate the exercise, sale or
transfer of rights by such holder;
or
|
·
|
sell
such rights or warrants or other instruments at public or private sale, at
such place or places and upon such terms as it may deem proper, and
allocate the net proceeds of such sales for the account of the owners of
ADRs otherwise entitled upon an averaged or other practicable basis
without regard to any distinctions among holders on account of exchange
restrictions or the date of delivery of an ADR or ADRs or
otherwise.
|
Conversion
of such net proceeds from pesos to dollars is subject to the terms and
conditions of the Foreign Investment Contract, including presentation to the
Central Bank of a request for access to the Formal Exchange Market.
In this
regard, we may, in our sole discretion, decide not to register the securities to
which such rights relate under the Securities Act where such registration may be
required in connection with the offer or sale of such securities. In this case,
ADR holders would not be permitted to purchase such securities or otherwise
exercise such rights and the Depositary would, to the extent possible, dispose
of such rights for the account of such holders as provided above. Such a
disposal or rights may reduce the equity interest that ADR holders have in
us.
If the
Depositary determines that any distribution of property other than cash
(including shares of common stock or rights to subscribe therefor) is subject to
any tax or governmental charge that it is obligated to withhold, the Depositary
may dispose of all or a portion of such property in such amounts and in such
manner as it deems necessary and practicable to pay such taxes or governmental
charges. The Depositary will distribute the net proceeds of any such sale or the
balance of any such property after deduction of such taxes or governmental
charges to the ADR holders.
Upon any
split, consolidation, cancellation or any other reclassification of shares of
common stock, or upon any recapitalization, reorganization, merger or
consolidation or sale of assets affecting us, or to which we are a party, any
securities that shall be received by the Depositary or the custodian in respect
of shares shall be treated as newly deposited shares under the deposit
agreement, and ADSs shall from then on represent the right to receive the
securities so received, except when (1) additional ADRs (as in the case of a
stock dividend), or (2) the Depositary calls for the surrender of outstanding
ADRs to be exchanged for new ADRs.
Record
Dates
Whenever
any distribution is being made upon deposited shares of common stock, or
whenever the Depositary shall receive notice of any meeting of holders of shares
or whenever the Depositary shall find it necessary or convenient in connection
with the giving of any notice, solicitation or any consent or any other matter,
the Depositary will fix, by notice to ADR holders and to us, a record date
(which, to the extent practicable, shall be the
same as
the corresponding record date set by us or otherwise shall be the earliest
practicable day thereafter) for the determination of the ADR holders who are
entitled to receive such dividend, distribution or rights, or net proceeds of
the sale thereof, to exercise the rights of ADR holders with respect to such
changed number of shares, or to give instructions for the exercise of voting
rights, if any, at any such meeting, subject to the provisions of the deposit
agreement.
Voting
of the Underlying Deposited Securities
When the
Depositary receives any notice of a meeting of holders of common stock, it will
mail to all ADR holders a notice containing:
·
|
the
information included in such notice received by
it;
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·
|
a
statement that each holder as of a specified record date will be entitled,
subject to Chilean law and the provisions of or governing the deposited
shares, to instruct the Depositary as to the exercise of the voting
rights, if any, pertaining to the deposited shares represented by ADSs
evidenced by such holder’s ADRs;
and
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·
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a
statement as to the manner in which each such holder of ADRs may instruct
the Depositary to exercise any right to vote held by such
holder.
|
See “Item
10: B. Memorandum and Articles of Association—Meetings and Voting Rights.” The
holders of ADRs at the close of business on the date specified by the Depositary
are entitled, subject to any applicable provisions of Chilean law, our by-laws
or the shares, to instruct the Depositary how to exercise the voting rights, if
any, pertaining to the shares represented by their ADSs. The Depositary will
endeavor, insofar as practicable and permitted under Chilean law and the shares,
to vote the shares so represented in accordance with any such written
instructions of holders of ADRs. The Depositary may not itself exercise any
voting discretion over any shares. If the Depositary does not receive
instructions from a holder of ADRs, the Depositary shall deem such holder to
have instructed it to give discretionary proxy to a person designated by us to
vote the underlying shares.
Reports
and Notices
The
Depositary will mail ADR holders any reports and communications received from us
that are made generally available to holders of shares of common stock. The
Depositary will also send to ADR holders copies or summaries of such reports
when furnished by us.
On or
before the first date notice is given by us, by publication or otherwise, of any
meeting or adjournment of a meeting of shareholders or of the taking of any
action by shareholders other than at a meeting, or the making of any
distribution on or offering of rights in respect of the deposited shares, we
will send the Depositary a copy of the notice in the form given or to be given
to holders of shares. The Depositary will arrange for the mailing to all ADR
holders of a notice containing the information (or a summary of the information)
contained in any notice of a meeting of holders of shares it
receives.
Amendment
and Termination of the Deposit Agreement
The form
of the ADRs and the deposit agreement may at any time be amended by an agreement
between us and the Depositary. Any amendment that imposes or increases any fees
or charges (other than the fees of the Depositary for the execution and delivery
or the cancellation of ADRs and taxes and other governmental charges), or that
otherwise prejudices any substantial existing right of ADR holders, will not
take effect as to outstanding ADRs until the expiration of 30 days after notice
of such amendment has been given to the holders of outstanding ADRs. Every
holder of an ADR at the time such amendment becomes effective will be deemed, by
continuing to hold such ADR, to consent and agree to such amendment and to be
bound by the deposit agreement as amended. Except in order to comply with
mandatory provisions of applicable law, in no event may any amendment impair the
right of any ADR holder to surrender his ADR and receive therefor the shares and
other property represented by it.
Whenever
so directed by us, the Depositary will terminate the deposit agreement by
mailing notice of such termination to the holders of all ADRs at least 30 days
prior to the date fixed in such notice for termination. The Depositary may
likewise terminate the deposit agreement at any time 90 days after it has
delivered to us a notice of
its
election to resign, provided that a successor Depositary shall not have been
appointed and accepted its appointment as provided in the deposit
agreement.
If any
ADRs remain outstanding after the date of termination, the Depositary
will:
·
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discontinue
the registration of transfer of
ADRs;
|
·
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suspend
the distribution of dividends to the holders thereof;
and
|
·
|
not
give any further notices or perform any further acts under the deposit
agreement, except
|
·
|
the
collection of dividends and other distributions pertaining to the shares
of common stock and any other property represented by such
ADRs;
|
·
|
the
sale of rights as provided in the deposit agreement;
and
|
·
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the
delivery of shares, together with any dividends or other distributions
received with respect thereto and the net proceeds of the sale of any
rights or other property, in exchange for surrendered
ADRs.
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As soon as
practicable after the one year anniversary of any date of termination, the
Depositary shall sell the shares and any other property represented by any ADRs
that have not been surrendered and hold the net proceeds in a segregated
account, together with any other cash then held, without liability for interest,
in trust for the pro rata benefit of ADR holders that have not surrendered their
ADRs. After making such sale, the Depositary shall be discharged from all
obligations to us, except for certain indemnification and accounting
obligations. Upon termination of the deposit agreement, we will also be
discharged from all obligations thereunder, except for certain obligations to
the Depositary.
Charges
of Depositary
The
Depositary will charge anyone to whom ADRs are delivered and anyone who
surrenders ADRs $5.00 per 100 ADSs (or portion thereof) so issued or
surrendered.
We will
pay certain other charges of the Depositary under the deposit agreement, except
for:
·
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taxes
and other governmental charges (which are payable by ADR holders and
persons depositing shares);
|
·
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any
applicable share transfer or registration fees on deposit or withdrawal of
shares (which are also payable by such holders and
persons);
|
·
|
any
applicable fees in connection with the execution, delivery, transfer or
surrender of, or distributions on, ADRs (which are also payable by such
holders and persons);
|
·
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such
cable, telex, facsimile transmission and delivery charges and such
expenses as are expressly provided to be at the expense of such holders
and persons; and
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·
|
expenses
that are paid or incurred by the Depositary in connection with the
conversion into dollars, pursuant to the deposit agreement, or any other
currency received by the Depositary in respect of the shares held on
deposit (which are reimbursable to the Depositary out of such
dollars).
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Liability
of Holders for Taxes or Other Charges
Any tax or
other governmental charge or expense (including, without limitation, any Chilean
tax on a gain realized or deemed to be realized, upon the withdrawal or sale of
shares of common stock or other property held by the custodian or depository in
respect of such shares) payable by the custodian, the Depositary or its nominee
as the registered holder of any deposited shares represented by ADSs evidenced
by any ADR shall be payable by the holder of such ADR to the Depositary. The
Depositary may refuse to effect registration of transfer and withdrawal of
shares underlying such ADR until such payment is made, and may withhold any
dividends or other distributions or may sell for the account of the holder
thereof any part or all of the deposited shares underlying such ADR and
may apply
such dividends or distributions or the proceeds of any such sale in payment of
any such tax or other governmental charge or expense, the holder of such ADR
remaining liable for any deficiency.
Transfer
of American Depositary Receipts
The ADRs
are transferable on the books of the Depositary, provided that the Depositary
may close the transfer books, at any time and from time to time, when deemed
expedient by it in connection with the performance of its duties or at our
request. The Depositary or the custodian may require payment from the person
presenting an ADR or the depositor of the shares of a sum sufficient to
reimburse it for any tax or other governmental charge, and any stock transfer or
registration fee with respect thereto and payment of any applicable fees payable
by the holders of ADRs as a condition to the execution and delivery,
registration of transfer, split-up, combination or surrender of any ADR or
transfer and withdrawal of shares of common stock.
The
Depositary may refuse to deliver ADRs, register the transfer of any ADR or make
any distribution of, or related to, shares until it has received such proof of
citizenship, residence, exchange control approval, payment of all applicable
Chilean taxes or other governmental charges, legal or beneficial ownership or
other information as it may deem necessary or proper or as we may require by
written request to the Depositary. The execution and delivery or transfer of
ADRs generally may be suspended during any period when our transfer books or the
transfer books of the Depositary are closed or if deemed necessary or advisable
by us or the Depositary. ADR holders may inspect the transfer books of the
Depositary at any reasonable time, provided that such inspection shall not be
for the purpose of communicating with other holders of the ADRs in the interest
of a business or object other than our business or a matter related to the
deposit agreement or the ADRs.
General
Neither we
nor the Depositary will be liable to the holders of ADRs if prevented or delayed
in performing their obligations under the deposit agreement by any present or
future law, regulation, decree, order or other action of the United States,
Chile or any other country, or of any other governmental authority (including
any action that may constitute a breach by the Central Bank of its obligation
under the Foreign Investment Contract), or by reason of any provision, present
or future, of the Foreign Investment Contract, or by reason of any act of God,
war or circumstances beyond their control or in the case of the Depositary, any
provision of our by-laws or of the securities deposited. Our obligations and
those of the Depositary are expressly limited to performing their respective
duties specified therein without negligence or bad faith.
So long as
any ADRs or ADSs are listed on one or more stock exchanges, the Depositary will
act as registrar or, with our approval, appoint a registrar or one or more
co-registrars, for registration of such ADRs in accordance with any requirements
of such exchanges. Such registrars or co-registrars shall, upon our request, and
may, with our approval, be removed and a substitute or substitutes appointed by
the Depositary. The Depositary will periodically furnish the Chilean
Superintendency of Banks with the list of the registered holders of ADRs and a
list of all beneficial owners who do not object to the disclosure of this
information.
ADS
holders are subject to certain provisions of the rules and regulations
promulgated under the Exchange Act, and to the regulations of the Chilean
Superintendency of Banks relating to the disclosure of interests in the shares
of common stock. Any ADS holder who has or comes to have a directly or
indirectly, an interest of 5.0% (or such other percentage as may be prescribed
by law or regulation) or more of our outstanding shares must:
·
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under
the Exchange Act, within 10 days after acquiring such interest and
thereafter upon certain changes in such interests, notify us as required
by such rules and regulations; and
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·
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under
regulations of the Chilean Superintendency of Banks, within 15 days after
acquiring such interest, send to us a notarized declaration as to the
number of shares and ADSs beneficially owned by it and commit to report to
us any subsequent acquisitions of shares or
ADSs.
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In
addition, ADR holders are subject to the reporting requirements contained in
Articles 12 and 54 and Titles XV and XXV of the Chilean Securities Market Law
and Article 16bis of
the General Banking Law and the ownership limitations of Articles 35bis and 36 of the General
Banking Law (which provisions may apply when a holder beneficially owns or
intends to purchase 10.0% or more of our shares or has the intention of taking
control of us).
ADS
holders who beneficially own more than 1.0% of the shares of common stock are
also subject to the presumption created by Article 84 No. 2 of the General
Banking Law that such owners are related parties to the Bank, and are thus
subject to certain restrictions on the amounts and terms of loans made by banks
to related parties.
Valuation
of Underlying Shares for Chilean Law Purposes
For all
purposes of valuation under Chilean law, the acquisition value of the shares of
common stock delivered to any holder upon surrender of ADRs shall be the highest
reported sale price of the shares on the Santiago Stock Exchange on the day
during which the transfer of the shares is recorded under the name of such
holder. In the event that no such sale price is reported by the Santiago Stock
Exchange during that day, the value shall be deemed to be the highest trade
price on the day during which the last trade took place. However, if 30 or more
days have elapsed since the last trade, such value shall be adjusted in
accordance with the variation of the Chilean consumer price index during the
period since such last trade date.
C. Material
Contracts
On
December 3, 2007, we entered into a long-term contract with Produban for the
operation of certain of our systems, providing us with information data
processing, technology services and hardware infrastructure to run our core
transactional systems. This contract also includes an improvement in
transactional capacities, services and back-up requirement compared
to previous services. We agreed to pay Produban approximately €55 million (US$85
million) in the next 5 years.
This contract replaced the one we had established with IBM that cost the
Bank US$23 million in 2007. Produban is based in Madrid, Spain.
In August
2005, the Bank entered into a contract with the Sociedad Operadora de la Cámara
de Compensación de Pagos de alto Valor S.A. (ComBanc) in order to participate in
the “Servicio Cámara de Compensación de Pagos de Alto Valor”, which is an
electronic clearing system for transactions for large movements between demand
deposit accounts. The Bank must pay fixed and variable fees for participating in
this system. The fixed fee was UF243 (Ch$4.8 million or US$9,617). The variable
fee depends on the Bank’s market share in demand deposits and was UF1,339
(Ch$26.3 million or US$52,993) at December 31, 2007.
On January
23, 2007, the Bank agreed to pledge its shares in Administrador Financiero de
Transantiago (AFT) in favor of the service providers of Santiago’s new public
transportation system, TransSantiago. AFT is the company in charge of
administering the finances of the new transportation system, TransSantiago, and
all shareholders in AFT had to pledge their shares to the service providers. This pledge was approved by
shareholders at a special Shareholders’ Meeting held on April 24, 2007. The book value of the
Bank’s investment in AFT was Ch$820.6 million (US$1.7 million) at December 31,
2007.
D. Exchange
Controls
The
Central Bank is responsible for, among other things, monetary policies and
exchange controls in Chile. Appropriate registration of a foreign investment in
Chile grants the investor access to the Formal Exchange Market. See “Item 3: A.
Selected Financial Data—Exchange Rates.” Foreign investments can be registered
with the Foreign Investment Committee under Decree Law No. 600 or can be
registered with the Central Bank under the Central Bank Act. The Central Bank
Act is an organic constitutional law requiring a “special majority” vote of the
Chilean Congress to be amended. Since April 18, 2001, all
exchange controls in Chile have been eliminated.
Previously,
Chilean law mandated that holders of shares of Chilean companies that were not
residents of Chile register as foreign investors under one of the foreign
investment regimes contemplated by Chilean law in order to receive dividends,
sale proceeds or other amounts with respect to their shares remitted outside
Chile through the Formal Exchange Market. Under the Foreign Investment Contract
(as defined herein), the Depositary, on behalf of ADS holders, is granted access
to the Formal Exchange Market to convert cash dividends from Chilean pesos to
U.S. dollars and to pay such U.S. dollars to ADS holders outside Chile, net of
taxes, and no separate registration by ADR holders is required. As of April 19,
2001, the Central Bank deregulated the Exchange Market, eliminating the need to
obtain approval from the Central Bank in order to remit dividends, but at the
same time eliminating the possibility of guaranteeing access to the Formal
Exchange Market. It is important to point out that this does not affect the
current Foreign Investment Contract, which was signed prior to April 19, 2001,
and still permits access to the Formal Exchange Market based on the prior
approval of the Central Bank. Therefore the holders of ADRs of Santander-Chile
are still subject to the Foreign Investment Contract, including its clauses
referring to the prior exchange rules including the now extinct Chapter XXVI of
the Compedium.
E. Taxation
The
following discussion summarizes certain material Chilean tax and United States
federal income tax consequences to beneficial owners arising from the ownership
and disposition of the ADSs. The summary does not purport to be a comprehensive
description of all potential Chilean tax and United States federal income tax
considerations that may be relevant to a decision to purchase, own or dispose of
the ADSs and is not intended as tax advice to any particular investor. This
summary does not describe any tax consequences arising under the laws of any
state, locality or other taxing jurisdiction other than Chile and the United
States. There is currently no income tax treaty between the United States and
Chile.
Material
Tax Consequences of Owning Shares of Our Common Stock or ADSs
Chilean
Taxation
The
following is a summary of certain Chilean tax consequences of the ownership of
shares of Santander-Chile’s common stock or of ADSs evidenced by ADRs by Foreign
Holders (as defined herein). The summary does not purport to be a comprehensive
description of all of the tax considerations that may be relevant to a decision
to purchase, own or dispose of shares or ADSs and does not purport to deal with
the tax consequences applicable to all categories of investors, some of whom may
be subject to special rules. Holders of shares or ADSs are advised to consult
their own tax advisors concerning the Chilean and other tax consequences of the
ownership of shares or of ADSs evidenced by ADRs.
The
description of Chilean tax laws set forth below is based on Chilean laws in
force as of the date of this Annual Report and is subject to any changes in such
laws occurring after the date of this Annual Report. These changes can be made
on a retroactive basis.
For
purposes of this summary, the term “Foreign Holder” means either (1) in the case
of an individual, a person who is not resident or domiciled in Chile (for
purposes of Chilean taxation, (a) an individual holder is resident in Chile if
he or she has resided in Chile for more than six months in one calendar year, or
a total of more than six months in two consecutive fiscal years and (b) an
individual is domiciled in Chile if he or she resides in Chile with the actual
or presumptive intent of staying in Chile); or (2) in the case of a legal
entity, a legal entity that is not domiciled in Chile, unless the shares of
Santander-Chile’s common stock or ADSs are assigned to a branch or a permanent
establishment of such entity in Chile.
Taxation
of Dividends
Cash
dividends paid by Santander-Chile with respect to shares of its common stock
held by a Foreign Holder, including shares represented by ADSs, will be subject
to a 35% Chilean withholding tax, which is withheld and paid over by
Santander-Chile (the “Withholding Tax”). If Santander-Chile has paid corporate
income tax (the “First Category Tax”) on the income from which the dividend is
paid, a credit for the First Category Tax effectively reduces the rate of
Withholding Tax. When a credit is available, the Withholding Tax is computed by
applying the 35% rate to the pre-tax amount needed to fund the dividend and then
subtracting from the tentative withholding tax so determined the amount of First
Category Tax actually paid on the pre-tax income. For purposes of determining
the rate at which First Category Tax was paid, dividends are treated as paid
from Santander-Chile’s oldest retained earnings.
The
effective rate of Withholding Tax to be imposed on dividends paid by
Santander-Chile will vary depending upon the amount of First Category Tax paid
by Santander-Chile on the earnings underlying the dividends. The effective rate
for the First Category Tax attributed to earnings generated during the fiscal
year 2004 and onwards is 17.0%. Full applicability of the First Category Tax
credit at the 17.0% rate results in an effective Withholding Tax rate of 2l.7 %.
Consequently, the Withholding Tax rate with respect to dividends fluctuates
between 21.7% and 35.0%, depending on whether or not we are subject to the First
Category Tax.
The
example below illustrates the effective Chilean Withholding Tax burden on a cash
dividend received by a Foreign Holder, assuming a Withholding Tax rate of 35%,
an effective First Category Tax rate of 17% and a distribution of all of the net
proceeds available after payment of the First Category Tax.
Taxable
income
|
US$
100
|
First
Category Tax (17% of US$100)
|
|
Net
proceeds available
|
83
|
Dividend
payment
|
83
|
Withholding
Tax (35% of the sum of the dividend (US$83) and the available First
Category Tax credit (US$17)
|
(35)
|
First
Category Tax credit
|
17
|
Payable
Withholding Tax
|
(18)
|
Net
dividend received
|
|
Effective
dividend withholding tax rate
|
|
Dividend
distributions made in kind would be subject to the same Chilean tax rules as
cash dividends. Stock dividends are not subject to Chilean taxation. The
distributions of preemptive rights relating to shares of common stock will not
be subject to Chilean taxation.
Taxation
of Capital Gains
Gain
realized on the sale, exchange or other disposition by a Foreign Holder of ADSs
(or ADRs evidencing ADSs) will not be subject to Chilean taxation, provided that
such disposition occurs outside Chile or that it is performed under the rules of
Title XXIV of the Chilean Securities Market Law, as amended by Law No. 19,601,
dated January 18, 1999. The deposit and withdrawal of shares of common stock in
exchange for ADRs will not be subject to any Chilean taxes.
Gain
recognized on a sale or exchange of shares of common stock (as distinguished
from sales or exchanges of ADSs representing such shares of common stock) by a
Foreign Holder will be subject to both an income tax on capital gains, which is
assessed at the same rate as the First Category Tax (currently imposed at a rate
of 17%) and the Chilean withholding tax (the former being creditable
against the latter) if (1) the Foreign Holder has held such shares of common
stock for less than one year since exchanging ADSs for the shares of common
stock, (2) the Foreign Holder acquired and disposed of the shares of common
stock in the ordinary course of its business or as a regular trader of stock or
(3) the sale is made to a company in which the Foreign Holder holds an interest.
In certain other cases, gain on the disposition of shares of common stock will
be subject only to the tax on capital gains (currently imposed at a rate of
17%). The sale of shares of common stock by a Foreign Holder to an individual or
entity resident or domiciled in Chile is subject to a provisional
withholding. Such a
provisional withholding will be equal to (i) 5% of the amount, without any
deduction, paid to, credited to, account for, put at the disposal of, or
corresponding to, the Foreign Holder if the transaction is subject to the First
Category Tax as sole tax, unless the gain subject to taxation can be determined,
case in which the withholding is equal to 17% on the gain, or (ii) 20% of the
amount, without any deduction, paid to, credited to, account for, put at the
disposal of, or corresponding to, the Foreign Holder if the transaction is
subject to the First Category Tax and the Chilean withholding tax, with a credit
of the First Category Tax already paid. For income tax purposes, the capital
gain shall be the difference between the sales price and the acquisition cost of
the stock. The tax
basis of shares of common stock received in exchange for ADSs will be the
acquisition value of such shares. The valuation procedure set forth in the
deposit agreement, which values shares of common stock that are being exchanged
at the highest price at which they trade on the Santiago Stock Exchange on the
date of the exchange, generally will determine the acquisition value for this
purpose. Consequently, the conversion of ADSs into shares of common stock and
sale of such shares of common stock for the value established under the deposit
agreement will not generate a capital gain subject to taxation in
Chile.
In the
case where the sale of the shares is made on a day that is different than the
date on which the exchange is recorded, capital gains subject to taxation in
Chile may be generated. On October 1, 1999, the Chilean Internal Revenue Service
issued Ruling No. 3708 whereby it allowed Chilean issuers of ADSs to amend the
deposit agreements to which they are parties in order to include a clause that
states that, in the case that the exchanged shares are sold by the ADSs’ holder
in a Chilean Stock Exchange, either on the same day in which the exchange is
recorded in the shareholders’ registry of the issuer or within the two prior
business days to such date, the acquisition price of such exchanged shares shall
be the price registered in the invoice issued by the stock broker that
participated in the sale transaction. Consequently, because we have included
this clause in the form of ADRs attached to the
deposit
agreement, the capital gain that may be generated if the shares received in
exchange for ADSs were sold within two days prior to the date on which the
exchange is recorded will not be subject to taxation.
The
distribution and exercise of preemptive rights relating to the shares of common
stock will not be subject to Chilean taxation. Cash amounts received in exchange
for the shares or assignment of preemptive rights relating to the shares will be
subject to both the First Category Tax and the Chilean withholding tax (the
former being creditable against the latter to the extent described
above).
In certain
cases and provided certain requirements are met, capital gains realized on the
sale of actively traded stock of Chilean public companies may be exempt from
Chilean income taxes. Our stock is currently considered an actively traded stock
in the Santiago Stock Exchange, and Foreign Holders of the stock may qualify for
an income tax exemption. Foreign Holders are urged to consult with their own tax
advisors to determine whether an exemption applies to them.
Other
Chilean Taxes
No Chilean
inheritance, gift or succession taxes apply to the transfer or disposition of
the ADSs by a Foreign Holder, but such taxes generally will apply to the
transfer at death or by gift of shares of Santander-Chile’s common stock by a
Foreign Holder. No Chilean stamp, issue, registration or similar taxes or duties
apply to Foreign Holders of shares or ADSs.
Withholding
Tax Certificates
Upon
request, Santander-Chile will provide to foreign holders appropriate
documentation evidencing the payment of Chilean withholding taxes. For further
information, the investor should contact: Robert Moreno,
[email protected].
Dividends
payable to holders of ADSs are net of foreign currency conversion expenses of
the Depositary and will be subject to the Chilean withholding tax currently at
the rate of 35% (subject to credits in certain cases as described above). Owners
of the ADSs will not be charged any dividend remittance fees by the Depositary
with respect to cash or stock dividends.
U.S.
Federal Income Tax Considerations
The
following is a discussion of material U.S. federal income tax consequences of
owning and disposing of shares or ADSs to U.S. holder described below, but it
does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to a particular person’s decision to acquire
such securities. The discussion applies only if you hold shares or ADSs as
capital assets for tax purposes and it does not address special classes of
holders, such as:
·
|
certain
financial institutions;
|
·
|
dealers
and traders in securities or foreign
currencies;
|
·
|
persons
holding shares or ADSs as part of a hedge, “straddle,” conversion
transaction, or integrated
transaction;
|
·
|
persons
whose functional currency for U.S. federal income tax purposes is not the
U.S. dollar;
|
·
|
partnerships
or other entities classified as partnerships for U.S. federal income tax
purposes;
|
·
|
persons
liable for the alternative minimum
tax;
|
·
|
tax-exempt
organizations;
|
·
|
persons
holding shares or ADSs that own or are deemed to own ten percent or more
of our voting stock; or
|
·
|
persons
who acquired our ADSs or shares pursuant to the exercise of any employee
stock option plan or otherwise as
compensation.
|
This
discussion is based on the Internal Revenue Code of 1986, as amended (the
“Code”), administrative pronouncements, judicial decision and final, temporary
and proposed Treasury regulations, all as of the date hereof. These laws are
subject to change, possibly on a retroactive basis. It is also based in part on
representations by the Depositary and assumes that each obligation under the
Deposit Agreement and any related agreement will be performed in accordance with
its terms. Please consult your own tax advisers concerning the U.S. federal,
state, local and foreign tax consequences of purchasing, owning and disposing of
shares or ADSs in your particular circumstances.
If an
entity that is classified as a partnership for U.S. federal income tax purposes
holds shares of ADSs, the U.S. federal income tax treatment of a partner will
generally depend on the status of the partner and upon the activities of the
partnership. Partnership holding shares of ADSs and partners in such
partnerships should consult their tax advisers as to the particular U.S. federal
income tax consequences of holding and disposing of the shares or
ADSs.
As used
herein, a “U.S. holder” is a beneficial owner of shares or ADSs that is for U.S.
federal tax purposes:
·
|
a
citizen or resident of the United
States;
|
·
|
a
corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States or any political
subdivision thereof; or
|
·
|
an
estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
|
In
general, if you own ADSs, you will be treated as the owner of the underlying
shares represented by those ADSs for U.S. federal income tax purposes.
Accordingly, no gain or loss will be recognized if you exchange ADSs for the
underlying shares represented by those ADSs.
The U.S.
Treasury has expressed concerns that parties to whom ADRs are released prior to
delivery of shares to the Depositary (“pre-release”) or intermediaries in the
chain of ownership between U.S. holders of ADRs may be taking actions that are
inconsistent with the claiming of foreign tax credits for holders of ADRs. Such
actions would also be inconsistent with the claiming of the reduced rate of tax,
described below, applicable to dividends received by certain non-corporate
holders. Accordingly, the analysis of the creditability of Chilean taxes and the
availability of the reduced rate for dividends received by certain non-corporate
holders, each described below, could be affected by future actions that may be
taken by such parties or intermediaries.
Taxation
of Distributions
Distributions
paid on ADSs or shares, other than certain pro rata distributions of common
shares or rights, will be treated as dividends to the extent paid out of current
or accumulated earnings and profits (as determined under U.S. federal income tax
principles). Since we do not maintain calculations of our earnings and profits
under U.S. federal income tax principles, it is expected that distributions
generally will be reported to U.S. holders as dividends. Subject to applicable
limitations and the discussion above regarding concerns expressed by the U.S.
Treasury, under current law, certain dividends paid by “qualified foreign
corporations” to certain non-corporate U.S. Holders in taxable years beginning
before January 1, 2011, will be taxable at a maximum rate of 15%. A foreign
corporation is treated as a qualified foreign corporation with respect to
dividends paid on stock which is readily tradable on a securities market in the
United States, such as the NYSE where our ADSs are traded. You should consult
your own tax advisers to determine whether the favorable rates may apply to
dividends you receive and whether you are subject to any special rules that
limit your ability to be taxed at this favorable rate. The amount of the dividend
will include any amounts withheld by us or our paying agent in respect of
Chilean taxes at the effective rate as described above under “ — Chilean
Taxation.” The amount of the dividend will be treated as foreign-source dividend
income to you and will not be eligible for the dividends received deduction
generally allowed to U.S. corporations under the Code.
Dividends
paid in Chilean pesos will be included in your income in a U.S. dollar amount
calculated by reference to the exchange rate in effect on the date of your (or
in the case of ADSs, the Depositary’s) receipt of the dividend, regardless of
whether the payment is in fact converted into
U.S.
dollars. If the dividend is converted into U.S. dollars on the date of receipt,
you generally should not be required to recognize foreign currency gain or loss
in respect of the dividend income. You may have foreign currency gain or loss if
you do not convert the amount of such dividend into U.S. dollars on the date of
its receipt.
Subject to
applicable limitations that may vary depending upon your circumstances and the
discussion above regarding concerns expressed by the U.S. Treasury, Chilean
taxes withheld from cash dividends on shares or ADSs at the withholding tax
rate, reduced in respect of any First Category Tax, as described above under “
—Chilean Taxation,” generally will be creditable against your U.S. federal
income tax liability. Instead of claiming a credit, you may, at your election,
deduct such Chilean taxes in computing your taxable income, subject to generally
applicable limitations under U.S. law. You should consult your own tax advisers
to determine whether you are subject to any special rules that limit your
ability to make effective use of foreign tax credits.
Sale
or Other Disposition of Shares or ADSs
For U.S.
federal income tax purposes, gain or loss you realize on the sale or other
disposition of shares or ADSs generally will be capital gain or loss, and will
be long-term capital gain or loss if you held the shares or ADSs for more than
one year. The amount of your gain or loss will be equal to the difference
between your tax basis in the shares or ADSs disposed of and the amount realized
on the disposition in each case as determined in U.S. dollars. Such gain or loss
will generally be U.S. source gain or loss for foreign tax credit purposes.
Consequently, you may not be able to utilize a credit for Chilean withholding
taxes imposed on gain from shares or ADSs. You should consult your own
tax advisers regarding the availability of foreign tax credits upon the sale or
other disposition of your shares or ADSs.
Passive
Foreign Investment Company Rules
Based on
proposed Treasury regulations (“Proposed Regulations”), which are proposed for
taxable years beginning after December 31, 1994, we believe that we were not a
“Passive Foreign Investment Company” (“PFIC”) for U.S. federal income tax
purposes for the year ended December 31, 2007. However, since the
Proposed Regulations may not be finalized in their current form and since PFIC
status depends upon the composition of a company’s income and assets and the
market value of its assets (including, among others, less than 25 percent owned
equity investments) from time to time, there can be no assurance that we will
not be considered a PFIC for any taxable year. If we were treated as a PFIC for
any taxable year during which you held an ADS or a share, certain adverse tax
consequences could apply to you.
If we were
a PFIC for any taxable year during which you held shares or ADSs, gain
recognized by you on a sale or other disposition (including certain pledges) of
a share or an ADS would generally be allocated ratably over your holding period
for the share or ADS. The amounts allocated to the taxable year of the sale or
other disposition and to any year before we became a PFIC would be taxed as
ordinary income. The amount allocated to each other taxable year would be
subject to tax at the highest rate in effect for individuals or corporations, as
appropriate for that taxable year, and an interest charge would be imposed on
the amount allocated to that taxable year. Further, any distribution in respect
of shares or ADSs that exceeds 125 percent of the average of the annual
distributions on shares or ADSs received by you during the preceding three years
or your holding period, whichever if shorter, would be subject to taxation as
described above. Certain elections may be available (including a mark-to-market
election) to you that may help mitigate the adverse tax consequences. In
addition, if we were to be treated as a PFIC in a taxable year in which we pay a
dividend or the prior taxable year, the 15% dividend rate discussed above with
respect to dividends paid to non-corporate shareholders would not
apply.
Information
Reporting and Backup Withholding
Payment of
dividends and sales proceeds that are made within the United States or through
certain U.S.-related financial intermediaries generally are subject to
information reporting and to backup withholding unless (i) you are a corporation
or other exempt recipient or (ii), in the case of backup withholding, you
provide a correct taxpayer identification number and certify that you are not
subject to backup withholding.
The amount
of any backup withholding from a payment to you will be allowed as a credit
against your U.S. federal income tax liability and may entitle you to a refund,
provided that the required information is timely furnished to the Internal
Revenue Service.
F. Dividends
and Paying Agents
Not
applicable.
G. Statement
by Experts
Not
applicable.
H. Documents
on Display
The
documents concerning Santander-Chile which are referred to in this Annual Report
may be inspected at our offices at Bandera 140 Santiago, Chile. We are, and
Santiago and Old Santander-Chile were, subject to the information reporting
requirements of the Exchange Act, except that, as a foreign issuer, we are not
subject to the proxy rules or the short-swing profit and disclosure rules of the
Exchange Act. In accordance with these statutory requirements, we file or
furnish reports and other information with the SEC. Reports and other
information filed or furnished by us with the SEC may be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC’s Regional Office at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611-2511. Copies of such material may be obtained by mail from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. You may obtain information on the operation of the
Public Reference Section by calling the SEC at 1-800-732-0330. The SEC maintains
a World Wide Web site on the Internet at http://www.sec.gov that contains
reports and information statements and other information regarding us. The
reports and information statements and other information about us can be
downloaded from the SEC’s website and can also be inspected and copied at the
offices of the NYSE, Inc., 20 Broad Street, New York, New York
10005.
I. Subsidiary
Information
Not
applicable.
Introduction
This
section describes the market risks that we are exposed to, the tools and
methodology used to control these risks, the portfolios over which these market
risk methods were applied and quantitative disclosure that demonstrate the level
of exposure to market risk that we are assuming. This section also discloses the
derivative instruments that we use to hedge exposures and offer to our
clients.
The
principal types of risk inherent in Santander-Chile’s business are market,
liquidity, operational and credit risks. The effectiveness with which we are
able to manage the balance between risk and reward is a significant factor in
our ability to generate long term, stable earnings growth. Toward that end, our
senior management places great emphasis on risk management.
Market
Risk
Market
risk is the risk of losses due to unexpected changes in interest rates, foreign
exchange rates, inflation rates and other rates or prices. We are exposed to
market risk mainly as a result of the following activities:
·
|
trading
in financial instruments, which exposes us to interest rate and foreign
exchange rate risk;
|
·
|
engaging
in banking activities, which subjects us to interest rate risk, since a
change in interest rates affected gross interest income, gross interest
expense and customer behavior;
|
·
|
engaging
in banking activities, which exposes us to inflation rate risk, since a
change in expected inflation affects gross interest income, gross interest
expense and customer behavior;
|
·
|
trading
in the local equity market, which subjects us to potential losses caused
by fluctuations of the stock market;
and
|
·
|
investing
in assets whose returns or accounts are denominated in currencies other
than the Chilean peso, which subjects us to foreign exchange risk between
the Chilean peso and such other
currencies.
|
Market
Risk Exposure Categories
Inflation
Inflation
impacts our results of operations. High levels of inflation in Chile could
adversely affect the Chilean economy and have an adverse effect on our business,
financial condition and results of operations. Negative inflation rates also
negatively impact our results.
In 2007, the inflation rate in Chile was 7.8% compared to 2.6% in 2006
compared 3.7% in 2005.
There can be no assurance that Chilean inflation will not change
significantly from the current level. Although we currently benefit from
moderate levels of inflation in Chile, due to the current structure of our
assets and liabilities (i.e., a significant portion of our loans are indexed to
the inflation rate, but there are no corresponding features in deposits or other
funding sources that would increase the size of our funding base), there can be
no assurance that our business, financial condition and result of operations in
the future will not be adversely affected by changing levels of
inflation.
UF-denominated assets and
liabilities. Our assets and liabilities are denominated in Chilean pesos,
UF and foreign currencies. The UF is revalued in monthly cycles. On each day in
the period beginning the tenth day of the current month through the ninth day of
the succeeding month, the nominal peso value of the UF is indexed up (or down in
the event of deflation) in order to reflect a proportional amount of the change
in the Chilean Consumer Price Index during the prior calendar month. One UF
equaled to Ch$17,974.81 at December 31, 2005, Ch$ 18,336.38 at December 31,
2006, and Ch$19,622.66 at December 31, 2007. The effect of any changes
in the nominal peso value of our UF-denominated assets and liabilities is
reflected in our results of operations as an increase (or decrease, in the event
of deflation) in interest revenue and expense, respectively. Our net interest
revenue will be positively affected by an inflationary environment to the extent
that our average UF-denominated assets exceed our average UF-denominated
liabilities. Our net interest revenue will be negatively affected by inflation
in any period in which our average UF-denominated liabilities exceed our average
UF-denominated assets. Our average UF-denominated assets exceeded our average
UF-denominated liabilities by Ch$2,871,535 million in 2007 compared to
Ch$2,758,228 million in 2006. See “Item 5: F. Selected Statistical
Information—Average Balance Sheets, Income Earned from Interest-Earning Assets
And Interest Paid on Interest Bearing Liabilities.” The Bank generally has more
UF-denominated financial assets than UF-denominated financial liabilities. In
the year ended December 31, 2007, the interest gained on interest earning assets
denominated in UF increased 71.5% compared to 2006 as a result of the higher
inflation rate in 2007 compared to 2006 and the larger amount of assets than
liabilities denominated in UFs. The interest paid on these liabilities increased
by 130.4% during this period.
Inflation hedge. A key
component of our asset and liability policy is the management of interest rate
risk. The Bank’s assets generally have a longer maturity than our liabilities.
As the Bank’s mortgage portfolio grows, the maturity gap tends to rise as these
loans, which are denominated in UF, have a longer maturity than the average
maturity of our funding base. As most long term financial instruments and
mortgage loans are denominated in UF and most deposits in nominal pesos, the
increase in mortgage lending increments the Bank’s exposure to inflation and to
interest rate risk. The size of this gap is limited by internal and regulatory
guidelines in order to avoid excessive potential losses due to strong shifts in
interest rates. In
order to keep this duration gap below regulatory limits the bank issues long
term bonds denominated in UF or interest rate swaps. The financial cost of the
bonds is recorded as interest expense, but the financial cost of these swaps is
included in the net results from trading and marks to market. In 2007, the
financial cost of the swaps taken in order to hedge for inflation and interest
rate risk totaled Ch$42,465 million compared to Ch$12,899 million in 2006. This
higher cost was a direct result of the higher inflation rate in these two
periods.
|
|
|
|
Inflation
sensitive income
|
|
|
|
|
|
|
|
|
|
|
|
(In
million of constant Chilean pesos at
December
31, 2007)
|
|
Interest
gained on UF assets
|
|
|
468,001 |
|
|
|
802,579 |
|
|
|
71.5 |
% |
Interest
paid on UF liabilities
|
|
|
(191,746 |
) |
|
|
(441,703 |
) |
|
|
130.4 |
% |
Inflation/
interest rate risk hedge
|
|
|
(12,899 |
) |
|
|
(42,465 |
) |
|
|
229.2 |
% |
Price
level restatement
|
|
|
(14,807 |
) |
|
|
(56,325 |
) |
|
|
280.4 |
% |
Net
Gain
|
|
|
248,549 |
|
|
|
262,086 |
|
|
|
5.4 |
% |
Peso denominated assets and
liabilities. Interest rates prevailing in Chile during any period
primarily reflect the inflation rate during the period and the expectations of
future inflation. The sensitivity of our peso denominated interest earning
assets and interest bearing liabilities to changes to such prevailing rates
varies. See “Item 5: C Operating Results—Interest Rates.” We maintain a
substantial amount of non interest bearing peso denominated demand deposits.
Because such deposits are not sensitive to inflation, any decline in the rate of
inflation would adversely affect our net interest margin on inflation indexed
assets funded with such deposits, and any increase in the rate of inflation
would increase the net interest margin on such assets. The ratio of the average
of such demand deposits to average interest-earning assets was 16.4%, 13.9% and
15.3% for the years ended December 31, 2005, 2006 and 2007,
respectively.
Interest
Rates
Interest
rates earned and paid on Santander-Chile’s assets and liabilities reflect to a
certain degree inflation and expectations regarding inflation as well as shifts
in short term rates related to the Central Bank’s monetary policies. The Central
Bank manages short term interest rates based on its objectives of balancing low
inflation and economic growth. In 2007, the Central Bank accelerated the pace of
interest rate increases in the year. The overnight interbank
rate set by the Central Bank as of April 2008 was set at 6.25%, 100 basis points
higher than the rate at year-end 2006. Long-term real interest rates on the
other hand descended in 2007. The yield on the Chilean Central Bank’s 10-year
note in real terms was 2.98% compared to 3.02% as of December 31,
2006.
Foreign
Exchange Fluctuations
The
Chilean government’s economic policies and any future changes in the value of
the Chilean peso against the U.S. dollar could adversely affect our financial
condition and results of operations. The Chilean peso has been subject to
significant devaluation in the past and may be subject to significant
fluctuations in the future. In 2005, the Chilean peso appreciated by 8.1%
against the dollar. In
2006, the Chilean peso depreciated by 3.9% against the U.S. dollar and in 2007
the peso appreciated 7.2% against the U.S. dollar. See “Item 3: A. Selected
Financial Data—Exchange Rates.”
Asset
and Liability Management
Our policy
with respect to asset and liability management is to capitalize on our
competitive advantages in treasury operations, maximizing our net interest
revenue and return on assets and equity with a view to interest rate, liquidity
and foreign exchange risks, while remaining within the limits provided by
Chilean banking regulations. Subject to these constraints, we constantly have
mismatched positions with respect to interest rates and foreign currencies. Our
asset and liability management policies are developed by the Asset and Liability
Committee (the “ALCO”) following guidelines and limits established by our Board
of Directors, Banco Santander Spain’s Global Risk Department and our Market Risk
and Control Department. The ALCO is composed of the Chairman of the Board, three
members of the Board, the Chief Executive Officer, the Manager of Proprietary
Trading, the Manager of the Financial Management Division, the Manager of Market
Risk and the Financial Controller. Senior members of Santander-Chile’s Finance
Division meet daily and, on a formal basis, weekly with the Asset and
Liabilities Management Committee and outside consultants. In addition, our
Market Risk Division reports weekly on all of our positions to the ALCO. Our
limits and positions are reported on a daily basis to Banco Santander Spain’s
Global Risk Department. The ALCO reports as often as deemed necessary to our
Board of Directors. The risk limits set by the ALCO are implemented by our
Finance Division and are controlled by the Market Risk and Control Department,
which establishes guidelines and policies for risk management on a day to day
basis. The composition of our assets, liabilities and shareholders’ equity at
December 31, 2007, by currency and term is as follows:
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
UF
|
|
|
Currency
|
|
|
Total
|
|
|
Percentage
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007, except for
percentages)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
452,718 |
|
|
|
-- |
|
|
|
838,916 |
|
|
|
1,291,634 |
|
|
|
7.1 |
% |
Other
asset (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than one year
|
|
|
3,614,760 |
|
|
|
1,430,249 |
|
|
|
1,426,722 |
|
|
|
6,471,731 |
|
|
|
35.5 |
% |
From
one to three years
|
|
|
1,339,742 |
|
|
|
1,437,812 |
|
|
|
125,542 |
|
|
|
2,903,096 |
|
|
|
15.9 |
% |
More
than three years
|
|
|
957,666 |
|
|
|
5,523,059 |
|
|
|
213,468 |
|
|
|
6,694,193 |
|
|
|
36.7 |
% |
Banks
premise and equipment and other
|
|
|
823,207 |
|
|
|
4,025 |
|
|
|
267,609 |
|
|
|
1,094,841 |
|
|
|
6.0 |
% |
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
UF
|
|
|
Currency
|
|
|
Total
|
|
|
Percentage
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007, except for
percentages)
|
|
allowances
for loan losses
|
|
|
-232,766 |
|
|
|
|
|
|
|
|
|
|
|
-232,766 |
|
|
|
-1.3 |
% |
Total
|
|
|
6,955,327 |
|
|
|
8,395,145 |
|
|
|
2,872,257 |
|
|
|
18,222,729 |
|
|
|
100.0 |
% |
Percentage
of total assets
|
|
|
38.1 |
% |
|
|
46.1 |
% |
|
|
15.8 |
% |
|
|
100.0 |
% |
|
|
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
interest bearing deposits
|
|
|
2,346,296 |
|
|
|
197,124 |
|
|
|
177,639 |
|
|
|
2,721,059 |
|
|
|
14.9 |
% |
Other
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than one years
|
|
|
3,721,578 |
|
|
|
2,650,802 |
|
|
|
2,692,664 |
|
|
|
9,065,044 |
|
|
|
49.7 |
% |
From
one to three years
|
|
|
417,332 |
|
|
|
1,423,820 |
|
|
|
705,856 |
|
|
|
2,547,008 |
|
|
|
14.0 |
% |
More
than three years
|
|
|
136,490 |
|
|
|
1,556,154 |
|
|
|
758,930 |
|
|
|
2,451,574 |
|
|
|
13.5 |
% |
Shareholder’s
equity
|
|
|
1,129,395 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,129,395 |
|
|
|
6.2 |
% |
2007
net income
|
|
|
308,647 |
|
|
|
-- |
|
|
|
-- |
|
|
|
308,647 |
|
|
|
1.7 |
% |
Total
|
|
|
8,059,738 |
|
|
|
5,827,900 |
|
|
|
4,335,089 |
|
|
|
18,222,727 |
|
|
|
100 |
% |
Percentage
of total liabilities and shareholders’ equity
|
|
|
44.2 |
% |
|
|
32.0 |
% |
|
|
23.8 |
% |
|
|
100.0 |
% |
|
|
|
|
(1)
|
Other
assets include our rights under foreign exchange contracts, and other
liabilities include our obligations under foreign exchange contracts.
Mortgage finance bonds issued by us are included as other liabilities, and
mortgage finance bonds held in our financial investment portfolio (issued
by third parties) are included as other
assets.
|
We have
generally maintained more peso denominated liabilities than peso denominated
assets and more UF-denominated assets than UF-denominated liabilities. In the
context of a rising CPI, this has in the past had a positive impact on our net
income by generating net income from adjustments of the UF that exceeds losses
arising from price level restatements. This effect is expected to decrease
significantly if rates of inflation decrease.
Interest
Rate Sensitivity
A key
component of our asset and liability policy is the management of interest rate
sensitivity. Interest rate sensitivity is the relationship between market
interest rates and net interest revenue due to the maturity or repricing
characteristics of interest-earning assets and interest-bearing liabilities. For
any given period, the pricing structure is matched when an equal amount of such
assets and liabilities mature or reprice in that period. Any mismatch of
interest-earning assets and interest-bearing liabilities is known as a gap
position. A positive gap denotes asset sensitivity and means that an increase in
interest rates would have a positive effect on net interest revenue while a
decrease in interest rates would have a negative effect on net interest
revenue.
Our
interest rate sensitivity strategy takes into account not only the rates of
return and the underlying degree of risk, but also liquidity requirements,
including minimum regulatory cash reserves, mandatory liquidity ratios,
withdrawal and maturity of deposits, capital costs and additional demand for
funds. We monitor our maturity mismatches and manage them within established
limits.
The
following table sets forth the repricing of our interest-earning assets and
interest-bearing liabilities at December 31, 2007, and may not reflect interest
rate gap positions at other times. In addition, variations in interest rate
sensitivity may exist within the repricing periods presented due to the
differing repricing dates within the period. Variations may also arise among the
different currencies in which interest rate positions are held.
As the
following table reflects, we have a negative gap for most periods of one year or
less as our main source of funding are short term time deposits. The majority of
assets and liabilities with a maturity of 90 days or less are denominated in
nominal pesos. Ninety days or more is also the most common repricing period for
UF-denominated time deposits. In the case of interest-earning assets and
interest-bearing liabilities denominated in UF, our exposure to changes in
interest rates is reduced by the fact that a significant portion of the interest
rate earned or paid on such assets or liabilities is indexed to reflect the
daily effect of inflation, and as a result our gap position is limited to
variations in the real interest rate among such assets and liabilities.
Moreover, mortgage loans which have 8- to 20-year terms were generally financed
through bonds issued for the same terms and in the same currency or interest
rate swaps.
|
|
As
of December 31,
|
|
|
|
Up
to 30 days
|
|
|
31-60
days
|
|
|
61-90
days
|
|
|
91-180
days
|
|
|
181-365
days
|
|
|
1-3
years
|
|
|
Over
3 years
|
|
|
Total
|
|
|
|
(in
millons of constant Ch$ as of December 31, 2007, except for
percentages)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interbank
deposits
|
|
|
700,517 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
700,517 |
|
Financial
investments
|
|
|
1,099,484 |
|
|
|
106 |
|
|
|
14,096 |
|
|
|
20,399 |
|
|
|
51,458 |
|
|
|
136,785 |
|
|
|
496,936 |
|
|
|
1,819,264 |
|
Loans
|
|
|
2,431,977 |
|
|
|
443,046 |
|
|
|
328,809 |
|
|
|
822,807 |
|
|
|
874,850 |
|
|
|
2,210,557 |
|
|
|
4,663,653 |
|
|
|
11,775,699 |
|
Mortage
loans
|
|
|
6,461 |
|
|
|
4,952 |
|
|
|
4,954 |
|
|
|
15,032 |
|
|
|
16,637 |
|
|
|
112,785 |
|
|
|
224,526 |
|
|
|
385,347 |
|
Contingent
loans
|
|
|
255,184 |
|
|
|
118,241 |
|
|
|
98,528 |
|
|
|
196,636 |
|
|
|
273,793 |
|
|
|
190,258 |
|
|
|
58,639 |
|
|
|
1,191,279 |
|
Past
due loans
|
|
|
116,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,654 |
|
Total
Interest-earning assets
|
|
|
4,610,277 |
|
|
|
566,345 |
|
|
|
446,387 |
|
|
|
1,054,874 |
|
|
|
1,216,738 |
|
|
|
2,650,385 |
|
|
|
5,443,754 |
|
|
|
15,988,760 |
|
Interest-bearning
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,858,988 |
|
|
|
1,113,839 |
|
|
|
757,084 |
|
|
|
1,185,953 |
|
|
|
1,354,331 |
|
|
|
1,528,645 |
|
|
|
89,041 |
|
|
|
7,887,881 |
|
Central
Bank Borrowings
|
|
|
142,909 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,433 |
|
|
|
- |
|
|
|
- |
|
|
|
146,342 |
|
Investment
under agreements to repurchase
|
|
|
166,281 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
166,281 |
|
Mortage
finance bonds
|
|
|
16,209 |
|
|
|
2,034 |
|
|
|
1,792 |
|
|
|
12,501 |
|
|
|
24,891 |
|
|
|
92,792 |
|
|
|
284,055 |
|
|
|
434,274 |
|
Other
obligations
|
|
|
114,713 |
|
|
|
24,329 |
|
|
|
2,348 |
|
|
|
118,298 |
|
|
|
474,734 |
|
|
|
718,317 |
|
|
|
1,513,823 |
|
|
|
2,966,562 |
|
Total
interest-bearing libiabilities
|
|
|
2,299,100
|
|
|
|
1,140,202
|
|
|
|
761,224
|
|
|
|
1,316,752
|
|
|
|
1,857,389
|
|
|
|
2,339,754
|
|
|
|
1,886,919
|
|
|
|
11,601,340
|
|
Asset/liability
gap
|
|
|
2,311,177 |
|
|
|
(573,857 |
) |
|
|
(314,837 |
) |
|
|
(261,878 |
) |
|
|
(640,651 |
) |
|
|
310,631 |
|
|
|
3,556,835 |
|
|
|
4,387,420 |
|
Cumulative
gap
|
|
|
2,311,177 |
|
|
|
1,737,320 |
|
|
|
1,422,483 |
|
|
|
1,160,605 |
|
|
|
519,954 |
|
|
|
830,585 |
|
|
|
4,387,420 |
|
|
|
|
|
Exchange
Rate Sensitivity
The
regulations of the Central Bank do not permit the difference, whether positive
or negative, between a bank’s assets and liabilities denominated in any foreign
currency (including assets and liabilities denominated in U.S. dollars but
payable in pesos, as well as those denominated in pesos and indexed to the U.S.
dollar exchange rate) to exceed 20% of the bank’s paid in capital and reserves;
except in case where the balance of such assets exceeds the balance of such
liabilities and the excess difference does not exceed the bank’s allowances and
reserves denominated in such foreign currency (excluding profits to be remitted
abroad). Santander-Chile has also set an absolute limit on the size of its net
foreign currency trading position. At December 31, 2007, this
was equal to US$200 million. The Bank also uses a sensitivity analysis to limit
the potential loss in fluctuations of U.S. interest rates on interest income and
a VaR model to limit foreign currency risk.
In recent
years, our results of operations have benefited from fluctuations in the
exchange rate between the Chilean peso and the U.S. dollar in part due to our
policy and Central Bank regulations relating to the control of material exchange
rate mismatches. However, the rate of devaluation or appreciation of the peso
against the U.S. dollar could also be expected to have the following principal
effects:
(i)
If we maintain a net asset position in U.S. dollars and a
devaluation of the peso against the U.S. dollar occurs, we would record a
related gain, and if an appreciation of the peso occurs, we would record a
related loss;
(ii)
If we maintain a net liability position in U.S. dollars and a
devaluation of the peso against the dollar occurs, we would record a related
loss, and if an appreciation of the peso occurs, we would record a related
gain;
(iii)
If the inflation rate for a period exceeded the devaluation of the peso
against the U.S. dollar during the same period, this would mean that in real
terms the peso appreciated against the U.S. dollar. Therefore, we would record a
related gain if we had a net asset position in UFs that exceeded a net liability
position in U.S. dollars, and we would record a related loss if we had a net
liability position in U.S. dollars that exceeded a net asset position in UFs;
and
(iv)
If the inflation rate for a period were lower than the rate of devaluation
of the peso against the U.S. dollar during the same period, this would mean that
in real terms the peso depreciated against the U.S. dollar. Therefore, we would
record a related gain if it maintained a net asset position in U.S. dollars and
a net liability position in UFs and would record a related loss if it had a net
liability position in U.S. dollars and a net asset position in UFs.
We enter
into foreign exchange forward contracts and interest rate swap contracts as part
of our asset and liability management. We enter into two fundamental types of
foreign forward exchange contracts: (i) transactions covering two foreign
currencies and (ii) transactions covering only Chilean pesos and UFs against
U.S. dollars. We
use the
first type for hedging purposes, such as when we take a liability position in
foreign currency other than the U.S. dollar, and use the second type, which is
carried out only in the Chilean local market, to take foreign currency
positions, subject to the regulatory requirement that the forward foreign
currency exposure must be included in the maximum net foreign currency position
permitted by applicable regulations. See “Item 4: D. Regulation and Supervision”
and “Item 5: F. Selected Statistical Information—Average Balance Sheets, Income
Earned from Interest-Earning Assets And Interest Paid on Interest Bearing
Liabilities.”
The
Central Bank requires that foreign exchange forward contracts be made only in
U.S. dollars and other major foreign currencies. As noted above, substantially
all of our forward contracts are made in U.S. dollars against the Chilean peso
or the UF. We may enter into foreign currency forward contracts with companies
organized and located outside of Chile, including foreign subsidiaries of
Chilean companies. We believe that as the market for forward contracts deepens,
our client base in Chile as well as our relationship with Banco Santander Spain
will give us an advantage in positioning ourselves within this new
market.
Statistical
Tools for Measuring and Managing Risk: Regulatory Method
On an
unconsolidated basis,
the Bank must separate its balance sheet in two separate categories: trading
portfolio (Libro de
Negociación) and unconsolidated non-trading, or permanent, portfolio
(Libro de Banca). The
trading portfolio as defined by the Superintendency of Banks includes all
instruments valued at market prices, free of any restrictions for their
immediate sale and that are frequently bought and sold by the bank or are
maintained with the intention of selling them in the short term in order to
profit from short term price variations. The non-trading portfolio is defined as
all instruments in the balance sheet not considered in the trading
portfolio.
We must
also report the following absolute risk levels:
Trading
portfolio:
·
|
Exposure
to interest rate risk: Interest rate risk of the trading portfolio is
basically a sensitivity analysis, which is the calculated potential losses
assuming an increase in nominal rate yield curves, real rates and foreign
currency rates by 75 to 350 basis
point.
|
·
|
Exposure
to foreign currency risk: The foreign currency risk is calculated using
sensitivity factors linked to the credit risk rating of the issuing
country.
|
·
|
Market
risk exposure of options: Options risk is calculated using sensitivity
factors called delta, gamma and vega that basically measure the
sensitivity of the value of the options to changes in the price of the
underlying security and its
volatility.
|
Non
trading portfolio:
·
|
Exposure
to short term interest rate risk: Sensitivity analysis that is calculated
for assets and liabilities with maturities of less than 1 year, assuming a
200 basis point parallel shift of the nominal yield curve, 400 for real
rates and 200 for foreign interest
rates.
|
·
|
Exposure
to inflation risk: Sensitivity analysis that is calculated for assets and
liabilities with maturities of less than 1 year, assuming a 200 basis
point parallel shift of the nominal yield curve, 400 for real rates and
200 for foreign interest rates.
|
·
|
Exposure
to long term interest rate risk: Sensitivity analysis that is calculated
for assets and liabilities with maturities from 1 to over 20 years,
assuming a 200 basis point parallel shift of the nominal yield curve, 400
for real rates and 200 for foreign interest
rates.
|
The
Superintendency of Banks has defined various limits for these
risks.
1) EMR
limit. A bank’s regulatory capital must be greater or equal to the sum of the
exposure to market risk multiplied by the minimum capital adequacy ratio defined
in the General Banking Law. In other words:
RC
– ((k * RWA) + EMR) > 0
Where:
RC:
|
Regulatory
capital as defined by the General Banking Law.
|
k:
|
Minimum
capital adequacy ratio. The Bank is required to use a 10% minimum capital
adequacy ratio for the purpose of calculating the EMR
limit.
|
RWA:
|
Consolidated
risk-weighted assets as defined by the General Banking
Law.
|
EMR:
|
Exposure
to market risk. Santander-Chile’s EMR is equal to the total market risk of
its unconsolidated trading portfolio. This includes interest rate risk,
foreign currency risk and risks derived from
options.
|
2) Limit
on exposure to short-term interest rate and inflation risk of the Bank’s
non-trading portfolio. Santander-Chile’s exposure to short-term interest rate
and inflation risk of the non-trading portfolio cannot exceed 20% of its
unconsolidated net interest income plus fees sensitive to interest rate
volatility.
3) Limit
on exposure to long term interest rate risk of a bank’s non-trading portfolio.
Santander-Chile’s exposure to long term interest rate risk of the unconsolidated
non-trading portfolio cannot exceed 35% of its regulatory capital.
The
following is a description of the models adopted by local regulators for
measuring market risks.
Interest
rate risk of trading portfolio: Regulatory method
The
interest rate risk of the trading portfolio as defined by the Central Bank of
Chile is equal to the sum of:
1) The
sensitivity analysis (sensitivity factor) of the trading portfolio
2) Vertical
adjustment factor
3) Horizontal
adjustment factor
The
sensitivity factor of the trading portfolio is calculated using the following
formula:
|
M
|
14
|
|
Sensitivity
=
|
S
|
S
|
(amt *
Amt -
amt *
Lmt
)
|
|
m
|
t=1
|
|
Where:
Amt
|
=
Trading Assets (pesos, inflation linked and foreign
currency)
|
Lmt
|
=
Liabilities funding trading positions (pesos, inflation linked and foreign
currency)
|
amt
|
=
Sensitivity factor to rise in interest rates
|
t
|
=
Time period
|
M
|
=
Currency (pesos, inflation linked and foreign currency)
|
S
|
=
Summation
|
|
|
=
Absolute value
|
The
vertical adjustment factor is calculated in the following manner
|
M
|
14
|
|
Vertical
adjustment =
|
S
|
S
|
b * Compensated
net position
|
|
M
|
T=1
|
|
|
M
|
14
|
|
Compensated
net position =
|
S
|
S
|
Min(amt *
Amt ;
amt *
Lmt
)
|
|
M
|
T=1
|
|
Where:
Amt
|
=
Trading Assets (pesos, inflation linked and foreign
currency)
|
Lmt
|
=
Liabilities funding trading positions (pesos, inflation linked and
foreign currency)
|
amt
|
=
Sensitivity factor to rise in interest rates
|
t
|
=
Time period
|
M
|
=
Currency (pesos, inflation linked and foreign
currency)
|
b
|
=
Vertical adjustment factor =
10%
|
A
horizontal adjustment must be made following the vertical adjustment. To
determine the horizontal adjustment one must multiply the horizontal adjustment
factor by the compensated net position for Zones 1, Zone 2, Zone 3, Zones 1 and
2, Zones 2 and 3 and Zones 1 through 3
Horizontal
adjustment =
|
Adjusted
net position
(λ)
|
Compensated
net position Zone 1,2 or 3
|
Min(Σ Adjusted
net asset position; Σ absolute
value of Adjusted net liability position in Zone 1, 2 or 3
)
|
Compensated
net position Zones 1 and 2
|
Min(Σ Adjusted
net asset position in Zones 1 and 2 , Σ absolute
value of adjusted net liability position in Zones 1 and
2)
|
Compensated
net position Zones 2 and 3
|
Min(Σ Adjusted
net asset position in Zone 3 and Zone 2 (deducting adjusted net asset
position that have been compensated for with net liability positions in
Zone 1) , Σ absolute
value of adjusted net liability position in Zone 3 and Zone 2 (deducting
adjusted net liability positions that have been compensated for with net
liability positions in Zone 1))
|
Compensated
net position Zones 1 – 3
|
Min(Σ
Adjusted net asset position in Zone 3 and Zone 1 (deducting
adjusted net asset position that have been compensated for with net
liability positions in Zone 2) , Σ absolute
value of adjusted net liability position in Zone 3 and Zone 1 (deducting
adjusted net liability positions that have been compensated for with net
liability positions in Zone 2))
|
The
following table illustrates the value of the different factors used for
calculating the interest rate risk of the trading portfolio.
Table
1 Sensitivity Factors - Trading Portfolio
Zone
|
T
|
Period
|
Change
in
Interest
rate (bp)
|
Sensitivity
factor(
amt
)
|
Vertical
adjustment
factor
|
Horizontal adjustment
factor
|
|
|
|
peso
|
UF
|
FX
|
Peso
|
UF
|
FX
|
(β)
|
(λ)
|
Zone
1
|
1
|
Up
to 30 days
|
125
|
350
|
125
|
0.0005
|
0.0014
|
0.0005
|
10%
|
40%
|
40%
|
|
100%
|
2
|
31
days to 3 mth
|
125
|
300
|
125
|
0.0019
|
0.0047
|
0.0020
|
3
|
3 –
6 mths
|
125
|
250
|
125
|
0.0042
|
0.0088
|
0.0044
|
4
|
6 –
9 mths
|
125
|
200
|
125
|
0.0069
|
0.0116
|
0.0072
|
5
|
9
mths – 1 year
|
125
|
175
|
125
|
0.0095
|
0.0140
|
0.0100
|
Zone
2
|
6
|
1-2
years
|
100
|
125
|
100
|
0.0124
|
0.0166
|
0.0133
|
30%
|
40%
|
7
|
2-3
years
|
100
|
100
|
100
|
0.0191
|
0.0211
|
0.0211
|
8
|
3-4
years
|
100
|
100
|
100
|
0.0248
|
0.0281
|
0.0281
|
Zone
3
|
9
|
4-5
years
|
75
|
75
|
75
|
0.0221
|
0.0258
|
0.0258
|
30%
|
|
10
|
5-7
years
|
75
|
75
|
75
|
0.0263
|
0.0320
|
0.0320
|
11
|
7-10
years
|
75
|
75
|
75
|
0.0307
|
0.0401
|
0.0401
|
12
|
10-15
years
|
75
|
75
|
75
|
0.0332
|
0.0486
|
0.0486
|
13
|
15-20
years
|
75
|
75
|
75
|
0.0317
|
0.0534
|
0.0534
|
14
|
>
20 years
|
75
|
75
|
75
|
0.0278
|
0.0539
|
0.0539
|
Below is
an example of how the interest risk of the trading portfolio is calculated. This
calculation must be done for each type of currency (peso, inflation indexed and
foreign currency).
Interest
rate and inflation risk of trading portfolio: Regulatory method
The short
term interest rate risk and inflation risk of the non-trading portfolio as
defined by the Central Bank is equal to:
|
M
|
5
|
|
|
|
|
|
|
|
Sensitivity
=
|
S
|
S
|
(Amt -
Lmt
) *
mt
|
|
+
|
|
NPur *
t
|
+
|
Df
|
|
M
|
t=1
|
|
|
|
|
|
|
|
The long
term interest rate risk of the non-trading portfolio is calculated according to
the following formula:
|
M
|
14
|
|
Sensitivity
=
|
S
|
S
|
(Amt -
Lmt
) *
rt
|
|
m
|
t=1
|
|
Where:
Amt
|
=
Non trading Assets (pesos, inflation linked and foreign
currency)
|
Lmt
|
=
Non Trading Liabilities (pesos, inflation linked and foreign
currency)
|
mt
|
=
Sensitivity factor associated with interest rate movement
scenario
|
NPur
|
=
Net position in inflation linked instruments, including those
subject to price level restatement
|
t
|
=
Factor that measures the sensitivity of/to movements in the inflation
index. This factor is equal to 2%
|
Df
|
=
Effect on fees from shifts in interest rate. Each bank must
determine which fees are sensitive to shifts in interest rates and assumes
a 200 basis point movement.
|
rt
|
=
Sensitivity factor to increase in interest rates
|
t
|
=
Time period
|
M
|
=
Currency (pesos, inflation linked and foreign currency)
|
S
|
=
Summation
|
|
|
=
Absolute value
|
The
following table illustrates the value of the different factors used for
calculating the interest and inflation rate risks of the non-trading
portfolio.
Table
2 Sensitivity Factors Trading Portfolio
|
t
|
Period
|
Change
in
interest
rate (bp)
|
Sensitivity
factor long-term
(rt)
|
Sensitivity
factor short-term
|
|
|
peso
|
UF
|
FX
|
peso
|
UF
|
FX
|
(mt)
|
1
|
Up
to 30 days
|
200
|
400
|
200
|
0.0008
|
0.0016
|
0.0008
|
0.0192
|
2
|
31
days to 3 mth
|
200
|
400
|
200
|
0.0030
|
0.0063
|
0.0031
|
0.0167
|
3
|
3 –
6 mths
|
200
|
400
|
200
|
0.0067
|
0.0140
|
0.0070
|
0.0125
|
4
|
6 –
9 mths
|
200
|
400
|
200
|
0.0110
|
0.0231
|
0.0116
|
0.0075
|
5
|
9
mths – 1 year
|
200
|
400
|
200
|
0.0152
|
0.0320
|
0.0160
|
0.0025
|
6
|
1-2
years
|
200
|
400
|
200
|
0.0248
|
0.0399
|
0.0266
|
|
7
|
2-3
years
|
200
|
400
|
200
|
0.0382
|
0.0422
|
0.0422
|
|
8
|
3-4
years
|
200
|
400
|
200
|
0.0496
|
0.0563
|
0.563
|
|
9
|
4-5
years
|
200
|
400
|
200
|
0.0591
|
0.0690
|
0.0690
|
|
10
|
5-7
years
|
200
|
400
|
200
|
0.0702
|
0.0856
|
0.0856
|
|
11
|
7-10
years
|
200
|
400
|
200
|
0.0823
|
0.1076
|
0.1076
|
|
12
|
10-15
years
|
200
|
400
|
200
|
0.0894
|
0.1309
|
0.1309
|
|
13
|
15-20
years
|
200
|
400
|
200
|
0.0860
|
0.1450
|
0.1450
|
|
14
|
>
20 years
|
200
|
400
|
200
|
0.0762
|
0.1480
|
0.1480
|
|
Foreign
currency risk: local method
The
foreign currency risk as defined by the Central Bank is equal to:
Where:
NAP
|
=
Net asset position
|
NLP
|
=
Net liability position
|
NPgold
|
=
Net position in gold
|
si
|
=
Sensitivity factor
|
Max
|
=
Maximum value
|
S
|
=
Summation
|
|
|
=
Absolute value
|
The
following table illustrates the value of the different factors used for
calculating foreign currency risk.
Table
3 Sensitivity Factors Foreign Currency Risk
|
|
|
|
|
|
I
|
|
All
currencies of countries with a AAA sovereign rating
|
|
8%
|
J
|
|
All
other currencies
|
|
35%
|
Options
risk: Regulatory method
The
exposure to market risk of options is calculated using sensitivity factors
delta, gamma and vega.
Delta
Delta of a
derivative security is the rate of change of its price relative to the price of
the underlying asset. It is the first derivative of the curve that relates the
price of the derivative to the price of the underlying security. When delta is
large, the price of the derivative is sensitive to small changes in the price of
the underlying security.
Gamma
Gamma of a
derivative security is the rate of change of delta relative to the price of the
underlying asset; i.e., the second derivative of the option price relative to
the security price. When gamma is small, the change in delta is small. The Gamma
impact is calculated using the following formula.
Gamma
impact = Gamma * (Variation of underlying security)^2 / 2
When the
underlying security for an interest rate options is a debt instrument then the
variation of the value of the underlying security will be calculated using the
sensitivity factors established in Tables 1 and 2 above. When the underlying
security is an interest rate then the change in interest rates assumed will be
those used in Table 1 and 2 above. Finally, for foreign exchange options, the
variation of the underlying security will be calculated using the factors used
in Table 3 above.
Vega
Vega is
one of the factor sensitivities used to measure sensitivity to the implied
volatilities of the underlying security. Vega is the rate of change in the price
of a derivative security relative to the volatility of the underlying security.
When vega is large the security is sensitive to small changes in volatility. In
general, a long option position will benefit from rising implied volatilities
and suffer from declining implied volatilities. Short option positions display
opposite behavior. As defined by the Central Bank, the Vega Risk
is the sum
in absolute value of the vega impacts for each option a bank holds. These
impacts will be calculated assuming a change of 25% in the volatility
rate.
Assumptions
and Limitations of Scenario Simulations/Sensitivity Analysis (Regulatory
method)
Our
scenario simulation methodology should be interpreted in light of the
limitations of our models, which include:
·
|
The
scenario simulation assumes that the volumes remain on balance sheet and
that they are always renewed at maturity, omitting the fact that credit
risk considerations and pre payments may affect the maturity of certain
positions.
|
·
|
This
model assumes set shifts in interest rates and sensitivity factors for
different time periods and does not take into consideration any other
scenario for each time period or other sensitivity
factors.
|
·
|
The
model does not take into consideration the sensitivity of volumes to these
shifts in interest rates.
|
·
|
The
model does not take into consideration our subsidiaries which are subject
to market risks.
|
Quantitative
Disclosures about Market Risk: Regulatory Method
The
following table illustrates at December 31, 2006 and 2007, our market risk
exposure according to the Chilean regulatory method. This report is sent to the
Superintendency of Banks and is published on our website on a quarterly basis.
The Bank maximum exposure to long term interest rate fluctuations is set at 35%
of regulatory capital and is approved by the Board.
|
|
|
|
|
|
|
|
|
(in
millions of nominal Ch$)
|
|
Market
risk of Trading portfolio (EMR)
|
|
|
|
|
|
|
Interest
rate risk of trading portfolio
|
|
|
22,489 |
|
|
|
64,484 |
|
Foreign
currency risk of trading portfolio
|
|
|
24,841 |
|
|
|
2,576 |
|
Risk
from interest rate options
|
|
|
31,111 |
|
|
|
39,111 |
|
Risk
from foreign currency options
|
|
|
1 |
|
|
|
2 |
|
Total
market risk of trading portfolio
|
|
|
78,442 |
|
|
|
106,173 |
|
10%
x Risk-weighted assets
|
|
|
1,126,349 |
|
|
|
1,312,391 |
|
Subtotal
|
|
|
1,204,791 |
|
|
|
1,418,564 |
|
Limit
= Regulatory Capital
|
|
|
1,418,303 |
|
|
|
1,602,432 |
|
Available
margin
|
|
|
213,512 |
|
|
|
183,868 |
|
|
|
|
|
|
|
|
|
|
Non
trading portfolio market risk
|
|
|
|
|
|
|
|
|
Short-term
interest rate risk
|
|
|
27,344 |
|
|
|
39,545 |
|
Inflation
risk
|
|
|
37,050 |
|
|
|
18,202 |
|
Long
term interest rate risk
|
|
|
305,834 |
|
|
|
368,422 |
|
Total
market risk of non-trading portfolio
|
|
|
370,228 |
|
|
|
426,169 |
|
|
|
|
|
|
|
|
|
|
Regulatory
limit of exposure to short-term interest rate and inflation
risk
|
|
|
|
|
|
|
|
|
Short-term
exposure to interest rate risk
|
|
|
27,344 |
|
|
|
39,545 |
|
Exposure
to inflation risk
|
|
|
37,050 |
|
|
|
18,202 |
|
Limit:
20% of (net interest income + net fee income sensitive to interest
rates)
|
|
|
119,339 |
|
|
|
157,844 |
|
Available
margin
|
|
|
54,945 |
|
|
|
100,097 |
|
|
|
|
|
|
|
|
|
|
Regulatory
limit of exposure to long term interest rate risk
|
|
|
|
|
|
|
|
|
Long-term
exposure to interest rate risk
|
|
|
305,834 |
|
|
|
368,422 |
|
35%
of regulatory capital
|
|
|
496,406 |
|
|
|
560,851 |
|
Available
margin
|
|
|
190,572 |
|
|
|
192,429 |
|
Internal
Regulations Regarding Market Risk
Our
relationship with Banco Santander Spain has allowed us to take advantage of
Banco Santander Spain’s banking policies, procedures and standards, especially
with respect to credit approval and risk management. Banco Santander Spain has
successfully used these policies and expertise in the Spanish and other banking
markets, and our management believes that such policies and expertise have a
beneficial effect upon our operations. Below is a qualitative and quantitative
description of our market risks according to our internal guidelines. These
guidelines were established prior to the adoption of the applicable regulations
required by local authorities and are still being used.
The main
difference between the regulatory and internal methods is that the internal
measures divide the Bank’s balance sheet into three categories and impose limits
based on these categories. Our internal methods also takes into account
Santander S.A. Agente de Valores. As a result, the sensitivity analysis
performed incorporates a broader range of instruments and portfolios. The
internal method also incorporates a value at risk methodology for measuring the
market risk of our consolidated trading positions.
Value
at Risk: Consolidated Trading Portfolio (Cartera de Negociación)
The VaR
model is mainly used to measure the market risk of our trading portfolio. The
Finance Division manages trading activities following the guidelines set by the
ALCO and Banco Santander Spain’s Global Risk Department. The Market Risk and
Control Department’s activities consist of (i) applying VaR techniques (as
discussed above) to measure interest rate risk; (ii) marking to market our
trading portfolios and measuring daily profit and loss from trading activities;
(iii) comparing actual trading VaR and other limits against the established
limits; (iv) establishing control procedures for losses in excess of such
limits; and (v) providing information about trading activities to the ALCO,
other members of senior management, the Finance Division and Banco Santander
Spain’s Global Risk Department.
The Bank
has a consolidated trading position comprised of fixed income trading, foreign
currency trading and a minor equity trading position. The market risk of this
trading portfolio is measured by using a VaR technique. The composition of this
portfolio mainly consisted of Central Bank bonds, mortgage bonds and low risk
Chilean corporate bonds issued locally. There is also an equity portfolio that
represents less than 5% of the total trading portfolio. Under Chilean GAAP, a
bank must separate its unconsolidated financial investment portfolio between
“trading” and “available for sale” investment portfolios. Under Chilean GAAP,
the unrealized holding gains (losses) related to investments classified as
available for sale have been included in equity. The size of the available for
sale portfolio is limited to an amount equal to such bank’s capital. Any amount
above this must be considered as “trading”; the unrealized gains (losses)
related to investments classified as “trading” are included in operating
results. The ALCO has taken a conservative approach and has set even more
restrictive limits on the Finance Division’s actual trading portfolio. This
portfolio is denominated “Cartera de Negociación”. The market risk of the
portfolio defined as “trading” for accounting purposes is measured by using the
regulatory method.
VaR
Model
All VaR
measurements are intended to determine the distribution function for the change
in value of a given portfolio, and once this distribution is known, to calculate
a percentile linked to the confidence level required which will be equal to the
VaR under those parameters. Therefore, if the distribution function of the
change in value of a portfolio is known and given by f(x), where x is the random
variable of the change in value of the portfolio, then the VaR for a determined
level of confidence of k% is given by the number such that:
or:
As
calculated by Santander-Chile, VaR is an estimate of the expected maximum loss
in the market value of a given portfolio over a one day horizon at a one tailed
99.00% confidence interval. It is the maximum one day loss that Santander-Chile
would expect to suffer on a given portfolio 99.00% of the time, subject to
certain assumptions and limitations discussed below. Conversely, it is the
figure that Santander-Chile would expect to exceed only 1.0% of the time. VaR
provides a single estimate of market risk that is comparable from one market
risk to the other. Volatility is calculated utilizing 520 historical
observations. A one day holding period is utilized.
Santander-Chile
uses VaR estimates to alert senior management whenever the statistically
expected losses in its trading portfolio exceed prudent levels. Limits on VaR
are used to control exposure on the fixed income trading portfolio, the net
foreign currency trading position and the equity trading portfolio.
Santander-Chile’s trading portfolio is mainly comprised of government bonds,
mortgage finance bonds, mortgage finance bonds, the foreign currency trading
position and a minor position in equities through Santander S.A. Agente de
Valores. A daily VaR is
calculated for the trading portfolio.
Assumptions
and Limitations of VaR Model
Our VaR
model assumes that changes in the market risk factors have a normal distribution
and that the parameters of this joint distribution (in particular, the standard
deviation of risk factor changes and the correlation between them) have been
estimated accurately. The model assumes that the correlation and changes in
market rates/prices included in our historical databases are independent and
identically distributed random variables, and provide a good estimate of
correlation and rate/price changes in the future.
Our
VaR methodology should be interpreted in light of the limitations of our models,
which include:
·
|
Changes
in market rates and prices may not be independent and identically
distributed random variables or have a normal distribution. In particular,
the normal distribution assumption may underestimate the probability of
extreme market moves;
|
·
|
The
historical data we use in our VaR model may not provide the best estimate
of the joint distribution of risk factor changes in the future, and any
modifications in the data may be inadequate. In particular, the use of
historical data may fail to capture the risk of possible extreme adverse
market movements independent of the time range utilized. For example, the
use of extended periods of historical data might erroneously lead to an
important decrease in volatility especially after the Asian crisis. We
typically use 520 historical observations of market data depending on
circumstances, but also monitor other ranges of market data in order to be
more conservative. However, reliable historical risk factor data may not
be readily available for certain instruments in our
portfolio;
|
·
|
A
one day time horizon may not fully capture the market risk positions that
cannot be liquidated or hedged within one day. It would not be possible to
liquidate or hedge all positions in one
day;
|
·
|
At
present, we compute VaR at the close of business and trading positions may
change substantially during the course of the trading
day;
|
·
|
The
use of 99% confidence level does not take account of, nor makes any
statement about, any losses that might occur beyond this level of
confidence; and
|
·
|
Value
at risk does not capture all of the complex effects of the risk factors on
the value of positions and portfolios and could, therefore, underestimate
potential losses.
|
There are
also a number of approximations in the VaR calculation. For example, benchmark
indexes are used instead of certain risk factors, and in the case of some
activities, not all the relevant risk factors are taken into account which can
be due to difficulties obtaining daily data.
Quantitative
Disclosures: Market Risk Consolidated Trading Portfolio (VaR)
We did not
exceed our daily VaR in 2006 and 2007 in the fixed income, equity or foreign
currency trading portfolios. For Santander-Chile’s various trading portfolios,
the average, high and low amounts of the daily VaR in the years ended December
31, 2006 and 2007, were the following:
|
|
For
the year ended December 31,
|
|
Consolidated
Trading Portfolio
|
|
|
|
|
|
|
High
|
|
|
12.3 |
|
|
|
7.1 |
|
Low
|
|
|
3.9 |
|
|
|
2.8 |
|
Average
|
|
|
6.2 |
|
|
|
4.2 |
|
|
|
For
the year ended December 31,
|
|
Fixed
income Trading Portfolio
|
|
|
|
|
|
|
High
|
|
|
8.6 |
|
|
|
6.5 |
|
Low
|
|
|
3.9 |
|
|
|
3.0 |
|
Average
|
|
|
6.3 |
|
|
|
4.0 |
|
|
|
For
the year ended December 31,
|
|
|
|
|
|
|
|
|
High
|
|
|
0.67 |
|
|
|
1.8 |
|
Low
|
|
|
0.0 |
|
|
|
0.1 |
|
Average
|
|
|
0.27 |
|
|
|
0.7 |
|
|
|
For
the year ended December 31,
|
|
Foreign
currency Trading Portfolio
|
|
|
|
|
|
|
High
|
|
|
3.3 |
|
|
|
4.0 |
|
Low
|
|
|
0.02 |
|
|
|
0.1 |
|
Average
|
|
|
0.93 |
|
|
|
1.1 |
|
Quantitative
Disclosure: Derivatives
Derivatives
The Bank
enters into transactions involving derivative instruments, particularly foreign
exchange contracts, as part of its asset and liability management, and in acting
as a dealer in order to satisfy its clients’ needs. The notional amounts of
these contracts are carried off-balance sheet.
Foreign
exchange forward contracts involve an agreement to exchange the currency of one
country for the currency of another country at an agreed-upon price and
settlement date. These contracts are generally standardized contracts, normally
for periods between 1 and 180 days and are not traded in a secondary market;
however, in the normal course of business and with the agreement of the original
counterparty, they may be terminated or assigned to another
counterparty.
When the
Bank enters into a forward exchange contract, it analyses and approves the
credit risk (the risk that the counterparty might default on its obligations).
Subsequently, on an ongoing basis, it monitors the possible losses involved in
each contract. To manage the level of credit risk, the Bank generally deals with
counterparties of good credit standing, enters into master netting agreements
whenever possible and when appropriate, and obtains collateral.
The
Chilean Central Bank requires that foreign exchange forward contracts be made
only in U.S. dollars and other major foreign currencies. In the case of the
Bank, most forward contracts are made in U.S. dollars against the Chilean peso
or the UF. Occasionally, forward contracts are also made in other currencies,
but only when the Bank acts as an intermediary.
During the
year ended December 31, 2006 and 2007, the Bank entered into interest rate and
cross currency swap agreements to manage exposure to fluctuation in currencies
and interest rates. The
differential between the interest paid or received on a specified notional
amount is recognized under the caption “Amounts payable from forward contracts,
net”. The fair value of the swap agreement and changes in the fair value as a
result of changes in market interest rates are recognized in the consolidated
financial statements.
The Bank’s
foreign currency futures and forward operations and other derivative products
outstanding at December 31, 2006 and 2007, are summarized below:
The
Chilean Central Bank requires that foreign exchange forward contracts be made
only in US dollars and other major foreign currencies. In the case of the Bank,
most forward contracts are made in US dollars against the Chilean peso or the
UF. Occasionally,
forward contracts are also made in other currencies, but only when the Bank acts
as an intermediary.
During the
period ended December 31, 2006 and 2007, the Bank entered into interest rate and
cross currency swap agreements to manage exposure to fluctuation in currencies
and interest rates. The
differential between the interest paid or received on a specified notional
amount is recognized under the caption “Amounts payable from forward contracts,
net”. The fair value of
the swap agreement and changes in the fair value as a result of changes in
market interest rates are recognized in the consolidated financial
statements.
The Bank’s
foreign currency futures and forward operations and other derivative products
outstanding at December 31, 2006 and 2007, are summarized below.
|
|
|
|
As
of December 31, 2007
|
|
|
|
|
Notional
amounts
|
Fair
Value
|
|
|
Cash
Flow hedge (CF) or fair value hedge (FV)
|
|
Within
3
months
|
|
After
3 months
but
within
one
year
|
|
After
one
year
|
|
Assets
|
|
Liabilities
|
|
|
|
|
MCh$
|
|
MCh$
|
|
MCh$
|
|
MCh$
|
|
MCh$
|
Derivate
instruments in designated hedge accounting relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Forwards
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Interest
rate Swaps
|
|
(FV)
|
|
-
|
|
-
|
|
121,209
|
|
3,891
|
|
502
|
Currency
Swaps
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Cross
currency Swaps
|
|
(FV)
|
|
-
|
|
-
|
|
278,757
|
|
-
|
|
9,246
|
Cross
currency Swaps
|
|
(CF)
|
|
-
|
|
-
|
|
480,358
|
|
-
|
|
55,171
|
Call
currency options
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Call
interest rate options
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Put
currency options
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Put
interest rate options
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Interest
rate future
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Others
derivatives
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Subtotal
|
|
|
|
-
|
|
-
|
|
880,324
|
|
3,891
|
|
64,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivate
instruments for trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
|
|
5,776,546
|
|
3,938,733
|
|
785,841
|
|
111,681
|
|
159,969
|
Interest
rate swaps
|
|
|
|
1,935,239
|
|
3,254,410
|
|
8,759,290
|
|
86,515
|
|
159,146
|
Currency
swaps
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Cross
currency swaps
|
|
|
|
133,688
|
|
460,902
|
|
6,557,457
|
|
576,515
|
|
392,337
|
Call
currency options
|
|
|
|
64,751
|
|
29,708
|
|
644
|
|
262
|
|
292
|
Call
interest rate options
|
|
|
|
-
|
|
-
|
|
74,667
|
|
1
|
|
-
|
Put
currency options
|
|
|
|
159,781
|
|
36,532
|
|
-
|
|
1,501
|
|
1,172
|
Put
interest rate options
|
|
|
|
-
|
|
-
|
|
75,667
|
|
-
|
|
9
|
Interest
rate future
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Others
derivatives
|
|
|
|
196,371
|
|
2,943
|
|
-
|
|
409
|
|
373
|
Subtotal
|
|
|
|
8,266,376
|
|
7,723,228
|
|
16,253,566
|
|
776,884
|
|
713,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
8,266,376
|
|
7,723,228
|
|
17,133,890
|
|
780,775
|
|
778,217
|
The
notional amounts refer to the US dollar bought or sold or to the US dollar
equivalent of foreign currency bought or sold for future settlement. The contract terms
correspond to the duration of the contracts as from the date of the transaction
to the date of the settlement.
|
|
|
|
As
of December 31, 2006
|
|
|
|
|
Notional
amounts
|
Fair
Value
|
|
|
Cash
Flow hedge (CF) or fair value hedge (FV)
|
|
Within
3
months
|
|
After
3 months
but
within
one
year
|
|
After
one
year
|
|
Assets
|
|
Liabilities
|
|
|
|
|
MCh$
|
|
MCh$
|
|
MCh$
|
|
MCh$
|
|
MCh$
|
Derivate
instruments in designated hedge accounting relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Forwards
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Interest
rate Swaps
|
|
(FV)
|
|
-
|
|
-
|
|
225,944
|
|
1,260
|
|
2,529
|
Currency
Swaps
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Cross
currency Swaps
|
|
(FV)
|
|
906,761
|
|
-
|
|
-
|
|
-
|
|
40,689
|
Call
currency options
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Call
interest rate options
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Put
currency options
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Put
interest rate options
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Interest
rate future
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Others
derivatives
|
|
(
)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Subtotal
|
|
|
|
906,761
|
|
-
|
|
225,944
|
|
1,260
|
|
43,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivate
instruments for trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
|
|
6,465,222
|
|
3,691,295
|
|
407,074
|
|
88,753
|
|
106,818
|
Interes
rate swaps
|
|
|
|
492,069
|
|
1,266,642
|
|
4,215,224
|
|
37,559
|
|
73,237
|
Currency
swaps
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Cross
currency swaps
|
|
|
|
2,948,225
|
|
1,448,955
|
|
139,353
|
|
265,900
|
|
152,628
|
Call
currency options
|
|
|
|
51,149
|
|
399,776
|
|
-
|
|
4,710
|
|
4,697
|
Call
interes rate options
|
|
|
|
-
|
|
107
|
|
-
|
|
-
|
|
-
|
Put
currency options
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Put
interes rate options
|
|
|
|
31,916
|
|
372,485
|
|
-
|
|
1,556
|
|
1,109
|
Interes
rate future
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Others
derivatives
|
|
|
|
336,347
|
|
114,838
|
|
109,096
|
|
678
|
|
696
|
Subtotal
|
|
|
|
10,324,928
|
|
7,294,098
|
|
4,870,747
|
|
399,156
|
|
339,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
11,231,689
|
|
7,294,098
|
|
5,096,691
|
|
400,416
|
|
382,403
|
The
notional amounts refer to the US dollar bought or sold or to the US dollar
equivalent of foreign currency bought or sold for future settlement. The contract terms
correspond to the duration of the contracts as from the date of the transaction
to the date of the settlement.
Sensitivity
Analysis: Consolidated Non Trading Portfolios
The Bank’s
non-trading portfolio or Financial Management (Gestión Financiera) portfolio
includes the majority of the Bank’s assets and liabilities that are not trading,
including the loan portfolio. Investment and funding decisions are heavily
influenced by commercial strategies.
We use a
sensitivity analysis to measure the market risk of the local and foreign
currency-denominated non-trading portfolio. We perform a scenario
simulation by calculating the potential loss over the entire balance from an
increase (or decrease) of 100 basis points in the entire yield curve in terms of
local rates. All local currency positions indexed to inflation are adjusted for
a sensitivity factor of 0.57, which represents a shift of yield curve by 57
basis points in real rates and 100 basis point in nominal rates. The same
scenario is performed for the net foreign currency position and U.S. dollar
interest rates. We set limits as to the maximum loss these types of movements in
interest rates can lead to over our capital and net financial income budgeted
for the year. These
limits are calculated according to the formulas discussed below.
Scenario
Simulation (Net Financial Income)
To
determine the percentage of our budgeted net financial income for the year that
is at risk of loss upon a sudden 100 basis point movement in the entire yield
curve, we utilize the following equation:
n: Number
of intervals in which sensitivity is measured.
ti: Average
maturity (or duration) for each interval being measured.
Δr:
Change in
interest rate. A 100 basis point increase (decrease) in the yield curve
is used.
GAP: Difference
between assets and liabilities that are sensitive to interest rates for each
period.
Scenario
Simulation (Capital and Reserves)
To
determine the percentage of our capital and reserves that is at risk of loss
upon a sudden 100 basis point movement in the entire yield curve, we utilize the
following equation:
N: Number
of intervals in which sensitivity is measured.
Dmj: Modified
duration for interval i.
Δr:
Change in interest rate. A 100 basis point increase (decrease) in the yield
curve is used.
GAP: Difference
between assets and liabilities that are sensitive to interest rates for each
period.
Consolidated
limits:
To
determine the consolidated limit, the foreign currency limit is added to the
local currency limit for both the net financial income loss limit and the loss
limit over capital and reserves using the following formula:
Consolidated
limit = Square root of a2 + b2 + 2ab
a:
limit in local currency.
b:
limit in foreign currency.
Since
correlation is assumed to be 0. 2ab = 0.
Assumptions
and Limitations of Scenario Simulations/Sensitivity Analysis
The most
important assumption is the usage of a 100 basis point shift in the yield curve
(57 basis points for real rates). We use a 100 basis point shift since a sudden
shift of this magnitude is considered realistic, but not an everyday occurrence
given historical movements in the yield curve, and significant in terms of the
possible effects a shift of this size could have on our performance. The Global
Risk Department at Banco Santander Spain has also set comparable limits by
country in order to be able to compare, monitor and consolidate market risk by
country in a realistic and orderly manner.
Our
scenario simulation methodology should be interpreted in light of the
limitations of our models, which include:
·
|
The
scenario simulation assumes that the volumes remain on balance sheet and
that they are always renewed at maturity, omitting the fact that credit
risk considerations and pre payments may affect the maturity of certain
positions.
|
·
|
This
model assumes an equal shift throughout the entire yield curve and does
not take into consideration different movements for different
maturities.
|
·
|
The
model does not take into consideration the sensitivity of volumes to these
shifts in interest rates.
|
·
|
The
limits to the loss of the budgeted financial income are calculated over an
expected financial income for the year which may not be obtained,
signifying that the actual percentage of financial income at risk could be
higher than expected.
|
Quantitative
Disclosure: Market Risk Non Trading Portfolio (Sensitivity Analysis/Scenario
Simulations)
The
Finance Division manages the risk management of the consolidated non-trading
portfolios under guidelines approved by the ALCO and Banco Santander Spain’s
Global Risk Department. In carrying out its market risk management functions,
the Finance Division manages interest rate risk that arises from any mismatches
with respect to rates, maturities, repricing periods, notional amounts or other
mismatches between our interest earning assets and our interest bearing
liabilities.
The Market
Risk and Control Department: (i) applies scenario simulations (as discussed
below) to measure the interest rate risk of the local currency activities and
the potential loss as forecast by these simulations; and (ii) provides the ALCO,
the Finance Division and Banco Santander Spain’s Global Risk Department with
risk/return reports.
Non-trading
local currency portfolio
The
potential loss in the market value of our local currency-denominated non-trading
balance sheet resulting from a 100 basis point shift in the yield curve was set
at approximately Ch$94,000 million of equity at year-end 2007. This limit at the
beginning of 2007 was set at Ch$60,000 million and was increased to Ch$70,000
million, Ch$86,000 million and finally Ch$94,000 million, as the Bank’s loan
portfolio, especially residential mortgage loan portfolio continued to increase
at a fast pace. These loans are generally financed with long-term bonds, but
there is a time lapse between when bonds are issued and the growth rate of the
residential mortgage portfolio. In order to accommodate for this temporary gap,
this limit is increased.
The Bank has remained within this limit for this portfolio, with only a
minor breach of Ch$3,375 million in June 2007 and Ch$1,099 million in August
2007. At the same time, the variation in net interest income caused by a 100
basis point shift of the local yield curve may not exceed Ch$20,000 million and
Santander-Chile was within the limits established in 2007. These limits are
internally set by the ALCO.
The ALCO has authority to
lower this
limit. However,
approval from the Santander Central Hispano Global Risk Department is required
to lift this limit. The
following table, sets forth the loss limit and the high, low and average
potential loss in 2006 and 2007 resulting from a 100 basis point shift in the
relevant interest rate.
|
|
Local
Currency-denominated Financial Management Portfolio
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Loss
limit at December 31, 2007
|
|
|
20,000 |
|
|
|
94,000 |
|
High
|
|
|
13,835 |
|
|
|
91,733 |
|
Low
|
|
|
386 |
|
|
|
50,630 |
|
Average
in 2007
|
|
|
8,243 |
|
|
|
75,450 |
|
|
|
Local
Currency-denominated Financial Management Portfolio
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2006)
|
|
Loss
limit at December 31, 2006
|
|
|
20,000 |
|
|
|
60,000 |
|
High
|
|
|
18,281 |
|
|
|
60,152 |
|
Low
|
|
|
2,564 |
|
|
|
43,561 |
|
Average
in 2006
|
|
|
9,397 |
|
|
|
53,844 |
|
Non-trading
foreign currency portfolio
For our
net non-trading foreign currency position, any loss caused by a 100 basis point
shift in U.S. dollar interest rates may not exceed US$45x million of equity and
US$30 million of budgeted net interest income. These limits are internally
imposed limits set by the ALCO. The ALCO has the authority
to lower this limit.
However, approval from Banco Santander Spain Global Risk Department is
required to lift this limit.
The following table sets forth the loss limit and the high, low and
average potential loss in 2006 and 2007, resulting from a 100 basis point shift
in the interest rates on U.S. dollar-denominated assets and
liabilities
|
|
Foreign
Currency-denominated Financial Management Portfolio
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant US$)
|
|
Loss
limit at December 31, 2007
|
|
|
30.0 |
|
|
|
45.0 |
|
High
|
|
|
16.0 |
|
|
|
7.9 |
|
Low
|
|
|
1.0 |
|
|
|
0.7 |
|
Average
in 2007
|
|
|
6.7 |
|
|
|
4.2 |
|
|
|
Foreign
Currency-denominated Financial Management Portfolio
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant US$)
|
|
Loss
limit at December 31, 2006
|
|
|
30.0 |
|
|
|
45.0 |
|
High
|
|
|
28.0 |
|
|
|
10.6 |
|
Low
|
|
|
2.5 |
|
|
|
1.0 |
|
Average
in 2006
|
|
|
12.0 |
|
|
|
6.0 |
|
Combined
non-trading local and foreign currency
We track a
consolidated indicator to track the total interest risk of the local and foreign
currency-denominated non-trading portfolios. The consolidated loss limit for
equity at risk was set at Ch$94,000 million at year-end 2007. This limit at the
beginning of 2007 was set at Ch$60,000 million and was increased to Ch$70,000
million, Ch$86,000 million and finally Ch$94,000 million, as the Bank’s loan
portfolio, especially residential mortgage loan portfolio continued to increase
at a fast pace. These loans are generally
financed
with long-term bonds, but there is a time lapse between when bonds are issued
and the growth rate of the residential mortgage portfolio. In order to
accommodate for this temporary gap, this limit is increased. The Bank has remained
within this limit for this portfolio, with only a minor breach of Ch$3,375
million in June 2007 and Ch$1,056 million in August 2007. At the same time, the
variation in net interest income caused by a 100 basis point shift of the local
yield curve may not exceed Ch$30,000 million. The following table, which
contemplates a 100 basis point shift in the relevant interest rate, indicates
that Santander-Chile was within the limits established in 2007. These limits are an
internally imposed limit set by the ALCO and Banco Santander Spain’s Global Risk
Department. The ALCO
has authority to lower these limits. However, approval from
Banco Santander Spain Global Risk Department is required to lift these
limits.
|
|
Combined
Financial Management Portfolio
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Loss
limit at December 31, 2007
|
|
|
15,249 |
|
|
|
84,767 |
|
High
|
|
|
15,249 |
|
|
|
91,733 |
|
Low
|
|
|
5,377 |
|
|
|
50,630 |
|
Average
in 2007
|
|
|
9,553 |
|
|
|
75,452 |
|
|
|
Combined
Financial Management Portfolio
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2006)
|
|
Loss
limit at December 31, 2006
|
|
|
30,000 |
|
|
|
60,000 |
|
High
|
|
|
23,719 |
|
|
|
60,188 |
|
Low
|
|
|
4,458 |
|
|
|
43,758 |
|
Average
in 2006
|
|
|
11,604 |
|
|
|
53,961 |
|
Volume
Limits
We have
also developed volume limits, which place a cap on the actual size of the
different portfolios being monitored.
Fixed Income: Volume
Equivalent. This system is considered to be an additional limit to the size of
our consolidated fixed income trading portfolio. This measure seeks to conform
the different instruments in our fixed income trading portfolio and convert the
portfolio into a single instrument with a duration of one year. Santander-Chile
limits the size of this volume equivalent portfolio. The equivalent volume is
calculated by the Market Risk and Control Department and limits are set by the
ALCO with respect to the size of the volume equivalent portfolio.
Net Foreign Currency Trading
Position: Maximum Net Position. We also set an absolute limit on the size
of Santander-Chile’s consolidated net foreign currency trading position. At
December 31, 2007, this was equal to US$200 million. The limit on the size of
the net foreign currency position is determined by the ALCO and is calculated
and monitored by the Market Risk and Control Department.
Liquidity
Management
The
Central Bank also requires us to comply with the following liquidity
limits:
·
|
The
sum of the liabilities with a maturity of less than 30 days may not exceed
the sum of the assets with a maturity of less than 30 days by more than an
amount greater than our capital. This limit must be calculated in local
currency and foreign currencies together as one gap. At December 31, 2007,
the percentage of (x) our liabilities with a maturity of less than 30 days
in excess of our assets with a maturity of less than 30 days to (ii) our
capital and reserves was 40.9%.
|
·
|
The
sum of the liabilities with a maturity of less than 90 days may not exceed
the sum of the assets with a maturity of less than 90 days by more than 2
times our capital. This limit must be calculated in local currency and
foreign currencies together as one gap. At December 31, 2007,
the percentage of (x) our liabilities with a maturity of less than 90 days
in excess of our assets with a maturity of less than 90 days to (y) 2
times our capital and reserves was
44.0%.
|
We have
also set internal liquidity limits. The Market Risk Control Department measures
two other liquidity indicators:
1.
Net accumulated liquidity gap:
·
|
Net
accumulated liquidity gap, which represents the amount of the assets with
a maturity of up to 30 days in excess of the liabilities with a maturity
of up to 30 days, is required to be no less than Ch$0,
i.e.,
|
The
following table sets forth our net accumulated liquidity gap at December 31,
2007, and our average net accumulated liquidity gap for the year of
2007.
Net
accumulated liquidity gap
|
|
|
|
At
December 31, 2007
|
|
|
1,808 |
|
Average
in 2007
|
|
|
428 |
|
2.
Liquidity coefficient (LC):
Liquidity
coefficient, calculated by dividing (x) liquid assets (at liquidation value) by
(y) the sum of total liabilities, capital and contingent liabilities, is
required to be no less than 2%, i.e., Liquid assets (at liquidation value) /
(Total liabilities capital + contingent) >= 2%
The
following table sets forth our liquidity coefficients at December 31, 2007, and
for the year of 2007.
|
|
|
|
|
|
|
At
December 31, 2007
|
|
|
18.7 |
% |
|
|
40.0 |
% |
Average
in 2007
|
|
|
20.5 |
% |
|
|
38.7 |
% |
Other
Subsidiaries
For VaR
measurements and scenario simulations, our consolidated trading and consolidated
non-trading portfolios do not consolidate the asset liability structure of the
following subsidiaries:
·
|
Santander
Investment S.A. Corredores de Bolsa
|
·
|
Santander
Asset Management S.A. Administradora General de
Fondos
|
·
|
Santander
S.A. Sociedad Securitizadora
|
·
|
Santander
Corredora de Seguros Ltda.
|
·
|
Santander
Servicios de Recaudación y Pagos
Ltda.
|
The
balance sheets of these subsidiaries are mainly comprised of non sensitive
assets and liabilities, fixed assets and capital and in total only represent
2.3% of our total consolidated assets.
Not
applicable.
Not
applicable.
Not
applicable.
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
As of
December 31, 2007, the Bank, under the supervision and with the participation of
Bank’s management, including the President, Chief Executive Officer and Chief
Financial Officer, performed an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rule
13a-15(f) under the Exchange Act). There are, as described below, inherent
limitations to the effectiveness of any control system, including disclosure
controls and procedures. Accordingly, even effective disclosure controls and
procedures can provide only reasonable assurance of achieving their control
objectives.
Based on
such evaluation, the Bank’s President, Chief Executive Officer and Chief
Financial Officer concluded that the Bank’s disclosure controls and procedures
were effective in ensuring that information relating to the Bank, including its
consolidated subsidiaries, required to be disclosed in the reports it files
under the Exchange Act is (1) recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and (2)
accumulated and communicated to the management, including principal financial
officers as appropriate to allow timely decisions regarding required
disclosure.
Management’s
Report on Internal Control Over Financial Reporting
The Bank’s
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15 (f) under the
Exchange Act. The Bank’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles in Chile, including the
reconciliation to U.S. GAAP, and includes those policies and procedures
that:
·
|
Pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
Bank;
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of the Bank’s management and
directors; and
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Because of
its inherent limitations, internal control over financial reporting, no matter
how well designed may not prevent or detect misstatements, due to the
possibility that a control can be circumvented or overridden or that
misstatements due to error or fraud may occur that are not detected. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Under the
supervision and with the participation of the Bank’s management, including the
Chief Executive Officer and Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting based on
the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in the Enterprise-Wide Risk Management – Integrated
Framework.
Based on
this assessment, our management concluded that, as of December 31, 2007, our
internal control over financial reporting was effective based on those
criteria.
Our
internal control over financial reporting as of December 31, 2007, has been
audited by Deloitte Auditores y Consultores Limitada, an independent registered
public accounting firm, as stated in their report which follows
below.
Changes
in Internal Control Over Financial Reporting
There has
been no change in the Bank’s internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) that occurred during the
period covered by this Annual Report that has materially affected, or is
reasonably likely to materially affect, internal control over financial
reporting.
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of
Banco
Santander Chile
We have
audited the internal control over financial reporting of Banco Santander Chile
and its subsidiaries (collectively referred to as “Banco Santander Chile” or the
“Bank”) as of December 31, 2007, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Bank’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Bank’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exist, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A bank’s
internal control over financial reporting is a process designed by, or under the
supervision of, the bank’s principal executive and principal financial officers,
or persons performing similar functions, and effected by the bank’s board of
directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A Bank’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the bank; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the bank are being made only
in accordance with authorizations of management and directors of the bank; and
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the bank’s assets that could
have a material effect on the financial statements.
Because of
the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls,
material misstatements due to error or fraud may not be prevented or detected on
a timely basis. Also, projections of any evaluation of the effectiveness of the
internal
control over financial reporting to future periods are subject to the risk that
the controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our
opinion, the Bank maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on the criteria
established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States of America), the consolidated financial
statements as of and for the year ended December 31, 2007 and our report dated
June 23, 2008 expressed an unqualified opinion on those consolidated financial
statements and included three explanatory paragraphs stating that (1) during
2006 the Bank modified its basis for recording and valuation of financial
investments acquired for trading, available-for-sale or held-to-maturity
investments and derivative instruments. The nature and effect of such
modification is explained in Note 2 to the consolidated financial statements of
the Bank, (2) the accounting principles generally accepted in Chile vary in
certain significant respects from accounting principles generally accepted in
the United States of America (“U.S. GAAP”), and that the information relating to
the nature and effect of such differences is presented in Note 28 to the
consolidated financial statements of the Bank and (3) that a convenience
translation of Chilean peso amounts to U.S. dollars was presented.
/s/Deloitte
Santiago,
Chile
June 23,
2008
Our Board
of Directors has determined that two of the members of our Audit Committee,
Benigno Rodríguez Rodríguez (who resigned from the Board and the Audit Committee
on June 24, 2008) and Víctor Arbulú Crousillat, meet the requirements of an
“audit committee financial expert” in accordance with SEC rules and regulations,
in that they have an understanding of Chilean GAAP and financial statements, the
ability to assess the general application of Chilean GAAP in connection with the
accounting for estimates, accruals and reserves, experience analyzing and
evaluating financial statements that present a breadth and level of complexity
of accounting issues that are generally comparable to the breadth and complexity
of issues that can reasonably be expected to be raised by our consolidated
financial statements, an understanding of internal controls over financial
reporting, and an understanding of audit committee functions. All three members
of our Audit Committee have experience overseeing and assessing the performance
of Santander-Chile and its consolidated subsidiaries and our external auditors
with respect to the preparation, auditing and evaluation of our consolidated
financial statements.
All three
members of our Audit Committee are considered to be independent according to
applicable NYSE criteria. Benigno Rodríguez R. (who resigned from the Board and
the Audit Committee on June 24, 2008) and Víctor Arbulú C. are relying on the
exemption provided by Rule 10A-3(b)(1)(iv)(B), which allows an otherwise
independent director to serve on both the audit committee of the issuer and the
Board of Directors of an affiliate. The Board is expected to nominate and
approve a new member of the Audit Committee on it’s next monthly meeting in July
2008.
The Bank
has adopted a code of ethics that is applicable to all of the Bank’s employees
and a copy is included as an exhibit hereto. We will provide to any person
without charge, upon request, a copy of our code of ethics. Please email
[email protected] to request a copy.
Amounts
paid to the auditors for statutory audit and other services were as
follows:
|
|
|
|
|
|
|
Audit
Services
|
|
|
|
|
|
|
-
Statutory audit
|
|
|
727 |
|
|
|
789 |
|
-
Audit-related regulatory reporting
|
|
|
693 |
|
|
|
99 |
|
Tax
Fees
|
|
|
|
|
|
|
|
|
-
Compliance
|
|
|
-- |
|
|
|
-- |
|
-
Advisory Services
|
|
|
-- |
|
|
|
1 |
|
All
Other Services
|
|
|
-- |
|
|
|
15 |
|
Total
|
|
|
1,420 |
|
|
|
904 |
|
Statutory audit: Consists of
fees billed for professional services rendered in connection with the audit of
our consolidated financial statements that are provided by Deloitte Auditores y
Consultores Limitada in 2006 and 2007 in connection with statutory and
regulatory filings or engagements, and attest services.
Audit-related regulatory
reporting: Consists of fees billed for assurance and related services
that were specifically related to the performance of the audit and review of our
filings under the Securities Act.
Auditors
are pre-approved by the Audit Committee. The selection of external auditors is
subject to approval by shareholders at the Annual Shareholders’ Meeting. All
proposed payments have been presented to our Audit Committee, which has
determined that they are reasonable and consistent with internal
policies.
Not
applicable.
In 2007
neither Santander-Chile nor any of its affiliates purchased any of
Santander-Chile’s equity securities.
We have
responded to Item 18 in lieu of this item.
Reference
is made to Item 19 for a list of all financial statements filed as part of this
Annual Report.
a)
Index to Financial Statements
Review
report of independent registered public accounting firm
|
F-2
|
|
|
Audited
consolidated financial statements:
|
|
|
|
Consolidated
balance sheets at December 31, 2006 and 2007
|
F-3
|
Consolidated
statements of income for each of the three years in the period ended
December 31, 2007
|
F-5
|
Consolidated
statements of cash flows for each of the three years in the period ended
December 31, 2007
|
F-6
|
Consolidated
statements of shareholders’ equity for each of the three years in the
period ended December 31, 2007
|
F-7
|
Notes
to consolidated financial statements
|
F-8
|
b)
Index to Exhibits
Exhibit Number
|
|
Description
|
1A.1
|
|
Restated
Articles of Incorporation of Santander-Chile (Spanish Version)
(incorporated by reference to our Registration Statement on Form F-4
(Registration No. 333-100975) filed with the Commission on December 12,
2002).
|
|
|
|
1A.2
|
|
Restated
Articles of Incorporation of Santander-Chile (English Version)
(incorporated by reference to our Registration Statement on Form
F-4(Registration No. 333-100975) filed with the Commission on December 12,
2002).
|
|
|
|
1B.1
|
|
Amended
and Restated By-Laws (estatutos) of
Santander-Chile (Spanish Version) (incorporated by reference to our Annual
Report on Form 20-F for the fiscal year ended December 31, 2004 (File No.
1-4554) filed with the Commission on June 30, 2005).
|
|
|
|
1B.2
|
|
Amended
and Restated By-Laws (estatutos) of
Santander-Chile (English Version) (incorporated by reference to our Annual
Report on Form 20-F for the fiscal year ended December 31, 2004 (File No.
1-4554) filed with the Commission on June 30, 2005).
|
|
|
|
2A.1
|
|
Form
of Amended and Restated Deposit Agreement, dated August 1, 2002, among
Banco Santander-Chile (formerly known as Banco Santiago), the Bank of New
York (as depositary) and Holders of American Depositary Receipts
(incorporated by reference to our Registration Statement on Form F-6
(Registration No. 333-97303) filed with the Commission on July 26,
2002).
|
|
|
|
2A.2
|
|
Form
of Foreign Investment Contract among Banco Santiago, JPMorgan Chase Bank
and the Central Bank of Chile relating to the foreign exchange treatment
of an investment in ADSs (accompanied by an English translation)
(Incorporated by reference to our Registration Statement on Form F-1
(Registration No. 333-7676) filed with the Commission on October 23,
1997).
|
|
|
|
2A.3
|
|
Copy
of the Central Bank Chapter XXVI Regulations Related to the Acquisition of
Shares in Chilean Corporations and the Issuance of Instrument on Foreign
Stock Exchanges or under Other Terms and Conditions of Issue (accompanied
by an English translation) (incorporated by reference to Old
Santander-Chile’s Annual Report for the fiscal year ended December 31,
1996 (File No. 1-13448) filed with the Commission on June 30,
1997).
|
|
|
|
2B.1
|
|
Agreement
for the Issuance of Bonds dated November 26, 1996 between Old
Santander-Chile and Banco Security (accompanied by an English translation)
(incorporated by reference to Old Santander-Chile’s Annual Report for the
fiscal year ended December 31, 1996 (File No. 1-13448) filed with the
Commission on June 30, 1997).
|
|
|
|
2B.2
|
|
Indenture
dated December 9, 2004 between Santander-Chile and Deutsche Bank Trust
Company Americas, as trustee, providing for issuance of securities in
series
|
|
|
(incorporated
by reference to Banco Santiago’s Annual Report on Form 20-F for the fiscal
year ended December 31, 2005 (File No. 1-4554) filed with the Commission
on April 12, 2006).
|
|
|
|
2B.3
|
|
Indenture
dated March 16, 2001, as amended on May 30, 2003, October 22, 2004, May 3,
2005, and September 20, 2005 between Santander-Chile and Banco de Chile,
as trustee, relating to issuance of UF14 million senior notes (copy to be
furnished upon request).
|
|
|
|
4A.1
|
|
Automatic
Teller Machines Participation Agreement dated October 1, 1988 between
Banco Espanol-Chile (predecessor to Old Santander-Chile) and REDBANC
(accompanied by an English translation) (incorporated by reference to Old
Santander-Chile’s Annual Report for the fiscal year ended December 31,
1996 (File No. 1-13448) filed with the Commission on June 30,
1997).
|
|
|
|
4A.2
|
|
Outsourcing
agreement between Banco Santiago and IBM de Chile S.A.C. dated June 30,
2000 (including English summary) (incorporated by reference to Banco
Santiago’s Annual Report on Form 20-F for the fiscal year ended December
31, 2000 (File No. 1-4554) filed with the Commission on June 28,
2001).
|
|
|
|
4A.3
|
|
Systems
and Technology Service and Consulting Agreement between Santander-Chile
and Altec dated December 30, 2003 (English translation) (incorporated by
reference to our Annual Report on Form 20-F for the fiscal year ended
December 31, 2003 (File No. 1-14554) filed with the Commission on June 29,
2004).
|
|
|
|
4A.4
|
|
Purchase-Sale
Contract between Santander-Chile and Empresas Almacenes París dated
December 6, 2004 (English translation) (incorporated by reference to our
Annual Report on Form 20-F for the fiscal year ended December 31, 2005
(File No. 1-14554) filed with the Commission on June 12,
2006).
|
|
|
|
4A.5
|
|
Service
Participant operating contract dated August 9, 2005 between
Banco Santander-Chile and Socieded Operadora de la Cámera de
Compensación de Pagos de Alto Valor (English translation) (incorporated by
reference to our Annual Report on Form 20-F for the fiscal year ended
December 31, 2006 (File No. 1-14554) filed with the Commission on June 19,
2007).
|
|
|
|
4A.6
|
|
Commercial
Pledge Agreement dated February 5, 2007 by Santander-Chile of shares in
Administrador Financiero de Transantiago (English Translation)
(incorporated by reference to our Annual Report on Form 20-F for the
fiscal year ended December 31, 2006 (File No. 1-14554) filed with the
Commission on June 19, 2007).
|
|
|
|
4A.7
|
|
Contract
for the Outsourcing of Computer Services between Santander-Chile and
Produban, Servicios Informaticos Generales, S.L, dated December 3, 2007
(English translation) (filed herewith).
|
|
|
|
7.1
|
|
Statement
explaining Calculation of Ratios (incorporated by reference to Old
Santander-Chile’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2000 (File No. 1-13448) filed with the Commission on June 28,
2001).
|
|
|
|
8.1
|
|
List
of Subsidiaries (incorporated by reference to our Annual Report on Form
20-F for the fiscal year ended December 31, 2004 (File No. 1-4554) filed
with the Commission on June 30, 2005).
|
|
|
|
11.1
|
|
Code
of Conduct for Executive Personnel of Banco Santander-Chile and
Subsidiaries (incorporated by reference to our Annual Report on Form 20-F
for the fiscal year ended December 31, 2004 (File No. 1-4554) filed with
the Commission on June 30, 2005).
|
11.2
|
|
Code
of Conduct for all Grupo Santander Personnel (incorporated by reference to
our Annual Report on Form 20-F for the fiscal year ended December 31, 2004
(File No. 1-4554) filed with the Commission on June 30,
2005).
|
|
|
|
12.1
|
|
Section
302 Certification by the Chief Executive Officer.
|
|
|
|
12.2
|
|
Section
302 Certification by the Chief Financial Officer.
|
|
|
|
13.1
|
|
Section
906 Certification.
|
|
|
|
23.1
|
|
Consent
of Deloitte & Touche Sociedad de Auditores y Consultores,
Ltda.
|
We will furnish to the
Securities and Exchange Commission, upon request, copies of any unfiled
instruments that define the rights of holders of long-term debt of Banco
Santander-Chile.
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this Annual Report on its behalf.
BANCO
SANTANDER-CHILE
|
|
By:
|
/s/
Gonzalo Romero A.
|
|
Name:
|
Gonzalo
Romero A.
|
|
Title:
|
General
Counsel
|
|
Date: June
25, 2008.
BANCO
SANTANDER CHILE
CONSOLIDATED
FINANCIAL STATEMENTS
CONTENTS
|
Page
|
|
|
|
F-2
|
Audited
consolidated financial statements:
|
|
|
F-3
|
|
F-5
|
|
F-6
|
|
F-7
|
|
F-8
|
Ch$
|
-
|
Chilean
pesos
|
MCh$
|
-
|
Millions
of Chilean pesos
|
US$
|
-
|
United
States dollars
|
ThUS$
|
-
|
Thousands
of United States dollars
|
UF
|
-
|
A UF
is a daily-indexed, peso-denominated monetary unit. The UF rate
is set daily in advance based on the previous month’s inflation
rate.
|
Deloitte
Auditores y Consultores
Limitada
RUT:
80.276.200-3
Av. Providencia
1760
Pisos 6, 7, 8, 9 y
13
Providencia,
Santiago
Chile
Fono: (56-2) 729
7000
Fax: (56-2) 374
9177
www.deloitte.cl
|
To the
Board of Directors and Shareholders of
Banco
Santander Chile
We have
audited the accompanying consolidated balance sheets of Banco Santander Chile
and its subsidiaries (collectively referred to as “Banco Santander Chile” or the
“Bank”) as of December 31, 2007 and 2006, and the related consolidated
statements of income, cash flows and changes in shareholders’ equity for each of
three years in the period ended December 31, 2007, all expressed in millions of
constant Chilean pesos. These consolidated financial statements
(including the related notes) are the responsibility of the Bank’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Banco Santander Chile and
subsidiaries as of December 31, 2007 and 2006, the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2007, in conformity with accounting principles generally accepted in Chile
and the rules of the Superintendencia de Bancos e Instituciones
Financieras.
As
explained further in Note 2 to the consolidated financial statements, during
2006 the Bank modified its basis for recording and valuation of financial
investments acquired for trading, available-for-sale or held-to-maturity
investments and derivative instruments.
Accounting
principles generally accepted in Chile vary in certain significant respects from
accounting principles generally accepted in the United States of America (U.S.
GAAP). Information relating to the nature and effect of such
differences is presented in Note 28 to the consolidated financial
statements.
Our audit
also comprehended the translation of Chilean peso amounts into U.S. dollar
amounts and we are not aware of any modifications that should be made for such
translation to be in conformity with the basis stated in Note
1.r. Such U.S. dollar amounts are presented solely for the
convenience of readers in the United States of America.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States of America), the Banks’s internal control over
financial reporting as of December 31, 2007, based on the criteria established
in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated June 23, 2008 expressed an unqualified
opinion on the Bank’s internal control over financial reporting.
/s/Deloitte
Santiago,
Chile
June 23,
2008
Una firma
miembro de
Deloitte
Touche
Tohmatsu
|
BANCO
SANTANDER CHILE
Adjusted
for general price-level changes and expressed
in
millions of constant Chilean pesos (MCh$) as of
December
31, 2007 and thousands of U.S. dollars (ThUS$)
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
(Note
1r)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND DUE FROM BANKS (Note 3)
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing
|
|
|
1,018,253 |
|
|
|
591,117 |
|
|
|
1,187,507 |
|
Interbank
deposits-interest bearing
|
|
|
155,429 |
|
|
|
700,517 |
|
|
|
1,407,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
cash and due from banks
|
|
|
1,173,682 |
|
|
|
1,291,634 |
|
|
|
2,594,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENTS
(Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
687,037 |
|
|
|
1,005,631 |
|
|
|
2,020,232 |
|
Available
for sale
|
|
|
370,784 |
|
|
|
779,635 |
|
|
|
1,566,224 |
|
Investment
under agreements to resell
|
|
|
33,099 |
|
|
|
34,000 |
|
|
|
68,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments
|
|
|
1,090,920 |
|
|
|
1,819,266 |
|
|
|
3,654,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOANS,
NET (Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
|
4,349,409 |
|
|
|
4,657,869 |
|
|
|
9,357,284 |
|
Consumer
loans
|
|
|
1,934,465 |
|
|
|
2,033,125 |
|
|
|
4,084,385 |
|
Mortgage
loans
|
|
|
521,996 |
|
|
|
385,347 |
|
|
|
774,131 |
|
Foreign
trade loans
|
|
|
796,964 |
|
|
|
812,696 |
|
|
|
1,632,641 |
|
Interbank
loans
|
|
|
162,762 |
|
|
|
45,961 |
|
|
|
92,332 |
|
Leasing
contracts (Note 6)
|
|
|
821,280 |
|
|
|
879,731 |
|
|
|
1,767,309 |
|
Other
outstanding loans
|
|
|
2,880,962 |
|
|
|
3,346,318 |
|
|
|
6,722,484 |
|
Past
due loans
|
|
|
99,445 |
|
|
|
116,654 |
|
|
|
234,349 |
|
Contingent
loans
|
|
|
1,098,775 |
|
|
|
1,191,279 |
|
|
|
2,393,184 |
|
Reserve
for loan losses (Note 7)
|
|
|
(187,014 |
) |
|
|
(232,766 |
) |
|
|
(467,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans, net
|
|
|
12,479,044 |
|
|
|
13,236,214 |
|
|
|
26,590,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DERIVATIVES
(Note 12)
|
|
|
400,416 |
|
|
|
780,775 |
|
|
|
1,568,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
premises and equipment, net (Note 8)
|
|
|
248,573 |
|
|
|
247,567 |
|
|
|
497,342 |
|
Assets
received in lieu of payment
|
|
|
16,949 |
|
|
|
12,868 |
|
|
|
25,851 |
|
Assets
to be leased
|
|
|
32,547 |
|
|
|
58,420 |
|
|
|
117,361 |
|
Investments
in other companies (Note 9)
|
|
|
7,149 |
|
|
|
6,736 |
|
|
|
13,532 |
|
Other
(Note 10)
|
|
|
498,512 |
|
|
|
769,250 |
|
|
|
1,545,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
803,730 |
|
|
|
1,094,841 |
|
|
|
2,199,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
15,947,792 |
|
|
|
18,222,730 |
|
|
|
36,608,000 |
|
The
accompanying Notes are an integral part of these consolidated financial
statements.
BANCO
SANTANDER CHILE
CONSOLIDATED
BALANCE SHEETS
Adjusted
for general price-level changes and expressed
in
millions of constant Chilean pesos (MCh$) as of
December
31, 2007 and thousands of U.S. dollars (ThUS$)
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
(Note
1r)
|
|
|
|
|
|
|
|
|
|
|
|
DEPOSITS
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing
|
|
|
|
|
|
|
|
|
|
Current
accounts
|
|
|
1,787,172 |
|
|
|
1,984,910 |
|
|
|
3,987,525 |
|
Bankers'
drafts and other deposits
|
|
|
880,560 |
|
|
|
948,565 |
|
|
|
1,905,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest bearing
|
|
|
2,667,732 |
|
|
|
2,933,475 |
|
|
|
5,893,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts and other deposits
|
|
|
7,423,390 |
|
|
|
7,887,880 |
|
|
|
15,846,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deposits
|
|
|
10,091,122 |
|
|
|
10,821,355 |
|
|
|
21,739,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INTEREST BEARING LIABILITIES (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
Central Bank borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
lines for renegotiations of loans
|
|
|
5,458 |
|
|
|
3,972 |
|
|
|
7,979 |
|
Other
Central Bank borrowings
|
|
|
144,418 |
|
|
|
142,370 |
|
|
|
286,010 |
|
Total
Chilean Central Bank borrowings
|
|
|
149,876 |
|
|
|
146,342 |
|
|
|
293,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
under agreements to repurchase
|
|
|
21,412 |
|
|
|
166,281 |
|
|
|
334,045 |
|
Mortgage
finance bonds
|
|
|
569,653 |
|
|
|
434,275 |
|
|
|
872,424 |
|
Other
borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
607,738 |
|
|
|
1,225,007 |
|
|
|
2,460,941 |
|
Subordinated
bonds
|
|
|
526,903 |
|
|
|
498,216 |
|
|
|
1,000,876 |
|
Foreign
borrowings
|
|
|
872,700 |
|
|
|
1,095,471 |
|
|
|
2,200,713 |
|
Other
obligations
|
|
|
68,969 |
|
|
|
147,868 |
|
|
|
297,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other borrowings
|
|
|
2,076,310 |
|
|
|
2,966,562 |
|
|
|
5,959,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other interest bearing liabilities
|
|
|
2,817,251 |
|
|
|
3,713,460 |
|
|
|
7,460,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DERIVATIVES
(Note 12)
|
|
|
382,403 |
|
|
|
778,217 |
|
|
|
1,563,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
liabilities (Note 10)
|
|
|
1,100,237 |
|
|
|
1,190,353 |
|
|
|
2,391,323 |
|
Other
(Note 10)
|
|
|
217,152 |
|
|
|
261,256 |
|
|
|
524,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other liabilities
|
|
|
1,317,389 |
|
|
|
1,451,609 |
|
|
|
2,916,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTINGENCIES
AND COMMITMENTS (Note 21)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY
INTEREST
|
|
|
1,635 |
|
|
|
20,047 |
|
|
|
40,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
14,609,800 |
|
|
|
16,784,688 |
|
|
|
33,719,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
and reserves
|
|
|
1,031,163 |
|
|
|
1,129,395 |
|
|
|
2,268,864 |
|
Income
for the year
|
|
|
306,829 |
|
|
|
308,647 |
|
|
|
620,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
1,337,992 |
|
|
|
1,438,042 |
|
|
|
2,888,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
15,947,792 |
|
|
|
18,222,730 |
|
|
|
36,608,000 |
|
The
accompanying Notes are an integral part of these consolidated financial
statements.
BANCO
SANTANDER CHILE
Expressed
in millions of constant Chilean pesos (MCh$) as of
December
31, 2007 and thousands of U.S. dollars (ThUS$)
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
1r)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
REVENUE AND EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
revenue
|
|
|
1,093,557 |
|
|
|
1,255,814 |
|
|
|
1,665,527 |
|
|
|
3,345,910 |
|
Interest
expense
|
|
|
(493,756 |
) |
|
|
(598,008 |
) |
|
|
(839,911 |
) |
|
|
(1,687,314 |
) |
Net
interest revenue
|
|
|
599,801 |
|
|
|
657,806 |
|
|
|
825,616 |
|
|
|
1,658,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISIONS
FOR LOAN LOSSES (Note 7)
|
|
|
(69,706 |
) |
|
|
(132,175 |
) |
|
|
(182,411 |
) |
|
|
(366,449 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
and other services income (Note 17)
|
|
|
186,286 |
|
|
|
213,081 |
|
|
|
237,927 |
|
|
|
477,976 |
|
Other
services expenses (Note 17)
|
|
|
(34,473 |
) |
|
|
(38,438 |
) |
|
|
(45,002 |
) |
|
|
(90,405 |
) |
Total
fees income and expenses from services, net
|
|
|
151,813 |
|
|
|
174,643 |
|
|
|
192,925 |
|
|
|
387,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
from trading activities
|
|
|
73,069 |
|
|
|
152,424 |
|
|
|
50,285 |
|
|
|
101,019 |
|
Losses
from trading activities
|
|
|
(140,293 |
) |
|
|
(44,649 |
) |
|
|
(177,023 |
) |
|
|
(355,625 |
) |
Foreign
exchange transactions, net
|
|
|
77,766 |
|
|
|
(52,332 |
) |
|
|
92,425 |
|
|
|
185,674 |
|
Other
operating income
|
|
|
5,962 |
|
|
|
6,037 |
|
|
|
8,508 |
|
|
|
17,092 |
|
Other
operating expenses
|
|
|
(31,110 |
) |
|
|
(41,450 |
) |
|
|
(53,921 |
) |
|
|
(108,323 |
) |
Total
other operating income (loss), net
|
|
|
(14,606 |
) |
|
|
20,030 |
|
|
|
(79,726 |
) |
|
|
(160,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income (Note 18)
|
|
|
22,897 |
|
|
|
17,826 |
|
|
|
20,393 |
|
|
|
40,968 |
|
Non-operating
expenses (Note 18)
|
|
|
(47,049 |
) |
|
|
(22,354 |
) |
|
|
(10,594 |
) |
|
|
(21,282 |
) |
Income
(loss) attributable to investments in other companies (Note
9)
|
|
|
745 |
|
|
|
844 |
|
|
|
(1,321 |
) |
|
|
(2,654 |
) |
Minority
interest
|
|
|
(146 |
) |
|
|
(162 |
) |
|
|
(2,055 |
) |
|
|
(4,128 |
) |
Total
other income and (expenses), net
|
|
|
(23,553 |
) |
|
|
(3,846 |
) |
|
|
6,423 |
|
|
|
12,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
salaries and expenses
|
|
|
(152,749 |
) |
|
|
(171,605 |
) |
|
|
(176,095 |
) |
|
|
(353,761 |
) |
Administrative
and other expenses
|
|
|
(110,359 |
) |
|
|
(119,202 |
) |
|
|
(121,546 |
) |
|
|
(244,177 |
) |
Depreciation
and amortization
|
|
|
(43,062 |
) |
|
|
(41,486 |
) |
|
|
(45,043 |
) |
|
|
(90,488 |
) |
Total
operating expenses
|
|
|
(306,170 |
) |
|
|
(332,293 |
) |
|
|
(342,684 |
) |
|
|
(688,426 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS FROM PRICE-LEVEL RESTATEMENT (Note 24)
|
|
|
(19,902 |
) |
|
|
(14,807 |
) |
|
|
(56,325 |
) |
|
|
(113,152 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
317,677 |
|
|
|
369,358 |
|
|
|
363,818 |
|
|
|
730,881 |
|
Income
taxes (Note 21)
|
|
|
(54,671 |
) |
|
|
(62,529 |
) |
|
|
(55,171 |
) |
|
|
(110,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME FOR THE YEAR
|
|
|
263,006 |
|
|
|
306,829 |
|
|
|
308,647 |
|
|
|
620,047 |
|
The
accompanying Notes are an integral part of these consolidated financial
statements.
BANCO
SANTANDER CHILE
Expressed
in millions of constant Chilean pesos (MCh$) as of
December
31, 2007 and thousands of U.S. dollars (ThUS$)
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
(Note
1r)
|
|
Net
income for the year
|
|
|
263,006 |
|
|
|
306,829 |
|
|
|
308,647 |
|
|
|
620,047 |
|
Charge
(credit) to income not representing cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
120,288 |
|
|
|
182,743 |
|
|
|
260,171 |
|
|
|
522,663 |
|
Depreciation
and amortization
|
|
|
43,062 |
|
|
|
41,486 |
|
|
|
45,043 |
|
|
|
90,488 |
|
Net
decrease in financial investments (trading account)
|
|
|
4,681 |
|
|
|
(3,320 |
) |
|
|
2,363 |
|
|
|
4,747 |
|
(Gain)
loss on sales of bank premises and equipment
|
|
|
(222 |
) |
|
|
(605 |
) |
|
|
(414 |
) |
|
|
(832 |
) |
(Gain)
loss on sales of goods received in lieu of payment
|
|
|
(4,965 |
) |
|
|
(2,109 |
) |
|
|
(2,178 |
) |
|
|
(4,375 |
) |
Net
changes in other assets and liabilities
|
|
|
(26,328 |
) |
|
|
(119,358 |
) |
|
|
(167,727 |
) |
|
|
(336,950 |
) |
Share
of profit in equity method investments
|
|
|
(745 |
) |
|
|
(844 |
) |
|
|
1,321 |
|
|
|
2,654 |
|
Minority
interest
|
|
|
146 |
|
|
|
162 |
|
|
|
2,055 |
|
|
|
4,128 |
|
Write-offs
of assets received in lieu of payment
|
|
|
23,030 |
|
|
|
14,629 |
|
|
|
7,991 |
|
|
|
16,053 |
|
Net
change in interest accruals
|
|
|
(90,714 |
) |
|
|
(19,602 |
) |
|
|
(13,939 |
) |
|
|
(28,002 |
) |
Price-level
restatement
|
|
|
19,902 |
|
|
|
14,807 |
|
|
|
56,325 |
|
|
|
113,152 |
|
Other
|
|
|
7,292 |
|
|
|
52,954 |
|
|
|
48,322 |
|
|
|
97,076 |
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
358,433 |
|
|
|
467,772 |
|
|
|
547,980 |
|
|
|
1,100,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in loans
|
|
|
(1,185,440 |
) |
|
|
(1,629,516 |
) |
|
|
(1,020,025 |
) |
|
|
(2,049,148 |
) |
Net
change in proceeds from sale of goods received in lieu of
payment
|
|
|
52,227 |
|
|
|
29,052 |
|
|
|
24,355 |
|
|
|
48,927 |
|
Purchases
of bank premises and equipment
|
|
|
(23,564 |
) |
|
|
(26,989 |
) |
|
|
(30,123 |
) |
|
|
(60,515 |
) |
Investments
in other companies
|
|
|
(1,467 |
) |
|
|
- |
|
|
|
4,427 |
|
|
|
8,893 |
|
Net
(increase) decrease in securities purchased under agreements to
resell
|
|
|
(107,427 |
) |
|
|
74,826 |
|
|
|
2,047 |
|
|
|
4,112 |
|
Net
change in other financial investments
|
|
|
527,571 |
|
|
|
264,597 |
|
|
|
(581,034 |
) |
|
|
(1,167,251 |
) |
Proceeds
from sales of bank premises and equipment
|
|
|
3,959 |
|
|
|
2,920 |
|
|
|
11,602 |
|
|
|
23,307 |
|
Dividends
received from equity investments
|
|
|
842 |
|
|
|
656 |
|
|
|
687 |
|
|
|
1,380 |
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(733,299 |
) |
|
|
(1,284,454 |
) |
|
|
(1,588,064 |
) |
|
|
(3,190,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in current accounts
|
|
|
126,638 |
|
|
|
186,941 |
|
|
|
188,200 |
|
|
|
378,079 |
|
Net
increase in savings accounts and time deposits
|
|
|
1,501,150 |
|
|
|
898,943 |
|
|
|
457,848 |
|
|
|
919,780 |
|
Net
increase in bankers drafts and other deposits
|
|
|
(398,176 |
) |
|
|
127,250 |
|
|
|
4,752 |
|
|
|
9,546 |
|
Net
increase in investments sold under agreements to
repurchase
|
|
|
(190,718 |
) |
|
|
(34,617 |
) |
|
|
(32,079 |
) |
|
|
(64,444 |
) |
Increase
in mortgage finance bonds
|
|
|
19,612 |
|
|
|
233 |
|
|
|
444 |
|
|
|
892 |
|
Repayments
of mortgage finance bonds
|
|
|
(527,325 |
) |
|
|
(219,599 |
) |
|
|
(171,924 |
) |
|
|
(345,381 |
) |
Proceeds
from bond issues
|
|
|
122,135 |
|
|
|
216,706 |
|
|
|
606,507 |
|
|
|
1,218,424 |
|
Repayments
of bond issues
|
|
|
(263,100 |
) |
|
|
(71,880 |
) |
|
|
(67,644 |
) |
|
|
(135,891 |
) |
Short-term
funds borrowed
|
|
|
242,626 |
|
|
|
435,739 |
|
|
|
302,298 |
|
|
|
607,292 |
|
Short-term
borrowings repaid
|
|
|
659,091 |
|
|
|
(332,270 |
) |
|
|
215,058 |
|
|
|
432,034 |
|
Proceeds
from issuance of long-term borrowings
|
|
|
(45,267 |
) |
|
|
(9,767 |
) |
|
|
(3,006 |
) |
|
|
(6,039 |
) |
Central
Bank borrowings
|
|
|
(383,186 |
) |
|
|
(376,650 |
) |
|
|
(145,903 |
) |
|
|
(293,107 |
) |
Dividends
paid
|
|
|
(226,359 |
) |
|
|
(167,403 |
) |
|
|
(198,121 |
) |
|
|
(398,009 |
) |
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
637,121 |
|
|
|
653,626 |
|
|
|
1,156,430 |
|
|
|
2,323,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT
OF PRICE-LEVEL RESTATEMENT ON CASH AND DUE FROM BANKS
|
|
|
3,685 |
|
|
|
(7,262 |
) |
|
|
1,606 |
|
|
|
3,226 |
|
NET
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS
|
|
|
265,940 |
|
|
|
(170,318 |
) |
|
|
117,952 |
|
|
|
236,956 |
|
CASH
AND DUE FROM BANKS, BEGINNING OF PERIOD
|
|
|
1,078,060 |
|
|
|
1,344,000 |
|
|
|
1,173,682 |
|
|
|
2,357,833 |
|
CASH
AND DUE FROM BANKS, END OF THE YEAR
|
|
|
1,344,000 |
|
|
|
1,173,682 |
|
|
|
1,291,634 |
|
|
|
2,594,789 |
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash movements (assets received in lieu of payment)
|
|
|
31,564 |
|
|
|
21,073 |
|
|
|
10,223 |
|
|
|
20,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
514,669 |
|
|
|
635,401 |
|
|
|
672,021 |
|
|
|
1,350,036 |
|
Taxes
|
|
|
1,737 |
|
|
|
2,136 |
|
|
|
2,209 |
|
|
|
4,438 |
|
The
accompanying Notes are an integral part of these consolidated financial
statements.
BANCO
SANTANDER CHILE
Expressed
in millions of constant Chilean pesos (MCh$) as of December 31,
2007
(except
for number of shares)
|
|
Number
|
|
|
Paid-in
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
Of
|
|
|
Share
|
|
|
Legal
|
|
|
Other
|
|
|
for
the
|
|
|
|
|
|
|
Shares
|
|
|
Capital
|
|
|
Reserve
|
|
|
Reserve
|
|
|
Year
|
|
|
Total
|
|
|
|
Millions
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at January 1, 2005, (historical)
|
|
|
188,446 |
|
|
|
719,974 |
|
|
|
107,811 |
|
|
|
5,174 |
|
|
|
198,795 |
|
|
|
1,031,754 |
|
Retained
earnings
|
|
|
- |
|
|
|
- |
|
|
|
198,795 |
|
|
|
- |
|
|
|
(198,795 |
) |
|
|
- |
|
Dividend
paid
|
|
|
- |
|
|
|
- |
|
|
|
(198,795 |
) |
|
|
- |
|
|
|
- |
|
|
|
(198,795 |
) |
Price-level
restatement
|
|
|
- |
|
|
|
26,063 |
|
|
|
3,585 |
|
|
|
- |
|
|
|
- |
|
|
|
29,648 |
|
Unrealized
losses in financial investment classified as permanent
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(20,485 |
) |
|
|
- |
|
|
|
(20,485 |
) |
Net
Income for the year
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
239,710 |
|
|
|
239,710 |
|
Balances
as of December 31, 2005
|
|
|
188,446 |
|
|
|
746,037 |
|
|
|
111,396 |
|
|
|
(15,311 |
) |
|
|
239,710 |
|
|
|
1,081,832 |
|
Balances
at December 31, 2005 restated in constant Chilean pesos of December 31,
2007
|
|
|
188,446 |
|
|
|
801,543 |
|
|
|
122,221 |
|
|
|
(16,449 |
) |
|
|
263,004 |
|
|
|
1,170,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
as of January 1, 2006, (historical)
|
|
|
188,446 |
|
|
|
746,037 |
|
|
|
111,396 |
|
|
|
(15,311 |
) |
|
|
239,710 |
|
|
|
1,081,832 |
|
Retained
earnings
|
|
|
- |
|
|
|
- |
|
|
|
239,710 |
|
|
|
- |
|
|
|
(239,710 |
) |
|
|
- |
|
Dividends
paid
|
|
|
- |
|
|
|
- |
|
|
|
(155,811 |
) |
|
|
- |
|
|
|
- |
|
|
|
(155,811 |
) |
Price-level
restatement
|
|
|
- |
|
|
|
15,816 |
|
|
|
4,513 |
|
|
|
- |
|
|
|
- |
|
|
|
20,329 |
|
Change
in accounting principles (See note 2)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(936 |
) |
|
|
- |
|
|
|
(936 |
) |
Unrealized
losses in financial investment classified as available for
sale
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,343 |
|
|
|
- |
|
|
|
14,343 |
|
Net
Income for the year
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
285,582 |
|
|
|
285,582 |
|
Balances
as of December 31, 2006
|
|
|
188,446 |
|
|
|
761,853 |
|
|
|
199,808 |
|
|
|
(1,904 |
) |
|
|
285,582 |
|
|
|
1,245,339 |
|
Balances
at December 31, 2006, restated in constant Chilean pesos of December 31,
2007
|
|
|
188,446 |
|
|
|
818,535 |
|
|
|
214,674 |
|
|
|
(2,046 |
) |
|
|
306,829 |
|
|
|
1,337,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
as of January 1, 2007, (historical)
|
|
|
188,446 |
|
|
|
761,853 |
|
|
|
199,808 |
|
|
|
(1,904 |
) |
|
|
285,582 |
|
|
|
1,245,339 |
|
Retained
earnings
|
|
|
|
|
|
|
- |
|
|
|
285,582 |
|
|
|
- |
|
|
|
(285,582 |
) |
|
|
- |
|
Dividends
paid
|
|
|
- |
|
|
|
- |
|
|
|
(185,628 |
) |
|
|
- |
|
|
|
- |
|
|
|
(185,628 |
) |
Price-level
restatement
|
|
|
- |
|
|
|
56,682 |
|
|
|
23,412 |
|
|
|
- |
|
|
|
- |
|
|
|
80,094 |
|
Change
in accounting principles (See note 2)
|
|
|
- |
|
|
|
- |
|
|
|
(936 |
) |
|
|
936 |
|
|
|
- |
|
|
|
- |
|
Unrealized
losses in financial investment classified as available for sale and
derivatives (*)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,507 |
) |
|
|
- |
|
|
|
(8,507 |
) |
Merger
Corredora de Bolsa (**)
|
|
|
- |
|
|
|
- |
|
|
|
(1,903 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,903 |
) |
Net
Income for the year
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
308,647 |
|
|
|
308,647 |
|
Balances
as of December 31, 2007
|
|
|
188,446 |
|
|
|
818,535 |
|
|
|
320,335 |
|
|
|
(9,475 |
) |
|
|
308,647 |
|
|
|
1,438,042 |
|
The
accompanying Notes are an integral part of these consolidated financial
statements.
(*) This
amount is originated by the fair market value adjustment from available for sale
securities for an amount of MCh$(3,637) and for the effective portion adjustment
from the fair market value of derivative instruments used as cash flow hedge
instruments, for an amount of MCh$(4,870). Both amounts are presented net of
taxes.
(**) See
Note 1 “Summary of significant accounting policies”, letter a. (1).
Expressed
in millions of constant Chilean pesos (MCh$)
of
December 31, 2007 (except as indicated)
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
a. Basis of presentation -
Banco Santander Chile (formerly Banco Santiago) is a corporation (sociedad anónima bancaria)
organized under the laws of the Republic of Chile that provides a broad range of
general banking services to customers, from individuals to major corporations.
Banco Santander Chile and its subsidiaries (collectively referred to herein as
the “Bank” “Banco Santander Chile”) offer general commercial and consumer
banking services and provide other services, including factoring, collection,
leasing, securities and insurance brokerage, mutual and investment funds
management and investment banking.
Through
resolution No.79 dated July 26, 2002 the Chilean Superintendencia de Bancos e
Instituciones Financieras (the “Superintendency of Banks”) approved the
merger agreed upon by the Extraordinary Shareholders’ Meetings of the former
Banco Santander Chile and Banco Santiago, both held on July 18,
2002.
On August
1, 2002, the legal merger agreed upon by Banco Santiago with former Banco
Santander Chile took place, through the contribution of the assets of the latter
to Banco Santiago, which assumed the total liabilities. The merger
was accounted for under Chilean GAAP in a manner commonly referred to as a
“pooling of interests” on a prospective basis from January 1,
2002. As such, the financial statements of the former Banco Santander
Chile were retroactively combined with those of Banco Santiago at book values at
January 1, 2002.
By virtue
of the merger, Banco Santiago later changed its name to Banco Santander
Chile. The shareholders of the former Banco Santander Chile became
shareholders of the merged bank, receiving 3.55366329 shares of the merged Bank
in exchange for each share of the former Banco Santander Chile.
The
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Chile and regulations of the
Superintendency of Banks, collectively referred to as “Chilean GAAP.” For the
convenience of the reader, the consolidated financial statements have been
translated into English.
The
consolidated financial statements include Banco Santander Chile and its majority
owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. The majority
interests of Banco Santander Chile as of December 31, 2006 and 2007 were as
follows:
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
|
|
Percentage
Owned
|
|
|
|
December
2005
|
|
|
December
2006
|
|
|
December
2007
|
|
|
|
Direct
|
|
|
Indirect
|
|
|
Total
|
|
|
Direct
|
|
|
Indirect
|
|
|
Total
|
|
|
Direct
|
|
|
Indirect
|
|
|
Total
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santander
Leasing S.A. (2) (4)
|
|
|
99.50 |
|
|
|
- |
|
|
|
99.50 |
|
|
|
99.50 |
|
|
|
- |
|
|
|
99.50 |
|
|
|
99.50 |
|
|
|
- |
|
|
|
99.50 |
|
Santiago
Corredores de Bolsa Limitada (1)
|
|
|
99.19 |
|
|
|
0.81 |
|
|
|
100.00 |
|
|
|
99.19 |
|
|
|
0.81 |
|
|
|
100.00 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Santander
Investment S.A. Corredores de Bolsa (1)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50.59 |
|
|
|
0.41 |
|
|
|
51.00 |
|
Santander
Asset Management S.A. Administradora
General
de Fondos (2)
|
|
|
99.96 |
|
|
|
0.02 |
|
|
|
99.98 |
|
|
|
99.96 |
|
|
|
0.02 |
|
|
|
99.98 |
|
|
|
99.96 |
|
|
|
0.02 |
|
|
|
99.98 |
|
Santander
S.A. Agente de Valores
|
|
|
99.03 |
|
|
|
- |
|
|
|
99.03 |
|
|
|
99.03 |
|
|
|
- |
|
|
|
99.03 |
|
|
|
99.03 |
|
|
|
- |
|
|
|
99.03 |
|
Santander
S.A. Sociedad Securitizadora (2)
|
|
|
99.64 |
|
|
|
- |
|
|
|
99.64 |
|
|
|
99.64 |
|
|
|
- |
|
|
|
99.64 |
|
|
|
99.64 |
|
|
|
- |
|
|
|
99.64 |
|
Santander
Corredora de Seguros Limitada (2) (4)
|
|
|
99.99 |
|
|
|
- |
|
|
|
99.99 |
|
|
|
99.99 |
|
|
|
- |
|
|
|
99.99 |
|
|
|
99.99 |
|
|
|
- |
|
|
|
99.99 |
|
Santander
Servicios de Recaudación y Pagos Limitada (3)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
99.90 |
|
|
|
0.10 |
|
|
|
100.00 |
|
|
|
99.90 |
|
|
|
0.10 |
|
|
|
100.00 |
|
(1)
|
In
conformity with the established in Articles 9 and 10 of Law No. 18,045 and
Chapter 18-10 of the Recopilación Actualizada de Normas de la
Superintendencia de Bancos e Instituciones Financieras, in the
Extraordinary Shareholders’ Meeting held on January 15, 2007 by Santander
Investment S.A. Corredores de Bolsa, a related company to Banco Santander
Chile, approved the merger between Santiago Corredores de Bolsa Limitada,
a subsidiary of Banco Santander Chile, into Santander Investment S.A.
Corredores de Bolsa, effective January 1, 2007. Santander Investment S.A.
Corredores de Bolsa, as of January 15, 2007, became a subsidiary of Banco
Santander Chile and the legal successor of Santiago Corredores de Bolsa
Limitada.
|
The merger
of Santiago Corredores de Bolsa Limitada and Santander Investment S.A.
Corredores de Bolsa was accounted as a business combination of entities under
common control, thus, the lower value determined in the transaction was recorder
as a charge to the Bank Shareholders’ Equity in an amount of
MCh$1,903.
(2)
|
During
2007 the following subsidiaries changed their commercial
registry:
|
|
-
|
Santander
Leasing S.A. (Formerly Santiago Leasing
S.A.).
|
|
-
|
Santander
Asset Management S.A. Administradora General de Fondos (Formerly Santander
Santiago S.A. Administradora General de
Fondos).
|
|
-
|
Santander
S.A. Sociedad Securitizadora (Formerly Santander Santiago S.A. Sociedad
Securitizadora).
|
|
-
|
Santander
Corredora de Seguros Limitada (Formerly Santander Santiago Corredores de
Seguros Limitada).
|
(3)
|
On
September 27, 2006, the Bank formed a new subsidiary “Santander Servicios
de Recaudación y Pagos Limitada”, in which they become a 99.9% owner,
dedicated to collection and payment services. The new subsidiary is
organized under the laws of Republic of Chile and started its
operations in October 2006.
|
(4)
|
On
December 4, 2007, the Superintendency of Bank, authorized the statutes
modification, social rights sell and merged of the subsidiaries Santander
Leasing S.A. (Formerly Santiago Leasing S.A.) and Santander Corredora de
Seguros Limitada (Formerly Santander Santiago Corredora de Seguros
Limitada). At the date of the issuance of this financial statement the
merged hasn’t take place.
|
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
b. Use of estimates in the
preparation of financial statements - The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. In certain cases generally accepted accounting principles
require that assets or liabilities be recorded or disclosed at their fair
values. The fair value is the amount at which an asset could be
bought or sold, or in the case of a liability could be incurred or settled in a
current transaction between willing parties, other than in a forced or
liquidation sale. Where available, quoted market prices in active
markets have been used as the basis for the measurement. Where quoted
market prices in active markets are not available, the Bank has estimated such
values based on the best information available, including using modeling and
other valuation techniques.
We have
established allowances to cover probable loan losses in accordance with
regulations issued by the Chilean Superintendency of Banks. These
regulations require us to estimate allowances based on an individual and group
classification system as explained in Note 1 (m).
As
described above, the allowance for loan losses requires us to make estimates
and, consequently, we regularly evaluate our allowance for loan losses by taking
into consideration factors such as changes in the nature and volume of our loan
portfolio, trends in forecasted portfolio credit quality and economic conditions
that may affect our borrowers’ ability to pay. Increases in our
allowance for loan losses are reflected as provisions for loan losses in our
income statement. Loans are charged off when management determines
that the loan or a portion thereof is uncollectible. Charge-offs are recorded as
a reduction of the allowance for loan losses.
c. Price-level restatement -
The consolidated financial statements are prepared on the basis of
general price-level accounting in order to reflect the effect of changes in the
purchasing power of the Chilean peso during each period. At the end
of each reporting period, the consolidated financial statements are restated in
terms of the general purchasing power of the Chilean peso (“constant pesos”)
using changes in the Chilean Consumer Price Index (“CPI”) as
follows:
-
|
Non-monetary
assets, liabilities and shareholders’ equity accounts are restated in
terms of period-end purchasing
power.
|
-
|
Consistent
with general banking practices in Chile, no specific purchasing power
adjustments of income statement amounts are
made.
|
-
|
Monetary
items are not restated as such items are, by their nature, stated in terms
of current purchasing power in the financial
statements.
|
-
|
The
price-level restatement credit or charge in the income statement
represents the monetary gain or loss in purchasing power from holding
monetary assets and liabilities exposed to the effects of
inflation.
|
-
|
All
the amounts contained in the accompanying consolidated financial
statements have been restated in Chilean pesos of general purchasing power
of December 31, 2007 (“constant pesos”) applied under the “prior month
rule”, as described below, to reflect changes in the CPI from the
financial statement dates to December 31, 2007. This updating
does not change the prior periods’ statements or information in any way
except to update the amounts to constant pesos of similar purchasing
power.
|
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
The
general price-level restatements are calculated using the official CPI of the
Chilean National Institute of Statistics and are based on the “prior month
rule”, in which the inflation adjustments at any balance sheet date are based on
the consumer price index at the close of the preceding month. The CPI is
considered by the business community, the accounting profession and the Chilean
government to be the index which most closely complies with the technical
requirement to reflect the variation in the general level of prices in the
country and, consequently, is widely used for financial reporting purposes in
Chile.
The values
of the CPI used for price-level restatement purposes are as
follows:
|
|
|
|
Change
|
Period
|
|
Index
*
|
|
in
index
|
2005
|
|
121.53
|
|
3.6%
|
2006
|
|
124.11
|
|
2.1%
|
2007
|
|
133.34
|
|
7.4%
|
*
|
Index
as of November 30 of each period compared with the index as of November 30
of the prior year, under the prior month rule described
above.
|
The
price-level adjusted consolidated financial statements do not purport to
represent appraised values, replacement cost, or any other current value of
assets at which transactions would take place currently and are only intended to
restate all non-monetary financial statement components in terms of local
currency of a single purchasing power and to include in the net result for each
year the gain or loss in purchasing power arising from the holding of monetary
assets and liabilities exposed to the effects of inflation.
d. Index-linked assets and
liabilities - Certain of the Bank’s interest-earning assets and
interest-bearing liabilities are expressed in index-linked units of
account. The principal index-linked unit used in Chile is the Unidad
de Fomento (UF), a unit of account which changes daily from the tenth day of the
current month to the ninth day of the next month, to reflect the changes in the
Chilean CPI over the previous month. The carrying amounts of such
assets and liabilities change with the changes in the UF and serve to offset the
price-level restatement gains or losses from holding such assets and
liabilities. As the Bank’s UF assets exceed its UF liabilities, any
increase in the index results in a net gain on indexation. Values for
the UF as of December 31 of each period are as follows in historical Chilean
pesos:
Period
|
|
Ch$
|
2005
|
|
17,974.81
|
2006
|
|
18,336.38
|
2007
|
|
19,622.66
|
e. Interest revenue and expense
recognition - Interest revenue and expense are recognized on an accrual
basis using the effective interest method. The carrying amounts of loans,
investments and liabilities are stated at their cost, adjusted for accrued
interest and the indexation adjustment applicable to such balances that are
index-linked. The effect of index linkage charges on interest-earning
assets end interest earning liabilities is reflected in the income statement as
an increase or decrease in interest revenue or expense.
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
The Bank
suspends the accrual of interest and indexation adjustments of principal on loan
installment payments due beginning on the first day that such loan installment
payments are overdue. The Bank continues to accrue interest and
indexation on the principal payments not yet overdue for those loans that have
installments overdue unless the Bank believes those amounts are
uncollectible. Interest accrued prior to the loan becoming overdue
remains on the Bank’s books and is considered to be a part of the loan balance
when determining the allowance for loan losses. Payments received on overdue
loans are first applied to reduce the recorded balance of accrued interest
receivable, if any, and thereafter are recognized as income to the extent of
interest earned but not recorded; any excess payments are then applied to
principal. Accrued interest and indexation adjustments are included
in the Bank’s recorded investment in the loan for the purpose of determining the
require allowance for loan losses.
f. Foreign currency - The Bank
makes loans and accepts deposits in amounts denominated in foreign currencies,
principally the U.S. dollar. Such assets and liabilities are translated by the
Bank and its subsidiaries until March 2007 at the observed rate reported by the
Central Bank of Chile at the balance sheet date. Effective March
2007, assets and liabilities denominated in foreign currencies, only held by the
Bank are translated to Chilean pesos based on the interbank market rate
published by Reuters at 1:30 pm on the last business day of every
month.
The amount
of the net gains and losses on foreign exchange includes the recognition of the
effects that variations in the exchange rate have on assets and liabilities
denominated in foreign currencies and the gains or losses on foreign exchange
spot and forward transaction undertaken by the Bank.
g. Derivative activities - Prior
January 1, 2006, under Chilean GAAP, the Bank accounts for forward contracts
between foreign currencies and U.S. dollars at fair value with realized and
unrealized gains and losses on these instruments recognized in net
income. Forward contracts between the U.S. dollar and the Chilean
peso or the UF are valued at the closing spot exchange rate of each balance
sheet date, with the initial discount or premium being amortized over the life
of the contract in accordance with Chilean hedge accounting
criteria.
Under
Chilean GAAP the Bank records differences between interest income and interest
expense on interest rate swap transactions, in net income in the period when
cash settlements under the agreements are made. The fair value of the
swap agreement and changes in the fair value as a result of changes in market
interest rates are not recognized at each period-close in the Chilean GAAP
consolidated financial statements.
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
Effective
January 1, 2006, under the requirements of Circular No. 3,345 of the
Superintendency of Banks, the accounting treatment of certain derivative
instruments and hedges of financial assets changed. Traditional
financial instruments which meet the definition of a “derivative” such as
forwards in foreign currency and UFs, interest rate futures, currency and
interest rate swaps, currency and interest rate options, and others are
recognized initially in the balance sheet at cost (including transaction fees)
and, at subsequent period ends, at their fair value. The fair value
is obtained from market quotes, discounted cash flow models and option valuation
models, as applicable.
Certain
terms may be incorporated into non-derivative financial instruments whose risk
and economic characteristics are not clearly and closely related to those of the
host contract which may require their bifurcation from the host contract and
treatment as a separate derivative subject to that dictated by Circular No.
3,345.
When a
derivative contract is signed, it must be designated by the Bank as a
speculative contract or a hedge. Any changes in the fair value of speculative
financial derivative contracts are recorded in Income under “Gains from trading
activities” or “Losses from trading activities”, as applicable. If
the derivative is classified as a hedge, it can be: (1) a fair value hedge, or
(2) a cash flow hedge. To qualify as a hedge for accounting purposes,
the instruments must comply with all the following conditions: (a) hedging must
be formally documented at inception; (b) hedging is expected to be highly
effective; (c) the effectiveness of the hedge can be measured reasonably; and
(d) hedging is highly effective with regard to the risk hedged, continuously
throughout its lifetime, to qualify as highly effective, the hedge relationship
should meet, both at the inception and in any moment, the following
requirements:
a)
|
Prospectively:
It should be expected that the changes in the fair value or in the cash
flows of the hedged financial instruments will almost be offset by the
changes in the fair value or in the cash flows of the hedging
instruments.
|
b)
|
Retrospectively:
The offsetting effects should be within 80% and 125% of the changes in the
hedged item.
|
c)
|
All
the values should be reliably
calculated.
|
d)
|
Effectiveness
should be tested at least each time that the financial statements are
prepared.
|
Certain
derivative transactions that do not classify to be accounted for as hedges are
treated and reported as speculative, even though they may provide an effective
economic hedge for managing risk positions.
When a
derivative hedges exposure to changes in the fair value of an existing asset or
liability, the latter is recorded at its fair value. Earnings or
losses from measuring the fair value of both the item hedged and the hedging
derivative are recognized in income. If the item hedged in a fair
value hedge is a firm commitment, the changes in the fair value of the
commitment with regard to the risk hedged are recorded as assets or liabilities
with the offsetting effect recorded in income. When an asset or
liability is acquired as a result of the commitment, the initial recognition of
the acquired asset or liability is adjusted to fair value.
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
When a
derivative hedges exposure to changes in the cash flows of existing assets or
liabilities, or expected transactions, the effective portion of the changes in
fair value with regard to the risk hedged is recorded in shareholders’
equity. Any ineffective portion is recognized directly in the
period’s income. The amounts recorded directly in shareholders’
equity are recorded in income in the same periods in which the offsetting
changes in assets or liabilities hedged affect the income
statement.
When fair
value hedge accounting is used for portfolio hedge of interest rate risk and the
hedge item is designated as an amount of currency, the earnings or losses from
measuring the fair value of both the portfolio hedged and the hedge are
recognized in income.
h. Financial investments -
Before January 1, 2006, the Bank’s financial investments were classified as
trading or permanent in accordance with the regulations of the Superintendency
of Banks with unrealized gains and losses on trading investments included in
Other operating income (expenses), and unrealized gains and losses on permanent
investments included in a separate component of Shareholders’
equity. Investment securities maintained by the Bank’s subsidiaries
were carried on a stand-alone basis on the subsidiary’s financial statements
only at the lower of price-level restated cost or market value.
The Bank’s
previously identified “trading” investments, although not classified as such in
prior years, for accounting purposes, were treated the same as those classified
as “trading” since January 1, 2006. Additionally, over all periods
presented, classification for accounting purposes has been
conformed.
Effective
January 1, 2006, the accounting for financial instruments acquired for trading
or investments purposes (available-for-sale or held-to-maturity) are classified
as follows:
i.
|
Trading Instruments -
Instruments for trading are securities acquired for which the Bank has the
intent to generate earnings from short-term price fluctuations or through
brokerage margins, or that are included in a portfolio created for such
purposes.
|
Instruments
for trading are valued at their fair value according to market prices on the
closing date of the balance sheet. Mark to market adjustments, as
well as realized gains/losses from trading are included in the Income Statement
under “Earnings (losses) from trading activities”. Interest income and
indexation adjustments are reported as “Interest revenue”.
ii.
|
Investment Instruments -
Investment instruments are classified into two categories: Held to
maturity investments and Instruments available for sale. Held to maturity
investments only include those instruments for which the Bank has the
intent and ability to hold to maturity. Investment instruments not
classified as held to maturity or trading are considered to be available
for sale. Investment instruments are recognized initially at
cost, which includes transaction
costs.
|
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
Investment
instruments are recorded initially at cost. Instruments available for
sale are valued at each subsequent period-end at their fair value according to
market prices or valuations obtained by using models. Mark to market
adjustments are reported in a separate component of Shareholders’
equity. When these investments are sold or become impaired, the
amount of the adjustments to fair value accumulated in Shareholders’ equity is
reclassified to the income statement and reported under “Gain from trading
activities” or “Losses from trading activities”, as applicable.
Held to
maturity investments are recorded at their cost value plus accrued interest and
adjustments, less provisions for impairment recorded when the book value is
higher than its estimated return.
Interest
and indexation adjustments of held to maturity investments and available for
sale investments are included under “Interest revenue and
expenses”. Investment instruments designated as hedges are accounted
for under the appropriate derivative accounting literature.
All
purchases and sales of investment instruments, to be delivered within the
deadline stipulated by market regulations and conventions, are recognized on the
commitment date, which is the date on which the commitment is made to purchase
or sell the asset. Other purchases or sales are treated as forwards
until they are liquidated.
The Bank
enters into security repurchase agreements as a form of borrowing. In
this regard, the Bank’s investments that are sold subject to a repurchase
obligation and that serve as collateral for the borrowing are reclassified as
“investment collateral under agreements to repurchase” and carried at market
value. The liability for the repurchase of the investment is
classified as “investments under agreements to repurchase” and is carried at
cost plus accrued interest.
The Bank
also enters into resale agreements as a form of investment. Under
these agreements the Bank purchases securities, which are included as assets
under the caption “investments under agreements to resell” and are carried at
cost plus accrued interest.
All other
financial investments are carried at acquisition cost plus accrued interest and
UF-indexation adjustments, as applicable.
i. Leasing contracts - The
Bank leases certain property that meets the criteria for direct financing
leases. At the time of entering into a direct financing lease
transaction, the Bank records the gross financing receivable, unearned income
and estimated residual value of leased equipment. There are no
significant residual values assumed by the Bank. Unearned income
represents the excess of the gross financing receivable plus the estimated
residual value over the cost of the property acquired. Unearned income is
recognized in such a manner as to produce a constant periodic rate of return on
the net investment in the direct financing lease. The net investment
in financing leases is included in the account “Lease Contracts” in the loan
section of the consolidated balance sheet.
j. Factored receivables -
Factoring receivable loans are valued at the amount disbursed to the
borrower. The price difference between the amounts disbursed and the
actual face value of the receivables is earned and recorded as interest income
over the financing period. The borrowers are responsible for the
payments of the loans if the receivables are not collected.
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
k. Premises and equipment -
Premises and equipment are stated at acquisition cost net of accumulated
depreciation and have been restated for price-level
changes. Depreciation is calculated on a straight-line method over
the estimated useful lives of the underlying assets.
The costs
of maintenance and repairs are charged to expense. The costs of
significant refurbishment and improvements are capitalized and are then
amortized over the period of the benefit or the remaining life of the premises
and equipment, whichever is less, on a straight-line basis.
l. Investments in other
companies - Shares or rights in companies that are integral to the
operations of the Bank, where the Bank holds less than majority interest, are
accounted for under the equity method. Other minority investments are
carried at cost restated for price-level changes.
m. Allowance for loan losses -
The Bank has set up allowances for probable loan losses in accordance with the
instructions issued by the Superintendency of Banks and the models for rating
and evaluating credit risk approved by the Bank’s Board of
Directors.
According
to the methodology developed by the Bank, the loans are divided into three
categories: consumer, mortgage and commercial loans. The risk models used
internally to calculate the provisions are describe as follows:
Allowances
for individual evaluations on commercial loans
The Bank
assigns a risk category level to each borrower and his respective
loans.
The Bank
considers the following risk factors within the analysis: industry or sector of
the borrower, owners or managers of the borrower, their financial situation,
their payment capacity and payment behavior.
The Bank
assigns one of the following risk categories to each loan and
borrower:
i.
|
Classifications
A1, A2 and A3, correspond to borrowers with no apparent credit
risk.
|
ii.
|
Classifications
B, correspond to borrowers with some credit risk but no apparent
deterioration of payment
capacity.
|
iii.
|
Classifications
C1, C2, C3, C4, D1 and D2 correspond to borrowers whose loans have
deteriorated.
|
Before
December 1, 2006, loans classified as A1, A2, A3 and B, the board of directors
of the Bank is authorized to determine the levels of required
reserves. For loans classified in Categories C1, C2, C3, C4, D1 and
D2, the bank must have the following levels of reserves:
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
Classification
|
|
Estimated
range of loss
|
Reserve
|
C1
|
|
Up
to 3%
|
2%
|
C2
|
|
More
than 3% up to 19%
|
10%
|
C3
|
|
More
than 19% up to 29%
|
25%
|
C4
|
|
More
than 29% up to 49%
|
40%
|
D1
|
|
More
than 49% up to 79%
|
65%
|
D2
|
|
More
than 79%
|
90%
|
Commencing
in 2006 the Bank improve the methodology, for loans classified as A1, A2, A3 and
B, the Bank assigned a specific level of risk to each borrower. This entails
that borrowers with the same categories have different level of
risk.
Allowances
for group evaluations
·
|
Suitable
for the evaluation of a large number of borrowers whose individual loan
amounts are relatively small. These models are intended to be used
primarily to analyze loans to individuals and small
companies.
|
·
|
Levels
of required reserves are to be determined by the Bank, according to the
estimated loss that may result from the loans, by classifying the loan
portfolio using one or both of the following
models:
|
|
i.
|
A
model based on the characteristics of the borrowers and their outstanding
loans. Borrowers and their loans with similar characteristics will be
placed into groups and each group will be assigned a risk
level.
|
|
ii.
|
A
model based on the behavior of a group of loans. Loans with analogous past
payment histories and similar characteristics will be placed into groups
and each group will be assigned a risk
level.
|
Provisioning
for consumer and mortgage loan
The
provisioning for consumer and mortgage loan is directly related to the aging of
the installment.
Commencing
in 2006, the Bank improved and modified the methodology for analyzing consumer
and mortgage loans. All consumer and mortgage loans will be assigned
a rating on an individual basis utilizing a more automated and sophisticated
statistical model and considering also borrower’s credit
behavior. Once the rating of the client is determined the
provisioning of consumer and mortgage loans is calculated using a risk category
and related % which is directly related to the aging. These changes
were perfected in the 2007 by increasing the period of “back-testing” from 12 to
21 months and upon differentiating between old and new clients in the risk
profiles assigned to the borrowers.
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
Additional
reserves
Under the
regulations, banks are permitted to establish reserves above the limits
described above only to cover specific risks that have been authorized by their
board of directors.
Charge-offs
In
accordance with the regulations of the Superintendency of Banks, the Bank
charges off loans or portions thereof when collection efforts have been
exhausted. Under the rules and regulations established by the
Superintendency of Banks, charge-offs must be made within the following maximum
prescribed limits:
·
|
24
months after a loan is past due (3 months for consumer loans) for loans
without collateral;
|
·
|
36
months after a loan is past due for loans with
collateral.
|
The Bank
will also charge off commercial loans prior to the meeting of this criteria when
the Bank no longer considers such loans or portions thereof to be
collectible.
Loan
loss recoveries
Recoveries
on charged off loans as well as recoveries on loans which were reacquired from
the Chilean Central Bank (the “Central Bank”), are recorded directly to income
and presented as a reduction of the provision for loans losses.
n. Fees and expenses related to loans
and services - Fees and expenses related to loans, as well as fees for
services rendered, are deferred and recognized in income over the term of the
loans to which they relate equivalent to the period during which the services
are performed.
The fees
correspond to remunerations charged to the mutual funds and investment funds
administered are registered on base yielded. These fees are established in the
Internal Regulations off each one the funds administered.
o. Income taxes - Income taxes
payable are recognized in an amount that approximates the amount due on the
respective income tax return pursuant to Chilean tax legislation.
Deferred
taxes are recorded in accordance with Technical Bulletin No. 60 and the
complementary technical bulletins thereto issued by the Chilean Association of
Accountants.
p. Assets received in lieu of
payment - Assets received in lieu of payment are carried at the lower of
price-level restated cost and the market value of such assets, considered as a
whole. Assets that have not been sold within one year are
written-off, as instructed by the Superintendency of Banks.
q. Statement of cash flows -
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks. (For the year ended December 31, 2005, 2006 and 2007),
the consolidated statements of cash flows have been prepared in accordance with
Technical Bulletin No. 65 of the Chilean Association of
Accountants.
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
r. Convenience translation to U.S.
dollars - The Bank maintains its accounting records and prepares its
consolidated financial statements in Chilean pesos. The U.S. dollar
amounts disclosed in the accompanying financial statements are presented solely
for the convenience of the reader at the December 31, 2007, market exchange rate
of Ch$497.78 per US$1.00. This translation should not be construed as
representing that the Chilean peso amounts actually represent or have been, or
could be, converted into U.S. dollars at such a rate or at any other
rate.
NOTE
2.
|
ACCOUNTING
CHANGES
|
On
December 20, 2005, the Superintendency of Banks issued Circular No. 3,345 and
related amendments through Circular No. 3,349 dated February 7, 2006, Circular
No. 3,355 dated May 25, 2006, and Circular No. 3,358 dated May 31, 2006,
governing the application of new accounting principles and the valuation and
classification of financial instruments acquired, derivative instruments,
accounting hedges and write-offs of financial assets on the balance
sheet. The aforementioned changes in accounting principles and
valuation at January 1, 2006, adjusting the valuation differences calculated at
December 31, 2005, directly against shareholders’ equity in the amount of
MCh$(936). For comparative purposes, the Financial Statements at
December 31, 2005, have been regrouped and reclassified, but not adjusted, based
on the transition provisions established in Circular No. 3,345 and its
subsequent amendments issued by the Superintendency of Banks.
NOTE
3.
|
CASH
AND DUE FROM BANKS
|
In
accordance with the rules of the Superintendency of Banks, the Bank must
maintain certain non interest-bearing balances in its account with the Central
Bank. The required balances are based upon specified financial
criteria, including the level of the Bank’s assets, the amount of its foreign
borrowings and its average liabilities. Restricted amounts totaled
MCh$312,605 and MCh$326,713 as of December 31, 2006 and 2007,
respectively.
Financial
investments are classified at the time of the purchase, based on management’s
intentions, as either trading instruments or investment instruments the latter
of which are categorized as Available for sale and Held to
maturity. As of December 31, 2006 and 2007, the Bank had not
classified any security as Held to maturity.
NOTE
4.
|
INVESTMENTS
(continuation).
|
A summary
of financial investments is as follows:
a)
Trading Investments
|
|
|
|
|
|
As
of December 31,
|
|
Central
Bank and Government Securities
|
|
2006
|
|
2007
|
|
|
MCh$
|
|
MCh$
|
|
Central
Bank Securities
|
|
|
409,626 |
|
|
|
804,086 |
|
Chilean
Treasury Bonds
|
|
|
43,536 |
|
|
|
117,240 |
|
Other
Securities
|
|
|
383 |
|
|
|
- |
|
Subtotal
|
|
|
453,545 |
|
|
|
921,326 |
|
|
|
|
|
|
|
|
|
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
Time
deposits in Chilean Financial Institutions
|
|
|
3,819 |
|
|
|
10,039 |
|
Mortgage
Finance Bonds
|
|
|
24,914 |
|
|
|
32,713 |
|
Chilean
financial Institutions Bonds
|
|
|
47 |
|
|
|
7,742 |
|
Chilean
Corporate Bonds
|
|
|
24,240 |
|
|
|
11,541 |
|
Chilean
Other Securities
|
|
|
7,805 |
|
|
|
15,343 |
|
Other
Foreign Securities
|
|
|
172,667 |
|
|
|
6,927 |
|
Subtotal
|
|
|
233,492 |
|
|
|
84,305 |
|
Total
|
|
|
687,037 |
|
|
|
1,005,631 |
|
Central
Bank and Government Securities includes repurchase agreements sold to clients
and financial institutions for an amount of MCh$21,553 and MCh$74,959 as of
December 31, 2006 and 2007 respectively.
Other
Financial Instruments include repurchase agreements sold to clients and
financial institutions in the amount to MCh$2,766 (none in 2006).
b)
Available for sale Investments
|
|
|
|
As
of December 31,
|
|
Central
Bank and Government Securities
|
|
2006
|
|
|
2007
|
|
|
MCh$
|
|
|
MCh$
|
|
Central
Bank Securities
|
|
|
83,522 |
|
|
|
336,866 |
|
Chilean
Treasury Bonds
|
|
|
670 |
|
|
|
109,194 |
|
Other
Securities
|
|
|
19,909 |
|
|
|
- |
|
Subtotal
|
|
|
104,101 |
|
|
|
446,060 |
|
|
|
|
|
|
|
|
|
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
Mortgage
Finance Bonds
|
|
|
239,239 |
|
|
|
273,010 |
|
Central
Bank and Government Foreign Securities
|
|
|
- |
|
|
|
60,565 |
|
Other
Foreign Securities
|
|
|
27,444 |
|
|
|
- |
|
Subtotal
|
|
|
266,683 |
|
|
|
333,575 |
|
Total
|
|
|
370,784 |
|
|
|
779,635 |
|
Central
Bank and Government Securities includes repurchase agreements sold to clients
and financial institutions for an amount of MCh$2,221 and MCh$58,859 as of
December 31, 2006 and 2007 respectively. Other Financial Investments
does not include any repurchase agreements sold to clients and financial
institutions.
NOTE
4.
|
INVESTMENTS
(continuation).
|
c)
Held to maturity Investments
As of
December 31, 2006 and 2007, no financial investments were classified as Held to
maturity.
The loans
on the accompanying consolidated balance sheets consist of the subcategories as
described below.
Commercial loans are
long-term and short-term loans made to companies and
businesses. These loans are granted in Chilean pesos on an adjustable
or fixed rate basis to finance working capital or investments.
Consumer loans are loans to
individuals granted in Chilean pesos, generally on a fixed rate basis, to
finance the purchase of consumer goods or to pay for services. Credit
card balances subject to interest charges are also included in this
category.
Mortgage loans are
inflation-indexed, fixed rate, long-term loans with monthly payments of
principal and interest collateralized by a real property
mortgage. These loans are specifically funded through the issuance of
mortgage finance bonds, which are bonds generally issued to third party
investors in order that the Bank finance its loans to property
owners. At the time of issuance, the amount of a mortgage loan cannot
exceed 75% of the value of the property.
Foreign trade loans are fixed
rate, short-term loans granted in foreign currencies (principally U.S. dollars)
to finance imports and exports.
Interbank loans are fixed
rate, short-term loans to financial institutions that operate in
Chile.
Lease contracts are
agreements to finance the acquisition of capital equipment and other
property.
Other outstanding loans
principally include current account overdrafts, bills of exchange and mortgage
loans that are financed by the Bank’s general borrowings.
Past due loans include, with
respect to any loan, the amount of principal or interest that is 90 days or more
overdue, and do not include the installments of such loan that are not overdue
or that are less than 90 days overdue, unless legal proceedings have been
commenced for the entire outstanding balance according to the terms of the
loan.
Contingent loans mainly
consist of open and unused letters of credit together with guarantees granted by
the Bank in Ch$, UF and foreign currencies (principally U.S.
dollars).
NOTE
5.
|
LOANS
(continuation).
|
The
following table summarizes the most significant loan concentrations, expressed
as a percentage of total loans, excluding contingent loans and before the
reserve for loan losses.
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
Community,
social and personal services
|
|
|
16.7 |
% |
|
|
16.4 |
% |
Residential
mortgage loans
|
|
|
26.0 |
% |
|
|
27.1 |
% |
Consumer
credit
|
|
|
16.9 |
% |
|
|
16.8 |
% |
Financial
services
|
|
|
8.7 |
% |
|
|
7.4 |
% |
Commerce
|
|
|
8.3 |
% |
|
|
8.9 |
% |
Manufacturing
|
|
|
5.6 |
% |
|
|
5.9 |
% |
Construction
|
|
|
6.8 |
% |
|
|
6.3 |
% |
Agriculture,
livestock, agribusiness, fishing
|
|
|
5.6 |
% |
|
|
5.3 |
% |
Electricity,
gas and water
|
|
|
0.9 |
% |
|
|
0.7 |
% |
Transport,
storage and communications
|
|
|
3.8 |
% |
|
|
3.9 |
% |
Mining
and petroleum
|
|
|
0.7 |
% |
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
A
substantial amount of the Bank’s loans are to borrowers doing business in
Chile.
The
amounts shown as leasing contracts are amounts receivable under lease agreements
and have the following maturities as of December 31, 2006 and
2007. Unearned income presented in the table corresponds to the
interest to be earned in each year-end.
|
|
As
of December 31, 2006
|
|
|
As
of December 31, 2007
|
|
|
|
Total
|
|
|
Unearned
|
|
|
Net
lease
|
|
|
Total
|
|
|
Unearned
|
|
|
Net
lease
|
|
|
|
receivable
|
|
|
income
|
|
|
receivable
|
|
|
receivable
|
|
|
income
|
|
|
receivable
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
|
286,311 |
|
|
|
(31,742 |
) |
|
|
254,569 |
|
|
|
304,627 |
|
|
|
(33,750 |
) |
|
|
270,877 |
|
Due
after 1 year but within 2 years
|
|
|
203,577 |
|
|
|
(27,317 |
) |
|
|
176,260 |
|
|
|
218,087 |
|
|
|
(29,025 |
) |
|
|
189,062 |
|
Due
after 2 years but within 3 years
|
|
|
142,720 |
|
|
|
(23,467 |
) |
|
|
119,253 |
|
|
|
154,052 |
|
|
|
(25,065 |
) |
|
|
128,987 |
|
Due
after 3 years but within 4 years
|
|
|
95,729 |
|
|
|
(18,319 |
) |
|
|
77,410 |
|
|
|
98,799 |
|
|
|
(18,460 |
) |
|
|
80,339 |
|
Due
after 4 years but within 5 years
|
|
|
59,603 |
|
|
|
(11,458 |
) |
|
|
48,145 |
|
|
|
63,016 |
|
|
|
(12,279 |
) |
|
|
50,737 |
|
Due
after 5 years
|
|
|
194,398 |
|
|
|
(48,755 |
) |
|
|
145,643 |
|
|
|
213,383 |
|
|
|
(53,654 |
) |
|
|
159,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
982,338 |
|
|
|
(161,058 |
) |
|
|
821,280 |
|
|
|
1,051,964 |
|
|
|
(172,233 |
) |
|
|
879,731 |
|
Leased
assets consist principally of real estate, industrial machinery, vehicles and
computer equipment.
NOTE
7.
|
ALLOWANCE
FOR LOAN LOSSES
|
The
changes in the allowance for loan losses are as follows:
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1,
|
|
|
197,008 |
|
|
|
162,234 |
|
|
|
187,014 |
|
Price-level
restatement (1)
|
|
|
(6,883 |
) |
|
|
(3,367 |
) |
|
|
(12,950 |
) |
Charge
offs
|
|
|
(150,021 |
) |
|
|
(154,150 |
) |
|
|
(201,124 |
) |
Allowances
established
|
|
|
176,950 |
|
|
|
221,420 |
|
|
|
306,669 |
|
Allowances
released
|
|
|
(54,820 |
) |
|
|
(39,123 |
) |
|
|
(46,843 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31,
|
|
|
162,234 |
|
|
|
187,014 |
|
|
|
232,766 |
|
(1)
|
Reflects
the effect of inflation on the allowance for loan losses at the beginning
of each period, adjusted to constant pesos of December 31,
2007.
|
The
allowance for loan losses included in the results of operations for the periods
indicated is as follows:
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Provision
established
|
|
|
176,951 |
|
|
|
221,420 |
|
|
|
306,669 |
|
Provision
established (released)
|
|
|
|
|
|
|
|
|
|
|
|
|
for
assets received in lieu of payment
|
|
|
(778 |
) |
|
|
1,362 |
|
|
|
860 |
|
Direct
charge-offs
|
|
|
(1,065 |
) |
|
|
(915 |
) |
|
|
(515 |
) |
Provision
released
|
|
|
(54,820 |
) |
|
|
(39,123 |
) |
|
|
(46,843 |
) |
Recovery
of loans previously charge off
|
|
|
(50,582 |
) |
|
|
(50,569 |
) |
|
|
(77,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge to income
|
|
|
69,706 |
|
|
|
132,175 |
|
|
|
182,411 |
|
NOTE
8.
|
BANK
PREMISES AND EQUIPMENT, NET
|
The major
categories of Bank premises and equipment, net of accumulated depreciation are
as follows:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
213,785 |
|
|
|
211,647 |
|
Furniture
and fixtures
|
|
|
10,781 |
|
|
|
12,090 |
|
Machinery
and equipment
|
|
|
16,600 |
|
|
|
16,975 |
|
Vehicles
|
|
|
1,339 |
|
|
|
999 |
|
Others
|
|
|
6,068 |
|
|
|
5,856 |
|
|
|
|
|
|
|
|
|
|
Total
bank premises and equipment, net
|
|
|
248,573 |
|
|
|
247,567 |
|
Related
depreciation expense was MCh$20,726 and MCh$20,309 as of December 31, 2006 and
2007, respectively.
NOTE
9.
|
INVESTMENTS
IN OTHER COMPANIES
|
Investments
in other companies consist of the following:
|
|
|
As
of December 31,
|
|
|
|
Ownership
interest
|
|
|
Participation
net income
|
|
|
Book
Value
|
|
|
|
2006
|
|
|
2007
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
%
|
|
|
%
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redbanc
S.A.
|
|
|
33.42 |
|
|
|
33.42 |
|
|
|
201 |
|
|
|
216 |
|
|
|
200 |
|
|
|
1,331 |
|
|
|
1,317 |
|
Transbank
S.A.
|
|
|
32.71 |
|
|
|
32.71 |
|
|
|
283 |
|
|
|
284 |
|
|
|
285 |
|
|
|
1,845 |
|
|
|
1,849 |
|
Tarjetas
Inteligentes S.A. (1)
|
|
|
- |
|
|
|
- |
|
|
|
(46 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Centro
de Compensación Automática
|
|
|
33.33 |
|
|
|
33.33 |
|
|
|
38 |
|
|
|
43 |
|
|
|
38 |
|
|
|
258 |
|
|
|
275 |
|
Sociedad
Interbancaria de Depósito de Valores S.A.
|
|
|
29.28 |
|
|
|
29.28 |
|
|
|
62 |
|
|
|
73 |
|
|
|
70 |
|
|
|
336 |
|
|
|
359 |
|
Cámara
de Compensación Alto Valor S.A.
|
|
|
11.52 |
|
|
|
11.52 |
|
|
|
(25 |
) |
|
|
62 |
|
|
|
48 |
|
|
|
372 |
|
|
|
419 |
|
Administrador
Financiero Transantiago S.A. (2) (4)
|
|
|
20.00 |
|
|
|
20.00 |
|
|
|
(135 |
) |
|
|
(102 |
) |
|
|
(2,505 |
) |
|
|
1,286 |
|
|
|
821 |
|
Nexus
S.A.
|
|
|
12.90 |
|
|
|
12.90 |
|
|
|
100 |
|
|
|
128 |
|
|
|
117 |
|
|
|
655 |
|
|
|
604 |
|
Bolsa
de Comercio de Santiago (Stock Exchange) (5)
|
|
|
4.17 |
|
|
|
4.17 |
|
|
|
250 |
|
|
|
(138 |
) |
|
|
292 |
|
|
|
662 |
|
|
|
664 |
|
Bolsa
Electrónica de Chile
|
|
|
2.50 |
|
|
|
2.50 |
|
|
|
31 |
|
|
|
(3 |
) |
|
|
- |
|
|
|
81 |
|
|
|
170 |
|
Bolsa
de Comercio de Valparaíso (3)
|
|
|
1.67 |
|
|
|
1.67 |
|
|
|
(2 |
) |
|
|
- |
|
|
|
- |
|
|
|
11 |
|
|
|
10 |
|
Cámara
de Compensación
|
|
|
0.15 |
|
|
|
0.15 |
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments in other companies accounted for under the equity
method
|
|
|
|
|
|
|
|
|
|
|
756 |
|
|
|
563 |
|
|
|
(1,455 |
) |
|
|
6,841 |
|
|
|
6,492 |
|
Other
investments carried at cost
|
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
281 |
|
|
|
134 |
|
|
|
308 |
|
|
|
244 |
|
Total
investments in other companies
|
|
|
|
745 |
|
|
|
844 |
|
|
|
(1,321 |
) |
|
|
7,149 |
|
|
|
6,736 |
|
(1)
|
On
December 19, 2005, in compliance with the agreement adopted by the
Shareholders Extraordinary meeting, the company “Empresas Tarjetas
Inteligentes S.A.”, was liquidated.
|
(2)
|
On
July 7, 2005, the Bank acquired 20% of “Administrador Financiero
Transantiago S.A.” in the amount of MCh$1,353
(historical).
|
(3)
|
On
August 19, 2005, the company “Bolsa de Comercio de Valparaíso” make a
capital increase which was not subscribed to by the
Bank.
|
NOTE
9.
|
INVESTMENTS
IN OTHER COMPANIES (continuation).
|
(4)
|
On
December 21, 2007, an Extraordinary General Stockholders Meeting of
“Administrador Financiero Transantiago S.A.” was celebrated and the
stockholders agreed to capitalize the credits into the merchant accounts
held by the shareholders of “Administrador Financiero Transantiago S.A.”.
The total available balance in the accounts was MCh$10,200. Since Banco
Santander Chile owns 20% of the mentioned entity the investment equity
increased by MCh$2,040.
|
(5)
|
On
August 2007, one share of “Bolsa de Comercio de Santiago” was sold. The
sales price was MCh$1,116 and the realized gain was
MCh$759.
|
NOTE
10.
|
OTHER
ASSETS AND OTHER LIABILITIES
|
a) Other
assets
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Amounts
receivable under spot foreign exchange transactions
|
|
|
98,095 |
|
|
|
95,337 |
|
Real
time gross settlement (RTGS) receivable
|
|
|
33,711 |
|
|
|
58,674 |
|
Credit
card charges in process
|
|
|
29,350 |
|
|
|
30,723 |
|
Deferred
income taxes (Note 21)
|
|
|
48,835 |
|
|
|
59,047 |
|
Prepaid
and deferred expenses
|
|
|
67,376 |
|
|
|
71,879 |
|
Transactions
in process
|
|
|
14,407 |
|
|
|
12,189 |
|
Recoverable
taxes
|
|
|
15,918 |
|
|
|
17,406 |
|
Stamp
taxes recoverable
|
|
|
5,180 |
|
|
|
7,701 |
|
Receivable
on sales of assets received in lieu of payment
|
|
|
1,916 |
|
|
|
1,557 |
|
Guarantees
issued
|
|
|
84,962 |
|
|
|
189,451 |
|
Pending
consignment
|
|
|
313 |
|
|
|
295 |
|
Account
receivable
|
|
|
41,891 |
|
|
|
118,414 |
|
Mutual
Funds
|
|
|
32,839 |
|
|
|
84,373 |
|
Others
|
|
|
23,719 |
|
|
|
22,204 |
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
498,512 |
|
|
|
769,250 |
|
b) Other
liabilities
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Amounts
payable under spot foreign exchange transactions
|
|
|
106,454 |
|
|
|
99,048 |
|
Deferred
income taxes (Note 21)
|
|
|
9,065 |
|
|
|
10,544 |
|
Transactions
in process
|
|
|
5,541 |
|
|
|
10,020 |
|
Provision
for staff benefits
|
|
|
15,165 |
|
|
|
12,579 |
|
Income
taxes
|
|
|
16,241 |
|
|
|
26,061 |
|
Provisions
for lawsuits and others
|
|
|
31,771 |
|
|
|
34,256 |
|
Value
added tax payable
|
|
|
5,526 |
|
|
|
6,028 |
|
Deferred
fees
|
|
|
8,162 |
|
|
|
5,888 |
|
Real
time gross settlement (RTGS) payable
|
|
|
15,561 |
|
|
|
43,663 |
|
Others
|
|
|
3,666 |
|
|
|
13,169 |
|
|
|
|
|
|
|
|
|
|
Total
Other Liabilities
|
|
|
217,152 |
|
|
|
261,256 |
|
NOTE
10.
|
OTHER
ASSETS AND OTHER LIABILITIES
(continuation).
|
c) Contingent
liabilities
Contingent
liabilities consist of open and unused letters of credit, together with
guarantees by the Bank in Chilean pesos, UF's and foreign currencies
(principally U.S. dollars). The liability represents the Bank’s
obligations under such agreements. The Bank’s rights under these
agreements are recognized as assets under the caption “Contingent loans” (Note
5). Since many of these commitments to extend credit may expire
without being drawn upon, the total contingent liabilities do not necessary
represent future cash obligations.
NOTE
11.
|
OTHER
INTEREST BEARING LIABILITIES
|
The Bank’s
long-term and short-term borrowings are summarized below. Borrowings
are generally classified as short-term when they have original maturities of
less than one year or are due on demand. All other borrowings are
classified as long-term, including the amounts due within one year on such
borrowings.
|
|
As
of December 31, 2007
|
|
|
|
Long-term
|
|
|
Short-term
|
|
|
Total
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Central
bank borrowings (a)
|
|
|
- |
|
|
|
142,370 |
|
|
|
142,370 |
|
Credit
lines for renegotiations of loans (a)
|
|
|
- |
|
|
|
3,972 |
|
|
|
3,972 |
|
Investment
under agreements to repurchase
|
|
|
- |
|
|
|
166,281 |
|
|
|
166,281 |
|
Mortgage
finance bonds (b)
|
|
|
376,847 |
|
|
|
57,428 |
|
|
|
434,275 |
|
Other
borrowings Bonds (c)
|
|
|
1,225,007 |
|
|
|
- |
|
|
|
1,225,007 |
|
Subordinated
bonds (d)
|
|
|
498,216 |
|
|
|
- |
|
|
|
498,216 |
|
Foreign
borrowings (e)
|
|
|
486,596 |
|
|
|
608,875 |
|
|
|
1,095,471 |
|
Other
obligations (f)
|
|
|
10,429 |
|
|
|
137,439 |
|
|
|
147,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
borrowings
|
|
|
2,597,095 |
|
|
|
1,116,365 |
|
|
|
3,713,460 |
|
|
|
As
of December 31, 2006
|
|
|
|
Long-term
|
|
|
Short-term
|
|
|
Total
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Central
bank borrowings (a)
|
|
|
- |
|
|
|
144,418 |
|
|
|
144,418 |
|
Credit
loans for renegotiations of loans (a)
|
|
|
- |
|
|
|
5,458 |
|
|
|
5,458 |
|
Investment
under agreements to repurchase
|
|
|
- |
|
|
|
21,412 |
|
|
|
21,412 |
|
Mortgage
finance bonds (b)
|
|
|
499,288 |
|
|
|
70,365 |
|
|
|
569,653 |
|
Other
borrowings Bonds (c)
|
|
|
606,513 |
|
|
|
1,225 |
|
|
|
607,738 |
|
Subordinated
bonds (d)
|
|
|
483,611 |
|
|
|
43,292 |
|
|
|
526,903 |
|
Foreign
borrowings (e)
|
|
|
101,303 |
|
|
|
771,397 |
|
|
|
872,700 |
|
Other
obligations (f)
|
|
|
12,863 |
|
|
|
56,106 |
|
|
|
68,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
borrowings
|
|
|
1,703,578 |
|
|
|
1,113,673 |
|
|
|
2,817,251 |
|
NOTE
11.
|
OTHER
INTEREST BEARING LIABILITIES
(continuation).
|
a)
Central
Bank borrowings
Central
Bank borrowings include credit lines for the renegotiations of loans and other
Central Bank borrowings. These credit lines were provided by the
Central Bank for the renegotiations of loans due to the need to refinance debts
as a result of the economic recession and crisis of the banking system in the
early 1980's. The credit lines for the renegotiations are related
with mortgage loans linked to the UF index and bear an annual interest rate of
3.0% and 3.0% at December 31, 2006 and 2007, respectively. The
maturities of the outstanding amounts due to the Central Bank are as
follows:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Total
credit lines for renegotiation of loans
|
|
|
5,458 |
|
|
|
3,972 |
|
The
maturities of MCh$3,972 due under these long-term credit lines, are due within
one year.
b)
Mortgage
finance bonds
These
bonds are used to finance mortgage loans. The outstanding principal
amounts of the bonds are amortized on a quarterly basis. The range of
maturities of these bonds is between five and twenty years. The bonds
are linked to the UF index and bear a weighted-average annual interest rate of
3.4%.
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
|
MCh$
|
|
|
|
|
|
Due
within 1 year
|
|
|
57,428 |
|
Due
after 1 year but within 2 years
|
|
|
47,461 |
|
Due
after 2 years but within 3 years
|
|
|
45,331 |
|
Due
after 3 years but within 4 years
|
|
|
41,456 |
|
Due
after 4 years but within 5 years
|
|
|
36,951 |
|
Due
after 5 years
|
|
|
205,648 |
|
|
|
|
|
|
Total
mortgage finance bonds
|
|
|
434,275 |
|
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Santiago
Bonds, Series A, B, C, D and F
|
|
|
9,862 |
|
|
|
- |
|
Santander
Bonds linked to the UF
|
|
|
368,277 |
|
|
|
1,025,758 |
|
Santander
Bonds denominated in US$
|
|
|
229,599 |
|
|
|
199,249 |
|
|
|
|
607,738 |
|
|
|
1,225,007 |
|
Total
bonds
|
|
|
|
|
|
|
|
|
NOTE
11. OTHER INTEREST BEARING LIABILITIES
(continuation).
Santiago
bonds include series A, B, C and F issued by the former Banco Santiago S.A. and
series B and D issued by the former Banco O’Higgins, prior to its merger with
the Bank in 1997. These bonds are intended to finance loans that have
a maturity of greater than one year, are denominated in UF index and bear a
weighted-average annual interest rate of 7.0% with interest and principal
payments due semi-annually.
On
December 17, 2004, Santiago Leasing S.A. ceded through public deed a total of UF
3,041,102 (MCh$37,591 at December 31, 2004) in bonds to Banco Santander
Chile. These bonds are denominated in UF index and bear an annual
interest rate of 5.6%. At December 31, 2006 and 2007, the balance was
included in Santander bonds linked to the UF.
On October
5, 2005, the Bank issued bonds, denominated in UF for a total of UF 8,000,000
which bear an average annual interest rate of 3.0%.
On May 25,
2006, the Bank issued bonds, denominated in UF for a total of UF 6,000,000 which
bear an average annual interest rate of 4.6%.
On August
17, 2006, the Bank issued bonds, denominated in UF for a total of UF 895,000
which bear an average annual interest rate of 3.7%.
On
December 9, 2004, the Bank issued senior bonds, denominated in U.S. dollars, for
a total of US$400 million. These bonds carry a nominal interest rate
of LIBOR plus 0.35% per annum (5.35% and 5.50% at December, 2006 and
2007). The interest is payable quarterly and the principal is to be
paid after a term of 5 years.
During
2007, the Bank issued senior bonds in the local market for a total of UF
34,000,000 (MCh$667,170 as December 31, 2007). The detail of the
bonds issued is as follows:
a)
|
On
January 31, 2007, the Bank issued Series O Bonds denominated in UF for an
amount of UF 5,000,000. These bonds carry a nominal interest rate of 3.3%
per annum, semi-annual interest payments starting on August 1, 2007 and
one repayment of principal on February 1,
2011.
|
b)
|
On
January 31, 2007, the Bank issued Series P Bonds denominated in UF for an
amount of UF 3,000,000. These bonds carry a nominal interest rate of 3.5%
per annum, semi-annual interest payments starting on August 1, 2007 and
one repayment of principal on February 1,
2014.
|
c)
|
On
January 31, 2007, the Bank issued Series Q Bonds denominated in UF for an
amount of UF 2,000,000. These bonds carry a nominal interest rate of 3.7%
per annum, semi-annual interest payments starting on August 1, 2007 and
one repayment of principal on February 1,
2016.
|
d)
|
On
January 31, 2007, the Bank issued Series R Bonds denominated in UF for an
amount of UF 2,000,000. These bonds carry a nominal interest rate of 3.9%
per annum, semi-annual interest payments starting on August 1, 2007 and
one repayment of principal on February 1,
2027.
|
e)
|
On
January 31, 2007, the Bank issued Series S Bonds denominated in UF for an
amount of UF 2,000,000. These bonds carry a nominal interest rate of 4.1%
per annum, semi-annual interest payments starting on August 1, 2007 and
one repayment of principal on February 1,
2037.
|
NOTE
11. OTHER INTEREST BEARING LIABILITIES
(continuation).
f)
|
On
June 7, 2007, the Bank issued Series T Bonds denominated in UF for an
amount of UF5,000,000. These bonds carry a nominal interest rate of 3.3%
per annum, semi-annual interest payments starting on August 1, 2007 and
one repayment of principal on February 1,
2011.
|
g)
|
On
August 16, 2007, the Bank issued Series U Bonds denominated in UF for an
amount of UF 5,000,000. These bonds carry a nominal interest rate of 3.7%
per annum, semi-annual interest payments starting on February 1, 2008 and
one repayment of principal on August 1,
2013.
|
h)
|
On
September 12, 2007, the Bank issued Series V Bonds denominated in UF for
an amount of UF 5,000,000. These bonds carry a nominal interest rate of
3.9% per annum, semi-annual interest payments starting on February 1, 2008
and one repayment of principal on August 1,
2017.
|
i)
|
On
October 30, 2007, the Bank issued Series W Bonds denominated in UF for an
amount of UF 5,000,000. These bonds carry a nominal interest rate of 4.1%
per annum, semi-annual interest payments starting on April 1, 2008 and one
repayment of principal on February 1,
2017.
|
On
December 4, 2007, the Bank registered at the Superintendency of Banks, under
registry number 03/2007, a line of Bank Bonds in the amount of UF 12,000,000,
with a maturity date of 30 years. At the same date, the Bank made the
first issuance, Nº 30-1/2007, of UF 4,000,000, Series Y, against this line. The
issuance of this bond hasn’t taken place at December 31, 2007.
The
maturities of these bonds are as follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
|
MCh$
|
|
Due
within 1 year
|
|
|
- |
|
Due
after 1 year but within 2 years
|
|
|
199,249 |
|
Due
after 2 years but within 3 years
|
|
|
137,872 |
|
Due
after 3 years but within 4 years
|
|
|
209,543 |
|
Due
after 4 years but within 5 years
|
|
|
9,390 |
|
Due
after 5 years
|
|
|
668,953 |
|
|
|
|
|
|
Total
bonds
|
|
|
1,225,007 |
|
d) Subordinated
bonds
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Santiago
bonds denominated in US$ (1)
|
|
|
45,880 |
|
|
|
- |
|
Santander
bonds denominated in US$ (2) (3)
|
|
|
292,433 |
|
|
|
263,676 |
|
Santiago
Bonds linked to the UF (4)
|
|
|
52,664 |
|
|
|
47,401 |
|
Santander
Bonds linked to the UF (5) (6) (7)
|
|
|
135,926 |
|
|
|
187,139 |
|
|
|
|
|
|
|
|
|
|
Total
subordinated bonds
|
|
|
526,903 |
|
|
|
498,216 |
|
NOTE
11. OTHER INTEREST BEARING LIABILITIES
(continuation).
(1)
|
On
July 17, 1997, the former Banco Santiago issued subordinated bonds
denominated in U.S. dollars in an aggregate principal amount of US$300
million. The bonds carry a nominal interest rate of 7.0% per
annum, semi-annual interest payments and one repayment of principal after
a term of 10 years. These subordinated bonds have been fully repaid as of
December 31, 2007.
|
(2)
|
On
January 16, 2003, the Bank completed the voluntary exchange for its new
subordinated bonds, which will mature in 2012. A total of
US$221,961,000 in principal of the Santiago bonds was offered and redeemed
by the Bank. The bonds carry a nominal interest rate of 7.375%
per annum, with semi-annual interest payments and one repayment of
principal after a term of 10 years.
|
(3)
|
On
December 9, 2004, the Bank issued subordinated bonds denominated in U.S.
dollars in an aggregate principal amount of US$300
million. These bonds carry a nominal interest rate of 5.375%
per annum, semi-annual interest payments and one repayment of principal
after a term of 10 years.
|
(4)
|
The
Series C and E Bonds outstanding as of December 31, 2006 and 2007 are
intended for the financing of loans with a maturity of greater than one
year. They are linked to the UF index and carry an annual
interest rate of 7.5% and 6.0% respectively, with interest and principal
payments due semi-annually.
|
(5)
|
Includes
Series C, D and E Bonds, which are linked to the UF index and carry an
annual interest rate of 7.0%, with interest and principal payments due
semi-annually.
|
(6)
|
During
2006, the Bank issued subordinated bonds denominated in UF in an aggregate
principal amount of UF 5,000,000, which bear an average annual rate of
4.4%.
|
(7)
|
During 2007, the Bank issued
subordinated bonds in the local market for a total of UF 4,000,000
(MCh$78,491 as of December 31, 2007). The detail of the bonds
issued is as follows:
|
|
a)
|
On
November 26, 2007, the Bank issued subordinated bonds, Series X,
denominated in UF for an amount of UF 2,000,000. These bonds carry a
nominal interest rate of 4.00% per annum, semi-annual interest payments
starting on May 2, 2008 and one repayment of principal on November 2,
2032. Bearing of interest started on November 2,
2007.
|
|
b)
|
On
December 27, 2007, the Bank issued subordinated bonds, Series Z,
denominated in UF for an amount of UF 2,000,000 with maturity date of
principal on December 1, 2032. These bonds do not contemplate interest
payments.
|
NOTE
11.
|
OTHER INTEREST
BEARING LIABILITIES
(continuation).
|
The
maturities of these bonds, which are considered long-term, are as
follows:
|
|
As
of
December
31,
|
|
|
|
2007
|
|
|
|
MCh$
|
|
Due
within 1 year
|
|
|
- |
|
Due
after 1 year but within 2 years
|
|
|
- |
|
Due
after 2 years but within 3 years
|
|
|
- |
|
Due
after 3 years but within 4 years
|
|
|
17,349 |
|
Due
after 4 years but within 5 years
|
|
|
116,330 |
|
Due
after 5 years
|
|
|
364,537 |
|
|
|
|
|
|
Total
subordinated bonds
|
|
|
498,216 |
|
These are
short-term and long-term borrowings from foreign banks. The
maturities of these borrowings are as follows:
|
|
As
of
December
31,
|
|
|
|
2007
|
|
|
|
MCh$
|
|
Due
within 1 year
|
|
|
608,875 |
|
Due
after 1 year but within 2 years
|
|
|
241,588 |
|
Due
after 2 years but within 3 years
|
|
|
115,430 |
|
Due
after 3 years but within 4 years
|
|
|
129,578 |
|
Due
after 4 years but within 5 years
|
|
|
- |
|
Due
after 5 years
|
|
|
- |
|
|
|
|
|
|
Total
foreign borrowings
|
|
|
1,095,471 |
|
The
foreign borrowings are denominated principally in U.S. dollars, and are
principally used to fund the Bank’s foreign trade loans and bear an annual
average interest rate of 5.3% and 1.3% at December 31, 2006 and 2007,
respectively.
NOTE
11.
|
OTHER
INTEREST BEARING LIABILITIES
(continuation).
|
f) Other
obligations
Other
obligations are summarized as follows:
|
|
As
of
December
31,
|
|
|
|
2007
|
|
|
|
MCh$
|
|
Due
within 1 year
|
|
|
38,808 |
|
Due
after 1 year but within 2 years
|
|
|
2,785 |
|
Due
after 2 years but within 3 years
|
|
|
2,158 |
|
Due
after 3 years but within 4 years
|
|
|
1,915 |
|
Due
after 4 years but within 5 years
|
|
|
1,294 |
|
Due
after 5 years
|
|
|
2,277 |
|
|
|
|
|
|
Total
long term obligations
|
|
|
49,237 |
|
Short-term
obligations:
Amounts
due to credit card operators
|
|
|
23,497 |
|
Acceptance
of letters of credit
|
|
|
75,134 |
|
Total
short – term obligations
|
|
|
98,631 |
|
|
|
|
|
|
Total
other obligations
|
|
|
147,868 |
|
NOTE
12.
|
DISCLOSURES
REGARDING DERIVATIVE FINANCIAL
INSTRUMENTS
|
The Bank
enters into transactions involving derivative instruments, particularly foreign
exchange contracts, as part of its asset and liability management, and in acting
as a dealer in order to satisfy its clients’ needs. The notional
amounts of these contracts are carried off-balance sheet.
Foreign
exchange forward contracts involve an agreement to exchange the currency of one
country for the currency of another country at an agreed-upon price and
settlement date. These contracts are generally standardized
contracts, normally for periods between 1 and 180 days and are not traded in a
secondary market; however, in the normal course of business and with the
agreement of the original counterparty, they may be terminated or assigned to
another counterparty.
When the
Bank enters into a forward exchange contract, it analyses and approves the
credit risk (the risk that the counterparty might default on its
obligations). Subsequently, on an ongoing basis, it monitors the
possible losses involved in each contract. To manage the level of
credit risk, the Bank deals with counterparties of good credit standing, enters
into master netting agreements whenever possible and when appropriate, obtains
collateral.
The
Chilean Central Bank requires that foreign exchange forward contracts be made
only in U.S. dollars and other major foreign currencies. In the case
of the Bank, most forward contracts are made in U.S. dollars against the Chilean
peso or the UF. Occasionally, forward contracts are also made in
other currencies, but only when the Bank acts as an intermediary.
During the
period ended December 31, 2006 and 2007, the Bank entered into interest rate and
cross currency swap agreements to manage exposure to fluctuation in currencies
and interest rates. The differential between the interest paid or
received on a specified notional amount is recognized under the caption “Amounts
payable from forward contracts, net”. The fair value of the swap
agreement and changes in the fair value as a result of changes in market
interest rates are recognized in the consolidated financial
statements.
The Bank’s
foreign currency futures and forward operations and other derivative products
outstanding at December 31, 2006 and 2007, are summarized below:
NOTE
12.
|
DISCLOSURES
REGARDING DERIVATIVE FINANCIAL INSTRUMENTS
(continuation).
|
|
|
|
|
|
As
of December 31, 2007
|
|
|
|
|
|
|
Notional
amounts
|
|
|
Fair
Value
|
|
|
|
Cash
Flow hedge (CF) or fair value hedge (FV)
|
|
|
Within
3
months
|
|
|
After
3 months
but
within
one
year
|
|
|
After
one
year
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Derivative
instruments in designated hedge accounting relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate swaps
|
|
(FV)
|
|
|
|
- |
|
|
|
- |
|
|
|
121,209 |
|
|
|
3,891 |
|
|
|
502 |
|
Currency
swaps
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
|
(FV)
|
|
|
|
- |
|
|
|
- |
|
|
|
278,757 |
|
|
|
- |
|
|
|
9,246 |
|
Cross
currency swaps
|
|
(CF)
|
|
|
|
- |
|
|
|
- |
|
|
|
480,358 |
|
|
|
- |
|
|
|
55,171 |
|
Call
currency options
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Call
interest rate options
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
currency options
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
interest rate options
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate future
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
derivatives
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
880,324 |
|
|
|
3,891 |
|
|
|
64,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments for trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
|
|
|
|
|
5,776,546 |
|
|
|
3,938,733 |
|
|
|
785,841 |
|
|
|
111,681 |
|
|
|
159,969 |
|
Interest
rate swaps
|
|
|
|
|
|
|
1,935,239 |
|
|
|
3,254,410 |
|
|
|
8,759,290 |
|
|
|
86,515 |
|
|
|
159,146 |
|
Currency
swaps
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
|
|
|
|
|
|
133,688 |
|
|
|
460,902 |
|
|
|
6,557,457 |
|
|
|
576,515 |
|
|
|
392,337 |
|
Call
currency options
|
|
|
|
|
|
|
64,751 |
|
|
|
29,708 |
|
|
|
644 |
|
|
|
262 |
|
|
|
292 |
|
Call
interest rate options
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
74,667 |
|
|
|
1 |
|
|
|
- |
|
Put
currency options
|
|
|
|
|
|
|
159,781 |
|
|
|
36,532 |
|
|
|
- |
|
|
|
1,501 |
|
|
|
1,172 |
|
Put
interest rate options
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
75,667 |
|
|
|
- |
|
|
|
9 |
|
Interest
rate future
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
derivatives
|
|
|
|
|
|
|
196,371 |
|
|
|
2,943 |
|
|
|
- |
|
|
|
409 |
|
|
|
373 |
|
Subtotal
|
|
|
|
|
|
|
8,266,376 |
|
|
|
7,723,228 |
|
|
|
16,253,566 |
|
|
|
776,884 |
|
|
|
713,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
8,266,376 |
|
|
|
7,723,228 |
|
|
|
17,133,890 |
|
|
|
780,775 |
|
|
|
778,217 |
|
The
notional amounts refer to the U.S. dollar bought or sold or to the U.S. dollar
equivalent of foreign currency bought or sold for future
settlement. The contract terms correspond to the duration of the
contracts as from the date of the transaction to the date of the
settlement.
NOTE
12.
|
DISCLOSURES
REGARDING DERIVATIVE FINANCIAL INSTRUMENTS
(continuation).
|
|
|
|
|
|
As
of December 31, 2006
|
|
|
|
|
|
|
Notional
amounts
|
|
|
Fair
Value
|
|
|
|
Cash
Flow hedge (CF) or fair value hedge (FV)
|
|
|
Within
3
months
|
|
|
After
3 months
but
within
one
year
|
|
|
After
one
year
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Derivative
instruments in designated hedge accounting relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate swaps
|
|
(FV)
|
|
|
|
- |
|
|
|
- |
|
|
|
225,944 |
|
|
|
1,260 |
|
|
|
2,529 |
|
Currency
swaps
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
|
(FV)
|
|
|
|
906,761 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
40,689 |
|
Call
currency options
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Call
interest rate options
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
currency options
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
interest rate options
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate future
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
derivatives
|
|
(
)
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
|
|
|
|
906,761 |
|
|
|
- |
|
|
|
225,944 |
|
|
|
1,260 |
|
|
|
43,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments for trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
|
|
|
|
|
6,465,222 |
|
|
|
3,691,295 |
|
|
|
407,074 |
|
|
|
88,753 |
|
|
|
106,818 |
|
Interest
rate swaps
|
|
|
|
|
|
|
492,069 |
|
|
|
1,266,642 |
|
|
|
4,215,224 |
|
|
|
37,559 |
|
|
|
73,237 |
|
Currency
swaps
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
|
|
|
|
|
|
2,948,225 |
|
|
|
1,448,955 |
|
|
|
139,353 |
|
|
|
265,900 |
|
|
|
152,628 |
|
Call
currency options
|
|
|
|
|
|
|
51,149 |
|
|
|
399,776 |
|
|
|
- |
|
|
|
4,710 |
|
|
|
4,697 |
|
Call
interest rate options
|
|
|
|
|
|
|
- |
|
|
|
107 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
currency options
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
interest rate options
|
|
|
|
|
|
|
31,916 |
|
|
|
372,485 |
|
|
|
- |
|
|
|
1,556 |
|
|
|
1,109 |
|
Interest
rate future
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
derivatives
|
|
|
|
|
|
|
336,347 |
|
|
|
114,838 |
|
|
|
109,096 |
|
|
|
678 |
|
|
|
696 |
|
Subtotal
|
|
|
|
|
|
|
10,324,928 |
|
|
|
7,294,098 |
|
|
|
4,870,747 |
|
|
|
399,156 |
|
|
|
339,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
11,231,689 |
|
|
|
7,294,098 |
|
|
|
5,096,691 |
|
|
|
400,416 |
|
|
|
382,403 |
|
The
notional amounts refer to the U.S. dollar bought or sold or to the U.S. dollar
equivalent of foreign currency bought or sold for future
settlement. The contract terms correspond to the duration of the
contracts as from the date of the transaction to the date of the
settlement.
NOTE
13.
|
MINIMUM
CAPITAL REQUIREMENTS
|
The
Superintendency of Banks requires Chilean Banks to maintain a minimum capital of
UF800,000, equivalent to MCh$15,698 as of December 31, 2007. In
addition, Banks are required to maintain a minimum basic capital of at least 3%
of total assets after deductions for mandatory provisions, while effective net
equity may not be lower than 8% of its risk weighted assets. However, as a
result of the merger in 2002, the Superintendency of Banks determined that the
actual equity of the merged bank could not be lower than 11% of its
risk-weighted assets. Effective net equity is defined as basic
equity, plus voluntary loan loss allowances, up to a maximum of 1.25% of
risk-weighted assets, and the qualifying proportion of subordinated bonds with
scheduled maturities in excess of six years, for which early repayment is not
permitted. Chilean Banks are permitted to include in effective net
equity principal subordinated bond amounts up to a maximum of fifty percent of
the basic capital.
NOTE
13.
|
MINIMUM
CAPITAL REQUIREMENTS
(continuation).
|
The Bank’s
actual qualifying “net capital base” and “effective equity” to support the
Bank’s risk-weighted assets as of December 31, 2006 and 2007, are shown in the
following table:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Net
capital base
|
|
|
1,031,163 |
|
|
|
1,129,395 |
|
3%
of total assets net of provisions
|
|
|
(495,637 |
) |
|
|
(560,816 |
) |
Excess
over minimum required equity
|
|
|
535,526 |
|
|
|
568,579 |
|
Net
capital base as a percentage of the total assets, net of
provisions
|
|
|
6.2 |
% |
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
Effective
equity
|
|
|
1,524,308 |
|
|
|
1,602,432 |
|
11%
of the risk-weighted assets
|
|
|
(1,326,302 |
) |
|
|
(1,439,641 |
) |
Excess
over minimum required equity
|
|
|
198,006 |
|
|
|
162,791 |
|
Effective
equity as a percentage of the risk-weighted assets
|
|
|
12.6 |
% |
|
|
12.2 |
% |
NOTE
14.
|
|
SHAREHOLDERS’
EQUITY
|
a) Share capital
As of
December 31, 2006 and 2007 the Bank's paid-in capital consisted of
188,446,126,794 authorized issued and outstanding shares with no fixed nominal
value.
b) Dividends
The
distributions of dividends related to net income for the periods 2005 and 2006
as approved by the Annual Shareholders' Meeting of Banco Santander Chile, are as
follows:
Shareholders
|
|
Dividend
|
|
|
Dividend
|
|
|
Dividend
|
|
|
Percentage
|
|
Meeting
|
|
(historical)
|
|
|
Paid
(1)
|
|
|
per
share
|
|
|
Paid
(2)
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
Ch$
|
|
|
|
|
Apr-06
|
|
|
155,811 |
|
|
|
170,952 |
|
|
|
0.91 |
|
|
|
65 |
% |
Apr-07
|
|
|
185,628 |
|
|
|
198,121 |
|
|
|
1.05 |
|
|
|
65 |
% |
(1)
|
Dividend
paid has been restated in constant Chilean pesos of December 31,
2007.
|
(2)
|
% of
net income paid as dividend, agreed by the Ordinary Shareholders’
Meeting.
|
NOTE
15.
|
|
NONCONTROLLING
INTEREST
|
The
following table illustrates the participation of the noncontrolling interest in
the consolidated Shareholders’ equity and the consolidated income
statement:
|
|
As
of December 31, 2007
|
|
|
|
|
|
|
Noncontrolling
Interest
|
|
|
|
Noncontrolling
|
|
|
Equity
|
|
|
Net
Income
|
|
|
|
Ownership
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Santander
Leasing S.A.
|
|
|
0.50 |
% |
|
|
154 |
|
|
|
2 |
|
Santander
Asset Management S.A. Adm. Gral. Fondos
|
|
|
0.02 |
% |
|
|
18 |
|
|
|
5 |
|
Santander
S.A. Agente de Valores
|
|
|
0.97 |
% |
|
|
1,374 |
|
|
|
65 |
|
Santander
S.A. Sociedad Securitizadora
|
|
|
0.36 |
% |
|
|
4 |
|
|
|
0 |
|
Santander
Corredora de Seguros Limitada
|
|
|
0.01 |
% |
|
|
3 |
|
|
|
1 |
|
Santander
Investment S.A. Corredores de Bolsa
|
|
|
49.00 |
% |
|
|
18,494 |
|
|
|
1,982 |
|
Total
|
|
|
|
|
|
|
20,047 |
|
|
|
2,055 |
|
|
|
As
of December 31, 2006
|
|
|
|
|
|
|
Noncontrolling
Interest
|
|
|
|
Noncontrolling
|
|
|
Equity
|
|
|
Net
Income
|
|
|
|
Ownership
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Santander
Leasing S.A.
|
|
|
0.50 |
% |
|
|
152 |
|
|
|
6 |
|
Santander
Asset Management S.A. Adm. Gral. Fondos
|
|
|
0.02 |
% |
|
|
16 |
|
|
|
3 |
|
Santander
S.A. Agente de Valores
|
|
|
0.97 |
% |
|
|
1,461 |
|
|
|
152 |
|
Santander
S.A. Sociedad Securitizadora
|
|
|
0.36 |
% |
|
|
4 |
|
|
|
0 |
|
Santander
Corredora de Seguros Limitada
|
|
|
0.01 |
% |
|
|
2 |
|
|
|
1 |
|
Total
|
|
|
|
|
|
|
1,635 |
|
|
|
162 |
|
|
|
As
of December 31, 2005
|
|
|
|
|
|
|
Noncontrolling
Interest
|
|
|
|
Noncontrolling
|
|
|
Equity
|
|
|
Net
Income
|
|
|
|
Ownership
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Santander
Leasing S.A.
|
|
|
0.50 |
% |
|
|
149 |
|
|
|
7 |
|
Santander
Asset Management S.A. Adm. Gral. Fondos
|
|
|
0.02 |
% |
|
|
15 |
|
|
|
5 |
|
Santander
S.A. Agente de Valores
|
|
|
0.97 |
% |
|
|
1,436 |
|
|
|
133 |
|
Santander
S.A. Sociedad Securitizadora
|
|
|
0.36 |
% |
|
|
4 |
|
|
|
0 |
|
Santander
Corredora de Seguros Limitada
|
|
|
0.01 |
% |
|
|
2 |
|
|
|
1 |
|
Total
|
|
|
|
|
|
|
1,606 |
|
|
|
146 |
|
NOTE
16.
|
|
TRANSACTIONS
WITH RELATED PARTIES
|
In
accordance with the Chilean General Banking Law and the rules of the
Superintendency of Banks, related parties are defined as individuals and
companies who are directors, officers or shareholders who own more than one
percent of the Bank’s shares. Companies in which a director, officer
or shareholder of the Bank holds more than a 5% interest and companies that have
common directors with the Bank are also considered to be related
parties. In the following table, trading or manufacturing companies
are defined as operating companies, and companies whose purpose is to hold
shares in other companies are defined as holding companies.
a) Loans
granted to related parties
Related
party loans, all of which are current, are as follows:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
Loans
|
|
|
Collateral
Pledged
|
|
|
Loans
|
|
|
Collateral
Pledged
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
companies
|
|
|
161,235 |
|
|
|
121,392 |
|
|
|
88,510 |
|
|
|
50,404 |
|
Investment
companies
|
|
|
218,384 |
|
|
|
4,242 |
|
|
|
185,812 |
|
|
|
29,419 |
|
Individuals
|
|
|
26,269 |
|
|
|
24,005 |
|
|
|
30,175 |
|
|
|
28,629 |
|
Total
|
|
|
405,888 |
|
|
|
149,639 |
|
|
|
304,497 |
|
|
|
108,452 |
|
(1)
|
Includes
companies whose purpose is to hold shares in other
companies.
|
(2)
|
Includes
debt obligations that are individually equal to or greater than UF 3,000,
equivalent to MCh$59 as of December 31,
2007.
|
The
activities in the balances of loans to related parties are as
follows:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Balance
as of January 1,
|
|
|
499,486 |
|
|
|
405,888 |
|
New
loans
|
|
|
428,124 |
|
|
|
127,273 |
|
Repayments
|
|
|
(528,871 |
) |
|
|
(198,604 |
) |
Price-
level restatements
|
|
|
7,149 |
|
|
|
(30,060 |
) |
Balance
as of December 31,
|
|
|
405,888 |
|
|
|
304,497 |
|
NOTE
16.
|
TRANSACTIONS
WITH RELATED PARTIES
(continuation).
|
b) Other
transactions with related parties
During the
years ended December 31, 2005, 2006 and 2007, the Bank had the following
significant income (expenses) from services provided to (by) related
parties:
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
Income/Expense
|
|
|
Income/Expense
|
|
|
Income/Expense
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Redbanc
S.A.
|
|
|
(3,884 |
) |
|
|
(4,358 |
) |
|
|
(3,967 |
) |
Transbank
S.A.
|
|
|
(6,429 |
) |
|
|
(8,776 |
) |
|
|
(6,871 |
) |
Sixtra
Chile S.A.
|
|
|
(37 |
) |
|
|
- |
|
|
|
- |
|
Santander
G.R.C. Limitada
|
|
|
(1,231 |
) |
|
|
(1,679 |
) |
|
|
(3,218 |
) |
Santander
Chile Holding S.A.
|
|
|
53 |
|
|
|
34 |
|
|
|
33 |
|
Santander
Factoring S.A.
|
|
|
55 |
|
|
|
56 |
|
|
|
52 |
|
Bansa
Santander S.A.
|
|
|
1,229 |
|
|
|
(2,606 |
) |
|
|
(2,506 |
) |
A.F.P.
Bansander S.A.
|
|
|
167 |
|
|
|
192 |
|
|
|
137 |
|
Altec
S.A.
|
|
|
(7,138 |
) |
|
|
(6,046 |
) |
|
|
(6,103 |
) |
Santander
Investment Chile S.A.
|
|
|
97 |
|
|
|
98 |
|
|
|
95 |
|
Altavida
Cia. de Seguros de Vida S.A.
|
|
|
74 |
|
|
|
(1,080 |
) |
|
|
(1,675 |
) |
Santander
Cia. de Seguros Generales S.A.
|
|
|
- |
|
|
|
- |
|
|
|
(821 |
) |
Plaza
El Trébol S.A.
|
|
|
(216 |
) |
|
|
(210 |
) |
|
|
(68 |
) |
Others
|
|
|
(327 |
) |
|
|
(515 |
) |
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(17,587 |
) |
|
|
(24,890 |
) |
|
|
(24,782 |
) |
Article 89
of the Chilean Companies Law requires that the Bank’s transactions with related
parties be on a market basis or on terms similar to those customarily prevailing
in the market.
NOTE
17. |
|
FEES
AND INCOME FROM SERVICES
|
Fees and
income from services and the related expenses are summarized as
follows:
|
|
Year
ended December 31,
|
|
|
|
Income
|
|
|
Expenses
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
Fees
and income from services:
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
agency services
|
|
|
3,095 |
|
|
|
2,870 |
|
|
|
2,549 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Checking
accounts
|
|
|
41,836 |
|
|
|
49,137 |
|
|
|
47,140 |
|
|
|
(5,431 |
) |
|
|
(4,446 |
) |
|
|
(3,788 |
) |
Credit
cards
|
|
|
30,296 |
|
|
|
39,600 |
|
|
|
44,187 |
|
|
|
(15,129 |
) |
|
|
(19,563 |
) |
|
|
(21,222 |
) |
Automatic
teller cards
|
|
|
24,137 |
|
|
|
26,100 |
|
|
|
28,375 |
|
|
|
(9,247 |
) |
|
|
(10,767 |
) |
|
|
(12,153 |
) |
Letters
of credit, guarantees, pledges and other contingent loans
|
|
|
3,026 |
|
|
|
2,710 |
|
|
|
2,645 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Lines
of credit
|
|
|
9,483 |
|
|
|
13,346 |
|
|
|
14,683 |
|
|
|
(302 |
) |
|
|
(308 |
) |
|
|
(361 |
) |
Underwriting
|
|
|
2,560 |
|
|
|
1,445 |
|
|
|
1,480 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Bank
drafts and fund transfers
|
|
|
277 |
|
|
|
670 |
|
|
|
306 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Sales
and purchases of foreign currencies
|
|
|
7,581 |
|
|
|
6,895 |
|
|
|
6,254 |
|
|
|
(470 |
) |
|
|
(495 |
) |
|
|
(614 |
) |
Insurance
brokerage
|
|
|
11,590 |
|
|
|
12,713 |
|
|
|
12,725 |
|
|
|
(2,558 |
) |
|
|
(468 |
) |
|
|
(719 |
) |
Custody
and trust services
|
|
|
756 |
|
|
|
767 |
|
|
|
971 |
|
|
|
(57 |
) |
|
|
(375 |
) |
|
|
(1,092 |
) |
Mutual
fund services
|
|
|
20,709 |
|
|
|
21,560 |
|
|
|
29,906 |
|
|
|
- |
|
|
|
(30 |
) |
|
|
(252 |
) |
Saving
accounts
|
|
|
262 |
|
|
|
272 |
|
|
|
237 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Agreements
of administration and collection
|
|
|
22,130 |
|
|
|
24,962 |
|
|
|
29,096 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock
brokerage
|
|
|
1,846 |
|
|
|
1,569 |
|
|
|
8,365 |
|
|
|
(69 |
) |
|
|
(72 |
) |
|
|
(1,104 |
) |
Others
|
|
|
6,702 |
|
|
|
8,465 |
|
|
|
9,008 |
|
|
|
(1,210 |
) |
|
|
(1,914 |
) |
|
|
(3,697 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income (expense)
|
|
|
186,286 |
|
|
|
213,081 |
|
|
|
237,927 |
|
|
|
(34,473 |
) |
|
|
(38,438 |
) |
|
|
(45,002 |
) |
NOTE
18. |
|
NON-OPERATING
INCOME AND EXPENSES
|
Non-operating
income and expenses are set forth below:
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Non-operating
income:
|
|
|
|
|
|
|
|
|
|
Gain
on sale of Bank premises and equipment
|
|
|
345 |
|
|
|
610 |
|
|
|
485 |
|
Gain
on sales of assets received in lieu of payment previously Charged
–off
|
|
|
18,233 |
|
|
|
8,649 |
|
|
|
6,974 |
|
Rental
income
|
|
|
1,327 |
|
|
|
1,285 |
|
|
|
1,395 |
|
Recovery
of expenses
|
|
|
125 |
|
|
|
29 |
|
|
|
8 |
|
Recovery
of previous-year expenses
|
|
|
2,833 |
|
|
|
6,715 |
|
|
|
9,113 |
|
Gain
on sale of shares
|
|
|
- |
|
|
|
- |
|
|
|
2,080 |
|
Other
|
|
|
34 |
|
|
|
538 |
|
|
|
338 |
|
Total
non-operating income
|
|
|
22,897 |
|
|
|
17,826 |
|
|
|
20,393 |
|
NOTE
18.
|
NON-OPERATING
INCOME AND EXPENSES (continuation).
|
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Non-operating
expenses:
|
|
|
|
|
|
|
|
|
|
Charge-offs
of assets received in lieu of payment
|
|
|
23,030 |
|
|
|
14,629 |
|
|
|
7,991 |
|
Loss
on sales of bank premises and equipment
|
|
|
61 |
|
|
|
5 |
|
|
|
898 |
|
Other
|
|
|
23,958 |
|
|
|
7,720 |
|
|
|
1,705 |
|
Total
non-operating expenses
|
|
|
47,049 |
|
|
|
22,354 |
|
|
|
10,594 |
|
NOTE
19.
|
DIRECTORS'
EXPENSES AND REMUNERATION
|
The
following items were charged to expense for services provided by the members of
the Board:
|
Year
ended December 31,
|
|
2005
|
|
2006
|
|
2007
|
|
MCh$
|
|
MCh$
|
|
MCh$
|
|
|
|
|
|
|
Remuneration
established by the General Shareholders’
|
|
|
|
|
|
meeting,
including attendance fees
|
447
|
|
525
|
|
578
|
NOTE
20.
|
FOREIGN
CURRENCY POSITION
|
The
consolidated balance sheets include assets and liabilities denominated in
foreign currencies which have been translated into Chilean pesos at the
applicable exchange rates as of December 31, 2006 and 2007, and assets and
liabilities which are denominated in Chilean pesos subject to exchange rate
fluctuations, as detailed below.
|
|
As
of December 31, 2006
|
|
|
As
of December 31, 2007
|
|
|
|
Denominated
in
|
|
|
Denominated
in
|
|
|
|
Foreign
|
|
|
Chilean
|
|
|
|
|
|
Foreign
|
|
|
Chilean
|
|
|
|
|
|
|
currency
|
|
|
pesos
|
|
|
Total
|
|
|
currency
|
|
|
pesos
|
|
|
Total
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
810,884 |
|
|
|
- |
|
|
|
810,884 |
|
|
|
849,968 |
|
|
|
- |
|
|
|
849,968 |
|
Financial
investments
|
|
|
265,455 |
|
|
|
100,177 |
|
|
|
365,632 |
|
|
|
98,835 |
|
|
|
63,629 |
|
|
|
162,464 |
|
Loans
(including contingent loans)
|
|
|
1,330,257 |
|
|
|
145 |
|
|
|
1,330,402 |
|
|
|
1,530,531 |
|
|
|
42 |
|
|
|
1,530,573 |
|
Other
assets
|
|
|
177,419 |
|
|
|
9 |
|
|
|
177,428 |
|
|
|
267,613 |
|
|
|
- |
|
|
|
267,613 |
|
Total
assets
|
|
|
2,584,015 |
|
|
|
100,331 |
|
|
|
2,684,346 |
|
|
|
2,746,947 |
|
|
|
63,671 |
|
|
|
2,810,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,290,858 |
|
|
|
151 |
|
|
|
1,291,009 |
|
|
|
1,630,115 |
|
|
|
140 |
|
|
|
1,630,255 |
|
Contingent
liabilities
|
|
|
527,998 |
|
|
|
- |
|
|
|
527,998 |
|
|
|
646,038 |
|
|
|
- |
|
|
|
646,038 |
|
Due
to domestic bank
|
|
|
29,223 |
|
|
|
818 |
|
|
|
30,041 |
|
|
|
75,412 |
|
|
|
538 |
|
|
|
75,950 |
|
Due
to foreign bank
|
|
|
872,700 |
|
|
|
- |
|
|
|
872,700 |
|
|
|
1,093,674 |
|
|
|
- |
|
|
|
1,093,674 |
|
Other
liabilities
|
|
|
521,026 |
|
|
|
2 |
|
|
|
521,028 |
|
|
|
533,518 |
|
|
|
- |
|
|
|
533,518 |
|
Total
liabilities
|
|
|
3,241,805 |
|
|
|
971 |
|
|
|
3,242,776 |
|
|
|
3,978,757 |
|
|
|
678 |
|
|
|
3,979,435 |
|
Net
assets (liabilities) in foreign currency
|
|
|
(657,790 |
) |
|
|
99,360 |
|
|
|
(558,430 |
) |
|
|
(1,231,810 |
) |
|
|
62,993 |
|
|
|
(1,168,817 |
) |
The Bank
records the effects of deferred taxes on its consolidated financial statements
in accordance with Technical Bulletin No. 60 and the complementary technical
bulletins thereto issued by the Chilean Association of Accountants.
As
described in that accounting standard, beginning January 1, 1999, the Bank
recognized the consolidated tax effects generated by the temporary differences
between financial and tax values of assets and liabilities. At the
same date, the net deferred tax asset/liability determined was completely offset
against a net “complementary” account. Such complementary deferred tax balances
are being amortized over the estimated reversal periods corresponding to the
underlying temporary differences as of January 1, 1999. In accordance
with Technical Bulletin No. 60, deferred tax asset and liability amounts are
presented net of the related unamortized complementary account balances in the
consolidated balance sheet. The complementary accounts were
completely amortized during 2005. Deferred income tax balances were
as follows:
|
|
Deferred
taxes as of
|
|
|
|
December
31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Assets
|
|
|
|
|
|
|
Interest
and indexation for tax purposes
|
|
|
6,666 |
|
|
|
6,921 |
|
Assets
received in lieu of payment
|
|
|
1,515 |
|
|
|
741 |
|
Foreign
exchange
|
|
|
825 |
|
|
|
807 |
|
Allowance
for loan losses
|
|
|
22,810 |
|
|
|
28,159 |
|
Other
provisions
|
|
|
12,035 |
|
|
|
8,828 |
|
Forward
contracts
|
|
|
(534 |
) |
|
|
(1,017 |
) |
Leasing
assets
|
|
|
5,454 |
|
|
|
14,386 |
|
Others
|
|
|
64 |
|
|
|
222 |
|
Total
|
|
|
48,835 |
|
|
|
59,047 |
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Valuation
of investments
|
|
|
(2,287 |
) |
|
|
(3,004 |
) |
Deferred
expenses
|
|
|
(2,090 |
) |
|
|
(2,441 |
) |
Others
|
|
|
(4,688 |
) |
|
|
(5,099 |
) |
Total
|
|
|
(9,065 |
) |
|
|
(10,544 |
) |
Net
difference
|
|
|
39,770 |
|
|
|
48,503 |
|
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Amortization
of deferred tax complementary account
|
|
|
(29 |
) |
|
|
- |
|
|
|
- |
|
Deferred
tax benefit (expense) for the year
|
|
|
(5,189 |
) |
|
|
(3,030 |
) |
|
|
11,487 |
|
Net
benefit (charge) to deferred taxes
|
|
|
(5,218 |
) |
|
|
(3,030 |
) |
|
|
11,487 |
|
Income
tax provision – current
|
|
|
(49,127 |
) |
|
|
(59,391 |
) |
|
|
(66,472 |
) |
Other
taxes
|
|
|
(326 |
) |
|
|
(108 |
) |
|
|
(186 |
) |
Income
tax expense
|
|
|
(54,671 |
) |
|
|
(62,529 |
) |
|
|
(55,171 |
) |
NOTE
22.
|
CONTINGENCIES
AND COMMITMENTS
|
As of
December 31, 2006 and 2007, the subsidiary Santiago Leasing S.A. leased property
with deferred customs duties. The subsidiary may eventually have to
pay such duties, amounting to MUS$10 and MUS$10, respectively, on behalf of the
leaseholder, if not paid by the latter. Leased assets subject to deferred custom
duties amounts to MCh$59.5 as of December 31, 2007, (MCh$59.7 in
2006).
On August
26, 1992, a suit was filed by the Chilean internal Revenue Service against the
Bank. The Appeals Court partially resolved in favor of Banco
Santander Chile and substantially reduced the amount of the tax
difference. On December 13, 2007, the Bank paid MCh$423.4 due to this
lawsuit.
In
addition, we are subject to certain claims and are party to certain legal and
arbitration proceedings incidental to the normal course of our business
including claims for alleged operational errors. We do not believe
that the liabilities related to such claims and proceedings are likely to have,
in the aggregate, a material adverse effect on our consolidated financial
condition or results of operations, however, based on management individual
analysis of each proceeding, we have provisioned the amount in “Provisions for
lawsuit and other” in Note 10 (b).
There are
no material proceedings in which any of our directors, any members of our senior
management, or any of our affiliates is either a party adverse to us or our
subsidiaries or has a material interest adverse to us or our
subsidiaries.
b)
|
Guarantees
from operations:
|
In order
to ensure the correct and full compliance of all its obligations as Securities
Agent, in conformity with article No 30, and subsequent articles of Law 18,045
on the Securities Market, the subsidiary Santander S.A. Agente de Valores
established a guaranty for UF 4,000 for the insurance policy N° 207111983,
underwritten by Compañía de Seguros de Crédito Continental S.A. whose maturity
is December 19, 2008.
In order
to comply with Article 30 of Law No. 18,045, Santander Investment S.A Corredores
de Bolsa maintains in custody with the Bolsa de Comercio de Santiago a guarantee
of their performance worth MCh$1,832.
In
conformity with the General Character Regulation N° 125, the subsidiary
Santander Asset Management S.A. Administradora General de Fondos, designated the
Bank as the representative of the benefits of guarantees set up per each of its
funds administered for UF 1,349,999. In addition to these bank
guarantees, other guarantees were entered into for approximately MCh$104,386.4
for the Mutual Fund´s guaranteed profitability.
NOTE
22.
|
CONTINGENCIES
AND COMMITMENTS (continuation).
|
Integral
Insurance:
Banco
Santander maintains, for all its subsidiaries, an insurance policy with Compañía
de Seguros Generales La Interamericana that covers matters such as: employee
fraud, document loss, falsification or modification of documents and counterfeit
documents.
In
accordance with Circular No. 1,160 of the Superintendencia de Valores y Seguros,
Santander Corredora de Seguros Limitada maintains an insurance policy in order
to fulfill all obligations in connection with its obligations as a broker of
insurance policies. This insurance policy was taken with Compañía de Seguros
Chilena Consolidada S.A. in amount equal to UF 60,000 and that covers the period
between April 15, 2007 and April 14, 2008.
NOTE
23.
|
FIDUCIARY
ACTIVITIES
|
The
following items are recorded in memorandum accounts by the Bank and represent
fiduciary safekeeping and custody services:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Securities
held in safe custody
|
|
|
12,029,535 |
|
|
|
11,863,494 |
|
Amount
to be collected on behalf of local third parties
|
|
|
124,289 |
|
|
|
105,746 |
|
Amount
to be collected on behalf of foreign third parties
|
|
|
216,892 |
|
|
|
206,165 |
|
Total
|
|
|
12,370,716 |
|
|
|
12,175,405 |
|
NOTE
24.
|
PRICE-LEVEL
RESTATEMENT
|
The
price-level restatement loss is determined by restating the following
non-monetary assets, liabilities and equity:
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Restatement
of non monetary accounts based on Consumer Price Index:
|
|
|
|
|
|
|
|
|
|
Bank
premises and equipment, net
|
|
|
9,832 |
|
|
|
5,120 |
|
|
|
17,276 |
|
Investments
in other companies
|
|
|
380 |
|
|
|
183 |
|
|
|
448 |
|
Other
non-monetary assets and liabilities
|
|
|
2,416 |
|
|
|
1,731 |
|
|
|
6,045 |
|
Shareholders'
equity
|
|
|
(32,530 |
) |
|
|
(21,841 |
) |
|
|
(80,094 |
) |
Loss
from price-level restatement, net
|
|
|
(19,902 |
) |
|
|
(14,807 |
) |
|
|
(56,325 |
) |
NOTE
25.
|
SALES
AND PURCHASE OF LOANS
|
From time
to time, the bank sells and purchases loans based on specific requirements from
customers. During the years ended December 31, 2005, 2006 and 2007,
the Bank sold loans in the amount of MCh$100,448, MCh$202,292 and MCh$61,445,
respectively; however, the Bank does not enter into loans for future
sale. During the years ended December 31, 2005, 2006 and 2007, the
Bank purchased loans totaling MCh$24,436, MCh$28,329 and MCh$18,770
respectively. Any gains or losses on such transactions are recognized in results
of operations at the time of the transactions.
The
aggregate gains (losses) on sales of loans were MCh$678, MCh$1,846 and MCh$339
for the years ended December 31, 2005, 2006 and 2007, respectively.
During
2007, the Bank sold in two times part of its charged-off loans as
follows:
a)
|
First
Sale, March 2007
|
Cession of
Rights on March 9, 2007, by a global sale price of approximately MCh$36,370 of
which MCh$9,092 were deposited in a special account in case of possible
adjustments of price in the future, according to the procedure established in
the respective contract of credit cession (escrow deposit).
During
March of 2007, the Bank also returned to the buyer approximately MCh$3,760 that
corresponds to the amount of the loans collected between the deadline of the
loans to be ceded (September 30, 2006) and the date in which this cession took
place (March 9, 2007). Thus then, the net amount recognized by this
operation was MCh$23,518.
Finally,
on December 14, 2007, by means of public deed, the Bank modified and settled the
contract of cession of rights and escrow deposit. According to this
modification, the Bank will receive during the year 2008 MCh$2,226 by concept of
the above mentioned adjustment of prices.
b)
|
Second
Sale, August 2007
|
Cession of
Rights on August 30, 2007, for the amount of MCh$2,275, the total amount was
recorded as income from Recoveries of Loans.
NOTE
26.
|
VARIABLE
COMPENSATION
|
Banco
Santander Chile and its affiliates, in the matter of remunerations, have
designed variable compensation plans for their employees based on the attainment
of goals and objectives whose fulfillment is evaluated and compensated on a
quarterly and/or annual basis. In addition, there are also long term variable
remuneration plans oriented to the retention and motivation of executives, and
whose payment depends on the degree of attainment of common and individuals
goals for periods greater than a year.
NOTE
27.
|
SUBSEQUENT
EVENTS
|
Banco
Bilbao Vizcaya Argentaria (BBVA) lent to Administrador Financiero Transantiago
S.A (“AFT”) one or more credits totaling up to UF 760,000 to finance one or more
guarantee deposits that’s needs to be issue to the Transportation Authority
(Subsecretaría de Transportes).
On January
10, 2008, the shareholders of AFT, where Banco Santander Chile owns 20% of its
shares, assumed the responsibility to pay BBVA the above mentioned credits in
the event that AFT become unable to comply with the commitment. The debt will be
assumed by each shareholder in accordance with their percentage of
participation.
On January
17, 2008, the Bank issued bonds serie Y denominated in UF for an amount of
4,000,000 as described in note 11. These bonds carry an annual nominal interest
rate of 3.5% with a term of 6 years.
Between
December 31, 2007 and the date of these financial statements (June 23, 2008), no
other significant subsequent events exist that could materially affect these
financial statements.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
|
The
following is a description of the significant differences between accounting
principles generally accepted in Chile and accounting principles of the
Superintendency of Banks (collectively, “Chilean GAAP”), and accounting
principles generally accepted in the United States (“U.S. GAAP”).
References
below to “SFAS” are to United States Statements of Financial Accounting
Standards. Pursuant to Chilean GAAP, the Bank’s consolidated financial
statements recognize certain effects of inflation.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
cumulative inflation rate in Chile as measured by the CPI for the three years
period ended December, 2007 was approximately 13.69%. Chilean GAAP
requires that financial statements of banks be restated to reflect the total
effect of the loss in the purchasing power of the Chilean peso on the financial
position and results of operations of reporting entity. The method,
described in Note 1 (c), is based on a model which enables calculation of net
inflation gains or losses caused by monetary assets and liabilities exposed to
changes in the purchasing power of local currency, by restating all non-monetary
accounts in the financial statements. The model prescribes that the
historical cost of such accounts be restated for general price-level changes
between the date of origin of each item and the end of the period. As
permitted under Item 18 of Form 20-F of SEC Regulation S-X no adjustments have
been made to reflect the elimination of price-level adjustments.
(a)
|
Business
Combination
|
|
|
|
|
(1)
|
Under
Chile GAAP, business combinations accounted for under the purchase
accounting method do not require the pushdown of the associated goodwill
to the acquired entity. Furthermore, prior to January 1, 2004, assets
acquired and liabilities assumed were recorded at their carrying value
upon acquisition with the excess of the purchase price over the carrying
value recorded as goodwill. Additionally, “pooling of
interests” treatment may be more widely applied than under U.S.
GAAP.
|
|
|
|
|
|
Under
U.S. GAAP, when following the purchase accounting method, pushdown
accounting to the acquired entity is required for the goodwil1 generated
in the business combination. Also, under U.S. GAAP, purchase accounting
requires that the fair value of the assets acquired and the liabilities
assumed be recorded with the excess of the purchase price over such fair
values recorded as goodwill.
|
|
|
|
|
|
The
following business combinations of the Bank were accounted for as follows
thereby generating the differences noted in the Chile GAAP to U.S. GAAP
reconci1iations of net income and shareholders' equity:
|
|
|
|
|
|
On
April 17, 1999, Banco Centra1 Hispanoamericano S.A. (“BCH”) merged into
Banco Santander S.A. to create Banco Santander Central Hispano
(“BSCH”). For Chile GAAP purposes, the merger was accounted for
as a “pooling of interests”. For U.S. GAAP purposes, purchase
accounting was applied. Prior to Apri1 17, 1999, BCH indirectly
held a 21.75% investment in Banco Santiago through a 50% participation in
Teatinos Siglo XXI (“Teatinos”). At the time, the other 50% of
Teatinos was owned by Quiñenco S.A. (“Quiñenco”). A minority
interest of approximately 35.5% was held by the Central Bank of
Chile.
|
|
|
|
|
|
On
May 3, 1999, BSCH purchased the 50% of Teatinos that it did not already
own from Quiñenco. Purchase accounting was applied under both
Chile GAAP and U.S. GAAP.
|
|
|
|
|
|
On
May 17, 1999, the Central Bank and BSCH announced they had entered into an
agreement regarding the disposition of their respective shares of
Santiago. Under this agreement, the Central Bank has an
irrevocable put option to sell to BSCH its Santiago shares during two
years, period beginning May 15,
2000.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
|
|
The
total goodwill generated under U.S. GAAP was pushed down to the acquired
entities' (predecessor entities to the Bank) books. Certain
fair value amounts were recorded for assets acquired and 1iabi1ities
assumed under U.S. GAAP which were recorded at carrying value on the Chile
GAAP books.
|
|
|
|
|
(2)
|
Under
Chilean GAAP, mergers of common control entities are recorded under the
"pooling of interests" method. Should the minority interest be bought out,
purchase accounting is not applied to that percentage. Additionally,
historical financial statements for periods prior to the merger are not
restated under the “as if” pooling of interests
methodology.
|
|
|
|
|
|
Under
U.S. GAAP, mergers of common control entities are also recorded under the
"pooling of interests" method. However, under U.S. GAAP, in
certain circumstances, the step acquisition of a minority interest would
be required to be accounted for under purchase accounting (which step
acquisition goodwill would also require "pushdown" as mentioned in
(1)). Additionally, U.S. GAAP requires the restatement of prior
period financial statements under the “as if” pooling of interests
methodology.
|
|
|
|
|
|
The
following transactions were structured such that they generated the above
differences resulting in adjustments in the Bank's Chile GAAP to U.S. GAAP
reconciliations of net income and shareholders' equity:
|
|
|
|
|
|
On
Apri1 22, 2002, the Central Bank, under the agreement describe above sold
its remaining 35.44% participation in Banco Santiago to Teatinos, the
primary shareholder of the former Banco Santander Chile and a wholly owned
subsidiary of BSCH.
|
|
|
|
|
|
On
August 1, 2002, Banco Santiago and the former Banco Santander Chile
merged. To effect the merger, the minority interest of 11% of
Banco Santander Chile was bought out through the issuance of former Banco
Santiago shares (as Banco Santiago was considered the
acquirer). As a resu1t of the merger between the former Banco
Santiago and the former Banco Santander Chi1e, the former Banco Santiago
issued 89,511,910,227 shares in exchange for all the outstanding common
shares of the former Banco Santander Chi1e using an exchange ratio of
3.55366329 for each former Banco Santander Chile share.
|
|
|
|
|
|
The
Bank did not record deferred taxes under either Chile GAAP or U.S. GAAP on
any goodwill or intangible asset acquired as the result of the acquisition
as these items do not generate temporary differences as defined in either
Chile GAAP nor U.S. GAAP accounting
pronouncements.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(b)
|
Amortization
of Goodwill and Intangible Asset
|
The Bank
adopted Statement of Financial Accounting Standard No. 142, “Goodwill and Other
Intangible Assets”, (“SFAS 142”) as of January 1, 2002. SFAS 142 applies to all
goodwill and identified intangible assets acquired in a business combination.
Under the new standard, beginning January 1, 2002, all goodwill, including that
acquired before initial application of the standard, and indefinite-lived
intangible assets are not amortized, but must be tested for impairment at least
annually.
The Bank
has performed the impairment test of goodwill and intangible assets with
indefinite lives as required by the standard, which did not result in any
impairment. Additionally, the Bank has evaluated the remaining useful life of
these intangible assets that are not being amortized in order to determine
whether events and circumstances continue to support an indefinite useful
life.
In 2006,
the Bank’s Management decided to change our branding strategy to increasing the
use of the brand “Santander” and phasing out the brand “Santiago”. In
2007 we completed the phasing out of the “Santiago” brand ahead of schedule in
accordance with policy set by our parent company in 2007 regarding the Santander
brand worldwide. As a result, we have decided to fully amortize the
brand “Santiago” in 2007. The effect of this amortization, in accordance with US
GAAP, is included in the reconciliation of Net income and Shareholders’ equity
in paragraph (t) below for an amount of MCh$ 55,625.
Under
Chilean GAAP, prior to 1999, the Bank did not record the effects of deferred
income taxes. Effective January 1, 1999, and in accordance with the new
accounting standard under Chilean GAAP (Technical Bulletin No. 60), the Bank was
required to record the effects of deferred tax assets and liabilities based on
the liability method, with deferred tax assets and liabilities established for
temporary differences between the financial reporting basis and the tax basis of
the Bank’s assets and liabilities at enacted tax rates expected to be in effect
when such amounts are realized. As a transitional provision to reduce the impact
of adoption of this standard, the Bank was permitted to record a contra
("complementary") asset or liability as of the date of implementation of the new
accounting standard, i.e. January 1, 1999, related to the effects of deferred
income taxes from prior years. These complementary assets and
liabilities are to be amortized over the average estimated period of reversal of
the temporary differences which generate the future income tax asset or
liability.
At the end
of 2005, these complementary accounts were fully amortized.
Under SFAS
No. 109, “Accounting for Income Taxes” (“SFAS 109”), income taxes are recognized
using the balance sheet method (since 1999) in a manner similar to Chilean GAAP,
however U.S. GAAP did not adopt transitional provisions equivalent to the
“complementary accounts” mentioned in the previous paragraph, but instead,
flowed any adoption effects directly through the income statements in
“Cumulative Effect of a Change in Accounting Principle”.
The
effects of elimination of the complementary assets and liabilities and their
respective amortization as well as effects of recording deferred income taxes on
U.S. GAAP adjustments are included in the reconciliation of consolidated net
income and shareholders’ equity in paragraph (t) below. Additional disclosures
required under SFAS 109 are further described in paragraph (w)
below.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
difference between Chilean GAAP and U.S. GAAP relating the application of FASB
Interpretation N° 48 “Accounting for Uncertainty in Income Taxes” is disclosed
in paragraph (w) below.
As
required by Chilean General Banking Law, unless otherwise decided by a
two-thirds vote of the issued and subscribed shares, the Bank must distribute a
cash dividend in an amount equal to at least 30% of its net income for each year
as determined in accordance with Chilean GAAP, and record that dividend against
retained earnings or current year income in shareholders’ equity when it has
been approved by the Annual Shareholders’ meeting subsequent to year-end unless
a higher legally binding commitment to distribute dividends exists, or unless
and except to the extent the Bank has unabsorbed prior year
losses. Under the provisions issued by the AICPA International
Practice Task Force, such mandatory dividends, as of the year end reporting
date, represent and are reported as “temporary equity”. However,
when, as allowed by regulation, actions of shareholders are taken prior to the
date of financial statement issuance, evidencing that such minimum dividend will
not be fully distributed, the reclassification of such dividend may be limited
to such lesser amount authorized by shareholder ratification. The effect of
recording mandatory dividends in accordance with U.S. GAAP is included in the
reconciliation of net income and shareholders’ equity in paragraph (t)
below.
(e)
|
Interest
income recognition on non-accrual
loans
|
Under
Chilean GAAP the Bank suspends the accrual of interest on loans when is
determined to be a loss or when it becomes past due. Previously
accrued but uncollected interest on overdue loans is not reversed at the time
the loan ceases to accrue interest. Under U.S. GAAP, recognition of
interest on loans is generally discontinued when, in the opinion of management,
there is an indication that the borrower may be unable to meet payments as they
become due. As a general practice, this occurs when loans are 90 days or more
overdue. Any accrued but uncollected interest is reversed against
interest income at that time.
In
addition, under Chilean GAAP, any payment received on overdue loans is treated
as income to the extent of interest earned but not recorded, after reducing any
recorded accrued interest receivable. Any remaining amount is then
applied to reduce the outstanding principal balance. Under U.S. GAAP, any
payment received on loans when the collectibility of the principal is in doubt
is treated as a reduction of the outstanding principal balance of the loan until
such doubt is removed. The effect of the difference in interest
recognition on non accrual loans is considered not material to the Bank’s
financial position and results of its operations. As a result, this
difference not represents an adjustment to the reconciliation note.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(f)
|
Stock
compensation plan
|
On June
23, 2007, Banco Santander Central Hispano S.A. (“Grupo Santander” or “Parent
Company”) approved 100 free shares to each active employee of Santander Group,
to celebrate the 150th Anniversary of Banco Santander.
Under U.S.
GAAP, stock compensations are accounted under SFAS N°123 (R), Accounting for
Stock-Based Compensation. Compensation expense is measured using the fair value
method for stock options and the fair value of the stock for restricted stock at
the date of the grant. The numbers of shares granted by Banco Santander Central
Hispano S.A. to employees of Banco Santander Chile were 868,700. The Bank
recorded the shares granted at fair value as a compensation expense with a
credit to equity as a capital contribution. Under Chilean GAAP no effect was
recorded for this compensation plan.
(g)
|
Contingent
assets and liabilities
|
In
accordance with Chilean GAAP, the Bank recognizes rights and obligations with
respect to contingent loans as contingent assets and
liabilities. Contingent liabilities consist of open, unused and
standby letters of credit, together with guarantees by the Bank in Chilean peso,
UF and foreign currencies (principally U.S. dollars). The liabilities represent
the Bank’s obligations under such agreements. Under U.S. GAAP, such contingent
amounts are not recognized on the consolidated balance sheets, however, they are
disclosed. The reclassification to eliminate the contingent assets against the
contingent liabilities recorded under Chile GAAP has been included in the
balance sheets Article 9 in paragraph (v) below.
Within
contingent assets and liabilities the Bank includes financial
guarantees. Disclosures required in accordance with FIN 45
“Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others” are included in paragraph (ab)
below. For neither contingencies nor guarantees is there recorded an adjustment
to the U.S. GAAP reconciliation of net income or shareholders’ equity, as none
met the requirements for recognition in the income statements.
(h)
|
Investment
securities
|
Under U.S.
GAAP, SFAS N°115, “Accounting for Certain Investments in Debt and Equity
Securities” (“SFAS 115”) requires that debt and equity securities be classified
in accordance with the Bank’s intent and ability to hold the security, as
follows:
·
|
Debt
securities for which the Bank has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and are reported
at amortized cost. As of December 31, 2006 and 2007, the Bank
did not classify any security as
held-to-maturity.
|
·
|
Debt
and equity securities that are bought and held by the Bank, principally
for the purpose of selling them in the near term, are classified as
trading securities and reported at fair value, with unrealized gains and
losses included in earnings.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
·
|
Debt
and equity securities not classified as either held-to-maturity securities
or trading securities are classified as available-for-sale securities and
reported at fair value, with unrealized gains and losses excluded from
earnings and reported in a separate component of shareholders’
equity.
|
SFAS N°
115 established that in the case of foreign-currency-denominated
available-for-sale debt securities, the change in fair value expresses in an
entity’s functional currency is the total of the changes in market price of the
security as expressed in the local currency due to factors such as changes in
interest rates and credit risk and the change in the exchange rate between the
local currency and the entity’s functional currency. EITF 96-15
established that the entire change in the fair value of
foreign-currency-denominated available-for-sale debt securities should be
reported in stockholders’ equity.
Until
2005, under Chilean GAAP the Bank classifies its financial investments as
“trading” or “permanent” (see Note 1). Financial investments held by
the Bank with a secondary market are stated at fair market value with unrealized
gains and losses included in a separate component of shareholders’ equity for
those classified as permanent and with unrealized gains and losses included in
other operating results for those classified as trading which all realized gains
and losses flow through income. All other financial investments are carried at
acquisition cost plus accrued interest and UF indexation adjustments. Investment
securities maintained by the Bank’s subsidiaries were carried at the lower of
price-level restated cost or market value. Additionally, during 2001
the former Banco Santander Chile received permission from the Superintendency of
Banks to record at amortized cost (i.e. not adjusted to market value) a portion
of its portfolio of Chilean Government securities, which are hedged by specific
interest rate swap agreements. During 2005, the aforementioned
portfolio of Chilean government securities was completely amortized. Similarly,
under Chilean GAAP, interest rate swap agreements were not recorded at fair
value (see paragraph (m) below).
As of
December 31, 2005, under Chilean GAAP, the unrealized holding gains (losses)
related to investments classified as permanent have been included in equity,
which does not differ from the treatment “available-for-sale” under U.S.
GAAP. Similarly “trading” securities accounting treatment did not
differ from “trading” securities treatment under U.S. GAAP.
As is
described in Note 2, on December 20, 2005, the Superintendency of Banks issued
Circular No. 3,345 and related amendments, instructing the application of new
accounting principles and valuation criteria for financial instruments acquired
for trading or investment (available-for-sale or held to maturity), derivative
instruments, accounting hedges and write-offs of financial assets in
the balance sheet. Starting January 1, 2006, the Bank classifies their financial
investments in accordance with the Bank’s intent and ability to hold the
security, as trading, available for sale or held to maturity. The new accounting
principles and valuation criteria do not differ significantly from U.S. GAAP,
SFAS No 115. The accounting criteria followed by the Bank’s
subsidiaries on a standalone basis have not been changed, however, under the new
rules established by Circular No. 3,345, for consolidated purposes, the Bank is
required to perform all the necessary adjustments at the consolidation
level.
Based upon
the criteria described above and for presentation purposes, the Bank
reclassified its portfolio of investments in debt and equity securities to
“available-for-sale” or “trading”.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Prior to
January 1, 2006, the adjustment to U.S. GAAP represents the foreign exchange
difference on available-for-sale securities which, under EITF 96-15, is recorded
in Shareholders equity. For the year ended December 31, 2006 the cumulative
effect of prior year differences was reversed.
The
following are required disclosures for investments classified as
available-for-sale in accordance with SFAS 115 and based on Article 9 balance
sheet under U.S. GAAP. Realized gains and losses are determined using the
proceeds from sales less the cost (specific identification method) of the
investments identified to be sold. Additionally, any unrealized
gain/loss previously recorded in equity for these investments is reversed
through the income statements. Gross gains and losses realized on the
sale of available-for-sale securities for the years ended as of December 31,
2005, 2006 and 2007, are as follows:
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Proceeds
from sales of “available-for-sale” securities generating realized
gains
|
|
|
730,186 |
|
|
|
633,958 |
|
|
|
758,857 |
|
Realized
gains
|
|
|
8,177 |
|
|
|
9,760 |
|
|
|
4,710 |
|
Proceeds
from sales of “available-for-sale” securities generating realized
losses
|
|
|
338,983 |
|
|
|
232,932 |
|
|
|
184,060 |
|
Realized
losses
|
|
|
2,743 |
|
|
|
4,165 |
|
|
|
1,438 |
|
(i)
|
Other
than temporary impairment of available for sale
securities
|
Until 2005
under Chilean GAAP the Bank was not required to evaluate if marketable
securities were considered to be other than temporarily impaired. As
is described in Note 2, starting January 1, 2006, under Chilean GAAP, the
evaluation of marketable securities considered to be other than temporarily
impaired is required, if the decline in fair value is judged to be other than
temporary. In such circumstances, the cost basis of the security is written down
to fair value and the amount written down is charged against
income. The impairment is not considered as having established a new
cost basis for the security and therefore, under certain conditions, recovery up
to the extent of the initial cost basis may be recorded. Additionally, Chile
GAAP does not require the inclusion of foreign exchange differences to be
included in the unrealized gains/loss on available-for-sale securities in
equity. The portion related to foreign exchange gain (loss) is
recorded directly in income.
Under U.S.
GAAP, SFAS 115 requires that the Bank determine whether individual securities
classified as available for sale have been impaired on an other than temporary
basis. If the decline in value is judged to be other than temporary,
the cost basis of the individual security is written down to a new cost basis
and the amount by which it is written down is included in earnings (that is,
accounted for as a realized loss). The new cost basis does not change
when subsequent recoveries in fair value occur. Subsequent increases
in the fair value of available for sale securities are included in other
comprehensive income and subsequent decreases in fair value, if not other than
temporary, are also included in the other comprehensive income.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The bank
reviewed its portfolio as of December 31, 2005, and concluded that there was no
other than temporary impairment as of this date. This review
consisted of evaluating the economic reasons for any declines, credit rating of
the issuers of the securities and management’s intention and ability to hold the
securities until the unrealized loss is recovered. At December 31,
2005, based on this analysis, the Bank believed that there were no other than
temporary impairments in its investment portfolio because most of the decline in
fair value of these securities were caused by the appreciation of the Chilean
Peso in relation to the U.S. Dollar which the Bank considered to be
temporary. Most of the securities that have unrealized losses as of
December 31, 2005 had been in a continuous unrealized loss position for less
than one year.
As of
December 31, 2007 and 2006, the Bank considered that the continued devaluation
of the U.S. dollar relative to the Chilean Peso was an indication of other-than
temporary impairment. As a result, an impairment of MCh$791 and MCh$6,004 as of
December 31, 2007 and 2006 respectively, for U.S. GAAP purposes was recognized
for unrealized losses related to U.S. dollar denominated debt securities
classified as available for sale. The effect of other than temporary impairment
of available for sale securities is included in the reconciliation of
consolidated net income paragraph (t) below.
The bank
reviewed the remaining portfolio as of December 31, 2007, and concluded that
there was no other than temporary impairment as of this date. This
review consisted of evaluating the economic reasons for any declines, credit
rating of the issuers of the securities and management’s intention and ability
to hold the securities until the unrealized loss is recovered. At
December 31, 2007, based on this analysis, the Bank believed that there were no
other than temporary impairments in its investment portfolio because most of the
decline in fair value of these securities were caused by market condition which
the Bank considered to be temporary. Most of the securities that have
unrealized losses as of December 31, 2007, had been in a continuous unrealized
loss position for less than one year.
The
carrying value and market value of securities available-for-sale as of December
31, 2005, 2006 and 2007, are as follows:
Available-for-Sale
Investments 2007
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
(1) (2)
|
|
|
Estimated
Fair
Value
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank Securities
|
|
|
337,353 |
|
|
|
190 |
|
|
|
(677 |
) |
|
|
336,866 |
|
Chilean
Treasury bonds
|
|
|
109,993 |
|
|
|
264 |
|
|
|
(1,063 |
) |
|
|
109,194 |
|
Other
Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
447,346 |
|
|
|
454 |
|
|
|
(1,740 |
) |
|
|
446,060 |
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Finance Bonds
|
|
|
277,155 |
|
|
|
542 |
|
|
|
(4,687 |
) |
|
|
273,010 |
|
Other
Foreign Securities
|
|
|
60,682 |
|
|
|
- |
|
|
|
(117 |
) |
|
|
60,565 |
|
Subtotal
|
|
|
337,837 |
|
|
|
542 |
|
|
|
(4,804 |
) |
|
|
333,575 |
|
Total
|
|
|
785,183 |
|
|
|
996 |
|
|
|
(6,544 |
) |
|
|
779,635 |
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Available-for-Sale
Investments 2006
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
(1) (2)
|
|
|
Estimated
Fair
Value
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank Securities
|
|
|
83,474 |
|
|
|
132 |
|
|
|
(85 |
) |
|
|
83,521 |
|
Chilean
Treasury bonds
|
|
|
672 |
|
|
|
- |
|
|
|
(2 |
) |
|
|
670 |
|
Other
Securities
|
|
|
19,896 |
|
|
|
114 |
|
|
|
(100 |
) |
|
|
19,910 |
|
Subtotal
|
|
|
104,042 |
|
|
|
246 |
|
|
|
(187 |
) |
|
|
104,101 |
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
finance Bonds
|
|
|
239,822 |
|
|
|
1,036 |
|
|
|
(1,619 |
) |
|
|
239,239 |
|
Other
Foreign Securities
|
|
|
28,173 |
|
|
|
- |
|
|
|
(729 |
) |
|
|
27,444 |
|
Subtotal
|
|
|
267,995 |
|
|
|
1,036 |
|
|
|
(2,348 |
) |
|
|
266,683 |
|
Total
|
|
|
372,037 |
|
|
|
1,282 |
|
|
|
(2,535 |
) |
|
|
370,784 |
|
Available-for-Sale
Investments 2005
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
(1)
|
|
|
Estimated
Fair
Value
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank Securities
|
|
|
93,172 |
|
|
|
398 |
|
|
|
(1,050 |
) |
|
|
92,520 |
|
Chilean
Treasury bonds
|
|
|
1,318 |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
1,318 |
|
Other
Securities
|
|
|
36,523 |
|
|
|
753 |
|
|
|
(216 |
) |
|
|
37,060 |
|
Subtotal
|
|
|
131,013 |
|
|
|
1,155 |
|
|
|
(1,270 |
) |
|
|
130,898 |
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Finance Bonds
|
|
|
475,153 |
|
|
|
359 |
|
|
|
(19,998 |
) |
|
|
455,514 |
|
Chilean
Financial Institutions Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Chilean
Corporate Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
Foreign Securities
|
|
|
31,882 |
|
|
|
- |
|
|
|
(485 |
) |
|
|
31,397 |
|
Subtotal
|
|
|
507,035 |
|
|
|
359 |
|
|
|
(20,483 |
) |
|
|
486,911 |
|
Total
|
|
|
638,048 |
|
|
|
1,514 |
|
|
|
(21,753 |
) |
|
|
617,809 |
|
(1)
|
Investments
with unrealized losses are disclosed and segregated in accordance with
paragraph 21 of EITF 03-01. Such unrealized losses were caused by interest
rate increases. The contractual terms of these investments do not permit
the issuer to settle the securities at a price less than the amortized
cost of the investment.
|
(2)
|
During
2007 and 2006, as was described in paragraph above the Bank determined
that certain of its foreign-currency-denominated available-for-sale debt
securities had declines in value that were considered other than
temporary, recording a charge to net income of MCh$791 and MCh$6,004,
respectively, to record these securities at their market values at that
date. Future unrealized gains or losses will be recorded in other
comprehensive income consistent with the accounting treatment for
available-for-sale
securities.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
following table shows the unrealized loss position of the available-for-sale
investments as of December 31, 2007 and 2006.
Other than
temporary impairment of available for sale securities
As
of December 31, 2007:
|
|
Less
than 12 months
|
|
|
12
months or more
|
|
|
Total
|
|
Available
for sale Investments
|
|
Amortized
cost
|
|
|
Fair
Value
|
|
|
Unrealized
losses
|
|
|
Amortized
cost
|
|
|
Fair
Value
|
|
|
Unrealized
losses
|
|
|
Amortized
cost
|
|
|
Fair
Value
|
|
|
Unrealized
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Bank Securities
|
|
|
179,867 |
|
|
|
179,190 |
|
|
|
(677 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
179,867 |
|
|
|
179,190 |
|
|
|
(677 |
) |
Chilean
Treasury Bonds
|
|
|
74,004 |
|
|
|
72,941 |
|
|
|
(1,063 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
74,004 |
|
|
|
72,941 |
|
|
|
(1,063 |
) |
Other
Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
253,871 |
|
|
|
252,131 |
|
|
|
(1,740 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
253,871 |
|
|
|
252,131 |
|
|
|
(1,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
deposits in Chilean Financial Institutions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mortgage
Finance Bonds
|
|
|
226,701 |
|
|
|
222,014 |
|
|
|
(4,687 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
226,701 |
|
|
|
222,014 |
|
|
|
(4,687 |
) |
Chilean
financial Institutions Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Chilean
Corporate Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Chilean
Other Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Central
Bank and Government Foreign
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
Foreign Securities
|
|
|
10,754 |
|
|
|
10,637 |
|
|
|
(117 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,754 |
|
|
|
10,637 |
|
|
|
(117 |
) |
Subtotal
|
|
|
237,455 |
|
|
|
232,651 |
|
|
|
(4,804 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
237,455 |
|
|
|
232,651 |
|
|
|
(4,804 |
) |
Total
|
|
|
491,326 |
|
|
|
484,782 |
|
|
|
(6,544 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
491,326 |
|
|
|
484,782 |
|
|
|
(6,544 |
) |
As
of December 31, 2006:
|
|
Less
than 12 months
|
|
|
12
months or more
|
|
|
Total
|
|
Available
for sale Investments
|
|
Amortized
cost
|
|
|
Fair
Value
|
|
|
Unrealized
losses
|
|
|
Amortized
cost
|
|
|
Fair
Value
|
|
|
Unrealized
losses
|
|
|
Amortized
cost
|
|
|
Fair
Value
|
|
|
Unrealized
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank Securities
|
|
|
22,032 |
|
|
|
21,947 |
|
|
|
(85 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
22,032 |
|
|
|
21,947 |
|
|
|
(85 |
) |
Chilean
Treasury Bonds
|
|
|
671 |
|
|
|
669 |
|
|
|
(2 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
671 |
|
|
|
669 |
|
|
|
(2 |
) |
Other
Securities
|
|
|
15,164 |
|
|
|
15,064 |
|
|
|
(100 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,164 |
|
|
|
15,064 |
|
|
|
(100 |
) |
Subtotal
|
|
|
37,867 |
|
|
|
37,680 |
|
|
|
(187 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
37,867 |
|
|
|
37,680 |
|
|
|
(187 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
deposits in Chilean Financial Institutions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mortgage
Finance Bonds
|
|
|
140,003 |
|
|
|
138,384 |
|
|
|
(1,619 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
140,003 |
|
|
|
138,384 |
|
|
|
(1,619 |
) |
Chilean
financial Institutions Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Chilean
Corporate Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Chilean
Other Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Central
Bank and Government Foreign
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
Foreign Securities
|
|
|
28,173 |
|
|
|
27,444 |
|
|
|
(729 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
28,173 |
|
|
|
27,444 |
|
|
|
(729 |
) |
Subtotal
|
|
|
168,176 |
|
|
|
165,828 |
|
|
|
(2,348 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
168,176 |
|
|
|
165,828 |
|
|
|
(2,348 |
) |
Total
|
|
|
206,043 |
|
|
|
203,508 |
|
|
|
(
2,535 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
206,043 |
|
|
|
203,508 |
|
|
|
(
2,535 |
) |
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(j)
Contractual maturities and other disclosures
The
contractual maturities of securities classified by the Bank as
available-for-sale are as follows:
|
|
As
of December 31, 2007
|
|
Available-for-Sale
Investments:
|
|
Within
one
year
|
|
|
After
one year
but
within
five
years
|
|
|
After
five years
but
within
ten
years
|
|
|
After
ten
years
|
|
|
Total
|
|
|
|
(in
millions of constant Ch$ of December 31, 2007)
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank Securities
|
|
|
78,284 |
|
|
|
151,972 |
|
|
|
103,553 |
|
|
|
3,057 |
|
|
|
336,866 |
|
Chilean
Treasury bonds
|
|
|
18,282 |
|
|
|
28,870 |
|
|
|
43,779 |
|
|
|
18,263 |
|
|
|
109,194 |
|
Other
Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
96,566 |
|
|
|
180,842 |
|
|
|
147,332 |
|
|
|
21,320 |
|
|
|
446,060 |
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Finance Bonds
|
|
|
60 |
|
|
|
2,294 |
|
|
|
11,465 |
|
|
|
259,191 |
|
|
|
273,010 |
|
Chilean
Financial Institutions Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Chilean
Corporate Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Chilean
Other Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Central
Bank and Government Foreign Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
Foreign Securities
|
|
|
49,927 |
|
|
|
- |
|
|
|
10,638 |
|
|
|
- |
|
|
|
60,565 |
|
Subtotal
|
|
|
49,987 |
|
|
|
2,294 |
|
|
|
22,103 |
|
|
|
259,191 |
|
|
|
333,575 |
|
Total
|
|
|
146,553 |
|
|
|
183,136 |
|
|
|
169,435 |
|
|
|
280,511 |
|
|
|
779,635 |
|
|
|
As
of December 31, 2006
|
|
Available-for-Sale
Investments:
|
|
Within
one
year
|
|
|
After
one year
but
within
five
years
|
|
|
After
five years
but
within
ten
years
|
|
|
After
ten
years
|
|
|
Total
|
|
|
|
(in
millions of constant Ch$ of December 31, 2007)
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank Securities
|
|
|
22,764 |
|
|
|
60,004 |
|
|
|
754 |
|
|
|
- |
|
|
|
83,522 |
|
Chilean
Treasury bonds
|
|
|
669 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
669 |
|
Other
Securities
|
|
|
9,173 |
|
|
|
8,656 |
|
|
|
1,286 |
|
|
|
795 |
|
|
|
19,910 |
|
Total
|
|
|
32,606 |
|
|
|
68,660 |
|
|
|
2,040 |
|
|
|
795 |
|
|
|
104,101 |
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Finance Bonds
|
|
|
186 |
|
|
|
2,181 |
|
|
|
18,114 |
|
|
|
218,758 |
|
|
|
239,239 |
|
Chilean
Financial Institutions Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Chilean
Corporate Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Chilean
Other Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Central
Bank and Government Foreign Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
Foreign Securities
|
|
|
15,640 |
|
|
|
- |
|
|
|
11,804 |
|
|
|
- |
|
|
|
27,444 |
|
Subtotal
|
|
|
15,826 |
|
|
|
2,181 |
|
|
|
29,918 |
|
|
|
218,758 |
|
|
|
266,683 |
|
Total
|
|
|
48,432 |
|
|
|
70,841 |
|
|
|
31,958 |
|
|
|
219,553 |
|
|
|
370,784 |
|
Under U.S.
GAAP, the Bank is required to disclose the amounts of unrealized holding gains
and losses included in income on securities classified as
trading. For the years ended December 31, 2005, 2006 and 2007, the
Bank recognized in income net unrealized holding gains (losses) of MCh$1,734 and
MCh$(176) and MCh$752 respectively, on these securities.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(k)
Allowance for loan losses
The
determination of loan losses under U.S. GAAP differs from that under Chilean
GAAP in the following respects:
1. Allowance
for loan losses
Under
Chilean GAAP, the allowance for loan losses is calculated according to specific
guidelines set out by the rules of the Superintendency of Banks.
Under U.S.
GAAP, allowances for loan losses should be adequate to cover inherent losses in
the loan portfolio at the respective balance sheet dates. The Bank has estimated
its required allowance under U.S. GAAP in the following manner:
|
·
|
All
loans of the Bank were classified in accordance with the rules of the
Superintendency of Banks.
|
|
·
|
Allowances
for commercial loans classified in loan risk category A1, A2, A3, B or C1
which were not considered impaired under SFAS No. 114, “Accounting by
Creditors for Impairment of a Loan” (“SFAS 114”) were analyzed by loan
category and were adjusted where necessary to reflect the estimated
inherent losses in the loan portfolio based upon the historical movements
and trends in the Bank’s loan classifications (“migration
analysis”).
|
|
·
|
In
addition, specific additional allowances were determined for commercial
loans, i.e. those loans which were not considered above, on the following
basis:
|
|
i.
|
Commercial
loans greater than MCh$100, which were considered impaired in accordance
with the criteria established by SFAS 114 were valued at the present value
of the expected future cash flows discounted at the loan’s effective
contractual interest rate, or at the fair value of the collateral if the
loans were collateral dependent.
|
|
ii.
|
Allowances
for commercial loans which were under MCh$100 (i.e. those loans which were
not considered in the above SFAS 114 analysis), were calculated using the
weighted average loan provision, by loan classification, as determined in
(i). In addition, estimated incurred losses were adjusted based
on results of a migration analysis referred to
above.
|
|
iii.
|
Allowance
for loan losses for mortgage and consumer loans were determined based on
historical loan charge-offs, after considering the recoverability of the
underlying collateral.
|
Based on
the preceding calculations under provisions of SFAS No.114 the Bank reduced the
total loan loss allowance by MCh$8,778 for the year ended December 31,
2006.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Based on
the loan losses allowance estimation process described above, the Bank
determined the allowance for loan losses under U.S. GAAP, and compared this
estimate with the reported allowance determined in accordance with the
guidelines established by the Superintendency of Banks. The
fluctuation of the recorded additional loan loss allowance required
by the Superintendency of Banks, was then deducted from the additional allowance
requirements under U.S. GAAP to arrive at a cumulative U.S. GAAP adjustment for
the Bank, as follows:
|
|
As
of December 31,
|
|
|
|
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
U.S.
GAAP loan loss allowance
|
|
|
(178,236 |
) |
|
|
(232,766 |
) |
Chilean
GAAP loan allowance required by the Superintendency of
Banks
|
|
|
187,014 |
|
|
|
232,766 |
|
U.S.
GAAP adjustment
|
|
|
8,778 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Less:
Chilean GAAP additional loan loss allowance
|
|
|
- |
|
|
|
- |
|
Cumulative
U.S. GAAP adjustment
|
|
|
8,778 |
|
|
|
- |
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
|
Based
on the back testing performed by the Bank, including the consumer credit
portfolio, during the present year the cumulative adjustment recognized in
prior years was credited to income in 2007.
|
|
|
|
The
effect of accounting for loan losses in accordance with U.S. GAAP is
included in the reconciliation of the net income and shareholders' equity
in paragraph (t) below.
|
|
|
2.
|
Recognition
of Income
|
|
|
|
As
of December 31, 2005, 2006 and 2007, the recorded investment in loans for
which impairment has been recognized in accordance with SFAS 114 totaled
MCh$276,912, MCh$333,769 and MCh$410,303, respectively, with a
corresponding valuation allowance of MCh$126,448, MCh$134,218 and
MCh$98,117, respectively. For the years ended December 31,
2005, 2006 and 2007, the average recorded investment in impaired loans was
MCh$312,524, MCh$291,788 and MCh$303,663, respectively. For the
three years ended December 31, 2005, 2006 and 2007, during the portion of
the year that the loans were impaired, the Bank recognized MCh$601,
MCh$471 and MCh$490 of interest on impaired loans. As of
December 31, 2006 and 2007, the Bank had made provisions against all loans
which it considered to be impaired.
|
|
|
3.
|
Loan
loss recoveries
|
|
|
|
Under
Chilean GAAP and U.S. GAAP recoveries of loans previously charged-off are
presented as a reduction of the provision for loan
losses.
|
|
|
|
The
following presents an analysis under U.S. GAAP, for the years ended
December 31, 2005, 2006 and 2007, of the changes in the reserve for loan
losses during the years presented:
|
|
|
As
of December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Allowances
for loan losses in accordance with U.S. GAAP, as of January
1
|
|
|
187,099 |
|
|
|
153,456 |
|
|
|
178,237 |
|
Price-level
restatement (1)
|
|
|
(6,883 |
) |
|
|
(3,367 |
) |
|
|
(12,950 |
) |
Loan
loss recoveries
|
|
|
50,582 |
|
|
|
50,568 |
|
|
|
77,760 |
|
Charge-offs
and recoveries
|
|
|
(150,021 |
) |
|
|
(154,150 |
) |
|
|
(201,124 |
) |
Addition
charged of operations
|
|
|
72,679 |
|
|
|
131,729 |
|
|
|
190,843 |
|
Allowances
for loan losses in accordance with U.S. GAAP, as of December
31
|
|
|
153,456 |
|
|
|
178,236 |
|
|
|
232,766 |
|
|
(1)
|
Reflects
the effect of inflation on the allowance of loan losses under Chilean GAAP
at the beginning of each period, adjusted to constant Chilean pesos of
December 31, 2007.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
4.
|
Charge-offs
|
|
|
|
As
discussed in Note 1 (m) of these financial statements, under Chilean GAAP
the Bank charges off loans when collection efforts have been exhausted.
Under the rules and regulations established by the Superintendency of
Banks, charge-offs must be made within the following maximum prescribed
limits:
|
|
-
|
24
months after a loan is past due (6 months for consumer loans) for loans
without collateral;
|
|
-
|
36
months after a loan is past due for loans with
collateral.
|
|
Under
U.S. GAAP, loans should be written-off in the period that they are deemed
uncollectible. The Bank believes that the charge-off policies it applies
in accordance with Chilean GAAP are substantially the same as those
required under U.S. GAAP, and therefore the potential difference is not
significant to the presentation of its financial
statements.
|
(l)
Investments in other companies
Under
Chilean GAAP, certain long-term investments of less than 20% of the outstanding
shares in other companies have been recorded using the equity method of
accounting (see Note 9 (4)). Under U.S. GAAP those investments
generally would have been recorded at cost. The effect of accounting
for investments in other companies in accordance with U.S. GAAP is included in
the reconciliation of consolidated net income and shareholders’ equity in
paragraph (t) below.
(m)
Derivatives
Chilean
banks are permitted to use foreign exchange forward contracts (covering either
foreign currencies against the U.S. dollar, the UF against the Chilean peso or
the UF and the Chilean peso against the U.S. dollar), forward rate agreements
and interest rate swaps. Currently, the use of derivatives in Chile is regulated
by the Chilean Central Bank, which requires that all foreign exchange forward
contracts be made only in U.S. dollars and other major foreign
currencies.
All
derivative instruments are subject to market risk, which is defined as the risk
that future changes in market conditions may make an investment more or less
valuable. The Bank managed their individual exposure to market risk on a global
basis in accordance with risk limits set by senior management by buying or
selling instruments or entering into offsetting foreign exchange and interest
rate positions.
The Bank
enters into derivative transactions for its own behalf and to meet customers’
risk management needs. Generally the Bank enters into forward
contracts in U.S. dollars against the Chilean peso or the UF, however,
occasionally, forward contracts are also made in other currencies, but only when
the Bank acts as an intermediary. Other derivative transactions
include primarily interest rate swaps (pay fixed-receive floating) and rate lock
agreements. These are used for hedging purposes in order to manage,
among other risks, interest rate and fair value risk related to the Yankee bonds
of Chilean companies, Chilean Government securities bought by the Bank and
certain mortgage loans.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
In order
to manage any credit risk associated with its derivative products, the Bank
grants lines of credit to its counterparties, in accordance with its credit
policies, for each derivative transaction. The counterparty risk exposure is a
function of the type of derivative, the term to maturity of the transaction and
the volatility of the risk factors that affect the derivative’s market
value.
Under
Chilean GAAP, the Bank accounts for forward contracts between foreign currencies
and U.S. dollars at fair value with realized and unrealized gains and losses on
these instruments recognized in other income. Until 2005, forward contracts
between the U.S. dollar and the Chilean peso or the UF were valued at the
closing spot exchange rate of each balance sheet date, with the initial discount
or premium being amortized over the life of the contract in accordance with
Chilean hedge accounting criteria outstanding at this date. Also until 2005,
under Chilean GAAP the Bank records differences between interest income and
interest expense on interest rate swap transactions, in net income in the period
when cash settlements under the agreements were made. The fair value
of the swap agreement and changes in the fair value as a result of changes in
market interest rates were not recognized at each period-close in the Chilean
GAAP consolidated financial statements.
As is
described in Note 2, on December 20, 2005 the Superintendency of Banks issued
Circular No. 3,345 and related amendments, instructing the application of new
accounting principles and valuation criteria for financial instruments acquired
for negotiation or investment, derivative instruments, accounting hedges and
write-offs of financial assets in the balance sheet. The new
accounting principles and valuation criteria does not differ significantly from
U.S. GAAP, SFAS N° 133 and related amendments.
Effective
January 1, 2006, under the requirements of Circular No. 3,345 of the
Superintendency of Banks, the accounting treatment of certain derivative
instruments and hedges of financial assets changed. Traditional
financial instruments which meet the definition of a “derivative”
such as forwards in foreign currency and unidades de fomento (inflation
index-linked units of account), interest rate futures, currency and interest
rate swaps, currency and interest rate options, and others are recognized
initially in the balance sheet at cost (including transaction fees) and, at
subsequent period ends, at their fair value. The fair value is
obtained from market quotes, discounted cash flow models and option valuation
models, as applicable.
Beginning
January 1, 2001, the Bank adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 138, “Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an amendment of
FASB Statement No. 133" (collectively “SFAS 133”), which establishes
comprehensive accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. The standard requires that all derivative instruments be
recorded in the balance sheet at fair value. However, the accounting for changes
in fair value of the derivative instrument depends on the purpose for which the
derivative instrument was entered into and whether the derivative instrument
qualifies as a hedge. The standards also require formal documentation of hedging
relationships and effectiveness testing when hedge accounting is to be applied.
If the derivative instrument does not qualify as a hedge, changes in fair value
are reported in earnings when they occur. If the derivative instrument qualifies
as a hedge, the accounting treatment varies based on the type of risk being
hedged.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Even
thought the methodology to asses Hedge Accounting under Chilean GAAP and U.S.
GAAP are the same, there are certain criteria’s that are presented under US GAAP
and not under Chilean GAAP. As of December 31, 2006 hedged accounting
applied under Chilean GAAP on the mortgage loans portfolio classified in “Other
Outstanding Loans” does not meet the criteria described in SFAS No. 133
paragraph 21 a), which paragraph establishes that the change in fair value
attributable to the hedged risk for each individual item in a hedged portfolio
must be expected to respond in a generally proportionate manner to the overall
change in the fair value of the aggregate portfolio attributable to the hedged
risk. Given the lack of compliance with this paragraph of the hedge
undertaken and documented as such in Chilean GAAP, an adjustment has been
included in the amount of MCh$34,202 and $32,141 as of and for the year ended
December 31, 2006, respectively, in our reconciliation of Shareholders’ equity
and Net income in paragraph (t) below. As there are differences in Hedge
Accounting between Chilean GAAP and U.S. GAAP, as of December 31, 2006, as is
described in the table below, some transactions registered as Hedging
derivatives under Chilean GAAP are reversed for U.S. GAAP purposes and
registered as Trading derivatives.
During
2007, the Bank, discontinue prospectively the Hedge accounting applied under
Chilean GAAP on the mortgage loans portfolio, due to the periodic assessment
indicates noncompliance with the effectiveness criteria. Therefore, as of
December 31, 2007, these are not difference in Hedge accounting between Chilean
GAAP and US GAAP.
As
of December 31, 2007:
|
|
Assets
|
|
|
Liabilities
|
|
|
Chilean
GAAP
Balance
Sheet
|
|
|
U.S.
GAAP
Adjustment
|
|
|
U.S.
GAAP
Balance
Sheet
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Risk Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swap
|
|
|
3,891 |
|
|
|
502 |
|
|
|
3,389 |
|
|
|
- |
|
|
|
3,389 |
|
Currency
Swap (Fair Value)
|
|
|
- |
|
|
|
9,246 |
|
|
|
(9,246 |
) |
|
|
|
|
|
|
(9,246 |
) |
Currency
Swap (Cash Flow)
|
|
|
- |
|
|
|
55,171 |
|
|
|
(55,171 |
) |
|
|
- |
|
|
|
(55,171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Hedging Derivatives
|
|
|
3,891 |
|
|
|
64,919 |
|
|
|
(61,028 |
) |
|
|
- |
|
|
|
(61,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Risk Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swap
|
|
|
86,515 |
|
|
|
159,146 |
|
|
|
(72,631 |
) |
|
|
- |
|
|
|
(72,631 |
) |
Options
and Future
|
|
|
1 |
|
|
|
9 |
|
|
|
(8 |
) |
|
|
- |
|
|
|
(8 |
) |
Currency
Swap
|
|
|
576,515 |
|
|
|
392,337 |
|
|
|
184,179 |
|
|
|
- |
|
|
|
184,179 |
|
Foreign
Exchange Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
purchase/sale of foreign currency
|
|
|
111,681 |
|
|
|
159,969 |
|
|
|
(48,288 |
) |
|
|
- |
|
|
|
(48,288 |
) |
Currency
Options
|
|
|
1,763 |
|
|
|
1,464 |
|
|
|
299 |
|
|
|
- |
|
|
|
299 |
|
Currency
Swap
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
409 |
|
|
|
373 |
|
|
|
36 |
|
|
|
- |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Trading Derivatives
|
|
|
776,884 |
|
|
|
713,298 |
|
|
|
63,587 |
|
|
|
- |
|
|
|
63,587 |
|
Total
Net Derivatives
|
|
|
780,775 |
|
|
|
778,217 |
|
|
|
2,559 |
|
|
|
- |
|
|
|
2,559 |
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
As
of December 31, 2006:
|
|
Assets
|
|
|
Liabilities
|
|
|
Chilean
GAAP
Balance
Sheet
|
|
|
U.S.
GAAP
Adjustment
|
|
|
U.S.
GAAP
Balance
Sheet
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Risk Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swap
|
|
|
1,260 |
|
|
|
2,529 |
|
|
|
(1,269 |
) |
|
|
- |
|
|
|
(1,269 |
) |
Currency
Swap (Fair Value)
|
|
|
- |
|
|
|
40,689 |
|
|
|
(40,689 |
) |
|
|
34,202 |
|
|
|
(6,487 |
) |
Currency
Swap (Cash Flow)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
Hedging Derivatives
|
|
|
1,260 |
|
|
|
43,218 |
|
|
|
(41,958 |
) |
|
|
34,202 |
|
|
|
(7,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Risk Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swap
|
|
|
37,559 |
|
|
|
73,236 |
|
|
|
(35,677 |
) |
|
|
- |
|
|
|
(35,677 |
) |
Options
and Future
|
|
|
1,556 |
|
|
|
1,109 |
|
|
|
447 |
|
|
|
- |
|
|
|
447 |
|
Currency
Swap
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(34,202 |
) |
|
|
(34,202 |
) |
Foreign
Exchange Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
purchase/sale of foreign currency
|
|
|
88,754 |
|
|
|
106,819 |
|
|
|
(18,065 |
) |
|
|
- |
|
|
|
(18,065 |
) |
Currency
Options
|
|
|
4,710 |
|
|
|
4,697 |
|
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
Currency
Swap
|
|
|
265,899 |
|
|
|
152,627 |
|
|
|
113,272 |
|
|
|
- |
|
|
|
113,272 |
|
Other
|
|
|
678 |
|
|
|
697 |
|
|
|
(19 |
) |
|
|
- |
|
|
|
(19 |
) |
Total
Trading Derivatives
|
|
|
399,156 |
|
|
|
339,185 |
|
|
|
59,971 |
|
|
|
(34,202 |
) |
|
|
25,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Net Derivatives
|
|
|
400,416 |
|
|
|
382,403 |
|
|
|
18,013 |
|
|
|
- |
|
|
|
18,013 |
|
Before
January 1, 2006, Chilean accounting rules do not consider the existence of
derivative instruments embedded in other contracts and therefore they were not
reflected in the financial statements. For U.S. GAAP purposes, certain implicit
or explicit terms included in host contracts that affect some or all of the cash
flows or the value of other exchanges required by the contract in a manner
similar to a derivative instrument, must be separated from the host contract and
accounted for at fair value. The Bank separately measures embedded derivatives
as freestanding derivative instruments at their estimated fair values
recognizing changes in earnings when they occur. Currently the only host
contracts that the Bank has, which have implicit or explicit terms that must be
separately accounted for at fair value, are service type contracts related to
computer service agreement and insurance agreements.
For
December 31, 2005, the effects of the adjustments with respect to foreign
exchange contracts, interest rate and foreign currency swaps agreements on the
net income and shareholders’ equity of the Bank are included in paragraph (t)
below.
For the
years ended December 31, 2005, 2006 and 2007, the effects of embedded
derivatives were not significant.
(n)
Recoveries of loans previously charged-off
Under
Chilean GAAP recoveries on charged-off loans as well as recoveries on loans
which were reacquired from the Chilean Central Bank were recorded directly to
income. Under U.S. GAAP, loans that have been previously written-off
cannot be reinstated, and only actual cash recoveries from any previously
charged-off loans would be recognized as income. Consequently, the
effect of these reinstated loans for Chilean GAAP purposes, net of cash
recoveries, has been eliminated in the reconciliation to U.S. GAAP.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(o)
Capitalization of interest costs
For
Chilean GAAP purposes, the Bank does not capitalize interest costs on the assets
that are constructed for its own use. Under SFAS No. 34, interest
costs should be capitalized as they are considered part of the historical cost
of acquiring these assets. The effect of accounting for
capitalization of interest costs in accordance with U.S. GAAP is included in the
reconciliation of net income and shareholders’ equity in paragraph (t)
below.
(p)
Mortgage loans purchased
Banco
Santander Chile acquired mortgage loans (so called ANAP portfolio) from former
savings and loans institutions at a discount. In 1990, based on the
then-existing regulations, the discount on a portion of the loans acquired was
recognized as income. Under U.S. GAAP, such discount should be amortized over
the life of the related loans. The effect of accounting for mortgage loans
purchased in accordance with U.S. GAAP is included in the reconciliation of net
income and shareholders’ equity in paragraph (t) below. This concept
was completely amortized during 2005.
(q)
Acquisition of Financial Assets
The
following business combinations took place prior to the merger of Banco Santiago
and Banco Santander Chile which continue to require adjustments between Chilean
GAAP and U.S. GAAP in the net income and shareholders’ equity reconciliations in
(t):
(1)
|
Acquisition
of Banco O’Higgins
|
For
Chilean GAAP purposes, the merger between the former Banco Santiago and Banco
O’Higgins that took place during 1997 was accounted for using “pooling of
interests”. The assets acquired and liabilities assumed were combined
at their carrying values on the books of the successor entity and the operations
were accounted for as combined from January 1, 1997.
For U.S.
GAAP purposes, the former Banco Santiago accounted for the business combination
as a purchase of Banco O’Higgins. Consequently, goodwill was recorded
as the difference between the purchase price and the fair value of the assets
acquired and the liabilities assumed (which, in management’s opinion,
approximated book value).
The
unamortized goodwill associated with this merger on the books of Banco Santiago,
for U.S. GAAP purposes, as of the date of the merger with the former Banco
Santiago Santander Chile is implicitly included in the goodwill of Teatinos
which had been acquired by BCSH as explained in (a).
(2)
|
Acquisition
of Banco Osorno y la Unión
|
During
1996, the former Banco Santander Chile merged with Banco Osorno y La Unión
(“Banco Osorno”). The treatment for both Chilean GAAP purposes and
U.S. GAAP purposes was equivalent to the treatment in the Banco O’Higgins
transaction in (1) with the exception that the acquisition of Banco Osorno was
defined as a reverse acquisition.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(r)
Assets received in lieu of payment
As
instructed by the Superintendency of Banks, assets received in lieu of payment
are carried at cost, less a global valuation allowance if the total of the fair
value of those assets is lower than the carrying amount. If the asset
is not sold within one year, then the recorded asset amounts should be
written-off at once after the period established ends.
Under U.S.
GAAP, assets received in lieu of payment are initially recorded at fair value
less any estimated costs to sell at the date of foreclosure, on an individual
asset basis. Subsequent to foreclosure, valuations should be
periodically performed to record any impairment. The effect of
recording these assets in accordance with U.S. GAAP in the Bank is included in
the reconciliation of net income and shareholders' equity in paragraph (t)
below.
(s)
Accrued interest and indexation adjustment
Under
Chilean GAAP, accrued interest and indexation adjustment are presented with the
principle amounts of the investments to which they accrete. Under
U.S. GAAP accrued interest and indexation adjustment would be presented as
separate line items in the balance sheet. The amount of this
reclassification is not readily determinable.
(t)
Summary of net income and shareholders’ equity differences
The
following is a reconciliation of net income under Chilean GAAP to the
corresponding amounts under U.S. GAAP:
|
|
Year ended December
31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note 1(r))
|
|
Net income in accordance with
Chilean GAAP
|
|
|
263,006 |
|
|
|
306,829 |
|
|
|
308,647 |
|
|
|
620,046 |
|
Push-down accounting (Note 28 (a))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of trademarks and
other (Note 28
(b))
|
|
|
(14,248 |
) |
|
|
(18,299 |
) |
|
|
(63,044 |
) |
|
|
(126,650 |
) |
Amortization of fair value
increment of net assets
|
|
|
(4,136 |
) |
|
|
(4,132 |
) |
|
|
(4,133 |
) |
|
|
(8,303 |
) |
Deferred
income taxes (Note 28 (c))
|
|
|
30 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Investment securities (Note
28 (h))
|
|
|
2,767 |
|
|
|
(507 |
) |
|
|
791 |
|
|
|
1,589 |
|
Allowance for loan losses
(Note 28 (k))
|
|
|
(1,128 |
) |
|
|
- |
|
|
|
(8,778 |
) |
|
|
(17,634 |
) |
Other than temporary impairment
(Note 28 (i))
|
|
|
- |
|
|
|
(6,004 |
) |
|
|
(791 |
) |
|
|
(1,589 |
) |
Investments in other companies
(Note 28 (l))
|
|
|
10 |
|
|
|
(126 |
) |
|
|
(88 |
) |
|
|
(177 |
) |
Derivatives (Note 28 (m))
|
|
|
7,529 |
|
|
|
(32,141 |
) |
|
|
5,784 |
|
|
|
11,618 |
|
Capitalization of interest costs
(Note 28 (o))
|
|
|
(55 |
) |
|
|
(55 |
) |
|
|
(55 |
) |
|
|
(112 |
) |
Mortgage loans purchased (Note 28
(p))
|
|
|
96 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Assets received in lieu of payment
(Note 28 (r))
|
|
|
(5,175 |
) |
|
|
1,594 |
|
|
|
(3,413 |
) |
|
|
(6,856 |
) |
Stock compensation plan
(Note
28(f))
|
|
|
- |
|
|
|
- |
|
|
|
(8,414 |
) |
|
|
(16,903 |
) |
Deferred tax effect of U.S. GAAP
adjustments
|
|
|
(685 |
) |
|
|
6,309 |
|
|
|
1,098 |
|
|
|
2,206 |
|
Net
income in accordance with U.S. GAAP
|
|
|
248,011 |
|
|
|
253,468 |
|
|
|
227,604 |
|
|
|
457,235 |
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (losses) on available-for-sale and cash flow hedge securities (Note
28 (x))
|
|
|
(25,054 |
) |
|
|
18,020 |
|
|
|
(8,507 |
) |
|
|
(17,090 |
) |
Securities
available for sale
|
|
|
(25,054 |
) |
|
|
18,020 |
|
|
|
(3,637 |
) |
|
|
(7,307 |
) |
Hedge
accounting cash flow
|
|
|
- |
|
|
|
- |
|
|
|
(4,870 |
) |
|
|
(9,783 |
) |
Comprehensive
income in accordance with U.S. GAAP
|
|
|
222,957 |
|
|
|
271,488 |
|
|
|
219,097 |
|
|
|
440,145 |
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
following is a reconciliation of shareholders’ equity under Chilean GAAP to the
corresponding amounts under U.S. GAAP:
|
|
At
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity in accordance with Chilean GAAP
|
|
|
1,337,992 |
|
|
|
1,438,042 |
|
|
|
2,888,911 |
|
Push
Down Accounting (Note 28(a))
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
538,534 |
|
|
|
538,534 |
|
|
|
1,081,872 |
|
Fair value of
intangibles
|
|
|
65,607 |
|
|
|
2,563 |
|
|
|
5,149 |
|
Fair value increment of net
assets
|
|
|
5,759 |
|
|
|
1,626 |
|
|
|
3,267 |
|
Mandatory
dividends (Note 28(d))
|
|
|
(92,049 |
) |
|
|
(92,594 |
) |
|
|
(186,014 |
) |
Allowance for loan losses (Note
28(k))
|
|
|
8,778 |
|
|
|
- |
|
|
|
- |
|
Investments in other companies
(Note 28(l))
|
|
|
316 |
|
|
|
228 |
|
|
|
458 |
|
Derivatives (Note
28(m))
|
|
|
(34,202 |
) |
|
|
(28,418 |
) |
|
|
(57,089 |
) |
Recoveries
of loans (Note 28(n))
|
|
|
(1,399 |
) |
|
|
(1,399 |
) |
|
|
(2,810 |
) |
Capitalization of interest costs
(Note 28(o))
|
|
|
4,109 |
|
|
|
4,054 |
|
|
|
8,144 |
|
Assets received in lieu of payment
(Note 28(r))
|
|
|
5,569 |
|
|
|
2,156 |
|
|
|
4,331 |
|
Deferred tax effect of U.S. GAAP
adjustments
|
|
|
2,915 |
|
|
|
4,013 |
|
|
|
8,062 |
|
Acquisition of financial assets
(Note 28(q))
|
|
|
327,992 |
|
|
|
327,992 |
|
|
|
658,910 |
|
Shareholders’
equity in accordance with U.S. GAAP
|
|
|
2,169,921 |
|
|
|
2,196,797 |
|
|
|
4,413,191 |
|
The
following summarized the changes in the shareholders’ equity of the Bank under
U.S. GAAP during the years ended December 31, 2005, 2006 and 2007:
|
|
As of December
31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
Total
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
(1 r))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January
1,
|
|
|
2,097,439 |
|
|
|
2,082,730 |
|
|
|
2,169,921 |
|
|
|
4,359,197 |
|
Monetary indexation of dividends
paid
|
|
|
(557 |
) |
|
|
(199 |
) |
|
|
(1,969 |
) |
|
|
(3,954 |
) |
Dividends
paid
|
|
|
(226,009 |
) |
|
|
(170,952 |
) |
|
|
(198,121 |
) |
|
|
(398,008 |
) |
Mandatory dividends, previous date
(Note 28 (d))
|
|
|
67,803 |
|
|
|
78,903 |
|
|
|
92,049 |
|
|
|
184,919 |
|
Mandatory dividends, closing date
(Note 28 (d))
|
|
|
(78,903 |
) |
|
|
(92,049 |
) |
|
|
(92,594 |
) |
|
|
(186,014 |
) |
Unrealized gains on
available-for-sale investments, net of tax
|
|
|
(25,054 |
) |
|
|
18,020 |
|
|
|
(3,637 |
) |
|
|
(7,306 |
) |
Hedge accounting cash
flow
|
|
|
- |
|
|
|
- |
|
|
|
(4,870 |
) |
|
|
(9,783 |
) |
Stock compensation plan (Note
28(f))
|
|
|
- |
|
|
|
- |
|
|
|
8,414 |
|
|
|
16,903 |
|
Net income in accordance with U.S.
GAAP
|
|
|
248,011 |
|
|
|
253,468 |
|
|
|
227,604 |
|
|
|
457,237 |
|
Balance at December
31,
|
|
|
2,082,730 |
|
|
|
2,169,921 |
|
|
|
2,196,797 |
|
|
|
4,413,191 |
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
On January
15, 2007, in an Extraordinary General Stockholders Meeting the related
subsidiary Santander Investment S.A. Corredores de Bolsa, approved the merger by
incorporation of the subsidiary Santiago Corredores de Bolsa Ltda. into
Santander Investment S.A. Corredores de Bolsa. This merger has an effective date
of January 1, 2007 and after this merger Santander Investment S.A. Corredores de
Bolsa became a subsidiary of Banco Santander Chile and legally responsible of
Santiago Corredores de Bolsa Limitada future events.
Under
Chilean GAAP and US GAAP the merger of Santiago Corredores de Bolsa Limitada and
Santander Investment S.A. Corredores de Bolsa was accounted as a business
combination under common control.
In
accordance with SFAS 141 - Business Combinations, the Company should present the
statement of financial position and other financial information as of the
beginning of the period as though the assets and liabilities had been
transferred at that date and the financial statements and financial information
presented for prior years should also be restated to furnish comparative
information including the effects of this business
combination. Because the merger explained in note 1 a) of the
financial statements took place in January 1, 2007, the requirement to present
the statement of financial position and other financial information as of the
beginning of the period as though the assets and liabilities had been
transferred at that date does not represent any difference with respect the
accounting for this transaction under Chilean GAAP. With respect to the
requirement to restate the financial statements and financial information
presented for prior years under US GAAP to furnish comparative information
including the effects of this business combination, the following information
presents a summary of the additional revenues, net income, total assets and
total liabilities from Santander Investment S.A. Corredores de Bolsa for the
years ended December 31, 2005 and 2006 if these figures had been included in the
combined reconciliation of net income and shareholders’ equity from Chilean GAAP
to US GAAP. Because the amounts presented below are not considered to be
significant as compared to the respective US GAAP consolidated amounts
previously presented, the 2005 and 2006 reconciliations have not been
restated.
|
|
2005
|
|
|
2006
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Revenues
|
|
|
753 |
|
|
|
125 |
|
Net
income
|
|
|
2,160 |
|
|
|
2,455 |
|
Total
assets
|
|
|
89,192 |
|
|
|
138,367 |
|
Total
liabilities
|
|
|
58,271 |
|
|
|
123,916 |
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(u)
Earnings per share
The
following disclosure of net income per share information is not generally
required for presentation in the financial statements under Chilean GAAP but is
required under U.S. GAAP. Earnings per share are determined by dividing net
income by the weighted average number of total shares outstanding.
|
|
Years ended December
31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
Chilean GAAP (1)
|
|
Ch$
|
|
|
Ch$
|
|
|
Ch$
|
|
Earnings per
share
|
|
|
1.40 |
|
|
|
1.63 |
|
|
|
1.64 |
|
Weighted average number of total
shares outstanding (in millions)
|
|
|
188,446.1 |
|
|
|
188,446.1 |
|
|
|
188,446.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share
|
|
|
1.32 |
|
|
|
1.35 |
|
|
|
1.21 |
|
Weighted average number of total
shares outstanding (in millions)
|
|
|
188,446.1 |
|
|
|
188,446.1 |
|
|
|
188,446.1 |
|
(1)
|
Basic
earnings per share have been calculated by dividing net income by the
weighted average number of common shares outstanding during the
year. There are no potentially dilutive effects on the
calculation of earnings per share.
|
(v)
Article 9 Income Statements and Balance Sheets
The
presentation of the consolidated financial statements differs significantly from
the format required by the Securities and Exchange Commission under rules 210.9
to 210.9-07 of Regulation S-X (Article 9). The Chilean GAAP balance
sheets and income statements have been restated in constant Chilean pesos of
December 31, 2007, purchasing power using the adjustment factor arising from the
CPI, and are presented in the format prescribed by Article 9 of Regulation S-X.
Additionally all adjustments to U.S. GAAP included in paragraph (t) have been
incorporated.
The
principal reclassifications which were made to the primary Chilean GAAP
consolidated financial statements in order to present them in the Article 9
format are as follows:
1.
|
Elimination
of contingent assets and liabilities from the balance
sheet.
|
2.
|
Reclassification
of fees relating to contingent loans from interest income under Chilean
GAAP to non interest income under Article
9.
|
The
following balance sheets as of December 31, 2006 and 2007, have been prepared in
accordance with U.S. GAAP, except for the inclusion of price-level restatement
permitted under item 18 of Regulation S-X, and are presented in accordance with
the requirements of Article 9.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
|
|
As of December
31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
ASSETS
|
|
|
|
|
|
|
Cash and due from
banks
|
|
|
1,018,253 |
|
|
|
591,117 |
|
Interest bearing
deposits
|
|
|
159,248 |
|
|
|
710,556 |
|
Investments under agreements to
resell
|
|
|
33,099 |
|
|
|
34,000 |
|
Investments:
|
|
|
|
|
|
|
|
|
Trading
Investments
|
|
|
716,058 |
|
|
|
1,079,965 |
|
Available-for-sale
investments
|
|
|
370,784 |
|
|
|
779,635 |
|
Sub-total
|
|
|
2,297,442 |
|
|
|
3,195,273 |
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
11,726,379 |
|
|
|
12,450,533 |
|
Unearned
income
|
|
|
(161,058 |
) |
|
|
(172,233 |
) |
Allowance for loan
losses
|
|
|
(178,237 |
) |
|
|
(232,766 |
) |
Loans, net
|
|
|
11,387,084 |
|
|
|
12,045,534 |
|
Premises and equipment,
net
|
|
|
286,336 |
|
|
|
308,489 |
|
Goodwill,
net
|
|
|
866,526 |
|
|
|
866,526 |
|
Intangibles,
net
|
|
|
65,607 |
|
|
|
2,563 |
|
Derivatives
|
|
|
400,416 |
|
|
|
780,775 |
|
Other
assets
|
|
|
472,720 |
|
|
|
684,696 |
|
Total
Assets
|
|
|
15,776,131 |
|
|
|
17,883,856 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non interest
bearing
|
|
|
2,667,732 |
|
|
|
2,933,475 |
|
Interest
bearing
|
|
|
7,423,390 |
|
|
|
7,887,880 |
|
Total
deposits
|
|
|
10,091,122 |
|
|
|
10,821,355 |
|
Short-term
borrowings
|
|
|
1,092,261 |
|
|
|
950,084 |
|
Investments sold under agreement
to repurchase
|
|
|
21,412 |
|
|
|
166,281 |
|
Derivatives
|
|
|
382,403 |
|
|
|
778,217 |
|
Other
liabilities
|
|
|
313,801 |
|
|
|
353,980 |
|
Long-term
debt
|
|
|
1,703,576 |
|
|
|
2,597,095 |
|
Sub-total
|
|
|
3,513,453 |
|
|
|
4,845,657 |
|
Minority
interest
|
|
|
1,635 |
|
|
|
20,047 |
|
Common
stock
|
|
|
818,535 |
|
|
|
818,535 |
|
Other shareholders’
equity
|
|
|
1,351,386 |
|
|
|
1,378,262 |
|
Total
Liabilities and Shareholders’ Equity
|
|
|
15,776,131 |
|
|
|
17,883,856 |
|
Total
assets set forth in the basic Chilean GAAP balance sheets are reconciled to
total assets in the Article 9 balance sheets above as follows:
|
|
As of December
31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Total assets of the Bank under
Chilean GAAP
|
|
|
15,947,792 |
|
|
|
18,222,730 |
|
Elimination of off-setting assets
and liabilities:
|
|
|
|
|
|
|
|
|
Contingent
loans
|
|
|
(1,098,775 |
) |
|
|
(1,191,279 |
) |
U.S. GAAP adjustments
(1)
|
|
|
927,114 |
|
|
|
852,405 |
|
Total assets under Article
9 presentation
|
|
|
15,776,131 |
|
|
|
17,883,856 |
|
(1)
|
These
net assets represent those which differ in recorded cost from Chile GAAP
or are non-existent in Chile GAAP.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
following income statements have been prepared in accordance with U.S. GAAP and
are presented in accordance with requirements of Article 9, except for the
inclusion of price-level restatement permitted under Item 18 of Regulation
S-X:
|
|
Year ended December
31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
|
|
978,705 |
|
|
|
1,116,660 |
|
|
|
1,507,796 |
|
Interest on
investments
|
|
|
125,816 |
|
|
|
127,445 |
|
|
|
184,365 |
|
Interest on deposits with
banks
|
|
|
2,602 |
|
|
|
35,894 |
|
|
|
- |
|
Interest on investments under
agreement to resell
|
|
|
1,632 |
|
|
|
617 |
|
|
|
595 |
|
Total interest
income
|
|
|
1,108,755 |
|
|
|
1,280,616 |
|
|
|
1,692,756 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on
deposits
|
|
|
(267,277 |
) |
|
|
(365,735 |
) |
|
|
(546,187 |
) |
Interest on investments under
agreement to repurchase
|
|
|
(17,515 |
) |
|
|
(39,235 |
) |
|
|
(38,265 |
) |
Interest on short-term
debt
|
|
|
(51,415 |
) |
|
|
(68,291 |
) |
|
|
(52,116 |
) |
Interest on long-term
debt
|
|
|
(140,322 |
) |
|
|
(111,240 |
) |
|
|
(183,131 |
) |
Interest on other borrowed
funds
|
|
|
(5,449 |
) |
|
|
(2,736 |
) |
|
|
(9,441 |
) |
Price level restatement
(1)
|
|
|
(19,903 |
) |
|
|
(14,807 |
) |
|
|
(56,325 |
) |
Total interest
expense
|
|
|
(501,881 |
) |
|
|
(602,044 |
) |
|
|
(885,465 |
) |
Net interest
income
|
|
|
606,874 |
|
|
|
678,572 |
|
|
|
807,291 |
|
Provision for loan
losses
|
|
|
(70,835 |
) |
|
|
(132,175 |
) |
|
|
(191,189 |
) |
Net interest income after
provision for loan losses
|
|
|
536,039 |
|
|
|
546,397 |
|
|
|
616,102 |
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and commissions,
net
|
|
|
93,931 |
|
|
|
134,937 |
|
|
|
150,791 |
|
Gain (losses) on trading
activities
|
|
|
19,517 |
|
|
|
69,124 |
|
|
|
(120,955 |
) |
Net gains (losses) on foreign
exchange activities
|
|
|
2,945 |
|
|
|
(52,332 |
) |
|
|
92,425 |
|
Other
|
|
|
23,745 |
|
|
|
(16,742 |
) |
|
|
(26,341 |
) |
Total other
income
|
|
|
140,138 |
|
|
|
134,987 |
|
|
|
95,920 |
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
(152,747 |
) |
|
|
(171,608 |
) |
|
|
(184,509 |
) |
Net premises and equipment
expenses
|
|
|
(54,207 |
) |
|
|
(53,651 |
) |
|
|
(57,917 |
) |
Administration
expenses
|
|
|
(99,269 |
) |
|
|
(107,092 |
) |
|
|
(108,728 |
) |
Other
expenses
|
|
|
(66,471 |
) |
|
|
(39,183 |
) |
|
|
(77,136 |
) |
Minority
interest
|
|
|
(146 |
) |
|
|
(162 |
) |
|
|
(2,055 |
) |
Total other
expenses
|
|
|
(372,840 |
) |
|
|
(371,696 |
) |
|
|
(430,345 |
) |
Income before income
taxes
|
|
|
303,337 |
|
|
|
309,688 |
|
|
|
281,677 |
|
Income
taxes
|
|
|
(55,326 |
) |
|
|
(56,220 |
) |
|
|
(54,073 |
) |
Net income
|
|
|
248,011 |
|
|
|
253,468 |
|
|
|
227,604 |
|
Other comprehensive
income
|
|
|
(25,054 |
) |
|
|
18,020 |
|
|
|
(8,507 |
) |
Securities
available for sale
|
|
|
(25,054 |
) |
|
|
18,020 |
|
|
|
(3,637 |
) |
Hedge
accounting cash flow
|
|
|
- |
|
|
|
- |
|
|
|
(4,870 |
) |
Comprehensive
income
|
|
|
222,957 |
|
|
|
271,488 |
|
|
|
219,097 |
|
(1)
|
The
price-level adjustment includes the effect of inflation primarily
resulting from interest-earning assets and interest-bearing
liabilities. As the Bank does not record the price-level
adjustment for separate categories of assets and liabilities, such
adjustment is presented as a component of interest
expense.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Consolidated
statements of cash flows
Under U.S.
GAAP, changes in other assets and liabilities such as other receivables, prepaid
assets and accruals for salaries and vacations should be presented as cash flows
from operating activities. Under Chilean GAAP, these are presented as cash flows
from investing activities. Additionally, the non-cash movements
related to assets received in lieu of payments are not reported as supplemental
information under Chilean GAAP, as usually required under U.S.
GAAP.
The
consolidated statements of cash flows have been prepared in accordance with
Chilean GAAP, and are presented in accordance with the requirements of Article
9, except for the inclusion of price-level restatement permitted under item 18
of Regulation S-X. Presentation of the cash flow statements under
U.S. GAAP would require additional breakdown of certain line items presented
“net” in the Chilean GAAP cash flow. Additionally, for Chilean GAAP
purposes, certain items classified as “Other assets” are defined as cash
equivalent for cash flow purposes which would also be defined as cash
equivalents in the balance sheet in U.S. GAAP. And, lastly
gains/losses on trading securities are presented as investing activities in
Chilean GAAP while they would be presented as operating activity in U.S.
GAAP.
The
following condensed consolidated statements of cash flows have been prepared in
accordance with U.S. GAAP, and are presented in accordance with the requirements
of Article 9 as described above:
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(535,949 |
) |
|
|
546,075 |
|
|
|
497,100 |
|
Net
cash used in (provided by) investing activities
|
|
|
161,083 |
|
|
|
(1,362,757 |
) |
|
|
(1,537,184 |
) |
Net
cash provided by financing activities
|
|
|
637,121 |
|
|
|
653,626 |
|
|
|
1,156,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flow
|
|
|
262,255 |
|
|
|
(163,056 |
) |
|
|
116,346 |
|
Inflation
effect on cash and cash equivalents
|
|
|
3,685 |
|
|
|
(7,262 |
) |
|
|
1,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and due from banks
|
|
|
265,940 |
|
|
|
(170,318 |
) |
|
|
117,952 |
|
Cash
and due from Banks, beginning of the year
|
|
|
1,078,060 |
|
|
|
1,344,000 |
|
|
|
1,173,682 |
|
Cash
and due from Banks, end of the year
|
|
|
1,344,000 |
|
|
|
1,173,682 |
|
|
|
1,291,634 |
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(w)
Income taxes
The
reconciliation of the provision for income taxes charged to income under Chilean
GAAP to the corresponding amounts under U.S. GAAP is as follows:
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Charge
for the period under Chilean GAAP
|
|
|
54,671 |
|
|
|
62,529 |
|
|
|
55,171 |
|
U.S.
GAAP Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax effect of applying SFAS No. 109
|
|
|
(30 |
) |
|
|
- |
|
|
|
- |
|
Deferred
tax effect of U.S. GAAP adjustments
|
|
|
685 |
|
|
|
(6,309 |
) |
|
|
(1,098 |
) |
Charge
for the period under U.S. GAAP
|
|
|
55,326 |
|
|
|
56,220 |
|
|
|
54,073 |
|
Deferred
tax assets and liabilities for the Bank under U.S. GAAP are summarized as
follows:
|
|
As
of December 31,
|
|
Temporary
differences
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Assets
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
21,317 |
|
|
|
28,159 |
|
Accrued
interest
|
|
|
3,017 |
|
|
|
1,899 |
|
Derivatives
and Hedge Accounting
|
|
|
5,281 |
|
|
|
3,814 |
|
Valuation
of Investments
|
|
|
- |
|
|
|
- |
|
Other
provisions
|
|
|
15,684 |
|
|
|
13,850 |
|
Foreign
exchange
|
|
|
825 |
|
|
|
807 |
|
Bank
premises and equipment
|
|
|
4,755 |
|
|
|
13,698 |
|
Assets
received in lieu of payment
|
|
|
568 |
|
|
|
374 |
|
Others
|
|
|
302 |
|
|
|
459 |
|
Total
deferred tax assets
|
|
|
51,749 |
|
|
|
63,060 |
|
|
|
As
of December 31,
|
|
Temporary
differences
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Liabilities
|
|
|
|
|
|
|
Accelerated
depreciation
|
|
|
3,784 |
|
|
|
4,588 |
|
Valuation
of investments
|
|
|
2,287 |
|
|
|
3,004 |
|
Prepaid
expenses
|
|
|
2,090 |
|
|
|
2,441 |
|
Others
|
|
|
903 |
|
|
|
511 |
|
Total
deferred tax liabilities
|
|
|
9,064 |
|
|
|
10,544 |
|
Net
deferred tax assets
|
|
|
42,685 |
|
|
|
51,516 |
|
The Bank
has not recorded a valuation allowance against any of its deferred tax assets as
it believes that it is more likely than not that it will recover their
value.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The U.S.
GAAP provision for income taxes differs from the amount of income tax provision
determined by applying the Chilean statutory income tax rate to U.S. GAAP pretax
income as a result of the following differences:
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Chilean
taxes due at the statutory rate
|
|
|
51,567 |
|
|
|
52,647 |
|
|
|
47,885 |
|
Increase
(decrease) in rates resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
income
|
|
|
(6,456 |
) |
|
|
(6,734 |
) |
|
|
(6,471 |
) |
Non-deductible
expenses
|
|
|
7,794 |
|
|
|
7,196 |
|
|
|
1,942 |
|
Amortization
of intangibles
|
|
|
2,421 |
|
|
|
3,111 |
|
|
|
10,717 |
|
At
effective tax rate
|
|
|
55,326 |
|
|
|
56,220 |
|
|
|
54,073 |
|
The
Chilean statutory first category (corporate) income tax rate was 17% for the
years ended December 31, 2005, 2006 and 2007.
Adoption
of FIN 48 “Accounting for Uncertainty in Income Taxes”
In June
2006, the Financial Accounting Standards Board (“FASB”) issued interpretation
No. 48, “Accounting for Uncertainty in Income Taxes, and interpretation of FASB
Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in
income taxes recognized in a measurement attribute criteria for the financial
statement recognized in a company’s financial statements. FIN 48 establishes “a
more-likely-than-not” recognition threshold that must be met before a tax
benefit can be recognized in the financial statements. The interpretation also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
The
Company adopted the provisions of FIN 48 on January 1, 2007. The implementation
of FIN 48 did not have a material impact on the Company’s financial statements.
There were no unrecognized tax benefits as of the date of adoption and of
December 31, 2007.
Under
Chilean tax regime, as of December 31, 2007, fiscal years 2004 through 2007
remain subject to examination by the Internal Revenue Service (“Servicio de
Impuestos Internos”).
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(x) Accumulated
other comprehensive income
The Bank
presents accumulated other comprehensive income and its components with the
objective of reporting a measure of all changes in shareholders’ equity that
result from transactions and other economic events of the period other than
transactions with owners (“comprehensive income”). Comprehensive income is the
total net income and other non-owner equity transactions that result in changes
in net equity. The following represents accumulated other comprehensive income
of the Bank, net of deferred taxes as of December 31, 2005, 2006 and
2007:
|
|
As
of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Beginning
balance
|
|
|
(1,253 |
) |
|
|
213 |
|
|
|
(1,040 |
) |
Price-level
restatement (1)
|
|
|
87 |
|
|
|
(15 |
) |
|
|
72 |
|
Unrealized
gains/(losses) on securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses arising during the period
|
|
|
(13,522 |
) |
|
|
2,299 |
|
|
|
(11,223 |
) |
Less:
reclassification adjustment for net gains included in net
income
|
|
|
3,272 |
|
|
|
(556 |
) |
|
|
2,716 |
|
Net
unrealized loss (2)
|
|
|
(10,250 |
) |
|
|
1,743 |
|
|
|
(8,507 |
) |
Ending
balance
|
|
|
(11,416 |
) |
|
|
1,941 |
|
|
|
(9,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Beginning
balance
|
|
|
(23,452 |
) |
|
|
3,987 |
|
|
|
(19,465 |
) |
Price-level
restatement (1)
|
|
|
488 |
|
|
|
(83 |
) |
|
|
405 |
|
Unrealized
gains/(losses) on securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains arising during the period
|
|
|
16,116 |
|
|
|
(2,740 |
) |
|
|
13,376 |
|
Less:
reclassification adjustment for net gains included in net
Income
|
|
|
5,595 |
|
|
|
(951 |
) |
|
|
4,644 |
|
Net
unrealized gains
|
|
|
21,711 |
|
|
|
(3,691 |
) |
|
|
18,020 |
|
Ending
balance
|
|
|
(1,253 |
) |
|
|
213 |
|
|
|
(1,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Beginning
balance
|
|
|
6,969 |
|
|
|
(1,185 |
) |
|
|
5,784 |
|
Price-level
restatement (1)
|
|
|
(235 |
) |
|
|
40 |
|
|
|
(195 |
) |
Unrealized
gains/(losses) on securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses arising during the period
|
|
|
(35,620 |
) |
|
|
6,055 |
|
|
|
(29,565 |
) |
Less:
reclassification adjustment for net gains included in net
Income
|
|
|
5,434 |
|
|
|
(923 |
) |
|
|
4,511 |
|
Net
unrealized losses
|
|
|
(30,186 |
) |
|
|
5,132 |
|
|
|
(25,054 |
) |
Ending
balance
|
|
|
(23,452 |
) |
|
|
3,987 |
|
|
|
(19,465 |
) |
(1)
|
Reflects
the effect of inflation on the accumulated other comprehensive income at
the beginning of each period, adjusted to constant pesos as of December
31, 2007.
|
(2)
|
Includes
net unrealized loss on securities available for sale for an amount of
MCh$3,637 and net unrealized loss on hedge accounting cash flows for an
amount of MCh$4,870.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(y)
Segment Information
The
following disclosure of segment information is not required for presentation in
the financial statements under Chilean GAAP, however in accordance with SFAS No.
131 “Disclosures about Segments of an Enterprise and Related Information” the
Bank discloses the following segment information based on the management
approach. The Bank’s internal organization is structured on the basis
of the client segments the Bank serves. We provide a full range of
financial services to corporate and individual customers. In 2007 the
Wholesale segment was modified as is now named Global Banking and Markets and
encompasses the Corporate and Treasury Divisions, which were separate in the
past. This change has been replicated in 2005 and
2006. The Institutional Division is now a part of Retail banking and
this modification was also incorporated into the historical segment
information. We divide clients in this segment into the following
segments:
The Retail
segments is comprised of the following sub-segments:
·
|
Lower-middle to middle-income
(Santander Banefe), consisting of individuals with monthly income
between Ch$120,000 (US$241) and Ch$400,000 (US$805), which are served
through our Banefe branch network. This segment accounts for
4.7% of our loans at December 31, 2007. This segment offers
customers a range of products, including consumer loans, credit cards,
auto loans, residential mortgage loans, debit card accounts, savings
products, mutual funds and insurance
brokerage.
|
·
|
Middle- and
upper-income, consisting of individuals with a monthly income
greater than Ch$400,000 (US$805). Clients in this segment
account for 38.0% of our loans at December 31, 2007, and are offered a
range of products, including consumer loans, credit cards, auto loans,
commercial loans, foreign trade financing, residential mortgage loans,
checking accounts, savings products, mutual funds and insurance
brokerage.
|
·
|
Small businesses,
consisting of small companies with annual sales less than Ch$1,200 million
(US$2.4 million). At December 31, 2007, small companies
represented approximately 15.8% of our total loans
outstanding. Customers in this segment are offered a range of
products, including commercial loans, leasing, factoring, foreign trade,
credit cards, mortgage loans, checking accounts, savings products, mutual
funds and insurance brokerage.
|
·
|
Institutional
organizations such as universities, government agencies,
municipalities and regional governments. At December 31, 2007,
these clients represented 1.7% of our total loans outstanding and offer
customers a range of products, including commercial loans, leasing,
factoring, foreign trade, credit cards, mortgage loans, checking accounts,
cash management, savings products, mutual funds and insurance
brokerage.
|
The
Middle-market comprised of mid-sized companies, companies in the real estate
sector and large companies as follows:
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
·
|
Mid-sized companies,
consisting of companies with annual sales over Ch$1,200 million (US$2.4
million) and up to Ch$3,500 million (US$7.0 million). Customers
in this segment are offered a wide range of products, including commercial
loans, leasing, factoring, foreign trade, credit cards, mortgage loans,
checking accounts, cash management, treasury services, financial advisory,
savings products, mutual funds and insurance brokerage. At
December 31, 2007, these clients represented 8.3% of our total loans
outstanding.
|
·
|
Real estate. This
segment also includes all companies in the real estate
sector. At December 31, 2007, these clients represented 4.8% of
our total loans outstanding. To clients in the real estate
sector we offer apart from traditional banking services, specialized
services for financing primarily residential projects in order to increase
the sale of residential mortgage
loans.
|
·
|
Large companies,
consisting of companies with annual sales over Ch$3,500 million (US$7.0
million). Customers in this segment are offered a wide range of
products, including commercial loans, leasing, factoring, foreign trade,
credit cards, mortgage loans, checking accounts, cash management, treasury
services, financial advisory, savings products, mutual funds and insurance
brokerage. At December 31, 2007, these clients represented 8.5%
of our total loans outstanding.
|
The Global
Banking and Markets segment is comprised of:
·
|
Companies
that are foreign multinationals or part of a large Chilean economic group
with sales over Ch$3,500 million (US$7.0 million). At December
31, 2007, these clients represented 16.6% of our total loans
outstanding. Customers in this segment are offered a wide range
of products, including commercial loans, leasing, factoring, foreign
trade, mortgage loans, checking accounts, cash management, treasury
services, financial advisory, savings products, mutual funds and insurance
brokerage.
|
·
|
The
Treasury Division provides sophisticated financial products mainly to
companies in the wholesale banking and the middle market
segments. This includes products such as short-term financing
and funding, securities brokerage, interest rate and foreign currency
derivatives, securitization services and other tailor made financial
products. The Treasury division also manages the Bank’s trading
positions as well as the non-trading investment
portfolio.
|
The
accounting policies of the segments are the same as those described in the
summary of significant accounting principles, and are customized to meet the
needs of management of the Bank. The Bank derives a majority of its
revenues from interest income and the chief operating decision maker relies
primarily on net interest revenue to assess the performance of the segments and
make decisions about resources to be allocated to the segments.
The table
below sets forth our lines of business and certain statistical information
relating to each of them as of December 31, 2005, 2006 and 2007.
NOTE
28. DIFFERENCES BETWEEN CHILEAN
AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
For
the twelve-month period ended December 31, 2007 (millions
of constant Ch$ as of December 31,
2007)
|
Segment
|
Loans
|
Net
interest revenue
|
Fees
|
Net
loan loss
allowances
(1)
|
Financial
transactions,
net (2)
|
Net
segment
contribution
(3)
|
Individuals
|
5,744,801
|
452,136
|
123,877
|
(148,771)
|
-
|
427,242
|
Santander
Banefe
|
633,299
|
152,625
|
27,631
|
(71,692)
|
-
|
108,564
|
Middle-upper
income
|
5,111,502
|
299,511
|
96,246
|
(77,079)
|
-
|
318,678
|
SMEs
|
2,133,312
|
160,909
|
37,596
|
(31,510)
|
-
|
166,995
|
Institutional
|
228,716
|
12,048
|
2,041
|
(29)
|
-
|
14,060
|
Total
Retail
|
8,106,829
|
625,093
|
163,514
|
(180,310)
|
-
|
608,297
|
Middle-market
|
2,914,782
|
89,095
|
14,856
|
(612)
|
-
|
103,339
|
Mid-sized
companies
|
1,116,642
|
37,438
|
7,962
|
(1,325)
|
-
|
44,075
|
Real
estate
|
649,250
|
15,145
|
1,491
|
(300)
|
-
|
16,336
|
Large
companies
|
1,148,890
|
36,512
|
5,403
|
1,013
|
-
|
42,928
|
Global
Banking and Markets
|
2,269,392
|
87,189
|
13,635
|
215
|
12,639
|
113,678
|
Wholesale
|
2,242,510
|
44,268
|
8,297
|
400
|
-
|
52,965
|
Treasury
|
26,882
|
42,921
|
5,338
|
(185)
|
12,639
|
60,713
|
Others
(4)
|
177,977
|
24,239
|
920
|
(1,704)
|
(46,952)
|
(23,497)
|
Total
|
13,468,980
|
825,616
|
192,925
|
(182,411)
|
(34,313)
|
801,817
|
|
|
|
|
|
|
|
Other
operating income
|
|
|
|
|
|
(45,413)
|
Other
income and expenses
|
|
|
|
|
|
6,423
|
Operating
expenses
|
|
|
|
|
|
(342,684)
|
Price
level restatement
|
|
|
|
|
|
(56,325)
|
Net
income before taxes
|
|
|
|
|
|
363,818
|
(1)
|
Includes
gross provisions for loan losses, net of releases on
recoveries.
|
(2)
|
Includes
the net gains from trading, net mark-to-market gains and net foreign
exchange transactions.
|
(3)
|
Equal
to the sum of the net interest revenue, net fee income and net financial
transactions, minus net provision for loan
losses.
|
(4)
|
Includes
contribution of other Bank subsidiaries and other non-segmented items such
as interbank loans. Financial transactions, net included in Others is the
results from inflation and interest rate
hedging.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
For
the twelve-month period ended December 31, 2006
|
(millions
of constant Ch$ as of December 31,
2007)
|
Segment
|
Loans
|
Net
interest revenue
|
Fees
|
Net
loan loss allowances (1)
|
Financial
transactions, net (2)
|
Net
segment contribution (3)
|
Individuals
|
5,476,228
|
357,178
|
111,174
|
(109,323)
|
-
|
359,029
|
Santander
Banefe
|
647,820
|
112,281
|
23,700
|
(55,754)
|
-
|
80,227
|
Middle-upper
income
|
4,828,408
|
244,897
|
87,474
|
(53,569)
|
-
|
278,802
|
SMEs
|
2,031,407
|
139,515
|
30,805
|
(22,390)
|
-
|
147,930
|
Institutional
|
246,297
|
10,218
|
1,290
|
516
|
-
|
12,024
|
Total
Retail
|
7,753,932
|
506,911
|
143,269
|
(131,197)
|
-
|
518,983
|
Middle-market
|
2,878,433
|
79,312
|
15,022
|
(774)
|
-
|
93,560
|
Mid-sized
companies
|
1,070,401
|
37,619
|
7,576
|
(3,260)
|
-
|
41,935
|
Real
estate
|
595,533
|
11,120
|
1,528
|
1,756
|
-
|
14,404
|
Large
companies
|
1,212,499
|
30,573
|
5,918
|
730
|
-
|
37,221
|
Global
Banking and Markets
|
1,914,637
|
67,632
|
9,496
|
755
|
64,585
|
142,468
|
Wholesales
|
1,914,637
|
32,736
|
8,097
|
755
|
-
|
41,588
|
Treasury
|
-
|
34,896
|
1,399
|
-
|
64,585
|
100,880
|
Others
(4)
|
119,056
|
3,951
|
6,856
|
(959)
|
(9,142)
|
706
|
Total
|
12,666,058
|
657,806
|
174,643
|
(132,175)
|
55,443
|
755,717
|
|
|
|
|
|
|
|
Other
operating income
|
|
|
|
|
|
(35,413)
|
Other
income and expenses
|
|
|
|
|
|
(3,846)
|
Operating
expenses
|
|
|
|
|
|
(332,293)
|
Price
level restatement
|
|
|
|
|
|
(14,807)
|
Net
income before taxes
|
|
|
|
|
|
369,358
|
(1)
|
Includes
gross provisions for loan losses, net of releases on
recoveries.
|
(2)
|
Includes
the net gains from trading, net mark-to-market gains and net foreign
exchange transactions.
|
(3)
|
Equal
to the sum of the net interest revenue, net fee income and net financial
transactions, minus net provision for loan
losses.
|
(4)
|
Includes
contribution of other Bank subsidiaries and other non-segmented items such
as interbank loans. Financial transactions, net included in Others is the
results from inflation and interest rate
hedging.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
For
the twelve-month period ended December 31, 2005
|
(millions
of constant Ch$ as of December 31,
2007)
|
Segment
|
Loans
|
Net
interest revenue
|
Fees
|
Net
loan loss allowances (1)
|
Financial
transactions, net (2)
|
Net
segment contribution (3)
|
Individuals
|
4,616,365
|
299,148
|
81,715
|
(56,143)
|
-
|
324,720
|
Santander
Banefe
|
539,179
|
90,318
|
17,448
|
(28,824)
|
-
|
78,942
|
Middle-upper
income
|
4,077,186
|
208,830
|
64,267
|
(27,319)
|
-
|
245,778
|
SMEs
|
1,604,645
|
100,625
|
20,560
|
(16,908)
|
-
|
104,277
|
Institutional
|
211,963
|
7,134
|
1,792
|
(17)
|
-
|
8,909
|
Total
Retail
|
6,432,973
|
406,907
|
104,067
|
(73,068)
|
-
|
437,906
|
Middle-market
|
2,524,959
|
57,300
|
9,251
|
1,196
|
-
|
67,747
|
Mid-sized
companies
|
885,929
|
27,840
|
4,582
|
(1,766)
|
-
|
30,656
|
Real
estate
|
547,954
|
9,182
|
1,172
|
(765)
|
-
|
9,589
|
Large
companies
|
1,091,076
|
20,278
|
3,497
|
3,727
|
-
|
27,502
|
Global
Banking and Markets
|
1,950,080
|
112,082
|
8,204
|
2,106
|
10,542
|
132,934
|
Wholesale
|
1,950,080
|
29,098
|
8,204
|
2,106
|
-
|
39,408
|
Treasury
|
-
|
82,984
|
-
|
-
|
10,542
|
93,526
|
Others
(4)
|
222,056
|
23,512
|
30,291
|
60
|
-
|
53,863
|
Total
|
11,130,068
|
599,801
|
151,813
|
(69,706)
|
10,542
|
692,450
|
|
|
|
|
|
|
|
Other
operating income
|
|
|
|
|
|
(25,148)
|
Other
income and expenses
|
|
|
|
|
|
(23,553)
|
Operating
expenses
|
|
|
|
|
|
(306,170)
|
Price
level restatement
|
|
|
|
|
|
(19,902)
|
Net
income before taxes
|
|
|
|
|
|
317,677
|
(1)
|
Includes
gross provisions for loan losses, net of releases on
recoveries.
|
(2)
|
Includes
the net gains from trading, net mark-to-market gains and net foreign
exchange transactions.
|
(3)
|
Equal
to the sum of the net interest revenue, net fee income and net financial
transactions, minus net provision for loan
losses.
|
(4)
|
Includes
contribution of other Bank subsidiaries and other non-segmented items such
as interbank loans. In 2005 financial transactions do not include
accounting change realized in 2006 regarding the mark-to-marked of
derivatives.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(z)
Estimated Fair Value of Financial Instruments
The
estimated fair value of a financial instrument is defined as the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. For those financial
instruments with no quoted market prices available, fair values have been
estimated using present values or other valuation techniques. These techniques
are inherently subjective and are significantly affected by the assumptions
used, including the discounts rate, estimates of future cash flows and
prepayment assumptions. In that regard, the derived fair value estimates cannot
be substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instruments.
In
addition, the estimated fair values presented below do not attempt to estimate
the value of the Bank’s revenue generating businesses and anticipated future
business activities, and therefore do not represent the Bank’s value as a going
concern.
The
following notes summarize the major methods and assumptions used in estimating
the fair values of financial instruments:
·
|
Cash and
due from banks
|
The book
value of cash and due from banks approximates its estimated fair value due to
the short-term nature of these instruments.
·
|
Spot
foreign exchange
transactions
|
The book
value of spot foreign exchange transactions approximates its estimated fair
value due to the short-term nature of these instruments.
·
|
Financial
investments, investments under agreements to repurchase and investments
under agreements to resell
|
The
estimated fair value of these financial instruments was determined using either
quoted market prices or dealer quotes where available, or quoted market prices
of financial instruments with similar characteristics. Investments maturing in
less than one year are valued at book value because they are, due to their
relatively short period to maturity, considered to have a fair value which is
not materially different from their book value.
For
variable-rate loans that reprice frequently and have no significant change in
credit risk, estimated fair values are based on book values. The
estimated fair-values for certain mortgage loans, credit card loans, and other
consumer loans are based on quoted market prices of similar loans, adjusted for
differences in loan characteristics. Fair values of commercial loans
are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. Fair values for non-accruing loans are estimated
using discounted cash flow analyses arising from the liquidation of the
underlying collateral values, where applicable (or other expected sources of
payments), at an estimated discount rate.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The fair
value disclosed for non-interest bearing deposits and savings accounts is the
amount payable at the reporting date and, as a result, is equal to the carrying
amount. Fair value for time deposits is estimated using a discounted
cash flow calculation that applies interest rates currently offered to a
schedule of aggregated expected monthly maturities on time
deposits. The value of long-term relationships with depositors is not
taken into account in estimating the fair values disclosed.
·
|
Chilean
Central Bank borrowings, Mortgage finance bonds and Other
borrowings
|
The fair
value of these financial instruments is estimated using discounted cash flow
analyses based on the Bank’s current incremental borrowing rates for similar
types of borrowing arrangements with similar remaining maturities.
The
estimated fair value of foreign exchange forward contracts was determined using
quoted market prices of financial instruments with similar
characteristics.
The fair
value of interest rate swaps represents the estimated amount the Bank would
expect to receive or pay to terminate the contracts or agreements, taking into
account current interest rates.
As no
quoted market prices are available for the interest rate swap, cross currency
swap and forward exchange rate instruments held by the Bank, such estimates have
been estimated using modeling and other valuation techniques.
The
estimated fair values of financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
1,018,253 |
|
|
|
1,018,253 |
|
|
|
591,117 |
|
|
|
591,117 |
|
Interest
bearing deposits
|
|
|
159,248 |
|
|
|
159,248 |
|
|
|
710,556 |
|
|
|
710,556 |
|
Investment
under agreements to resell
|
|
|
33,099 |
|
|
|
33,099 |
|
|
|
34,000 |
|
|
|
34,000 |
|
Financial
investments
|
|
|
1,086,842 |
|
|
|
1,086,842 |
|
|
|
1,859,600 |
|
|
|
1,859,600 |
|
Loans,
net (2)
|
|
|
11,387,084 |
|
|
|
11,879,812 |
|
|
|
12,050,982 |
|
|
|
13,483,890 |
|
Derivatives
instruments
|
|
|
400,416 |
|
|
|
400,416 |
|
|
|
780,775 |
|
|
|
780,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
10,091,122 |
|
|
|
10,105,154 |
|
|
|
10,821,355 |
|
|
|
10,552,273 |
|
Investments
under agreements to repurchase
|
|
|
21,412 |
|
|
|
21,412 |
|
|
|
166,281 |
|
|
|
166,281 |
|
Short
and long-term debt
|
|
|
2,795,837 |
|
|
|
3,091,241 |
|
|
|
3,547,179 |
|
|
|
3,830,935 |
|
Derivative
financial instruments
|
|
|
382,403 |
|
|
|
382,403 |
|
|
|
778,217 |
|
|
|
778,217 |
|
(1)
|
Carrying
amounts correspond to Chilean GAAP figures plus US GAAP adjustments
described in paragraph (t) which are shown in Article 9 balance sheet
paragraph (v).
|
(2)
|
The
amounts of loans in the above table excludes contingent loans since they
represent undisbursed amounts under undrawn letters of credit and other
credit guarantees granted by the
Bank.
|
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(aa)
Obligations Arising From Lease Commitments
The bank
leases certain premises, which are accounted for as operating leases. The
amounts payable under the terms of the leases, which are not reflected on the
consolidated balance sheets, are shown in the following table and reflect future
rental expenses in constant Chilean pesos as of December 31, 2007:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
|
MCh$
|
|
Due
within 1 year
|
|
|
10,093 |
|
Due
after 1 year but within 2 years
|
|
|
7,073 |
|
Due
after 2 years but within 3 years
|
|
|
5,238 |
|
Due
after 3 years but within 4 years
|
|
|
3,477 |
|
Due
after 4 years but within 5 years
|
|
|
1,559 |
|
Due
after 5 years
|
|
|
402 |
|
Total
|
|
|
27,842 |
|
The rental
expense on premises for the Bank was MCh$10,965, MCh$12,020 and MCh$12,967 for
the years ended December 31, 2005, 2006 and 2007, respectively.
(ab)
Contingent liabilities
Contingent
liabilities consist of open and unused letters of credit, together with
guarantees granted by the Bank in Chilean pesos, UF and foreign currencies
(principally U.S. dollars). The liability represents the Bank’s obligations
under such agreements. The Bank’s rights under these agreements are recognized
as assets on the Bank’s Chilean GAAP balance sheets under the caption
“Contingent loans” (See note 5).
|
|
As
of December 31, 2007
|
|
|
|
Book
value
|
|
|
Contract
amount
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Standby
letters of credits
|
|
|
110 |
|
|
|
236,661 |
|
Foreign
office guarantees
|
|
|
1,796 |
|
|
|
627,642 |
|
Performance
bond
|
|
|
232 |
|
|
|
326,050 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,138 |
|
|
|
1,190,353 |
|
Guarantees
in the form of performance bonds, standby letters of credit and foreign office
guarantees are issued in connection with agreements made by customers to
counterparties. If the customer fails to comply with the agreement, the
counterparty may enforce the performance bond as a remedy. Credit risk arises
from the possibility that the customer may not be able to repay the Bank for
performance bonds. To mitigate credit risk, the Bank generally determines the
need for specific covenant, guarantee and collateral requirements on a
case-by-case basis, depending on the nature of the financial instrument and the
customer’s creditworthiness.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
expiration of guarantees per period is as follows:
|
|
As
of December 31, 2007
|
|
|
|
Due
within
1
year
|
|
|
Due
after 1
year
but
within
3
years
|
|
|
Due
after 3
years
but
within
5
years
|
|
|
Due
after
5
years
|
|
|
Total
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Standby
letters of credits
|
|
|
193,996 |
|
|
|
19,388 |
|
|
|
23,277 |
|
|
|
- |
|
|
|
236,661 |
|
Foreign
office guarantees
|
|
|
586,546 |
|
|
|
28,398 |
|
|
|
9,243 |
|
|
|
3,455 |
|
|
|
627,642 |
|
Performance
bonds
|
|
|
325,135 |
|
|
|
915 |
|
|
|
- |
|
|
|
- |
|
|
|
326,050 |
|
Total
|
|
|
1,105,677 |
|
|
|
48,701 |
|
|
|
32,520 |
|
|
|
3,455 |
|
|
|
1,190,353 |
|
(ac)
Compensation
Grupo
Santander has set up remuneration systems tied to the performance of the stock
market price of the shares of the Parent Company based on the achievement of two
targets: appreciation of the Grupo Santander’s share price and growth in
earnings per share, in both cases based on a sample of comparable banks. These
targets were achieved.
In this
regards certain high level executive of Santander Chile do participate in this
global incentive-retention program implemented by Parent Company. This consisted
of giving to qualifying executives a fixed number of options on shares of
Santander, if the following parameters were met: (i) share price evolution in
top 10 compared to 30 other global banks, (ii) earnings per share growth in top
10 compared to 30 other global banks, (iii) that Banco Santander Chile achieved
its commercial and financial budget targets in the last two years and (iv) that
the executive achieved his personal targets in the last two years, and remained
employed with the Bank until the end of the incentive program. At December
31, 2007, these targets were achieved, and hence the vesting requirements had
been meet and even though the exercise period (from January 15, 2008 to January
15, 2009) was still open, the Bank recorded the entire cost of the program
against net income as at December 31, 2007. This program
represented a total cost of Ch$1,598 million (US$3.2 million) for the Bank, that
correspond to the fair value of the equity instruments granted, which was
charged to income in the specific period in which the beneficiaries provided
their services to Santander Chile. This program had no dilutive effect for
Santander Chile minority shareholders. At December 31, 2007, 104 executives of
the Bank were included and 3,659,900 options on Grupo Santander shares at a
price of €9.09 correspond to them. There are no significant differences between
Chilean GAAP and US GAAP, except for the additional disclosure required by the
latter.
The fair value of each option granted is calculated at the grant date. In order
to value incentive-retention plan two valuation reports were performed by two
multinational investment banks. These experts used the Black-Scholes equity
option pricing model considering the following parameters: the expected life of
the options, interest rates, volatility, exercise price, market price and
dividends of the Parent Company shares and the shares of comparable banks. The
fair value of the options granted was calculated as the average value resulting
from the two valuations.
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
|
|
Euros
|
|
|
Date of
|
Date of
|
|
Number of
|
Exercise
|
Employee
|
Number
|
Commencement
|
Expiry
of
|
|
Shares
|
Price
|
Group
|
of Persons
|
of Exercise
Period
|
Exercise
Period
|
|
|
|
|
|
|
|
Plans
outstanding at 1 January 2005
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Options granted (Plan
I06)
|
3,938,700
|
9.09 (**)
|
Managers
|
112
|
15/01/2008
|
15/01/2009
|
Options
exercised
|
-
|
-
|
|
|
|
|
Options cancelled or not
exercised
|
-
|
-
|
|
|
|
|
Plans
outstanding at December 31, 2005
|
3,938,700
|
9.09
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercised
|
-
|
-
|
|
|
|
|
Options cancelled, net (Plan
I06)
|
(115,600)
|
9.09
|
Managers
|
(4)
|
15/01/2008
|
15/01/2009
|
Plans
outstanding at December 31, 2006
|
3,823,100
|
9.09
|
|
|
|
|
|
|
|
|
|
|
|
Options granted (Plan
I09)
|
281,187
|
-
|
Managers
|
181
|
23/06/2007
|
31/07/2009
|
Options granted (Plan
I10)
|
417,413
|
-
|
Managers
|
181
|
23/06/2007
|
31/07/2010
|
Options cancelled, net (Plan
I06)
|
(163,200)
|
9.09
|
Managers
|
(4)
|
15/01/2008
|
15/01/2009
|
Plans
outstanding at December 31, 2007
|
4,358,500
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
Plan
I06
|
3,659,900
|
9.09
|
|
|
|
|
Plan
I09
|
281,187
|
-
|
|
|
|
|
Plan
I10
|
417,413
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(**)
The exercise price of the options under Plan I06 is €9.09 per share, which is
the weighted average of the daily average market price of the Bank shares on the
continuous market in the first 15 trading days of January 2005. This was the
criterion established in the resolution approving Plan I06 adopted at the Annual
General Meeting of our Parent Company held on June 18, 2005
Long-term
incentive policy
During
2007, the Parent Company’s Board of Directors approved a long-term incentive
policy for the period 2008-2010 aimed at Group Santander’s executive directors
and certain executive personnel in Spain and other Santander Group companies.
Certain high level executive of Santander Chile do participate in this global
Performance Share Plan implemented by Parent Company.
Performance
Share Plan
This
multi-annual incentive plan is payable in shares of Grupo Santander (Banco
Santander Central Hispano S.A.). The beneficiaries of the plan are the executive
directors and other members of senior management, together with any other Group
executives determined by the Board of Directors of the Parent Company or, when
delegated by it, the Executive Committee.
This plan will involve successive three-year cycles of share deliveries to the
beneficiaries, so that each year one cycle will begin and, from 2009 onwards,
another cycle will also end. The aim is to establish an adequate sequence
between the end of the incentive program linked to the previous Plan and the
successive cycles of this plan. Thus, the first two cycles will commence in July
2007, the first cycle having duration of two years (PI09) and the second cycle
having a standard three-year term (PI10).
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
For each
cycle, a maximum number of shares of Parent Company are established for each
beneficiary who remains in the Bank’s employ for the duration of the plan. The
targets, which, if met, will determine the number of shares to be delivered, are
defined by comparing the Santander Group’s performance with that of a benchmark
group of financial institutions and are linked to two parameters, namely Total
Shareholder Return (TSR) and growth in Earnings per Share (EPS). These
parameters each have a 50% weighting in determining the percentage of shares to
be delivered. In addition, the executives of Santander Chile must also meet
their local commercial and earnings goals in order to receive this benefit and
the Bank must also reach other commercial and earnings targets set by the Parent
Company.
The ultimate number of shares to be delivered will be determined in each of the
cycles by the degree of achievement of the targets on the third anniversary of
commencement of each cycle (with the exception of the first cycle, for which the
second anniversary will be considered), and the shares will be delivered within
a maximum period of seven months from the end of the cycle. This number will
range from the maximum percentage of shares, if Grupo Santander, for each of the
measures considered (TSR and EPS growth), ranks within the third quartile of the
Benchmark Group, including the 75th percentile, to 30% of the maximum number of
shares if it is placed at the median (50th percentile). If Grupo Santander ranks
below the median, all assignments of shares will be rendered null and
void.
At December
31, 2007, the maximum number of shares to be delivered was 698,600 to 181
executives of Santander Chile (for a total of 281,187 for the first cycle (PI09)
and 417,413 for the second cycle (PI10)). The fair value of the equity
instruments granted under these plans was Ch$619 million (US$1.2 million), and
this amount is charged to “Personnel expenses” in the specific period in which
the beneficiaries provide their services to the Bank.
The fair
value was calculated as follows:
It was
assumed that the beneficiaries will not leave the Group’s employ during the term
of each plan.
-
The fair value of the 50% relating to the Bank’s relative TSR position was
determined on the basis of the report of an independent expert whose assessment
was based, inter alia, on the following variables:
-
Expected volatility: determined on the basis of the historical volatility over a
two-year period for PI09 and a three-year period for PI10. In the case of the
Bank, the average volatility used was 16.25% for PI09 and 15.67% for
PI10.
-
Annual dividend yield: based on the data for the last two/three years before
July 1, 2007. In the case of the Bank, this yield stood at 3.23% for PI09 and
3.24% for PI10.
-
Risk-free interest rate: return on Treasury Bonds (zero coupon) offered on July
1, 2007 for a period of two years for PI09 (4.473%) and three years for PI10
(4.497%)
-
Monte Carlo valuation model: performance of 10,000 simulations to determine the
TSR of each of the companies in the Benchmark Group, taking into account the
aforementioned variables. The results (each of which represents the delivery of
a number of shares) are classified in decreasing order by calculating the
weighted average and discounting the amount at the risk-free interest rate.
Application of the simulation model results in percentage values of 42.7% for
PI09 and 42.3% for PI10 (second cycle), which are applied
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
to 50% of the value of the shares granted, in order to determine the cost
per books of the TSR-based portion of the incentive. Since this valuation refers
to a market condition, it cannot be adjusted after the grant date.
-
In view of the high correlation between TSR and EPS, it was considered feasible
to extrapolate that, in a high percentage of cases, the TSR value is also valid
for EPS. Therefore, it was determined that the fair value of the portion of the
plans linked to the Bank’s relative EPS position, i.e. of the remaining 50% of
the shares granted, was the same as that of the 50% corresponding to the TSR.
Since this valuation refers to a non-market condition, the number of shares
expected to vest shall be reviewed and adjusted on a yearly basis.
(ad)
Recent accounting pronouncements
In February 2007, the FASB issued
SFAS No. 159 “The Fair Value Option for Financial Liabilities” including an
amendment of FASB Statement No. 115. These statements permit entities to
choose to measure at fair value many financial instruments and certain other
items. The objective it to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. These Statements are expected to
expand the use of fair value measurement, which is consistent with the Board’s
long-term measurement objectives for accounting for financial instruments. This
statement is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007. The Bank does not believe these pronouncements
will have a material effect on its results of operations, cash flows, or
financial position.
In April 2007, the FASB issued Staff
Position FSP FIN No. 39-1, which defines "right of setoff" and specifies
what conditions must be met for a derivative contract to qualify for this right
of setoff. It also addresses the applicability of a right of setoff to
derivative instruments and clarifies the circumstances in which it is
appropriate to offset amounts recognized for those instruments in the statement
of financial position. In addition, this FSP permits the offsetting of fair
value amounts recognized for multiple derivative instruments executed with the
same counterparty under a master netting arrangement and fair value amounts
recognized for the right to reclaim cash collateral (a receivable) or the
obligation to return cash collateral (a payable) arising from the same master
netting arrangement as the derivative instruments. This 95 interpretation is
effective for fiscal years beginning after November 15, 2007, with early
application permitted. The Bank understand that this pronouncement will not have
an impact in the consolidated financial statement since the Bank decided to
continue with it’s policy of keep separated the derivative
instruments.
On November 5, 2007, the SEC issued
Staff Accounting Bulletin No. 109 (SAB 109), written loan commitments
recorded at fair value through earnings which requires that the fair value of a
written loan commitment that is marked to market through earnings should include
the future cash flows related to the loan’s servicing rights. However, the fair
value measurement of a written loan commitment still must exclude the expected
net cash flows related to internally-developed intangible assets (such as
customer relationship intangible assets). SAB 109 applies to two types of loan
commitments: (1) written mortgage loan commitments for loans that will be
held-for-sale when funded that are marked to market as derivatives under FAS 133
(derivative loan commitments); and (2) other written loan commitments that are
accounted for at fair value through earnings under Statement 159’s fair-value
election. SAB 109 supersedes SAB 105, which applied only to derivative loan
commitments and allowed the expected future cash flows related to the associated
servicing of the loan to be recognized only after the servicing asset had been
contractually separated from the underlying loan by sale or securitization of
the loan with servicing retained. The staff
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
expects
registrants to apply the views in Question 1 of SAB 109 on a prospective basis
to derivative loan commitments issued or modified in fiscal quarters beginning
after December 15, 2007. The Bank is evaluating the impact, if any,
that the adoption of SAB 109 may have on its consolidated financial statements
and disclosures.
On December 21, 2007, the SEC issued
Staff Accounting Bulletin No. 110 (SAB 110), the staff hereby
amends and replaces Question 6 of Section D.2 of Topic 14, Share-Based Payment,
of the Staff Accounting Bulletin Series. Question 6 of Topic 14: D.2 (as
amended) expresses the views of the staff regarding the use of a “simplified”
method in developing an estimate of expected term of “plain vanilla” share
options in accordance with Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment. This bulletin is effective on January 1,
2008.
In December 2007, the FASB issued
SFAS No. 141 (revised 2007) “Business Combinations” which is a revision of SFAS
141. SFAS 141(R) defines the acquirer in a business
combination as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that the
acquirer achieves control. The scope of SFAS 141 has also been
extended to include all business combinations and not just those where control
is obtained by transferring consideration. Assets acquired,
liabilities assumed and any noncontrolling interest at the acquisition date must
be recognized at their fair value, with limited exceptions, and contingencies
are also recognized at fair value if it is more likely than not that they meet
the definition of an asset or a liability. Contingent consideration
should be measured initially and at each subsequent accounting period at fair
value and all acquisition related costs should be expensed in the period in
which the costs were incurred or the services received. SFAS 141(R)
applies prospectively to business combinations where the acquisition date is on
or after December 15, 2008. As SFAS 141(R) will be prospectively
applied, its adoption will have no effect on the business combinations already
recognized in the financial statements at the balance sheet date
In December 2007, the FASB issued
SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements” an
amendment of ARB No. 51 “Consolidated Financial
Statements”. The Statement requires that minority interests
are presented in equity and on the face of the income statement separately from
equity and income attributable to the parent. Changes in ownership
interests without a change in control are accounted for as equity transactions
and no gain or loss recognized in the income statement. When a subsidiary is
deconsolidated any remaining minority interest should be initially measured at
fair value and any gain or loss based on that value. SFAS 160 should be applied
prospectively for fiscal years and interim periods beginning on or after
December 15, 2008, except for the presentation and disclosure requirements which
should be applied retrospectively for all periods presented. The Bank is
evaluating the impact, if any, of the adoption of this new
pronouncement.
In February 2008, the FASB issued
FASB Staff Position (FSP) FAS 140-3, "Accounting for Transfers of Financial
Assets and Repurchase Financing Transactions". The objective of this FSP
is to provide implementation guidance on whether the security transfer and
contemporaneous repurchase financing involving the transferred financial asset
must be evaluated as one linked transaction or two separate de-linked
transactions. Current practice records the transfer as a sale and the repurchase
agreement as a financing. The FSP requires the recognition of the transfer and
the repurchase agreement as one linked transaction, unless all of the following
criteria are met: (1) the initial transfer and the repurchase financing are not
contractually contingent on one another; (2) the initial transferor has full
recourse upon default, and the repurchase
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
agreement’s price is fixed and not at fair value;
(3) the financial asset is readily obtainable in the marketplace and the
transfer and repurchase financing are executed at market rates; and (4) the
maturity of the repurchase financing is before the maturity of the financial
asset. The scope of this FSP is limited to transfers and subsequent
repurchase financings that are entered into contemporaneously or in
contemplation of one another. The FSP will be effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. Early adoption is prohibited. The Bank is
evaluating the impact, if any, that the adoption of this new
pronouncement.
In February 2008, the FASB issued
FASB Staff Position 157-1 Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That Address Fair Value
Measurements for Purposes of Lease Classification or Measurement under Statement
13. This FASB Staff Position (FSP) amends FASB Statement No. 157, Fair Value Measurements, to
exclude FASB Statement No. 13, Accounting for Leases, and
other accounting pronouncements that address fair value measurements for
purposes of lease classification or measurement under Statement 13. However, this scope
exception does not apply to assets acquired and liabilities assumed in a
business combination that are required to be measured at fair value under FASB
Statement No. 141, Business
Combinations, or No. 141 (revised 2007), Business Combinations,
regardless of whether those assets and liabilities are related to leases.
The Bank understand that this pronouncement will not have an effect in it’s
consolidated financial statements because this pronouncements was issue to
exclude the leases from the scope of the FAS 157 Fair Value Measurements, thus,
no adjustment or changes would be necessary in the actual policy for lease
contracts.
In March 2008, the FASB released SFAS
No. 161 “Disclosures About Derivative Instruments and Hedging Activities” (SFAS
161), an amendment of SFAS No. 133 “Accounting for Derivative Instruments and
Hedging Activities” (SFAS 133). SFAS 161 applies to all
entities with derivative instruments subject to SFAS 133 as well as hedged
items, bifurcated derivatives and non-derivative instruments that are designated
and qualify as hedging instruments. The statement requires an entity
to make certain qualitative disclosures about the derivative instruments it
holds including, how and why they are used and the volume of activity,
distinguishing between instruments used for risk management and those used for
other purposes. There is also a requirement to disclose quantitative
information regarding derivative instruments, in a tabular format, in order to
highlight the effect that the use of these instruments has on the income
statement, the balance sheet and the entity’s cashflows. An entity
can elect not to disclose gains and losses on derivatives classified as trading,
though alternative disclosures must be made. The effect of
credit-risk-contingent features is also required to be disclosed. The adoption
of SFAS 161 is not expected to have a material impact on the Group’s financial
position or results of operations.
On September 15, 2006, the
Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements,”
which enhances existing guidance for measuring assets and liabilities using fair
value. Prior to the issuance of SFAS No. 157, guidance for applying fair
value was incorporated in several accounting pronouncements. SFAS No. 157
provides a single definition of fair value, together with a framework for
measuring it, and requires additional disclosure about the use of fair value to
measure assets and liabilities. SFAS No. 157 also emphasizes that fair
value is a market-based measurement, not an entity-specific measurement, and
sets out a fair value hierarchy with the highest priority being quoted prices in
active markets. Under SFAS No. 157, fair value measurements are disclosed
by level within that hierarchy. SFAS No. 157 is effective for our fiscal
year beginning January 1, 2008, and requires that the cumulative effect of
the adoption of SFAS No. 157 be
NOTE
28.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
reflected as an adjustment to the beginning
balance of retained earnings in the year of adoption. The Bank is currently
evaluating the impact of the adoption of SFAS No. 157 on our consolidated
financial condition, operating results and cash flows.
In May 2008, the FASB issued SFAS No.
162, The Hierarchy of Generally Accepted Accounting
Principles. This Statement identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). This Statement applies to
financial statements of nongovernmental entities that are presented in
conformity with GAAP. This Statement shall be effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
(PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The Bank
will adopt this Statement, upon its effective date, for the preparation of its
financial statements in future fiscal years.
* * * * *
*