UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
(Mark
One)
o
|
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
OR
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
for
the fiscal year ended December 31,
2008
|
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
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:
|
|
Name
of each exchange on which registered
|
American
Depositary Shares (“ADS”), each representing the right to receive 1,039
Shares of Common Stock without par value
|
|
New
York Stock Exchange
|
Shares
of Common Stock, without par value*
|
|
New
York Stock Exchange
|
*
|
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.
|
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
The
number of outstanding shares of each class of common stock of Banco
Santander-Chile at December 31, 2008, 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
o 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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FORWARD-LOOKING
STATEMENTS
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:
·
|
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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·
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projected
capital expenditures
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·
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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:
·
|
changes
in capital markets in general that may affect policies or attitudes
towards lending to Chile or Chilean
companies
|
·
|
changes
in economic conditions
|
·
|
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
|
·
|
movements
in equity prices or other rates or
prices
|
·
|
changes
in Chilean and foreign laws and
regulations
|
·
|
competition,
changes in competition and pricing
environments
|
·
|
our
inability to hedge certain risks
economically
|
·
|
the
adequacy of loss allowances
|
·
|
changes
in consumer spending and saving
habits
|
·
|
unanticipated
increases in financing and other costs or the inability to obtain
additional debt or equity financing on attractive
terms
|
·
|
changes
in, or failure to comply with, banking
regulations
|
·
|
our
ability to successfully market and sell additional services to our
existing customers
|
·
|
disruptions
in client service
|
·
|
implementation
of new technologies
|
·
|
an
inaccurate or ineffective client segmentation
model
|
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” refer
to Banco Santander-Chile and its consolidated subsidiaries.
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.
Santander-Chile
is a Chilean bank and maintains its financial books and records in Chilean pesos
and prepares its audited consolidated financial statements in accordance 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 generally accepted accounting
principles in Chile, as supplemented by the applicable rules of the
Superintendency of Banks. Our consolidated financial statements have
been translated into English, certain reclassifications have been made and
certain subtotals and clarifying account descriptions have been added in order
to present them in accordance with the requirements of U.S. Securities Act of
1933, as amended, or the Securities Act, and the U.S. Securities Exchange Act of
1934, as amended, or the Exchange Act. See Note 27 to the audited consolidated
financial statements of Santander-Chile as of December 31, 2007 and 2008, and
for the years ended December 31, 2006, 2007 and 2008, contained elsewhere in
this Annual Report (together with the notes thereto, the “Audited Consolidated
Financial Statements”) for a description of the significant 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.
On
November 9, 2007, the Superintendency of Banks issued Circular No. 3410, which
became effective on January 1, 2008, requiring the application of the new
presentation format for consolidated financial statements. Santander-Chile
consolidated annual financial statements as of and for the year ended December
31, 2008 included in the Audited Consolidated Financial Statements have been
prepared under Chilean GAAP and the new financial statement models. Such
consolidated annual financial statements are the first annual financial
statements prepared by Santander-Chile on such basis. The information as of and
for the years ended December 31, 2007 and 2006 contained in the Audited
Consolidated Financial Statements is presented on the same basis as the
information as of and for the year ended December 31, 2008. The selected
consolidated financial information included herein as of and for the year ended
December 31, 2008, together with selected consolidated financial information as
of and for the years ended December 31, 2007, 2006, 2005 and 2004 are derived
from, and presented on the same basis as in, the Audited Consolidated Financial
Statements and should be read together with the Audited Consolidated Financial
Statements. As the Audited Consolidated Financial Statements and such selected
consolidated financial information have been prepared under Chilean GAAP and the
new financial statement models, they are not directly comparable with financial
information prepared by Santander-Chile as of and for the years ended December
31, 2007 and 2006 included in our Annual Report for 2007 on Form
20-F.
Preparation
of the Audited Consolidated Financial Statements under Chilean GAAP and taking
into consideration the new financial statement models required by Circular No.
3410 affected both the “Net Income” line item in the
consolidated statement of income and the “Total Shareholders’
Equity” line
item. As required by Circular No. 3410, total shareholders’ equity and net
income includes the equity attributable to the shareholders of both the parent
company and the minority interest. Unless otherwise indicated
herein, as used hereafter “the rules of the Superintendency of Banks” refers to
such rules as amended or supplemented from time to time, including by Circular
No. 3410.
Currency
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, 2008. 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: C. 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 macroeconomic 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, 2008, was Ch$641.25 per US$1.00. Our subsidiaries use
the first observed exchange rate published by the Central Bank for 2009 on
January 2, 2009. The
observed exchange rate reported by the Central Bank on December 31, 2008, was
Ch$629.11 per US$1.00 and Ch$636.45 on January 2, 2009. 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 27 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, 2006,
2007 and 2008, and shareholders’ equity at December 31, 2007 and
2008.
We have
selected the following financial information from our consolidated financial
statements. You should read this information in connection with, and this
information is qualified in its entirety by reference to, our consolidated
financial statements included in this Annual Report. The formats of the
consolidated financial statements presented in this report differ only with
respect to presentation criteria from those presented in our 2007 Annual Report,
because the former were prepared in accordance with the models contained in
Circular No. 3410 issued by the Superintendency of Banks, which became effective
on January 1, 2008, which prescribed new accounting formats for financial
statements. This required reclassifying certain gains and losses among line
items in the income statement as well as assets and liabilities, but did not
involve a change in accounting standards. We have restated the figures for the
twelve month period ended December 31, 2004, 2005, 2006 and 2007 in order to
make them comparable to the 2008 figures.
|
|
At
and for the years ended December 31,
|
|
|
|
2004
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008
|
|
|
2008
|
|
|
|
(in
millions of constant Ch$ of December 31, 2008)(1)
|
|
|
(in
thousands
of
US$)(1)(2)
|
|
CONSOLIDATED
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest revenue (3)
|
|
|
513,656 |
|
|
|
566,998 |
|
|
|
635,821 |
|
|
|
775,758 |
|
|
|
897,041 |
|
|
|
1,398,895 |
|
Provision
for loan losses
|
|
|
(92,605 |
) |
|
|
(77,959 |
) |
|
|
(142,956 |
) |
|
|
(224,667 |
) |
|
|
(285,953 |
) |
|
|
(445,931 |
) |
Fee
income
|
|
|
190,738 |
|
|
|
192,362 |
|
|
|
197,647 |
|
|
|
217,857 |
|
|
|
223,593 |
|
|
|
348,683 |
|
Operating
costs
(4)
|
|
|
(333,783 |
) |
|
|
(343,739 |
) |
|
|
(381,762 |
) |
|
|
(401,470 |
) |
|
|
(423,055 |
) |
|
|
(659,735 |
) |
Other
income, net (3) (5)
|
|
|
(88,521 |
) |
|
|
(110,647 |
) |
|
|
93,620 |
|
|
|
30,921 |
|
|
|
(16,881 |
) |
|
|
(26,325 |
) |
Income
before
taxes
|
|
|
189,485 |
|
|
|
227,015 |
|
|
|
402,370 |
|
|
|
398,399 |
|
|
|
394,745 |
|
|
|
615,587 |
|
Income
tax
|
|
|
(56,843 |
) |
|
|
(59,531 |
) |
|
|
(68,088 |
) |
|
|
(60,075 |
) |
|
|
(63,728 |
) |
|
|
(99,381 |
) |
Net
income
|
|
|
246,328 |
|
|
|
286,546 |
|
|
|
334,282 |
|
|
|
338,324 |
|
|
|
331,017 |
|
|
|
516,206 |
|
Net
income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to
shareholders
|
|
|
246,102 |
|
|
|
286,387 |
|
|
|
334,106 |
|
|
|
336,086 |
|
|
|
328,146 |
|
|
|
511,729 |
|
Minority
interest
|
|
|
226 |
|
|
|
159 |
|
|
|
176 |
|
|
|
2,238 |
|
|
|
2,871 |
|
|
|
4,477 |
|
Net
income attributable to shareholders per share
|
|
|
1.31 |
|
|
|
1.52 |
|
|
|
1.77 |
|
|
|
1.78 |
|
|
|
1.74 |
|
|
|
2.71 |
|
Net
income attributable to shareholders per ADS (7)
|
|
|
1,356.89 |
|
|
|
1,579.00 |
|
|
|
1,842.10 |
|
|
|
1,853.01 |
|
|
|
1,809.24 |
|
|
|
2,821.43 |
|
Dividends
per
share (8)
|
|
|
1.05 |
|
|
|
0.83 |
|
|
|
0.99 |
|
|
|
1.06 |
|
|
|
1.13 |
|
|
|
1.76 |
|
Dividends
per ADS
(8)
|
|
|
1,096.06 |
|
|
|
859.07 |
|
|
|
1,023.46 |
|
|
|
1,106.12 |
|
|
|
1,176.00 |
|
|
|
1,833.92 |
|
Weighted-average
shares outstanding (in millions)
|
|
|
188,446.13 |
|
|
|
188,446.13 |
|
|
|
188,446.13 |
|
|
|
188,446.13 |
|
|
|
188,446.13 |
|
|
|
- |
|
Weighted-average
ADS outstanding (in millions)
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (9)
|
|
|
555,342 |
|
|
|
660,825 |
|
|
|
666,060 |
|
|
|
763,559 |
|
|
|
960,615 |
|
|
|
1,498,035 |
|
Provision
for loan losses
|
|
|
(80,635 |
) |
|
|
(77,132 |
) |
|
|
(142,956 |
) |
|
|
(234,226 |
) |
|
|
(285,953 |
) |
|
|
(445,931 |
) |
|
|
|
At
and for the years ended December 31,
|
|
|
|
|
2004
|
|
|
|
2005 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2008
|
|
|
|
2008
|
|
|
|
|
(in
millions of constant Ch$ of December 31, 2008)(1)
|
|
|
|
(in
thousands
of
US$)(1)(2)
|
|
CONSOLIDATED
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
246,266 |
|
|
|
270,059 |
|
|
|
276,002 |
|
|
|
247,839 |
|
|
|
332,942 |
|
|
|
519,208 |
|
Net
income per Share (10)
|
|
|
1.31 |
|
|
|
1.43 |
|
|
|
1.46 |
|
|
|
1.32 |
|
|
|
1.77 |
|
|
|
2.76 |
|
Net
income per ADS (7)(10)
|
|
|
1,357.79 |
|
|
|
1,488.97 |
|
|
|
1,521.74 |
|
|
|
1,366.46 |
|
|
|
1,835.68 |
|
|
|
2,862.66 |
|
Weighted-avg.
shares outstanding (in millions)
|
|
|
188,446.13 |
|
|
|
188,446.13 |
|
|
|
188,446.13 |
|
|
|
188,446.13 |
|
|
|
188,446.13 |
|
|
|
- |
|
Weighted-avg.
ADS outstanding (in millions)
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and balances from the Central Bank
|
|
|
541,871 |
|
|
|
1,161,354 |
|
|
|
1,081,033 |
|
|
|
1,206,985 |
|
|
|
854,838 |
|
|
|
1,333,081 |
|
Financial
investments (11)
|
|
|
2,462,914 |
|
|
|
1,492,792 |
|
|
|
1,223,661 |
|
|
|
2,072,872 |
|
|
|
2,741,871 |
|
|
|
4,275,822 |
|
Loans
(not contingent)
|
|
|
9,592,801 |
|
|
|
11,039,535 |
|
|
|
12,623,992 |
|
|
|
13,398,281 |
|
|
|
14,700,374 |
|
|
|
22,924,560 |
|
Loan
loss allowance
|
|
|
214,522 |
|
|
|
176,657 |
|
|
|
203,640 |
|
|
|
250,887 |
|
|
|
285,505 |
|
|
|
445,232 |
|
Derivatives
(12)
|
|
|
- |
|
|
|
489,954 |
|
|
|
436,013 |
|
|
|
850,186 |
|
|
|
1,846,509 |
|
|
|
2,879,546 |
|
Other
assets (12)
|
|
|
172,211 |
|
|
|
206,011 |
|
|
|
294,397 |
|
|
|
516,238 |
|
|
|
520,348 |
|
|
|
811,458 |
|
Total
assets
|
|
|
14,940,682 |
|
|
|
15,647,339 |
|
|
|
16,171,717 |
|
|
|
18,542,877 |
|
|
|
21,137,134 |
|
|
|
32,962,392 |
|
Deposits
|
|
|
2,822,164 |
|
|
|
2,591,113 |
|
|
|
2,838,774 |
|
|
|
3,123,803 |
|
|
|
2,949,757 |
|
|
|
4,600,011 |
|
Other
interest bearing liabilities
|
|
|
12,270,645 |
|
|
|
13,043,892 |
|
|
|
8,083,344 |
|
|
|
8,589,131 |
|
|
|
9,756,266 |
|
|
|
15,214,450 |
|
Derivatives
(12)
|
|
|
0 |
|
|
|
458,400 |
|
|
|
416,399 |
|
|
|
847,401 |
|
|
|
1,469,724 |
|
|
|
2,291,967 |
|
Equity
(13)
|
|
|
1,278,858 |
|
|
|
1,294,126 |
|
|
|
1,458,719 |
|
|
|
1,587,714 |
|
|
|
1,602,610 |
|
|
|
2,499,197 |
|
Shareholders’
equity (14)
|
|
|
1,277,275 |
|
|
|
1,292,483 |
|
|
|
1,456,939 |
|
|
|
1,565,885 |
|
|
|
1,578,045 |
|
|
|
2,460,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets (9)
|
|
|
13,565,343 |
|
|
|
14,936,809 |
|
|
|
17,046,240 |
|
|
|
19,323,821 |
|
|
|
21,928,984 |
|
|
|
34,197,246 |
|
Long-term
borrowings
|
|
|
2,234,567 |
|
|
|
1,705,669 |
|
|
|
1,855,024 |
|
|
|
1,473,041 |
|
|
|
2,347,380 |
|
|
|
3,660,632 |
|
Shareholders'
equity
|
|
|
2,283,901 |
|
|
|
2,267,885 |
|
|
|
2,362,827 |
|
|
|
2,392,095 |
|
|
|
2,512,447 |
|
|
|
3,918,048 |
|
Goodwill
|
|
|
943,561 |
|
|
|
943,561 |
|
|
|
943,561 |
|
|
|
943,561 |
|
|
|
943,561 |
|
|
|
1,471,440 |
|
|
|
At
and for the year ended
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability
and performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin (15)
|
|
|
3.9 |
% |
|
|
4.1 |
% |
|
|
4.7 |
% |
|
|
5.6 |
% |
|
|
5.7 |
% |
Return
on average total assets (16)
|
|
|
1.7 |
% |
|
|
1.8 |
% |
|
|
2.1 |
% |
|
|
1.9 |
% |
|
|
1.8 |
% |
Return
on average equity (17)
|
|
|
20.3 |
% |
|
|
24.1 |
% |
|
|
24.8 |
% |
|
|
23.6 |
% |
|
|
24.0 |
% |
Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
equity as a percentage of average total assets (18)
|
|
|
8.2 |
% |
|
|
7.4 |
% |
|
|
8.3 |
% |
|
|
8.2 |
% |
|
|
7.4 |
% |
Total
liabilities as a multiple of equity (18)
|
|
|
10.7 |
|
|
|
11.1 |
|
|
|
10.1 |
|
|
|
10.7 |
|
|
|
12.2 |
|
Credit
Quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
loans as a percentage of total loans (19)
|
|
|
4.13 |
% |
|
|
2.88 |
% |
|
|
3.20 |
% |
|
|
3.54 |
% |
|
|
4.63 |
% |
Allowance
for loan losses as percentage of total loans (20)
|
|
|
2.24 |
% |
|
|
1.60 |
% |
|
|
1.61 |
% |
|
|
1.87 |
% |
|
|
1.94 |
% |
Past
due loans as a percentage of total loans (21)
|
|
|
1.69 |
% |
|
|
1.15 |
% |
|
|
0.86 |
% |
|
|
0.95 |
% |
|
|
1.09 |
% |
Operating
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses /operating revenue (22)
|
|
|
44.0 |
% |
|
|
41.5 |
% |
|
|
43.1 |
% |
|
|
39.4 |
% |
|
|
38.0 |
% |
Operating
expenses /average total assets (23)
|
|
|
2.2 |
% |
|
|
2.1 |
% |
|
|
2.6 |
% |
|
|
2.6 |
% |
|
|
2.5 |
% |
Ratio
of earnings to fixed charges (24):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including
interest on deposits
|
|
|
1.77 |
|
|
|
1.65 |
|
|
|
1.61 |
|
|
|
1.43 |
|
|
|
1.34 |
|
Excluding
interest on deposits
|
|
|
2.26 |
|
|
|
2.46 |
|
|
|
2.56 |
|
|
|
2.22 |
|
|
|
1.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP(25):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability
and performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin (26)
|
|
|
4.3 |
% |
|
|
4.8 |
% |
|
|
4.9 |
% |
|
|
5.5 |
% |
|
|
6.1 |
% |
Return
on average total assets (27)
|
|
|
1.7 |
% |
|
|
1.7 |
% |
|
|
1.7 |
% |
|
|
1.4 |
% |
|
|
1.8 |
% |
Return
on average shareholders’ equity (28)
|
|
|
20.3 |
% |
|
|
22.7 |
% |
|
|
20.5 |
% |
|
|
17.3 |
% |
|
|
24.2 |
% |
Ratio
of earnings to fixed charges (24):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including
interest on deposits
|
|
|
1.87 |
|
|
|
1.71 |
|
|
|
1.60 |
|
|
|
1.38 |
|
|
|
1.38 |
|
Excluding
interest on deposits
|
|
|
2.43 |
|
|
|
2.51 |
|
|
|
2.52 |
|
|
|
1.99 |
|
|
|
1.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation
Rate(29)
|
|
|
2.4 |
% |
|
|
3.7 |
% |
|
|
2.6 |
% |
|
|
7.8 |
% |
|
|
7.1 |
% |
|
|
At
and for the year ended
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation
(devaluation) rate (Ch$/US$) at period end (29)
|
|
|
(6.6 |
%) |
|
|
(8.1 |
%) |
|
|
3.9 |
% |
|
|
(7.2 |
%) |
|
|
26.9 |
% |
Number
of employees at period end
|
|
|
7,380 |
|
|
|
7,482 |
|
|
|
8,184 |
|
|
|
9,174 |
|
|
|
9,169 |
|
Number
of branches and offices at period end (30)
|
|
|
315 |
|
|
|
364 |
|
|
|
413 |
|
|
|
464 |
|
|
|
477 |
|
(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, 2008, have
been translated from Chilean pesos at the interbank
market exchange rate of Ch$641.25 = US$1.00 as of December 31,
2008. 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,
2007 and 2008.
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)
|
Operating
costs is equal to the sum of personnel expenses, administrative expenses
and depreciation and amortizations.
|
(5)
|
Other
income, net is the sum of other operating income, other operating
expenses, net gains (losses) from mark-to-market and trading and foreign
exchange transactions, loss from price level restatement and investment in
other companies.
|
(7)
|
1
ADS = 1,039 shares of common stock.
|
(8)
|
The
dividend per share and dividend per ADS in year t is calculated
as the dividend approved and paid to shareholders in period t+1 divided by
the number of shares outstanding at the end of the applicable period in
period t. Dividends per ADS has been calculated on the basis of 1,039
shares per ADS and does not reflect any deduction for Chilean withholding
taxes or for the foreign currency expenses of the
Depositary.
|
(9)
|
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, 2004, 2005, 2006, 2007 and Note 27 to the Audited
Consolidated Financial Statements for the twelve-month period ended
December 31, 2008, included in our Annual Report on Form
20-F.
|
(10)
|
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.
|
(11)
|
Includes
financial investment held for trading, repos, financial investments
available for sale and financial investments held to
maturity.
|
(12)
|
For
figures at December 31, 2006, 2007 and 2008, 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 Note 1 to the Audited Consolidated Financial
Statements.
|
(13)
|
Equity
includes shareholders’ equity plus minority interest. Equity is calculated
according to the new guidelines established in Circular No. 3410 issued by
the Superintendency of Banks. According to this new format, equity must
include minority interest and a minimum provision for mandatory dividends
equal to 30% of net income.
|
(14)
|
Shareholders’
equity is calculated according to the new guidelines established in
Circular No. 3410 issued by the Superintendency of Banks. The main
difference being the provision for mandatory dividends equal to 30% of net
income.
|
(15)
|
Net
interest revenue divided by average interest earning assets (as presented
in “Item 5: F. Selected Statistical
Information”).
|
(16)
|
Net
income divided by average total assets (as presented in “Item 5: F.
Selected Statistical Information”).
|
(17)
|
Net
income divided by average equity (as presented in “Item 5: F. Selected
Statistical Information”).
|
(18)
|
This
ratio is calculated using total equity including minority
interest.
|
(19)
|
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.”
|
(20)
|
Total
loans exclude contingent
loans.
|
(21)
|
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. Total loans exclude contingent
loans.
|
(22)
|
The
efficiency ratio is equal to operating expenses over operating revenue.
Operating expenses includes personnel expenses, administrative expenses,
depreciation and amortizations, and other operating expenses. Operating
revenue includes net interest revenue, fee income, net gain (loss) from
mark-to-market and trading, foreign exchange transactions and other
operating income.
|
(23)
|
Operating
expenses includes personnel expenses, administrative expenses,
depreciation and amortizations, and other operating
expenses.
|
(24)
|
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.
|
(25)
|
The following ratios
have been calculated using U.S. GAAP figures except for net interest
margin.
|
(26)
|
Net
interest margin has been determined by applying the relevant U.S. GAAP
adjustments to net interest income for the years ended December 31, 2004,
2005, 2006, 2007 and 2008, 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, 2004 and 2005, and Note 28(v) to our
Consolidated Financial Statements for the years ended December 31, 2006
and 2007 and Note 27(v) to the Audited Consolidated Financial Statements
for the twelve-month period ended December 31,
2008.
|
(27)
|
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 27 to the Audited
Consolidated Financial Statements.
|
(28)
|
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 27 to the Audited Consolidated Financial
Statements.
|
(29)
|
Based
on information published by the Central
Bank.
|
(30)
|
Figures
prior to 2005 do not include special payment
centers.
|
New
Accounting Format in 2008
Circular
No. 3410 issued by the Superintendence of Banks, which became effective on
January 1, 2008, prescribed new accounting formats for financial statements. The
new accounting formats are congruent with International Accounting Standards,
but do not involve 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.
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 efficient portion of derivatives for hedging inflation and
interest rate risk
|
Provision
expense
|
3
Provisions for repossessed assets
4
Sale of charge-off loans
|
|
Fee
income
|
|
1
Interest income contingent operations
|
Financial
transactions, net
|
5
Interest income efficient portion of derivatives for hedging inflation and
interest rate risk
|
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
|
1
Contingent loans
2
Past due loans
3
Loan loss allowances
|
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
|
Liabilities
|
4
Shareholders’ Equity
|
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
|
Previous
format:
|
|
At
and for the years ended December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
CONSOLIDATED
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest revenue
|
|
|
587,893 |
|
|
|
653,123 |
|
|
|
716,285 |
|
|
|
899,013 |
|
Provision
for loan losses
|
|
|
(99,971 |
) |
|
|
(75,903 |
) |
|
|
(143,925 |
) |
|
|
(198,627 |
) |
Fee
income
|
|
|
149,754 |
|
|
|
165,309 |
|
|
|
190,169 |
|
|
|
210,076 |
|
Other
operating income net
|
|
|
17,246 |
|
|
|
(15,904 |
) |
|
|
21,811 |
|
|
|
(86,814 |
) |
Other
income and expenses, net
|
|
|
(5,024 |
) |
|
|
(25,647 |
) |
|
|
(4,188 |
) |
|
|
6,995 |
|
Operating
expenses
|
|
|
(332,119 |
) |
|
|
(333,389 |
) |
|
|
(361,833 |
) |
|
|
(373,149 |
) |
Loss
from price level restatement
|
|
|
(14,834 |
) |
|
|
(21,671 |
) |
|
|
(16,123 |
) |
|
|
(61,332 |
) |
Income
before taxes
|
|
|
302,945 |
|
|
|
345,918 |
|
|
|
402,196 |
|
|
|
396,162 |
|
Income
tax
|
|
|
(56,843 |
) |
|
|
(59,531 |
) |
|
|
(68,088 |
) |
|
|
(60,076 |
) |
Net
income
|
|
|
246,102 |
|
|
|
286,387 |
|
|
|
334,108 |
|
|
|
336,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
format
|
|
At
and for the years ended December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
CONSOLIDATED
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest revenue
|
|
|
513,656 |
|
|
|
566,998 |
|
|
|
635,821 |
|
|
|
775,758 |
|
Provision
for loan losses
|
|
|
(92,605 |
) |
|
|
(77,959 |
) |
|
|
(142,956 |
) |
|
|
(224,667 |
) |
Fee
income
|
|
|
190,738 |
|
|
|
192,362 |
|
|
|
197,647 |
|
|
|
217,857 |
|
Operating
costs
|
|
|
(333,783 |
) |
|
|
(343,739 |
) |
|
|
(381,763 |
) |
|
|
(401,470 |
) |
Other
income, net
|
|
|
(88,521 |
) |
|
|
(110,647 |
) |
|
|
93,623 |
|
|
|
30,921 |
|
Income
before taxes
|
|
|
189,485 |
|
|
|
227,015 |
|
|
|
402,372 |
|
|
|
398,399 |
|
Income
tax
|
|
|
(56,843 |
) |
|
|
(59,531 |
) |
|
|
(68,088 |
) |
|
|
(60,075 |
) |
Net
income
|
|
|
246,328 |
|
|
|
286,546 |
|
|
|
334,284 |
|
|
|
338,324 |
|
Net
income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to shareholders
|
|
|
246,102 |
|
|
|
286,387 |
|
|
|
334,108 |
|
|
|
336,086 |
|
Minority
interest
|
|
|
226 |
|
|
|
159 |
|
|
|
176 |
|
|
|
2,238 |
|
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, 2008, and May 29,
2009, the exchange rate in the Informal Exchange Market as published by Reuters
at 1:30pm on these days was Ch$641.25 and Ch$561.30, or 1.9% more expensive and
0.76% cheaper, respectively, than the published observed exchange rate for such
date of Ch$629.11 and Ch$565.60, 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
2008
|
|
|
431.22 |
|
|
|
676.75 |
|
|
|
521.79 |
|
|
|
629.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
2008
|
|
|
629.19 |
|
|
|
675.57 |
|
|
|
651.51 |
|
|
|
659.43 |
|
December
2008
|
|
|
625.59 |
|
|
|
674.83 |
|
|
|
649.32 |
|
|
|
629.11 |
|
January
2009
|
|
|
610.09 |
|
|
|
643.87 |
|
|
|
623.01 |
|
|
|
612.43 |
|
February
2009
|
|
|
583.32 |
|
|
|
623.87 |
|
|
|
606.00 |
|
|
|
595.76 |
|
March
2009
|
|
|
572.39 |
|
|
|
614.85 |
|
|
|
592.93 |
|
|
|
582.1 |
|
April
2009
|
|
|
583.18 |
|
|
|
601.04 |
|
|
|
583.18 |
|
|
|
588.62 |
|
May
2009
|
|
|
565.72 |
|
|
|
580.10 |
|
|
|
565.72 |
|
|
|
565.60 |
|
(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 2008 dividend must be proposed and
approved during the first four months of 2009. 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 minimum 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
JPMorgan Chase Bank, N.A., 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 and eliminated 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 past five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
2009
|
|
|
213,295 |
|
|
|
1.13 |
|
|
|
1,176.02 |
|
|
|
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, which should be read in
conjunction with all the other information presented in this Annual Report. 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
We
are vulnerable to the current disruptions and volatility in the global financial
markets.
In the
past two years, the global financial system has experienced difficult credit and
liquidity conditions and disruptions leading to less liquidity, greater
volatility, general widening of spreads and, in some cases, lack of price
transparency on interbank lending rates. Global economic conditions deteriorated
significantly in the second half of 2008, and many countries, including the
United States, are currently in recession. Many major financial institutions,
including some of the world’s largest global commercial banks, investment banks,
mortgage lenders, mortgage guarantors and insurance companies, have been
experiencing significant difficulties. Around the world, there have also been
runs on deposits at several financial institutions, numerous institutions have
sought additional capital and many lenders and institutional investors have
reduced or ceased providing funding to borrowers (including to other financial
institutions).
Continued
or worsening disruption and volatility in the global financial markets could
have a material adverse effect on our ability to access capital and liquidity on
financial terms acceptable to us, if at all. If capital markets
financing ceases to become available, or becomes excessively expensive, we may
be forced to raise the rates we pay on deposits to attract more
customers. Any such increase in capital markets funding costs or
deposit rates could have a material adverse effect on our interest
margins.
In Chile,
the continued economic recession has also caused a rise in unemployment, a fall
in consumer spending, a fall in real estate prices and a general decline in
economic activity. All these may lead a decrease in demand for individual and
corporate borrowings, a decrease in demand for financial services and a decrease
in credit card spending, which may in turn materially adversely affect our
financial condition and results of operation.
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.
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, 2008, our allowance for impairment losses on loans was Ch$285,505
million, and the ratio of our allowance for impairment losses to total loans was
1.9%. 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 the legal and
regulatory environment. As the recent global financial crisis has demonstrated,
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 46.7%
of the value of the total loan portfolio at December 31, 2008) and, to a lesser
extent, small and medium sized companies (those with annual sales of less than
US$1.9 million), which comprised approximately 16.5% of the value of the total
loan portfolio at December 31, 2008. 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, 2008, our residential mortgage loan book totaled
Ch$3,981,346 million, representing 27.1% of our total 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, as
it may in 2009 due to the global financial and economic crisis, this could
materially adversely affect the liquidity, businesses and financial conditions
of our customers, which may in turn cause us to experience higher levels of past
due loans, thereby resulting in higher provisions for loan losses and subsequent
write-offs. This may in turn materially and adversely affect our asset quality,
results of operations and financial condition.
If
we are unable to maintain the quality of our loan portfolio, our financial
condition and results of operations may be materially and adversely
affected.
At
December 31, 2008, our past due loans were Ch$160,824 million, and the ratio of
our past due loans to total loans was 1.1%. 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 the level of non-performing loans and adversely affect the quality
of our loan portfolio. In addition, the quality of our loan portfolio may also
deteriorate due to various other reasons, including factors beyond our control
such as the macroeconomic factors affecting Chile’s economy. 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. The real estate market is particularly vulnerable in
the current economic climate and this may affect us as real estate represents a
significant portion of the collateral securing our residential mortgages loan
portfolio. We may also 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 real estate in question has been declared as “family property” by a court.
If any party occupying the real estate files a petition with the court
requesting that such real estate be declared as family property, our ability to
foreclose will be very limited.
The
growth of our loan portfolio may expose us to increased loan
losses.
From
December 31, 2004 to December 31, 2008, our aggregate loan portfolio grew by
53.2% in real terms to Ch$14,700,374 million (US$22.9 billion), while our
consumer loan portfolio grew by 66.7% in real terms to Ch$2,248,996 (US$3,507
million). 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. The current economic
turmoil may lead to a contraction in our loan portfolio.
There can
be no assurance that in the future our loan portfolio will continue to grow at
similar rates to 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 continued
economic turmoil could materially adversely affect the liquidity, businesses and
financial condition of our customers as well as a general decline in consumer
spending and rise in unemployment. All this could in turn lead to decreased
demand for borrowings in general. Our loan portfolio may thus contract in 2009,
given the economic environment.
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 in
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 and 2008. In 2007 and 2008, inflation reached
7.1% and 7.8%, respectively. 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. In 2009, the possibility of
a deflationary environment could also 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 on the tenth day of any given 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 proportionate 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 from 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
2008, net interest revenue represented 73.3% 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. In the current economic climate, there is a greater degree of
uncertainty and unpredictability in the policy decisions and the setting of
interest rates by the Central Bank. 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 2004 – 2008 and up to May
2009.
|
|
Period-end
90
day note (%)
|
2004
|
|
|
2.32
|
2005
|
|
|
4.75
|
2006
|
|
|
5.10
|
2007
|
|
|
6.15
|
2008
|
|
|
8.18
|
May
2009
|
|
|
1.20
|
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.
Customer
deposits are our primary source of funding. At December 31, 2008, 87.4% 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.
The
legal restrictions on the exposure of Chilean pension funds may affect our
access to funding.
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, 2008, the aggregate exposure of AFPs to us
was approximately US$4.4 billion or 5.5% of their 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. As of December 31, 2008, the limit on making
investments abroad was 50%. In 2009, this limit will gradually 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, 2008, 20.0% 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.
Chilean
banks are required by the General Banking Law to maintain regulatory capital of
at least 8% of 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 are required to maintain a
minimum regulatory capital to risk-weighted assets ratio of 11%. At December 31,
2008, the ratio of our basic capital to total assets, net of loan loss
allowance, was 7.2%, and the ratio of our regulatory capital to risk-weighted
assets, net of loan loss allowance and deductions, was 13.8%. 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.
|
On
January 30, 2009, the Superintendency of Banks issued Circular No. 3,465 that
modified the guidelines for risk weighting derivatives. If the Bank has a net
liability in a derivative position and if this derivative, under certain stress
and volatility measures, becomes a net asset position, then the Bank must also
include this derivative as a risk weighted asset and this should have an adverse
impact on regulatory capital ratios. In 2009, the adoption of accounting
standards in line with International Accounting Standards will also have an
impact on the level of the Bank’s restated shareholders’ equity and
capitalization levels. The main impacts are the elimination of the price level
restatement of capital and the revaluation of fixed assets. 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 these events will not have a material impact on the
Bank’s capitalization ratio.
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 has allowed 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. Our required minimum regulatory capital to risk weighted assets ratio is
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. Chile’s economy may not continue to grow in the
future and future developments could negatively affect Chile’s exports and
economic activity. In line with the current global economic climate, we expect
Chile’s economy to contract in 2009 for the first time since 1999. All this may
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. At December 31, 2008, approximately 3.7% of
our assets were held abroad.
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 global financial and sub-prime crisis has had a significant
impact on the growth rate of the Chilean economy and is expected to continue to
negatively impact growth, consumption, unemployment, investment and the price of
exports in 2009 and 2010.
Chile is
also involved in an international litigation with Peru regarding maritime
borders and has other conflict with neighboring countries in the past. 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 U.S. 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) (%)
|
2004
|
|
559.83
|
|
(6.6%)
|
2005
|
|
514.21
|
|
(8.1%)
|
2006
|
|
534.43
|
|
3.9%
|
2007
|
|
495.82
|
|
(7.2%)
|
2008
|
|
629.11
|
|
26.9%
|
May
2009
|
|
565.72
|
|
(10.1%)
|
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 will then 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
by our ADS holders from the Depositary will be reduced.
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 on the amount that a bank is allowed to grant as an unsecured loan
to a single individual or entity was increased to 10% of the bank’s regulatory
capital (and up to 30% of the bank’s regulatory capital if any loans granted in
excess of the 10% is secured by collateral). 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.
Increased
regulation of the financial services industry in Chile could increase our costs
and result in lower profits.
As a
result of the current financial crisis, there has been an increase in government
regulation of the financial services industry in many countries. Such regulation
may also be increased in Chile, including the imposition of higher capital
requirements, heightened disclosure standards and restrictions on certain types
of transaction structures. In addition, novel regulatory proposals
abound in the current environment. If enacted, new regulations could require us
to inject further capital into our business as well as in businesses we acquire,
restrict the type or volume of transactions we enter into, or set limits on or
require the modification of rates or fees that we charge on certain loan or
other products, any of which could lower the return on our investments, assets
and equity. We may also face increased compliance costs and
limitations on our ability to pursue certain business
opportunities.
A
worsening of labor relations in the Chile could impact our
business.
As of
December 31, 2008, on a consolidated basis we had 9,169 employees of which 45.3%
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 with the agreement of management and the union. 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’s debt credit rating for domestic and international debt
and/or our parent company’s ratings by international credit rating agencies may
also affect our ratings, our business, our future financial performance,
stockholder’s equity and the price of our shares and ADSs.
Our
foreign currency deposit ratings are equivalent to the Chilean sovereign
ratings. In the case of Moody’s, our senior and subordinated debt denominated in
foreign currency pierce the sovereign ceilings. In 2007, Standard and Poor’s
improved their ratings for us. In 2007 and March 2009 Moody’s improved their
rating for us, but in May 2009, Moody’s placed our foreign currency senior and
subordinated bond ratings, local currency deposit ratings and Bank Financial
Strength Rating under review for possible downgrade, following a similar action
on the ratings of our parent company, Banco Santander Spain. Any adverse
revisions to our parent company’s ratings and/or Chile’s credit ratings for
domestic and international debt by international rating agencies may adversely
affect our ratings, 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.
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. Beginning January 1, 2009,
Chilean banks will adopt accounting standards adopted by the Superintendency of
Banks, and more congruent with International Accounting 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, aims to promote 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. For more details on
the differences between our corporate governance standards and the NYSE
standards, please see “Item 6: C. Board Practices – Summary Comparison of
Corporate Governance Standards and NYSE Listed Company Standards.”
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
relating 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 that we
generally believe 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.
Our ADSs
are listed and traded on the NYSE. Our 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, 2008, 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
our common stock is traded on the Chilean Stock Exchanges, there can be no
assurance that a liquid trading market for our common stock will continue to
exist. 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 in the United States 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 make a registration statement available with respect to
such rights and the common stock, you may not be able to exercise your
preemptive rights in the United States. If a registration statement is not filed
or an applicable exemption is not available under U.S. securities law, 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 clearly 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
clearly 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, 2008, we had total assets of Ch$21,137,134
million (US$32,962 million), loans net of allowances outstanding of
Ch$14,319,370 million (US$22,330 million), total deposits of Ch$12,704,023
million (US$19,811 million) and shareholders’ equity of Ch$1,602,610 million
(US$2,499 million). As of December 31, 2008, we employed 9,169 people (on a
consolidated basis) and had the largest private branch network in Chile with 477
branches. 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, foreign currency forward
contracts and 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.santander.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 Brazil
and the rest of 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
477 total branches, 256 of which operated under the Santander brand name, 109
under the Santander Banefe brand name, 46 that operate under the brand name
SuperCaja, 18 that operate under the BancaPrime brand name and 41 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
(individuals, small businesses and institutional), (ii) Middle-market, and (iii)
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$187) and Ch$ 400,000 (US$624), which are served
through our Banefe branch network. This segment accounts for 5.0% of our
loans at December 31, 2008. This segment offers customers a range of
products, including consumer loans, credit cards, auto loans, residential
mortgage loans, debit card accounts, savings products, mutual funds and
insurance brokerage.
|
|
Middle- and upper-income,
consisting of individuals with a monthly income greater than Ch$
400,000 (US$624). Clients in this segment account for 41.8% of our loans
at December 31, 2008 and are offered a range of products, including
consumer loans, credit cards, auto loans, commercial loans, foreign trade
financing, residential mortgage loans, checking accounts, savings
products, mutual funds and insurance
brokerage.
|
|
Small businesses,
consisting of small companies with annual sales less than Ch$ 1,200
million (US$ 1.9 million). At December 31, 2008, 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, 2008, these clients represented 1.5%
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:
|
|
Mid-sized companies,
consisting of companies with annual sales over Ch$1,200 million
(US$1.9 million) and up to Ch$3,500 million (US$ 5.5 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,
2008, these clients represented 7.6% of our total loans
outstanding.
|
|
Real estate. This
segment also includes all companies in the real estate sector. At December
31, 2008, these clients represented 3.6% 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$5.5 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, 2008, 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$5.5
million). At December 31, 2008, these clients represented 15.3% of our
total loans outstanding. Customers in this segment are offered
a wide range of products, including commercial loans, leasing, factoring,
foreign trade, mortgage loans, checking accounts, cash management,
treasury services, financial advisory, savings products, mutual funds and
insurance brokerage.
|
|
The Treasury Division
provides sophisticated financial products mainly to companies in
the wholesale banking and the middle market segments. This includes
products such as short-term financing and funding, securities brokerage,
interest rate and foreign currency derivatives, securitization services
and other tailor made financial products. The Treasury division
also manages the Bank’s trading
positions.
|
The table
below sets forth our lines of business and certain statistical information
relating to each of them for the year ended December 31, 2008. Please see Note
27(u) to our Audited Consolidated Financial Statements for details of revenue by
business segment in the last three years.
For the twelve month period ended
December 31, 2008
|
(millions of constant Ch$ as of
December 31, 2008)
|
Segment
|
Loans
|
Net interest
revenue
|
Fees
|
Net loan loss allowances
(1)
|
Financial transactions, net
(2)
|
Net segment contribution
(3)
|
Individuals
|
6,870,509
|
531,820
|
144,182
|
(211,875)
|
-
|
464,127
|
Santander Banefe
|
732,016
|
184,647
|
31,722
|
(90,503)
|
-
|
125,866
|
Middle-upper
income
|
6,138,493
|
347,173
|
112,460
|
(121,372)
|
-
|
338,261
|
SMEs
|
2,428,779
|
184,149
|
40,657
|
(54,360)
|
-
|
170,446
|
Institutional
|
224,738
|
12,273
|
1,728
|
(290)
|
-
|
13,711
|
Total
Retail
|
9,524,026
|
728,242
|
186,567
|
(266,525)
|
-
|
648,284
|
Middle-market
|
2,882,069
|
98,717
|
16,041
|
(16,189)
|
-
|
98,569
|
Mid-sized
companies
|
1,124,480
|
41,266
|
8,064
|
(8,557)
|
-
|
40,773
|
Real estate
|
522,399
|
16,224
|
1,522
|
(597)
|
-
|
17,149
|
Large
companies
|
1,235,190
|
41,227
|
6,455
|
(7,035)
|
-
|
40,647
|
Global Banking and
Markets
|
2,242,389
|
117,190
|
11,497
|
(759)
|
108,475
|
236,403
|
Wholesale
|
2,242,389
|
51,550
|
10,488
|
(759)
|
-
|
61,279
|
Treasury
(4)
|
-
|
65,640
|
1,009
|
-
|
108,475
|
175,124
|
Others (5)
|
51,890
|
(47,108)
|
9,488
|
(2,480)
|
(22,433)
|
(62,533)
|
Total
|
14,700,374
|
897,041
|
223,593
|
(285,953)
|
86,042
|
920,723
|
|
|
|
|
|
|
|
Other operating income,
net
|
|
|
|
|
|
16,512
|
Income (loss) attributable to
investments in other companies
|
|
|
|
851
|
Operating
expenses
|
|
|
|
|
|
(465,314)
|
Price level
restatement
|
|
|
|
|
|
(78,027)
|
Net income before
taxes
|
|
|
|
|
|
394,745
|
(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 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
the Treasury’s client business and trading
business.
|
(5)
|
Includes
contribution of non-segmented items such as interbank loans, the cost of
the Bank’s capital and fixed assets. Financial transactions, net included
in other is mainly comprised of the results from the Financial Management
Division (Gestion Financiera). The area of Financial Management carries
out the function of managing the structural interest rate risk, the
structural position in inflation indexed assets and liabilities,
shareholder’s equity and liquity. The aim of Financial Management is to
inject stability and recurrence into the net income of commercial
activities and to assure the Bank complies with internal and regulatory
limits regarding liquidity, regulatory capital, reserve requirements and
market risk.
|
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, 2008, our
subsidiaries collectively accounted for approximately 9.4% of our consolidated
net income. The assets and operating income of these subsidiaries as of and for
the year ended December 31, 2008, represented 4.0% and 8.8% of our total assets
and operating income, respectively.
|
Percentage
Owned
|
Subsidiary
|
|
December
2007
|
|
December
2008
|
|
|
Direct
|
Indirect
|
Total
|
|
Direct
|
Indirect
|
Total
|
|
|
%
|
%
|
%
|
|
%
|
%
|
%
|
|
|
|
|
|
|
|
|
|
Santander
S.A. Corredores de Bolsa (1) (2) (3)
|
|
50.59
|
0.41
|
51.00
|
|
50.59
|
0.41
|
51.00
|
Santander
Corredores de Seguro Ltda. (Ex-Santander Leasing S.A.) (3)
(4)
|
|
99.50
|
-
|
99.50
|
|
99.75
|
0.01
|
99.76
|
Santander
Asset Management S.A. Administradora General de Fondos
|
|
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
|
|
99.64
|
-
|
99.64
|
|
99.64
|
-
|
99.64
|
Santander
Corredora de Seguros Limitada (3) (4) (5)
|
|
99.99
|
-
|
99.99
|
|
-
|
-
|
-
|
Santander
Servicios de Recaudación y Pagos Limitada
|
|
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, the merger between Santiago Corredores de Bolsa Limitada, a
subsidiary of Banco Santander Chile, into Santander Investment S.A.
Corredores de Bolsa was approved and became 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.
|
(2)
|
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 Ch$1,903 million.
|
(3)
|
During
2008 the following subsidiaries changed their commercial
registry:
|
a.
|
Santander
Corredores de Seguro Ltda. (ex-Santander Leasing
S.A.)
|
b.
|
Santander
S.A. Corredores de Bolsa
|
(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).
|
(5)
|
In
conformity with the regulations established in Articles 9 and 10 of Law
No. 18.045 and Chapter 18-10 of the Recopilación Actualizada de Normas by
the Superintendence of Bank, at the Extraordinary Shareholder’s Meeting
held on October 1, 2008 by Santander Corredora de Seguros S.A., a company
related to Banco Santander Chile, approved the merger which incorporated
the affiliated Santander Corredora de Seguros Limitada with Santander
Corredora de Seguro S.A. (previously Santander Leasing S.A.). The merger
had effect and force from January 1, 2008. At the time of above-mentioned
merger, Santander Corredora de Seguros S.A. became a legal extension of
Santander Corredora de Seguros Limitada. The merger of Santander Corredora
de Seguros S.A. and Santander Corredora de Seguros Limitada did not result
in any changes in accounting for Banco Santander
Chile.
|
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 23 private-sector banks and one public-sector bank. Five
private-sector banks along with the state-owned bank together accounted for
81.3% of all outstanding loans by Chilean financial institutions at December 31,
2008.
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,
2007
|
|
|
Market
Share
at
December 31,
2008
|
|
|
Rank
as of
at
December 31,
2008
|
|
Commercial
loans
|
|
|
18.5 |
% |
|
|
18.5 |
% |
|
|
2 |
|
Consumer
loans
|
|
|
26.3 |
|
|
|
26.2 |
|
|
|
1 |
|
Residential
mortgage loans
|
|
|
24.7 |
|
|
|
24.3 |
|
|
|
2 |
|
Foreign
trade loans (loans for export, import and contingent)
|
|
|
18.9 |
|
|
|
19.5 |
|
|
|
1 |
|
Total
loans
|
|
|
21.0 |
|
|
|
20.8 |
|
|
|
1 |
|
Deposits
(1)
|
|
|
21.3 |
|
|
|
20.8 |
|
|
|
1 |
|
Mutual
funds (assets managed)
|
|
|
21.8 |
|
|
|
19.6 |
|
|
|
2 |
|
Credit
card accounts
|
|
|
36.0 |
|
|
|
33.9 |
|
|
|
1 |
|
Checking
Accounts (2)
|
|
|
27.9 |
|
|
|
27.0 |
|
|
|
1 |
|
Branches
(3)
|
|
|
20.2 |
|
|
|
19.7 |
|
|
|
1 |
|
Source:
Superintendency of Banks
(2)
|
According
to latest data available as of November
2008.
|
(3)
|
According
to latest data available as of December 2008. Excluding
special-service payment
centers.
|
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
total loans market share as of December 31, 2008.
Loans
As of
December 31, 2008, our loan portfolio was the largest among Chilean banks. Our
loan portfolio on a stand-alone basis represented 20.8% 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, 2008
|
|
|
At
December 31, 2007
|
|
Loans
|
|
Ch$
million
|
|
|
US$
million
|
|
|
Market
Share
|
|
|
Market
Share
|
|
Santander-Chile
|
|
|
14,604,840 |
|
|
|
23,215 |
|
|
|
20.8 |
% |
|
|
21.1 |
% |
Banco
de Chile (1)
|
|
|
13,649,005 |
|
|
|
21,696 |
|
|
|
19.4 |
|
|
|
19.7 |
|
Banco
del Estado
|
|
|
9,322,591 |
|
|
|
14,819 |
|
|
|
13.3 |
|
|
|
13.5 |
|
Banco
de Crédito e Inversiones
|
|
|
9,340,574 |
|
|
|
14,847 |
|
|
|
13.3 |
|
|
|
12.3 |
|
BBVA,
Chile
|
|
|
5,262,417 |
|
|
|
8,365 |
|
|
|
7.5 |
|
|
|
8.3 |
|
Corpbanca
|
|
|
4,944,183 |
|
|
|
7,859 |
|
|
|
7.0 |
|
|
|
6.9 |
|
Others
|
|
|
13,127,529 |
|
|
|
20,867 |
|
|
|
18.7 |
|
|
|
18.3 |
|
Chilean
financial system
|
|
|
70,251,139 |
|
|
|
111,667 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Source:
Superintendency of Banks
(1)
|
2007
figures correspond to pro-forma of Banco de Chile and Citibank Chile NA,
as they merged effective January 1,
2008.
|
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, 2008
|
|
|
At
December 31, 2007
|
|
Deposits
|
|
Ch$
million
|
|
|
US$
million
|
|
|
Market
Share
|
|
|
Market
Share
|
|
Santander-Chile
|
|
|
12,706,023 |
|
|
|
20,197 |
|
|
|
20.8 |
% |
|
|
21.3 |
% |
Banco
de Chile (1)
|
|
|
11,479,851 |
|
|
|
18,248 |
|
|
|
18.8 |
|
|
|
19.7 |
|
Banco
del Estado
|
|
|
9,526,365 |
|
|
|
15,143 |
|
|
|
15.6 |
|
|
|
15.2 |
|
Banco
de Crédito e Inversiones
|
|
|
8,094,809 |
|
|
|
12,867 |
|
|
|
13.2 |
|
|
|
12.4 |
|
BBVA,
Chile
|
|
|
4,500,082 |
|
|
|
7,153 |
|
|
|
7.4 |
|
|
|
8.1 |
|
Corpbanca
|
|
|
3,708,644 |
|
|
|
5,895 |
|
|
|
6.1 |
|
|
|
5.4 |
|
Others
|
|
|
11,088,618 |
|
|
|
17,626 |
|
|
|
18.1 |
|
|
|
17.9 |
|
Chilean
financial system
|
|
|
61,104,392 |
|
|
|
97,128 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Source:
Superintendency of Banks
(1)
|
2007
figures correspond to pro-forma of Banco de Chile and Citibank Chile NA,
as they merged effective January 1,
2008.
|
Shareholders’
equity
With
Ch$1,602,609 million (US$2,499 million) in shareholders’ equity, at December 31,
2008, we were the largest commercial bank in Chile in terms of shareholders’
equity. The following table sets forth our and our peer group’s shareholders’
equity at December 31, 2007 and 2008.
|
|
At
December 31, 2008
|
|
|
At
December 31, 2007
|
|
Shareholders’
Equity (1)
|
|
Ch$
million
|
|
|
US$
million
|
|
|
Market
Share
|
|
|
Market
Share
|
|
Santander-Chile
|
|
|
1,602,609 |
|
|
|
2,499 |
|
|
|
21.3 |
% |
|
|
20.7 |
% |
Banco
de Chile (2)
|
|
|
1,297,743 |
|
|
|
2,024 |
|
|
|
17.3 |
|
|
|
19.8 |
|
Banco
del Estado
|
|
|
695,307 |
|
|
|
1,084 |
|
|
|
9.3 |
|
|
|
8.4 |
|
Banco
de Crédito e Inversiones
|
|
|
790,448 |
|
|
|
1,233 |
|
|
|
10.5 |
|
|
|
10.1 |
|
BBVA,
Chile
|
|
|
450,619 |
|
|
|
703 |
|
|
|
6.0 |
|
|
|
5.3 |
|
Corpbanca
|
|
|
483,307 |
|
|
|
754 |
|
|
|
6.4 |
|
|
|
7.0 |
|
Others
|
|
|
2,195,970 |
|
|
|
3,425 |
|
|
|
29.2 |
|
|
|
28.7 |
|
Chilean
financial system
|
|
|
7,516,003 |
|
|
|
11,721 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Source:
Superintendency of Banks.
(1)
|
Percentage
of total shareholders’ equity of all Chilean
banks.
|
(2)
|
2007
figures correspond to pro-forma of Banco de Chile and Citibank Chile NA,
as they merged effective January 1,
2008.
|
Efficiency
For the
year ended December 31, 2008, 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
the aggregate of net interest revenue, fees and income from services (net), net
gains from mark-to-market and trading, exchange differences (net) and other
operating income (net)) for the year indicated.
Efficiency
ratio (1)
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
|
%
|
|
|
%
|
|
Santander-Chile
|
|
|
38.0 |
% |
|
|
39.4 |
% |
Banco
de Chile (2)
|
|
|
49.8 |
|
|
|
50.1 |
|
Banco
del Estado
|
|
|
54.9 |
|
|
|
57.0 |
|
Banco
de Crédito e Inversiones
|
|
|
48.4 |
|
|
|
51.1 |
|
BBVA,
Chile
|
|
|
50.7 |
|
|
|
62.7 |
|
Corpbanca
|
|
|
42.2 |
|
|
|
42.4 |
|
Chilean
financial system
|
|
|
47.8 |
% |
|
|
48.7 |
% |
Source:
Superintendency of Banks, except Santander Chile.
(1)
|
Figures
for 2007 and 2008 not completely comparable due to changes in the Balance
and Income Statements presentation formats effective January 1,
2008.
|
(2)
|
2007
figures correspond to pro-forma of Banco de Chile and Citibank Chile NA,
as they merged effective January 1,
2008.
|
Return
on average equity
As of
December 31, 2008, we were the 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, 2007 and 2008, and BIS ratio
at the dates indicated:
|
|
Return
on average equity
at December
31,
|
|
|
BIS
Ratio
at December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
Santander-Chile
|
|
|
24.0 |
% |
|
|
23.6 |
% |
|
|
13.8 |
% |
|
|
12.2 |
% |
Banco
de Chile
|
|
|
22.5 |
|
|
|
23.0 |
|
|
|
11.7 |
|
|
|
10.7 |
|
Banco
del Estado
|
|
|
8.6 |
|
|
|
8.5 |
|
|
|
10.8 |
|
|
|
10.8 |
|
Banco
de Crédito e Inversiones
|
|
|
21.1 |
|
|
|
19.2 |
|
|
|
11.1 |
|
|
|
10.4 |
|
BBVA,
Chile
|
|
|
10.6 |
|
|
|
8.7 |
|
|
|
10.9 |
|
|
|
10.3 |
|
Corpbanca
|
|
|
12.3 |
|
|
|
10.5 |
|
|
|
10.8 |
|
|
|
11.3 |
|
Chilean
Financial System
|
|
|
14.1 |
% |
|
|
13.9 |
% |
|
|
12.5 |
% |
|
|
12.2 |
% |
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”). Figures for 2007 and 2008
not completely comparable due to changes in the Balance and Income Statement
presentation formats effective January 1, 2008.
Asset
Quality
At
December 31, 2008, on a stand alone basis, we had the second highest loan loss
allowance to total loans ratio (expected loss 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
|
|
|
1.94 |
% |
|
|
1.87 |
% |
Banco
de Chile (1)
|
|
|
1.63 |
|
|
|
1.39 |
|
Banco
del Estado
|
|
|
2.15 |
|
|
|
1.97 |
|
Banco
de Crédito e Inversiones
|
|
|
1.38 |
|
|
|
1.32 |
|
BBVA,
Chile
|
|
|
1.16 |
|
|
|
0.99 |
|
Corpbanca
|
|
|
1.45 |
|
|
|
1.27 |
|
Chilean
financial system
|
|
|
1.76 |
% |
|
|
1.58 |
% |
Source:
Superintendency of Banks, except Santander Chile. Figures for 2007 and 2008 not
completely comparable due to changes in the Balance and Income Statement
presentation formats effective January 1, 2008.
(1)
|
2007
figures correspond to pro-forma of Banco de Chile and Citibank Chile NA,
as they merged effective January 1,
2008.
|
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 cases 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
banks to enter into transactions involving a wider 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 enter into transactions involving 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$2,574,308 or US$4,015 at December 31,
2008) 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$17,162 million and US$26.7 million as of December 31, 2008) 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 are 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. These 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 is
set forth 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
|
|
F2
|
BBB-
|
Duff
& Phelps
|
|
D2
|
BBB-
|
In the
event that the sum of the investments in foreign securities which have a: (i)
rating that is below that indicated in Table 1 above, but is equal to 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
|
|
F2
|
BB-
|
Duff
& Phelps
|
|
D2
|
BB-
|
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 to 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
|
|
F1+
|
AA-
|
Duff
& Phelps
|
|
D1+
|
AA-
|
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 to or above that in the immediately preceding Table 3, which
return is linked with a corporate or sovereign note with a rating equal to 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.
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 U.S.
Securities Exchange Act of 1934, is subject to the U.S. Foreign Corrupt
Practices Act (“FCPA”). The FCPA 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 of the Bank’s officers and/or
directors can be imposed for violations of the FCPA.
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 of the Bank’s officers and/or directors.
D.
Property, Plants and Equipment
We are domiciled in Chile
and own our principal executive offices located at Bandera 140, Santiago, Chile.
We also own ten other buildings in the vicinity of our headquarters and we rent
five other buildings. At December 31, 2008, we owned the locations at which
42% 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, 2008
|
|
|
|
Central
Offices
|
|
|
|
Own
|
|
|
11 |
|
Rented
|
|
|
5 |
|
Total
|
|
|
16 |
|
|
|
|
|
|
Branches
(1)
|
|
|
|
|
Own
|
|
|
172 |
|
Rented
|
|
|
243 |
|
Total
|
|
|
415 |
|
|
|
|
|
|
Other
property (2)
|
|
|
|
|
Own
|
|
|
62 |
|
Rented
|
|
|
4 |
|
Total
|
|
|
66 |
|
(1)
|
Some
branches are located inside central office buildings and other properties.
Including these branches the total number of branches is 419. 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
|
SUN/Unix
SUN/UNIX
|
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 U.S. Securities and Exchange Commission.
A.
New Accounting Format in 2008
Circular
No. 3410 issued by the Superintendence of Banks, which became effective on
January 1, 2008, prescribed new accounting formats for financial statements. The
new accounting formats are congruent with International Accounting Standards,
but do not involve 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. The balance sheet and income statement for the twelve-month period ended
December 31, 2006 and 2007 have been reclassified in order to make them
comparable with the 2008 figures.
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 efficient portion of derivatives for hedging inflation and
interest rate risk
|
Provision
expense
|
3
Provisions for repossessed assets
4
Sale of charge-off loans
|
|
Fee
income
|
|
1
Interest income contingent operations
|
Financial
transactions, net
|
5
Interest income efficient portion of derivatives for hedging inflation and
interest rate risk
|
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
|
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 27 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 it believes 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, 2007 and 2008, 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.
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 since
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.
|
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
borrower’s 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 expanding from 12 to 21 months the back testing period
used in determining a client’s risk profile. 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 by increasing the use of the brand “Santander” and
phasing out the brand “Santiago” within five years. 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 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 27 to our Audited Consolidated Financial
Statements.
Differences
between Chilean GAAP and U.S. GAAP
Chilean
GAAP vary in certain important respects from U.S. GAAP. Such differences involve
certain methods for measuring the amounts shown in the consolidated financial
statements, as well as additional disclosures required by U.S. GAAP and the
accounting treatment of mergers.
Note 27
to our Audited Consolidated Financial Statements presents a description of the
significant differences between Chilean GAAP and U.S. GAAP. Note 27(z) sets
forth recent accounting pronouncements under U.S. GAAP.
C.
Transition to the new rules established by the Superintendency of Banks and
Chilean Generally Accepted Accounting Principles
The
Superintendency of Banks together with other Chilean Superintendencies and
regulatory bodies agreed to a plan of convergence with International Financial
Reporting Standards (“IFRS”) in order to internationalize financial reporting
for public companies in Chile.
The
Superintendency of Banks, by means of circular No 3410 on November 9, 2007,
issued its “Compendium of Accounting Standards” (the “Compendium”) which
contains the new accounting formats and reporting standards and policies for the
finance industry that will be applied beginning on January 1, 2009.
The Bank
is completing a plan for transition to the Compendium which includes an analysis
of the accounting method differences, the selection of the accounting methods to
be applied when alternative treatment are permitted and an assessment of the
changes in reporting procedures and systems.
In
accordance with instructions issued by the Superintendency of Banks regarding
the adoption of the Compendium, beginning on March 2009, Banco Santander Chile
should prepare its financial statements in accordance with such Compendium. The
preliminary effects of this change on the Bank’s financial statements have been
measured and communicated to the Superintendency of Banks, and those adjustments
could differ from those to be finally determined.
D.
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 this country. In 2008, Chile’s GDP
growth, as was the case in most parts of the world, began to feel the effects of
the global financial crisis. Chile’s GDP expanded 3.2% in 2008 compared to 4.7%
in 2007 and 4.6% in 2006. GDP growth slowed considerably in the second half of
2008. This evolution of the economy was also apparent in the growth of internal
demand which in 2008 grew by 7.4%, but contracted 0.2% in the fourth quarter of
2008.
Quarterly
Evolution of GDP Growth and Internal Demand, %
Source:
Banco Central de Chile
The
slowdown in world growth rates also negatively impacted the prices of Chile’s
main commodity exports. The price of copper, Chile’s main export, fell 53.4% in
2008. This led to a 1.8% decrease in exports in 2008 that totaled US$66 billion.
It is important to note that the Chilean government has consistently maintained
a fiscal surplus, which as a percentage of GDP reached 5.1% in 2008, 8.8% in
2007 and 7.7% in 2006. At year-end 2008, the total reserves in the Central Bank
plus the accumulated savings in the Chilean Copper Stabilization Fund totaled
US$50.3 billion, which should help to sustain government spending in 2009,
despite the lower expected economic growth. Unemployment also began
to rise in the second half of 2008. The average unemployment rate increased to
7.7% in 2008 compared to 7.0% in 2007 and 8.0% in 2006.
Evolution
of Prices of Chile’s Main Exports (Base 100 =Dec. 2003)
Source:
Banco Central de Chile
Inflation
levels mirrored the movements of oil prices in 2008. CPI inflation in Chile
reached its twelve-month high in October 2008 with an annual increase of 9.9%,
but ended the year at 7.1%. As the price of oil and economic expectations
descended rapidly in the second half of 2008, CPI inflation trends reverted with
deflation in the last months of the year. As a result, the Central Bank,
throughout the first three quarters of 2008, tightened monetary policy. This was
followed by a rapid relaxation in the last quarter of the year in line with
international interest rate movements. The overnight interbank
rate set by the Central Bank reached a peak of 8.25% as of September 2008. As of
May 2009, this rate was 1.25%. As the global economy slowed down, the Chilean
peso depreciated 26.9% against the U.S. dollar in 2008 compared to a 7.2%
appreciation in 2007 and a 3.9% depreciation in 2006.
Source:
Banco Central de Chile and INE
The
Chilean banking system also evolved in line with the economic developments
during 2008. In the first three quarters of 2008, the Chilean financial system
continued to grow at a rapid pace in various loan products and segments. In the
fourth quarter 2008, with the worsening of the global financial crisis, the loan
market shifted its focus with a decrease in the growth rates of lending to
individuals and an increase in the growth rate of lending to companies. The
shortage of liquidity abroad resulted in many companies substituting their
foreign sources of financing for local ones. Total loans in 2008 increased 20.9%
in nominal terms. The Chilean banking system also saw a strong inflow of
deposits, especially in the fourth quarter as funds were retired from variable
and fixed income mutual funds and moved into bank deposits. Time deposits
increased 24.2% in 2008 and mutual funds under management (off-balance sheet)
decreased 7.2% in the year.
In terms
of asset quality, the Chilean financial system continued to show healthy
standards, but deterioration of credit standards was observable in the year,
especially among individuals. The main reason for this was the high inflation
rate, as higher prices deteriorated purchasing power, especially among the
middle to lower income
segments.
Going forward and as a result of these developments in 2008, banking activity in
2009 should contract and asset quality should worsen. We expect unemployment
rates to rise, affecting loan growth and asset quality indicators in the retail
segments. Lower economic growth should also have an impact on loan growth to
companies and asset quality in various economic sectors.
Evolution
of asset quality indicators
* Expected
loss = Loan loss reserves for consumer and residential mortgage loans / Total
consumer and residential mortgage loans.
** Past
due loans = all installments of loans more than 90 days overdue.
Source:
Superintendency of Banks
As a
result of these developments in 2008, economic activity in Chile should slow
down in 2009 given the volatility of international markets and the global
economic recession. GDP growth in 2009 in Chile is expected to be slightly
negative as export, consumption and investment growth rates will
decelerate.
The
results of Santander Chile in 2009 will be directly and indirectly affected by
the economic recession and the more challenging environment for the Chilean
banking system. We may experience any or all of the
following:
·
|
lower
or negative loan growth;
|
·
|
lower
growth or contraction of net interest revenue and margins as a result of
lower loan growth and the negative effects on margins caused by lower
inflation rates or deflation;
|
·
|
deterioration
of asset quality indicators and an increase in provision expense as
unemployment rises and internal demand falls;
and
|
·
|
lower
fee growth due to lower consumer expenditure and usage of bank
products.
|
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 2008, the inflation rate in Chile was 7.1% compared to 7.8% in 2007
and 2.6% in 2006. In
the last months of 2008 and the first quarter of 2009, Chile was going through a
deflationary environment. 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, 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.
Each day in the period beginning on 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 proportionate amount of the change in the Chilean Consumer Price
Index during the prior calendar month. One UF equaled to Ch$18,336.38 at
December 31, 2006, Ch$19,622.66 at December 31, 2007 and $21,452.57 at
December 31, 2008. In 2008, UF inflation was 9.3% compared to 7.0% in 2007
and 2.0% in 2006. The effect of any changes in the nominal peso value of
our UF-denominated interest earning assets and interest bearing
liabilities is reflected in our results of operations as an increase (or
decrease, in the event of deflation) in interest revenue and expense,
respectively. Our net interest revenue will be positively affected by an
inflationary environment to the extent that our average UF-denominated
interest earning assets exceed our average UF-denominated interest bearing
liabilities. Our net interest revenue will be negatively affected in a
deflationary environment if our average UF-denominated interest earning
assets exceed our average UF-denominated interest bearing liabilities. Our
net interest revenue will be negatively affected by inflation in any
period in which our average UF-denominated interest bearing liabilities
exceed our average UF-denominated interest earning assets. Our average
UF-denominated interest earning assets exceeded our average UF-denominated
interest bearing liabilities by Ch$2,439,563 million in 2008 compared to
Ch$2,586,209 million in 2007. 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, 2008, the interest
gained on interest earning assets denominated in UF increased 20.2%
compared to 2007 as a result of the higher UF inflation rates in 2008
compared to 2007. The interest paid on these liabilities increased by
43.0% 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 on a monthly
basis according to the CPI index with a one-month lag. Since
the Bank’s capital is generally larger than the sum of fixed and other non
financial assets, the Bank would record a loss from price level
restatement in an inflationary economy and a gain in a deflationary
environment. For
the year ended December 31, 2008, the loss from price level restatement
totaled Ch$78,027 million compared to Ch$61,332 million in 2007. The
inflation rate used for calculating price level restatement was 8.9% in
2008 and 7.4% in 2007. In line with the new accounting standards to be
adopted in 2009, the Bank will no longer be required to adjust its
capital, fixed assets and other non financial assets for variations in
price levels on a monthly basis and, therefore, will no longer recognize a
gain or loss from price level
restatement.
|
·
|
Inflation and interest rate
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 our long term financial instruments and mortgage
loans are denominated in UF and most of our deposits are in nominal pesos,
the rise in mortgage lending increases 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
and the efficient part of these hedges is recorded as net interest income.
In 2008, the financial cost of the swaps taken in order to hedge for
inflation and interest rate risk totaled Ch$53,956 million compared to
Ch$35,283 million in 2007. This higher cost was a direct result of the
higher UF inflation rate in these two
periods.
|
|
|
|
|
Inflation
sensitive income
|
|
|
|
|
|
|
|
|
|
|
|
(In
million of constant Chilean pesos at
December
31, 2008)
|
|
Interest
gained on UF assets
|
|
|
824,173 |
|
|
|
990,430 |
|
|
|
20.2 |
% |
Interest
paid on UF liabilities (1)
|
|
|
(485,921 |
) |
|
|
(694,758 |
) |
|
|
43.0 |
% |
Price
level restatement
|
|
|
(61,332 |
) |
|
|
(78,027 |
) |
|
|
27.2 |
% |
Net
Gain
|
|
|
276,920 |
|
|
|
217,645 |
|
|
|
(21.4 |
%) |
(1)
Includes inflation hedge
·
|
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: D. 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 15.8%, 17.1%
and 15.7% for the years ended December 31, 2006, 2007 and 2008,
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: D. 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 terms 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 2008, the Chilean peso in relation to the U.S.
dollar depreciated 26.9% compared to a 7.2% appreciation in 2007 and a 3.9%
depreciation in 2006. (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). The
translation gain or loss over assets and liabilities (excluding derivatives held
for trading) is included as foreign exchange transactions in the income
statement. The translation and mark-to-market of foreign currency derivatives
held for trading is recognized as a gain or loss in the net results from
mark-to-market and trading.
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 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 cases 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, 2006, 2007 and 2008
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 27 to the Audited Consolidated
Financial Statements describes the significant 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, 2006, 2007 and 2008, and of our shareholders’
equity at December 31, 2007 and 2008. The Audited Consolidated Financial
Statements have been restated in constant Chilean pesos as of December 31, 2008.
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, 2006, 2007 and 2008.
|
|
For
the year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
revenue
|
|
|
1,295,280 |
|
|
|
1,730,592 |
|
|
|
2,061,112 |
|
|
|
3,214,210 |
|
|
|
33.6 |
% |
|
|
19.1 |
% |
Interest
expense
|
|
|
(659,459 |
) |
|
|
(954,834 |
) |
|
|
(1,164,071 |
) |
|
|
(1,815,315 |
) |
|
|
44.8 |
% |
|
|
21.9 |
% |
Net
interest revenue
|
|
|
635,821 |
|
|
|
775,758 |
|
|
|
897,041 |
|
|
|
1,398,895 |
|
|
|
22.0 |
% |
|
|
15.6 |
% |
Fees
and income from services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
and other services income
|
|
|
239,658 |
|
|
|
266,923 |
|
|
|
276,433 |
|
|
|
431,085 |
|
|
|
11.4 |
% |
|
|
3.6 |
% |
Other
services expense
|
|
|
(42,011 |
) |
|
|
(49,066 |
) |
|
|
(52,840 |
) |
|
|
(82,402 |
) |
|
|
16.8 |
% |
|
|
7.7 |
% |
Total
fees and income from services, net
|
|
|
197,647 |
|
|
|
217,857 |
|
|
|
223,593 |
|
|
|
348,683 |
|
|
|
10.2 |
% |
|
|
2.6 |
% |
Other
operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain from mark-to-market and trading
|
|
|
135,465 |
|
|
|
26,796 |
|
|
|
273,084 |
|
|
|
425,862 |
|
|
|
(80.2 |
%) |
|
|
919.1 |
% |
Foreign
exchange transactions, net
|
|
|
(552 |
) |
|
|
83,007 |
|
|
|
(187,042 |
) |
|
|
(291,683 |
) |
|
|
-- |
% |
|
|
-- |
% |
Financial
transactions, net
|
|
|
134,913 |
|
|
|
109,803 |
|
|
|
86,042 |
|
|
|
134,179 |
|
|
|
(18.6 |
%) |
|
|
(21.6 |
%) |
Other
operating income
|
|
|
16,779 |
|
|
|
28,433 |
|
|
|
16,512 |
|
|
|
25,750 |
|
|
|
69.5 |
% |
|
|
(41.9 |
%) |
Total
other operating income
|
|
|
151,692 |
|
|
|
138,236 |
|
|
|
102,554 |
|
|
|
159,929 |
|
|
|
(8.9 |
%) |
|
|
(25.8 |
%) |
Total
operating revenue
|
|
|
985,160 |
|
|
|
1,131,851 |
|
|
|
1,223,188 |
|
|
|
1,907,507 |
|
|
|
14.9 |
% |
|
|
8.1 |
% |
Provision
for loan losses
|
|
|
(142,956 |
) |
|
|
(224,667 |
) |
|
|
(285,953 |
) |
|
|
(445,931 |
) |
|
|
57.2 |
% |
|
|
27.3 |
% |
Operating
income, net of provisions
|
|
|
842,204 |
|
|
|
907,184 |
|
|
|
937,235 |
|
|
|
1,461,576 |
|
|
|
7.7 |
% |
|
|
3.3 |
% |
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
salaries and expenses
|
|
|
(186,282 |
) |
|
|
(191,120 |
) |
|
|
(209,134 |
) |
|
|
(326,135 |
) |
|
|
2.6 |
% |
|
|
9.4 |
% |
Administrative
and other expenses
|
|
|
(153,401 |
) |
|
|
(164,609 |
) |
|
|
(161,977 |
) |
|
|
(252,596 |
) |
|
|
7.3 |
% |
|
|
(1.6 |
%) |
Depreciation
and amortization
|
|
|
(42,079 |
) |
|
|
(45,741 |
) |
|
|
(51,944 |
) |
|
|
(81,004 |
) |
|
|
8.7 |
% |
|
|
13.6 |
% |
Other
operating expenses
|
|
|
(42,868 |
) |
|
|
(44,545 |
) |
|
|
(42,259 |
) |
|
|
(65,901 |
) |
|
|
3.9 |
% |
|
|
(5.1 |
%) |
Total
operating expenses
|
|
|
(424,630 |
) |
|
|
(446,015 |
) |
|
|
(465,314 |
) |
|
|
(725,636 |
) |
|
|
5.0 |
% |
|
|
4.3 |
% |
Operating
results
|
|
|
417,574 |
|
|
|
461,169 |
|
|
|
471,921 |
|
|
|
735,940 |
|
|
|
10.4 |
% |
|
|
2.3 |
% |
Other
non-operating results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) attributable to investments in other companies
|
|
|
919 |
|
|
|
(1,438 |
) |
|
|
851 |
|
|
|
1,327 |
|
|
|
-- |
% |
|
|
-- |
% |
Price
level restatement
|
|
|
(16,123 |
) |
|
|
(61,332 |
) |
|
|
(78,027 |
) |
|
|
(121,680 |
) |
|
|
280.4 |
% |
|
|
27.2 |
% |
Total
other non-operating results
|
|
|
(15,204 |
) |
|
|
(62,770 |
) |
|
|
(77,176 |
) |
|
|
(120,353 |
) |
|
|
312.9 |
% |
|
|
23.0 |
% |
Income
before taxes
|
|
|
402,370 |
|
|
|
398,399 |
|
|
|
394,745 |
|
|
|
615,587 |
|
|
|
(1.0 |
%) |
|
|
(0.9 |
%) |
Income
tax
|
|
|
(68,088 |
) |
|
|
(60,075 |
) |
|
|
(63,728 |
) |
|
|
(99,381 |
) |
|
|
(11.8 |
%) |
|
|
6.1 |
% |
|
|
For
the year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
334,282 |
|
|
|
338,324 |
|
|
|
331,017 |
|
|
|
516,206 |
|
|
|
1.2 |
% |
|
|
(2.2 |
%) |
Net
income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders
|
|
|
334,106 |
|
|
|
336,086 |
|
|
|
328,146 |
|
|
|
511,729 |
|
|
|
0.6 |
% |
|
|
(2.4 |
%) |
Minority
interest
|
|
|
176 |
|
|
|
2,238 |
|
|
|
2,871 |
|
|
|
4,477 |
|
|
|
1,171.6 |
% |
|
|
28.3 |
% |
(1)
|
Amounts
stated in U.S. dollars at and for the year ended December 31, 2008, have
been translated from Chilean pesos at the exchange rate of Ch$641.25 =
US$1.00 as of December 31, 2008. See “Item 3: A. Selected Financial
Data—Exchange Rates” for more information on exchange
rate.
|
2008 compared to 2007. Net
income for the year ended December 31, 2008, decreased by 2.2% to Ch$331,017
million. Net income attributable to shareholders in the same period decreased
2.4% to Ch$328,146 million.
Total
operating revenue increased 8.1% in 2008 compared to 2007 and totaled
Ch$1,223,188 million. Our net interest income increased by 15.6% to Ch$897,041
million for the year ended December 31, 2008, compared to 2007, and fee income
grew by 2.6% to Ch$223,593 million in 2008 compared to 2007. Net interest
revenue growth was led by an increase in net interest revenue from our retail
banking, middle-market and global banking and market business segments and the
higher inflation rate in 2008 compared to 2007. The average balance of our
interest-earning assets increased by 13.5% in 2008 compared to 2007. Our net
interest margin increased 10 basis points to 5.7% compared to 5.6% in
2007.
These
results were partially offset by a 21.6% decrease in financial transactions,
net, which was mainly due to the 88.7% decline in income from proprietary
trading in 2008 compared to 2007. This was mainly as a result of the higher
interest and inflation rate environment that prevailed throughout most of
2008.
Other
operating income decreased 41.9% in 2008 compared to 2007, mainly as a result of
lower recoveries of provisions for other contingencies in 2008 compared to 2007.
These contingencies are mainly related to non credit risks, including non
specific contingencies, tax contingencies and other non credit contingencies or
impairments.
Net
provision expenses for loan losses totaled Ch$285,953 million for the year ended
December 31, 2008, an increase of 27.3% compared to 2007, primarily due to an
increase in charge-offs and a reduction in loan loss recoveries. Charge-offs
increased by 22.4% in 2008 compared to 2007. Charge-offs of the consumer loan
portfolio increased by 31.5% to Ch$236,274 million. The rise in inflation has
resulted in deterioration in asset quality among individuals due to the negative
effects inflation had on purchasing power during 2008.
Despite
the rise in provision expense, operating income, net of provisions increased
3.3% in 2008 compared to 2007 and totaled Ch$937,235 million.
Operating
expenses in 2008 increased by 4.3% compared to 2007. The rise in operating
expenses was mainly due to the 9.4% increase in personnel salaries and expenses.
This growth was driven by a 3.8% rise in average headcount in 2008 compared to
2007, an increase in variable incentives to commercial teams for positive
performance in the year, especially in retail banking and real wage growth. The
efficiency ratio improved from 39.4% in 2007 to 38.0% in 2008.
Net
operating income, that is operating income net of provisions and operating
expense, increased 2.3% in 2008 compared to 2007 and totaled Ch$471,921
million.
These
operating results were offset by the 23.0% increase in non-operating losses
compared to 2007 and which totaled Ch$77,176 million in 2008. The loss from
price level restatement totaled Ch$78,027 million in 2008, an increase of 27.2%
compared to 2007 due to the higher inflation rates in 2008 compared to 2007.
2007 compared to 2006. Net
income for the year ended December 31, 2007, increased by 1.2% to Ch$338,324
million compared to Ch$334,282 million for the year ended December 31, 2006. Net
income attributable to shareholders totaled Ch$336,086 million for the year
ended December 31, 2007 and increased 0.6% compared to 2006.
In 2007,
total operating revenue increased 14.9% to Ch$1,131,851 million. Our net
interest income increased by 22.0% for the year ended December 31, 2007,
compared to 2006, and fee income grew by 10.2% in the same period. 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 2.6% in 2007 compared to 2006. Our net
interest margin increased 90 basis points to 5.6% compared to 4.7% in
2006.
This was
offset by an 18.6% decrease in the net gains from financial transactions that
totaled Ch$109,803 million for the year ended December 31, 2007. This decline
was mainly due to the 80.2% decrease in 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.
Other
operating income was up 69.5% in 2007 compared to 2006. This variation was
mainly due to: (i) a gain of Ch$826 million recognized from the sale of shares
held by the Bank in the Santiago Stock Exchange, (ii) a gain of Ch$1,439 million
from the sale of Bank’s shares in Mastercard and (iii) a Ch$11,056 gain
recognized in 2007 from the recovery of provisions for other non-credit
contingencies.
Provision
for loan losses increased 57.2% in 2007 compared to 2006. This 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$15,728
million.
With
these results, operating income net of provisions increased 7.7% in 2007
compared to 2006 and totaled Ch$907,184 million.
Operating
expenses increased 5.0% in 2007 and the efficiency ratio improved to 39.4% in
2007 from 43.1% in 2006. In 2006, operating expenses include a one-time expense
of Ch$10,086 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 in 2007
increased 7.1% driven by the increase in the Bank’s headcount, client base and
distribution network.
Non-operating
results totaled a loss of Ch$62,770 million in 2007 and this loss increased
312.9% compared to 2006. The loss from price level restatement totaled Ch$61,332
million in 2007, an increase of 280.4% compared to 2006. The inflation rate used
for calculating price level restatement increased in 2007 compared to 2006
(7.44% in 2007 and 2.12% in 2006), resulting in a higher loss from price level
restatement.
Income
tax expenses declined 11.8% in 2007 compared to 2006 as a result of increased
tax deferrals.
Net
interest revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008,
except percentages)
|
|
Total
individuals
|
|
|
345,240 |
|
|
|
452,136 |
|
|
|
531,820 |
|
|
|
31.0 |
% |
|
|
17.6 |
% |
SMEs
|
|
|
134,852 |
|
|
|
160,909 |
|
|
|
184,149 |
|
|
|
19.3 |
% |
|
|
14.4 |
% |
Institutional
lending
|
|
|
9,876 |
|
|
|
12,048 |
|
|
|
12,273 |
|
|
|
22.0 |
% |
|
|
1.9 |
% |
Total
retail
|
|
|
489,968 |
|
|
|
625,093 |
|
|
|
728,242 |
|
|
|
27.6 |
% |
|
|
16.5 |
% |
Total
middle-market
|
|
|
76,660 |
|
|
|
89,095 |
|
|
|
98,717 |
|
|
|
16.2 |
% |
|
|
10.8 |
% |
Global
banking & markets
|
|
|
65,372 |
|
|
|
87,189 |
|
|
|
117,190 |
|
|
|
33.4 |
% |
|
|
34.4 |
% |
Other
|
|
|
3,821 |
|
|
|
(25,619 |
) |
|
|
(47,108 |
) |
|
|
(770.5 |
%) |
|
|
83.9 |
% |
Net
interest revenue
|
|
|
635,821 |
|
|
|
775,758 |
|
|
|
897,041 |
|
|
|
22.0 |
% |
|
|
15.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
interest-earning assets
|
|
|
13,476,738 |
|
|
|
13,833,596 |
|
|
|
15,698,721 |
|
|
|
2.6 |
% |
|
|
13.5 |
% |
Average
non-interest-bearing demand deposits
|
|
|
2,132,774 |
|
|
|
2,364,661 |
|
|
|
2,458,141 |
|
|
|
10.9 |
% |
|
|
4.0 |
% |
Net
interest margin (1)
|
|
|
4.7 |
% |
|
|
5.6 |
% |
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
Average
shareholders’ equity and average non-interest-bearing demand deposits to
total average interest-earning assets
|
|
|
25.8 |
% |
|
|
27.5 |
% |
|
|
24.4 |
% |
|
|
|
|
|
|
|
|
(1)
|
Net
interest margin is net interest revenue divided by average
interest-earning assets.
|
2008 compared to 2007. In
2008, net interest revenue increased 15.6% compared to 2007, totaling Ch$897,401
million. Total interest-earning asset increased 13.5% in the same
period. As a result, the Bank’s net interest margin increased 10
basis points to 5.7%.
In 2008,
the average nominal rate earned reached 14.5% compared to 13.2% in 2007. The
average real rate earned over interest-earning assets reached 7.8% in 2008
compared to 6.5% in 2007. The higher inflation rate in 2008 compared
to 2007 had a positive effect on the growth rate of net interest revenue and
margins. In 2008, the variation of the UF was 9.33% compared to 7.01% in
2007. Our net interest revenue will be positively affected by an
inflationary environment to the extent that our average UF-denominated interest
earning assets exceed our average UF-denominated interest bearing liabilities.
Our average UF-denominated interest earning assets exceeded our average
UF-denominated interest-bearing liabilities by Ch$2,439,563 million in 2008
compared to Ch$2,548,209 million in 2007. The higher UF inflation rate in 2008
compared to 2007 compensated for the lower UF-gap. See “Item 5:
C. Operating Results—Impact of Inflation” for a quantitative disclosure of the
impact of inflation on our result. Going forward, as inflation rates decreases
or if the deflationary environment observed since the last quarter of 2008 and
the first quarter of 2009 persists, this will place negative pressure on the
Bank’s margins.
Total
loans in 2008 increased by 9.7% compared to 2007. The increase in net interest
revenue was also attributable to an increase in loans and net interest revenue
from various business segments.
Loans
by segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007 |
|
|
|
2007/2008 |
|
|
|
(in
millions of constant Ch$ as of December 31, 2008,
except percentages)
|
|
Total
individuals
|
|
|
5,293,500 |
|
|
|
6,213,172 |
|
|
|
6,870,509 |
|
|
|
17.4 |
% |
|
|
10.6 |
% |
SMEs
|
|
|
1,963,624 |
|
|
|
2,196,263 |
|
|
|
2,428,779 |
|
|
|
11.8 |
% |
|
|
10.6 |
% |
Institutional
lending
|
|
|
238,079 |
|
|
|
226,549 |
|
|
|
224,738 |
|
|
|
(4.8 |
%) |
|
|
(0.8 |
%) |
Total
retail
|
|
|
7,495,203 |
|
|
|
8,635,984 |
|
|
|
9,524,026 |
|
|
|
15.2 |
% |
|
|
10.3 |
% |
Total
middle-market
|
|
|
2,782,387 |
|
|
|
2,718,056 |
|
|
|
2,882,069 |
|
|
|
(2.3 |
%) |
|
|
6.0 |
% |
Global
banking and markets
|
|
|
1,850,750 |
|
|
|
1,742,388 |
|
|
|
2,242,389 |
|
|
|
(5.9 |
%) |
|
|
28.7 |
% |
Other
(1)
|
|
|
495,652 |
|
|
|
301,853 |
|
|
|
51,890 |
|
|
|
(39.1 |
%) |
|
|
(82.8 |
%) |
Total
loans
|
|
|
12,623,992 |
|
|
|
13,398,281 |
|
|
|
14,700,374 |
|
|
|
6.1 |
% |
|
|
9.7 |
% |
(1)
|
Other
loans includes interbank loans and non-segmented
loans
|
Net
interest revenue from the retail banking segment increased by 16.5% to
Ch$728,242 million in 2008, with increases of 17.6% in the individuals segment
and 14.4% in the small businesses, or SMEs, segment. This rise in net interest
income was due to loan growth, especially in the first three quarters of 2008
before the full effects of the global recession were felt in the Chilean
economy. Net interest revenue in the retail segment also benefited from higher
inflation rates and an increase in loan yields, in anticipation of an expected
rise in credit risk levels. Compared to 2007, total loans to retail
segments increased by 10.3%, with lending to individuals and SMEs both
increasing by 10.6% in 2008.
Net
interest revenue from the middle-market segment increased by 10.8%, due to loan
growth and higher margins in this segment. Loans in the middle-market segment
increased 6.0% in the year.
In the
global banking and markets segment, net interest revenue increased 34.4%,
primarily due to higher loan growth and higher margins. Loans in the global
banking and markets segment increased 28.7% in 2008 compared to 2007. This
growth was concentrated in the last quarter of the year when the international
credit markets contracted
as a
result of the global financial crisis, resulting in an increase in demand by
large Chilean companies for financing from local banks. As foreign banks were
negatively affected by liquidity issues in the last part of 2008, many large
Chilean companies increased the percentage of financing they obtained from local
banks, driving loan growth in this segment. Simultaneously, the Bank increased
the interest charged on loans to this segment.
The
principal factors negatively affecting the net interest revenue and margin was
the increase in short term interest rates throughout most of 2008, as inflation
rates increased. 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 overnight interbank
rate set by the Central Bank increased 224 basis points in 2008 and reached a
peak of 8.24%. In 2009, as inflation levels began to descend and economic growth
began to contract, the Central Bank reversed its monetary policy with a sharp
reduction in rates.
Source:
Central Bank of Chile
Other net
interest revenue totaled an expense of Ch$47,109 million. This expense includes
the cost of financing the Bank’s fixed assets and investment in fixed income for
trading. The interest revenue from this portfolio is included as income from
mark-to-market and trading.
2007 compared to
2006. In 2007, net interest revenue increased 22.0% compared
to 2006, totaling Ch$775,758 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 90 basis points to 5.6%. The average nominal rate earned on loans was
12.5% in 2007 compared to 9.6% in 2006.
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 27.6% to
Ch$625,093 million in 2007, with increases of 31.0% in the individuals segment
and 19.3% in the SMEs segment.
Loans to higher yielding retail banking segments increased by 15.2% in
2007 compared to 2006.
Net
interest revenue from the middle-market segment increased by 16.2%, 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 decreased
2.3% in the year.
In the
global banking and markets segment, net interest revenue increased by 33.4%,
primarily due to the higher short-term interest rate and inflation rate
environment, which increased spreads, as loan volumes in this segment decreased
by 5.9% in the year.
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 variation of the
UF was inflation rate in Chile was 7.0% compared to 2.0% in 2006. Our net
interest revenue will be positively affected by an inflationary environment to
the extent that our average UF-denominated interest earning assets exceed our
average UF-denominated interest bearing liabilities. Our average UF-denominated
interest-earning assets exceeded our average UF-denominated
interest-bearing liabilities by Ch$2,548,209 million in 2007 compared to
Ch$2,796,153 million in 2006. The higher inflation rate offset the lower
positive UF gap in the period. See “Item 5: D. Operating Results—Impact of
Inflation” for a quantitative disclosure of the impact of inflation on our
results.
An
improved funding mix also helped to sustain margins despite a higher short-term
interest rate environment. The ratio of the average balance of free funds
(non-interest-bearing demand deposits and shareholders’ equity) to the average
balance of interest-earning assets also increased from 25.8% in 2006 to 24.4% in
2007. Therefore, as short-term rates increased and inflation also rose, the
return on average free funds expanded.
The
principal factors negatively affecting the net interest margin was the increase
in short term interest rates. As interest-bearing liabilities generally have
shorter terms than interest-earning assets, a rise in short term rates has a
negative effect on our funding costs. The higher inflation rate accelerated the
pace of short-term interest rate increases in the year. The overnight interbank
rate set by the Central Bank increased 100 basis points in 2007. The average 90-day Central
Bank rate, a benchmark rate for deposits, increased in nominal terms from 4.83%
in 2006 to 5.18% in 2007.
Fee
income
The
following table sets forth certain components of our income from services (net
of fees paid to third parties directly connected to providing those services,
principally fees relating to credit card processing and ATM network
administration) in the years ended December 31, 2006, 2007 and
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
million of constant Ch$ as of December 31, 2008,
except
percentages)
|
|
Checking
accounts and lines of credit
|
|
|
65,422 |
|
|
|
67,227 |
|
|
|
64,483 |
|
|
|
2.8 |
% |
|
|
(4.1 |
%) |
Credit,
debit and ATM cards
|
|
|
36,265 |
|
|
|
38,895 |
|
|
|
43,772 |
|
|
|
7.3 |
% |
|
|
12.5 |
% |
Collections
|
|
|
32,680 |
|
|
|
35,989 |
|
|
|
39,949 |
|
|
|
10.1 |
% |
|
|
11.0 |
% |
Asset
management
|
|
|
23,396 |
|
|
|
32,512 |
|
|
|
28,220 |
|
|
|
39.0 |
% |
|
|
(13.2 |
%) |
Letters
of credit
|
|
|
16,265 |
|
|
|
15,551 |
|
|
|
17,092 |
|
|
|
(4.4 |
%) |
|
|
9.9 |
% |
Insurance
brokerage
|
|
|
13,509 |
|
|
|
13,856 |
|
|
|
15,284 |
|
|
|
2.6 |
% |
|
|
10.3 |
% |
Custody
and brokerage services
|
|
|
2,115 |
|
|
|
7,540 |
|
|
|
6,538 |
|
|
|
256.5 |
% |
|
|
(13.3 |
%) |
Other
fees
|
|
|
7,995 |
|
|
|
6,287 |
|
|
|
8,255 |
|
|
|
(21.4 |
%) |
|
|
31.3 |
% |
Total
|
|
|
197,647 |
|
|
|
217,857 |
|
|
|
223,593 |
|
|
|
10.2 |
% |
|
|
2.6 |
% |
2008 compared to 2007. Total
net fee income increased by 2.6% to Ch$223,593 million for the year ended
December 31, 2008, compared to 2007.
Fees from
checking accounts and lines of credit, which includes the maintenance fee for
checking accounts and lines of credit and fees charged for the unauthorized
overdraft of lines of credit, decreased by 4.1% in 2008 compared to 2007. The
total amount of checking account holders increased by 1.7% in 2008 to 574,039.
Despite this growth, fee income from lines of credit was negatively affected by
the closure of accounts in the SME segment for credit risk reasons. In 2009,
regulatory changes may have a negative affect on fees charged for the
unauthorized overdraft of lines of credit. These fees represent 39% of fee
income included in this item. As of May 2009, this fee can no longer be
charged.
Fees from
credit, debit and ATM cards increased by 12.5% in 2008 compared to 2007. Fees
from credit cards increased by 11.0% to Ch$29,468 million in 2008 compared to
2007. We were the market leader in bank credit card accounts, with a 33.9%
market share at year-end 2008 compared to 36.0% market share as of December 31,
2007. The number of our credit card customer accounts increased by 3.3% to
1,139,342 at December 31, 2008 compared to December 31, 2007. Despite a decrease
in our market share of credit card accounts, we experienced a 10.3% real
increase in purchases, which is the main driver of fee income from this business
through merchant discount fees. This rise in purchases was driven by our
marketing efforts across the whole spectrum of retail client segments to
increase usage of our cards as a means of payment. Market share in
terms of purchases rose to 35.2% in 2008 from 34.0% in 2007. Going
forward, lower economic growth and regulatory changes that will prohibit fees
charged over purchases of products with a credit card in installments will
negatively affect credit card fees. Fees from ATM and debit cards
increased by 11.9% to Ch$14,304 million in 2008 compared to 2007. Purchases
using our debit card increased 21.5% in real terms in 2008 and market share
reached 24.2%. The Bank’s ATM network, the largest in Chile, totaled 1,958
machines, decreasing by 2.3% compared to 2007.
Fees from
collections increased by 11.0% for the year ended December 31, 2008, compared to
2007, primarily due to the growth of our retail loan book, especially
residential mortgage loans that increased by 9.3% in 2008 compared to 2007. This
led to an increase in collection of insurance premiums on these loans on behalf
of insurance companies.
Fees from
our asset management business declined by 13.2% in 2008 compared to 2007. Total
funds under management decreased by 23.3% in 2008 compared to 2007 and totaled
Ch$2,199,222 million (US$3.5 billion). The instability and decline in the equity
markets and the shift from money market funds to bank deposits negatively
affected volumes under management and fee income from this
business.
The 9.9%
increase in fees from letters of credit was mainly due to the rise in business
volumes in the middle market and global banking segments and the depreciation of
the Chilean peso in the year, as fees from letters of credit are mainly trade
related and denominated in foreign currencies.
Insurance
brokerage fees increased by 10.3% in 2008 compared to 2007. This was mainly due
to greater business volumes in our insurance brokerage subsidiary and higher
sale of insurance products through the Bank’s website.
Custody
and brokerage fees experienced a decrease of 13.3% in 2008 compared to 2007.
This was primarily due to the lower stock brokerage fees as equity markets
declined in the year.
The 31.3%
increase in other fees in 2008 compared to 2007 was mainly due to a rise in fees
from purchases in foreign currencies and other fees linked to the growth of our
corporate banking business.
The
following table sets forth, for the years indicated, a breakdown of our fee
income by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
million of constant Ch$ as of December 31, 2007,
except
percentages)
|
|
Total
individuals
|
|
|
125,817 |
|
|
|
144,079 |
|
|
|
144,182 |
|
|
|
14.5 |
% |
|
|
0.1 |
% |
SMEs
|
|
|
34,862 |
|
|
|
43,728 |
|
|
|
40,657 |
|
|
|
25.4 |
% |
|
|
(7.0 |
%) |
Institutional
lending
|
|
|
1,460 |
|
|
|
2,373 |
|
|
|
1,728 |
|
|
|
62.5 |
% |
|
|
(27.2 |
%) |
Total
retail
|
|
|
162,139 |
|
|
|
190,180 |
|
|
|
186,567 |
|
|
|
17.3 |
% |
|
|
(1.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
million of constant Ch$ as of December 31, 2007,
except
percentages)
|
|
Total
middle-market
|
|
|
17,001 |
|
|
|
17,278 |
|
|
|
16,041 |
|
|
|
1.6 |
% |
|
|
(7.2 |
%) |
Global
banking and markets
|
|
|
10,466 |
|
|
|
14,988 |
|
|
|
11,497 |
|
|
|
43.2 |
% |
|
|
(23.3 |
%) |
Other
|
|
|
8,041 |
|
|
|
(4,589 |
) |
|
|
9,488 |
|
|
|
-- |
% |
|
|
-- |
% |
Total
|
|
|
197,647 |
|
|
|
217,857 |
|
|
|
223,593 |
|
|
|
10.2 |
% |
|
|
2.6 |
% |
Retail
banking fees decreased by 1.9% in 2008 compared to 2007 mainly as a result of
the decrease in fees from lines of credit, especially in the SME segment, and
asset management fees.
Fees in
the middle market decreased by 7.2% and fees from the global banking and markets
segment decreased by 3.3% in 2008 compared to 2007. This reflects the decline in
fees from our asset management and brokerage services, both of which were
negatively affected by the global financial crisis.
2007 compared to 2006. Total
net fee income increased by 10.2% 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 approximately 565,000. Retail clients (excluding clients of
Santander Banefe) who
are cross sold, which are defined as clients with checking accounts who also use
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 banking products)
rose by 18.0% at December 31, 2007, compared to December 31, 2006.
Fees from
checking accounts and lines of credit increased by 2.8% in 2007 compared to
2006. Our market share in checking accounts increased to 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. This was offset by regulatory changes
relating to checking account fees. 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.
Fees from
credit, debit and ATM cards increased by 7.3% 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 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.
Fees from
collections increased by 10.1% 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.
Fees from
our mutual fund asset management subsidiary increased by 39.0%, in line with the
25.8% rise in asset under management.
The 4.4%
decrease in fees from letters of credit was mainly due to the appreciation of
the Chilean peso in the year as the majority of these fees are trade related and
denominated in foreign currencies.
Fees from
insurance brokerage increased by 2.6% in 2007 compared to 2006. This was mainly
due to greater business volumes in our insurance brokerage subsidiary and offset
by greater competitive pressure.
Stock
brokerage fees experienced a 258.2% 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.
By
segment, changes in our fee income also reflect the increase in retail banking
products. Retail banking fees increased by 17.3% in 2007 compared to 2006,
mainly due to the rise in fees from mutual funds, cards and collection
services.
Fees in
the middle market segment increased by 1.6% in 2007 compared to 2006, reflecting
the rise in asset management fees which was partially offset by the decline in
fees from letters of credit. Fees from the global banking and markets segment
increased 43.2% mainly due to improvements in segmentation and the consolidation
of the stock brokerage business.
Financial
transactions, net
The
following table sets forth information regarding our income (expenses) from
financial transactions in the years ended December 31, 2006, 2007 and
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008,
except percentages)
|
|
Net
gains from trading and mark-to-market
|
|
|
135,465 |
|
|
|
26,796 |
|
|
|
273,084 |
|
|
|
(80.2 |
%) |
|
|
919.1 |
% |
Foreign
exchange transactions, net
|
|
|
(552 |
) |
|
|
83,007 |
|
|
|
(187,042 |
) |
|
|
-- |
% |
|
|
-- |
% |
Total
financial transactions, net
|
|
|
134,913 |
|
|
|
109,803 |
|
|
|
86,042 |
|
|
|
(18.6 |
%) |
|
|
(21.6 |
%) |
2008 compared to
2007. The net gains from financial transactions, which is the
sum of trading activities, mark-to-market adjustments and foreign exchange
transactions totaled Ch$86,042 million for the year ended December 31, 2008,
representing a decrease of 21.6% compared to the corresponding period in 2007.
These results include the results of our Treasury Department’s trading business
and financial transactions with customers as well the results of our Financial
Management division. Please see Note 5 to our Audited Consolidated Financial
Statements for details of total financial transactions, net.
The net
results from mark-to-market and trading totaled Ch$273,084 million in 2008,
representing an increase of 919.1% compared to 2007. This greater result was
mainly due to the higher gains from the mark-to-market of derivatives for
trading that totaled Ch$178,883 million in 2008, compared to a loss of Ch$89,751
million in 2007. A derivative financial instrument held for trading
purposes must be marked to market and the unrealized gain or loss recognized in
the income statement. These derivatives are mainly comprised of foreign currency
forwards, interest rate swaps and cross currency swaps (See: Note 13 to the
Audited Consolidated Financial Statements). The most important factor that
impacted the value of the derivatives held for trading was the depreciation of
the Chilean peso in 2008. These results are mainly offset by the translation
loss of assets and liabilities denominated in foreign currencies and recorded as
loss in the line item foreign exchange transactions (see below). These results
were also partially offset by the 12.7% decrease in results from the
mark-to-market and realized gains of the Bank’s fixed income portfolio held for
trading that totaled Ch$76,829 million in 2008 and also included in this line
item. This was negatively affected by the higher inflationary environment and
higher interest rates. This line item also includes the gains from the sale of
loans previously charged-off. In 2008, this amounted to Ch$14,370 million
compared to Ch$28,085 million in 2007.
|
|
|
|
Foreign exchange
transactions, net
|
|
|
|
|
|
|
|
|
(In million of constant Chilean
pesos at
December
31, 2008)
|
|
Exchange
gains (losses), net
|
|
|
91,033 |
|
|
|
(402,927 |
) |
Derivative
instruments in designated hedge
|
|
|
(17,634 |
) |
|
|
243,979 |
|
Exchange
rate gain (losses) from assets denominated in foreign
currencies
|
|
|
(9,369 |
) |
|
|
12,684 |
|
Exchange
rate gain (losses) from liabilities denominated in foreign
currencies
|
|
|
18,977 |
|
|
|
(40,778 |
) |
Total
foreign exchange transactions, net
|
|
|
83,007 |
|
|
|
(187,042 |
) |
The net
results from foreign exchange transactions, net totaled a loss of Ch$187,042
million, compared to a gain of Ch$83,007 million in 2007. This was mainly due to
the Ch$402,927 million exchange loss. A significant portion of our assets and
liabilities are denominated in foreign currencies, principally U.S. dollars, 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).
These
losses are offset by gains recorded in the line mark-to-market and trading from
derivatives held for trading (see above) and a Ch$243,979 million gain from
derivative instruments in designated foreign currency hedges. It is
important to point out that the translation and mark-to-market of foreign
currency derivatives held for trading is recognized as a gain or loss in the net
results from mark-to-market and trading and not as foreign exchange
transactions. A significant portion of derivatives used to hedge our foreign
exchange position are not classified as derivatives for hedging, but for
trading, as this type of hedging is not done on a case-by-case basis. Therefore,
the Bank cannot classify these derivatives as derivatives for hedging purposes.
In order to register a derivative for hedging purposes, the Bank must follow
strict guidelines set by the Superintendency of Banks and internal controls, as
these derivatives have special accounting procedures (see Item 5: B. Critical
Accounting Policies – Derivatives). This distorts the results from
mark-to-market and trading and foreign exchange transactions. In order to more
easily comprehend the results from financial transactions, net, we present the
following table that separates the results by line of business.
|
|
|
|
Financial
transactions, net
|
|
|
|
|
|
|
|
|
|
|
|
(In
million of constant Chilean pesos at
December
31, 2008)
|
|
Santander
Global Connect and Market-making
|
|
|
64,502 |
|
|
|
89,399 |
|
|
|
38.6 |
% |
Proprietary
trading
|
|
|
38,029 |
|
|
|
4,311 |
|
|
|
(88.7 |
%) |
Sale
of loans
|
|
|
340 |
|
|
|
395 |
|
|
|
16.2 |
% |
Sale
of charged-off loans
|
|
|
28,085 |
|
|
|
14,370 |
|
|
|
(48.8 |
%) |
Financial
Management (ALCO)
|
|
|
(21,153 |
) |
|
|
(22,433 |
) |
|
|
6.1 |
% |
Total
financial transactions, net
|
|
|
109,803 |
|
|
|
86,042 |
|
|
|
(21.6 |
%) |
The
results from Santander Global Connect (SGC) and market-making mainly include the
results from the sale of derivatives to our client base and are a recurring
source of income. Santander Global Connect is a specialized platform designed to
facilitate the sale of derivatives to a broad range of companies in all segments
and through the branch network. The main product sold by SGC are peso/dollar
forwards. In 2008, the results from SGC and market-making increased by 38.6% to
Ch$89,399 million.
The
results from proprietary trading were down by 88.7% in 2008 compared to 2007,
mainly as a result of the higher interest and inflation rates. The surge in
inflation in mid-2008 in Chile had a negative effect on the Bank’s proprietary
trading positions.
The
results from Financial Management (Gestión Financiera) totaled a
loss of Ch$22,433 million in 2008. The area of Financial Management carries out
the function of managing the structural interest rate risk, the structural
position in inflation indexed assets and liabilities, shareholders’ equity and
liquidity. The aim of Financial Management is to inject stability and recurrence
into the net interest income of commercial activities and to assure the Bank
complies with internal and regulatory limits regarding liquidity, regulatory
capital, reserve requirements and market risk. The 6.1% increase in the loss
recognized by Financial Management was mainly due to the negative carry from its
foreign exchange derivatives, which was negatively impacted by the spread
differential between local and US$ short-term rates. Significant portions of the
Bank’s dollar denominated liabilities are swapped into local currency through a
short-term foreign exchange derivative portfolio. This portfolio assumes all the
carry cost between Ch$ pesos and US$ rates. This carry was significantly higher
during 2008 than in 2007. The average spread between the Central Bank reference
rate and Fed Funds widened in 2008 to 5.05% compared to (0.25%) in
2007.
2007 compared to 2006. Total
financial transactions, net amounted to a gain of Ch$109,803 million for the
year ended December 31, 2007 and decreased by 18.6% compared to 2006. This
decline was mainly due to the 80.2% decrease in net gains from trading
activities and mark-to-market adjustments. The main reasons for this decline
was: (i) 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 and (ii) a one-time gain of
Ch$14,716 million recognized in 2006 as a result of the adoption of new
accounting standards reflecting recognizing financial instruments at fair value,
which resulted in a gain from trading activities.
Other
operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008,
except percentages)
|
|
Gain
on sales of assets received in lieu of payment
|
|
|
3,878 |
|
|
|
4,808 |
|
|
|
2,805 |
|
|
|
24.0 |
% |
|
|
(41.7 |
%) |
Recovery
of charge -off of assets received in lieu of payment
|
|
|
9,418 |
|
|
|
7,593 |
|
|
|
5,676 |
|
|
|
(19.4 |
%) |
|
|
(25.2 |
%) |
Income
of asset received in lieu of payment
|
|
|
13,296 |
|
|
|
12,401 |
|
|
|
8,481 |
|
|
|
(6.7 |
%) |
|
|
(31.6 |
%) |
Net
results from sale of investment in other companies
|
|
|
699 |
|
|
|
2,298 |
|
|
|
4,348 |
|
|
|
228.8 |
% |
|
|
89.2 |
% |
Operational
leases
|
|
|
1,175 |
|
|
|
1,094 |
|
|
|
1,051 |
|
|
|
(6.9 |
%) |
|
|
(3.9 |
%) |
Gain
on sale of Bank premises and equipment
|
|
|
664 |
|
|
|
527 |
|
|
|
390 |
|
|
|
(20.6 |
%) |
|
|
(26.0 |
%) |
Recovery
of expenses
|
|
|
- |
|
|
|
11,056 |
|
|
|
1,246 |
|
|
|
-- |
% |
|
|
(88.7 |
%) |
Other
|
|
|
945 |
|
|
|
1,057 |
|
|
|
996 |
|
|
|
11.9 |
% |
|
|
(5.8 |
%) |
Sub-total
other income
|
|
|
2,784 |
|
|
|
13,734 |
|
|
|
3,683 |
|
|
|
393.3 |
% |
|
|
(73.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other operating income
|
|
|
16,779 |
|
|
|
28,433 |
|
|
|
16,512 |
|
|
|
69.5 |
% |
|
|
(41.9 |
%) |
2008 compared to 2007. Other
operating income totaled a gain of Ch$16,512 million in 2008 and decreased by
41.9% compared to 2007. Other operating income primarily includes income from
repossessed assets, the sale of shares in investments in other companies and the
recovery of expenses and non-credit provisions and contingencies. In 2008, the
income from repossessed assets totaled Ch$8,481 million and decreased by 31.6%
compared to 2007. Income from the sale of investments in other companies
increased by 89.2% mainly as a result of a Ch$974 million one-time gain from the
sale of a share in the Santiago Stock Exchange and a Ch$3,368 million gain from
the sale of shares in Visa Inc. Finally, other income included in this line item
decreased by 73.2% to Ch$3,683 million mainly as a result of lower recoveries of
expenses and provisions for other contingencies in 2008 compared to 2007. These
contingencies are mainly related to non credit risks, including non specific
contingencies, tax contingencies and other non credit contingencies or
impairments.
2007 compared to
2006. In 2007, other operating income totaled Ch$28,433
million and increased by 69.5% compared to 2006. This variation was mainly due
to: (i) a gain of Ch$826 million recognized from the sale of a share the Bank
held in the Santiago Stock Exchange, (ii) a gain of Ch$1,439 million from the
sale of shares in Mastercard and (iii) a Ch$11,056 gain recognized in 2007 from
the recovery of provisions for other non-credit contingencies.
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 history.
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.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008,
except percentages)
|
|
Provision
expenses
|
|
|
(30,167 |
) |
|
|
(62,250 |
) |
|
|
(55,718 |
) |
|
|
106.4 |
% |
|
|
(10.5 |
%) |
Charge-offs
|
|
|
(167,854 |
) |
|
|
(219,004 |
) |
|
|
(268,129 |
) |
|
|
30.5 |
% |
|
|
22.4 |
% |
Recoveries
for loans previously charged off
|
|
|
55,065 |
|
|
|
56,587 |
|
|
|
37,894 |
|
|
|
2.8 |
% |
|
|
(33.0 |
%) |
Provision
expenses, net
|
|
|
(142,956 |
) |
|
|
(224,667 |
) |
|
|
(285,953 |
) |
|
|
57.2 |
% |
|
|
27.3 |
% |
Year-end
loans
|
|
|
12,623,992 |
|
|
|
13,398,281 |
|
|
|
14,700,374 |
|
|
|
6.1 |
% |
|
|
9.7 |
% |
Substandard
loans (1)
|
|
|
404,181 |
|
|
|
474,534 |
|
|
|
680,348 |
|
|
|
17.4 |
% |
|
|
43.4 |
% |
Past-due
loans
|
|
|
108,286 |
|
|
|
127,025 |
|
|
|
160,824 |
|
|
|
17.3 |
% |
|
|
26.6 |
% |
Loan
loss allowance
|
|
|
203,640 |
|
|
|
250,887 |
|
|
|
285,505 |
|
|
|
23.2 |
% |
|
|
13.8 |
% |
Substandard
loans / Year-end loans
|
|
|
3.20 |
% |
|
|
3.54 |
% |
|
|
4.63 |
% |
|
|
|
|
|
|
|
|
Past
due loans / Year-end loans
|
|
|
0.86 |
% |
|
|
0.95 |
% |
|
|
1.09 |
% |
|
|
|
|
|
|
|
|
Expected
loan loss ratio (2)
|
|
|
1.61 |
% |
|
|
1.87 |
% |
|
|
1.94 |
% |
|
|
|
|
|
|
|
|
Coverage
ratio (3)
|
|
|
188.06 |
% |
|
|
197.51 |
% |
|
|
177.53 |
% |
|
|
|
|
|
|
|
|
(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.
|
2008 compared to
2007. Net provision expense for loan losses totaled Ch$285,953
million for the year ended December 31, 2008, an increase of 27.3% compared to
2007, primarily due to an increase in charge-offs and a reduction in loan loss
recoveries. Provision
expense decreased by 10.5% to Ch$55,718 million in 2008 compared to 2007. This
decrease was mainly due to an extraordinary provision expense of Ch$15,728
million recognized in 2007 and directly related to the further improvements made
to the provisioning model for consumer loans. Excluding this item, provision
expense increased by 19.8% in 2008 compared to 2007. This was due to the
increase in the Bank’s expected loan loss ratio from 1.87% in 2007 to 1.94% in
2008, in line with the worsening economic environment that resulted in an
increase in provisions expense in various business segments. 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
growth. Loan growth in the year also resulted in a higher amount of loan loss
allowances established. 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 22.4% in 2008 compared to 2007, 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 31.5% to
Ch$236,274 million. The rise in inflation has resulted in deterioration in asset
quality among individuals due to the negative effects inflation has on
purchasing power. This was partially offset by the 40.8% decrease in charge-offs
in the mortgage loan portfolio as the balance of residential mortgage loans
portfolio to lower income individuals contracted throughout 2008 as the Bank
implemented stricter admission standards. Charge-offs of commercial loans also
decreased by 15.2% in 2008.
The
following table shows charge-offs by Santander-Chile by type of
loan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008,
except percentages)
|
Consumer
loans
|
|
|
119,619 |
|
|
|
179,700 |
|
|
|
236,274 |
|
|
|
50.2 |
% |
|
|
31.5 |
% |
Mortgage
loans
|
|
|
6,773 |
|
|
|
5,780 |
|
|
|
3,423 |
|
|
|
(14.7 |
%) |
|
|
(40.8 |
%) |
Commercial
loans
|
|
|
41,462 |
|
|
|
33,524 |
|
|
|
28,432 |
|
|
|
(19.1 |
%) |
|
|
(15.2 |
%) |
Total
charge-offs
|
|
|
167,854 |
|
|
|
219,004 |
|
|
|
268,129 |
|
|
|
30.5 |
% |
|
|
22.4 |
% |
Recoveries
on loans previously charged off decreased by 33.0% in 2008 compared to 2007. In
2007, the Bank performed two large sales of loans previously charged off in the
year. These sales resulted in a gain of Ch$28,085 million in 2007 that is
recognized as a gain from mark-to-market and trading. This sale also resulted in
a reduction in the flow of recoveries in 2008.
Overall
asset quality indicators remained healthy in 2008. The ratio of past due loans
as a percentage of total loans reached 1.09% compared to 0.95% at year-end 2007.
Total substandard loans as a percentage of total loans increased from 3.54% at
year-end 2007 to 4.63% at year-end 2008, mainly due to the deterioration of
asset quality in the retail business segments. The coverage ratio of past due
loans reached 177.53% at year-end 2008 compared to 199.54% at year-end
2007.
The
following table sets forth, for the years indicated, the components of our net
provision expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008,
except percentages)
|
|
Total
individuals
|
|
|
(119,042 |
) |
|
|
(178,046 |
) |
|
|
(211,875 |
) |
|
|
49.6 |
% |
|
|
19.0 |
% |
SMEs
|
|
|
(24,381 |
) |
|
|
(39,949 |
) |
|
|
(54,360 |
) |
|
|
63.9 |
% |
|
|
36.1 |
% |
Institutional
lending
|
|
|
562 |
|
|
|
(40 |
) |
|
|
(290 |
) |
|
|
-- |
% |
|
|
625.0 |
% |
Total
retail
|
|
|
(142,861 |
) |
|
|
(218,035 |
) |
|
|
(266,525 |
) |
|
|
52.6 |
% |
|
|
22.2 |
% |
Total
middle-market
|
|
|
(843 |
) |
|
|
(4,527 |
) |
|
|
(16,189 |
) |
|
|
437.0 |
% |
|
|
257.6 |
% |
Global
banking and markets
|
|
|
823 |
|
|
|
(60 |
) |
|
|
(759 |
) |
|
|
-- |
% |
|
|
1,165.0 |
% |
Other
(1)
|
|
|
(75 |
) |
|
|
(2,045 |
) |
|
|
(2,480 |
) |
|
|
2,626.7 |
% |
|
|
21.3 |
% |
Provision
expense, net
|
|
|
(142,956 |
) |
|
|
(224,667 |
) |
|
|
(285,953 |
) |
|
|
57.2 |
% |
|
|
27.3 |
% |
(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 22.2% in the retail banking segment, mainly as a result of
the growth of charge-offs in these segments. As previously indicated, the higher
inflation in 2008 was the main factor that affected asset quality among
individuals. Going forward, despite the lower inflationary environment, the
expected rise in unemployment should negatively affect asset quality and
provision expense levels among individuals. In order to contain asset
quality indicators among individuals, admission standards are being tightened
and loan growth to middle and lower income individuals should contract in 2009.
Provision expense among SMEs also increased in 2008 as the economy began to be
impacted by the global financial slowdown. A similar situation is expected for
2009 despite expected lower loan growth in this segment. Net provision expense
in the middle market and the global
banking
and markets segment, albeit still low, picked up in 2008 as the economy began to
slowdown, especially in the fourth quarter. The Bank expects this situation to
worsen in 2009, as economic growth stalls and the risk of recession
increases.
2007 compared to 2006. Net
provision expenses for loan losses increased by 57.2% in the year ended December
31, 2007 compared to 2006, primarily due to an increase in provision expense and
charge-offs. Provision
expense rose by 103.0% in 2007 compared to 2006. This growth in provision
expenses was due to:
(i) the Bank recognized an
extraordinary provision expense of Ch$15,728 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”;
(ii) the
increase in the Bank’s expected loan loss ratio from 1.61% in 2006 to 1.87% 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. The
segment which experienced the largest deterioration in asset quality was 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.
Recoveries
on loans previously charged off decreased by 19.1% in 2007 compared to 2006.
This decrease was mainly due to two large sales of loans previously charged off
in the year. The gain from these sales is recognized as income in the line item
gains from mark-to-market and trading.
Provision
expense increased by 52.6% 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. Net provision expense in the rest of the segments remained
relatively stable, reflecting the generally healthy credit quality indicators in
those segments.
Operating
expenses
The
following table sets forth information regarding our operating expenses in the
years ended December 31, 2006, 2007 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008,
except percentages)
|
|
Personnel
salaries and expenses
|
|
|
(186,282 |
) |
|
|
(191,120 |
) |
|
|
(209,134 |
) |
|
|
2.6 |
% |
|
|
9.4 |
% |
Administrative
expenses
|
|
|
(153,401 |
) |
|
|
(164,609 |
) |
|
|
(161,977 |
) |
|
|
7.3 |
% |
|
|
(1.6 |
%) |
Depreciation
and amortization
|
|
|
(42,079 |
) |
|
|
(45,741 |
) |
|
|
(51,944 |
) |
|
|
8.7 |
% |
|
|
13.6 |
% |
Other
operating expenses
|
|
|
(42,868 |
) |
|
|
(44,545 |
) |
|
|
(42,259 |
) |
|
|
3.9 |
% |
|
|
(5.1 |
%) |
Total
operating expenses
|
|
|
(424,630 |
) |
|
|
(446,015 |
) |
|
|
(465,314 |
) |
|
|
5.0 |
% |
|
|
4.3 |
% |
Efficiency
ratio(1)
|
|
|
43.1 |
% |
|
|
39.4 |
% |
|
|
38.0 |
% |
|
|
|
|
|
|
|
|
(1)
|
The
efficiency ratio is the ratio of total operating expenses to total
operating revenue. Total operating revenue consists of net interest
revenue, fee income, and other operating
income.
|
2008 compared to 2007.
Operating expenses in 2008 increased by 4.3% compared to 2007. The
efficiency ratio improved from 39.4% in 2007 to 38.0% in 2008. The 9.4% rise in
personnel salaries and expenses was mainly due
to the
3.8% rise in average headcount in 2008 compared to 2007, an increase in variable
incentives to commercial teams for positive performance in the year and real
wage growth. In 2008, wages were increased in line with inflation through
September, but the deflationary environment in the last months of 2008 resulted
in a higher wage increase than inflation for the year.
Administrative
expenses decreased 1.6% in 2008 compared to 2007, as the Bank slowed the pace of
the expansion of the distribution network. As of December 2008, the Bank’s
distribution network totaled 477 branches and 1,958 ATMs. In 2008, the Bank only
opened 13 branches and eliminated 46 ATMs.
Depreciation
expense increased by 13.6% in 2008 compared to 2007. Even though the Bank slowed
the pace of investment in its distribution network in 2008, the strong
investment made in previous years, especially at the end of 2007, led to a
higher depreciation expense in 2008.
Other
operating expenses totaled Ch$42,259 million in 2008 and decreased by 5.1%
compared to 2007. Other operating expenses include provisions and expenses
related to repossessed assets, client expenses mainly related to our credit card
business and other expenses such as non-credit charge-offs, the cost of
insurance policies (mainly life insurance) over products, tax paid on interest
of foreign debt issued by the Bank and provisions for contingencies are mainly
related to non credit risks, including non specific contingencies, tax
contingencies and other non credit contingencies or impairments. Total expenses
related to repossessed asset reached Ch$9,080 million in 2008 and decreased
27.1% compared to 2007. Other client expenses totaled an expense of Ch$16,652
million and decreased 9.1% compared to 2007. In 2008, the Bank spent less on
promotions and client loyalty program related to its credit card business. This
was offset by a 20.1% rise in other expenses, which was mainly due to the 30.9%
rise in expenses related to insurance products tied to loan products. Provisions
for non-credit contingencies totaled Ch$1,102 million in 2008 compared to
Ch$1,126 million in 2007. See Note 18 to the Audited Consolidated Financial
Statements for details of other operating expenses.
2007 compared to 2006.
Operating expenses in 2007 increased by 5.0% 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$10,086 million in 2006. Excluding this item
personnel expenses increased 8.5% and total operating expenses increased by
7.1%.
Administrative
expenses increased by 7.3% in 2007 compared to 2006 mainly as a result of large
expenses related to our expansion of the distribution network. This also
explains the 8.7% rise in depreciations and amortizations. Our efficiency ratio,
despite higher costs, continued to improve and reached 39.4% for the year ended
December 31, 2007, compared to 43.1% in 2006.
Other
operating expenses in 2007 totaled Ch$44,545 million and increased by 3.9%
compared to 2006. The rise in client service expenses and credit card expenses
was mainly due to the strong investments made in the Bank’s credit card business
and call center in 2007. This was offset by a 44.3% decrease in charge-offs of
repossessed assets that totaled Ch$8,702 million in
2007.
Other
non-operating results
The
following table sets forth information regarding our operating expenses in the
years ended December 31, 2006, 2007 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006/2007
|
|
|
|
2007/2008
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008,
except percentages)
|
|
Income
(loss) attributable to investments in other companies
|
|
|
919 |
|
|
|
(1,438 |
) |
|
|
851 |
|
|
|
-- |
% |
|
|
-- |
% |
Price
level restatement
|
|
|
(16,123 |
) |
|
|
(61,332 |
) |
|
|
(78,027 |
) |
|
|
280.4 |
% |
|
|
27.2 |
% |
Total
non-operating results
|
|
|
(15,204 |
) |
|
|
(62,770 |
) |
|
|
(77,176 |
) |
|
|
312.9 |
% |
|
|
23.0 |
% |
2008 compared to 2007. In
2008, non-operating results totaled a loss of Ch$77,176 million, which increased
by 23.0% compared to the loss in 2007. The loss from price level restatement
totaled Ch$78,027 million in 2008, an increase of 27.2% compared to the loss in
2007. 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 was 8.89% in 2008 and 7.44% in 2007. The higher loss
from price level restatement is also partially offset by the positive impact of
inflation on net interest income. (See “Item 5: D. Operating Results—Impact of
Inflation”).
In line
with the new accounting standards to be adopted in 2009, the Bank will no longer
be required to adjust its capital, fixed assets and other non financial assets
for variations in price levels on a monthly basis and, therefore, will no longer
recognize a gain or loss from price level restatement.
This was
partially offset by the Ch$851 million gain recognized by the Bank in income
attributable to investment in other companies, following a loss of Ch$1,438
million in 2007. This loss was mainly due to a Ch$2,728 million loss recognized
by Administrador Financiero Transantiago S.A. The Bank owns 20% of this company
that is in charge of bus fare clearing and financial management services for
Santiago’s new transportation network. In 2008, this company was recapitalized
and the net loss recognized by this company was reduced to Ch$284
million.
2007 compared to
2006. In 2007, non-operating results totaled a loss of
Ch$62,770 million, which increased by 312.9% compared to the loss in 2006. The
loss from price level restatement totaled Ch$61,332 million in 2007, an increase
of 280.4% compared to the loss in 2006. 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.
In 2007,
the Bank recognized a net loss of Ch$1,438 million from income attributable to
investment in other companies. As mentioned above, this was due to the negative
results of Administrador Financiero Transantiago S.A.
Income
tax
2008 compared to 2007. Our
income tax expense increased by 6.1% to Ch$63,728 million in 2008 compared to
2007, primarily due to lower gains from the reversal of deferred taxes in the
year. In 2007 the Bank recognized Ch$12,508 million in deferred tax gains
compared to a tax expense of Ch$576 million from deferred taxes in 2007. The
effective tax rate for 2008 was 16.15% in 2008 and 15.07% in 2007. The statutory
corporate tax rate was 17% (see Note 21 of our Audited Consolidated Financial
Statements).
2007 compared to 2006. Our
income tax expense decreased by 11.8% in 2007 compared to 2006, mainly as a
result of higher gains from deferred taxes in the year. In 2007 the Bank
recognized Ch$12,508 million in deferred tax gains compared to a tax expense of
Ch$3,748 million from deferred taxes in 2006. The effective tax rate for 2007
was 15.07% and 16.92% in 2006.
E.
Liquidity and Capital Resources
Sources
of Liquidity
Santander
Chile’s liquidity depends upon its (i) capital, (ii) reserves and (iii)
financial investments, including investments in government securities. To cover
any liquidity shortfalls and to augment its liquidity position, Santander-Chile
has established lines of credit with foreign and domestic banks and also has
access to Central Bank borrowings.
The
following table sets forth our contractual obligations and commercial
commitments by time remaining to maturity. As of the date of the
filing of this Annual Report, the Bank does not have significant purchase
obligations. At December 31, 2008, the scheduled maturities of our contractual
obligations and of other commercial commitments, including accrued interest,
were as follows:
|
|
|
|
|
Due after 1
year but
within 3 years
|
|
|
Due after 3
years
but
within 6 years
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Deposits
and other obligations (1)
|
|
|
8,160,035 |
|
|
|
1,309,234 |
|
|
|
273,405 |
|
|
|
13,592 |
|
|
|
9,756,266 |
|
Mortgage
finance bonds
|
|
|
54,767 |
|
|
|
78,845 |
|
|
|
95,602 |
|
|
|
115,466 |
|
|
|
344,680 |
|
Subordinated
bonds
|
|
|
- |
|
|
|
19,420 |
|
|
|
140,965 |
|
|
|
527,527 |
|
|
|
687,912 |
|
Bonds
|
|
|
256,582 |
|
|
|
397,268 |
|
|
|
335,098 |
|
|
|
629,832 |
|
|
|
1,618,780 |
|
Chilean
Central Bank borrowings:
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Credit
lines for renegotiations of Loans
|
|
|
3,012 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,012 |
|
Other
Central Bank borrowings
|
|
|
269,430 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
269,430 |
|
Borrowings
from domestic financial institutions
|
|
|
5,001 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,001 |
|
Investments
sold under agreements to Repurchase
|
|
|
292,951 |
|
|
|
853 |
|
|
|
- |
|
|
|
- |
|
|
|
293,804 |
|
Foreign
borrowings
|
|
|
1,107,997 |
|
|
|
309,055 |
|
|
|
- |
|
|
|
- |
|
|
|
1,417,052 |
|
Derivatives
|
|
|
484,049 |
|
|
|
258,434 |
|
|
|
421,474 |
|
|
|
305,767 |
|
|
|
1,469,724 |
|
Other
obligations
|
|
|
95,921 |
|
|
|
3,970 |
|
|
|
2,601 |
|
|
|
786 |
|
|
|
103,278 |
|
Total
of cash obligations
|
|
|
10,729,745 |
|
|
|
2,377,079 |
|
|
|
1,269,145 |
|
|
|
1,592,970 |
|
|
|
15,968,939 |
|
(1)
|
Excludes
demand deposit accounts and saving
accounts.
|
Operational
Leases
Certain
bank property, plants and equipment are leased under various operating leases.
Future minimum rental commitments as of December 31, 2008, under non-cancelable
leases are as follows:
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Due
within 1 year
|
|
|
9,543 |
|
Due
after 1 year but within 2 years
|
|
|
7,863 |
|
Due
after 2 years but within 3 years
|
|
|
5,986 |
|
Due
after 3 years but within 4 years
|
|
|
4,011 |
|
Due
after 4 years but within 5 years
|
|
|
2,412 |
|
Due
after 5 years
|
|
|
3,240 |
|
Total
|
|
|
33,055 |
|
Other
Commercial Commitments
At
December 31, 2008, 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 2008)
|
|
Letters
of credit issued
|
|
|
179,884 |
|
|
|
1,400 |
|
|
|
4 |
|
|
|
93 |
|
|
|
181,381 |
|
Letters
of credit confirmed
|
|
|
122,386 |
|
|
|
397 |
|
|
|
- |
|
|
|
- |
|
|
|
122,783 |
|
Available
credit lines
|
|
|
4,041,849 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,041,849 |
|
Guarantees
|
|
|
482,070 |
|
|
|
248,182 |
|
|
|
35,449 |
|
|
|
1,026 |
|
|
|
766,727 |
|
Other
commercial commitments
|
|
|
143,861 |
|
|
|
27,717 |
|
|
|
990 |
|
|
|
- |
|
|
|
172,568 |
|
Total
other commercial commitments
|
|
|
4,970,050 |
|
|
|
277,696 |
|
|
|
36,443 |
|
|
|
1,119 |
|
|
|
5,285,308 |
|
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. Santander Chile does not have goodwill, but if it did, this
value must be deducted from regulatory capital. When calculating risk weighted
assets, the Bank also includes off-balance sheet contingent loans. The merger of
Old Santander-Chile and Santiago required a special regulatory pre-approval of
the Superintendency of Banks, which was granted on May 16, 2002. The resolution
granting this pre-approval 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, and the nature of the assets and the existence of collateral securing
such assets.
Circular
No. 3410 issued by the Superintendency of Banks, which became effective on
January 1, 2008, prescribed new accounting formats for financial statements.
Among the changes introduced was the inclusion of a provision for mandatory
dividends in shareholders’ equity equivalent to 30% of the period net income
attributable to shareholders. Another change is that period net income is
included when calculating the Bank’s regulatory capital ratio. Previously,
period net income was not included as regulatory capital.
The
following table sets forth our regulatory capital at the dates indicated. See
Note 14 to our Audited Consolidated Financial Statements for a description of
the minimum capital requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of constant Ch$ as
of December 31,2008, except percentages)
|
|
Base
net capital
|
|
|
1,565,885 |
|
|
|
1,578,045 |
|
3%
of total assets net of provisions
|
|
|
(611,532 |
) |
|
|
(659,736 |
) |
Excess
over minimum required equity
|
|
|
954,353 |
|
|
|
918,309 |
|
Base
net capital as a percentage of the total assets, net of
provisions
|
|
|
7.68 |
% |
|
|
7.18 |
% |
Regulatory
capital
|
|
|
2,069,103 |
|
|
|
2,166,700 |
|
Risk
weighted assets
|
|
|
14,071,872 |
|
|
|
15,704,178 |
|
11%
of risk-weighted assets
|
|
|
1,547,906 |
|
|
|
1,727,460 |
|
Excess
over minimum required equity
|
|
|
521,197 |
|
|
|
439,240 |
|
Regulatory
capital as a percentage of risk-weighted assets
|
|
|
14.70 |
% |
|
|
13.80 |
% |
(1)
2007 numbers adjusted for new accounting formats.
The Bank
must calculate the credit risk involved on all derivatives contracted OTC with a
net asset position and this is included as a risk-weighted assets. On January
30, 2009, the Superintendency of Banks issued Circular No. 3,465 that modified
the guidelines for risk-weighting derivatives. If the Bank has a net liability
in a derivative position and if this derivative, under certain stress and
volatility measures, becomes a net asset position, then the Bank must also
include this derivative as a risk-weighted asset. This regulation became
effective in April 2009. In 2009, the adoption of accounting standards in line
with International Accounting Standards will also have an impact on the level of
the Bank’s restated shareholders’ equity. The main impacts are the elimination
of the price level restatement of capital and the revaluation of fixed
assets.
Below is
the calculation of the Bank’s regulatory capital and risk weighted assets as of
April 30, 2009, which includes the effects of the new accounting standards, the
new guidelines regarding derivatives, post-annual dividend payment and includes
year-to-date 2009 results.
(Ch$
million)
|
|
April
2009
(in millions of constant Ch$ as
of April 30, 2009, except percentages)
|
|
Base
net capital
|
|
|
1,455,890 |
|
Tier
II capital
|
|
|
566,569 |
|
Regulatory
capital
|
|
|
2,022,459 |
|
Risk
weighted assets
|
|
|
14,135,123 |
|
Tier
I ratio
|
|
|
10.3 |
% |
BIS
ratio
|
|
|
14.3 |
% |
In 2010,
the Superintendency of Banks and the Chilean Congress are scheduled to 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.
The
current economic climate has restricted the access of Chilean banks to foreign
borrowings. The providers of this funding were mainly European and U.S. banks,
which have restricted their interbank lending. These funds are used to match and
finance our foreign trade lending. This has been counterbalanced with
local sources of liquidity and the maintenance of overnight dollar deposits in
U.S. banks (see Item 5: E. Liquidity and Capital Resources – Financial
Investments – Available for Sale). The Chilean Treasury and the
Central Bank have also introduced programs that give banks access to their
foreign currency liquidity (see Item 5: D. Operating Results – Chilean Economy).
In Chile, liquidity constraints have been significantly lower than our foreign
sources, but long-term funding spreads have increased, especially in the bond
market.
Financial Investments
The
following tables 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. Interest income from the
trading portfolio is no longer included as interest income, but as income from
trading and mark-to-market of securities.
As of
December 31, 2008, our largest investments include the following:
Issuer
and Security
|
|
Aggregate
Book Value
|
|
|
Aggregate
Market Value
|
|
|
|
(in
millions of Ch$)
|
|
Central
Bank Securities
|
|
|
1,723,962 |
|
|
|
1,743,945 |
|
Chilean
Treasury Bonds
|
|
|
161,588 |
|
|
|
164,867 |
|
Banco
del Estado – Mortgage Finance Bonds
|
|
|
197,523 |
|
|
|
183,458 |
|
a)
Held for Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Chilean
Central Bank and Government Securities
|
|
|
|
|
|
|
Chilean
Central Bank bonds
|
|
|
601,212 |
|
|
|
786,263 |
|
Chilean
Central Bank notes
|
|
|
274,357 |
|
|
|
218,355 |
|
Other
Chilean Central Bank and Treasury securities
|
|
|
127,663 |
|
|
|
71,739 |
|
Subtotal
|
|
|
1,003,232 |
|
|
|
1,076,357 |
|
Other
Chilean Securities
|
|
|
|
|
|
|
|
|
Deposits
in Chilean financial institutions
|
|
|
10,932 |
|
|
|
- |
|
Mortgage
finance bonds
|
|
|
35,621 |
|
|
|
2,787 |
|
Chilean
financial institutions bonds
|
|
|
8,430 |
|
|
|
3,030 |
|
Chilean
corporate bonds
|
|
|
12,567 |
|
|
|
24,833 |
|
Other
Chilean securities
|
|
|
16,706 |
|
|
|
- |
|
Subtotal
|
|
|
84,256 |
|
|
|
30,650 |
|
Foreign
Financial Securities
|
|
|
|
|
|
|
|
|
Other
foreign securities
|
|
|
7,543 |
|
|
|
- |
|
Subtotal
|
|
|
7,543 |
|
|
|
- |
|
Investments
in mutual funds
|
|
|
|
|
|
|
|
|
Mutual
funds managed by related entities
|
|
|
91,874 |
|
|
|
54,624 |
|
Subtotal
|
|
|
91,874 |
|
|
|
54,624 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,186,905 |
|
|
|
1,161,631 |
|
b)
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Chilean
Central Bank and Government Securities
|
|
|
|
|
|
|
Chilean
Central Bank bonds
|
|
|
307,682 |
|
|
|
690,123 |
|
Chilean
Central Bank notes
|
|
|
59,132 |
|
|
|
49,204 |
|
Other
Chilean Central Bank and Treasury securities
|
|
|
118,901 |
|
|
|
93,128 |
|
Subtotal
|
|
|
485,715 |
|
|
|
832,455 |
|
Other
Chilean Securities
|
|
|
|
|
|
|
|
|
Deposits
in Chilean financial institutions
|
|
|
- |
|
|
|
1,305 |
|
Mortgage
finance bonds
|
|
|
297,281 |
|
|
|
284,033 |
|
Chilean
corporate bonds
|
|
|
- |
|
|
|
13,522 |
|
Subtotal
|
|
|
297,281 |
|
|
|
298,860 |
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
Central
Bank and Government Foreign Securities
|
|
|
65,949 |
|
|
|
- |
|
Other
Foreign securities (1)
|
|
|
- |
|
|
|
448,925 |
|
Subtotal
|
|
|
65,949 |
|
|
|
448,925 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
848,945 |
|
|
|
1,580,240 |
|
(1)
Corresponds to overnight dollar deposits in the U.S.
c)
Held-to-maturity
No
financial investments were classified as held-to-maturity as of December 31,
2007 and 2008.
The
following table sets forth an analysis of our investments at December 31, 2008,
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, 2008)
|
|
Held
for Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank bonds
|
|
|
192,292 |
|
|
|
6.8 |
|
|
|
512,471 |
|
|
|
4.7 |
|
|
|
79,749 |
|
|
|
4.2 |
|
|
|
1,751 |
|
|
|
3.2 |
|
|
|
786,263 |
|
|
|
5.1 |
|
Central
Bank notes
|
|
|
23,947 |
|
|
|
7.8 |
|
|
|
165,251 |
|
|
|
4.7 |
|
|
|
19,977 |
|
|
|
3.6 |
|
|
|
9,180 |
|
|
|
3.3 |
|
|
|
218,355 |
|
|
|
4.8 |
|
Other
Chilean Central Bank and Treasury securities
|
|
|
4 |
|
|
|
6.1 |
|
|
|
38,816 |
|
|
|
3.0 |
|
|
|
24,632 |
|
|
|
5.9 |
|
|
|
8,287 |
|
|
|
3.2 |
|
|
|
71,739 |
|
|
|
4.9 |
|
Subtotal
|
|
|
216,243 |
|
|
|
|
|
|
|
716,538 |
|
|
|
|
|
|
|
124,358 |
|
|
|
|
|
|
|
19,218 |
|
|
|
|
|
|
|
1,076,357 |
|
|
|
|
|
Other
Chilean Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
finance bonds
|
|
|
7 |
|
|
|
12.7 |
|
|
|
542 |
|
|
|
5.8 |
|
|
|
516 |
|
|
|
5.3 |
|
|
|
1,722 |
|
|
|
4.7 |
|
|
|
2,787 |
|
|
|
6.0 |
|
Chilean
financial institutions bonds
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
3,030 |
|
|
|
6.8 |
|
|
|
3,030 |
|
|
|
6.8 |
|
Chilean
corporate bonds
|
|
|
-- |
|
|
|
-- |
|
|
|
24,833 |
|
|
|
5.2 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
24,833 |
|
|
|
5.2 |
|
Subtotal
|
|
|
7 |
|
|
|
|
|
|
|
25,375 |
|
|
|
|
|
|
|
516 |
|
|
|
|
|
|
|
4,752 |
|
|
|
|
|
|
|
30,650 |
|
|
|
|
|
Investment
in mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual
funds administered by related parties
|
|
|
54,624 |
|
|
|
7.0 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
54,624 |
|
|
|
7.0 |
|
Subtotal
|
|
|
54,624 |
|
|
|
|
|
|
|
-- |
|
|
|
|
|
|
|
-- |
|
|
|
|
|
|
|
-- |
|
|
|
|
|
|
|
54,624 |
|
|
|
|
|
Total
|
|
|
270,874 |
|
|
|
|
|
|
|
741,913 |
|
|
|
|
|
|
|
124,874 |
|
|
|
|
|
|
|
23,970 |
|
|
|
|
|
|
|
1,161,631 |
|
|
|
|
|
|
|
Within
one year
|
|
|
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
|
|
|
After
ten years
|
|
|
Weighted
average Nominal Rate
|
|
|
Total
|
|
|
Weighted
average Nominal Rate
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Available-for-sale
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank Bonds
|
|
|
98,100 |
|
|
|
10.3 |
|
|
|
406,933 |
|
|
|
5.8 |
|
|
|
185,090 |
|
|
|
5.0 |
|
|
|
- |
|
|
|
- |
|
|
|
690,123 |
|
|
|
6.2 |
|
Central
Bank notes
|
|
|
23,326 |
|
|
|
2.1 |
|
|
|
24,738 |
|
|
|
5.0 |
|
|
|
1,140 |
|
|
|
3.5 |
|
|
|
- |
|
|
|
|
|
|
|
49,204 |
|
|
|
3.3 |
|
Others
securities
|
|
|
27,571 |
|
|
|
5.8 |
|
|
|
10,841 |
|
|
|
5.9 |
|
|
|
32,637 |
|
|
|
5.9 |
|
|
|
22,079 |
|
|
|
3.2 |
|
|
|
93,128 |
|
|
|
5.3 |
|
Subtotal
|
|
|
148,997 |
|
|
|
|
|
|
|
442,512 |
|
|
|
|
|
|
|
218,867 |
|
|
|
|
|
|
|
22,079 |
|
|
|
|
|
|
|
832,455 |
|
|
|
|
|
Other
Chilean Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
in Chilean Financial Institutions
|
|
|
- |
|
|
|
- |
|
|
|
1,305 |
|
|
|
0.7 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,305 |
|
|
|
0.7 |
|
Mortgage
Finance Bonds
|
|
|
89 |
|
|
|
6.8 |
|
|
|
2,843 |
|
|
|
4.5 |
|
|
|
18,757 |
|
|
|
5.4 |
|
|
|
262,344 |
|
|
|
4.8 |
|
|
|
284,033 |
|
|
|
4.9 |
|
Chilean
Corporate Bonds
|
|
|
- |
|
|
|
- |
|
|
|
13,522 |
|
|
|
5.4 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,522 |
|
|
|
5.4 |
|
Subtotal
|
|
|
89 |
|
|
|
|
|
|
|
17,670 |
|
|
|
|
|
|
|
18,757 |
|
|
|
|
|
|
|
262,344 |
|
|
|
|
|
|
|
298,860 |
|
|
|
|
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
foreign securities
|
|
|
448,925 |
|
|
|
0.5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
448,925 |
|
|
|
0.5 |
|
Subtotal
|
|
|
448,925 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
448,925 |
|
|
|
|
|
Total
|
|
|
598,011 |
|
|
|
|
|
|
|
460,182 |
|
|
|
|
|
|
|
237,624 |
|
|
|
|
|
|
|
284,423 |
|
|
|
|
|
|
|
1,580,240 |
|
|
|
|
|
Credit
Risk Ratings
The Bank
also has credit ratings from three international agencies.
Moody’s
|
|
Rating
|
Long-term
foreign currency bank deposits
|
|
A1 (Outlook
positive)
|
Senior
bonds
|
|
Aa2 (Outlook
negative)
|
Subordinated
debt
|
|
Aa3 (Outlook
negative)
|
Bank
Deposits in Local Currency
|
|
Aa2 (Outlook
negative)
|
Bank
financial strength
|
|
B- (Outlook
negative)
|
Short-term
deposits
|
|
P-1 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
|
Fitch |
|
Rating
|
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
|
Our foreign currency deposit ratings
are equivalent to the Chilean sovereign ratings. In the case of Moody’s, our
senior and subordinated debt denominated in foreign currency exceed the
sovereign ceilings. In May
2009,
Moody’s placed our foreign currency senior and subordinated bond ratings, local
currency deposit ratings and Bank Financial Strength Rating under review for
possible downgrade, following a similar action on the ratings of our parent
company, Banco Santander Spain. On June 15, 2009, Moody’s downgraded the credit
risk ratings of 25 Spanish banks, but maintained the rating of our parent
company, but with negative outlook. Any adverse revisions to our parent
company’s ratings and/or Chile’s credit ratings for domestic and international
debt by international rating agencies may adversely affect our ratings. Our
ratings may also be negatively affected by a worsening of our financial
condition, especially in terms of asset quality indicators.
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. Please see our Consolidated Statements
of Cash Flows in our Audited Consolidated Financial Statements for a detailed breakdown of the Bank’s
cash flow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Net cash provided by operating
activities
|
|
|
643,209 |
|
|
|
746,836 |
|
|
|
776,314 |
|
Cash provided by operating activities
totaled Ch$776,314 million in 2008 as a result of higher business activity gross
of provision for loan losses and price level restatement. The Ch$746,836 million and Ch$643,209 million in cash provided
by operating activities in
2007 and 2006,
respectively was mainly due to an increase in
business activity gross of provisions and price level restatement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Net cash provided by (used in)
investing activities
|
|
|
(1,707,362 |
) |
|
|
(1,796,235 |
) |
|
|
(2,660,853 |
) |
Net cash used in investing activities in 2008 totaled Ch$2,660,853 million. The largest
consumption of cash involved the disbursement of loans and the purchase of
financial investments in 2008. In 2007, the consumption of cash for
investing totaled Ch$1,796,235 million due to loan growth and the purchase of
financial investments. In 2006, loan growth consumed cash, but the Bank sold in
that period financial investments that financed part of this outflow of
cash.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Net cash provided by (used in)
financing activities
|
|
|
729,525 |
|
|
|
1,160,299 |
|
|
|
1,525,005 |
|
In 2008,
the net cash from financing activities totaled Ch$1,525,005 million and the main
sources of these funds were deposits and bond issues. In 2007, the
main sources of cash for financing the Bank’s asset growth were time deposits
and bond issuances. In 2006, the main source of funding was deposits as the Bank
prep-paid long-term funding in that year.
Deposits
and Other Borrowings
The
following table sets forth our average daily balance of liabilities for the
years ended December 31, 2006, 2007 and 2008, in each case together with the
related average nominal interest rates paid thereon.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total
Average
Liabilities
|
|
|
|
|
|
|
|
|
% of Total
Average
Liabilities
|
|
|
|
|
|
|
|
|
% of Total
Average
Liabilities
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008, except
percentages)
|
|
Savings
accounts
|
|
|
123,833 |
|
|
|
0.8 |
% |
|
|
1.3 |
% |
|
|
106,574 |
|
|
|
0.7 |
% |
|
|
6.2 |
% |
|
|
100,520 |
|
|
|
1.5 |
% |
|
|
8.5 |
% |
Time
deposits
|
|
|
7,489,585 |
|
|
|
46.0 |
% |
|
|
5.5 |
% |
|
|
7,863,868 |
|
|
|
45.2 |
% |
|
|
8.7 |
% |
|
|
8,343,001 |
|
|
|
45.4 |
% |
|
|
9.8 |
% |
Central
Bank borrowings
|
|
|
98,392 |
|
|
|
0.6 |
% |
|
|
5.1 |
% |
|
|
125,364 |
|
|
|
0.7 |
% |
|
|
5.7 |
% |
|
|
58,546 |
|
|
|
0.3 |
% |
|
|
8.6 |
% |
Repurchase
agreements
|
|
|
638,822 |
|
|
|
3.9 |
% |
|
|
5.0 |
% |
|
|
649,128 |
|
|
|
3.7 |
% |
|
|
6.6 |
% |
|
|
377,410 |
|
|
|
2.1 |
% |
|
|
10.6 |
% |
Mortgage
finance bonds
|
|
|
676,690 |
|
|
|
4.2 |
% |
|
|
7.5 |
% |
|
|
515,187 |
|
|
|
3.0 |
% |
|
|
12.4 |
% |
|
|
372,493 |
|
|
|
2.0 |
% |
|
|
15.0 |
% |
Other
interest bearing liabilities
|
|
|
2,524,616 |
|
|
|
15.5 |
% |
|
|
6.4 |
% |
|
|
2,457,565 |
|
|
|
14.1 |
% |
|
|
10.0 |
% |
|
|
3,345,953 |
|
|
|
18.2 |
% |
|
|
14.3 |
% |
Subtotal
interest bearing liabilities
|
|
|
11,551,938 |
|
|
|
71.0 |
% |
|
|
5.7 |
% |
|
|
11,717,686 |
|
|
|
67.4 |
% |
|
|
9.0 |
% |
|
|
12,597,923 |
|
|
|
68.5 |
% |
|
|
11.1 |
% |
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
2,132,774 |
|
|
|
13.1 |
% |
|
|
|
|
|
|
2,364,661 |
|
|
|
13.6 |
% |
|
|
|
|
|
|
2,458,141 |
|
|
|
13.4 |
% |
|
|
|
|
Derivatives
|
|
|
160,982 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
519,562 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
1,196,600 |
|
|
|
6.5 |
% |
|
|
|
|
Other
non-interest bearing liabilities
|
|
|
1,077,205 |
|
|
|
6.6 |
% |
|
|
|
|
|
|
1,359,034 |
|
|
|
7.8 |
% |
|
|
|
|
|
|
762,506 |
|
|
|
4.1 |
% |
|
|
|
|
Shareholders’
equity
|
|
|
1,345,585 |
|
|
|
8.3 |
% |
|
|
|
|
|
|
1,434,298 |
|
|
|
8.2 |
% |
|
|
|
|
|
|
1,377,107 |
|
|
|
7.5 |
% |
|
|
|
|
Subtotal
non-interest bearing liabilities
|
|
|
4,716,546 |
|
|
|
29.0 |
% |
|
|
|
|
|
|
5,677,555 |
|
|
|
32.6 |
% |
|
|
|
|
|
|
5,794,354 |
|
|
|
31.5 |
% |
|
|
|
|
Total
liabilities
|
|
|
16,268,484 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
17,395,241 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
18,392,277 |
|
|
|
100.0 |
% |
|
|
|
|
Our most
important source of funding is our time deposits. Average time deposits
represented 45.4% of our average total liabilities and shareholders’ equity in
2008. 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 2008 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, 2006, 2007 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Checking
accounts
|
|
|
1,811,292 |
|
|
|
2,161,368 |
|
|
|
2,270,592 |
|
Other
demand liabilities
|
|
|
831,094 |
|
|
|
959,215 |
|
|
|
472,819 |
|
Savings
accounts
|
|
|
109,813 |
|
|
|
105,792 |
|
|
|
102,951 |
|
Time
deposits
|
|
|
7,413,761 |
|
|
|
8,483,320 |
|
|
|
9,476,026 |
|
Other
commitments (1)
|
|
|
61,350 |
|
|
|
73,677 |
|
|
|
132,603 |
|
Total
|
|
|
10,227,310 |
|
|
|
11,783,372 |
|
|
|
12,454,991 |
|
(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, 2008, 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
|
|
|
0.1 |
|
|
|
0.0 |
|
|
|
10.4 |
|
|
|
1.8 |
|
Savings
accounts
|
|
|
0.0 |
|
|
|
3.1 |
|
|
|
0.0 |
|
|
|
1.1 |
|
Time
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing
within 3 months
|
|
|
63.5 |
|
|
|
31.4 |
|
|
|
67.8 |
|
|
|
53.4 |
|
Maturing
after 3 but within 6 months
|
|
|
18.0 |
|
|
|
7.0 |
|
|
|
9.4 |
|
|
|
12.8 |
|
Maturing
after 6 but within 12 months
|
|
|
12.4 |
|
|
|
18.6 |
|
|
|
12.3 |
|
|
|
14.5 |
|
Maturing
after 12 months
|
|
|
6.0 |
|
|
|
39.9 |
|
|
|
0.1 |
|
|
|
16.4 |
|
Total
time deposits
|
|
|
99.9 |
|
|
|
96.9 |
|
|
|
89.6 |
|
|
|
97.1 |
|
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$100,000 at December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Time
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing
within 3 months
|
|
|
1,689,768 |
|
|
|
58,548 |
|
|
|
781,466 |
|
|
|
2,529,782 |
|
Maturing
after 3 but within 6 months
|
|
|
923,002 |
|
|
|
223,395 |
|
|
|
189,295 |
|
|
|
1,335,692 |
|
Maturing
after 6 but within 12 months
|
|
|
416,697 |
|
|
|
391,591 |
|
|
|
311,099 |
|
|
|
1,119,387 |
|
Maturing
after 12 months
|
|
|
1,315,877 |
|
|
|
2,006,399 |
|
|
|
98,892 |
|
|
|
3,421,168 |
|
Total
time deposits
|
|
|
4,345,344 |
|
|
|
2,679,933 |
|
|
|
1,380,752 |
|
|
|
8,406,029 |
|
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, 2008, except for rate
data)
|
|
Balances
under repurchase agreements
|
|
|
23,316 |
|
|
|
4.9 |
% |
|
|
181,063 |
|
|
|
6.5 |
% |
|
|
292,951 |
|
|
|
6.3 |
% |
Central
Bank borrowings
|
|
|
157,257 |
|
|
|
5.1 |
% |
|
|
155,027 |
|
|
|
5.6 |
% |
|
|
269,430 |
|
|
|
8.5 |
% |
Domestic
interbank borrowings
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,001 |
|
|
|
8.1 |
% |
Borrowings
under foreign trade credit lines
|
|
|
839,974 |
|
|
|
7.7 |
% |
|
|
663,005 |
|
|
|
13.4 |
% |
|
|
1,107,997 |
|
|
|
1.9 |
% |
Total
short-term borrowings
|
|
|
1,020,547 |
|
|
|
6.6 |
% |
|
|
999,095 |
|
|
|
10.9 |
% |
|
|
1,675,379 |
|
|
|
3.7 |
% |
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, 2008,
except for rate data)
|
|
Investment under repurchase
agreements
|
|
|
638,822 |
|
|
|
4.9 |
% |
|
|
649,128 |
|
|
|
6.5 |
% |
|
|
377,410 |
|
|
|
9.9 |
% |
Central Bank
borrowings
|
|
|
98,392 |
|
|
|
5.1 |
% |
|
|
125,364 |
|
|
|
5.6 |
% |
|
|
58,546 |
|
|
|
8.5 |
% |
Domestic interbank
borrowings
|
|
|
57,669 |
|
|
|
5.1 |
% |
|
|
- |
|
|
|
- |
|
|
|
43,341 |
|
|
|
8.1 |
% |
Borrowings under foreign trade
credit lines
|
|
|
1,340,181 |
|
|
|
5.4 |
% |
|
|
1,192,559 |
|
|
|
13.4 |
% |
|
|
1,276,543 |
|
|
|
3.9 |
% |
Total short-term
borrowings
|
|
|
2,135,064 |
|
|
|
6.9 |
% |
|
|
1,967,051 |
|
|
|
10.6 |
% |
|
|
1,775,840 |
|
|
|
7.6 |
% |
The following table presents the maximum
month-end balances of our principal sources of short-term borrowings during the years
indicated.
|
|
Maximum
2006
Month-End
Balance
|
|
|
Maximum
2007
Month-End
Balance
|
|
|
Maximum
2008
Month-End
Balance
|
|
|
|
(in
millions of constant Ch$ as of December
31, 2008)
|
|
Investment under repurchase
agreements
|
|
|
511,406 |
|
|
|
219,522 |
|
|
|
366,244 |
|
Central Bank
borrowings
|
|
|
356,312 |
|
|
|
465,579 |
|
|
|
277,584 |
|
Domestic interbank
borrowings
|
|
|
4,419 |
|
|
|
5,251 |
|
|
|
154,101 |
|
Borrowings under foreign trade
credit lines
|
|
|
2,055,140 |
|
|
|
1,550,122 |
|
|
|
1,751,620 |
|
Total short-term
borrowings
|
|
|
2,927,277 |
|
|
|
2,240,474 |
|
|
|
2,549,549 |
|
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, 2008)
|
|
Central
Bank borrowings
|
|
|
- |
|
|
|
269,430 |
|
|
|
269,430 |
|
Credit
loans for renegotiations of loans
|
|
|
- |
|
|
|
3,012 |
|
|
|
3,012 |
|
Investment
under agreements to repurchase
|
|
|
853 |
|
|
|
292,951 |
|
|
|
293,804 |
|
Mortgage
finance bonds
|
|
|
289,913 |
|
|
|
54,767 |
|
|
|
344,680 |
|
Other
borrowings: bonds
|
|
|
1,362,198 |
|
|
|
256,582 |
|
|
|
1,618,780 |
|
Subordinated
bonds
|
|
|
687,912 |
|
|
|
- |
|
|
|
687,912 |
|
Borrowings
from domestic financial institutions
|
|
|
- |
|
|
|
5,001 |
|
|
|
5,001 |
|
Foreign
borrowings
|
|
|
309,055 |
|
|
|
1,107,997 |
|
|
|
1,417,052 |
|
Other
obligations
|
|
|
7,357 |
|
|
|
95,921 |
|
|
|
103,278 |
|
Total
borrowings
|
|
|
2,657,288 |
|
|
|
2,085,661 |
|
|
|
4,742,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Central
Bank borrowings
|
|
|
- |
|
|
|
155,027 |
|
|
|
155,027 |
|
Credit
loans for renegotiations of loans (a)
|
|
|
- |
|
|
|
4,325 |
|
|
|
4,325 |
|
Investment
under agreements to repurchase
|
|
|
- |
|
|
|
181,063 |
|
|
|
181,063 |
|
Mortgage
finance bonds (b)
|
|
|
407,625 |
|
|
|
62,533 |
|
|
|
470,158 |
|
Other
borrowings: bonds (c)
|
|
|
1,333,910 |
|
|
|
- |
|
|
|
1,333,910 |
|
Subordinated
bonds (d)
|
|
|
542,507 |
|
|
|
- |
|
|
|
542,507 |
|
Borrowings
from domestic financial institutions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
borrowings (e)
|
|
|
529,855 |
|
|
|
663,004 |
|
|
|
1,192,859 |
|
Other
obligations (f)
|
|
|
11,356 |
|
|
|
149,657 |
|
|
|
161,013 |
|
Total
borrowings
|
|
|
2,825,253 |
|
|
|
1,215,609 |
|
|
|
4,040,862 |
|
(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, 2007 and 2008, 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, 2008)
|
|
Total
credit lines for renegotiations of loans
|
|
|
4,325 |
|
|
|
3,012 |
|
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, 2008)
|
|
Due within 1
year
|
|
|
3,012 |
|
Total
|
|
|
3,012 |
|
(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, 2008.
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Due
within 1 year
|
|
|
54,767 |
|
Due
after 1 year but within 2 years
|
|
|
41,211 |
|
Due
after 2 years but within 3 years
|
|
|
37,635 |
|
Due
after 3 years but within 4 years
|
|
|
31,284 |
|
Due
after 4 years but within 5 years
|
|
|
33,655 |
|
Due
after 5 years
|
|
|
146,128 |
|
Total
mortgage finance bonds
|
|
|
344,680 |
|
(c) Bonds
The
following table sets forth, at the dates indicated, our issued bonds. The bonds are denominated
principally in UF or U.S. dollars, and are principally used to fund the Bank’s
mortgage portfolio. The U.S. dollar-denominated bonds bear an annual average
rate interest rate of 5.75% and 6.08% at December 31, 2007 and 2008,
respectively. The UF-denominated bonds bear an annul average interest rate of
4.05% and 4.02%.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Santander
bonds denominated in U.S. dollars
|
|
|
216,962 |
|
|
|
256,582 |
|
Santander
bonds denominated in UF
|
|
|
1,116,948 |
|
|
|
1,362,198 |
|
Total
bonds
|
|
|
1,333,910 |
|
|
|
1,618,780 |
|
The
maturities of these bonds are as follows:
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Due
within 1 year
|
|
|
256,582 |
|
Due
after 1 year but within 2 years
|
|
|
170,358 |
|
Due
after 2 years but within 3 years
|
|
|
226,910 |
|
Due
after 3 years but within 4 years
|
|
|
8,805 |
|
Due
after 4 years but within 5 years
|
|
|
259,768 |
|
Due
after 5 years
|
|
|
696,357 |
|
Total
bonds
|
|
|
1,618,780 |
|
During
2008, the Bank issued senior bonds in the local market for a total of UF 12.6
million (Ch$270,753 million as of December 31, 2008 or US$558 million). The
following are details of the bonds issued.
Senior bonds
2008
Series
|
Amount
|
|
Maturity
|
Interest
rate (%)
|
Y
|
UF 4,000,000
|
|
6
years
|
3.50%
per year, simple
|
Y1
|
UF 3,000,000
|
|
5
years
|
3.50%
per year, simple
|
Y2
|
UF 3,000,000
|
|
25
years
|
Bullet
|
Y3
|
UF 2,000,000
|
|
10
years
|
3.80%
per year, compounded
|
F2
|
UF 621,000
|
|
9
years
|
4.20%
per year, compounded
|
|
UF
12,621,000
|
|
|
|
(d) Subordinated
bonds
The
following table sets forth, at the dates indicated, the balances of our
subordinated bonds. The
following table sets forth, at the dates indicated, our issued subordinated
bonds. The bonds are
denominated principally in UF or U.S. dollars, and are principally used to fund
the Bank’s mortgage portfolio and can be considered in the Bank’s regulatory
capital. The US$ denominated subordinated bonds bear an annual average rate
interest rate of 6.93% and 6.93% at December 31, 2007 and 2008, respectively.
The UF-denominated bonds bear an annul average interest rate of 5.50% and
5.34%.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Subordinated
bonds denominated in U.S. dollars
|
|
|
287,116 |
|
|
|
364,410 |
|
Subordinated
bonds linked to the UF
|
|
|
255,391 |
|
|
|
323,502 |
|
Total
subordinated bonds
|
|
|
542,507 |
|
|
|
687,912 |
|
The
maturities of these bonds, which are considered long-term, are as
follows.
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Due
within 1 year
|
|
|
- |
|
Due
after 1 year but within 2 years
|
|
|
- |
|
Due
after 2 years but within 3 years
|
|
|
19,420 |
|
Due
after 3 years but within 4 years
|
|
|
141,187 |
|
Due
after 4 years but within 5 years
|
|
|
- |
|
Due
after 5 years
|
|
|
527,305 |
|
Total
subordinated bonds
|
|
|
687,912 |
|
On July
17, 1997, the former Banco Santander 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 year. These were paid in full
in 2008.
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 repayment of principal after a term of 10 years.
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
repayment of principal after a term of 10 years.
In 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%.
In 2007,
the Bank issued subordinated bonds denominated in UF in an aggregate principal
amount of UF4,000,000, which bear an average annual rate of 4.0%.
In 2008,
the Bank issued subordinated bonds in the local market for a total of UF 3.75
million (Ch$80,447 million or US$128 million as of December 31, 2008). The table
below sets forth details of the bonds issued.
Subordinated
bonds
Series
|
Amount
|
|
Maturity
|
Interest
rate (%)
|
G1
|
UF
3,000,000
|
|
25
years
|
3.90%
per year, simple
|
G2
|
UF 750,000
|
|
25
years
|
4.80%
per year, simple
|
|
UF
3,750,000
|
|
|
|
(e) Foreign
borrowings
These are
short-term and long-term borrowings from foreign banks used to fund our foreign
trade business. The maturities of these borrowings are as follows.
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Due
within 1 year
|
|
|
1,107,997 |
|
Due
after 1 year but within 2 years
|
|
|
143,555 |
|
Due
after 2 years but within 3 years
|
|
|
165,500 |
|
Total
foreign borrowings
|
|
|
1,417,052 |
|
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 1.3% and 3.9% at December 31, 2007 and 2008,
respectively. As a result of the global financial crisis, foreign borrowings
from correspondent banks have tightened significantly. To offset this, in 2008,
the Bank increased overnight deposits in U.S. dollars in its financial
investments funded with the inflow of local currency deposits. See Item 5.E:
Liquidity and Capital Resources – Financial Investments.
(f)
Other obligations
Other
obligations are summarized as follows.
|
|
|
|
|
|
(in
millions of constant Ch$ as of
December
31, 2008)
|
|
Due
within 1 year
|
|
|
54,903 |
|
Due
after 1 year but within 2 years
|
|
|
2,150 |
|
Due
after 2 years but within 3 years
|
|
|
1,820 |
|
Due
after 3 years but within 4 years
|
|
|
1,088 |
|
Due
after 4 years but within 5 years
|
|
|
808 |
|
Due
after 5 years
|
|
|
1,491 |
|
Total
long term obligations
|
|
|
62,260 |
|
Amounts
due to credit card operators
|
|
|
41,018 |
|
Total
short-term obligations
|
|
|
41,018 |
|
Total
other obligations
|
|
|
103,278 |
|
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.
In 2008,
as part of the gradual process of adopting international accounting standards,
the Bank reclassified its contingent loans as off-balance sheet items. Contingent loans
consist of guarantees granted by us in Chilean peso, UF and foreign currencies
(principally U.S. dollars), as well as open and unused letters of credit. The
total amount of contingent loans held off-balance sheet as of December 31, 2006,
2007 and 2008 was Ch$1,196,456, Ch$1,293,604 and Ch$1,240,690 million,
respectively. Contingent loans are considered in the calculation of risk
weighted assets and capital requirements as well as for credit risk reserve
requirements.
Other
off-balance sheet arrangements include commitments to extend credit 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$4,041,849 million at December 31, 2008, which will be financed with our
deposit base. Since a substantial portion of these commitments is expected to
expire without being drawn upon, the total amount of commitments does not
necessarily represent our actual future cash requirements. We use the same
credit policies in making commitments to extend credit as we do for granting
loans. In the opinion of our management, our outstanding commitments do not
represent an unusual credit risk.
From time
to time, the Bank enters into agreements to securitize certain assets by selling
those assets to unconsolidated and unaffiliated entities, which then sell debt
securities secured by those assets. These sales are non recourse to the Bank.
However, in the past, the Bank has occasionally purchased a subordinated bond
issued by the unconsolidated entity. At December 31, 2008, we did not hold any
of these subordinated bonds in our investment portfolio.
Asset
and Liability Management
Please
refer to “Item 11: Quantitative and Qualitative Disclosure about Market
Risk—Asset and Liability Management” regarding our policies with respect to
asset and liability management.
Capital
Expenditures
The
following table reflects capital expenditures in each of the three years ended
December 31, 2006, 2007 and 2008:
|
|
For
the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Land
and Buildings
|
|
|
11,860 |
|
|
|
14,016 |
|
|
|
10,311 |
|
Machinery
and Equipment
|
|
|
9,094 |
|
|
|
9,269 |
|
|
|
5,739 |
|
Furniture
and Fixtures
|
|
|
4,802 |
|
|
|
5,430 |
|
|
|
1,574 |
|
Vehicles
|
|
|
978 |
|
|
|
425 |
|
|
|
589 |
|
Other
|
|
|
2,654 |
|
|
|
3,661 |
|
|
|
459 |
|
Total
|
|
|
29,388 |
|
|
|
32,801 |
|
|
|
18,672 |
|
The
decrease in capital expenditures in 2008 compared to 2007 was mainly due to the
lower investment in branches and ATMs.
We do not
have any material commitments for capital expenditures for the
future.
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,
2007, have been restated in constant Chilean pesos as of December 31, 2008. 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 Audited Consolidated
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.
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 the available for sale investment portfolio does not include trading
or mark-to-market 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 2006 and 2007 have been reclassified for comparative
purposes in line with the changes made to the financial statements for those
years under the new accounting formats adopted in 2008. See Item 5B: Critical Accounting
Policies.
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, 2006, 2007 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008, except for rate
data)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST-EARNING
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
in Central Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
72,095 |
|
|
|
4,224 |
|
|
|
(2.8 |
%) |
|
|
5.9 |
% |
|
|
68,628 |
|
|
|
9,614 |
|
|
|
4.7 |
% |
|
|
14.0 |
% |
|
|
114,052 |
|
|
|
9,515 |
|
|
|
(0.5 |
%) |
|
|
8.3 |
% |
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
72,095 |
|
|
|
4,224 |
|
|
|
(2.8 |
%) |
|
|
5.9 |
% |
|
|
68,628 |
|
|
|
9,614 |
|
|
|
4.7 |
% |
|
|
14.0 |
% |
|
|
114,052 |
|
|
|
9,515 |
|
|
|
(0.5 |
%) |
|
|
8.3 |
% |
Interbank
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
26,474 |
|
|
|
1,457 |
|
|
|
(3.1 |
%) |
|
|
5.5 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
7,691 |
|
|
|
512 |
|
|
|
(2.1 |
%) |
|
|
6.7 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
34,165 |
|
|
|
1,969 |
|
|
|
(2.9 |
%) |
|
|
5.8 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Financial
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
557,431 |
|
|
|
40,501 |
|
|
|
(1.5 |
%) |
|
|
7.3 |
% |
|
|
611,401 |
|
|
|
56,124 |
|
|
|
0.3 |
% |
|
|
9.2 |
% |
|
|
851,635 |
|
|
|
80,356 |
|
|
|
0.5 |
% |
|
|
9.4 |
% |
UF
|
|
|
231,532 |
|
|
|
32,871 |
|
|
|
4.9 |
% |
|
|
14.2 |
% |
|
|
246,954 |
|
|
|
45,979 |
|
|
|
8.9 |
% |
|
|
18.6 |
% |
|
|
614,704 |
|
|
|
51,794 |
|
|
|
(0.4 |
%) |
|
|
8.4 |
% |
Foreign
currencies
|
|
|
1,012,676 |
|
|
|
37,979 |
|
|
|
22.7 |
% |
|
|
3.8 |
% |
|
|
651,289 |
|
|
|
23,414 |
|
|
|
22.6 |
% |
|
|
3.6 |
% |
|
|
900,291 |
|
|
|
5,888 |
|
|
|
19.1 |
% |
|
|
0.7 |
% |
Subtotal
|
|
|
1,801,639 |
|
|
|
111,351 |
|
|
|
12.9 |
% |
|
|
8.1 |
% |
|
|
1,509,644 |
|
|
|
125,517 |
|
|
|
11.3 |
% |
|
|
11.6 |
% |
|
|
2,366,630 |
|
|
|
138,038 |
|
|
|
7.3 |
% |
|
|
8.7 |
% |
Commercial
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
2,834,507 |
|
|
|
345,422 |
|
|
|
3.0 |
% |
|
|
12.2 |
% |
|
|
2,891,921 |
|
|
|
341,623 |
|
|
|
2.7 |
% |
|
|
11.8 |
% |
|
|
3,248,857 |
|
|
|
456,356 |
|
|
|
4.7 |
% |
|
|
14.0 |
% |
UF
|
|
|
3,292,928 |
|
|
|
230,047 |
|
|
|
(1.7 |
%) |
|
|
7.0 |
% |
|
|
3,176,142 |
|
|
|
369,306 |
|
|
|
2.5 |
% |
|
|
11.6 |
% |
|
|
3,015,409 |
|
|
|
410,113 |
|
|
|
4.3 |
% |
|
|
13.6 |
% |
Foreign
currencies
|
|
|
742,060 |
|
|
|
42,586 |
|
|
|
25.1 |
% |
|
|
5.7 |
% |
|
|
789,394 |
|
|
|
51,522 |
|
|
|
26.0 |
% |
|
|
6.5 |
% |
|
|
1,076,102 |
|
|
|
60,080 |
|
|
|
24.9 |
% |
|
|
5.6 |
% |
Subtotal
|
|
|
6,869,495 |
|
|
|
618,055 |
|
|
|
3.1 |
% |
|
|
9.8 |
% |
|
|
6,857,457 |
|
|
|
762,451 |
|
|
|
5.3 |
% |
|
|
11.3 |
% |
|
|
7,340,368 |
|
|
|
926,549 |
|
|
|
7.5 |
% |
|
|
13.3 |
% |
Consumer
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
1,462,944 |
|
|
|
323,756 |
|
|
|
12.2 |
% |
|
|
22.1 |
% |
|
|
1,769,145 |
|
|
|
406,274 |
|
|
|
12.9 |
% |
|
|
23.0 |
% |
|
|
1,836,233 |
|
|
|
449,591 |
|
|
|
14.3 |
% |
|
|
24.5 |
% |
UF
|
|
|
20,469 |
|
|
|
4,362 |
|
|
|
11.4 |
% |
|
|
21.3 |
% |
|
|
42,073 |
|
|
|
6,644 |
|
|
|
6.3 |
% |
|
|
15.8 |
% |
|
|
113,148 |
|
|
|
18,161 |
|
|
|
6.6 |
% |
|
|
16.1 |
% |
Foreign
currencies
|
|
|
6,618 |
|
|
|
- |
|
|
|
18.3 |
% |
|
|
- |
|
|
|
8,047 |
|
|
|
- |
|
|
|
18.3 |
% |
|
|
- |
|
|
|
8,161 |
|
|
|
- |
|
|
|
18.3 |
% |
|
|
- |
|
Subtotal
|
|
|
1,490,031 |
|
|
|
328,118 |
|
|
|
12.2 |
% |
|
|
22.1 |
% |
|
|
1,819,265 |
|
|
|
412,918 |
|
|
|
12.8 |
% |
|
|
22.9 |
% |
|
|
1,957,542 |
|
|
|
467,752 |
|
|
|
13.9 |
% |
|
|
24.2 |
% |
Mortgage
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
1,582 |
|
|
|
44 |
|
|
|
(5.6 |
%) |
|
|
2.8 |
% |
|
|
4,401 |
|
|
|
253 |
|
|
|
(2.9 |
%) |
|
|
5.7 |
% |
|
|
14,359 |
|
|
|
1,310 |
|
|
|
0.2 |
% |
|
|
9.1 |
% |
UF
|
|
|
3,070,215 |
|
|
|
221,915 |
|
|
|
(1.5 |
%) |
|
|
7.2 |
% |
|
|
3,352,463 |
|
|
|
402,244 |
|
|
|
2.9 |
% |
|
|
12.0 |
% |
|
|
3,637,661 |
|
|
|
510,362 |
|
|
|
4.7 |
% |
|
|
14.0 |
% |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
3,071,797 |
|
|
|
221,959 |
|
|
|
(1.5 |
%) |
|
|
7.2 |
% |
|
|
3,356,864 |
|
|
|
402,497 |
|
|
|
2.9 |
% |
|
|
12.0 |
% |
|
|
3,652,020 |
|
|
|
511,672 |
|
|
|
4.7 |
% |
|
|
14.0 |
% |
Interbank
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
29,931 |
|
|
|
1,526 |
|
|
|
(3.5 |
%) |
|
|
5.1 |
% |
|
|
49,323 |
|
|
|
2,623 |
|
|
|
(3.3 |
%) |
|
|
5.3 |
% |
|
|
16,838 |
|
|
|
1,077 |
|
|
|
(2.3 |
%) |
|
|
6.4 |
% |
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
47,192 |
|
|
|
2,500 |
|
|
|
24.6 |
% |
|
|
5.3 |
% |
|
|
36,931 |
|
|
|
2,031 |
|
|
|
24.8 |
% |
|
|
5.5 |
% |
|
|
5,618 |
|
|
|
196 |
|
|
|
22.4 |
% |
|
|
3.5 |
% |
Subtotal
|
|
|
77,123 |
|
|
|
4,026 |
|
|
|
13.7 |
% |
|
|
5.2 |
% |
|
|
86,254 |
|
|
|
4,654 |
|
|
|
8.7 |
% |
|
|
5.4 |
% |
|
|
22,512 |
|
|
|
1,273 |
|
|
|
3.9 |
% |
|
|
6.0 |
% |
Investments
under agreements to resell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
11,749 |
|
|
|
728 |
|
|
|
(2.5 |
%) |
|
|
6.2 |
% |
|
|
11,133 |
|
|
|
678 |
|
|
|
(2.6 |
%) |
|
|
6.1 |
% |
|
|
21,148 |
|
|
|
1,610 |
|
|
|
(1.2 |
%) |
|
|
7.6 |
% |
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008, except for rate
data)
|
|
Subtotal
|
|
|
11,749 |
|
|
|
728 |
|
|
|
(2.5 |
%) |
|
|
6.2 |
% |
|
|
11,133 |
|
|
|
678 |
|
|
|
(2.6 |
%) |
|
|
6.1 |
% |
|
|
21,148 |
|
|
|
1,610 |
|
|
|
(1.2 |
%) |
|
|
7.6 |
% |
Threshold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
48,644 |
|
|
|
4,850 |
|
|
|
30.1 |
% |
|
|
10.0 |
% |
|
|
124,351 |
|
|
|
12,263 |
|
|
|
30.0 |
% |
|
|
9.9 |
% |
|
|
224,449 |
|
|
|
4,703 |
|
|
|
20.8 |
% |
|
|
2.1 |
% |
Subtotal
|
|
|
48,644 |
|
|
|
4,850 |
|
|
|
30.1 |
% |
|
|
10.0 |
% |
|
|
124,351 |
|
|
|
12,263 |
|
|
|
30.0 |
% |
|
|
9.9 |
% |
|
|
224,449 |
|
|
|
4,703 |
|
|
|
20.8 |
% |
|
|
2.1 |
% |
Total
interest-earning assets (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
4,996,713 |
|
|
|
717,658 |
|
|
|
5.0 |
% |
|
|
14.4 |
% |
|
|
5,405,952 |
|
|
|
817,189 |
|
|
|
5.7 |
% |
|
|
15.1 |
% |
|
|
6,103,122 |
|
|
|
999,815 |
|
|
|
6.9 |
% |
|
|
16.4 |
% |
UF
|
|
|
6,622,835 |
|
|
|
489,707 |
|
|
|
(1.4 |
%) |
|
|
7.4 |
% |
|
|
6,817,632 |
|
|
|
824,173 |
|
|
|
2.9 |
% |
|
|
12.1 |
% |
|
|
7,380,978 |
|
|
|
990,430 |
|
|
|
4.2 |
% |
|
|
13.4 |
% |
Foreign
currencies
|
|
|
1,857,190 |
|
|
|
87,915 |
|
|
|
23.9 |
% |
|
|
4.7 |
% |
|
|
1,610,012 |
|
|
|
89,230 |
|
|
|
24.9 |
% |
|
|
5.5 |
% |
|
|
2,214,621 |
|
|
|
70,867 |
|
|
|
22.1 |
% |
|
|
3.2 |
% |
Subtotal
|
|
|
13,476,738 |
|
|
|
1,295,280 |
|
|
|
4.5 |
% |
|
|
11.1 |
% |
|
|
13,833,596 |
|
|
|
1,730,592 |
|
|
|
6.5 |
% |
|
|
13.2 |
% |
|
|
15,698,721 |
|
|
|
2,061,112 |
|
|
|
7.8 |
% |
|
|
14.5 |
% |
(1)
|
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.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008, except for rate
data)
|
|
NON-INTEREST-EARNING
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
258,529 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
361,132 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
274,832 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
16,617 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
19,159 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
19,432 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
275,146 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
380,291 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
294,264 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Reserves
for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ch$
|
|
|
(181,190 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(224,080 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(258,140 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
(181,190 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(224,080 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(258,140 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Fixed
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ch$
|
|
|
266,183 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
258,588 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
257,548 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
266,183 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
258,588 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
257,548 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ch$
|
|
|
(336,735 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
990,790 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,861,855 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
(301,920 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,219,772 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,507,963 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
813,932 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
773,616 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,064,876 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
175,277 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
544,634 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,418,768 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Financial
investments trading(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ch$
|
|
|
226,173 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
95,610 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
123,874 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
425,346 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
456,877 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
308,302 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
192,153 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
123,534 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
28,367 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
843,672 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
676,021 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
460,543 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ch$
|
|
|
798,043 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
576,845 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
224,505 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
33,504 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
369,653 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
66,754 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
581,111 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
979,693 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
364,946 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
1,412,658 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,926,191 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
656,205 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
non-interest earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ch$
|
|
|
1,031,003 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,058,885 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,484,474 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
156,930 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(393,242 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,132,907 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
1,603,813 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,896,002 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,477,621 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
2,791,746 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,561,645 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,829,188 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
TOTAL
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
6,027,716 |
|
|
|
717,658 |
|
|
|
- |
|
|
|
- |
|
|
|
7,464,837 |
|
|
|
817,189 |
|
|
|
- |
|
|
|
- |
|
|
|
8,587,596 |
|
|
|
999,815 |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
6,779,765 |
|
|
|
489,707 |
|
|
|
- |
|
|
|
- |
|
|
|
6,424,390 |
|
|
|
824,173 |
|
|
|
- |
|
|
|
- |
|
|
|
6,248,071 |
|
|
|
990,430 |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
3,461,003 |
|
|
|
87,915 |
|
|
|
- |
|
|
|
- |
|
|
|
3,506,014 |
|
|
|
89,230 |
|
|
|
- |
|
|
|
- |
|
|
|
3,692,242 |
|
|
|
70,867 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
16,268,484 |
|
|
|
1,295,280 |
|
|
|
- |
|
|
|
- |
|
|
|
17,395,241 |
|
|
|
1,730,592 |
|
|
|
- |
|
|
|
- |
|
|
|
18,527,909 |
|
|
|
2,061,112 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008, except for rate
data)
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST-BEARING
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
695 |
|
|
|
11 |
|
|
|
(6.7 |
%) |
|
|
1.6 |
% |
|
|
724 |
|
|
|
12 |
|
|
|
(6.6 |
%) |
|
|
1.7 |
% |
|
|
739 |
|
|
|
13 |
|
|
|
(6.5 |
%) |
|
|
1.8 |
% |
UF
|
|
|
123,138 |
|
|
|
1,587 |
|
|
|
(7.0 |
%) |
|
|
1.3 |
% |
|
|
105,850 |
|
|
|
6,593 |
|
|
|
(2.4 |
%) |
|
|
6.2 |
% |
|
|
99,781 |
|
|
|
8,516 |
|
|
|
(0.3 |
%) |
|
|
8.5 |
% |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
123,833 |
|
|
|
1,598 |
|
|
|
(7.0 |
%) |
|
|
1.3 |
% |
|
|
106,574 |
|
|
|
6,605 |
|
|
|
(2.4 |
%) |
|
|
6.2 |
% |
|
|
100,520 |
|
|
|
8,529 |
|
|
|
(0.3 |
%) |
|
|
8.5 |
% |
Time
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
3,939,384 |
|
|
|
233,461 |
|
|
|
(2.7 |
%) |
|
|
5.9 |
% |
|
|
3,944,650 |
|
|
|
275,742 |
|
|
|
(1.7 |
%) |
|
|
7.0 |
% |
|
|
3,879,461 |
|
|
|
291,134 |
|
|
|
(1.3 |
%) |
|
|
7.5 |
% |
UF
|
|
|
2,454,702 |
|
|
|
114,833 |
|
|
|
(3.9 |
%) |
|
|
4.7 |
% |
|
|
2,693,822 |
|
|
|
296,212 |
|
|
|
1.9 |
% |
|
|
11.0 |
% |
|
|
2,958,841 |
|
|
|
368,973 |
|
|
|
3.3 |
% |
|
|
12.5 |
% |
Foreign
currencies
|
|
|
1,095,499 |
|
|
|
59,954 |
|
|
|
(3.1 |
%) |
|
|
5.5 |
% |
|
|
1,225,396 |
|
|
|
56,416 |
|
|
|
(3.9 |
%) |
|
|
4.6 |
% |
|
|
1,504,699 |
|
|
|
55,842 |
|
|
|
(4.8 |
%) |
|
|
3.7 |
% |
Subtotal
|
|
|
7,489,585 |
|
|
|
408,248 |
|
|
|
(3.2 |
%) |
|
|
5.5 |
% |
|
|
7,863,868 |
|
|
|
628,370 |
|
|
|
(0.8 |
%) |
|
|
8.7 |
% |
|
|
8,343,001 |
|
|
|
715,949 |
|
|
|
(0.3 |
%) |
|
|
9.8 |
% |
Central
Bank borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
38,465 |
|
|
|
2,031 |
|
|
|
(3.3 |
%) |
|
|
5.3 |
% |
|
|
120,707 |
|
|
|
6,519 |
|
|
|
(3.2 |
%) |
|
|
5.4 |
% |
|
|
55,300 |
|
|
|
4,570 |
|
|
|
(0.6 |
%) |
|
|
8.3 |
% |
UF
|
|
|
59,927 |
|
|
|
2,978 |
|
|
|
(3.6 |
%) |
|
|
5.0 |
% |
|
|
4,657 |
|
|
|
455 |
|
|
|
0.8 |
% |
|
|
9.8 |
% |
|
|
3,246 |
|
|
|
386 |
|
|
|
2.8 |
% |
|
|
11.9 |
% |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
98,392 |
|
|
|
5,009 |
|
|
|
(3.5 |
%) |
|
|
5.1 |
% |
|
|
125,364 |
|
|
|
6,974 |
|
|
|
(3.1 |
%) |
|
|
5.7 |
% |
|
|
58,546 |
|
|
|
4,956 |
|
|
|
(0.4 |
%) |
|
|
8.6 |
% |
Repurchase
agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
448,675 |
|
|
|
22,535 |
|
|
|
(3.6 |
%) |
|
|
5.0 |
% |
|
|
464,229 |
|
|
|
32,594 |
|
|
|
(1.7 |
%) |
|
|
7.0 |
% |
|
|
312,352 |
|
|
|
34,487 |
|
|
|
2.0 |
% |
|
|
11.0 |
% |
UF
|
|
|
13,294 |
|
|
|
665 |
|
|
|
(3.6 |
%) |
|
|
5.0 |
% |
|
|
35,884 |
|
|
|
1,769 |
|
|
|
(3.6 |
%) |
|
|
4.9 |
% |
|
|
9,080 |
|
|
|
940 |
|
|
|
1.3 |
% |
|
|
10.4 |
% |
Foreign
currencies
|
|
|
176,853 |
|
|
|
8,979 |
|
|
|
(3.5 |
%) |
|
|
5.1 |
% |
|
|
149,015 |
|
|
|
7,965 |
|
|
|
(3.3 |
%) |
|
|
5.3 |
% |
|
|
55,978 |
|
|
|
1,925 |
|
|
|
(5.0 |
%) |
|
|
3.4 |
% |
Subtotal
|
|
|
638,822 |
|
|
|
32,179 |
|
|
|
(3.6 |
%) |
|
|
5.0 |
% |
|
|
649,128 |
|
|
|
42,328 |
|
|
|
(2.2 |
%) |
|
|
6.6 |
% |
|
|
377,410 |
|
|
|
37,352 |
|
|
|
0.9 |
% |
|
|
10.6 |
% |
Mortgage
finance bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
676,690 |
|
|
|
50,461 |
|
|
|
(1.3 |
%) |
|
|
7.5 |
% |
|
|
515,187 |
|
|
|
63,800 |
|
|
|
3.2 |
% |
|
|
12.4 |
% |
|
|
372,493 |
|
|
|
55,713 |
|
|
|
5.6 |
% |
|
|
15.0 |
% |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
676,690 |
|
|
|
50,461 |
|
|
|
(1.3 |
%) |
|
|
7.5 |
% |
|
|
515,187 |
|
|
|
63,800 |
|
|
|
3.2 |
% |
|
|
12.4 |
% |
|
|
372,493 |
|
|
|
55,713 |
|
|
|
5.6 |
% |
|
|
15.0 |
% |
Other
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
56,960 |
|
|
|
2,980 |
|
|
|
(3.4 |
%) |
|
|
5.2 |
% |
|
|
38,890 |
|
|
|
2,712 |
|
|
|
(1.8 |
%) |
|
|
7.0 |
% |
|
|
71,536 |
|
|
|
5,488 |
|
|
|
(1.1 |
%) |
|
|
7.7 |
% |
UF
|
|
|
498,931 |
|
|
|
37,922 |
|
|
|
(1.2 |
%) |
|
|
7.6 |
% |
|
|
876,023 |
|
|
|
117,092 |
|
|
|
4.1 |
% |
|
|
13.4 |
% |
|
|
1,497,974 |
|
|
|
260,230 |
|
|
|
7.8 |
% |
|
|
17.4 |
% |
Foreign
currencies
|
|
|
1,968,725 |
|
|
|
121,062 |
|
|
|
(2.5 |
%) |
|
|
6.1 |
% |
|
|
1,542,652 |
|
|
|
86,953 |
|
|
|
(3.0 |
%) |
|
|
5.6 |
% |
|
|
1,776,442 |
|
|
|
75,854 |
|
|
|
(4.2 |
%) |
|
|
4.3 |
% |
Subtotal
|
|
|
2,524,616 |
|
|
|
161,964 |
|
|
|
(2.3 |
%) |
|
|
6.4 |
% |
|
|
2,457,565 |
|
|
|
206,757 |
|
|
|
(0.5 |
%) |
|
|
10.0 |
% |
|
|
3,345,952 |
|
|
|
341,572 |
|
|
|
1.2 |
% |
|
|
14.3 |
% |
Total
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
4,484,179 |
|
|
|
261,018 |
|
|
|
(2.8 |
%) |
|
|
5.8 |
% |
|
|
4,569,200 |
|
|
|
317,579 |
|
|
|
(1.8 |
%) |
|
|
7.0 |
% |
|
|
4,319,388 |
|
|
|
335,692 |
|
|
|
(1.0 |
%) |
|
|
7.8 |
% |
UF
|
|
|
3,826,682 |
|
|
|
208,446 |
|
|
|
(3.2 |
%) |
|
|
5.4 |
% |
|
|
4,231,423 |
|
|
|
485,921 |
|
|
|
2.4 |
% |
|
|
11.5 |
% |
|
|
4,941,415 |
|
|
|
694,758 |
|
|
|
4.7 |
% |
|
|
14.1 |
% |
Foreign
currencies
|
|
|
3,241,077 |
|
|
|
189,995 |
|
|
|
(2.8 |
%) |
|
|
5.9 |
% |
|
|
2,917,063 |
|
|
|
151,334 |
|
|
|
(3.4 |
%) |
|
|
5.2 |
% |
|
|
3,337,119 |
|
|
|
133,621 |
|
|
|
(4.5 |
%) |
|
|
4.0 |
% |
Total
|
|
|
11,551,938 |
|
|
|
659,459 |
|
|
|
(2.9 |
%) |
|
|
5.7 |
% |
|
|
11,717,686 |
|
|
|
954,834 |
|
|
|
(0.7 |
%) |
|
|
9.0 |
% |
|
|
12,597,922 |
|
|
|
1,164,071 |
|
|
|
0.3 |
% |
|
|
11.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as f December 31, 2008, except for rate
data)
|
|
NON-INTEREST-BEARING
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
demand deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
2,132,730 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,364,611 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,457,135 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
40 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
27 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
23 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
981 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
2,132,774 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,364,661 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,458,141 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
319,470 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
437,948 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,027,615 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
(107 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
67,599 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
168,985 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
(158,381 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,015 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
135,632 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
160,982 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
519,562 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,332,232 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
non-interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
708,352 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,000,537 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
416,760 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
191,541 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
248,195 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
244,874 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
177,312 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
110,302 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100,873 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
1,077,205 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,359,034 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
762,507 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
1,345,585 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,434,298 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,377,107 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
1,345,585 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,434,298 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,377,107 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
non-interest-bearing liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
4,506,137 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,237,394 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,278,617 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
191,474 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
315,821 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
413,884 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
18,935 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
124,340 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
237,486 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
4,716,546 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,677,555 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,929,987 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
8,990,316 |
|
|
|
261,018 |
|
|
|
- |
|
|
|
- |
|
|
|
9,806,594 |
|
|
|
317,579 |
|
|
|
- |
|
|
|
- |
|
|
|
9,598,005 |
|
|
|
335,692 |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
4,018,156 |
|
|
|
208,446 |
|
|
|
- |
|
|
|
- |
|
|
|
4,547,244 |
|
|
|
485,921 |
|
|
|
- |
|
|
|
- |
|
|
|
5,355,299 |
|
|
|
694,758 |
|
|
|
- |
|
|
|
- |
|
Foreign
currencies
|
|
|
3,260,012 |
|
|
|
189,995 |
|
|
|
- |
|
|
|
- |
|
|
|
3,041,403 |
|
|
|
151,334 |
|
|
|
- |
|
|
|
- |
|
|
|
3,574,605 |
|
|
|
133,621 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
16,268,484 |
|
|
|
659,459 |
|
|
|
- |
|
|
|
- |
|
|
|
17,395,241 |
|
|
|
954,834 |
|
|
|
- |
|
|
|
- |
|
|
|
18,527,909 |
|
|
|
1,164,071 |
|
|
|
- |
|
|
|
- |
|
(1) Note:
In line with the new classification of Circular No. 3410 issued by the
Superintendency of Banks, which became effective on January 1, 2008, prescribed
new accounting formats for financial statements. The new accounting formats are
congruent with International Accounting Standards, but do not involve a change
in accounting standards. These changes included the reclassification of interest
income gained on the financial investments held for trading from interest
revenue to gains from trading and mark-to-market. For this reason
these assets are considered non-interest earning. The amount of interest that
was reclassified for the twelve-month period ending December 31, 2006, 2007 and
2008 was Ch$65,713 million, Ch$75,288 million and Ch$72,928 million,
respectively.
Changes
in Net Interest Revenue and Interest Expense: Volume and Rate
Analysis
The
following table allocates, by currency of denomination, changes in our interest
revenue and interest expense between changes in the average volume of
interest-earning assets and interest-bearing liabilities and changes in their
respective nominal interest rates for 2008 compared to 2007 and 2007 compared to
2006. Volume and rate variances have been calculated based on movements in
average balances over the period and changes in nominal interest rates on
average interest-earning assets and average interest-bearing
liabilities.
|
|
|
Increase
(Decrease) from 2006 to 2007
|
|
|
|
|
|
Increase
(Decrease) from 2007 to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
Change
|
|
|
|
|
|
|
|
|
|
|
Rate
and
|
|
|
from
2006 to
|
|
|
|
|
|
|
|
|
Rate
and
|
|
|
from
2007 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
with Central Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
(205 |
) |
|
|
5,840 |
|
|
|
(245 |
) |
|
|
5,390 |
|
|
|
6,387 |
|
|
|
(3,903 |
) |
|
|
(2,583 |
) |
|
|
(99 |
) |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Foreign
currency
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total
|
|
|
(205 |
) |
|
|
5,840 |
|
|
|
(245 |
) |
|
|
5,390 |
|
|
|
6,387 |
|
|
|
(3,903 |
) |
|
|
(2,583 |
) |
|
|
(99 |
) |
Interbank
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
(1,457 |
) |
|
|
(1,457 |
) |
|
|
1,457 |
|
|
|
(1,457 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
UF
|
|
|
(512 |
) |
|
|
(512 |
) |
|
|
512 |
|
|
|
(512 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Foreign
currency
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1,969 |
) |
|
|
(1,969 |
) |
|
|
1,969 |
|
|
|
(1,969 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Financial
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
3,940 |
|
|
|
10,592 |
|
|
|
1,091 |
|
|
|
15,623 |
|
|
|
22,369 |
|
|
|
1,330 |
|
|
|
533 |
|
|
|
24,232 |
|
|
UF
|
|
|
2,207 |
|
|
|
10,215 |
|
|
|
686 |
|
|
|
13,108 |
|
|
|
68,464 |
|
|
|
(25,169 |
) |
|
|
(37,480 |
) |
|
|
5,815 |
|
|
Foreign
currency
|
|
|
(13,431 |
) |
|
|
(1,875 |
) |
|
|
741 |
|
|
|
(14,565 |
) |
|
|
8,882 |
|
|
|
(19,037 |
) |
|
|
(7,371 |
) |
|
|
(17,526 |
) |
|
Total
|
|
|
(7,284 |
) |
|
|
18,932 |
|
|
|
2,518 |
|
|
|
14,166 |
|
|
|
99,715 |
|
|
|
(42,876 |
) |
|
|
(44,318 |
) |
|
|
12,521 |
|
Commercial
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
7,318 |
|
|
|
(10,933 |
) |
|
|
(184 |
) |
|
|
(3,799 |
) |
|
|
42,556 |
|
|
|
64,022 |
|
|
|
8,155 |
|
|
|
114,733 |
|
|
UF
|
|
|
(8,344 |
) |
|
|
153,166 |
|
|
|
(5,563 |
) |
|
|
139,259 |
|
|
|
(18,006 |
) |
|
|
61,347 |
|
|
|
(2,534 |
) |
|
|
40,807 |
|
|
Foreign
currency
|
|
|
2,682 |
|
|
|
5,876 |
|
|
|
378 |
|
|
|
8,936 |
|
|
|
18,443 |
|
|
|
(7,255 |
) |
|
|
(2,630 |
) |
|
|
8,558 |
|
|
Total
|
|
|
1,656 |
|
|
|
148,109 |
|
|
|
(5,369 |
) |
|
|
144,396 |
|
|
|
42,993 |
|
|
|
118,114 |
|
|
|
2,991 |
|
|
|
164,098 |
|
Consumer
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
66,844 |
|
|
|
12,954 |
|
|
|
2,720 |
|
|
|
82,518 |
|
|
|
15,550 |
|
|
|
26,731 |
|
|
|
1,036 |
|
|
|
43,317 |
|
|
UF
|
|
|
4,599 |
|
|
|
(1,127 |
) |
|
|
(1,190 |
) |
|
|
2,282 |
|
|
|
11,193 |
|
|
|
123 |
|
|
|
201 |
|
|
|
11,517 |
|
|
Foreign
currency
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total
|
|
|
71,443 |
|
|
|
11,827 |
|
|
|
1,530 |
|
|
|
84,800 |
|
|
|
26,743 |
|
|
|
26,854 |
|
|
|
1,237 |
|
|
|
54,834 |
|
Mortgage
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
51 |
|
|
|
57 |
|
|
|
101 |
|
|
|
209 |
|
|
|
928 |
|
|
|
39 |
|
|
|
90 |
|
|
|
1,057 |
|
|
UF
|
|
|
15,602 |
|
|
|
150,858 |
|
|
|
13,869 |
|
|
|
180,329 |
|
|
|
78,623 |
|
|
|
27,183 |
|
|
|
2,312 |
|
|
|
108,118 |
|
|
Foreign
currency
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total
|
|
|
15,653 |
|
|
|
150,915 |
|
|
|
13,970 |
|
|
|
180,538 |
|
|
|
79,551 |
|
|
|
27,222 |
|
|
|
2,402 |
|
|
|
109,175 |
|
Interbank
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
995 |
|
|
|
62 |
|
|
|
40 |
|
|
|
1,097 |
|
|
|
(1,729 |
) |
|
|
541 |
|
|
|
(358 |
) |
|
|
(1,546 |
) |
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Foreign
currency
|
|
|
(543 |
) |
|
|
95 |
|
|
|
(21 |
) |
|
|
(469 |
) |
|
|
(1,722 |
) |
|
|
(739 |
) |
|
|
626 |
|
|
|
(1,835 |
) |
|
Total
|
|
|
452 |
|
|
|
157 |
|
|
|
19 |
|
|
|
628 |
|
|
|
(3,451 |
) |
|
|
(198 |
) |
|
|
268 |
|
|
|
(3,381 |
) |
Investments
Under Agreements to Resell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
(39 |
) |
|
|
(12 |
) |
|
|
1 |
|
|
|
(50 |
) |
|
|
614 |
|
|
|
167 |
|
|
|
151 |
|
|
|
932 |
|
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Foreign
currency
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total
|
|
|
(39 |
) |
|
|
(12 |
) |
|
|
1 |
|
|
|
(50 |
) |
|
|
614 |
|
|
|
167 |
|
|
|
151 |
|
|
|
932 |
|
Threshold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
UF
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
Increase
(Decrease) from 2006 to 2007
|
|
|
|
|
|
Increase
(Decrease) from 2007 to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
Change
|
|
|
|
|
|
|
|
|
|
|
Rate
and
|
|
|
from
2006 to
|
|
|
|
|
|
|
|
|
Rate
and
|
|
|
from
2007 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
|
7,543 |
|
|
|
(51 |
) |
|
|
(79 |
) |
|
|
7,413 |
|
|
|
9,927 |
|
|
|
(9,687 |
) |
|
|
(7,800 |
) |
|
|
(7,560 |
) |
|
Total
|
|
|
7,543 |
|
|
|
(51 |
) |
|
|
(79 |
) |
|
|
7,413 |
|
|
|
9,927 |
|
|
|
(9,687 |
) |
|
|
(7,800 |
) |
|
|
(7,560 |
) |
Total
interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
77,447 |
|
|
|
17,103 |
|
|
|
4,981 |
|
|
|
99,531 |
|
|
|
86,675 |
|
|
|
88,927 |
|
|
|
7,024 |
|
|
|
182,626 |
|
|
UF
|
|
|
13,552 |
|
|
|
312,600 |
|
|
|
8,314 |
|
|
|
334,466 |
|
|
|
140,274 |
|
|
|
63,484 |
|
|
|
(37,501 |
) |
|
|
166,257 |
|
|
Foreign
currency
|
|
|
(3,749 |
) |
|
|
4,045 |
|
|
|
1,019 |
|
|
|
1,315 |
|
|
|
35,530 |
|
|
|
(36,718 |
) |
|
|
(17,175 |
) |
|
|
(18,363 |
) |
|
Total
|
|
|
87,250 |
|
|
|
333,748 |
|
|
|
14,314 |
|
|
|
435,312 |
|
|
|
262,479 |
|
|
|
115,693 |
|
|
|
(47,652 |
) |
|
|
330,520 |
|
|
|
Increase
(Decrease) from 2006 to 2007
Due
to Changes in
|
|
|
|
|
|
Increase
(Decrease) from 2007 to 2008
Due
to Changes in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Change from 2006 to 2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
Change from 2007 to 2008
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
UF
|
|
|
(220 |
) |
|
|
6,067 |
|
|
|
(841 |
) |
|
|
5,006 |
|
|
|
(375 |
) |
|
|
2,437 |
|
|
|
(139 |
) |
|
|
1,923 |
|
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
(220 |
) |
|
|
6,068 |
|
|
|
(841 |
) |
|
|
5,007 |
|
|
|
(375 |
) |
|
|
2,438 |
|
|
|
(139 |
) |
|
|
1,924 |
|
Time
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
299 |
|
|
|
41,933 |
|
|
|
49 |
|
|
|
42,281 |
|
|
|
(4,363 |
) |
|
|
20,073 |
|
|
|
(318 |
) |
|
|
15,392 |
|
UF
|
|
|
11,252 |
|
|
|
155,047 |
|
|
|
15,080 |
|
|
|
181,379 |
|
|
|
28,952 |
|
|
|
39,957 |
|
|
|
3,852 |
|
|
|
72,761 |
|
Foreign
currencies
|
|
|
7,158 |
|
|
|
(9,553 |
) |
|
|
(1,143 |
) |
|
|
(3,538 |
) |
|
|
12,918 |
|
|
|
(10,988 |
) |
|
|
(2,504 |
) |
|
|
(574 |
) |
Subtotal
|
|
|
18,709 |
|
|
|
187,427 |
|
|
|
13,986 |
|
|
|
220,122 |
|
|
|
37,507 |
|
|
|
49,042 |
|
|
|
1,030 |
|
|
|
87,579 |
|
Central
Bank borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
4,365 |
|
|
|
39 |
|
|
|
84 |
|
|
|
4,488 |
|
|
|
(3,544 |
) |
|
|
3,495 |
|
|
|
(1,900 |
) |
|
|
(1,949 |
) |
UF
|
|
|
(2,758 |
) |
|
|
2,882 |
|
|
|
(2,647 |
) |
|
|
(2,523 |
) |
|
|
(138 |
) |
|
|
98 |
|
|
|
(29 |
) |
|
|
(69 |
) |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
1,607 |
|
|
|
2,921 |
|
|
|
(2,563 |
) |
|
|
1,965 |
|
|
|
(3,682 |
) |
|
|
3,593 |
|
|
|
(1,929 |
) |
|
|
(2,018 |
) |
Repurchase
agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
777 |
|
|
|
8,972 |
|
|
|
310 |
|
|
|
10,059 |
|
|
|
(10,621 |
) |
|
|
18,587 |
|
|
|
(6,073 |
) |
|
|
1,893 |
|
UF
|
|
|
1,138 |
|
|
|
(12 |
) |
|
|
(22 |
) |
|
|
1,104 |
|
|
|
(1,318 |
) |
|
|
1,968 |
|
|
|
(1,479 |
) |
|
|
(829 |
) |
Foreign
currencies
|
|
|
(1,336 |
) |
|
|
388 |
|
|
|
(66 |
) |
|
|
(1,014 |
) |
|
|
(4,954 |
) |
|
|
(2,850 |
) |
|
|
1,764 |
|
|
|
(6,040 |
) |
Subtotal
|
|
|
579 |
|
|
|
9,348 |
|
|
|
222 |
|
|
|
10,149 |
|
|
|
(16,893 |
) |
|
|
17,705 |
|
|
|
(5,788 |
) |
|
|
(4,976 |
) |
Mortgage
finance bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
UF
|
|
|
(12,053 |
) |
|
|
33,246 |
|
|
|
(7,854 |
) |
|
|
13,339 |
|
|
|
(17,729 |
) |
|
|
13,365 |
|
|
|
(3,723 |
) |
|
|
(8,087 |
) |
Foreign
currencies
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
(12,053 |
) |
|
|
33,246 |
|
|
|
(7,854 |
) |
|
|
13,339 |
|
|
|
(17,729 |
) |
|
|
13,365 |
|
|
|
(3,723 |
) |
|
|
(8,087 |
) |
Other
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
(945 |
) |
|
|
1,007 |
|
|
|
(330 |
) |
|
|
(268 |
) |
|
|
2,278 |
|
|
|
271 |
|
|
|
227 |
|
|
|
2,776 |
|
UF
|
|
|
28,559 |
|
|
|
28,839 |
|
|
|
21,772 |
|
|
|
79,170 |
|
|
|
83,251 |
|
|
|
35,011 |
|
|
|
24,876 |
|
|
|
143,138 |
|
Foreign
currencies
|
|
|
(26,240 |
) |
|
|
(9,944 |
) |
|
|
2,075 |
|
|
|
(34,109 |
) |
|
|
12,692 |
|
|
|
(20,654 |
) |
|
|
(3,137 |
) |
|
|
(11,099 |
) |
Subtotal
|
|
|
1,374 |
|
|
|
19,902 |
|
|
|
23,517 |
|
|
|
44,793 |
|
|
|
98,221 |
|
|
|
14,628 |
|
|
|
21,966 |
|
|
|
134,815 |
|
Total
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
4,496 |
|
|
|
51,952 |
|
|
|
113 |
|
|
|
56,561 |
|
|
|
(16,250 |
) |
|
|
42,427 |
|
|
|
(8,064 |
) |
|
|
18,113 |
|
UF
|
|
|
25,918 |
|
|
|
226,069 |
|
|
|
25,488 |
|
|
|
277,475 |
|
|
|
92,643 |
|
|
|
92,836 |
|
|
|
23,358 |
|
|
|
208,837 |
|
Foreign
currencies
|
|
|
(20,418 |
) |
|
|
(19,109 |
) |
|
|
866 |
|
|
|
(38,661 |
) |
|
|
20,656 |
|
|
|
(34,492 |
) |
|
|
(3,877 |
) |
|
|
(17,713 |
) |
Total
|
|
|
9,996 |
|
|
|
258,912 |
|
|
|
26,467 |
|
|
|
295,375 |
|
|
|
97,049 |
|
|
|
100,771 |
|
|
|
11,417 |
|
|
|
209,237 |
|
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, 2008, except
percentages)
|
|
Total
average interest-earning assets
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
4,996,713 |
|
|
|
5,405,952 |
|
|
|
6,103,122 |
|
UF
|
|
|
6,622,835 |
|
|
|
6,817,632 |
|
|
|
7,380,978 |
|
Foreign
currencies
|
|
|
1,857,190 |
|
|
|
1,610,012 |
|
|
|
2,214,621 |
|
Total
|
|
|
13,476,738 |
|
|
|
13,833,596 |
|
|
|
15,698,721 |
|
Net
interest earned (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
456,640 |
|
|
|
499,610 |
|
|
|
664,123 |
|
UF
|
|
|
281,261 |
|
|
|
338,252 |
|
|
|
295,672 |
|
Foreign
currencies
|
|
|
(102,080 |
) |
|
|
(62,104 |
) |
|
|
(62,754 |
) |
Total
|
|
|
635,821 |
|
|
|
775,758 |
|
|
|
897,041 |
|
Net
interest margin (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
9.1 |
% |
|
|
9.2 |
% |
|
|
10.9 |
% |
UF
|
|
|
4.2 |
% |
|
|
5.0 |
% |
|
|
4.0 |
% |
Foreign
currencies
|
|
|
(5.5 |
%) |
|
|
(3.9 |
%) |
|
|
(2.8 |
%) |
Total
|
|
|
4.7 |
% |
|
|
5.6 |
% |
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 total average
interest-earning assets.
|
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, 2008, except for
percentages)
|
|
Net income
|
|
|
334,282 |
|
|
|
338,324 |
|
|
|
331,017 |
|
Average total
assets
|
|
|
16,268,484 |
|
|
|
17,395,241 |
|
|
|
18,527,909 |
|
Average
equity
|
|
|
1,345,585 |
|
|
|
1,434,298 |
|
|
|
1,377,107 |
|
Net income as a percentage
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total
assets
|
|
|
2.1 |
% |
|
|
1.9 |
% |
|
|
1.8 |
% |
Average
equity
|
|
|
24.8 |
% |
|
|
23.6 |
% |
|
|
24.0 |
% |
Average equity as a percentage
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total
assets
|
|
|
8.3 |
% |
|
|
8.2 |
% |
|
|
7.4 |
% |
The
following table presents dividends declared and paid by us in nominal terms in
the following years:
|
|
|
|
|
|
|
|
|
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
|
2009
|
|
213,295
|
|
1.13
|
|
1,176.02
|
|
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.
|
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, 2008)
|
|
Commercial
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
commercial loans
|
|
|
4,611,186 |
|
|
|
4,935,030 |
|
|
|
5,219,487 |
|
|
|
5,552,834 |
|
|
|
6,002,108 |
|
Foreign
trade loans
|
|
|
612,207 |
|
|
|
611,403 |
|
|
|
867,814 |
|
|
|
925,275 |
|
|
|
1,396,596 |
|
Leasing
contracts
|
|
|
622,183 |
|
|
|
793,411 |
|
|
|
894,443 |
|
|
|
952,827 |
|
|
|
967,632 |
|
Other
outstanding loans
|
|
|
- |
|
|
|
7,294 |
|
|
|
6,192 |
|
|
|
6,671 |
|
|
|
8,162 |
|
Subtotal
commercial loans
|
|
|
5,845,576 |
|
|
|
6,347,138 |
|
|
|
6,987,936 |
|
|
|
7,437,607 |
|
|
|
8,374,498 |
|
Residential
mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backed
by mortgage bonds
|
|
|
740,895 |
|
|
|
513,102 |
|
|
|
401,350 |
|
|
|
289,364 |
|
|
|
225,566 |
|
Others
|
|
|
1,494,697 |
|
|
|
2,237,752 |
|
|
|
2,900,792 |
|
|
|
3,353,544 |
|
|
|
3,755,780 |
|
Subtotal
mortgage loans
|
|
|
2,235,592 |
|
|
|
2,750,854 |
|
|
|
3,302,142 |
|
|
|
3,642,908 |
|
|
|
3,981,346 |
|
Consumer
loans
|
|
|
1,349,481 |
|
|
|
1,708,989 |
|
|
|
2,156,682 |
|
|
|
2,267,719 |
|
|
|
2,248,996 |
|
Interbank
loans
|
|
|
162,152 |
|
|
|
232,554 |
|
|
|
177,232 |
|
|
|
50,047 |
|
|
|
95,534 |
|
Total
loans (1)
|
|
|
9,592,801 |
|
|
|
11,039,535 |
|
|
|
12,623,992 |
|
|
|
13,398,281 |
|
|
|
14,700,374 |
|
(1)
|
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:
General Commercial loans are
long-term and short-term loans, including checking overdraft lines for companies
granted in Chilean pesos, inflation linked, US$ linked or denominated in US$.
The interest on these loans is fixed or variable and is used primarily to
finance working capital or investments. General commercial loans also includes
factoring operations.
Foreign trade loans are fixed
rate, short-term loans made in foreign currencies (principally US$) to finance
imports and exports.
Leasing contracts are
agreements for the financial leasing of capital equipment and other
property.
Other outstanding loans
include other loans and accounts payable.
Residential 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.
Other residential mortgage
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.
Consumer loans are loans to
individuals, granted in Chilean pesos, generally on a fixed rate nominal basis,
to finance the purchase of consumer goods or to pay for services. They also
include credit card balances subject to interest charges and checking overdraft
lines for individuals are classified as commercial loans.
Interbank loans are fixed
rate, short-term loans to financial institutions that operate in
Chile.
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, 2008.
|
|
|
|
|
Due
after 1 year through 5 years
|
|
|
|
|
|
Total
balance at December 31, 2008
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
General
commercial loans
|
|
|
2,993,512 |
|
|
|
1,838,244 |
|
|
|
1,170,352 |
|
|
|
6,002,108 |
|
Foreign
trade loans
|
|
|
1,225,782 |
|
|
|
130,100 |
|
|
|
40,714 |
|
|
|
1,396,596 |
|
Leasing
contracts
|
|
|
305,527 |
|
|
|
483,723 |
|
|
|
178,382 |
|
|
|
967,632 |
|
Other
outstanding loans
|
|
|
8,162 |
|
|
|
- |
|
|
|
- |
|
|
|
8,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
commercial loans
|
|
|
4,532,983 |
|
|
|
2,452,067 |
|
|
|
1,389,448 |
|
|
|
8,374,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
loans backed by mortgage bonds
|
|
|
26,534 |
|
|
|
92,562 |
|
|
|
106,471 |
|
|
|
225,567 |
|
Other
residential mortgage loans
|
|
|
187,746 |
|
|
|
692,731 |
|
|
|
2,875,302 |
|
|
|
3,755,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
residential mortgage loans
|
|
|
214,280 |
|
|
|
785,293 |
|
|
|
2,981,773 |
|
|
|
3,981,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
loans
|
|
|
1,321,123 |
|
|
|
889,038 |
|
|
|
38,835 |
|
|
|
2,248,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
6,068,386 |
|
|
|
4,126,398 |
|
|
|
4,410,056 |
|
|
|
14,604,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interbank
loans
|
|
|
95,534 |
|
|
|
- |
|
|
|
- |
|
|
|
95,534 |
|
Total
loans
|
|
|
6,163,920 |
|
|
|
4,126,398 |
|
|
|
4,410,056 |
|
|
|
14,700,374 |
|
The
following tables present the interest rate sensitivity of outstanding loans due
after one year at December 31, 2008. (See also Item 5: D. Operating
Results—Interest Rates.)
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Variable
Rate
|
|
|
|
Ch$
|
|
|
1,631 |
|
UF
|
|
|
1,074,287 |
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Foreign
currencies
|
|
|
970 |
|
Subtotal
|
|
|
1,076,888 |
|
Fixed
Rate
|
|
|
|
|
Ch$
|
|
|
2,254,306 |
|
UF
|
|
|
5,041,937 |
|
Foreign
currencies
|
|
|
163,323 |
|
Subtotal
|
|
|
7,459,566 |
|
Total
|
|
|
8,536,454 |
|
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, 2008, except for
percentages)
|
|
Agriculture,
Livestock, Agribusiness, Fishing
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
and livestock
|
|
|
403,863 |
|
|
|
3.0 |
% |
|
|
470,552 |
|
|
|
3.0 |
% |
Fruit
|
|
|
122,604 |
|
|
|
0.9 |
% |
|
|
133,681 |
|
|
|
0.9 |
% |
Forestry
and wood extraction
|
|
|
72,771 |
|
|
|
0.5 |
% |
|
|
82,332 |
|
|
|
0.6 |
% |
Fishing
|
|
|
119,488 |
|
|
|
0.9 |
% |
|
|
168,176 |
|
|
|
1.1 |
% |
Subtotal
|
|
|
718,726 |
|
|
|
5.3 |
% |
|
|
854,741 |
|
|
|
5.6 |
% |
Mining
and Petroleum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining
and quarries
|
|
|
56,065 |
|
|
|
0.4 |
% |
|
|
319,063 |
|
|
|
2.2 |
% |
Natural
gas and crude oil extraction
|
|
|
116,544 |
|
|
|
0.9 |
% |
|
|
94,953 |
|
|
|
0.6 |
% |
Subtotal
|
|
|
172,609 |
|
|
|
1.3 |
% |
|
|
414,016 |
|
|
|
2.8 |
% |
Manufacturing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tobacco,
food and beverages
|
|
|
185,260 |
|
|
|
1.4 |
% |
|
|
295,196 |
|
|
|
2.0 |
% |
Textiles,
clothing and leather goods
|
|
|
57,370 |
|
|
|
0.4 |
% |
|
|
60,443 |
|
|
|
0.5 |
% |
Wood
and wood products
|
|
|
77,812 |
|
|
|
0.6 |
% |
|
|
72,536 |
|
|
|
0.5 |
% |
Paper,
printing and publishing
|
|
|
131,455 |
|
|
|
1.0 |
% |
|
|
66,602 |
|
|
|
0.5 |
% |
Oil
refining, carbon and rubber
|
|
|
113,446 |
|
|
|
0.8 |
% |
|
|
148,846 |
|
|
|
1.0 |
% |
Production
of basic metal, non minerals, machine and equipment
|
|
|
168,614 |
|
|
|
1.3 |
% |
|
|
200,414 |
|
|
|
1.4 |
% |
Other
manufacturing industries
|
|
|
47,613 |
|
|
|
0.4 |
% |
|
|
62,401 |
|
|
|
0.4 |
% |
Subtotal
|
|
|
781,570 |
|
|
|
5.9 |
% |
|
|
906,438 |
|
|
|
6.3 |
% |
Electricity,
Gas and Water
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity,
gas and water
|
|
|
96,895 |
|
|
|
0.7 |
% |
|
|
109,279 |
|
|
|
0.7 |
% |
Subtotal
|
|
|
96,895 |
|
|
|
0.7 |
% |
|
|
109,279 |
|
|
|
0.7 |
% |
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
buildings
|
|
|
433,620 |
|
|
|
3.2 |
% |
|
|
393,613 |
|
|
|
2.7 |
% |
Other
constructions
|
|
|
414,259 |
|
|
|
3.1 |
% |
|
|
457,529 |
|
|
|
3.1 |
% |
Subtotal
|
|
|
847,879 |
|
|
|
6.3 |
% |
|
|
851,142 |
|
|
|
5.8 |
% |
Commerce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
464,596 |
|
|
|
3.5 |
% |
|
|
614,008 |
|
|
|
4.2 |
% |
Retail,
restaurants and hotels
|
|
|
717,851 |
|
|
|
5.4 |
% |
|
|
913,838 |
|
|
|
6.2 |
% |
Subtotal
|
|
|
1,182,447 |
|
|
|
8.9 |
% |
|
|
1,527,846 |
|
|
|
10.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transport,
Storage and Communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transport
and storage
|
|
|
330,741 |
|
|
|
2.5 |
% |
|
|
360,169 |
|
|
|
2.5 |
% |
Communications
|
|
|
192,007 |
|
|
|
1.4 |
% |
|
|
187,613 |
|
|
|
1.3 |
% |
Subtotal
|
|
|
522,748 |
|
|
|
3.9 |
% |
|
|
547,782 |
|
|
|
3.8 |
% |
Financial
Services, Insurance and Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
insurance and companies
|
|
|
617,256 |
|
|
|
4.6 |
% |
|
|
573,060 |
|
|
|
3.9 |
% |
Real
estate and other services provided to companies
|
|
|
379,074 |
|
|
|
2.8 |
% |
|
|
393,720 |
|
|
|
2.7 |
% |
Subtotal
|
|
|
996,330 |
|
|
|
7.4 |
% |
|
|
966,780 |
|
|
|
6.6 |
% |
Community,
Social and Personal Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community,
social and personal services
|
|
|
2,185,631 |
|
|
|
16.4 |
% |
|
|
2,287,747 |
|
|
|
15.6 |
% |
Subtotal
|
|
|
2,185,631 |
|
|
|
16.4 |
% |
|
|
2,287,747 |
|
|
|
15.6 |
% |
Consumer
Credit
|
|
|
2,268,731 |
|
|
|
16.9 |
% |
|
|
2,270,232 |
|
|
|
15.4 |
% |
Residential
Mortgage Loans
|
|
|
3,624,715 |
|
|
|
27.1 |
% |
|
|
3,964,371 |
|
|
|
27.0 |
% |
Total
|
|
|
13,398,281 |
|
|
|
100 |
% |
|
|
14,700,374 |
|
|
|
100 |
% |
At
December 31, 2008, foreign country loans, including foreign interbank deposits
totaled Ch$783,193 million, representing 3.7% of our total assets. The United
States represented our largest exposure representing 2.2% of our assets and this
mainly corresponded to overnight dollar denominated deposits held in U.S.
banks.
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. In 2008, we further enhanced and fully implemented the automated credit
scoring models for al consumer loans, mortgage and small sized companies. A
total of 17 automated credit scoring models were improved and 6 news were
introduced for the different credit risk profiles in consumer, mortgage and
small and sized companies.
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 |
= |
PD
x EXP x LGD
|
|
|
|
EL |
= |
Expected
Loss
|
PD |
= |
Probability
of Default
|
EXP |
= |
Exposure
|
LGD |
= |
Loss
Given Default
|
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.
PD =
Probability of Default. 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.
LGD =
Loss Given Default. 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 = PD * EXP *
LGD).
|
|
·
|
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
|
PD
≤ 1%
|
|
A2
|
|
0%
|
|
on
an
|
1%
< PD ≤ 4%
|
|
A3
|
|
0.5%
|
|
individual
basis
|
PD
> 4%
|
|
B
|
|
1.0%
|
|
|
Note:
The classification of non-deteriorated debtors 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 PD
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
|
From
|
|
To
|
|
|
(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 has been gradually introducing improvements to the methodology
for analyzing consumer loans.
All consumers are now assigned an allowance level on an individual
borrower basis utilizing a more automated and sophisticated statistical model
and considering such 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$15,728 million in 2007. In 2008, the credit scoring models were improved.
Going forward, the Bank will continue to up date and re-calibrate its credit
scoring and provisioning models and this may change the minimum provisions
standards for the various client profiles as depicted in this
document. 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
|
From
|
|
To
|
|
|
(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, 2004
(in
millions of constant Ch$ as of December 31, 2008, except
percentages)
|
|
Category
|
|
|
|
|
|
|
|
|
Residential
Mortgage Loans
|
|
|
|
|
|
Percentage
of Evaluated Loans
|
|
A
|
|
|
|
- |
|
|
|
1,129,928 |
|
|
|
2,079,836 |
|
|
|
3,209,764 |
|
|
|
33.5 |
% |
A1
|
|
|
|
420,744 |
|
|
|
- |
|
|
|
- |
|
|
|
420,744 |
|
|
|
4.4 |
% |
A2
|
|
|
|
3,606,717 |
|
|
|
- |
|
|
|
- |
|
|
|
3,606,717 |
|
|
|
37.6 |
% |
A3
|
|
|
|
643,536 |
|
|
|
- |
|
|
|
- |
|
|
|
643,536 |
|
|
|
6.7 |
% |
B
|
|
|
|
778,006 |
|
|
|
116,097 |
|
|
|
107,182 |
|
|
|
1,001,285 |
|
|
|
10.4 |
% |
B-
|
|
|
|
- |
|
|
|
40,973 |
|
|
|
45,999 |
|
|
|
86,972 |
|
|
|
0.9 |
% |
C
|
|
|
|
- |
|
|
|
38,091 |
|
|
|
2,574 |
|
|
|
40,665 |
|
|
|
0.4 |
% |
C1
|
|
|
|
314,683 |
|
|
|
- |
|
|
|
- |
|
|
|
314,683 |
|
|
|
3.3 |
% |
C2
|
|
|
|
68,539 |
|
|
|
- |
|
|
|
- |
|
|
|
68,539 |
|
|
|
0.7 |
% |
C3
|
|
|
|
38,888 |
|
|
|
- |
|
|
|
- |
|
|
|
38,888 |
|
|
|
0.4 |
% |
C4
|
|
|
|
29,479 |
|
|
|
- |
|
|
|
- |
|
|
|
29,479 |
|
|
|
0.3 |
% |
D
|
|
|
|
- |
|
|
|
24,392 |
|
|
|
1 |
|
|
|
24,393 |
|
|
|
0.3 |
% |
D1
|
|
|
|
31,264 |
|
|
|
- |
|
|
|
- |
|
|
|
31,264 |
|
|
|
0.3 |
% |
D2
|
|
|
|
75,872 |
|
|
|
- |
|
|
|
- |
|
|
|
75,872 |
|
|
|
0.8 |
% |
Total
of evaluated loans
|
|
|
|
6,007,728 |
|
|
|
1,349,481 |
|
|
|
2,235,592 |
|
|
|
9,592,801 |
|
|
|
100.0 |
% |
Total
loans
|
|
|
|
6,007,728 |
|
|
|
1,349,481 |
|
|
|
2,235,592 |
|
|
|
9,592,801 |
|
|
|
|
|
Percentage
evaluated
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
At
December 31, 2005
(in
millions of constant Ch$ as of December 31, 2008, except
percentages)
|
|
Category
|
|
|
|
|
|
|
|
|
Residential
Mortgage Loans
|
|
|
|
|
|
Percentage
of Evaluated Loans
|
|
A |
|
|
|
- |
|
|
|
1,406,919 |
|
|
|
2,571,998 |
|
|
|
3,978,917 |
|
|
|
36.0 |
% |
A1
|
|
|
|
425,048 |
|
|
|
- |
|
|
|
- |
|
|
|
425,048 |
|
|
|
4.0 |
% |
A2
|
|
|
|
4,080,434 |
|
|
|
- |
|
|
|
- |
|
|
|
4,080,434 |
|
|
|
37.0 |
% |
A3
|
|
|
|
918,863 |
|
|
|
- |
|
|
|
- |
|
|
|
918,863 |
|
|
|
8.3 |
% |
B
|
|
|
|
777,301 |
|
|
|
174,995 |
|
|
|
144,587 |
|
|
|
1,096,883 |
|
|
|
9.9 |
% |
B-
|
|
|
|
- |
|
|
|
54,553 |
|
|
|
32,062 |
|
|
|
86,615 |
|
|
|
0.8 |
% |
C
|
|
|
|
- |
|
|
|
42,788 |
|
|
|
2,207 |
|
|
|
44,995 |
|
|
|
0.4 |
% |
C1
|
|
|
|
221,709 |
|
|
|
- |
|
|
|
- |
|
|
|
221,709 |
|
|
|
2.0 |
% |
C2
|
|
|
|
47,597 |
|
|
|
- |
|
|
|
- |
|
|
|
47,597 |
|
|
|
0.4 |
% |
C3
|
|
|
|
24,164 |
|
|
|
- |
|
|
|
- |
|
|
|
24,164 |
|
|
|
0.2 |
% |
C4
|
|
|
|
16,396 |
|
|
|
- |
|
|
|
- |
|
|
|
16,396 |
|
|
|
0.1 |
% |
D
|
|
|
|
- |
|
|
|
29,734 |
|
|
|
- |
|
|
|
29,734 |
|
|
|
0.3 |
% |
D1
|
|
|
|
28,311 |
|
|
|
- |
|
|
|
- |
|
|
|
28,311 |
|
|
|
0.3 |
% |
D2
|
|
|
|
39,869 |
|
|
|
- |
|
|
|
- |
|
|
|
39,869 |
|
|
|
0.3 |
% |
Total
of evaluated loans
|
|
|
|
6,579,692 |
|
|
|
1,708,989 |
|
|
|
2,750,854 |
|
|
|
11,039,535 |
|
|
|
100.0 |
% |
Total
loans
|
|
|
|
6,579,692 |
|
|
|
1,708,989 |
|
|
|
2,750,854 |
|
|
|
11,039,535 |
|
|
|
|
|
Percentage
evaluated
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
At
December 31, 2006
(in
millions of constant Ch$ as of December 31, 2008, except
percentages)
|
|
Category
|
|
|
|
|
|
|
|
|
Residential
Mortgage Loans
|
|
|
|
|
|
Percentage
of Evaluated Loans
|
|
A |
|
|
|
- |
|
|
|
1,768,586 |
|
|
|
3,081,946 |
|
|
|
4,850,532 |
|
|
|
38.4 |
% |
A1
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
% |
A2
|
|
|
|
5,082,955 |
|
|
|
- |
|
|
|
- |
|
|
|
5,082,955 |
|
|
|
40.4 |
% |
A3
|
|
|
|
1,617,850 |
|
|
|
- |
|
|
|
- |
|
|
|
1,617,850 |
|
|
|
12.8 |
% |
B
|
|
|
|
178,127 |
|
|
|
198,196 |
|
|
|
142,956 |
|
|
|
519,279 |
|
|
|
4.1 |
% |
B-
|
|
|
|
- |
|
|
|
73,126 |
|
|
|
23,138 |
|
|
|
96,264 |
|
|
|
0.8 |
% |
C
|
|
|
|
- |
|
|
|
74,255 |
|
|
|
37,259 |
|
|
|
111,514 |
|
|
|
0.9 |
% |
C1
|
|
|
|
149,195 |
|
|
|
- |
|
|
|
- |
|
|
|
149,195 |
|
|
|
1.2 |
% |
C2
|
|
|
|
25,848 |
|
|
|
- |
|
|
|
- |
|
|
|
25,848 |
|
|
|
0.2 |
% |
C3
|
|
|
|
22,345 |
|
|
|
- |
|
|
|
- |
|
|
|
22,345 |
|
|
|
0.2 |
% |
C4
|
|
|
|
26,442 |
|
|
|
- |
|
|
|
- |
|
|
|
26,442 |
|
|
|
0.2 |
% |
D
|
|
|
|
- |
|
|
|
42,519 |
|
|
|
16,843 |
|
|
|
59,362 |
|
|
|
0.5 |
% |
D1
|
|
|
|
30,920 |
|
|
|
- |
|
|
|
- |
|
|
|
30,920 |
|
|
|
0.2 |
%
|
D2
|
|
|
|
31,486 |
|
|
|
- |
|
|
|
- |
|
|
|
31,486 |
|
|
|
0.2 |
% |
Total
of evaluated loans
|
|
|
|
7,165,168 |
|
|
|
2,156,682 |
|
|
|
3,302,142 |
|
|
|
12,623,992 |
|
|
|
100.0 |
% |
Total
loans
|
|
|
|
7,165,168 |
|
|
|
2,156,682 |
|
|
|
3,302,142 |
|
|
|
12,623,992 |
|
|
|
|
|
Percentage
evaluated
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
As
of December 31, 2007
(in
millions of constant Ch$ as of December 31, 2008, except for
percentages)
|
|
Category
|
|
|
|
|
|
|
|
|
Residential
Mortgage Loans
|
|
|
|
|
|
Percentage
of Evaluated Loans
|
|
A |
|
|
|
- |
|
|
|
1,869,120 |
|
|
|
3,327,643 |
|
|
|
5,196,763 |
|
|
|
38.8 |
% |
A1
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
% |
A2
|
|
|
|
5,669,622 |
|
|
|
- |
|
|
|
- |
|
|
|
5,669,622 |
|
|
|
42.4 |
% |
A3
|
|
|
|
1,364,494 |
|
|
|
- |
|
|
|
- |
|
|
|
1,364,494 |
|
|
|
10.2 |
% |
B
|
|
|
|
146,030 |
|
|
|
201,043 |
|
|
|
197,413 |
|
|
|
544,486 |
|
|
|
4.1 |
% |
B-
|
|
|
|
- |
|
|
|
72,781 |
|
|
|
33,986 |
|
|
|
106,767 |
|
|
|
0.8 |
% |
C
|
|
|
|
- |
|
|
|
77,765 |
|
|
|
60,877 |
|
|
|
138,642 |
|
|
|
1.0 |
% |
C1
|
|
|
|
148,382 |
|
|
|
- |
|
|
|
- |
|
|
|
148,382 |
|
|
|
1.1 |
% |
C2
|
|
|
|
25,087 |
|
|
|
- |
|
|
|
- |
|
|
|
25,087 |
|
|
|
0.2 |
% |
C3
|
|
|
|
19,865 |
|
|
|
- |
|
|
|
- |
|
|
|
19,865 |
|
|
|
0.1 |
% |
C4
|
|
|
|
32,647 |
|
|
|
- |
|
|
|
- |
|
|
|
32,647 |
|
|
|
0.2 |
% |
D
|
|
|
|
- |
|
|
|
47,010 |
|
|
|
22,989 |
|
|
|
69,999 |
|
|
|
0.5 |
% |
D1
|
|
|
|
43,657 |
|
|
|
- |
|
|
|
- |
|
|
|
43,657 |
|
|
|
0.3 |
% |
D2
|
|
|
|
37,870 |
|
|
|
- |
|
|
|
- |
|
|
|
37,870 |
|
|
|
0.3 |
% |
Total
of evaluated loans
|
|
|
|
7,487,654 |
|
|
|
2,267,719 |
|
|
|
3,642,908 |
|
|
|
13,398,281 |
|
|
|
100.0 |
% |
Total
loans
|
|
|
|
7,487,654 |
|
|
|
2,267,719 |
|
|
|
3,642,908 |
|
|
|
13,398,281 |
|
|
|
|
|
Percentage
evaluated
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
As
of December 31, 2008
(in
millions of constant Ch$ as of December 31, 2008, except for
percentages)
|
|
Category
|
|
|
|
|
|
|
|
|
Residential
Mortgage Loans
|
|
|
|
|
|
Percentage
of Evaluated Loans
|
|
A |
|
|
|
- |
|
|
|
1,810,917 |
|
|
|
3,562,586 |
|
|
|
5,373,503 |
|
|
|
36.5 |
% |
A1
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
% |
A2
|
|
|
|
6,463,619 |
|
|
|
- |
|
|
|
- |
|
|
|
6,463,619 |
|
|
|
44.0 |
% |
A3
|
|
|
|
1,351,054 |
|
|
|
- |
|
|
|
- |
|
|
|
1,351,054 |
|
|
|
9.2 |
% |
B
|
|
|
|
208,954 |
|
|
|
203,375 |
|
|
|
199,087 |
|
|
|
611,416 |
|
|
|
4.2 |
% |
B-
|
|
|
|
- |
|
|
|
75,281 |
|
|
|
79,930 |
|
|
|
155,211 |
|
|
|
1.1 |
% |
C
|
|
|
|
- |
|
|
|
94,507 |
|
|
|
64,972 |
|
|
|
159,479 |
|
|
|
1.1 |
% |
C1
|
|
|
|
220,434 |
|
|
|
- |
|
|
|
- |
|
|
|
220,434 |
|
|
|
1.5 |
% |
C2
|
|
|
|
45,202 |
|
|
|
- |
|
|
|
- |
|
|
|
45,202 |
|
|
|
0.3 |
% |
C3
|
|
|
|
34,296 |
|
|
|
- |
|
|
|
- |
|
|
|
34,296 |
|
|
|
0.2 |
% |
C4
|
|
|
|
36,100 |
|
|
|
- |
|
|
|
- |
|
|
|
36,100 |
|
|
|
0.2 |
% |
D
|
|
|
|
- |
|
|
|
64,916 |
|
|
|
74,771 |
|
|
|
139,687 |
|
|
|
1.0 |
% |
D1
|
|
|
|
48,712 |
|
|
|
- |
|
|
|
- |
|
|
|
48,712 |
|
|
|
0.3 |
% |
D2
|
|
|
|
61,661 |
|
|
|
- |
|
|
|
- |
|
|
|
61,661 |
|
|
|
0.4 |
% |
Total
of evaluated loans
|
|
|
|
8,470,032 |
|
|
|
2,248,996 |
|
|
|
3,981,346 |
|
|
|
14,700,374 |
|
|
|
100.0 |
% |
Total
loans
|
|
|
|
8,470,032 |
|
|
|
2,248,996 |
|
|
|
3,981,346 |
|
|
|
14,700,374 |
|
|
|
|
|
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. Beginning in 2009 and in accordance with new accounting
standards being adopted, banks in Chile must publish, in addition to this
definition of past due loans, a new indicator which includes not only the
installments more than 90 days overdue, but also 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, 2008)
|
|
Current
|
|
|
9,376,158 |
|
|
|
10,843,449 |
|
|
|
12,446,319 |
|
|
|
13,182,223 |
|
|
|
14,457,785 |
|
Overdue
for 1-29 days
|
|
|
36,358 |
|
|
|
44,870 |
|
|
|
45,802 |
|
|
|
57,506 |
|
|
|
52,811 |
|
Overdue
for 30-89 days
|
|
|
18,026 |
|
|
|
23,930 |
|
|
|
23,585 |
|
|
|
31,527 |
|
|
|
28,954 |
|
Overdue
for 90 days or more (“past due”)
|
|
|
162,259 |
|
|
|
127,286 |
|
|
|
108,286 |
|
|
|
127,025 |
|
|
|
160,824 |
|
Total
loans
|
|
|
9,592,801 |
|
|
|
11,039,535 |
|
|
|
12,623,992 |
|
|
|
13,398,281 |
|
|
|
14,700,374 |
|
Overdue
loans expressed as a percentage of total loans
|
|
|
2.3 |
% |
|
|
1.8 |
% |
|
|
1.4 |
% |
|
|
1.6 |
% |
|
|
1.7 |
% |
Past
due loans as a percentage of total loans
|
|
|
1.7 |
% |
|
|
1.2 |
% |
|
|
0.9 |
% |
|
|
0.9 |
% |
|
|
1.1 |
% |
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$5,951 million, Ch$3,342 million and Ch$2,209
million for the years ended December 31, 2006, 2007 and 2008, respectively.
Accrued interest and UF indexation adjustments from overdue loans are recognized
only when, and to the extent, received.
Loans
included in the previous table which have been restructured and that bear no
interest are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Ch$
|
|
|
22,706 |
|
|
|
1,820 |
|
|
|
1,860 |
|
|
|
1,269 |
|
|
|
7,066 |
|
Foreign
currency
|
|
|
11,687 |
|
|
|
1,900 |
|
|
|
32,139 |
|
|
|
82,214 |
|
|
|
19,068 |
|
UF
|
|
|
5,343 |
|
|
|
8,911 |
|
|
|
3,008 |
|
|
|
17,810 |
|
|
|
1,805 |
|
Total
|
|
|
39,736 |
|
|
|
12,631 |
|
|
|
37,007 |
|
|
|
101,293 |
|
|
|
27,939 |
|
The
amount of interest that would have been recorded on these loans for the years
ended December 31, 2006, 2007 and 2008, if these loans had been earning a market
interest rate was Ch$2,428 million, Ch$7,179 million and Ch$2,303 million,
respectively.
Loan
Loss Allowances
The
following table sets forth our balance of loan loss allowances, the minimum
allowances to be established by us in accordance with the regulations of the
Superintendency of Banks and our total loan loss allowances expressed as a
percentage of total loans as of December 31, 2004, 2005, 2006, 2007 and
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008, except
percentages)
|
|
Individual,
global and additional loan loss allowances
|
|
|
214,522 |
|
|
|
176,657 |
|
|
|
203,640 |
|
|
|
250,887 |
|
|
|
285,505 |
|
Minimum
reserves required
|
|
|
214,522 |
|
|
|
176,657 |
|
|
|
203,640 |
|
|
|
250,887 |
|
|
|
285,505 |
|
Voluntary
reserves
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
loan loss allowances
|
|
|
214,522 |
|
|
|
176,657 |
|
|
|
203,640 |
|
|
|
250,887 |
|
|
|
285,505 |
|
Total
loan allowances as a percentage of total loans (expected loss
ratio)
|
|
|
2.2 |
% |
|
|
1.6 |
% |
|
|
1.6 |
% |
|
|
1.9 |
% |
|
|
1.9 |
% |
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008, except
percentages)
|
|
Total
loans
|
|
|
9,592,801 |
|
|
|
11,039,535 |
|
|
|
12,623,992 |
|
|
|
13,398,281 |
|
|
|
14,700,374 |
|
Substandard
loans (1)
|
|
|
396,072 |
|
|
|
317,681 |
|
|
|
404,181 |
|
|
|
474,534 |
|
|
|
680,348 |
|
Substandard
loans as a percentage of total loans
|
|
|
4.13 |
% |
|
|
2.88 |
% |
|
|
3.20 |
% |
|
|
3.54 |
% |
|
|
4.63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
past due (2)
|
|
|
162,259 |
|
|
|
127,286 |
|
|
|
108,286 |
|
|
|
127,025 |
|
|
|
160,824 |
|
To
the extent secured (3)
|
|
|
52,943 |
|
|
|
52,253 |
|
|
|
51,118 |
|
|
|
65,534 |
|
|
|
99,915 |
|
To
the extent unsecured
|
|
|
109,316 |
|
|
|
75,033 |
|
|
|
57,168 |
|
|
|
61,491 |
|
|
|
60,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
past due as a percentage of total loans
|
|
|
1.69 |
% |
|
|
1.15 |
% |
|
|
0.86 |
% |
|
|
0.95 |
% |
|
|
1.09 |
% |
To
the extent secured (3)
|
|
|
0.55 |
% |
|
|
0.47 |
% |
|
|
0.40 |
% |
|
|
0.49 |
% |
|
|
0.68 |
% |
To
the extent unsecured
|
|
|
1.14 |
% |
|
|
0.68 |
% |
|
|
0.45 |
% |
|
|
0.46 |
% |
|
|
0.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
loss allowances as a percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
|
2.24 |
% |
|
|
1.60 |
% |
|
|
1.61 |
% |
|
|
1.87 |
% |
|
|
1.94 |
% |
Total
amounts past due
|
|
|
132.21 |
% |
|
|
138.79 |
% |
|
|
188.06 |
% |
|
|
197.51 |
% |
|
|
177.53 |
% |
Total
amounts past due-unsecured
|
|
|
196.24 |
% |
|
|
235.44 |
% |
|
|
356.21 |
% |
|
|
408.01 |
% |
|
|
468.74 |
% |
(1)
|
Substandard
loans include all consumer and mortgage loans rated B- or worse and all
commercial loans rated C2 or worse.
|
(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, 2008, except
percentages)
|
|
Loan
loss allowances at beginning of the year
|
|
|
213,423 |
|
|
|
214,522 |
|
|
|
176,657 |
|
|
|
203,640 |
|
|
|
250,887 |
|
Release
of allowances upon charge-offs (1)
|
|
|
(147,870 |
) |
|
|
(163,358 |
) |
|
|
(167,854 |
) |
|
|
(219,004 |
) |
|
|
(268,129 |
) |
Allowances
established (2)
|
|
|
179,471 |
|
|
|
192,681 |
|
|
|
241,104 |
|
|
|
333,932 |
|
|
|
331,360 |
|
Allowances
released (3)
|
|
|
(24,896 |
) |
|
|
(59,693 |
) |
|
|
(42,601 |
) |
|
|
(53,579 |
) |
|
|
(7,920 |
) |
Price-level
restatement (4)
|
|
|
(5,606 |
) |
|
|
(7,495 |
) |
|
|
(3,666 |
) |
|
|
(14,102 |
) |
|
|
(20,693 |
) |
Loan
loss allowances at end of year
|
|
|
214,522 |
|
|
|
176,657 |
|
|
|
203,640 |
|
|
|
250,887 |
|
|
|
285,505 |
|
Ratio
of charge-offs to total loans
|
|
|
1.5 |
% |
|
|
1.5 |
% |
|
|
1.3 |
% |
|
|
1.6 |
% |
|
|
1.8 |
% |
Loan
loss allowances at end of period as a percentage of total
loans
|
|
|
2.2 |
% |
|
|
1.6 |
% |
|
|
1.6 |
% |
|
|
1.9 |
% |
|
|
1.9 |
% |
(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,
2008.
|
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, 2008)
|
|
Consumer
loans
|
|
|
101,435 |
|
|
|
79,722 |
|
|
|
119,619 |
|
|
|
179,700 |
|
|
|
236,274 |
|
Residential
Mortgage loans
|
|
|
4,854 |
|
|
|
8,557 |
|
|
|
6,773 |
|
|
|
5,780 |
|
|
|
3,423 |
|
Commercial
loans
|
|
|
41,581 |
|
|
|
75,079 |
|
|
|
41,462 |
|
|
|
33,524 |
|
|
|
28,432 |
|
Total
|
|
|
147,870 |
|
|
|
163,358 |
|
|
|
167,854 |
|
|
|
219,004 |
|
|
|
268,129 |
|
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, 2008)
|
|
Commercial
loans
|
|
|
25,922 |
|
|
|
18,527 |
|
|
|
17,935 |
|
|
|
31,600 |
|
|
|
9,244 |
|
Consumer
loans
|
|
|
30,793 |
|
|
|
33,770 |
|
|
|
33,928 |
|
|
|
20,296 |
|
|
|
26,718 |
|
Residential
mortgage loans
|
|
|
2,685 |
|
|
|
2,782 |
|
|
|
3,202 |
|
|
|
4,691 |
|
|
|
1,932 |
|
Total
|
|
|
59,400 |
|
|
|
55,079 |
|
|
|
55,065 |
|
|
|
56,587 |
|
|
|
37,894 |
|
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
|
|
|
127,715 |
|
|
|
2.13 |
% |
|
|
1.33 |
% |
|
|
62.73 |
% |
|
|
83,220 |
|
|
|
1.26 |
% |
|
|
0.75 |
% |
|
|
49.73 |
% |
Consumer
loans
|
|
|
64,065 |
|
|
|
4.75 |
% |
|
|
0.67 |
% |
|
|
31.47 |
% |
|
|
74,945 |
|
|
|
4.39 |
% |
|
|
0.68 |
% |
|
|
44.78 |
% |
Residential
mortgage loans
|
|
|
11,818 |
|
|
|
0.53 |
% |
|
|
0.12 |
% |
|
|
5.80 |
% |
|
|
9,181 |
|
|
|
0.33 |
% |
|
|
0.08 |
% |
|
|
5.49 |
% |
Total
allocated allowances
|
|
|
203,598 |
|
|
|
2.12 |
% |
|
|
2.12 |
% |
|
|
100.00 |
% |
|
|
167,346 |
|
|
|
1.52 |
% |
|
|
1.52 |
% |
|
|
100.00 |
% |
Leasing
|
|
|
10,924 |
|
|
|
0.10 |
% |
|
|
0.10 |
% |
|
|
|
|
|
|
9,311 |
|
|
|
0.08 |
% |
|
|
0.08 |
% |
|
|
|
|
Voluntary
allowances
|
|
|
- |
|
|
|
- |
% |
|
|
- |
% |
|
|
|
|
|
|
- |
|
|
|
- |
% |
|
|
- |
% |
|
|
|
|
Total
allowances
|
|
|
214,522 |
|
|
|
2.01 |
% |
|
|
2.24 |
% |
|
|
|
|
|
|
176,657 |
|
|
|
1.60 |
% |
|
|
1.60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
73,168 |
|
|
|
1.02 |
% |
|
|
0.58 |
% |
|
|
37.32 |
% |
|
|
84,303 |
|
|
|
1.13 |
% |
|
|
0.63 |
% |
|
|
34.82 |
% |
Consumer
loans
|
|
|
114,948 |
|
|
|
5.33 |
% |
|
|
0.91 |
% |
|
|
58.63 |
% |
|
|
147,657 |
|
|
|
6.51 |
% |
|
|
1.10 |
% |
|
|
60.98 |
% |
Residential
mortgage loans
|
|
|
7,942 |
|
|
|
0.24 |
% |
|
|
0.06 |
% |
|
|
4.05 |
% |
|
|
10,180 |
|
|
|
0.28 |
% |
|
|
0.08 |
% |
|
|
4.20
100.00
|
% % |
Total
allocated allowances
|
|
|
196,058 |
|
|
|
1.55 |
% |
|
|
1.55 |
% |
|
|
100.00 |
% |
|
|
242,140 |
|
|
|
1.81 |
% |
|
|
1.81 |
% |
|
|
|
|
Leasing
|
|
|
7,582 |
|
|
|
0.06 |
% |
|
|
0.06 |
% |
|
|
|
|
|
|
8,747 |
|
|
|
0.07 |
% |
|
|
0.07 |
% |
|
|
|
|
Voluntary
allowances
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Total
allowances
|
|
|
203,640 |
|
|
|
1.61 |
% |
|
|
1.61 |
% |
|
|
|
|
|
|
250,887 |
|
|
|
1.87 |
% |
|
|
1.87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
118,638 |
|
|
|
1.40 |
% |
|
|
0.81 |
% |
|
|
42.52 |
% |
Consumer
loans
|
|
|
147,484 |
|
|
|
6.56 |
% |
|
|
1.00 |
% |
|
|
52.86 |
% |
Residential
mortgage loans
|
|
|
12,871 |
|
|
|
0.32 |
% |
|
|
0.09 |
% |
|
|
4.61 |
% |
Total
allocated allowances
|
|
|
278,993 |
|
|
|
1.90 |
% |
|
|
1.90 |
% |
|
|
100.00 |
% |
Leasing
|
|
|
6,512 |
|
|
|
0.04 |
% |
|
|
0.04 |
% |
|
|
|
|
Voluntary
allowances
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Total
allowances
|
|
|
285,505 |
|
|
|
1.94 |
% |
|
|
1.94 |
% |
|
|
|
|
(1)
|
In
millions of constant Chilean pesos as of December 31,
2008.
|
(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 eleven 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 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
Market
Committee
Marketing
and Communications Committee
|
April
2011
|
Jesús
Zabalza Lotina
|
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
Market
Committee
|
April
2011
|
Lucía
Santa Cruz Sutil
|
Director
|
Audit
Committee
University
Committee
|
April
2011
|
Juan
Manuel Hoyos Martínez de Irujo
|
Director
|
—
|
April
2011
|
Roberto
Méndez Torres
|
Director
|
Executive
Credit Committee
Marketing
and Communications Committee
|
April
2011
|
Vittorio
Corbo Lioi
|
Director
|
Asset
and Liability Committee
Market
Committee
|
April
2011
|
Roberto
Zahler Mayanz
|
Director
|
Asset
and Liability Committee
Market
Committee
|
April
2011
|
Claudia
Bobadilla Ferrer
|
Director
|
Technology
Committee
|
April
2011
|
Raimundo
Monge Zegers
|
Alternate
Director
|
Asset
and Liability Committee
|
April
2011
|
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. Previously, 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.
Jesús María Zabalza Lotina
became a Director and Vice-Chairman of the Board on October 28, 2008. He
currently is a Director of Grupo Santander’s Latin America Division and a Board
member of Banco Santander Puerto Rico and President of the Board of Banco
Santander Colombia. Mr. Jesús Zabalza is Vice-President of the Asociación
Española de Ejecutivos de Finanzas and a patron of the Fundación Padre Garralda.
Previously, Mr. Zabalza was Director of Retail Banking in Madrid of Banco BBVA.
He was also on the Board of e-La Caixa, Telefónica Factoring S.A, Adeslas y
Terra. Mr. Zabalza holds a degree in Industrial Engineering from the University
of Bilbao.
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 Chairman of that
board between May 1999 until the merger. 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.
Vittorio Corbo Lioi is one of
Chile’s leading economists. In 2003, Mr. Corbo was named President of Chile’s
Central Bank. Following the end of his tenure there, 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. Previously, Mr. Corbo between 1991 and 1995
was an economic advisor to the Bank and a member of the Board of Santander Chile
between 1995-2003. Mr. Corbo has a Business Administration Degree form
Universidad de Chile and Ph.D. in Economics from MIT.
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 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. He is also Director
of Aurum S.A. 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 is a member of the Bank’s Audit
Committee. 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 2003. 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
a
professor of Economics at Universidad Católica de Chile. He has been Advisor to
Grupo Santander-Chile since 1989. Mr. Méndez is President and Director of
Adimark Chile Gfk and on the Board of the Chilean and German Chamber of
Commerce. He is also vice-Chairman of Universia S.A. 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 a member of the council of Fundación Chilena del Pacífico, Proyecto
Astronómico ALMA and Movimiento Educación 2020. 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 Asset Management Chile S.A. and Bansa Santander 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.
Senior
Management
Our
senior managers are as follows:
|
|
|
Oscar
von Chrismar
|
Chief
Executive Officer
|
August
1, 2003
|
Gabriel
Montoya
|
Corporate
Financial Controller
|
April
1, 2009
|
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
|
Felipe
Contreras
|
Chief
Accounting Officer
|
October
1, 2008
|
Juan
Fernández
|
Administration
and Operations
|
July
18, 2002
|
Emiliano
Muratore
|
Manager
Financial Management
|
April
8, 2008
|
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 Alternate Director of Universia Chile
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.
Gabriel Montoya B. was
appointed Financial Controller of Santander Chile in April 2009 and has been
working for Santander Spain and its affiliates since 1997. Between 2005-2009,
Mr. Montoya was Director of the MIS America Project and was responsible for
implementing management information systems in Chile, Mexico, Puerto Rico,
Argentina and Brazil. Previous to that Mr. Montoya was Financial Controller of
Santander Puerto Rico, Head of Financial Control for the Americas Division of
Santander and various other management positions in Santander Colombia. He is a
Director of Santander Consumer Chile S.A. Mr. Montoya has a Business
Administration Degree from Universidad del Rosario and an Executive
Administration Diploma from the Universidad de los Andes, both in
Colombia.
José Manuel Manzano 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., Director of Santander Consumer Chile S.A., Director of Santander
Factoring, 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., Santander Asset Management S.A. Administradora
General de Fondos and Santander Seguros Generales S.A. Mr. Melandrí has a
Business Degree from the Universidad Tecnológica 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 for 9 years at Bank of America
where he also led 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. He is on the Board of Santander S.A.
Corredores de Bolsa. 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., Santander Seguros Generales S.A.
and Multinegocios 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 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.
Felipe Contreras F. was named
Chief Accounting Officer of Santander Chile in October 2008. He has worked for
14 years in the Bank’s Accounting Department, most recently as Manager of the
Consolidation and Reporting
Departments,
overseeing the Bank’s Chilean, U.S. and Spanish GAAP reporting requirements. He
recently was in charge of the Bank’s recent transition to International
Financial Reporting Standards. Mr. Contreras is a Public Accountant from the
University of Santiago and is currently a candidate to a Masters in Advanced
Finance from the Universidad Adolfo Ibáñez.
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., Santander Consumer Chile S.A.,
Multinegocios S.A. and Santander 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.
Emiliano Muratore was
appointed Manager of Financial Management in April 2008. Mr. Muratore entered
Santander Group in 1999 in Santander Argentina. From 2002 to 2006 he worked
in Financial Management in Santander Spain. He is on the Board of
Santander S.A. Agente de Valores. Mr. Muratore has a Business Degree from the
Universidad Católica Argentina and a Masters in Finance from the Universidad de
San Andrés in Buenos Aires.
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, 2008, the aggregate amount of compensation paid by us to
all of our directors was Ch$628 million, including attendance fees and monthly
stipends. For the year ended December 31, 2008 the aggregate amount of
compensation paid by us to all of our executive officers and our management
members was Ch$35,274 million (US$55.0 million). At our annual shareholder
meeting held on April 28, 2009, shareholders approved a monthly stipend per
director of UF 209 (US$6,992). This amount will be increased by UF 25 per month
(US$836) 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, 2008, payments
to our directors for consulting fees totaled Ch$656 million (US$1.0
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.
In this
regard, certain high level executives of Santander Chile 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, 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 corresponds to the fair
value (Plan I06) 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. The Bank, in order to determine the value of the
incentive-retention plan, obtained two valuation reports performed by
two multinational investment banks. These investment banks 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 determined by the Bank based in part upon the
above-mentioned valuations.
|
Number of
Shares
|
Euros
|
Employee
Group
|
Number
of Persons
|
Date of
Commencement
of Exercise
Period
|
Date of
Expiry of
Exercise
Period
|
Exercise
Price
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Shares granted (Plan
I09)
|
281,187
|
-
|
Managers
|
181
|
23/06/2007
|
31/07/2009
|
Shares 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
|
-
|
|
|
|
|
Shares granted (Plan
I09)
|
137,709
|
|
Managers
|
(5)
|
23/06/2007
|
31/07/2009
|
Shares granted (Plan
I10)
|
136,320
|
|
Managers
|
(5)
|
23/06/2007
|
31/07/2010
|
Options cancelled, net (Plan
I06)
|
(149,300)
|
|
Managers
|
(3)
|
15/04/2008
|
15/01/2009
|
Options exercised, net (Plan
I06)
|
(3,010,300)
|
|
|
|
|
|
Plans
outstanding al December 31, 2008
|
1,472,929
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which:
|
|
|
|
|
|
|
Plan I06
|
500,300
|
9.09
|
|
|
|
|
Plan I09
|
418,896
|
-
|
|
|
|
|
Plan I10
|
553,733
|
-
|
|
|
|
|
(**)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 Santander Spain held on June 18, 2005.
Long-term
incentive policy
During
2007, Santander Spain’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 executives of Santander Chile do participate in this global
Performance Share Plan implemented by Santander Spain.
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 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). In June 2008, the third three-year
cycle was approved by Santander Spain (PI11). This new three-year cycle plan has
no effect on the income statement of 2008.
For each
cycle, a maximum number of shares of Santander Spain is 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 Santander Spain.
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, 2008, the maximum number of shares to be delivered was 274,029 to
176 executives of Santander Chile (for a total of 137,709 for the first cycle
(PI09) and 136,320 for the second cycle (PI10)). The fair value of the equity
instruments granted under these plans was Ch$1,312 million (US$ 2,046 million),
PI09 Ch$662 million and PI10 Ch$650 million and this amount is charged to
“Personnel expenses” in the specific period in which the beneficiaries provide
their services to the Bank.
At
December 31, 2007, the maximum number of shares to be delivered was 698,600 to
181 executive of Santander Chile (for a total of 281,187 for the cycle (PI09)
and 417,413 for the second cycle (PI10). The fair value of the equity
instruments granted under theses plans was Ch$674 million (US$1.3 million), and
this amount is charged to “Personnel expenses” in the specific period in which
the beneficiaries provide their services to the Bank.
At
December 31, 2008 the fair value of the Share Plans based on the achievement was
of the stated objectives 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 (Total
Shareholder Return) position was determined by an independent expert based
on the use of the Monte Carlo valuation model which carried out 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
descending order by calculating the weighted average and discounting this
amount at the risk-free interest
rate.
|
|
PI09
|
PI10
|
Expected
volatility(*)
|
16.25%
|
15.67%
|
Annual
dividend yield based on historical
|
3.23%
|
3.24%
|
Risk-free
interest rate (return on Treasury Bonds (zero coupon)) over the life of
the plan
|
4.473%
|
4.497%
|
(*)
Determined on the basic of historical volatility over the period (two or three
years)
The
application of the simulation model resulted 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 book value of the TSR-based
portion of the incentive. Since this valuation relates to a market condition, it
cannot be adjusted after the grant date.
In view
of the high correlation between TSR and EPS (Earning per Share), it was
considered reasonable to conclude 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.
C. Board
Practices
Our
directors are not contractually entitled to any benefits from the Bank upon
termination of employment.
Audit
Committee
|
|
Carlos
Olivos
|
Chairman
|
Víctor
Arbulú C.
|
Vice
Chairman and Financial Expert
|
Lucia
Santa Cruz
|
Member
|
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 are present 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 resolving 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
|
Marco
Colodro
|
Member
|
Vittorio
Corbo
|
Member
|
Roberto
Zahler
|
Member
|
Raimundo
Monge
|
Member
|
The Comité de Activos y Pasivos
or the Asset and Liability Committee (the “ALCO”), following guidelines set by
the Board of Directors, Santander Spains’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, four additional members of the Board, the Chief Executive
Officer, the Manager of the Financial Management Division, the Manager of Market
Risk, the Manager of the Treasury Division, 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.
Market
Committee
|
|
Mauricio
Larraín
|
Chairman
|
Roberto
Zahler
|
Member
|
Marco
Colodro
|
Member
|
Vittorio
Corbo
|
Member
|
The Comité de Mercados or the
Market Committee is responsible for establishing Santander-Chile’s policies,
procedures and limits with respect to its trading portfolio, 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 carry out the day-to-day risk management of
the trading and non-trading activities of Santander-Chile.
The
composition of the Market Committee includes the Chairman of the Board, three
additional members of the Board, the Chief Executive Officer, the Manager of
Global Banking and Markets, the Manager of the Treasury Division, the Manager of
Proprietary Trading, the Manager of the Financial Management
Division, the Manager of Market Risk, the Financial Controller and other senior
members of management.
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.
Technology
Committee
The
Technology Committee reviews all matters related to analyzing technological
developments that improve efficiency and client service. This committee oversees
the Annual Technology Plan, which includes the automation of
key processes, telecommunication innovations, information security, market
intelligence and new technological trends.
University
Committee
The
University Committee reviews the Bank’s support to higher education and
integrating this with the growth of the Institutional business segment and
retail banking for college graduates.
D. Employees
As of
December 31, 2008, on a consolidated basis we had 9,169 employees, 8,773 of whom
were bank employees and 396 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, 2007 and 2008, we had an average of 8,912 and 9,214
employees, respectively. We have traditionally enjoyed good relations with our
employees and their unions. Of the total headcount, 4,155 or 45.31% 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. 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
|
|
|
632 |
|
Professionals
|
|
|
4,359 |
|
Administrative
|
|
|
4,178 |
|
Total
|
|
|
9,169 |
|
E. Share
Ownership
No
director or executive officer owns more than 1% of the shares of
Santander-Chile. As of December 31, 2008, the following directors and executives
held shares in Santander-Chile:
|
Mauricio
Larraín Garcés
|
Carlos
Olivos Marchant
|
Senior
Manager
|
José
Manuel Manzano
|
Francisco
Murillo
|
Juan
Fernández
|
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. This program had
no costs for Santander-Chile.
A. Major
Shareholders
As of
December 31, 2008, 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, 2008, Banco Santander
Spain directly or indirectly owned or controlled 99.5% of Santander-Chile
Holding and 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
76.74% at December 31, 2008.
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, 2008, 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$3,861,261 million (US$6,353 million), representing 188,446,126,794 shares of
common stock. At December 31, 2008, Santander-Chile had 13,153 holders
registered in Chile, including JP Morgan as Depositary (the “Depositary”) of
Santander-Chile’s American Depositary Share Program. As of December 31, 2008,
there were a total of 32 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 20,000UF) 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, 2008
|
|
|
|
Loans
|
|
|
Collateral
Pledged
|
|
|
|
Ch$mn
|
|
|
Ch$mn
|
|
|
|
|
|
|
|
|
Operating
companies
|
|
|
123,822 |
|
|
|
3,193 |
|
Investment
companies (1)
|
|
|
297,735 |
|
|
|
66,106 |
|
Individuals
(2)
|
|
|
33,604 |
|
|
|
31,870 |
|
Total
|
|
|
455,161 |
|
|
|
101,169 |
|
(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$64 million (US$100,363) as of December 31, 2008. 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.
|
The
largest related party loan involved a guarantee by the Bank extended to
Santander Asset Management in an amount of Ch$25,892 million (US$40 million).
The guarantee was incurred in Chilean nominal pesos at an annual rate of 0.15%
and this guarantee expires in May 2011.
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, 2008, the Bank had the following significant income
(expenses) from services provided to (by) related parties:
|
|
Year
ended December 31, 2008
|
|
DESCRIPTION
OF SERVICE
|
|
|
|
Ch$
million
|
Redbanc
S.A..
|
-
Use of automatic tellers
|
(4,616)
|
Transbank
S.A.
|
-
Credit card administration.
|
(8,444)
|
Santander
GRC Ltda.
|
- Collection
services
|
(3,733)
|
- Operational
lease
|
199
|
Santander
Chile Holding S.A.
|
- Operational
lease
|
144
|
- Advising
|
(50)
|
Santander
Factoring S.A.
|
- Operational
lease
|
56
|
Bansa
Santander S.A.
|
- Operational
lease
|
(2,723)
|
Altec
S.A.
|
- Provision
of system services
|
(4,636)
|
Santander
Cia. De Seguros de vida S.A.
|
- Life
insurance and insurance for the credit line of current accounts and credit
cards
|
(1,884)
|
- Operational
lease
|
68
|
Santander
Cia. de Seguros Generales
|
- Credit
card fraud insurance
|
(2,523)
|
- Operational
lease
|
32
|
Santander
Investment Chile Ltda.
|
- Operational
lease
|
94
|
Produban
Servicios Informaticos Generales S.L. (1)
|
- Information
Processing
|
(5,451)
|
Others
|
- Directors’
stipend
|
(628)
|
(1)
|
On
April 4, 2008, the Superintendency of Bank authorized the transfer of the
Bank’s data processing center from IBM Chile to Produban, a subsidiary of
Banco Santander, S.A. located in Madrid,
Spain.
|
Only
transactions with related parties equal to or greater than UF 5,000 are included
individually in the table above. Transactions with related parties between UF
1,000 and up to UF 5,000 are included in other transactions with related
parties. All transactions were conducted at arms length.
C. Interests
of Experts and Counsel
Not
applicable.
A. Consolidated
Statements and Other Financial Information
Financial
Information
See
Item 18.
Legal
Proceedings
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 “Other provisions” in Note 8(b) of our Audited
Consolidated Financial Statements. The Revelations Committee of Santander Chile
has defined the cutoff for disclosing individual legal proceeding as those with
an expected loss greater than 0.5% of the average net income before taxes and
excluding other operating income and expenses for the years ended December 31,
2007 and 2008. At December 31, 2008 this cutoff totaled Ch$2,080 million (US$3.2
million). At December 31, 2008, there were no legal proceeding that exceed that
amount. 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.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
2008
|
|
|
24.86 |
|
|
|
16.51 |
|
|
|
54.60 |
|
|
|
28.16 |
|
Quarterly
Price History
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
2nd
Quarter
|
|
|
24.46 |
|
|
|
21.05 |
|
|
|
54.60 |
|
|
|
41.78 |
|
3rd
Quarter
|
|
|
23.33 |
|
|
|
19.30 |
|
|
|
46.41 |
|
|
|
37.10 |
|
4th
Quarter
|
|
|
22.96 |
|
|
|
16.51 |
|
|
|
42.99 |
|
|
|
28.16 |
|
1st
Quarter 2009
|
|
|
23.00 |
|
|
|
18.23 |
|
|
|
38.84 |
|
|
|
31.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
Price History
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
2008
|
|
|
21.35 |
|
|
|
19.93 |
|
|
|
35.87 |
|
|
|
30.21 |
|
January
2009
|
|
|
23.00 |
|
|
|
20.45 |
|
|
|
38.84 |
|
|
|
34.19 |
|
February
2009
|
|
|
22.39 |
|
|
|
20.10 |
|
|
|
38.25 |
|
|
|
34.40 |
|
March
2009
|
|
|
20.56 |
|
|
|
18.23 |
|
|
|
36.69 |
|
|
|
31.22 |
|
April
2009
|
|
|
20.95 |
|
|
|
19.44 |
|
|
|
37.74 |
|
|
|
34.01 |
|
May
2009
|
|
|
22.30 |
|
|
|
19.80 |
|
|
|
41.65 |
|
|
|
37.01 |
|
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 4, 2008, among Santander-Chile, the Depositary and
all holders from time to time of ADRs. As of December 31, 2007, 2,815,629 ADSs
were outstanding (equivalent to 29,254,384,271 shares of common stock or 15.5%
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.
Santander-Chile
is a bank providing a broad range of commercial and retail banking services, as
well as a variety of financial services. Our objects and purposes can be found
in Article 4 of our
estatutos and the General Banking Law.
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. There is no age limit for
directors.
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 28, 2009. 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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an
amendment of the term of existence, if any, and the early dissolution of
the bank;
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a
change in corporate domicile;
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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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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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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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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.
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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.” A dividend
entitlement lapses after 5 years and the funds go to the Chilean
Treasury.
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. The
holders of fully paid shares would not be required to contribute additional
capital to the Bank in the event of our liquidation.
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:
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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
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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.
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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:
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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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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.
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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:
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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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in
cases where the Superintendency of Securities and Insurance has ruled
otherwise, based on the distribution or atomization of the overall
shareholding.
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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 exists between:
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a
principal and its agents;
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spouses
and relatives within certain degrees of
kinship;
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entities
within the same business group; and
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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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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:
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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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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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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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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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the
acquisition of all or a substantial portion of a banks’ assets and
liabilities by another bank;
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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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the
margin for interbank loans be reduced to 20.0% of the resulting bank’s
regulatory capital.
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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.
There are
no limitations for non-resident or foreign shareholders to hold or exercise
voting rights on the securities.
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.
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. On April 4, 2008, the Superintendency of Bank authorized
the transfer of the Bank’s data processing center from IBM Chile to Produban, a
subsidiary of Banco Santander, S.A. located in Madrid, Spain. 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$77 million) in the next five years. In 2008, we
paid Produban Ch$5,451 million (US$8.5 million).
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 our common stock and 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 own or dispose of our common stock and 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 and
disposition of shares of our 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 own or dispose of shares of our common stock 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 of
our common stock or ADSs are advised to consult their own tax advisors
concerning the Chilean and other tax consequences of the ownership and
disposition of shares of our common stock 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 our
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 us with respect to shares of our 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 us (the “Withholding
Tax”). If we have 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 our oldest retained
earnings.
The
effective rate of Withholding Tax to be imposed on dividends paid by us will
vary depending upon the amount of First Category Tax paid by us 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)
|
|
|
(17 |
) |
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
|
|
|
65
(83-18 |
) |
|
|
|
21.7 |
%
|
Effective
dividend withholding tax rate
|
|
|
(18/83 |
) |
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, accounted 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,
in which case the withholding is equal to 17% on the gain, or (ii) 20% of the
amount, without any deduction, paid to, credited to, accounted 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 our 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, we 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 of our common stock or ADSs to U.S. holders
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 hold such securities. The discussion applies only if you hold shares
of our common stock 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 who use the mark-to-market method of
accounting;
|
|
|
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 of our common stock or ADSs that own or are deemed to own
ten percent or more of our voting stock;
or
|
|
|
persons
who acquired our shares of our common stock or ADSs pursuant to the
exercise of any employee stock option plan or otherwise as
compensation.
|
If an
entity that is classified as a partnership for U.S. federal income tax purposes
holds shares of our common stock or 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 our common stock or
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 of our common stock or ADSs.
As used
herein, a “U.S. holder” is a beneficial owner of shares of our common stock 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.
|
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 owning and disposing of shares or
ADSs in your particular circumstances.
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 American depository shares
are released prior to delivery of shares to the Depositary (“pre-release”) or
intermediaries in the chain of ownership between U.S. holders of American
depository shares and the issuer of the security underlying the American
depository shares may be taking actions that are inconsistent with the claiming
of foreign tax credits for holders of American depository shares. These actions
would also be inconsistent with the claiming of the reduced rates of tax,
described below, applicable to dividends received by certain non-corporate
holders. Accordingly, the creditability of Chilean taxes and the availability of
the reduced rates 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.
This
discussion assumes that we are not, and will not become, a passive foreign
investment company, as described below.
Taxation
of Distributions
Distributions
paid on shares of our common stock or ADSs, other than certain pro rata
distributions of common shares or rights, will be treated as dividends to the
extent paid out of our current or accumulated earnings and profits (as
determined under U.S. federal income tax principles). Because 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
reduced rates, up to 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 the
favorable rates. 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
will be included in your income on the date of your (or in the case of ADSs, the
Depository’s) receipt of the dividend. The amount of any dividend
income paid in Chilean pesos will be the U.S. dollar amount calculated by
reference to the exchange rate in effect on the date of receipt 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 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 the dividend is
converted into U.S. dollars after 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 of our common stock 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. The rules governing
foreign tax credits are complex and 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 of our common stock or ADSs generally will be capital gain
or loss, and will be long-term capital gain or loss if you held the shares of
our common stock 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 of our
common stock or ADSs disposed of and the amount realized on the disposition in
each case as determined in U.S. dollars. If a Chilean tax is withheld on the
sale or disposition of the shares of our common stock or ADSs, your amount
realized will include the gross amount of the proceeds of such sale or
disposition before deduction of the Chilean tax. See “—Chilean
Taxation – Taxation of Capital Gains” for a description of when a disposition
may be subject to taxation by Chile. Such gain or loss generally will
be U.S.-source gain or loss for foreign tax credit purposes. You
should consult your tax advisors as to whether the Chilean tax on gains may be
creditable against your U.S. federal income tax on foreign-source income from
other sources.
Passive
Foreign Investment Company Rules
Based on
proposed Treasury regulations (“Proposed Regulations”), which are proposed to be
effective 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, 2008. 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 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 of our common
stock or ADSs, gain recognized by you on a sale or other disposition (including
certain pledges) of a share of our common stock or an ADS would generally be
allocated ratably over your holding period for the share of our common stock 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. Similar rules would apply to any distribution in respect of
shares of our common stock or ADSs that exceeds 125 percent of the average of
the annual distributions on shares of our common stock or ADSs received by you
during the preceding three years or your holding period, whichever is shorter.
Certain elections (including a mark-to-market election) may be available that
would result in alternative treatments of the shares of our common stock or
ADSs. 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 may be subject 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 2008, the inflation rate in Chile was 7.1% compared to 7.8% in 2007
and 2.6% in 2006. In
the last months of 2008 and the first quarter of 2009, Chile was going through a
deflationary environment. 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, 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$18,336.38 at
December 31, 2006, and Ch$19,622.66 at December 31, 2007 and $21,452.57 at
December 31, 2008. In 2008, UF inflation was 9.3% compared to 7.0% in 2007
and 2.0% in 2006. The effect of any changes in the nominal peso value of
our UF-denominated interest earning assets and interest bearing
liabilities is reflected in our results of operations as an increase (or
decrease, in the event of deflation) in interest revenue and expense,
respectively. Our net interest revenue will be positively affected by an
inflationary environment to the extent that our average UF-denominated
interest earning assets exceed our average UF-denominated interest bearing
liabilities. Our net interest revenue will be negatively affected in a
deflationary environment if our average UF-denominated interest earning
assets exceed our average UF-denominated interest bearing liabilities. Our
net interest revenue will be negatively affected by inflation in any
period in which our average UF-denominated interest bearing liabilities
exceed our average UF-denominated interest earning assets. Our average
UF-denominated assets exceeded our average UF-denominated liabilities by
Ch$2,381,652 million in 2008 compared to Ch$2,548,506 million in 2007. See
“Item 5: G. 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, 2008, the interest gained on interest earning assets
denominated in UF increased 20.1% compared to 2007 as a result of the
higher UF inflation rates in 2008 compared to 2007. The interest paid on
these liabilities increased by 43.0% 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 on a monthly
basis according to the CPI index with a one-month lag. 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 and a gain in a deflationary environment. For the year ended
December 31, 2008, the loss from price level restatement totaled Ch$78,027
million compared to Ch$61,332 million in 2007. The inflation rate used for
calculating price level restatement was 8.9% in 2008 and 7.4% in 2007. In
line with the new accounting standards to be adopted in 2009, the Bank
will no longer be required to adjust its capital, fixed assets and other
non financial assets for variations in price levels on a monthly basis
and, therefore, will no longer recognize a gain or loss from price level
restatement.
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|
·
|
Inflation and interest rate
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
and the efficient part of these hedges is recorded as net interest income.
In 2008, the financial cost of the swaps taken in order to hedge for
inflation and interest rate risk totaled Ch$53,956 million compared to
Ch$35,283 million in 2007. This higher cost was a direct result of the
higher UF inflation rate in these two
periods. |
|
|
|
|
Inflation
sensitive income
|
|
|
|
|
|
|
|
|
|
|
|
(In
million of constant Chilean pesos at
December
31, 2008)
|
|
Interest
gained on UF assets
|
|
|
824,173 |
|
|
|
990,430 |
|
|
|
20.2 |
% |
Interest
paid on UF liabilities (1)
|
|
|
(485,921 |
) |
|
|
(694,758 |
) |
|
|
43.0 |
% |
Price
level restatement
|
|
|
(61,332 |
) |
|
|
(78,027 |
) |
|
|
27.2 |
% |
Net
Gain
|
|
|
276,920 |
|
|
|
217,645 |
|
|
|
(21.4 |
%) |
(1)
Includes inflation hedge
|
·
|
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: F. 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 15.8%, 17.1% and 15.7% for
the years ended December 31, 2006, 2007 and 2008,
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 2008, the Central Bank, throughout the first
three quarters of 2008, tightened monetary policy. This was followed by a rapid
relaxation in the last quarter of the year in line with international interest
rate movements. The overnight interbank
rate set by the Central Bank reached a peak of 8.25% as of September 2008. As of
May 2009, this rate was currently at 1.25%. Long-term real interest rates
followed a similar trend rising throughout most of 2008 followed by downward
trend by year-end 2008. The yield on the Chilean Central Bank’s 10-year note in
real terms was 3.28% at year-end 2008 compared to 2.98% compared as of December
31, 2007.
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 2008, the Chilean peso in relation to the US$
depreciated 26.9% compared to a 7.2% appreciation in 2007 and a 3.9%
depreciation in 2006. (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, 2008, by currency and term
was as follows:
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Ch$
|
|
|
UF
|
|
|
Currency
|
|
|
Total
|
|
|
Percentage
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008, except for
percentages)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
451,800 |
|
|
|
- |
|
|
|
403,038 |
|
|
|
854,838 |
|
|
|
4.0 |
% |
Other
asset (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than one year
|
|
|
4,267,464 |
|
|
|
1,157,009 |
|
|
|
1,860,596 |
|
|
|
7,285,069 |
|
|
|
34.5 |
% |
From
one to three years
|
|
|
2,702,761 |
|
|
|
1,734,935 |
|
|
|
50,219 |
|
|
|
4,487,915 |
|
|
|
21.2 |
% |
More
than three years
|
|
|
2,786,765 |
|
|
|
4,886,526 |
|
|
|
199,134 |
|
|
|
7,872,425 |
|
|
|
37.3 |
% |
Banks
premise and equipment and other
|
|
|
668,747 |
|
|
|
3,649 |
|
|
|
249,996 |
|
|
|
922,392 |
|
|
|
4.4 |
% |
Allowances
for loan losses
|
|
|
(285,505 |
) |
|
|
- |
|
|
|
- |
|
|
|
(285,505 |
) |
|
|
(1.4 |
%) |
Total
|
|
|
10,592,032 |
|
|
|
7,782,119 |
|
|
|
2,762,983 |
|
|
|
21,137,134 |
|
|
|
100.0 |
% |
Percentage
of total assets
|
|
|
50.1 |
% |
|
|
36.8 |
% |
|
|
13.1 |
% |
|
|
100.0 |
% |
|
|
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
interest bearing deposits
|
|
|
2,487,571 |
|
|
|
120,066 |
|
|
|
342,120 |
|
|
|
2,949,757 |
|
|
|
14.0 |
% |
Other
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than one year
|
|
|
6,041,551 |
|
|
|
1,998,012 |
|
|
|
3,359,659 |
|
|
|
11,399,222 |
|
|
|
53.9 |
% |
From
one to three years
|
|
|
769,648 |
|
|
|
1,307,039 |
|
|
|
309,987 |
|
|
|
2,386,674 |
|
|
|
11.2 |
% |
More
than three years
|
|
|
695,256 |
|
|
|
1,763,696 |
|
|
|
364,484 |
|
|
|
2,823,436 |
|
|
|
13.4 |
% |
Shareholder’s
equity
|
|
|
1,249,899 |
|
|
|
- |
|
|
|
- |
|
|
|
1,249,899 |
|
|
|
5.9 |
% |
2008
net income
|
|
|
328,146 |
|
|
|
- |
|
|
|
- |
|
|
|
328,146 |
|
|
|
1.6 |
% |
Total
|
|
|
11,572,071 |
|
|
|
5,188,813 |
|
|
|
4,376,250 |
|
|
|
21,137,134 |
|
|
|
100.0 |
% |
Percentage
of total liabilities and shareholders’ equity
|
|
|
54.7 |
% |
|
|
24.5 |
% |
|
|
20.8 |
% |
|
|
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, 2008, 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, 2008
|
|
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, 2008, except for
percentages)
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
Interbank
loans
|
95,534
|
|
|
|
|
|
|
95,534
|
Financial
investments
|
531,413
|
11,425
|
3,272
|
21,758
|
301,017
|
692,539
|
1,180,447
|
2,741,871
|
Commercial
loans
|
1,780,795
|
635,773
|
566,552
|
832,242
|
717,621
|
1,626,098
|
2,215,417
|
8,374,498
|
Mortgage
loans
|
38,116
|
15,641
|
16,517
|
47,405
|
96,601
|
393,925
|
3,373,141
|
3,981,346
|
Consumer
loans
|
872,440
|
43,407
|
52,432
|
129,093
|
223,751
|
639,147
|
288,726
|
2,248,996
|
Total
interest-earning assets
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
Deposits
|
5,996,800
|
1,465,908
|
1,028,096
|
1,076,934
|
1,542,054
|
1,309,234
|
286,997
|
12,706,023
|
Investments
under agreements to repurchase
|
525,018
|
15,368
|
11,469
|
10,227
|
299
|
853
|
|
563,234
|
Interbank
borrowings
|
55,008
|
66,767
|
168,838
|
389,994
|
435,403
|
309,055
|
|
1,425,065
|
Issued
debt instruments
|
20,135
|
1,582
|
1,273
|
10,584
|
277,775
|
495,534
|
1,844,489
|
2,651,372
|
Other
financial liabilities
|
|
|
|
|
|
|
|
|
Total
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
Asset/liability
gap
|
|
|
|
|
|
|
|
|
Cumulative
gap
|
(3,370,791)
|
(4,214,472)
|
(4,786,996)
|
(5,244,882)
|
(6,162,648)
|
(4,929,584)
|
(6,727)
|
|
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, 2008, 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
The Bank
must separate its balance sheet into two separate categories: trading portfolio
(Libro de Negociación)
and the 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 (See Item 5E-Liquidity and Capital
Resources-Financial Investments).
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.
|
|
|
Minimum
capital adequacy ratio. The Bank is required to use a 10% minimum capital
adequacy ratio for the purpose of calculating the EMR
limit.
|
|
|
Consolidated
risk-weighted assets as defined by the General Banking
Law.
|
|
|
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:
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
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
|
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:
The long
term interest rate risk of the non-trading portfolio is calculated according to
the following formula:
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
|
[jpg] |
=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, 2007 and 2008, 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
|
|
|
64,484 |
|
|
|
149,709 |
|
Foreign
currency risk of trading portfolio
|
|
|
2,576 |
|
|
|
1,530 |
|
Risk
from interest rate options
|
|
|
39,111 |
|
|
|
46,998 |
|
Risk
from foreign currency options
|
|
|
2 |
|
|
|
173 |
|
Total
market risk of trading portfolio
|
|
|
106,173 |
|
|
|
198,410 |
|
10%
x Risk-weighted assets
|
|
|
1,312,391 |
|
|
|
1,548,149 |
|
Subtotal
|
|
|
1,418,564 |
|
|
|
1,746,558 |
|
Limit
= Regulatory Capital
|
|
|
1,602,432 |
|
|
|
2,143,619 |
|
Available
margin
|
|
|
183,868 |
|
|
|
397,061 |
|
|
|
|
|
|
|
|
|
|
Non
trading portfolio market risk
|
|
|
|
|
|
|
|
|
Short-term
interest rate risk
|
|
|
39,545 |
|
|
|
8,868 |
|
Inflation
risk
|
|
|
18,202 |
|
|
|
8,938 |
|
Long
term interest rate risk
|
|
|
368,422 |
|
|
|
409,693 |
|
Total
market risk of non-trading portfolio
|
|
|
426,169 |
|
|
|
427,499 |
|
|
|
|
|
|
|
|
|
|
Regulatory
limit of exposure to short-term interest rate and inflation
risk
|
|
|
|
|
|
|
|
|
Short-term
exposure to interest rate risk
|
|
|
39,545 |
|
|
|
8,868 |
|
Exposure
to inflation risk
|
|
|
18,202 |
|
|
|
8,938 |
|
Limit:
20% of (net interest income + net fee income sensitive to interest
rates)
|
|
|
157,844 |
|
|
|
188,476 |
|
Available
margin
|
|
|
100,097 |
|
|
|
170,670 |
|
|
|
|
|
|
|
|
|
|
Regulatory
limit of exposure to long term interest rate risk
|
|
|
|
|
|
|
|
|
Long-term
exposure to interest rate risk
|
|
|
368,422 |
|
|
|
409,693 |
|
35%
of regulatory capital
|
|
|
560,851 |
|
|
|
750,267 |
|
Available
margin
|
|
|
192,429 |
|
|
|
340,574 |
|
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:
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 2007 and 2008 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, 2007 and 2008, were the following:
|
|
For
the year ended December 31,
|
|
Consolidated
Trading Portfolio
|
|
|
|
|
|
|
High
|
|
|
7.1 |
|
|
|
11.6 |
|
Low
|
|
|
2.8 |
|
|
|
3.7 |
|
Average
|
|
|
4.2 |
|
|
|
6.6 |
|
|
|
For
the year ended December 31,
|
|
Fixed
income Trading Portfolio
|
|
|
|
|
|
|
High
|
|
|
6.5 |
|
|
|
9.5 |
|
Low
|
|
|
3.0 |
|
|
|
3.3 |
|
Average
|
|
|
4.0 |
|
|
|
6.0 |
|
|
|
For
the year ended December 31,
|
|
|
|
|
|
|
|
|
High
|
|
|
1.8 |
|
|
|
1.4 |
|
Low
|
|
|
0.1 |
|
|
|
0.2 |
|
Average
|
|
|
0.7 |
|
|
|
0.5 |
|
|
|
For
the year ended December 31,
|
|
Foreign
currency Trading Portfolio
|
|
|
|
|
|
|
High
|
|
|
4.0 |
|
|
|
4.0 |
|
Low
|
|
|
0.1 |
|
|
|
0.6 |
|
Average
|
|
|
1.1 |
|
|
|
2.5 |
|
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 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, 2007 and 2008, 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, 2007 and 2008, are summarized
below:
|
|
As
of December 31, 2008
|
|
|
|
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)
|
|
|
- |
|
|
|
- |
|
|
|
45,849 |
|
|
|
1,234 |
|
|
|
1,332 |
|
Currency
swaps
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
(FV)
|
|
|
- |
|
|
|
- |
|
|
|
359,100 |
|
|
|
106,335 |
|
|
|
- |
|
Cross
currency swaps
|
(CF)
|
|
|
51,300 |
|
|
|
573,598 |
|
|
|
128,250 |
|
|
|
73,036 |
|
|
|
151 |
|
Call
currency options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Call
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
currency options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate future
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
derivatives
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
|
51,300 |
|
|
|
573,598 |
|
|
|
533,199 |
|
|
|
180,605 |
|
|
|
1,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments for Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
|
|
5,643,973 |
|
|
|
2,983,543 |
|
|
|
438,347 |
|
|
|
600,199 |
|
|
|
302,479 |
|
Interest
rate swaps
|
|
|
|
3,865,373 |
|
|
|
4,635,536 |
|
|
|
9,922,492 |
|
|
|
239,867 |
|
|
|
362,813 |
|
Currency
swaps
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
|
|
|
619,041 |
|
|
|
1,634,073 |
|
|
|
9,281,020 |
|
|
|
803,199 |
|
|
|
780,614 |
|
Call
currency options
|
|
|
|
225,936 |
|
|
|
157,871 |
|
|
|
1,347 |
|
|
|
21,901 |
|
|
|
18,126 |
|
Call
interest rate options
|
|
|
|
- |
|
|
|
128,250 |
|
|
|
- |
|
|
|
- |
|
|
|
45 |
|
Put
currency options
|
|
|
|
195,792 |
|
|
|
138,795 |
|
|
|
1,347 |
|
|
|
657 |
|
|
|
4,164 |
|
Put
interest rate options
|
|
|
|
- |
|
|
|
64,125 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate future
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
derivatives
|
|
|
|
15,016 |
|
|
|
- |
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
Subtotal
|
|
|
|
10,565,131 |
|
|
|
9,742,193 |
|
|
|
19,644,553 |
|
|
|
1,665,904 |
|
|
|
1,468,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
10,616,431 |
|
|
|
10,315,791 |
|
|
|
20,177,752 |
|
|
|
1,846,509 |
|
|
|
1,469,724 |
|
|
|
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)
|
|
|
- |
|
|
|
- |
|
|
|
131,985 |
|
|
|
4,237 |
|
|
|
546 |
|
Currency
swaps
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
(FV)
|
|
|
- |
|
|
|
- |
|
|
|
303,538 |
|
|
|
- |
|
|
|
10,068 |
|
Cross
currency swaps
|
(CF)
|
|
|
- |
|
|
|
- |
|
|
|
523,062 |
|
|
|
- |
|
|
|
60,075 |
|
Call
currency options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Call
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
currency options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate future
|
(
)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
derivatives
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
|
- |
|
|
|
- |
|
|
|
958,585 |
|
|
|
4,237 |
|
|
|
70,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments for Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
|
|
6,290,081 |
|
|
|
4,288,887 |
|
|
|
855,702 |
|
|
|
121,609 |
|
|
|
174,191 |
|
Interest
rate swaps
|
|
|
|
2,107,282 |
|
|
|
3,543,727 |
|
|
|
9,537,991 |
|
|
|
94,207 |
|
|
|
173,294 |
|
Currency
swaps
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
|
|
|
145,573 |
|
|
|
501,876 |
|
|
|
7,140,415 |
|
|
|
627,767 |
|
|
|
427,215 |
|
Call
currency options
|
|
|
|
70,507 |
|
|
|
32,349 |
|
|
|
702 |
|
|
|
286 |
|
|
|
318 |
|
Call
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
81,305 |
|
|
|
1 |
|
|
|
- |
|
Put
currency options
|
|
|
|
173,985 |
|
|
|
39,779 |
|
|
|
- |
|
|
|
1,635 |
|
|
|
1,277 |
|
Put
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
82,394 |
|
|
|
- |
|
|
|
10 |
|
Interest
rate future
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
derivatives
|
|
|
|
213,828 |
|
|
|
3,205 |
|
|
|
- |
|
|
|
444 |
|
|
|
407 |
|
Subtotal
|
|
|
|
9,001,256 |
|
|
|
8,409,823 |
|
|
|
17,698,509 |
|
|
|
845,949 |
|
|
|
776,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
9,001,256 |
|
|
|
8,409,823 |
|
|
|
18,657,094 |
|
|
|
850,186 |
|
|
|
847,401 |
|
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.
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. In 2008, this
limit was reduced to Ch$86,400 as the Bank viewed that interest rates in Chile
were going to rise and this potential risk controlled. The Bank remained within
this limit in 2008. At the same time, the variation in net interest income
caused by a 100 basis point shift of the local yield curve was set at Ch$24,000
million and Santander-Chile was within the limits established in 2008. These
limits are internally set by the ALCO. The ALCO has authority to
lower this limit.
However, approval from the Santander Central Hispano Global Risk
Department is required to lift this limit. The following table, sets
forth the loss limit and the high, low and average potential loss in 2007 and
2008 resulting from a 100 basis point shift in the relevant interest
rate.
|
|
Local
Currency-denominated Financial Management Portfolio
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Loss
limit at December 31, 2008
|
|
|
24,000 |
|
|
|
86,400 |
|
High
|
|
|
16,720 |
|
|
|
85,837 |
|
Low
|
|
|
3,138 |
|
|
|
60,251 |
|
Average
in 2008
|
|
|
10,707 |
|
|
|
72,622 |
|
|
|
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 |
|
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$54 million of equity and
US$36 million of budgeted net interest income. These limits are internally
imposed limits set by the ALCO. The ALCO has the authority
to lower this limit.
However, approval from Banco Santander Spain Global Risk Department is
required to lift this limit.
The following table sets forth the loss limit and the high, low and
average potential loss in 2007 and 2008, resulting from a 100 basis point shift
in the interest rates on U.S. dollar-denominated assets and
liabilities
|
|
Foreign
Currency-denominated Financial Management Portfolio
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant US$)
|
|
Loss
limit at December 31, 2008
|
|
|
36.0 |
|
|
|
54.0 |
|
High
|
|
|
31.2 |
|
|
|
9.4 |
|
Low
|
|
|
1.8 |
|
|
|
0.2 |
|
Average
in 2008
|
|
|
15.1 |
|
|
|
4.2 |
|
|
|
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 |
|
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 the beginning of 2008 and was
subsequently lowered to Ch$86,400 million. The Bank has remained within this
limit for this portfolio in 2008. 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$24,000 million. The following table, which contemplates a 100
basis point shift in the relevant interest rate, indicates that Santander-Chile
was within the limits established in 2008. These limits are an
internally imposed limit set by the ALCO and Banco Santander Spain’s Global Risk
Department. The ALCO
has authority to lower these limits. However, approval from
Banco Santander Spain Global Risk Department is required to lift these
limits.
|
|
Combined
Financial Management Portfolio
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Loss
limit at December 31, 2008
|
|
|
24,000 |
|
|
|
86,400 |
|
High
|
|
|
16,720 |
|
|
|
86,051 |
|
Low
|
|
|
3,138 |
|
|
|
60,252 |
|
Average
in 2008
|
|
|
10,707 |
|
|
|
72,683 |
|
|
|
Combined
Financial Management Portfolio
|
|
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2007)
|
|
Loss
limit at December 31, 2007
|
|
|
30,000 |
|
|
|
94,000 |
|
High
|
|
|
15,249 |
|
|
|
91,733 |
|
Low
|
|
|
5,377 |
|
|
|
50,630 |
|
Average
in 2007
|
|
|
9,553 |
|
|
|
75,452 |
|
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, 2008, 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, 2008,
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 51.0%. In 2008, we did not surpass the
limit.
|
|
·
|
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, 2008,
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 53.0%. In 2008, we did not surpass the
limit.
|
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
S.A. Corredores de Bolsa
|
|
·
|
Santander
Asset Management S.A. Administradora General de
Fondos
|
|
·
|
Santander
S.A. Sociedad Securitizadora
|
|
·
|
Santander
Corredores 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
1.8% of our total consolidated assets.
Not
applicable.
Not
applicable.
Not
applicable.
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
As of
December 31, 2008, 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, 2008, our
internal control over financial reporting was effective based on those
criteria.
Our
internal control over financial reporting as of December 31, 2008, 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
Shareholders of Banco Santander Chile
We have
audited the internal control over financial reporting of Banco Santander Chile
and subsidiaries (the “Bank”) as of December 31, 2008, 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, 2008, 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, 2008 and our report dated
June 22, 2009 expressed an unqualified opinion on those consolidated financial
statements and
included
three explanatory paragraphs stating that (1) as explained in Note 2 to the
consolidated financial statements, during 2008 the Superintendency of Banks
issued Circular No. 3,410 which modified the presentation format of financial
statements models, the definition of cash and cash equivalent, and adopted a
criterion of provisions for minimum dividends. For this reason, the
consolidated financial statements for 2007 and 2006 have been restated to
conform to the new presentation formats required by the Superintendency, (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 27 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 22,
2009
Our Board
of Directors has determined that one of the members of our Audit Committee,
Víctor Arbulú Crousillat, meets the requirements of an “audit committee
financial expert” in accordance with SEC rules and regulations, in that he has
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 independent under applicable NYSE
criteria. Both Víctor Arbulú C. and Lucia Santa Cruz 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 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:
|
|
|
|
|
|
|
|
|
(in
millions of constant Ch$ as of December 31, 2008)
|
|
Audit
Services
|
|
|
|
|
|
|
-
Statutory audit
|
|
|
859 |
|
|
|
528 |
|
-
Audit-related regulatory reporting
|
|
|
108 |
|
|
|
106 |
|
Tax
Fees
|
|
|
|
|
|
|
|
|
-
Compliance
|
|
|
- |
|
|
|
- |
|
-
Advisory Services
|
|
|
1 |
|
|
|
28 |
|
All
Other Services
|
|
|
16 |
|
|
|
61 |
|
Total
|
|
|
984 |
|
|
|
723 |
|
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 2007 and 2008 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 2008,
neither Santander-Chile nor any of its affiliates purchased any of
Santander-Chile’s equity securities.
Not
applicable.
Summary
Comparison of Corporate Governance Standards and NYSE Listed Company
Standards
Our
corporate governance standards, dictated by Chilean corporate law, differ from
the standards followed by U.S. companies under the New York Stock Exchange
(NYSE) listing standards in a number of ways. Consequently, you will not have
the same protections afforded to shareholders of companies that are subject to
all NYSE corporate governance requirements. The following is a non-exhaustive
summary of a few key differences:
|
·
|
Whether
a company’s executive officers may serve as its directors – the NYSE
standards do not prohibit a U.S. company’s executive officer from also
serving as a director, whereas our corporate governance standards prohibit
this.
|
|
·
|
Whether
the shareholders must be given an opportunity to vote on
equity-compensation plans – the NYSE standards require that shareholders
be allowed to vote on all equity compensation plans of a U.S. company,
|
|
|
whereas
our corporate governance standards only require that shareholders be
allowed to vote on director compensation. |
|
·
|
The
adoption and disclosure of corporate governance guidelines – the NYSE
standards require all U.S. companies listed on the NYSE to adopt the NYSE
corporate governance guidelines, whereas we follow the corporate
governance guidelines established under Chilean
law.
|
As more
than 50% of our voting power is held by another company, Banco Santander Spain,
S.A., we would be permitted to elect for certain exemptions under NYSE corporate
governance standards if we were a U.S. company. 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 we
would not be required to follow these standards if we were a U.S. company, we
have not summarized the differences, if any, between these provisions and our
own corporate governance procedures.
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 equals to 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.
|
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
|
F-3
|
|
|
Audited
consolidated financial statements:
|
|
|
F-4
|
|
F-5
|
|
F-6
|
|
F-7
|
|
F-8
|
|
F-9
|
b)
Index to Exhibits
Exhibit
Number
|
Description
|
1A.1
|
Restated
Articles of Incorporation of Santander-Chile (in Spanish) (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 translation)
(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 (in Spanish).
|
|
|
1B.2
|
Amended
and Restated By-Laws (estatutos) of
Santander-Chile (English translation).
|
|
|
2A.1
|
Form
of Amended and Restated Deposit Agreement, dated August 4, 2008, among
Banco Santander-Chile, JPMorgan Chase Bank, N.A. (as depositary) and
Holders of American Depositary Receipts (incorporated by reference to our
Registration Statement on Form F-6 (Registration No. 333-152664).
|
|
filed
with the Commission on July 31, 2008). |
|
|
2A.2
|
Form
of Foreign Investment Contract among Banco Santiago, JPMorgan Chase Bank,
N.A. 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
|
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.3
|
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.4
|
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.5
|
Contract
for the Outsourcing of Computer Services between Santander-Chile and
Produban, Servicios Informaticos Generales, S.L, dated December 3, 2007
(English translation) (incorporated by reference to our Annual Report on
Form 20-F for the fiscal year ended December 31, 2007 (File No. 1-14554)
filed with the Commission on June 27, 2008).
|
|
|
7.1
|
Statement
explaining calculation of ratios.
|
|
|
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/
Andrés
Heusser R.
|
|
Name:
|
|
|
Title:
|
Deputy
Chief Executive Officer
|
|
Date:
June 29, 2009
BANCO
SANTANDER CHILE
CONSOLIDATED
FINANCIAL STATEMENTS
CONTENTS
|
Page
|
|
F-3
|
Audited
consolidated financial statements:
|
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-8
|
|
|
|
|
|
F-9
|
|
|
F-19
|
|
|
F-21
|
|
|
F-22
|
|
|
F-24
|
|
|
F-25
|
|
|
F-26
|
|
|
F-26
|
|
|
F-28
|
|
|
F-29
|
|
|
F-30
|
|
|
F-31
|
|
|
F-38
|
|
|
F-41
|
|
|
F-43
|
|
|
F-44
|
|
|
F-47
|
|
|
F-48
|
|
|
F-49
|
|
|
F-50
|
|
|
F-51
|
|
|
F-54
|
|
|
F-55
|
|
|
F-56
|
|
|
F-57
|
|
|
F-57
|
|
|
F-58
|
|
|
F-59
|
|
|
F-61
|
|
|
F-61
|
|
|
F-62
|
|
|
F-62
|
|
|
F-62
|
|
|
F-63
|
|
|
F-64
|
|
|
F-68
|
|
|
F-70
|
|
|
F-73
|
|
|
F-73
|
|
|
F-75
|
|
|
F-75
|
|
|
F-75
|
|
|
F-76
|
|
|
F-76
|
|
|
F-76
|
|
|
F-79
|
|
|
F-83
|
|
|
F-85
|
|
|
F-90
|
|
|
F-95
|
|
|
F-95
|
|
|
F-96
|
|
|
F-100
|
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.
|
To the
Board of Directors and Shareholders of
Banco
Santander Chile
We have
audited the accompanying consolidated balance sheets of Banco Santander Chile
and subsidiaries (the “Bank”) as of December 31, 2008 and 2007, and the related
consolidated statements of income, comprehensive income, changes in
shareholders’ equity and cash flows for each of three years in the period ended
December 31, 2008, 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, 2008 and 2007, the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2008, in conformity with accounting principles generally accepted in Chile
and the rules of the Superintendencia de Bancos e Instituciones
Financieras.
As
explained in Note 2 to the consolidated financial statements, during 2008 the
Superintendency of Banks issued Circular Nº 3,410 which modified the
presentation format of financial statements models, the definition of cash and
cash equivalent, and adopted a criterion of provisions for minimum
dividends. For this reason, the consolidated financial statements for
2007 and 2006 have been restated to conform to the new presentation formats
required by the Superintendency.
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 27 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.s. 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, 2008, 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 22, 2009 expressed an unqualified
opinion on the Bank’s internal control over financial reporting.
/s/Deloitte
Santiago,
Chile
June 22,
2009
BANCO
SANTANDER CHILE
Expressed
in millions of constant Chilean pesos (MCh$) as of
December
31, 2008 and thousands of U.S. dollars (ThUS$)
|
|
Note
|
|
|
As
of December 31,
|
|
ASSETS
|
|
|
|
|
|
2007(*)
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
1.s)
|
|
Cash
and deposits in banks
|
|
|
3
|
|
|
|
1,206,985 |
|
|
|
854,838 |
|
|
|
1,333,081 |
|
Unsettled
transaction
|
|
|
3
|
|
|
|
344,354 |
|
|
|
335,405 |
|
|
|
523,049 |
|
Trading
investments
|
|
|
4
|
|
|
|
1,186,905 |
|
|
|
1,161,631 |
|
|
|
1,811,510 |
|
Investment
under agreements to resell
|
|
|
|
|
|
|
37,022 |
|
|
|
- |
|
|
|
- |
|
Financial
derivative contracts
|
|
|
14 |
|
|
|
850,186 |
|
|
|
1,846,509 |
|
|
|
2,879,546 |
|
Interbank
loans
|
|
|
6 |
|
|
|
50,047 |
|
|
|
95,499 |
|
|
|
148,926 |
|
Loans
and receivables from customers
|
|
|
6 |
|
|
|
13,097,347 |
|
|
|
14,319,370 |
|
|
|
22,330,402 |
|
Available
for sale investments
|
|
|
4 |
|
|
|
848,945 |
|
|
|
1,580,240 |
|
|
|
2,464,312 |
|
Investments
in other companies
|
|
|
10 |
|
|
|
7,399 |
|
|
|
6,990 |
|
|
|
10,901 |
|
Intangibles
assets
|
|
|
|
|
|
|
61,182 |
|
|
|
73,089 |
|
|
|
113,979 |
|
Property.
plant and equipment
|
|
|
9 |
|
|
|
267,455 |
|
|
|
260,105 |
|
|
|
405,622 |
|
Current
taxes
|
|
|
21 |
|
|
|
2,105 |
|
|
|
18,289 |
|
|
|
28,521 |
|
Deferred
taxes
|
|
|
21 |
|
|
|
66,707 |
|
|
|
64,821 |
|
|
|
101,085 |
|
Other
assets
|
|
|
11 |
|
|
|
516,238 |
|
|
|
520,348 |
|
|
|
811,458 |
|
TOTAL
ASSETS
|
|
|
|
|
|
|
18,542,877 |
|
|
|
21,137,134 |
|
|
|
32,962,392 |
|
LIABILITIES
|
Deposits
and other sight liabilities
|
|
|
|
|
|
3,123,803 |
|
|
|
2,949,757 |
|
|
|
4,600,011 |
|
Unsettled
transaction
|
|
|
3 |
|
|
|
147,240 |
|
|
|
142,552 |
|
|
|
222,303 |
|
Investment
under agreements to repurchase
|
|
|
|
|
|
|
336,090 |
|
|
|
563,234 |
|
|
|
878,338 |
|
Deposits
and other time deposits
|
|
|
|
|
|
|
8,589,131 |
|
|
|
9,756,266 |
|
|
|
15,214,450 |
|
Financial
derivative contracts
|
|
|
14 |
|
|
|
847,401 |
|
|
|
1,469,724 |
|
|
|
2,291,967 |
|
Interbank
borrowings
|
|
|
|
|
|
|
1,197,184 |
|
|
|
1,425,065 |
|
|
|
2,222,324 |
|
Issued
debt instruments
|
|
|
|
|
|
|
2,346,575 |
|
|
|
2,651,372 |
|
|
|
4,134,693 |
|
Other
financial liabilities
|
|
|
|
|
|
|
161,013 |
|
|
|
103,278 |
|
|
|
161,057 |
|
Current
taxes
|
|
|
21 |
|
|
|
17,310 |
|
|
|
163 |
|
|
|
254 |
|
Deferred
taxes
|
|
|
21 |
|
|
|
11,844 |
|
|
|
18,766 |
|
|
|
29,265 |
|
Provisions
|
|
|
8 |
|
|
|
50,499 |
|
|
|
162,165 |
|
|
|
252,889 |
|
Other
liabilities
|
|
|
11 |
|
|
|
127,073 |
|
|
|
292,182 |
|
|
|
455,644 |
|
TOTAL
LIABILITIES
|
|
|
|
|
|
|
16,955,163 |
|
|
|
19,534,524 |
|
|
|
30,463,195 |
|
SHAREHOLDERS’
EQUITY
|
Attributable
to owners of the parent:
|
|
|
|
|
|
|
1,565,885 |
|
|
|
1,578,045 |
|
|
|
2,460,889 |
|
Capital
|
|
|
|
|
|
|
891,303 |
|
|
|
891,303 |
|
|
|
1,389,946 |
|
Reserves
|
|
|
|
|
|
|
51,539 |
|
|
|
51,539 |
|
|
|
80,373 |
|
Valuation
adjustments
|
|
|
|
|
|
|
(10,317 |
) |
|
|
(7,552 |
) |
|
|
(11,777 |
) |
Retained
earnings:
|
|
|
|
|
|
|
633,360 |
|
|
|
642,755 |
|
|
|
1,002,347 |
|
Retained
earnings of prior years |
|
|
|
|
|
|
297,274 |
|
|
|
413,053 |
|
|
|
644,137 |
|
Net
Income for the period |
|
|
|
|
|
|
336,086 |
|
|
|
328,146 |
|
|
|
511,729 |
|
Minus:
Provision for mandatory dividends |
|
|
2 |
|
|
|
- |
|
|
|
(98,444 |
) |
|
|
(153,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
15 |
|
|
|
21,829 |
|
|
|
24,565 |
|
|
|
38,308 |
|
TOTAL
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
1,587,714 |
|
|
|
1,602,610 |
|
|
|
2,499,197 |
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
18,542,877 |
|
|
|
21,137,134 |
|
|
|
32,962,392 |
|
(*)
|
The Balance
Sheets as of December 31, 2007 have been restated as mentioned in
Note 2.a to the consolidated financial
statements.
|
The
accompanying notes are an integral part of these consolidated financial
statements.
BANCO
SANTANDER CHILE
Expressed
in millions of constant Chilean pesos (MCh$) as of
December
31, 2008 and thousands of U.S. dollars (ThUS$)
|
|
Note
|
|
|
Year
ended December 31,
|
|
|
|
|
|
|
|
2006 |
(*) |
|
|
2007 |
(*) |
|
2008
|
|
|
2008
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
1.s)
|
|
Interest
revenue
|
|
|
|
|
|
1,295,280 |
|
|
|
1,730,592 |
|
|
|
2,061,112 |
|
|
|
3,214,210 |
|
Interest
expense
|
|
|
|
|
|
(659,459 |
) |
|
|
(954,834 |
) |
|
|
(1,164,071 |
) |
|
|
(1,815,315 |
) |
Net
interest revenue
|
|
|
|
|
|
635,821 |
|
|
|
775,758 |
|
|
|
897,041 |
|
|
|
1,398,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
and other services income
|
|
|
17
|
|
|
|
239,658 |
|
|
|
266,923 |
|
|
|
276,433 |
|
|
|
431,085 |
|
Other
services expenses
|
|
|
17 |
|
|
|
(42,011 |
) |
|
|
(49,066 |
) |
|
|
(52,840 |
) |
|
|
(82,402 |
) |
Total
fees and income from services, net
|
|
|
|
|
|
|
197,647 |
|
|
|
217,857 |
|
|
|
223,593 |
|
|
|
348,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gains from mark-to-market and trading
|
|
|
5 |
|
|
|
135,465 |
|
|
|
26,796 |
|
|
|
273,084 |
|
|
|
425,862 |
|
Foreign
exchange gain (losses), net
|
|
|
5 |
|
|
|
(552 |
) |
|
|
83,007 |
|
|
|
(187,042 |
) |
|
|
(291,683 |
) |
Other
operating income
|
|
|
18 |
|
|
|
16,779 |
|
|
|
28,433 |
|
|
|
16,512 |
|
|
|
25,750 |
|
Total
operating income
|
|
|
|
|
|
|
985,160 |
|
|
|
1,131,851 |
|
|
|
1,223,188 |
|
|
|
1,907,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loans losses
|
|
|
8 |
|
|
|
(142,956 |
) |
|
|
(224,667 |
) |
|
|
(285,953 |
) |
|
|
(445,931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME, NET OF PROVISIONS
|
|
|
|
|
|
|
842,204 |
|
|
|
907,184 |
|
|
|
937,235 |
|
|
|
1,461,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
salaries and expense
|
|
|
|
|
|
|
(186,282 |
) |
|
|
(191,120 |
) |
|
|
(209,134 |
) |
|
|
(326,135 |
) |
Administrative
and other expense
|
|
|
|
|
|
|
(153,401 |
) |
|
|
(164,609 |
) |
|
|
(161,977 |
) |
|
|
(252,596 |
) |
Depreciation
and amortization
|
|
|
|
|
|
|
(42,079 |
) |
|
|
(45,741 |
) |
|
|
(51,944 |
) |
|
|
(81,004 |
) |
Other
operating expenses
|
|
|
18 |
|
|
|
(42,868 |
) |
|
|
(44,545 |
) |
|
|
(42,259 |
) |
|
|
(65,901 |
) |
Total
operating expenses
|
|
|
|
|
|
|
(424,630 |
) |
|
|
(446,015 |
) |
|
|
(465,314 |
) |
|
|
(725,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
OPERATING INCOME
|
|
|
|
|
|
|
417,574 |
|
|
|
461,169 |
|
|
|
471,921 |
|
|
|
735,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) attributable to investments in other companies
|
|
|
10
|
|
|
|
919 |
|
|
|
(1,438 |
) |
|
|
851 |
|
|
|
1,327 |
|
Price
level restatement, net
|
|
|
23 |
|
|
|
(16,123 |
) |
|
|
(61,332 |
) |
|
|
(78,027 |
) |
|
|
(121,680 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before taxes
|
|
|
|
|
|
|
402,370 |
|
|
|
398,399 |
|
|
|
394,745 |
|
|
|
615,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax
|
|
|
21 |
|
|
|
(68,088 |
) |
|
|
(60,075 |
) |
|
|
(63,728 |
) |
|
|
(99,381 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
|
|
|
|
|
334,282 |
|
|
|
338,324 |
|
|
|
331,017 |
|
|
|
516,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the
parent
|
|
|
|
|
|
|
334,106 |
|
|
|
336,086 |
|
|
|
328,146 |
|
|
|
511,729 |
|
Minority
Interest
|
|
|
15
|
|
|
|
176 |
|
|
|
2,238 |
|
|
|
2,871 |
|
|
|
4,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per share
attributable to owners of the
parent:
(in Chilean pesos and US
dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earning
|
|
|
|
|
|
|
1.773 |
|
|
|
1.783 |
|
|
|
1.741 |
|
|
|
2.716 |
|
Diluted
earning
|
|
|
|
|
|
|
1.773 |
|
|
|
1.783 |
|
|
|
1.741 |
|
|
|
2.716 |
|
(*)
|
The
Statements of Income for the years 2007 and 2006 have been restated as
mentioned in Note 2.a to the consolidated financial
statements.
|
The
accompanying notes are an integral part of these consolidated financial
statements.
BANCO
SANTANDER CHILE
Expressed
in millions of constant Chilean pesos (MCh$) as of
December
31, 2008 and thousands of U.S. dollars (ThUS$)
|
|
Year
ended December 31,
|
|
|
|
|
2006(*)
|
|
|
|
2007(*)
|
|
|
2008
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
1.s)
|
|
NET
INCOME
|
|
|
334,282 |
|
|
|
338,324 |
|
|
|
331,017 |
|
|
|
516,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
investments
|
|
|
20,218 |
|
|
|
(4,772 |
) |
|
|
(14,471 |
) |
|
|
(22,567 |
) |
Cash flow
hedge
|
|
|
- |
|
|
|
(6,389 |
) |
|
|
16,740 |
|
|
|
26,105 |
|
Other
comprehensive income before income taxes
|
|
|
20,218 |
|
|
|
(11,161 |
) |
|
|
2,269 |
|
|
|
3,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax
|
|
|
(3,437 |
) |
|
|
1,897 |
|
|
|
(385 |
) |
|
|
(600 |
) |
Other
comprehensive income, net of tax
|
|
|
16,781 |
|
|
|
(9,264 |
) |
|
|
1,884 |
|
|
|
2,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME
|
|
|
351,063 |
|
|
|
329,060 |
|
|
|
332,901 |
|
|
|
519,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the
parent
|
|
|
350,887 |
|
|
|
326,822 |
|
|
|
330,069 |
|
|
|
514,728 |
|
Minority
Interest
|
|
|
176 |
|
|
|
2,238 |
|
|
|
2,832 |
|
|
|
4,416 |
|
(*)
|
The
Statements of Other Comprehensive Income for the years 2007 and 2006 have
been restated as mentioned in Note 2.a to the consolidated financial
statements.
|
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, 2008
|
|
|
|
|
|
Reserves
|
|
|
Valuation
account
|
|
|
Retaining
earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Reserves
and retained earning
|
|
|
Business
Combination (1)
|
|
|
Available
for sale
|
|
|
Cash
Flow Hedge
|
|
|
Other
|
|
|
|
Income
taxes
|
|
|
Previous
years' retained earnings
|
|
|
Income
(loss) for the period
|
|
|
Provisions
to dividens minimum
|
|
|
Total
attributable to the owners of the parents
|
|
|
Minority
Interest
|
|
|
Total equity (*)
|
|
Equity
as of December 31, 2005
|
|
|
746,037 |
|
|
|
42,376 |
|
|
|
- |
|
|
|
(18,447 |
) |
|
|
- |
|
|
|
- |
|
|
|
3,136 |
|
|
|
69,020 |
|
|
|
239,710 |
|
|
|
- |
|
|
|
1,081,832 |
|
|
|
1,464 |
|
|
|
1,083,296 |
|
Retained
earnings
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
239,710 |
|
|
|
(239,710 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Equity
as of January 01, 2006
|
|
|
746,037 |
|
|
|
42,376 |
|
|
|
- |
|
|
|
(18,447 |
) |
|
|
- |
|
|
|
- |
|
|
|
3,136 |
|
|
|
308,730 |
|
|
|
- |
|
|
|
- |
|
|
|
1,081,832 |
|
|
|
1,464 |
|
|
|
1,083,296 |
|
Dividends
paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(155,811 |
) |
|
|
- |
|
|
|
- |
|
|
|
(155,811 |
) |
|
|
- |
|
|
|
(155,811 |
) |
Price
-level restatement
|
|
|
15,816 |
|
|
|
4,513 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20,329 |
|
|
|
(93 |
) |
|
|
20,236 |
|
Change
in accounting principles
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(936 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(936 |
) |
|
|
- |
|
|
|
(936 |
) |
Other
comprenhensive income for the period
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,281 |
|
|
|
- |
|
|
|
- |
|
|
|
(2,938 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,343 |
|
|
|
- |
|
|
|
14,343 |
|
Income
for the period
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
285,582 |
|
|
|
- |
|
|
|
285,582 |
|
|
|
151 |
|
|
|
285,733 |
|
Equity
as of December 31, 2006
|
|
|
761,853 |
|
|
|
46,889 |
|
|
|
- |
|
|
|
(1,166 |
) |
|
|
- |
|
|
|
(936 |
) |
|
|
198 |
|
|
|
152,919 |
|
|
|
285,582 |
|
|
|
- |
|
|
|
1,245,339 |
|
|
|
1,522 |
|
|
|
1,246,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
in constant chilean pesos
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
891,303 |
|
|
|
54,857 |
|
|
|
- |
|
|
|
(1,363 |
) |
|
|
- |
|
|
|
(1,095 |
) |
|
|
232 |
|
|
|
178,902 |
|
|
|
334,106 |
|
|
|
- |
|
|
|
1,456,942 |
|
|
|
1,780 |
|
|
|
1,458,722 |
|
Other
comprehensive income for the period
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20,218 |
|
|
|
- |
|
|
|
- |
|
|
|
(3,437 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,781 |
|
|
|
- |
|
|
|
16,781 |
|
Equity
as of December 31, 2006
|
|
|
761,853 |
|
|
|
46,889 |
|
|
|
- |
|
|
|
(1,166 |
) |
|
|
- |
|
|
|
(936 |
) |
|
|
198 |
|
|
|
152,919 |
|
|
|
285,582 |
|
|
|
- |
|
|
|
1,245,339 |
|
|
|
1,522 |
|
|
|
1,246,861 |
|
Retained earnings
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
285,582 |
|
|
|
(285,582 |
) |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Equity
as of January 01, 2007
|
|
|
761,853 |
|
|
|
46,889 |
|
|
|
- |
|
|
|
(1,166 |
) |
|
|
- |
|
|
|
(936 |
) |
|
|
198 |
|
|
|
438,501 |
|
|
|
- |
|
|
|
- |
|
|
|
1,245,339 |
|
|
|
1,522 |
|
|
|
1,246,861 |
|
Dividends
paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(185,628 |
) |
|
|
- |
|
|
|
- |
|
|
|
(185,628 |
) |
|
|
- |
|
|
|
(185,628 |
) |
Price-level
restatement
|
|
|
56,682 |
|
|
|
3,419 |
|
|
|
(139 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20,132 |
|
|
|
- |
|
|
|
- |
|
|
|
80,094 |
|
|
|
1,400 |
|
|
|
81,494 |
|
Others
movements of equity
|
|
|
- |
|
|
|
(936 |
) |
|
|
(1,903 |
) |
|
|
- |
|
|
|
- |
|
|
|
936 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,903 |
) |
|
|
15,070 |
|
|
|
13,167 |
|
Accrual
for mandatory dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
comprehensive income for the period
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,382 |
) |
|
|
(5,867 |
) |
|
|
- |
|
|
|
1,742 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,507 |
) |
|
|
- |
|
|
|
(8,507 |
) |
Income
for the period
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
308,647 |
|
|
|
- |
|
|
|
308,647 |
|
|
|
2,055 |
|
|
|
310,702 |
|
Equity
as of December 31, 2007
|
|
|
818,535 |
|
|
|
49,372 |
|
|
|
(2,042 |
) |
|
|
(5,548 |
) |
|
|
(5,867 |
) |
|
|
- |
|
|
|
1,940 |
|
|
|
273,005 |
|
|
|
308,647 |
|
|
|
- |
|
|
|
1,438,042 |
|
|
|
20,047 |
|
|
|
1,458,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
in constant chilean pesos
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
891,303 |
|
|
|
53,763 |
|
|
|
(2,224 |
) |
|
|
(6,040 |
) |
|
|
(6,389 |
) |
|
|
- |
|
|
|
2,112 |
|
|
|
297,274 |
|
|
|
336,086 |
|
|
|
- |
|
|
|
1,565,885 |
|
|
|
21,829 |
|
|
|
1,587,714 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,772 |
) |
|
|
(6,389 |
) |
|
|
- |
|
|
|
1,897 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9,264 |
) |
|
|
- |
|
|
|
(9,264 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
as of December 31, 2007
|
|
|
818,535 |
|
|
|
49,372 |
|
|
|
(2,042 |
) |
|
|
(5,548 |
) |
|
|
(5,867 |
) |
|
|
- |
|
|
|
1,940 |
|
|
|
273,005 |
|
|
|
308,647 |
|
|
|
- |
|
|
|
1,438,042 |
|
|
|
20,047 |
|
|
|
1,458,089 |
|
Retained
earnings
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
308,647 |
|
|
|
(308,647 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Equity
as of January 01, 2008
|
|
|
818,535 |
|
|
|
49,372 |
|
|
|
(2,042 |
) |
|
|
(5,548 |
) |
|
|
(5,867 |
) |
|
|
- |
|
|
|
1,940 |
|
|
|
581,652 |
|
|
|
- |
|
|
|
- |
|
|
|
1,438,042 |
|
|
|
20,047 |
|
|
|
1,458,089 |
|
Minimum
dividend adjustment in accordance to Circular No 3443 (Note
2)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(92,594 |
) |
|
|
(92,594 |
) |
|
|
- |
|
|
|
(92,594 |
) |
Dividends
paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(200,619 |
) |
|
|
- |
|
|
|
92,594 |
|
|
|
(108,025 |
) |
|
|
- |
|
|
|
(108,025 |
) |
Price-level
restatement
|
|
|
72,768 |
|
|
|
4,391 |
|
|
|
(182 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
32,020 |
|
|
|
- |
|
|
|
- |
|
|
|
108,997 |
|
|
|
1,686 |
|
|
|
110,683 |
|
Accrual
for mandatory dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(98,444 |
) |
|
|
(98,444 |
) |
|
|
- |
|
|
|
(98,444 |
) |
Other
comprehensive income for the period
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(14,424 |
) |
|
|
16,740 |
|
|
|
- |
|
|
|
(393 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,923 |
|
|
|
(39 |
) |
|
|
1,884 |
|
Income
for the period
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
328,146 |
|
|
|
- |
|
|
|
328,146 |
|
|
|
2,871 |
|
|
|
331,017 |
|
Equity
as of December 31, 2008
|
|
|
891,303 |
|
|
|
53,763 |
|
|
|
(2,224 |
) |
|
|
(19,972 |
) |
|
|
10,783 |
|
|
|
- |
|
|
|
1,547 |
|
|
|
413,053 |
|
|
|
328,146 |
|
|
|
(98,444 |
) |
|
|
1,578,045 |
|
|
|
24,565 |
|
|
|
1,602,610 |
|
Period
|
|
Income
attributable to owners of the parent
|
|
|
Assigned
to reserves or retained earnings
|
|
Assigned
to Dividends
|
|
|
Distributed
Percentage
|
|
|
Dividend
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Year 2006 (Shareholders’ Meeting April 2007)
|
|
|
285,582 |
|
|
|
99,954 |
|
|
|
185,628 |
|
|
|
65 |
% |
|
|
0.985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Year 2007 (Shareholders’ Meeting April 2008)
|
|
|
308,647 |
|
|
|
108,028 |
|
|
|
200,619 |
|
|
|
65 |
% |
|
|
1.065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.-
Year 2008 (Shareholders’ Meeting April 2009)
|
|
|
328,146 |
|
|
|
114,851 |
|
|
|
213,295 |
|
|
|
65 |
% |
|
|
1.132 |
|
(*)
|
The
Statements of Changes in Equityfor the years 2007 and 2006 have been
restated as mentioned in Note 2.a to the consolidated financial
statements.
|
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, 2008 and thousands of U.S. dollars (ThUS$)
|
|
Note
|
|
|
Year
ended December 31,
|
|
|
|
|
|
|
2006
|
|
|
|
2007 |
(*) |
|
2008
|
|
|
2008
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
CASH
FLOWS OPERATING ACTIVITIES :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
1.s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME FOR THE YEAR
|
|
|
|
|
|
334,282 |
|
|
|
338,324 |
|
|
|
331,017 |
|
|
|
516,206 |
|
Items
that do not represent cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
42,079 |
|
|
|
45,741 |
|
|
|
51,944 |
|
|
|
81,004 |
|
Provision
for loan losses
|
|
|
|
|
|
199,571 |
|
|
|
283,300 |
|
|
|
323,848 |
|
|
|
505,026 |
|
Mark
to market of trading investment
|
|
|
|
|
|
(2,147 |
) |
|
|
(2,573 |
) |
|
|
(1,121 |
) |
|
|
(1,748 |
) |
Share
of profit in equity method investments
|
|
|
10 |
|
|
|
(919 |
) |
|
|
1,438 |
|
|
|
(851 |
) |
|
|
(1,327 |
) |
(Gain)
loss on sales of goods received in lieu of
payment
|
|
|
18 |
|
|
|
(13,296 |
) |
|
|
(12,401 |
) |
|
|
(8,481 |
) |
|
|
(13,226 |
) |
(Gain)
loss on sales of investment
in
other entities
|
|
|
|
|
|
|
699 |
|
|
|
(2,298 |
) |
|
|
(4,348 |
) |
|
|
(6,781 |
) |
(Gain)
loss on sales of bank premises and equipment
|
|
|
|
|
|
|
(659 |
) |
|
|
451 |
|
|
|
139 |
|
|
|
217 |
|
Write-offs
of assets received in lieu of payment
|
|
|
18 |
|
|
|
15,632 |
|
|
|
8,702 |
|
|
|
5,410 |
|
|
|
8,437 |
|
Price-level
restatement
|
|
|
|
|
|
|
16,123 |
|
|
|
61,332 |
|
|
|
78,027 |
|
|
|
121,680 |
|
Other
non- monetary charges
|
|
|
|
|
|
|
69,875 |
|
|
|
57,164 |
|
|
|
54,186 |
|
|
|
84,501 |
|
Net
change in interest accruals
|
|
|
|
|
|
|
(18,031 |
) |
|
|
(32,344 |
) |
|
|
(53,456 |
) |
|
|
(83,362 |
) |
Net
cash provided by operating activities
|
|
|
|
|
|
|
643,209 |
|
|
|
746,836 |
|
|
|
776,314 |
|
|
|
1,210,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(increase) decrease in loans
|
|
|
|
|
|
|
(1,782,215 |
) |
|
|
(1,072,834 |
) |
|
|
(1,661,910 |
) |
|
|
(2,591,673 |
) |
Decrease
in other financial investments
|
|
|
|
|
|
|
383,411 |
|
|
|
(681,629 |
) |
|
|
(732,310 |
) |
|
|
(1,142,004 |
) |
Purchases
of bank premises and equipment
|
|
|
|
|
|
|
(29,388 |
) |
|
|
(32,801 |
) |
|
|
(18,672 |
) |
|
|
(29,118 |
) |
Proceeds
from sales of bank premises and equipment
|
|
|
|
|
|
|
3,180 |
|
|
|
12,632 |
|
|
|
10,866 |
|
|
|
16,945 |
|
Investments
in other companies
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
2,470 |
|
|
|
3,852 |
|
Decrease
in investments in companies
|
|
|
|
|
|
|
- |
|
|
|
4,821 |
|
|
|
14,227 |
|
|
|
22,186 |
|
Dividends
received from investments in other companies
|
|
|
|
|
|
|
715 |
|
|
|
748 |
|
|
|
638 |
|
|
|
995 |
|
Net
change in goods received in lieu of payment
|
|
|
|
|
|
|
31,634 |
|
|
|
26,519 |
|
|
|
21,679 |
|
|
|
33,807 |
|
Net
(increase) in other
assets and liabilities
|
|
|
|
|
|
|
(314,699 |
) |
|
|
(53,691 |
) |
|
|
(297,841 |
) |
|
|
(464,469 |
) |
Net
cash used in investing activities
|
|
|
|
|
|
|
(1,707,362 |
) |
|
|
(1,796,235 |
) |
|
|
(2,660,853 |
) |
|
|
(4,149,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in current accounts
|
|
|
|
|
|
|
210,833 |
|
|
|
204,931 |
|
|
|
109,284 |
|
|
|
170,423 |
|
Net
increase in savings accounts and time
deposits
|
|
|
|
|
|
|
999,701 |
|
|
|
490,790 |
|
|
|
990,517 |
|
|
|
1,544,666 |
|
Net
increase in bankers drafts and other
deposits
|
|
|
|
|
|
|
138,562 |
|
|
|
12,126 |
|
|
|
(116,503 |
) |
|
|
(
181,681 |
) |
Net
increase (decrease) in investments sold under agreements to
repurchase
|
|
|
|
(48,018 |
) |
|
|
(37,160 |
) |
|
|
325,185 |
|
|
|
507,111 |
|
(Increase)
decrease of overseas of
short and long term
loans
|
|
|
|
|
|
|
(361,809 |
) |
|
|
234,177 |
|
|
|
224,225 |
|
|
|
349,669 |
|
Short-term
borrowings repaid
|
|
|
|
|
|
|
254 |
|
|
|
483 |
|
|
|
- |
|
|
|
- |
|
Increase
in mortgage finance bonds
|
|
|
|
|
|
|
(239,121 |
) |
|
|
(187,208 |
) |
|
|
(161,664 |
) |
|
|
(252,108 |
) |
Repayments
of mortgage finance bonds
|
|
|
|
|
|
|
112,633 |
|
|
|
47,239 |
|
|
|
(66,988 |
) |
|
|
(104,465 |
) |
Net
increase in bankers drafts and other
deposits
|
|
|
|
|
|
|
361,843 |
|
|
|
157,256 |
|
|
|
269,430 |
|
|
|
420,164 |
|
Central
Bank borrowings
|
|
|
|
|
|
|
(410,134 |
) |
|
|
(158,874 |
) |
|
|
(270,742 |
) |
|
|
(422,210 |
) |
Proceeds
from bond issues
|
|
|
|
|
|
|
235,972 |
|
|
|
660,425 |
|
|
|
449,143 |
|
|
|
700,418 |
|
Repayments
of bond issues
|
|
|
|
|
|
|
(78,270 |
) |
|
|
(73,658 |
) |
|
|
(37,498 |
) |
|
|
(58,476 |
) |
Other
long term lending
|
|
|
|
|
|
|
(10,636 |
) |
|
|
25,506 |
|
|
|
25,480 |
|
|
|
39,735 |
|
Dividends
paid
|
|
|
|
|
|
|
(182,285 |
) |
|
|
(215,734 |
) |
|
|
(214,864 |
) |
|
|
(335,071 |
) |
Net
cash provided by (used in) Financing
Activities
|
|
|
|
|
|
|
729,525 |
|
|
|
1,160,299 |
|
|
|
1,525,005 |
|
|
|
2,378,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT
OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH
EQUIVALENTS
|
|
|
|
|
|
|
(7,907 |
) |
|
|
4,527 |
|
|
|
3,126 |
|
|
|
4,875 |
|
NET
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
|
|
|
|
|
|
|
(342,535 |
) |
|
|
115,427 |
|
|
|
(356,408 |
) |
|
|
(555,802 |
) |
CASH
AND CASH
EQUIVALENTS,
BEGINNING OF PERIOD
|
|
|
|
|
|
|
1,631,207 |
|
|
|
1,288,672 |
|
|
|
1,404,099 |
|
|
|
2,189,628 |
|
CASH
AND CASH
EQUIVALENTS,
END OF THE YEAR
|
|
|
|
|
|
|
1,288,672 |
|
|
|
1,404,099 |
|
|
|
1,047,691 |
|
|
|
1,633,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash movements (assets received in lieu of payment)
|
|
|
|
|
|
|
22,946 |
|
|
|
11,132 |
|
|
|
14,338 |
|
|
|
22,359 |
|
Cash
paid during
the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
691,888 |
|
|
|
731,764 |
|
|
|
791,536 |
|
|
|
1,234,364 |
|
Taxes
|
|
|
|
|
|
|
2,326 |
|
|
|
2,405 |
|
|
|
2,573 |
|
|
|
4,012 |
|
(*)
|
The
Statements of Cash Flows for the years 2007 and 2006 have been
restated as mentioned in Note 2.a to the consolidated financial
statements.
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
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.
As a
result 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, 2007 and 2008 were as follows:
|
|
Percentage
Owned
|
|
Subsidiary
|
|
December
2006
|
|
|
December
2007
|
|
|
December
2008
|
|
|
|
Direct
|
|
|
Indirect
|
|
|
Total
|
|
|
Direct
|
|
|
Indirect
|
|
|
Total
|
|
|
Direct
|
|
|
Indirect
|
|
|
Total
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santander
Corredores de Seguro Ltda. (Ex-Santander Leasing S.A.) (2)
(3)
|
|
|
99.50 |
|
|
|
- |
|
|
|
99.50 |
|
|
|
99.50 |
|
|
|
- |
|
|
|
99.50 |
|
|
|
99.75 |
|
|
|
0.01 |
|
|
|
99.76 |
|
Santander
S.A. Corredores de Bolsa (1) (2)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50.59 |
|
|
|
0.41 |
|
|
|
51.00 |
|
|
|
50.59 |
|
|
|
0.41 |
|
|
|
51.00 |
|
Santander
Asset Management S.A. Administradora General de Fondos
|
|
|
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
|
|
|
99.64 |
|
|
|
- |
|
|
|
99.64 |
|
|
|
99.64 |
|
|
|
- |
|
|
|
99.64 |
|
|
|
99.64 |
|
|
|
- |
|
|
|
99.64 |
|
Santander
Corredora de Seguros Limitada (3)
|
|
|
99.99 |
|
|
|
- |
|
|
|
99.99 |
|
|
|
99.99 |
|
|
|
- |
|
|
|
99.99 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Santander
Servicios de Recaudación y Pagos Limitada
|
|
|
99.90 |
|
|
|
0.10 |
|
|
|
100.00 |
|
|
|
99.90 |
|
|
|
0.10 |
|
|
|
100.00 |
|
|
|
99.90 |
|
|
|
0.10 |
|
|
|
100.00 |
|
Santiago
Corredores de Bolsa Ltda. (1)
|
|
|
99.19 |
|
|
|
0.81 |
|
|
|
100.00 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
(1) In
conformity with 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”, at the Extraordinary Shareholders’ Meeting held on
January 15, 2007 by Santander Investment S.A. Corredores de Bolsa, a related
company Banco Santander Chile, it was 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 amounting to MCh$1.903 determined in the
transaction was recorded as a charge to the Bank Equity.
(2)
|
During
2008 the following subsidiaries changed their commercial
registry:
|
|
·
|
Santander
Corredores de Seguro Ltda. (formely Santander Leasing
S.A.)
|
|
·
|
Santander
S.A. Corredores de Bolsa
|
(3)
|
On
December 4, 2007, the Superintendency of Banks, authorized the
modification of statudes, sale of social rights and mergey 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).
|
In
accordance with 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”, at the Extraordinary Shareholder’s Meeting held on
October 1, 2008 by Santander Corredora de Seguros S.A., a company related of
Banco Santander Chile, it was approved the merger which incorporated the
subsidiary Santander Corredora de Seguros Limitada with Santander Corredora de
Seguro S.A. (formely Santander Leasing S.A.). The merger was effective from
January 1, 2008.
At the
time of above mentioned merger, Santander Corredora de Seguros S.A. became a
legal extension of Santander Corredora de Seguros Limitada.
The
merger of Santander Corredora de Seguros S.A. and Santander Corredora de Seguros
Limitada did not result in any changes in accounting for Banco Santander
Chile.
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 the use of 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.
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
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 year. 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 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, 2008
(“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,
2008. 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.
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
|
|
2006
|
|
|
124,11
|
|
|
|
2.12%
|
|
2007
|
|
|
133,34
|
|
|
|
7.44%
|
|
2008
|
|
|
145,19 |
|
|
|
8.89%
|
|
* Index as
of November 30 of each year compared with the index as of November 30 of the
prior year, under the prior month rule described above.
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
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 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$
|
2006
|
|
18,336.38
|
2007
|
|
19,622.66
|
2008
|
|
21,452.57
|
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, plus 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.
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
remaining amounts are then applied to principal. Accrued interest and indexation
adjustments are included in the Bank’s recorded the loan for the purpose of
determining the require allowance for loan losses.
f. Foreign currency – The Bank
grants loans and accepts deposits in amounts denominated in foreign currencies,
mainly in the U.S. dollar. 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 rate used as of December 31, 2008
was $641.25 to US$1 ($ 497.78 to US$ 1 in 2007). The subsidiaries
used the observed rate reported by the Central Bank of Chile at the balance
sheet date. The rate used was $ 636.45 to US$ 1 ($496.89 in 2007).
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
The use
of these exchange rates does not cause significant differences in the
consolidated financial statements.
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 to 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 the
rules of the Superintendency of Banks, the 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 initially recognized at cost (including transaction fees) and, subsequently
measured at fair value. The fair value is obtained from market quotes,
discounted cash flow models and option valuation models, as
applicable.
Certain
terms may be embedded 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
treated as a separate derivative under the accounting rules of Superintendency
of Banks.
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 “Net gains from
mark-to market and trading”. 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 the exposure to changes in the fair value of a recogniezed
asset or liability, the latter is recorded at its fair value. Gains or losses
from measuring the fair value of both, the item hedged and the hedging
instruments are recognized in income. If the hedge item 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 varibility in the cash flows of existing assets or
liabilities, or forecasted transactions, the effective portion of the changes in
fair value with regard to the risk hedged is recorded in other comprehensive
income. Any ineffective portion is recognized directly in the profit or loss.
The amounts recorded directly in other comprehensive income are recorded in
profit or loss 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 gains or losses from
measuring the fair value of both the portfolio hedged and the hedge item are
recognized in income.
h. Financial investments - 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 on initial recoginiton are part of 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. Fair value adjustments, interest income,
indexation adjustments, as well as realized gains/losses from trading are
included in the Income Statement under “Net gains from mark-to-market and
trading”.
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.
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 other comprehensive income. When these
investments are sold or become impaired, the amount of the adjustments to fair
value accumulated in other comprehensive income is reclassified to the income
statement and reported under “Net gains from mark-to-market and
trading”.
Held-to-maturity
investments are recorded at their cost value plus accrued interest and
adjustments, less provisions for impairment recorded when the carrying amount 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”. 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.
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
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 in the consolidated
balance sheets 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
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 property or 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 loans
section of the consolidated balance sheets.
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 recorded as interest income over the financing period. The
borrowers are responsible for the payments of the loans if the receivables are
not collected.
k. Property, plant and
equipment – Property plant and equipment are stated at acquisition cost
net of accumulated depreciation and have been price-level restated. 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, but
maintains significant influence over the operations, are accounted for under the
equity method. Other minority investments are carried at cost plus price-level
restatement.
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: (i) consumer, (ii) mortgage and (iii) commercial loans. The risk
models used internally to calculate the provisions are describe as
follows:
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
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. Classification
B corresponds 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 board of directors of the Bank is authorized
to determine the levels of required reserves. The Bank assigns a specific level
of risk to each borrower. Therefore borrowers with the same categories could
potentially have different levels of risk.
For loans
classified in Categories C1, C2, C3, C4, D1 and D2, the bank must have the
following levels of reserves:
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%
|
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 allowances 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.
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
Allowance
for consumer and mortgage loans
The
provisioning for consumer and mortgage loans is directly related to the aging of
the installment.
All
consumer and mortgage loans are 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 were refined in the
2007 by increasing the period of “back-testing” from 12 to 21 months and
separating the risk categories between old and new borrowers.
Additional
Allowances
Under the
regulations, 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.
Charge-offs
Under the
rules and the regulations establishe by the Superintendency of Banks, the Bank
charges off loans or portions thereof when collection efforts have been
exhausted. However, the 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 criterion a
when the Bank no longer considers such loans or portions thereof to be
collectible.
Loan
loss recoveries
Recoveries
of previously 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 income and expenses related
to loans and services - Fees and expenses related to loans are deferred
and recognized in income over the term of the loans. Fees for services rendered
are deferred and recognized in income during the period that 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.
NOTE
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continuation).
|
o. Current and deferred taxes
- Current taxes are recognized in an amount that approximates the amount due on
the respective income tax 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, using the liability method, recording deferred income taxes for the
effects of temporary differences between the book and tax bases of assets and
liabilities. Deferred taxes are calculated using tax rates estimated to be in
effect at the time of reversal of temporary differences that gave rise to
them.
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, considered as a whole. Assets
that have not been sold within one year are written-off as ruled by the
Superintendency of Banks.
q. Statement of cash flows -
For purposes of reporting cash flows, cash and cash equivalents include
cash and unsettled transactions, net for the year ended December 31, 2006, 2007
and 2008, the consolidated statements of cash flows have been prepared in
accordance with Technical Bulletin No. 65 of the Chilean Association of
Accountants.
r. Accrual for mandatory dividends
– At December 31, 2008, the Bank recognized a provision for mandatory
dividends. The new provisioning methodology for mandatory dividends in 2008,
requires the recognition in liabilities of a provision for dividends payable
which are mandatory under the law of public companies, and are in accordance
with the Bank’s dividend policies. The amount of dividends paid must not be less
than 30% of the Bank’s net income for the year.
s. 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, 2008, market exchange rate of
Ch$641.25 per US$1.00. The convenience 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.
The
Superintendency of Banks together with other Chilean Superintendencies and
regulatory bodies agreed to a plan of convergence with International Financial
Reporting Standards (“IFRS”) in order to internationalize financial reporting
for public companies in Chile.
The
Superintendency of Banks, by means of circular No 3410 on November 9, 2007,
issued its “Compendium of Accounting Standards” which contains the new
accounting formats and reporting standards and policies for the finance industry
that will be applied beginning on January 1, 2009, considering the transitional
provisions described in Chapter E of such Compendium. Subsequently, the
Superintendency of Bank issued on August 21, 2008 Circular No 3443 amending the
transitional provisions contained in Chapter E of the “Compendium of Accounting
Standards” requiring the application in 2008 of the new format of presentation
of the financial statements and amending the definition of “Cash and cash
equivalent”.
The
principal effects of the adoption of the new accounting standards are described
below.
a.
|
Accounting
changes effective for the year ended December 31,
2008.
|
Circular
No 3443 of the Superintendency of Banks amended the transitional provisions
contained in Chapter E of the “Compendium of Accounting Standards” requiring the
application in 2008 of the new format of presentation of the financial
statements and amending the definition of “Cash and cash
equivalent”.
For
comparative purposes, the financial statements as of December 31, 2007 and 2006
have been modified with respect to those originally prepared by the Bank in
order to adapt them to the new presentation requirements. These changes affect
the line items “Net Income” in the consolidated income statement and
“Shareholders’ equity” in the consolidated balance sheet as under the new
presentation formats, such line items include the equity and net income
corresponding to stockholders of both the Parent and the minority interests.
Under the previous presentation requirements total minority interests were
reported in the consolidated balance sheet in the mezzanine section between
liabilities and equity while in the consolidated statement of income were
presented as a deduction in arriving at consolidated net income.
For this
reason the financial statements for the year ended December 31, 2007 and 2006
will differ, in terms of presentation, from the prior year.
In
addition, Circular No 3443 required the application of new provisioning
methodology for mandatory dividends in 2008. Under this accounting policy, the
Bank requires the recognition in liabilities of a provision for dividends
payable which are mandatory under the Chilean general banking law, and are in
accordance with the bank’s dividends policy.
Until the
year ending, December 31, 2007, dividends were recognized on the date of the
ordinary shareholders meeting held on April of the following year.
This
change in accounting did not have an effect on the results of the bank; however
its application resulted in a reclassification within shareholders equity with a
retrospective effect as at January 1, 2008, corresponding to dividends which
would have required recognition in reserves in 2007 under the new accounting
regulations.
NOTE
2.
|
ACCOUNTING
CHANGES (continuation).
|
b.
|
Accounting
Changes Effective from January 1,
2009
|
Beginning
on January 1, 2009, Chilean Banks must apply the new accounting rules
established by the Superintendency of Banks. Legal regulations require that
these banks must follow the accounting rules issued by the Superintendency of
Banks and Chilean generally accepted accounting principles, consisting of
accounting standards issued by the national accounting body “Colegio de
Contadores de Chile A.G”. These accounting standards are consistent with
International Financial Reporting Standards as issued by the International
Accounting Standards Board (“IASB”). In the case of differences between Chilean
Generally Accepted Accounting Principles and the accounting rules issued by the
Superintendency of Banks, the rules prevail.
Under the
new accounting standards rules, the consolidated financial statements of the
Bank in 2009 should include for comparative purposes, a consolidated statement
of financial position as of December 31, 2008 and a consolidated income
statement for the year ending December 31, 2008 prepared in accordance with the
new accounting regulations.
As a
result of the application of these new accounting regulations there will be an
adjustment to equity at January 1, 2009. Additionally, these changes will affect
the Bank’s results in future periods.
The Bank
established a plan for the transition to the new accounting standards, which
included, an analysis of the differences in accounting policies, the selection
of accounting policies where there is a choice available, and an analysis of
required changes to procedures and systems.
At the
date of presentation of these consolidated financial statements the Bank is able
to estimate, with reasonable objectivity, to what extent the consolidated
balance sheet and consolidated income statement will differ from the comparative
balances that will be presented in the year to December 31, 2009 due to the
application of the new accounting policies described above.
|
CASH
AND CASH EQUIVALENTS
|
a)
The details of cash and cash equivalents is as follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Cash
and deposits in banks
|
|
|
|
|
|
|
Cash
|
|
|
325,754 |
|
|
|
337,059 |
|
Deposits
with the central bank
|
|
|
52,280 |
|
|
|
189,183 |
|
Deposits
with other domestic banks
|
|
|
828 |
|
|
|
751 |
|
Foreign
deposits
|
|
|
828,123 |
|
|
|
327,845 |
|
|
|
|
|
|
|
|
|
|
Subtotal
– Cash and deposits in banks
|
|
|
1,206,985 |
|
|
|
854,838 |
|
|
|
|
|
|
|
|
|
|
Unsettled
transactions, net
|
|
|
197,114 |
|
|
|
192,853 |
|
Total
Cash and Cash equivalents
|
|
|
1,404,099 |
|
|
|
1,047,691 |
|
b)
Unsettled transaction
Net
unsettled transactions correspond to transactions pending of settlement that
will increase or decrease deposits with the Central Bank of Chile or foreign
banks, such operations are normally settled within 2 business days following the
each year end.
The
detail of unsettled transaction is as follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Assets
|
|
|
|
|
|
|
Uncleared
checks and similar documents due from banks
|
|
|
199,475 |
|
|
|
214,929 |
|
Uncleared
funds receivable
|
|
|
144,879 |
|
|
|
120,476 |
|
Subtotal
– Assets
|
|
|
344,354 |
|
|
|
335,405 |
|
Liabilities
|
|
|
|
|
|
|
|
|
Uncleared
funds payable
|
|
|
147,240 |
|
|
|
142,552 |
|
|
|
|
|
|
|
|
|
|
Subtotal
– Liabilities
|
|
|
147,240 |
|
|
|
142,552 |
|
|
|
|
|
|
|
|
|
|
Unsetted
transactions, net
|
|
|
197,114 |
|
|
|
192,853 |
|
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$ 355,758 and MCh$
453,042 as of December 31, 2007 and 2008, 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 policy
the Bank does not maintain instruments classified as held to
maturity.
Financial
investment as of December 31, 2007 and 2008 are as follows:
a) Trading
Investments
A summary
of trading investments can be found below:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Chilean
Central Bank and Government securities
|
|
|
|
|
|
|
Chilean
Central Bank Bonds
|
|
|
601,212 |
|
|
|
786,263 |
|
Chilean
Central Bank Notes
|
|
|
274,357 |
|
|
|
218,355 |
|
Other
Chilean Central Bank and treasury securities
|
|
|
127,663 |
|
|
|
71,739 |
|
Subtotal
|
|
|
1,003,232 |
|
|
|
1,076,357 |
|
|
|
|
|
|
|
|
|
|
Other
Chilean securities
|
|
|
|
|
|
|
|
|
Deposits
in Chilean financial institutions
|
|
|
10,932 |
|
|
|
- |
|
Mortgage
finance bonds
|
|
|
35,621 |
|
|
|
2,787 |
|
Chilean
financial institution bonds
|
|
|
8,430 |
|
|
|
3,030 |
|
Chilean
corporate bonds
|
|
|
12,567 |
|
|
|
24,833 |
|
Other
Chilean securities
|
|
|
16,706 |
|
|
|
- |
|
Subtotal
|
|
|
84,256 |
|
|
|
30,650 |
|
|
|
|
|
|
|
|
|
|
Foreign
financial securities
|
|
|
|
|
|
|
|
|
Other
foreign securities
|
|
|
7,543 |
|
|
|
- |
|
Subtotal
|
|
|
7,543 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Investments
in mutual funds
|
|
|
|
|
|
|
|
|
Mutual
funds managed for related parties
|
|
|
91,874 |
|
|
|
54,624 |
|
Subtotal
|
|
|
91,874 |
|
|
|
54,624 |
|
Total
|
|
|
1,186,905 |
|
|
|
1,161,631 |
|
Central
Bank and government securities includes instruments sold under repurchase
agreements with clients and financial institutions for an amount of MCh$ 81,623
as of December 31, 2007. As of December 31, 2008 there were no such
balances.
As of
December 31, 2008 and 2007, other Chilean securities and foreign financial
securities includes instruments sold under repurchase agreements with clients
and financial institutions for an amoun of MCh$ 971 and MCh$ 3,012,
respectively.
Repurchase
agreements have an average maturity of 27 days as of December 31, 2008 (28 days
in 2007).
NOTE
4.
|
FINANCIAL
INVESTMENTS (continuation).
|
b) Available
for sale investments
A summary
of available for sale investments can be found below:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
Chilean
Central Bank and Government securities
|
|
MCh$
|
|
|
MCh$
|
|
Chilean
Central Bank Bonds
|
|
|
307,682 |
|
|
|
690,123 |
|
Chilean
Central Bank Notes
|
|
|
59,132 |
|
|
|
49,204 |
|
Other
Chilean Central Bank and treasury securities
|
|
|
118,901 |
|
|
|
93,128 |
|
Subtotal
|
|
|
485,715 |
|
|
|
832,455 |
|
|
|
|
|
|
|
|
|
|
Other
Chilean securities
|
|
|
|
|
|
|
|
|
Time
deposits in Chilean financial institutions
|
|
|
- |
|
|
|
1,305 |
|
Mortgage
finance bonds
|
|
|
297,281 |
|
|
|
284,033 |
|
Chilean
corporate bonds
|
|
|
- |
|
|
|
13,522 |
|
Subtotal
|
|
|
297,281 |
|
|
|
298,860 |
|
|
|
|
|
|
|
|
|
|
Other
financial securities
|
|
|
|
|
|
|
- |
|
Central
Bank and Government foreign securities
|
|
|
65,949 |
|
|
|
- |
|
Other
foreign securities
|
|
|
- |
|
|
|
448,925 |
|
Subtotal
|
|
|
65,949 |
|
|
|
448,925 |
|
Total
|
|
|
848,945 |
|
|
|
1,580,240 |
|
Central
Bank and government securities included instruments sold under repurchase
agreements with clients and financial institutions for amount of MCh$ 120,648
and MCh$ 64,091 as of December 31, 2008 and 2007, respectively.
As of
December 31, 2008 and 2007, available for sale investments included unrealized
losses for MCh$ 20,019 and MCh$ 6,040 respectively, recognized as valuation
adjustment in shareholders equity, split between an amount of MCh$ 19,972
attributable to owners of the parent and MCh$ 47 attributable to minority
interests. In 2007 there was no effect on minority interests, since Bank’s
subsidiaries did not hold any available for sale investments.
c) Held-to-maturity
Investments
As of
December 31, 2007 and 2008, no financial investments were classified as
Held-to-maturity.
|
NET
GAINS FROM MARK-TO MARKET AND TRADING AND FOREIGN EXCHANGE
DIFFERENCES
|
As of
December 31, 2007 and 2008, the composition of this item is as
follows:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Net
gains from mark-to market and trading
|
|
|
|
|
|
|
|
|
|
Derivative
instruments for trading
|
|
|
51,982 |
|
|
|
(89,751 |
) |
|
|
178,883 |
|
Trading
investments
|
|
|
79,773 |
|
|
|
87,957 |
|
|
|
76,829 |
|
Sale
of loans and receivables from customers
|
|
|
2,512 |
|
|
|
28,425 |
|
|
|
14,765 |
|
Current
portfolio past–due
|
|
|
2,512 |
|
|
|
340 |
|
|
|
395 |
|
Charged-off
|
|
|
- |
|
|
|
28,085 |
|
|
|
14,370 |
|
Available
for sale investments
|
|
|
2,120 |
|
|
|
39 |
|
|
|
3,807 |
|
Other
results from financial operations
|
|
|
(922 |
) |
|
|
126 |
|
|
|
(1,200 |
) |
Subtotal
|
|
|
135,465 |
|
|
|
26,796 |
|
|
|
273,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange differences
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
gains (losses), net
|
|
|
(52,547 |
) |
|
|
91,033 |
|
|
|
(402,927 |
) |
Derivative
instruments in designated hedge
|
|
|
55,542 |
|
|
|
(17,634 |
) |
|
|
243,979 |
|
Exchange
rate gain (losses) from assets denominated in foreign
currencies
|
|
|
8,588 |
|
|
|
(9,369 |
) |
|
|
12,684 |
|
Exchange
rate gain (losses) from liabilities denominated in foreign
currencies
|
|
|
(12,135 |
) |
|
|
18,977 |
|
|
|
(40,778 |
) |
Subtotal
|
|
|
(552 |
) |
|
|
83,007 |
|
|
|
(187,042 |
) |
Total
|
|
|
134,913 |
|
|
|
109,803 |
|
|
|
86,042 |
|
The loans
on the accompanying consolidated balance sheets consist of the subcategories as
described below.
Interbank loans usually are
short-term loans to financial institutions that operate in Chile.
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.
Foreign trade loans are fixed
rate, short-term loans granted in foreign currencies (principally U.S. dollars)
to finance imports and exports.
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.
NOTE
6.
|
LOANS
(continuation).
|
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 property value.
|
|
As
of December 31,
|
|
Loans
Portfolio
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Interbank
loans
|
|
|
50,047 |
|
|
|
95,534 |
|
Allowance
|
|
|
- |
|
|
|
(35 |
) |
Sub-total
Interbank loans
|
|
|
50,047 |
|
|
|
95,499 |
|
|
|
|
|
|
|
|
|
|
Comercial
loans
|
|
|
7,437,607 |
|
|
|
8,374,498 |
|
Commercial
loans
|
|
|
5,552,834 |
|
|
|
6,002,108 |
|
Foreign
trade loans
|
|
|
925,275 |
|
|
|
1,396,596 |
|
Leasing
contract
|
|
|
952,827 |
|
|
|
967,632 |
|
Other
oustanding loans
|
|
|
6,671 |
|
|
|
8,162 |
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
|
3,642,908 |
|
|
|
3,981,346 |
|
|
|
|
|
|
|
|
|
|
Consumer
loans
|
|
|
2,267,719 |
|
|
|
2,248,996 |
|
|
|
|
|
|
|
|
|
|
Allowance
for loans losses
|
|
|
(250,887 |
) |
|
|
(285,470 |
) |
|
|
|
|
|
|
|
|
|
Sub-total
Loans and receivables from customers
|
|
|
13,097,347 |
|
|
|
14,319,370 |
|
Total
Loans
|
|
|
13,147,394 |
|
|
|
14,414,869 |
|
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,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Community,
social and personal services
|
|
|
16.4 |
% |
|
|
15.6 |
% |
Residential
mortgage loans
|
|
|
27.1 |
% |
|
|
27.0 |
% |
Consumer
credit
|
|
|
16.8 |
% |
|
|
15.4 |
% |
Financial
services
|
|
|
7.4 |
% |
|
|
6.6 |
% |
Commerce
|
|
|
8.9 |
% |
|
|
10.4 |
% |
Manufacturing
|
|
|
5.9 |
% |
|
|
6.3 |
% |
Construction
|
|
|
6.3 |
% |
|
|
5.8 |
% |
Agriculture,
livestock, agribusiness, fishing
|
|
|
5.3 |
% |
|
|
5.6 |
% |
Electricity,
gas and water
|
|
|
0.7 |
% |
|
|
0.7 |
% |
Transport,
storage and communications
|
|
|
3.9 |
% |
|
|
3.8 |
% |
Mining
and petroleum
|
|
|
1.3 |
% |
|
|
2.8 |
% |
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, 2007 and 2008. Unearned
income presented in the table corresponds to the interest to be earned at each
year end.
|
|
As
of December 31, 2007
|
|
|
As
of December 31, 2008
|
|
|
|
Total
Receivable
|
|
|
Unearned
Income
|
|
|
Net
lease receivable
|
|
|
Total
Receivable
|
|
|
Unearned
Income
|
|
|
Net
lease receivable
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
|
326,596 |
|
|
|
(36,750 |
) |
|
|
289,846 |
|
|
|
342,961 |
|
|
|
(37,434 |
) |
|
|
305,527 |
|
Due
after 1 year but within 2 years
|
|
|
237,475 |
|
|
|
(31,605 |
) |
|
|
205,870 |
|
|
|
236,931 |
|
|
|
(30,831 |
) |
|
|
206,100 |
|
Due
after 2 years but within 3 years
|
|
|
167,747 |
|
|
|
(27,293 |
) |
|
|
140,454 |
|
|
|
159,030 |
|
|
|
(25,252 |
) |
|
|
133,778 |
|
Due
after 3 years but within 4 years
|
|
|
107,582 |
|
|
|
(20,101 |
) |
|
|
87,481 |
|
|
|
104,473 |
|
|
|
(19,784 |
) |
|
|
84,689 |
|
Due
after 4 years but within 5 years
|
|
|
68,618 |
|
|
|
(13,371 |
) |
|
|
55,247 |
|
|
|
75,338 |
|
|
|
(16,182 |
) |
|
|
59,156 |
|
Due
after 5 years
|
|
|
232,353 |
|
|
|
(58,424 |
) |
|
|
173,929 |
|
|
|
242,614 |
|
|
|
(64,232 |
) |
|
|
178,382 |
|
Total
|
|
|
1,140,371 |
|
|
|
(187,544 |
) |
|
|
952,827 |
|
|
|
1,161,347 |
|
|
|
(193,715 |
) |
|
|
967,632 |
|
Leased
assets consist principally of real estate, industrial machinery, vehicles and
computer equipment.
|
ALLOWANCE
FOR LOAN LOSSES AND OTHER
PROVISIONS
|
a) Allowance
for loan losses:
The
following table provides information regarding the bank’s allowance for loan
losses recognized in the income statement:
|
|
As
of December 31, 2008
|
|
|
|
Interbank
loanss
|
|
|
Loans
and accounts receivables from clients
|
|
|
Contingent
loans
|
|
|
TOTAL
|
|
|
|
Commercial
loans
|
|
|
Mortgage
loans
|
|
|
Consumer
loans
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Allowances
established:
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
-
Individual evaluations
|
|
|
(35 |
) |
|
|
(32,284 |
) |
|
|
- |
|
|
|
- |
|
|
|
(358 |
) |
|
|
(32,677 |
) |
-
Group evaluations
|
|
|
- |
|
|
|
(39,721 |
) |
|
|
(8,245 |
) |
|
|
(251,068 |
) |
|
|
(49 |
) |
|
|
(299,083 |
) |
Total
allowances established
|
|
|
(35 |
) |
|
|
(72,005 |
) |
|
|
(8,245 |
) |
|
|
(251,068 |
) |
|
|
(407 |
) |
|
|
(331,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
released:
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
-
Individual evaluations
|
|
|
- |
|
|
|
2,725 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,725 |
|
-
Group evaluations
|
|
|
- |
|
|
|
2,046 |
|
|
|
685 |
|
|
|
2,457 |
|
|
|
- |
|
|
|
5,188 |
|
Total
allowances released
|
|
|
- |
|
|
|
4,771 |
|
|
|
685 |
|
|
|
2,457 |
|
|
|
- |
|
|
|
7,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery
of loans previously charged off
|
|
|
- |
|
|
|
9,244 |
|
|
|
1,932 |
|
|
|
26,718 |
|
|
|
- |
|
|
|
37,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge to income
|
|
|
(35 |
) |
|
|
(57,990 |
) |
|
|
(5,628 |
) |
|
|
(221,893 |
) |
|
|
(407 |
) |
|
|
(285,953 |
) |
NOTE
8.
|
ALLOWANCE
FOR LOAN LOSSES AND OTHER PROVISIONS
(continuation).
|
|
|
As
of December 31, 2007
|
|
|
|
Interbank
loanss
|
|
|
Loans
and accounts receivables from clients
|
|
|
Contingent
loans
(*)
|
|
|
TOTAL
|
|
|
|
Commercial
loans
|
|
|
Mortgage
loans
|
|
|
Consumer
loans
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Allowances
established:
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
-
Individual evaluations
|
|
|
- |
|
|
|
(52,329 |
) |
|
|
- |
|
|
|
- |
|
|
|
(135 |
) |
|
|
(52,464 |
) |
-
Group evaluations
|
|
|
- |
|
|
|
(62,471 |
) |
|
|
(10,054 |
) |
|
|
(206,436 |
) |
|
|
(444 |
) |
|
|
(279,405 |
) |
Total
allowances established
|
|
|
- |
|
|
|
(114,800 |
) |
|
|
(10,054 |
) |
|
|
(206,436 |
) |
|
|
(579 |
) |
|
|
(331,869 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
released:
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
-
Individual evaluations
|
|
|
- |
|
|
|
26,060 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,060 |
|
-
Group evaluations
|
|
|
- |
|
|
|
9,195 |
|
|
|
1,486 |
|
|
|
13,874 |
|
|
|
- |
|
|
|
24,555 |
|
Total
allowances released
|
|
|
- |
|
|
|
35,255 |
|
|
|
1,486 |
|
|
|
13,874 |
|
|
|
- |
|
|
|
50,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery
of loans previously charged off
|
|
|
- |
|
|
|
31,600 |
|
|
|
4,691 |
|
|
|
20,296 |
|
|
|
- |
|
|
|
56,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge to income
|
|
|
- |
|
|
|
(47,945 |
) |
|
|
(3,877 |
) |
|
|
(172,266 |
) |
|
|
(579 |
) |
|
|
(224,667 |
) |
(*) The
allowance for contingent loans corresponds to the operations described in note
21.
As of
December 31, 2008 and 2007 the allowance for loan losses is related to the
following activities:
|
|
As
of December 31, 2008
|
|
|
|
Gross
assets
|
|
|
Loan
loss allowance
|
|
|
Net
assets
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Loans
and receivables from customers
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
|
8,374,498 |
|
|
|
(125,115 |
) |
|
|
8,249,383 |
|
Mortgage
loans
|
|
|
3,981,346 |
|
|
|
(12,871 |
) |
|
|
3,968,475 |
|
Consumer
loans
|
|
|
2,248,996 |
|
|
|
(147,484 |
) |
|
|
2,101,512 |
|
Total
|
|
|
14,604,840 |
|
|
|
(285,470 |
) |
|
|
14,319,370 |
|
Interbank
loans
|
|
|
95,534 |
|
|
|
(35 |
) |
|
|
95,499 |
|
|
|
As
of December 31, 2007
|
|
|
|
Gross
assets
|
|
|
Loan
loss allowance
|
|
|
Net
assets
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Loans
and receivables from customers
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
|
7,437,607 |
|
|
|
(93,050 |
) |
|
|
7,344,557 |
|
Mortgage
loans
|
|
|
3,642,908 |
|
|
|
(10,180 |
) |
|
|
3,632,728 |
|
Consumer
loans
|
|
|
2,267,719 |
|
|
|
(147,657 |
) |
|
|
2,120,062 |
|
Total
|
|
|
13,348,234 |
|
|
|
(250,887 |
) |
|
|
13,097,347 |
|
Interbank
loans
|
|
|
50,047 |
|
|
|
- |
|
|
|
50,047 |
|
NOTE
8.
|
ALLOWANCE
FOR LOAN LOSSES AND OTHER PROVISIONS
(continuation).
|
b) Other
Provisions
The
detail of other provisions recognized in liabilities is as follows:
|
|
As of December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Provisions
for personnel salaries and expenses
|
|
|
30,069 |
|
|
|
34,427 |
|
Provisions
for mandatory dividends (*)
|
|
|
- |
|
|
|
98,444 |
|
Allowance
for contingent loans
|
|
|
2,571 |
|
|
|
2,769 |
|
Other
provisions
|
|
|
17,859 |
|
|
|
26,525 |
|
Total
Provisions
|
|
|
50,499 |
|
|
|
162,165 |
|
(*) See
Note 1.r regarding the recognition of mandatory dividends since January 1,
2008.
|
PROPERTY,
PLANT AND EQUIPMENT
|
The Bank
property, plant and equipment, net of accumulated depreciation are as
follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Land
and buildings
|
|
|
230,936 |
|
|
|
226,414 |
|
Furniture
and fixtures
|
|
|
13,165 |
|
|
|
12,916 |
|
Machinery
and equipment
|
|
|
18,484 |
|
|
|
16,783 |
|
Vehicles
|
|
|
1,088 |
|
|
|
895 |
|
Others
|
|
|
3,782 |
|
|
|
3,097 |
|
Total
bank property, plant and equipment, net
|
|
|
267,455 |
|
|
|
260,105 |
|
Related
depreciation expense was MCh$ 22,114 and MCh$ 25,203 as of December 31, 2007 and
2008, respectively.
|
INVESTMENTS
IN OTHER COMPANIES
|
Investments
in other companies consist of the following:
|
|
|
As
of December 31,
|
|
|
|
Ownership
|
|
|
Equity
of the
|
|
|
Carrying
Value
|
|
|
Participation
net income
|
|
|
|
interest
|
|
|
Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
Companies
|
|
%
|
|
|
%
|
|
|
%
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Centro
de Compensación Automatizado
|
|
|
33.33 |
|
|
|
33.33 |
|
|
|
33.33 |
|
|
|
897 |
|
|
|
921 |
|
|
|
299 |
|
|
|
307 |
|
|
|
47 |
|
|
|
41 |
|
|
|
28 |
|
Redbanc
S.A.
|
|
|
33.42 |
|
|
|
33.42 |
|
|
|
33.42 |
|
|
|
4,289 |
|
|
|
4,530 |
|
|
|
1,434 |
|
|
|
1,515 |
|
|
|
235 |
|
|
|
218 |
|
|
|
145 |
|
Transbank
S.A.
|
|
|
32.71 |
|
|
|
32.71 |
|
|
|
32.71 |
|
|
|
6,153 |
|
|
|
6,794 |
|
|
|
2,013 |
|
|
|
2,223 |
|
|
|
309 |
|
|
|
310 |
|
|
|
517 |
|
Soc.
Interb. de Depósito de Valores S.A.
|
|
|
29.28 |
|
|
|
29.28 |
|
|
|
29.28 |
|
|
|
1,333 |
|
|
|
1,454 |
|
|
|
390 |
|
|
|
426 |
|
|
|
79 |
|
|
|
76 |
|
|
|
75 |
|
Sociedad
Nexus S.A.
|
|
|
12.90 |
|
|
|
12.90 |
|
|
|
12.90 |
|
|
|
5,095 |
|
|
|
4,916 |
|
|
|
657 |
|
|
|
634 |
|
|
|
139 |
|
|
|
127 |
|
|
|
104 |
|
Adm.
Financiero Transantiago (3)
|
|
|
20.00 |
|
|
|
20.00 |
|
|
|
20.00 |
|
|
|
4,468 |
|
|
|
2,843 |
|
|
|
894 |
|
|
|
568 |
|
|
|
(111 |
) |
|
|
(2,728 |
) |
|
|
(284 |
) |
Cámara
Compensación de Alto Valor S.A.
|
|
|
11.52 |
|
|
|
11.52 |
|
|
|
11.52 |
|
|
|
3,959 |
|
|
|
3,727 |
|
|
|
456 |
|
|
|
429 |
|
|
|
68 |
|
|
|
53 |
|
|
|
66 |
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,143 |
|
|
|
6,102 |
|
|
|
766 |
|
|
|
(1,903 |
) |
|
|
651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Globalnet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
(9 |
) |
|
|
- |
|
|
|
- |
|
Bladex
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149 |
|
|
|
148 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Bolsas
de Comercio (1) (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
723 |
|
|
|
385 |
|
|
|
152 |
|
|
|
318 |
|
|
|
112 |
|
Mastercard
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 |
|
|
|
90 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294 |
|
|
|
265 |
|
|
|
10 |
|
|
|
147 |
|
|
|
88 |
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,399 |
|
|
|
6,990 |
|
|
|
919 |
|
|
|
(1,438 |
) |
|
|
851 |
|
(1)
|
On
January 14, 2008, the subsidiary Santander S.A. Corredores de Bolsa sold
its investment in Bolsa de Comercio de Santiago for an amount of MCh$
1,315. At the date of the sale its carrying value was MCh$ 341 generating
a profit on disposal of MCh$ 974.
|
(2)
|
On
August 18, 2008, the Bank sold 38 shares in Swift, for an amount of MCh$
51. At the date of sale the carrying value of the shares was MCh$ 45,
generating a profit on disposal of MCh$
6.
|
On March
12, 2008 Visa Inc. granted to the Bank a total of 312,379 class C series 1
shares, valued in local currency at $1. On March 28, 2008, the Bank sold 56.19%
of its shareholding, corresponding to 175,512 shares, at a price per share of
$19,190, generating a gain on sale of MCh$ 3,368.
(3)
|
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$ 11,107. Since Banco
Santander Chile owns 20% of the mentioned entity the equity invested
increased by MCh$ 2,221.
|
(4)
|
In
August 2007, one share of “Bolsa de Comercio de Santiago” was sold. The
sale price was MCh$ 1,215 and the realized gain was MCh$
826.
|
(5)
|
In
November 2007, the Bank sold 17,000 shares in Mastercard resulting in a
gain of MCh$ 1,439.
|
During
2008 the Bank received dividends from these investments for an amount of MCh$
638 (MCh$ 748 in 2007).
|
OTHER
ASSETS AND OTHER LIABILITIES
|
a) Other
assets
The
detail of other assets as of December 31, 2008 and 2007 is as
follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Assets
for leasing
|
|
|
64,870 |
|
|
|
101,952 |
|
|
|
|
|
|
|
|
|
|
Assets
received in lieu of payment
|
|
|
|
|
|
|
|
|
Received
in lieu of payment
|
|
|
1,160 |
|
|
|
6,138 |
|
Awarded
in judicial sale
|
|
|
9,972 |
|
|
|
14,280 |
|
Provision
for assets received in lieu of payment
|
|
|
(1,558 |
) |
|
|
(1,020 |
) |
Subtotal
|
|
|
9,574 |
|
|
|
19,398 |
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
Guarantees
issued (threshold)
|
|
|
206,348 |
|
|
|
157,819 |
|
VAT
tax credit
|
|
|
7,793 |
|
|
|
7,104 |
|
Income
tax recoverable
|
|
|
8,001 |
|
|
|
10,811 |
|
Prepaid
expenses
|
|
|
30,191 |
|
|
|
25,305 |
|
Assets
recovered from leasing for sale
|
|
|
3,181 |
|
|
|
1,326 |
|
Accounts
and notes receivable
|
|
|
46,900 |
|
|
|
81,241 |
|
Notes
receivable by brokerage and simultaneous operations
|
|
|
91,477 |
|
|
|
74,875 |
|
Other
assets
|
|
|
47,903 |
|
|
|
40,517 |
|
Subtotal
|
|
|
441,794 |
|
|
|
398,998 |
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
516,238 |
|
|
|
520,348 |
|
b) Other
liabilities
The
detail of other liabilities as of December 31, 2008 and 2007 is as
follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Accounts
and notes payable
|
|
|
80,532 |
|
|
|
73,596 |
|
Unearned
income
|
|
|
7,009 |
|
|
|
4,669 |
|
Guarantees
received (threshold)
|
|
|
16,538 |
|
|
|
177,017 |
|
Documents
payable for brokerage and simultaneous operations
|
|
|
12,737 |
|
|
|
11,192 |
|
Other
liabilites
|
|
|
10,257 |
|
|
|
25,708 |
|
|
|
|
|
|
|
|
|
|
Total
other liabilities
|
|
|
127,073 |
|
|
|
292,182 |
|
|
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.
|
|
December 31,
2008
|
|
|
|
Long-term
|
|
|
Short- term
|
|
|
Total
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Central Bank
borrowings
|
|
|
- |
|
|
|
269,430 |
|
|
|
269,430 |
|
Invesment under agreements to
repurchase
|
|
|
853 |
|
|
|
292,951 |
|
|
|
293,804 |
|
Investments under agreements to
repurchase
|
|
|
853 |
|
|
|
562,381 |
|
|
|
563,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit loans for
renegotiation of
loans
|
|
|
- |
|
|
|
3,012 |
|
|
|
3,012 |
|
Borrowings from domestic financial
institutions
|
|
|
- |
|
|
|
5,001 |
|
|
|
5,001 |
|
Foreign borrowings
|
|
|
309,055 |
|
|
|
1,107,997 |
|
|
|
1,417,052 |
|
Interbank
borrowings
|
|
|
309,055 |
|
|
|
1,116,010 |
|
|
|
1,425,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage finance
bonds
|
|
|
289,913 |
|
|
|
54,767 |
|
|
|
344,680 |
|
Other borrowings: bonds
|
|
|
1,362,198 |
|
|
|
256,582 |
|
|
|
1,618,780 |
|
Subordinated
bond
|
|
|
687,912 |
|
|
|
- |
|
|
|
687,912 |
|
Debt instruments
issued
|
|
|
2,340,023 |
|
|
|
311,349 |
|
|
|
2,651,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
obligations
|
|
|
7,357 |
|
|
|
95,921 |
|
|
|
103,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
borrowings
|
|
|
2,657,288 |
|
|
|
2,085,661 |
|
|
|
4,742,949 |
|
|
|
December 31,
2007
|
|
|
|
Long-term
|
|
|
Short-term
|
|
|
Total
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Central Bank
borrowings
|
|
|
- |
|
|
|
155,027 |
|
|
|
155,027 |
|
Invesment under agreements to
repurchase
|
|
|
- |
|
|
|
181,063 |
|
|
|
181,063 |
|
Invesment under agreements to
repurchase
|
|
|
- |
|
|
|
336,090 |
|
|
|
336,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit loans for
renegotiation of
loans
|
|
|
- |
|
|
|
4,325 |
|
|
|
4,325 |
|
Foreigns borrowings
|
|
|
529,855 |
|
|
|
663,004 |
|
|
|
1,192,859 |
|
Interbank
borrowings
|
|
|
529,855 |
|
|
|
667,329 |
|
|
|
1,197,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage finance
bonds
|
|
|
407,625 |
|
|
|
62,533 |
|
|
|
470,158 |
|
Other borrowings: bonds
|
|
|
1,333,910 |
|
|
|
- |
|
|
|
1,333,910 |
|
Subordinated
bonds
|
|
|
542,507 |
|
|
|
- |
|
|
|
542,507 |
|
Debt instruments
issued
|
|
|
2,284,042 |
|
|
|
62,533 |
|
|
|
2,346,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
obligations
|
|
|
11,356 |
|
|
|
149,657 |
|
|
|
161,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
borrowings
|
|
|
2,825,253 |
|
|
|
1,215,609 |
|
|
|
4,040,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
12.
|
OTHER
INTEREST BEARING LIABILITIES
(continuation).
|
a)
|
Central
Bank borrowings
|
Central
Bank borrowings include credit lines for the renegotiation of loans and other
Central Bank borrowings. These credit lines were provided by the Central Bank
for the renegotiation 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 to mortgage loans linked to
the UF index and bear an annual interest rate of 3.0% and 3.0% at December 31,
2007 and 2008, respectively. The maturities of the outstanding amounts due to
the Central Bank are as follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Total
credit lines for renegotiation of loans
|
|
|
4,325 |
|
|
|
3,012 |
|
The
maturities of MCh$3,012 due under these long-term credit lines, are due within
one year.
b)
|
Mortgage
finance bonds
|
These
bonds are used to finance mortgage loans. The outstanding principal amounts of
the bonds are amortized on a quarterly basis. The range of maturities of these
bonds is between five and twenty years. The bonds are linked to the UF index and
bear a weighted-average annual interest rate of 4.6%.
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
|
MCh$
|
|
|
|
|
|
Due
within 1 year
|
|
|
54,767 |
|
Due
after 1 year but within 2 years
|
|
|
41,211 |
|
Due
after 2 years but within 3 years
|
|
|
37,635 |
|
Due
after 3 years but within 4 years
|
|
|
31,284 |
|
Due
after 4 years but within 5 years
|
|
|
33,655 |
|
Due
after 5 years
|
|
|
146,128 |
|
Total
mortgage finance bonds
|
|
|
344,680 |
|
The
following table sets forth, at the dates indicated, our issued
bonds.
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
Santander
Bonds linked to the UF
|
|
|
1,116,948 |
|
|
|
1,362,198 |
|
Santander
Bonds denominated in US$
|
|
|
216,962 |
|
|
|
256,582 |
|
Total
bonds
|
|
|
1,333,910 |
|
|
|
1,618,780 |
|
NOTE
12.
|
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, 2007 and 2008, the balance was included in 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 (5.50% and 2,54 % at December, 2007 and 2008). 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$ 729,387 as December 31, 2008). 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.
|
|
|
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.
|
|
|
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.
|
|
|
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.
|
|
|
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
12.
|
OTHER
INTEREST BEARING LIABILITIES
(continuation).
|
|
f)
|
On
June 7, 2007, the Bank issued Series T 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.
|
|
|
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.
|
|
|
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.
During
2008, the Bank issued senior bonds in the local market for a total of UF
12,621,000 (MCh$ 270,302 as of December 31, 2008). Below is a detail of the
bonds issued.
|
a)
|
On
January 17, 2008, the Bank issued Series Y denominated in UF for an amount
of UF 4,000,000. These bonds carry a nominal interest rate of 3.5% per
annum, semi-annual interest payments starting on July 1, 2009 and one
repayment of principal on December 20,
2012.
|
|
|
On April
28, 2008, the Bank issued Series Y1 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 October 1, 2009 and one
repayment of principal on April 23,
2031.
|
|
|
On
May 9, 2008, the Bank issued Series Y2 denominated in UF for an amount of
UF 3,000,000 with maturity date of principal on June 11, 2012. These bonds
do not contemplate interest
payments.
|
|
|
On
June 04, 2008, the Bank
issued Series Y3 denominated in UF for an amount of UF 2,000,000. These
bonds carry a nominal interest rate of 3.8% per annum, semi-annual
interest payments starting on December 1, 2009 and one repayment of
principal on July 07,
2017.
|
NOTE
12.
|
OTHER
INTEREST BEARING LIABILITIES
(continuation).
|
|
e)
|
On
December 16, 2008, the Bank issued Series F2 denominated in UF for an
amount of UF 621,000. These bonds carry a nominal interest rate of 4.2%
per annum, with semi-annual interest payments starting on June 1, 2009 and
one repayment of principal on August 18,
2017.
|
The
maturities of these bonds are as follows:
|
|
|
|
|
|
MCh$
|
|
Due
within 1 year
|
|
|
256,582 |
|
Due
after 1 year but within 2 years
|
|
|
170,358 |
|
Due
after 2 years but within 3 years
|
|
|
226,910 |
|
Due
after 3 years but within 4 years
|
|
|
8,805 |
|
Due
after 4 years but within 5 years
|
|
|
259,768 |
|
Due
after 5 years
|
|
|
696,357 |
|
Total
bonds
|
|
|
1,618,780 |
|
The
following table sets forth, at the dates indicated, the balances of our
subordinated bonds.
|
|
|
|
|
|
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Subordinated
bonds denominated in US$ (1) (2)
|
|
|
287,116 |
|
|
|
364,410 |
|
Subordinated
bonds linked to the UF (3) (4) (5)
|
|
|
255,391 |
|
|
|
323,502 |
|
Total
subordinated bonds
|
|
|
542,507 |
|
|
|
687,912 |
|
1)
|
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.
Te bonds carry a nominal interest rate of 7.375% per annum, which
semi-annual interest payments and one repayment of principal after a term
of 10 years.
|
2)
|
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.
|
3)
|
During
2006, the Bank issued subordinate bonds denominated in UF in an aggregate
principal amount of UF 5,000,000, which bear an average annual rate of
4.4%.
|
4)
|
During
2007, the Bank issued subordinate bonds denominated in UF in an aggregate
principal amount of UF 4,000,000, which bear an average annual rate of
4.0%.
|
NOTE
12.
|
OTHER
INTEREST BEARING LIABILITIES
(continuation).
|
5)
|
During
2008, the Bank issued subordinated bonds in the local market for a total
of UF 3,750,000 (MCh$80,447 as of December 31, 2008). The detail of the
issuances is as follows:
|
|
a)
|
On
July 25, 2008, the Bank issued Series G1 denominated in UF for an amount
of UF 3,000,000. These bonds carry a nominal interest rate of 3.9% per
annum, semi-annual interest payments starting on January 1, 2009 and one
repayment of principal on November 25,
2032.
|
|
b)
|
On
December 26, 2008, the Bank issued Series G2 denominated in UF for an
amount of UF 750,000. These bonds carry a nominal interest rate of 4.8%
per annum, semi-annual interest payments starting on July 1, 2009 and one
repayment of principal on February 25,
2038.
|
The
maturities of these bonds, which are considered long-term, are as
follows.
|
|
|
|
|
|
MCh$
|
|
Due
within 1 year
|
|
|
- |
|
Due
after 1 year but within 2 years
|
|
|
- |
|
Due
after 2 years but within 3 years
|
|
|
19,420 |
|
Due
after 3 years but within 4 years
|
|
|
141,187 |
|
Due
after 4 years but within 5 years
|
|
|
- |
|
Due
after 5 years
|
|
|
527,305 |
|
Total
subordinated bonds
|
|
|
687,912 |
|
These are
short-term and long-term borrowings from foreign banks. The maturities of these
borrowings are as follows:
|
|
As
of December 31, 2008
|
|
|
|
MCh$
|
|
Due
within 1 year
|
|
|
1,107,997 |
|
Due
after 1 year but within 2 years
|
|
|
143,555 |
|
Due
after 2 years but within 3 years
|
|
|
165,500 |
|
Total
foreign borrowings
|
|
|
1,417,052 |
|
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 1.3% and 3.9% at December 31, 2007 and 2008,
respectively. As a result of the global financial crisis, foreign borrowings
from correspondent banks have tightened significantly. To offset this, in 2008
the Bank increased overnight deposits in US$ in its financial investments funded
with the inflow of local currency deposits. See Item 5: E. Liquidity and Capital
Resources/Financial Investments/Available for sale investments.
NOTE
12.
|
OTHER
INTEREST BEARING LIABILITIES
(continuation).
|
Other
obligations are summarized as follows:
|
|
As
of December 31, 2008
|
|
|
|
MCh$
|
|
Due
within 1 year
|
|
|
54,903 |
|
Due
after 1 year but within 2 years
|
|
|
2,150 |
|
Due
after 2 years but within 3 years
|
|
|
1,820 |
|
Due
after 3 years but within 4 years
|
|
|
1,088 |
|
Due
after 4 years but within 5 years
|
|
|
808 |
|
Due
after 5 years
|
|
|
1,491 |
|
Total
long term obligations
|
|
|
62,260 |
|
Short-term
obligations:
Amounts
due to credit card operators
|
|
|
41,018 |
|
Acceptance
of letters of credit
|
|
|
- |
|
Total
short – term obligations
|
|
|
41,018 |
|
Total
other obligations
|
|
|
103,278 |
|
|
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, 2007 and 2008, the Bank entered into interest rate
and cross currency swap agreements to manage exposure to fluctuation in
currencies and interest rates.
The
Bank’s derivatives contracts for hedge accounting and trading purposes as of
December 31, 2007 and 2008, are summarized below:
NOTE
13.
|
DISCLOSURES
REGARDING DERIVATIVE FINANCIAL INSTRUMENTS
(continuation)
|
|
|
As
of December 31, 2008
|
|
|
|
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 for hedge accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate swaps
|
(FV)
|
|
|
- |
|
|
|
- |
|
|
|
45,849 |
|
|
|
1,234 |
|
|
|
1,332 |
|
Currency
swaps
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
(FV)
|
|
|
- |
|
|
|
- |
|
|
|
359,100 |
|
|
|
106,335 |
|
|
|
- |
|
Cross
currency swaps
|
(CF)
|
|
|
51,300 |
|
|
|
573,598 |
|
|
|
128,250 |
|
|
|
73,036 |
|
|
|
151 |
|
Call
currency options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Call
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
currency options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate future
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
derivatives
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
|
51,300 |
|
|
|
573,598 |
|
|
|
533,199 |
|
|
|
180,605 |
|
|
|
1,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments for Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
|
|
5,643,973 |
|
|
|
2,983,543 |
|
|
|
438,347 |
|
|
|
600,199 |
|
|
|
302,479 |
|
Interest
rate swaps
|
|
|
|
3,865,373 |
|
|
|
4,635,536 |
|
|
|
9,922,492 |
|
|
|
239,867 |
|
|
|
362,813 |
|
Currency
swaps
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
|
|
|
619,041 |
|
|
|
1,634,073 |
|
|
|
9,281,020 |
|
|
|
803,199 |
|
|
|
780,614 |
|
Call
currency options
|
|
|
|
225,936 |
|
|
|
157,871 |
|
|
|
1,347 |
|
|
|
21,901 |
|
|
|
18,126 |
|
Call
interest rate options
|
|
|
|
- |
|
|
|
128,250 |
|
|
|
- |
|
|
|
- |
|
|
|
45 |
|
Put
currency options
|
|
|
|
195,792 |
|
|
|
138,795 |
|
|
|
1,347 |
|
|
|
657 |
|
|
|
4,164 |
|
Put
interest rate options
|
|
|
|
- |
|
|
|
64,125 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate future
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
derivatives
|
|
|
|
15,016 |
|
|
|
- |
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
Subtotal
|
|
|
|
10,565,131 |
|
|
|
9,742,193 |
|
|
|
19,644,553 |
|
|
|
1,665,904 |
|
|
|
1,468,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
10,616,431 |
|
|
|
10,315,791 |
|
|
|
20,177,752 |
|
|
|
1,846,509 |
|
|
|
1,469,724 |
|
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.
|
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 for hedge accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate swaps
|
(FV)
|
|
|
- |
|
|
|
- |
|
|
|
131,985 |
|
|
|
4,237 |
|
|
|
546 |
|
Currency
swaps
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
(FV)
|
|
|
- |
|
|
|
- |
|
|
|
303,538 |
|
|
|
- |
|
|
|
10,068 |
|
Cross
currency swaps
|
(CF)
|
|
|
- |
|
|
|
- |
|
|
|
523,062 |
|
|
|
- |
|
|
|
60,075 |
|
Call
currency options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Call
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
currency options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Put
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate future
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
derivatives
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
|
- |
|
|
|
- |
|
|
|
958,585 |
|
|
|
4,237 |
|
|
|
70,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments for Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards
|
|
|
|
6,290,081 |
|
|
|
4,288,887 |
|
|
|
855,702 |
|
|
|
121,609 |
|
|
|
174,191 |
|
Interest
rate swaps
|
|
|
|
2,107,282 |
|
|
|
3,543,727 |
|
|
|
9,537,991 |
|
|
|
94,207 |
|
|
|
173,294 |
|
Currency
swaps
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
currency swaps
|
|
|
|
145,573 |
|
|
|
501,876 |
|
|
|
7,140,415 |
|
|
|
627,767 |
|
|
|
427,215 |
|
Call
currency options
|
|
|
|
70,507 |
|
|
|
32,349 |
|
|
|
702 |
|
|
|
286 |
|
|
|
318 |
|
Call
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
81,305 |
|
|
|
1 |
|
|
|
- |
|
Put
currency options
|
|
|
|
173,985 |
|
|
|
39,779 |
|
|
|
- |
|
|
|
1,635 |
|
|
|
1,277 |
|
Put
interest rate options
|
|
|
|
- |
|
|
|
- |
|
|
|
82,394 |
|
|
|
- |
|
|
|
10 |
|
Interest
rate future
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
derivatives
|
|
|
|
213,828 |
|
|
|
3,205 |
|
|
|
- |
|
|
|
444 |
|
|
|
407 |
|
Subtotal
|
|
|
|
9,001,256 |
|
|
|
8,409,823 |
|
|
|
17,698,509 |
|
|
|
845,949 |
|
|
|
776,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
9,001,256 |
|
|
|
8,409,823 |
|
|
|
18,657,094 |
|
|
|
850,186 |
|
|
|
847,401 |
|
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.
|
MINIMUM CAPITAL
REQUIREMENTS
|
The
Superintendency of Banks requires Chilean Banks to maintain a minimum amount of
capital equivalent to 8% of total risk-weighted assets after deductions for
mandatory allowances, and a minimum capital base of at least 3% of total assets
after deductions for mandatory allowances. However, as a result of the merger
that took place in 2002 (see Note 1.a), the Superintendency of Banks determined
that the effective net equity of the combined bank could not be lower than 11%
of its risk-weighted total assets.
Effective
net equity is defined as basic equity (capital and reserves) less goodwill and
investments in unconsolidated entities plus subordinated bonds up to a maximum
of 50% of basic equity.
Assets
are allocated to different risk categories to which are assigned a weighting
according to the amount of capital required to be held for each type of asset.
For example, cash, deposits with Banks and financial instruments issued by the
central Bank have a 0% risk-weighting, with the result that the Bank is not
required to hold affective net equity in relation to these instruments tangible
fixed assets attract a 100% risk weighting, meaning that the minimum capital
required to be held in relation to these assets is 11% of their
amount.
Trading
derivatives are also assigned a risk weighting, using a conversion factor
applied to their notional values giving a measure of their exposure to credit
risk. In the same way a value relating to credit risk is assigned to off balance
sheet contingent liabilities.
The
amounts of basic capital and effective net equity as at December 31, 2007 and
2008 are as follows:
|
|
Consolidated
Assets
|
|
|
Risk
- weighted assets
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Assets, net of allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and deposits in banks
|
|
|
1,206,985 |
|
|
|
854,838 |
|
|
|
- |
|
|
|
- |
|
Unsettled
transaction
|
|
|
344,354 |
|
|
|
335,405 |
|
|
|
105,631 |
|
|
|
58,580 |
|
Trading
investments
|
|
|
1,186,905 |
|
|
|
1,161,631 |
|
|
|
6,880 |
|
|
|
110,973 |
|
Investment
under agreements to resell
|
|
|
37,022 |
|
|
|
- |
|
|
|
16,182 |
|
|
|
- |
|
Financial
derivative contracts
|
|
|
1,398,101 |
|
|
|
1,459,901 |
|
|
|
652,039 |
|
|
|
844,892 |
|
Interbank
loans
|
|
|
50,047 |
|
|
|
95,499 |
|
|
|
10,009 |
|
|
|
19,100 |
|
Loans
and receivables from customers
|
|
|
13,097,347 |
|
|
|
14,319,370 |
|
|
|
11,639,969 |
|
|
|
12,807,401 |
|
Available
for sale investments
|
|
|
848,945 |
|
|
|
1,580,240 |
|
|
|
161,260 |
|
|
|
376,023 |
|
Investments
in other companies
|
|
|
7,399 |
|
|
|
6,990 |
|
|
|
7,399 |
|
|
|
6,990 |
|
Intangible
assets
|
|
|
61,182 |
|
|
|
73,089 |
|
|
|
61,182 |
|
|
|
73,089 |
|
Property,
plant and equipment
|
|
|
267,455 |
|
|
|
260,105 |
|
|
|
267,455 |
|
|
|
260,105 |
|
Current
taxes
|
|
|
2,105 |
|
|
|
18,289 |
|
|
|
211 |
|
|
|
1,829 |
|
Deferred
taxes
|
|
|
66,707 |
|
|
|
64,821 |
|
|
|
6,671 |
|
|
|
6,482 |
|
Other
assets
|
|
|
516,238 |
|
|
|
520,348 |
|
|
|
369,554 |
|
|
|
403,588 |
|
Off-balance
sheet assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
loans
|
|
|
1,293,604 |
|
|
|
1,240,690 |
|
|
|
767,430 |
|
|
|
735,126 |
|
Total
risk – weighted assets
|
|
|
|
|
|
|
|
|
|
|
14,071,872 |
|
|
|
15,704,178 |
|
NOTE
14.
|
MINIMUM CAPITAL REQUIREMENTS
(continuation).
|
|
|
As
of December 31,
|
|
|
Ratio
|
|
|
|
2007
|
|
|
2008
|
|
|
|
2007(*)
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
%
|
|
|
%
|
|
Basic
capital
|
|
|
1,565,885 |
|
|
|
1,578,045 |
|
|
|
7.68 |
% |
|
|
7.18 |
% |
Effective
net equity
|
|
|
2,069,103 |
|
|
|
2,166,700 |
|
|
|
14.70 |
% |
|
|
13.79 |
% |
|
(*)
For comparison purposes, the Bank has presented the balances relating to
2007 in accordance with the new accounting regulations as described in
Note 2 to the financial statements. The ratios determined under the
previous regulations were 6.04% and 12.24% for basic capital and effective
net equity respectively, according to the following
detail:
|
|
|
As
of December 31, 2007
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
MCh$
|
|
|
|
|
Basic
capital previously reported
|
|
|
1,229,798 |
|
|
|
6.04 |
% |
Total
Assets
|
|
|
20,355,765 |
|
|
|
|
|
Effective
net equity previously reported
|
|
|
1,744,888 |
|
|
|
12.24 |
% |
Risk
– weighted assets
|
|
|
14,251,133 |
|
|
|
|
|
The
following table sets forth the participation of minority interests in the equity
and the income statement:
|
|
As
of December 31, 2008
|
|
|
|
Noncontrolling
Interest
|
|
|
Equity
|
|
|
Net
Income
|
|
|
Other
conprehensive income
|
|
|
Comprehensive
Income
|
|
|
|
|
|
Available
for sale investments
|
|
|
Income
tax
|
|
|
Total
other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Santander
Corredores de Seguro Ltda. (Ex Santander Leasing S.A.)
|
|
|
0.24 |
% |
|
|
179 |
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6 |
|
Santander
Asset Management S.A. Adm. Gral. de Fondos
|
|
|
0.02 |
% |
|
|
18 |
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
Santander
S.A. Agente de Valores (**)
|
|
|
0.97 |
% |
|
|
1,474 |
|
|
|
93 |
|
|
|
(47 |
) |
|
|
8 |
|
|
|
(39 |
) |
|
|
54 |
|
Santander
S.A. Sociedad Securitizadora
|
|
|
0.36 |
% |
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Santander
S.A. Corredores de Bolsa
|
|
|
49.00 |
% |
|
|
22,890 |
|
|
|
2,768 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,768 |
|
Total
|
|
|
|
|
|
|
24,565 |
|
|
|
2,871 |
|
|
|
(47 |
) |
|
|
8 |
|
|
|
(39 |
) |
|
|
2,832 |
|
|
|
As
of December 31, 2007
|
|
|
|
Noncontrolling
Interest
|
|
|
Equity
|
|
|
Net
Income
|
|
|
Other
conprehensive income
|
|
|
Comprehensive
Income
|
|
|
|
|
Available
for sale investments
|
|
|
Income
tax
|
|
|
Total
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Santander
Corredores de Seguro Ltda. (Ex Santander Leasing S.A.*)
|
|
|
0.50 |
% |
|
|
167 |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
Santander
Asset Management S.A. Adm. Gral. de Fondos
|
|
|
0.02 |
% |
|
|
19 |
|
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
Santander
S.A. Agente de Valores
|
|
|
0.97 |
% |
|
|
1,492 |
|
|
|
79 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
79 |
|
Santander
S.A. Sociedad Securitizadora
|
|
|
0.36 |
% |
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Santander
Corredora de Seguros Limitada (*)
|
|
|
0.01 |
% |
|
|
3 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
Santander
S.A. Corredores de Bolsa
|
|
|
49.00 |
% |
|
|
20,143 |
|
|
|
2,151 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,151 |
|
Total
|
|
|
|
|
|
|
21,829 |
|
|
|
2,238 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,238 |
|
(*) Entities
merged during 2008. For further details see Note 1.a.
(**) As
of December 31, 2008, Santander S.A. Agente de Valores held instruments
classified as available for sale registered at fair value with fair value
movements through equity. For further details regarding unrealized gains and
losses see Note 1.h.
|
TRANSACTIONS
WITH RELATED PARTIES
|
In
accordance with the Chilean General Banking law and the rules of the
Superintendency of Bank, 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
shareholders 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:
|
|
Loans
|
|
|
Collateral
pledged
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Operating
companies
|
|
|
96,379 |
|
|
|
123,822 |
|
|
|
54,885 |
|
|
|
3,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
companies
|
|
|
202,331 |
|
|
|
297,735 |
|
|
|
32,034 |
|
|
|
66,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individuals
(*)
|
|
|
32,858 |
|
|
|
33,604 |
|
|
|
31,174 |
|
|
|
31,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
331,568 |
|
|
|
455,161 |
|
|
|
118,093 |
|
|
|
101,169 |
|
(*) Includes
debt obligations that are individually equal to or greater than UF 3,000,
equivalent to MCh$ 64 as of December 31, 2008.
The
activities in the balances of loans to related parties are as
follows:
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Balance
as of January 1
|
|
|
441,971 |
|
|
|
331,568 |
|
New
loans
|
|
|
138,588 |
|
|
|
379,796 |
|
Repayments
|
|
|
(216,260 |
) |
|
|
(229,132 |
) |
Price-level
restatements
|
|
|
(32,732 |
) |
|
|
(27,071 |
) |
Balance
as of December 31
|
|
|
331,567 |
|
|
|
455,161 |
|
NOTE
16.
|
TRANSACTIONS
WITH RELATED PARTIES
(continuation):
|
b)
|
Other
transactions with related parties:
|
During
the years ended December 31, 2006, 2007 and 2008 the Bank had the following
significant income (expenses) from services provided to (by) related
parties:
|
|
|
EFFECT
IN RESULTS
|
|
|
DESCRIPTION
OF SERVICE
|
|
Income/(Expense)
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
REDBANC
S.A.
|
Use
of automatic tellers machines
|
|
|
(4,745 |
) |
|
|
(4,320 |
) |
|
|
(4,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRANSBANK
S.A.
|
Credit
card administration services
|
|
|
(9,556 |
) |
|
|
(7,482 |
) |
|
|
(8,444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SANTANDER
G.R.C. LTDA.
|
Recovery
services
|
|
|
(1,973 |
) |
|
|
(3,635 |
) |
|
|
(3,733 |
) |
|
Operating
lease
|
|
|
144 |
|
|
|
131 |
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SANTANDER
CHILE
|
Operating
lease
|
|
|
151 |
|
|
|
145 |
|
|
|
144 |
|
HOLDING
S.A.
|
Advising
|
|
|
(113 |
) |
|
|
(109 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SANTANDER
FACTORING S.A.
|
Operating
lease
|
|
|
61 |
|
|
|
56 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BANSA
SANTANDER S.A.
|
Operating
lease
|
|
|
(2,838 |
) |
|
|
(2,729 |
) |
|
|
(2,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.F.P
BANSANDER S.A. (**)
|
Operating
lease
|
|
|
209 |
|
|
|
149 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALTEC
S.A.
|
Provision
of services
|
|
|
(6,791 |
) |
|
|
(6,710 |
) |
|
|
(4,636 |
) |
|
Operating
lease
|
|
|
209 |
|
|
|
64 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SANTANDER
CIA. DE
SEGUROS
DE VIDA S.A.
|
Life
insurance for the credit line and credit cards
|
|
|
(1,258 |
) |
|
|
(1,900 |
) |
|
|
(1,884 |
) |
|
Operating
lease
|
|
|
82 |
|
|
|
77 |
|
|
|
68 |
|
SANTANDER
CIA. DE
|
Credit
card fraud insurance
|
|
|
- |
|
|
|
(926 |
) |
|
|
(2,523 |
) |
SEGUROS
GENERALES
|
Operating
lease
|
|
|
- |
|
|
|
32 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SANTANDER
INVESTMENT
|
Operating
lease
|
|
|
107 |
|
|
|
103 |
|
|
|
94 |
|
CHILE
LIMITADA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLAZA
DEL TREBOL S.A. (*)
|
Operating
lease
|
|
|
(229 |
) |
|
|
(74 |
) |
|
|
- |
|
PRODUBAN,
SERVICIOS INFORMATICOS GENERALES S.L. (***)
|
Information
Processing
|
|
|
- |
|
|
|
- |
|
|
|
(5,451 |
) |
OTROS
|
Expenses
for other services
|
|
|
24
|
|
|
|
771 |
|
|
|
- |
|
|
Operating
lease
|
|
|
(12 |
) |
|
|
- |
|
|
|
- |
|
|
Directors’
fees
|
|
|
(572 |
) |
|
|
(629 |
) |
|
|
(628 |
) |
NOTE
16.
|
TRANSACTIONS
WITH RELATED PARTIES
(continuation).
|
(*)
|
This
entity was a related party until March 27, 2007, at which date the board
accepted the resignation of Mr. Juan Andrés Fontaine Talavera as Director
of the Bank. The amounts disclosed in 2007 relate to the amounts
recognized until the date of
resignation.
|
(**)
|
On
January 16, 2008, Santander Chile Holding, S.A. sold its total equity
interest participation in AFP Bansander S.A. (a total of 17,453,477
shares) to ING Cia. de Inversiones y Servicios Ltda. Until that date AFP
Bansander S.A. was a related party of the
Bank.
|
(***)
|
On
April 4, 2008, the Superintendency of Bank authorized, subject to the
completion of appropriate tests and certifications, the transfer for of
its data processing centre from IBM Chile to “Produban Servicios
Informáticos Generales S., a subsidiary of Banco Santander, S.A. located
in Madrid, Spain.
|
Under the
regulations of the Seuperintendency of Banks, only transactions with related
parties equal to or greater than UF 5,000 have been included individually in the
table above. All transactions with related parties between UF 1,000 and up to UF
5,000 are included in other transactions with related parties.
All of
these transactions were entered into terms and conditions similar to those
prevailing in the market terms.
During
2008, there were no sales of assets received from related parties. On September
27, 2007 the Bank sold assets received from Bansa Santander S.A. for MCh$ 338
generating a profit of MCh$ 42.
|
FEES
AND INCOME FROM SERVICES
|
Fees and
income from services and related expenses are detailed as follows:
The
amounts of commission income and expense recognized by type of commission are
analyzed below:
|
|
As
of December 31,
|
|
a) Fees
income:
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Lines
of credit
|
|
|
42,182 |
|
|
|
43,556 |
|
|
|
38,878 |
|
Letters
of credit, guarantees and other contingent loans
|
|
|
16,265 |
|
|
|
15,551 |
|
|
|
17,092 |
|
Credit
cards
|
|
|
74,447 |
|
|
|
79,361 |
|
|
|
87,403 |
|
Bank
accounts
|
|
|
23,240 |
|
|
|
23,671 |
|
|
|
25,605 |
|
Administration,
payment and collection
|
|
|
32,680 |
|
|
|
35,989 |
|
|
|
39,949 |
|
Stock
brokerage
|
|
|
2,998 |
|
|
|
10,738 |
|
|
|
8,830 |
|
Mutual
funds
|
|
|
23,396 |
|
|
|
32,512 |
|
|
|
28,220 |
|
Insurance
Brokerage
|
|
|
13,509 |
|
|
|
13,856 |
|
|
|
15,284 |
|
Office
Banking (*)
|
|
|
3,537 |
|
|
|
3,787 |
|
|
|
5,285 |
|
Other
commissions
|
|
|
7,404 |
|
|
|
7,902 |
|
|
|
9,887 |
|
Total
|
|
|
239,658 |
|
|
|
266,923 |
|
|
|
276,433 |
|
|
|
As
of December 31,
|
|
b) Fees
expense:
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Debit
cards
|
|
|
(38,182 |
) |
|
|
(40,466 |
) |
|
|
(43,631 |
) |
Securities
operations
|
|
|
(883 |
) |
|
|
(3,198 |
) |
|
|
(2,292 |
) |
Office
Banking (*)
|
|
|
(493 |
) |
|
|
(713 |
) |
|
|
(3,341 |
) |
Other
commissions
|
|
|
(2,453 |
) |
|
|
(4,689 |
) |
|
|
(3,576 |
) |
Total
|
|
|
(42,011 |
) |
|
|
(49,066 |
) |
|
|
(52,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
fees and income from services
|
|
|
197,647 |
|
|
|
217,857 |
|
|
|
223,593 |
|
Commissions
earned for mortgage finance bonds are presented in the consolidated statement of
interest revenue.
(*)
Transaction services between banks which were recognized net during the
first 6 months of 2008, from July were recognized at their gross
value.
|
OTHER
OPERATING INCOME AND EXPENSES
|
a)
|
Other
operating income
|
The other
operating incomes for the years ended December 31, 2006, 2007 and 2008 are as
follows:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
Income
from assets received in lieu of payment
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Gain
on sales of assets received in lieu of payment
|
|
|
3,878 |
|
|
|
4,808 |
|
|
|
2,805 |
|
Recovery
of charge-off of assets received in lieu of payment
|
|
|
9,418 |
|
|
|
7,593 |
|
|
|
5,676 |
|
Subtotal
|
|
|
13,296 |
|
|
|
12,401 |
|
|
|
8,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from sale of investments in companies
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of investments in other companies
|
|
|
699 |
|
|
|
2,298 |
|
|
|
4,348 |
|
Subtotal
|
|
|
699 |
|
|
|
2,298 |
|
|
|
4,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease
|
|
|
1,175 |
|
|
|
1,094 |
|
|
|
1,051 |
|
Gain
on sale of Bank property, plant and equipment
|
|
|
664 |
|
|
|
527 |
|
|
|
390 |
|
Recovery
of expenses
|
|
|
- |
|
|
|
11,056 |
|
|
|
1,246 |
|
Other
|
|
|
945 |
|
|
|
1,057 |
|
|
|
996 |
|
Subtotal
|
|
|
2,784 |
|
|
|
13,734 |
|
|
|
3,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other operating income
|
|
|
16,779 |
|
|
|
28,433 |
|
|
|
16,512 |
|
NOTE
18.
|
OTHER
OPERATING INCOME AND EXPENSES
(continuation)
|
b)
|
Other
operating expenses
|
The other
operating expenses for the years ended December 31, 2006, 2007 and 2008 are as
follows:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Provisions
and expenses for assets recieved in lieu of payment
|
|
|
|
|
|
|
|
|
|
Charged-
off assets received in lieu of payment
|
|
|
15,632 |
|
|
|
8,702 |
|
|
|
5,410 |
|
Provisions
for assets received in lieu of payment
|
|
|
1,648 |
|
|
|
2,056 |
|
|
|
2,003 |
|
Maintenance
xpenses of assets received in lieu of payment
|
|
|
3,221 |
|
|
|
1,695 |
|
|
|
1,667 |
|
Subtotal
|
|
|
20,501 |
|
|
|
12,453 |
|
|
|
9,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
card expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
card expenses
|
|
|
3,470 |
|
|
|
7,357 |
|
|
|
4,127 |
|
Credit
card membership
|
|
|
2,405 |
|
|
|
2,630 |
|
|
|
3,159 |
|
Subtotal
|
|
|
5,875 |
|
|
|
9,987
|
|
|
|
7,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
to customers
|
|
|
7,790 |
|
|
|
8,341 |
|
|
|
9,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
charge-off
|
|
|
3,158 |
|
|
|
3,406 |
|
|
|
3,751 |
|
Insurance
|
|
|
1,811 |
|
|
|
3,648 |
|
|
|
4,777 |
|
Additional
tax for expenses
|
|
|
2,096 |
|
|
|
1,664 |
|
|
|
2,499 |
|
Expenses
of mortgage loans
|
|
|
324 |
|
|
|
1,042 |
|
|
|
1,383 |
|
Loss
on sale of premises and equipment
|
|
|
10 |
|
|
|
978 |
|
|
|
529 |
|
Expenses
for foreign trade operations
|
|
|
17 |
|
|
|
53 |
|
|
|
211 |
|
Operating
lease
|
|
|
4 |
|
|
|
586 |
|
|
|
553 |
|
Provisions
for contingencies
|
|
|
577 |
|
|
|
1,126 |
|
|
|
1,102 |
|
Other
|
|
|
705 |
|
|
|
1,261 |
|
|
|
1,722 |
|
Subtotal
|
|
|
8,702 |
|
|
|
13,764 |
|
|
|
16,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
42,868 |
|
|
|
44,545 |
|
|
|
42,259 |
|
|
DIRECTORS
EXPENSES AND REMUNERATION
|
The
remuneration to Directors for the years ended December 31, 2006, 2007 and 2008
are the following:
|
|
Year
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Remuneration
established by the General Shareholders meeting, including attendance
fees.
|
|
|
572 |
|
|
|
629 |
|
|
|
628 |
|
|
FOREIGN
CURRENCY POSITION
|
The
consolidated statements of financial positions includes assets and liabilities
denominated in foreign currencies which have been translated into Chilean peso
at the applicable exchange rates as of December 31, 2007 and 2008, and assets
and liabilities which are denominated in Chilean pesos subject to exchange rate
fluctuations, as detailed below.
|
|
As of December 31,
2007
|
|
|
As of December 31,
2008
|
|
|
|
denominated
in
|
|
|
denominated
in
|
|
|
|
Foreign
|
|
|
Chilean
|
|
|
Total
|
|
|
Foreign
|
|
|
Chilean
|
|
|
Total
|
|
|
|
currency
|
|
|
pesos
|
|
|
|
|
|
currency
|
|
|
pesos
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and deposit in
bank
|
|
|
908,552 |
|
|
|
- |
|
|
|
908,552 |
|
|
|
403,038 |
|
|
|
- |
|
|
|
403,038 |
|
Unsettled
Transaction
|
|
|
96,427 |
|
|
|
- |
|
|
|
96,427 |
|
|
|
90,584 |
|
|
|
- |
|
|
|
90,584 |
|
Loans and receivables from
customers
|
|
|
950,471 |
|
|
|
37,662 |
|
|
|
988,133 |
|
|
|
1,488,355 |
|
|
|
45,392 |
|
|
|
1,533,747 |
|
Interbank
loans
|
|
|
15,183 |
|
|
|
- |
|
|
|
15,183 |
|
|
|
95,534 |
|
|
|
- |
|
|
|
95,534 |
|
Trading
investments
|
|
|
39,328 |
|
|
|
69,175 |
|
|
|
108,503 |
|
|
|
63,613 |
|
|
|
- |
|
|
|
63,613 |
|
Investment
Instruments
|
|
|
65,949 |
|
|
|
111 |
|
|
|
66,060 |
|
|
|
462,447 |
|
|
|
- |
|
|
|
462,447 |
|
Other
assets
|
|
|
208,650 |
|
|
|
- |
|
|
|
208,650 |
|
|
|
159,412 |
|
|
|
- |
|
|
|
159,412 |
|
Total
assets
|
|
|
2,284,560 |
|
|
|
106,948 |
|
|
|
2,391,508 |
|
|
|
2,762,983 |
|
|
|
45,392 |
|
|
|
2,808,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
193,431 |
|
|
|
- |
|
|
|
193,431 |
|
|
|
342,120 |
|
|
|
11 |
|
|
|
342,131 |
|
Unsettled
Transaction
|
|
|
99,696 |
|
|
|
- |
|
|
|
99,696 |
|
|
|
90,314 |
|
|
|
- |
|
|
|
90,314 |
|
Investment under agreements
to repurchase
|
|
|
196,021 |
|
|
|
- |
|
|
|
196,021 |
|
|
|
7,479 |
|
|
|
- |
|
|
|
7,479 |
|
Deposits and other time
deposits
|
|
|
1,364,638 |
|
|
|
- |
|
|
|
1,364,638 |
|
|
|
1,707,951 |
|
|
|
- |
|
|
|
1,707,951 |
|
Obligations to foreign banks
|
|
|
1,193,401 |
|
|
|
- |
|
|
|
1,193,401 |
|
|
|
1,417,052 |
|
|
|
- |
|
|
|
1,417,052 |
|
Bonds
|
|
|
496,082 |
|
|
|
- |
|
|
|
496,082 |
|
|
|
620,992 |
|
|
|
- |
|
|
|
620,992 |
|
Other financial
liabilities
|
|
|
82,116 |
|
|
|
586 |
|
|
|
82,702 |
|
|
|
13,150 |
|
|
|
1,788 |
|
|
|
14,938 |
|
Other
liabilities
|
|
|
17,398 |
|
|
|
106 |
|
|
|
17,504 |
|
|
|
177,192 |
|
|
|
1,000 |
|
|
|
178,192 |
|
Total
liabilities
|
|
|
3,642,783 |
|
|
|
692 |
|
|
|
3,643,475 |
|
|
|
4,376,250 |
|
|
|
2,799 |
|
|
|
4,379,049 |
|
Net assets (liabilities) in
foreign currency
|
|
|
(1,358,223 |
) |
|
|
106,256 |
|
|
|
(1,251,967 |
) |
|
|
(1,613,267 |
) |
|
|
42,593 |
|
|
|
(1,570,674 |
) |
a) Current
taxes
The Bank,
at the close of each period, recognizes a Provision for First Category Income
Tax, which is determined based on the legal tax provisions and has been
reflected at the appropriate rate in the amount of MCh$ 18,126 in 2008 (MCh$
15,206 in 2007).
Current
tax payable (recoverable) as of December 31, 2007 and 2008 are as
follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Income
tax (17% tax rate)
|
|
|
72,382 |
|
|
|
65,722 |
|
Minus:
|
|
|
|
|
|
|
|
|
Monthly
Provisional Payments
|
|
|
(66,190 |
) |
|
|
(75,663 |
) |
Provisional
payments from accumulated losses Article No 31, 3rd
paragraph
|
|
|
(14 |
) |
|
|
- |
|
Tax
credit from training expenses
|
|
|
(42 |
) |
|
|
(1,019 |
) |
Other
|
|
|
9,069 |
|
|
|
(7,166 |
) |
Total
|
|
|
15,205 |
|
|
|
(18,126 |
) |
b)
Effect
on income
The
effect of tax expenses during the periods between January 1 and December 31,
2008, 2007 and 2006 is as follows:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Tax
expenses:
|
|
|
|
|
|
|
|
|
|
Current
taxes
|
|
|
64,115 |
|
|
|
72,382 |
|
|
|
65,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
(charge) on deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in deferred tax assets and liabilities
|
|
|
3,755 |
|
|
|
(12,508 |
) |
|
|
3,943 |
|
Tax
benefit form prior years
|
|
|
(7 |
) |
|
|
- |
|
|
|
(3,367 |
) |
Subtotal
|
|
|
67,863 |
|
|
|
59,874 |
|
|
|
66,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Article
No 21 taxes (non-deductible expenses)
|
|
|
225 |
|
|
|
375 |
|
|
|
221 |
|
Other
|
|
|
- |
|
|
|
(174 |
) |
|
|
(2,791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Debit (credit) resulting from income tax
|
|
|
68,088 |
|
|
|
60,075 |
|
|
|
63,728 |
|
NOTE
21.
|
INCOME
TAXES (continuation).
|
c)
Effective
tax rate reconciliation
The
reconciliation between the income tax rate and the effective rate applied in
determining tax expenses at December 31, 2006, 2007 and 2008, is as
follows:
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
Tax rate
|
|
|
Amount
|
|
|
Tax rate
|
|
|
Amount
|
|
|
Tax rate
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
MCh$
|
|
|
%
|
|
|
MCh$
|
|
|
%
|
|
|
MCh$
|
|
Earnings before
tax
|
|
|
17.00 |
% |
|
|
68,403 |
|
|
|
17.00 |
% |
|
|
67,728 |
|
|
|
17.00 |
% |
|
|
67,107 |
|
Permanent
differences
|
|
|
(0.31 |
%) |
|
|
(1,212 |
) |
|
|
(1.24 |
%) |
|
|
(4,932 |
) |
|
|
(1.01 |
%) |
|
|
(3,985 |
) |
Single tax
|
|
|
0.06 |
% |
|
|
225 |
|
|
|
0.09 |
% |
|
|
375 |
|
|
|
0.06 |
% |
|
|
221 |
|
Other
|
|
|
0.17 |
% |
|
|
672 |
|
|
|
(0.78 |
%) |
|
|
(3,096 |
) |
|
|
0.10 |
% |
|
|
385 |
|
Effective tax
rate
|
|
|
16,92 |
% |
|
|
68,088 |
|
|
|
15.07 |
% |
|
|
60,075 |
|
|
|
16.15 |
% |
|
|
63,728 |
|
The
actual income tax rate for 2008, 2007 and 2006 is 16.15%, 15.07% and 16.92%,
respectively.
d) Effect
of deferred taxes recognized in Other Comprehensive Income
The
deferred tax recognized in other comprehensive income as of December 31, 2007
and 2008 are as follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Available
for sale investments
|
|
|
1,086 |
|
|
|
3,403 |
|
Cash
flow hedge
|
|
|
1,026 |
|
|
|
- |
|
Total
deferred tax asset
|
|
|
2,112 |
|
|
|
3,403 |
|
|
|
|
|
|
|
|
|
|
Deferred
taxes liabilities
|
|
|
|
|
|
|
|
|
Cash
flow hedge
|
|
|
- |
|
|
|
(1,848 |
) |
Total
deferred tax liabilities
|
|
|
- |
|
|
|
(1,848 |
) |
|
|
|
|
|
|
|
|
|
Total
net deferred tax recognized in other comprehensive income
|
|
|
2,112 |
|
|
|
1,555 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax effect on equity of owner of the parent
|
|
|
2,112 |
|
|
|
1,547 |
|
Deferred
tax effect on equity of minority interest
|
|
|
- |
|
|
|
8 |
|
NOTE
21.
|
INCOME
TAXES (continuation).
|
e)
|
Effect
of deferred tax recognized on
income
|
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Deferred
taxes assets
|
|
|
|
|
|
|
Interest
and inflation rate
|
|
|
2,068 |
|
|
|
615 |
|
Additional
charge-off
|
|
|
5,470 |
|
|
|
8,356 |
|
Assets
received in lieu of payment
|
|
|
807 |
|
|
|
402 |
|
Foreign
exchange
|
|
|
879 |
|
|
|
1,926 |
|
Tangible
assets valuation
|
|
|
6,687 |
|
|
|
247 |
|
Allowance
for loan losses
|
|
|
30,662 |
|
|
|
31,008 |
|
Provision
for expenses
|
|
|
3,124 |
|
|
|
11,124 |
|
Forwards
contracts
|
|
|
37 |
|
|
|
2,111 |
|
Leased
assets
|
|
|
8,979 |
|
|
|
3,360 |
|
Tax
loss carryforward
|
|
|
44 |
|
|
|
92 |
|
Others
|
|
|
5,838 |
|
|
|
2,177 |
|
Total
deferred tax assets
|
|
|
64,595 |
|
|
|
61,418 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilites
|
|
|
|
|
|
|
|
|
Valuation
of investments
|
|
|
(4,414 |
) |
|
|
(147 |
) |
Depreciation
|
|
|
(4,996 |
) |
|
|
(13,748 |
) |
Prepaid
expenses
|
|
|
(2,002 |
) |
|
|
(2,434 |
) |
Others
|
|
|
(432 |
) |
|
|
(589 |
) |
Total
deferred tax liabilities
|
|
|
(11,844 |
) |
|
|
(16,918 |
) |
Total
asset net
|
|
|
52,751 |
|
|
|
44,500 |
|
f)
Summary
of deferred tax assets and liabilities
The
following table sets forth the deferred tax assets and liabilities and their
effect on the income statement and other comprehensive income as of December 31,
2007 and 2008 as follows:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Recognized
in other comprehensive income
|
|
|
2,112 |
|
|
|
3,403 |
|
Recognized
in income
|
|
|
64,595 |
|
|
|
61,418 |
|
Total
deferred taxes assets
|
|
|
66,707 |
|
|
|
64,821 |
|
|
|
|
|
|
|
|
|
|
Deferred
taxes liabilites
|
|
|
|
|
|
|
|
|
Recognized
in other comprehensive income
|
|
|
- |
|
|
|
(1,848 |
) |
Recognized
in income
|
|
|
(11,844 |
) |
|
|
(16,918 |
) |
Total
net deferred tax asset (liability)
|
|
|
(11,844 |
) |
|
|
(18,766 |
) |
|
CONTINGENCIES
AND COMMITMENTS
|
a)
|
Legal
and other proceedings:
|
At the
date of issue of these financial statements, the bank and its subsidiaries were
subject to certain legal actions in the normal course of its business. Upon the
recommendation of our legal advisors the Bank has accrued a provision amounting
to MCh$ 1,394 as of December 31, 2008 (MCh$ 1,566 as of December 31,
2007).
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.
The
following table sets forth the maximum contractual obligations granted to
counterparties. Provisions accrued for these contingent loans are disclosed in
Note 8 b).
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Letters
of credit issued
|
|
|
197,128 |
|
|
|
181,381 |
|
Letters
of credit confirmed
|
|
|
157,908 |
|
|
|
122,783 |
|
Guarantees
|
|
|
683,439 |
|
|
|
766,727 |
|
Available
credit lines
|
|
|
3,634,990 |
|
|
|
4,041,849 |
|
Pledges
and other commercial commitments
|
|
|
257,700 |
|
|
|
172,568 |
|
Total
|
|
|
4,931,165 |
|
|
|
5,285,308 |
|
The Bank
and its subsidiaries carry out the following fiduciary activities in the normal
course of business:
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Instruments
held in custody
|
|
|
9,630,679 |
|
|
|
10,081,415 |
|
Documents
to be collected
|
|
|
309,153 |
|
|
|
432,786 |
|
Securities
held in custody
|
|
|
437,242 |
|
|
|
463,161 |
|
Other
|
|
|
320,569 |
|
|
|
344,967 |
|
Total
|
|
|
10,697,643 |
|
|
|
11,322,329 |
|
d)
Contingencies:
As of
December 31, 2008 and 2007, the subsidiary Santander Corredora de Servicios
Ltda. 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$62 as of December 31,
2008, (MCh$65 in 2007).
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
reduced substantially the amount of the tax difference. On December 13, 2007,
the Bank paid MCh$461 due to this lawsuit.
NOTE
22.
|
CONTINGENCIES
AND COMMITMENTS (continuation):
|
e)
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 No 208109492,
underwritten by Compañía de Seguros de Crédito Continental S.A. whose maturity
is December 19, 2009.
In order
to comply with Article 30 of Law No. 18,045, Santander S.A Corredores de Bolsa
maintains in custody with the Bolsa de Comercio de Santiago a guarantee of their
performance worth MCh$1,833 (MCh$ 1,995 in 2007).
In
conformity with the General Character Regulation No 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 1,632,335. In addition to these bank guarantees, other
guarantees were entered into for approximately MCh$108,534 for the Mutual Fund’s
guaranteed profitability.
Integral
Insurance:
Banco
Santander maintains, for all its subsidiaries, an insurance policy with
Interamericana Compañía de Seguros Generales S.A. that covers matters such as:
employee fraud, document loss, falsification or modification of documents and
counterfeit documents, for a maximum amount of ThUS$ 5,000.
In
accordance with Circular No. 1,160 of the Superintendencia de Valores y Seguros,
Santander Corredora de Seguros Ltda. 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, 2008 and April 14, 2009.
The
price-level restatement loss is determined by restating the following
non-monetary assets, liabilities and equity:
|
|
Year
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
Restatement
of non monetary accounts based on Consumer Price Index:
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
Bank
property, plant and equipment, net
|
|
|
5,575 |
|
|
|
18,812 |
|
|
|
22,033 |
|
Investments
in other companies
|
|
|
199 |
|
|
|
488 |
|
|
|
415 |
|
Other
non-monetary assets and liabilities
|
|
|
1,886 |
|
|
|
6,582 |
|
|
|
8,522 |
|
Shareholders'
equity
|
|
|
(23,783 |
) |
|
|
(87,214 |
) |
|
|
(108,997 |
) |
Loss
from price-level restatement, net
|
|
|
(16,123 |
) |
|
|
(61,332 |
) |
|
|
(78,027 |
) |
|
SALE
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, 2006, 2007 and 2008, the Bank
sold loans in the amount of MCh$220,276, MCh$66,907 and MCh$15,165,
respectively; however, the Bank does not enter into loans for future
sale.
During
the years ended December 31, 2006 and 2007, the Bank purchased loans totaling
MCh$30,847 and MCh$20,439 respectively. During 2008, the Bank did not purchase
loans. Any gains or losses on such transactions are recognized in results of
operations at the time of the transactions.
During
2008 the Bank sold part of its charged off loan portfolio as
follows:
·
|
In
February 2008, the Bank sold charged off loans for an amount of MCh$ 5,811
which was recognized as income from recoveries of
loans.
|
·
|
In
August 2008, the Bank sold loans for an Amount of MCh$ 7,611. According to
the sale agreement, MCh$ 6,000 was recognized as income from loan
recoveries and MCh$ 1,611 was deposited in escrow to be held in case of
possible future price adjustments.
|
Additionally,
on August 20, 2008, through the leasing division the Bank sold a current
operation for a total of MCh$ 23,237, generating a profit on sale of the book of
approximately MCh$ 980.
During
2007, the Bank sold part of its charged off loan portfolio as
follows:
·
|
On
March 9, 2007, the Bank sold charged off loans for a total of MCh$39,603.
According to the sale agreement, MCh$ 9,901 was deposited in escrow to be
held in case of possible future price
adjustments.
|
During
March 2007, the Bank returned to the buyer the amount of MCh$ 4,094 that
corresponds to the amount collected in relation to these loans between the cut
off date for loans to be assigned (September 30, 2006) and the date of the sale
(March 9, 2007). Thus the net amount recognized as income was MCh$
25,608.
Finally
on December 14, 2007, by public legal document, the Bank modified and settled
the contract and amount held in escrow. As a result the Bank received MCh$ 2,424
during 2008 (historical value MCh$ 2,226) in relation to the price adjustments
described above.
·
|
On
August 30, 2007, the bank assigned off loans for a total of MCh$2,477
which was recognized in totality as income from recovery of
loans.
|
The Bank
has established 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
individual goals for periods greater than a year.
There
have been no subsequent events between January 1, 2009 and the date of the issue
of these financial statements that could materially affect the financial
statements.
|
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.
The
cumulative inflation rate in Chile as measured by the CPI for the three year
period ended December, 2008 was approximately 19.47%. Chilean GAAP requires the
restatement of bank financial statements 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 the reporting entity. The method, described in Note 1
(c), is based on a model that calculates net inflationary gains or losses by
restating all non-monetary amounts in the financial statements. The model
dictates that the historical costs of such amounts are restated for general
price-level currency changes between the origin date 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 were made to reflect the elimination of the price-level
restatement.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
|
(1)
|
Under
Chile GAAP, business combinations accounted for under the purchase
accounting method do not require pushdown accounting for the related
goodwill. 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, the “pooling of interests” method may be more
widely applied in Chile.
|
Under
U.S. GAAP, in accordance with the purchase accounting method, pushdown
accounting 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 value recorded as goodwill.
The
following business combinations of the Bank were accounted for as follows,
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 with 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 (“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 the two year beginning May 15, 2000.
The total
goodwill generated under U.S. GAAP was “pushed down” to the acquired entities
(predecessor entities to the Bank). Certain fair value amounts were recorded for
assets acquired and 1iabi1ities assumed under U.S. GAAP which were recorded at
carrying value in the Chile GAAP financial statements.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
|
(2)
|
Under
Chilean GAAP, mergers of entities under common control are recorded under
the "pooling of interests" method. Should the minority interest be
eliminated, purchase accounting is not subsequently applied. Additionally,
historical financial statements for periods prior to the merger are not
restated under the pooling of interests
methodology.
|
Under
U.S. GAAP, mergers of entities under common control are also recorded under the
"pooling of interests" method. However, under U.S. GAAP, in certain
circumstances, the step acquisition of a minority interest requires purchase
accounting (any additional goodwill would also require pushdown accounting as
mentioned in (1)). Additionally, U.S. GAAP requires the restatement of prior
period financial statements under the pooling of interests
methodology.
The
following transactions generated the above described 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 Santiago to Teatinos, the primary shareholder
of the former Banco Santander Chile and a wholly owned subsidiary of
BSCH.
On August
1, 2002, Santiago and the former Banco Santander Chile merged. To complete the
merger, the minority interest of 11% of Banco Santander Chile was acquired
through the issuance of former Santiago shares (as Santiago was considered the
acquirer). As a resu1t of the merger between the former Santiago and the former
Banco Santander Chi1e, the former 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 pronouncement.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
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
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 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, 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 the Santander worldwide brand policy set by our parent company
in 2007. As a result, we fully amortized the brand “Santiago” in 2007. The MCh$
60,570 effect of this amortization, in accordance with US GAAP, is included in
the reconciliation of Net income and Shareholders’ equity in paragraph (t)
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. The dividend is recorded in
retained earnings or current year income in shareholders’ equity when it is
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, shareholder action
is taken prior to the issuance of the financial statements, evidencing that such
minimum dividend will not be fully distributed, the reclassification of such
dividend may be limited to the 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 (r) below.
In 2008,
in accordance with the instructions of the Superintendency of Banks regarding
the application of the new accounting criteria relating to provisions for the
accrual of mandatory dividends (see Note 2.a) wich requires the recognition of
the liabilities of the corresponding portion of the net income for the year in
accordance with the Law of Public Companies and with the dividend policy of the
Bank, upon adoption of this new criteria, the accounting treatment under Chilean
GAAP is the same as under US GAAP, this change made equivalent the treatement
under Chilean GAAP and US GAAP.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Under
Chilean GAAP the Bank suspends the accrual of interest on loans when it is
determined to be in a loss position or when it becomes past due. Previously
accrued but uncollected interest on overdue loans is not written-off at the time
the loan is determined to be in a loss position. 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
past due. Any accrued but uncollected interest is written off against interest
income at that time.
In
addition, under Chilean GAAP, any payment received on overdue loans is recorded
as unaccrued interest earned, after first applying the payment to accrued
interest receivable. Any remaining amount is then applied to reduce the
outstanding principal balance. Under U.S. GAAP, any payment received on loans
where the collectibility of the principal is in doubt, is treated as a reduction
of the outstanding principal balance of the loan until there is no such doubt.
The effect of this difference in interest recognition is immaterial to the
Bank’s financial position and results of its operations. As a result, there is
no adjustment in the reconciliation note for this difference.
On June
23, 2007 Banco Santander Central Hispano S.A. (“Grupo Santander” or “Parent
Company”) approved the granting of 100 free shares to each active employee of
Santander Group, to celebrate the 150th Anniversary of Banco
Santander.
Under
U.S. GAAP, stock compensation is accounted for under SFAS No 123 (R), Accounting
for Stock-Based Compensation. Compensation expense is measured using the fair
value method for stock options and restricted stock at the date of the grant.
The number of shares granted by Banco Santander Central Hispano S.A. to
employees of Banco Santander Chile was 868,700. The Bank recorded the shares
granted at fair value and as compensation expense with an adjustment to equity.
Under Chilean GAAP, no effect was recorded for this compensation
plan.
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.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Under
U.S. GAAP, SFAS No 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, 2007 and 2008, 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.
|
·
|
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 No
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,
the effect of recognizing this adjustment in accordance with U.S. GAAP is
included in the reconciliation of net income and other comprehensive income for
an amount of MCh$ 3,096.
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, 2006, 2007
and 2008, are as follows:
|
|
Year
ended December 31,
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of “available-for-sale” securities generating realized
gains
|
|
|
690,317 |
|
|
|
826,319 |
|
|
|
697,089 |
|
Realized
gains
|
|
|
10,628 |
|
|
|
5,129 |
|
|
|
2,765 |
|
Proceeds
from sales of “available-for-sale” securities generating realized
losses
|
|
|
253,640 |
|
|
|
200,423 |
|
|
|
774,658 |
|
Realized
losses
|
|
|
4,535 |
|
|
|
1,566 |
|
|
|
1,897 |
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Under
Chilean GAAP, marketable securities are evaluated for other than temporarily
impairment 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
with a charge to income. The impairment does not establish a new cost basis for
the security and therefore, under certain conditions, the recovery of the
security, up to the extent of the initial cost basis, may be recorded.
Additionally, Chile GAAP does not require the recording of the foreign exchange
differences within unrealized gains/loss on available-for-sale securities in
equity. Foreign exchange gain (loss) is recorded directly in
income.
SFAS 115
also requires that the Bank determine whether individual securities classified
as available for sale are other than temporarily impaired. If the decline is
judged to be other than temporary, the cost basis of the individual security is
written down to a new cost basis with a charge to income (accounted for as a
realized loss). The new cost basis is not adjusted for subsequent recoveries in
fair value. Subsequent increases in the fair value of available for sale
securities are recorded in other comprehensive income and subsequent decreases
in fair value, if not other than temporary, are also recorded in other
comprehensive income.
As of
December 31, 2007 and 2006, the Bank believes 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, for U.S. GAAP purposes, an impairment of
MCh$861 and MCh $ 6,538 as of December 31, 2007 and 2006, was recognized for
U.S. dollar denominated debt securities. The effect of other than temporary
impairment of available for sale securities is included in the reconciliation of
consolidated net income in paragraph (r) below.
The Bank
reviewed securities with unrealized losses as of December 31, 2008, and
concluded that there was no other than temporary impairment. This review
consisted of evaluating the economic reasons for the decline, credit rating of
the issuers of the securities and the Bank’s intention and ability to hold the
securities until the unrealized loss is recovered.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The bank
reviewed the remaining portfolio as of December 31, 2008, and concluded that
there was no other than temporary impairment. This review consisted of
evaluating the economic reasons for any declines, credit ratings of the issuers
of the securities, and management’s intention and ability to hold the securities
until the unrealized loss is recovered. Based on this analysis, the Bank
believed that there was no other than temporary impairments in its investment
portfolio because most of the decline in fair value of these securities was
caused by market conditions which the Bank considered to be temporary. Most of
the securities that have unrealized losses as of December 31, 2008, were in a
continuous unrealized loss position for less than one year.
The
carrying value and market value of available-for-sale securities as of December
31, 2006, 2007 and 2008, are as follows:
Investments
Available-for-Sale
Investments 2008
|
|
Cost
|
|
|
Gross
Unrealized Gains
|
|
|
Gross
Unrealized Losses
(1)
|
|
|
Estimated
Fair Value
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
Central Bank bonds
|
|
|
684,176 |
|
|
|
13,536 |
|
|
|
(7,589 |
) |
|
|
690,123 |
|
Chilean
Central Bank notes
|
|
|
50,349 |
|
|
|
- |
|
|
|
(1,145 |
) |
|
|
49,204 |
|
Others
Chilean Central Bank and Treasury securities
|
|
|
94,318 |
|
|
|
676 |
|
|
|
(1,866 |
) |
|
|
93,128 |
|
Subtotal
|
|
|
828,843 |
|
|
|
14,212 |
|
|
|
(10,600 |
) |
|
|
832,455 |
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
in Chilean Financial Institutions
|
|
|
3,092 |
|
|
|
- |
|
|
|
(1,787 |
) |
|
|
1,305 |
|
Mortgage
finance Bonds
|
|
|
305,505 |
|
|
|
23 |
|
|
|
(21,495 |
) |
|
|
284,033 |
|
Chilean
Corporate Bonds
|
|
|
13,847 |
|
|
|
- |
|
|
|
(325 |
) |
|
|
13,522 |
|
Subtotal
|
|
|
322,444 |
|
|
|
23 |
|
|
|
(23,607 |
) |
|
|
298,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Govemment Foreign Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
Foreign securities
|
|
|
448,925 |
|
|
|
- |
|
|
|
- |
|
|
|
448,925 |
|
Subtotal
|
|
|
448,925 |
|
|
|
- |
|
|
|
- |
|
|
|
448,925 |
|
Total
|
|
|
1,600,212 |
|
|
|
14,235 |
|
|
|
(34,207 |
) |
|
|
1,580,240 |
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Investments
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
Central Bank bonds
|
|
|
308,153 |
|
|
|
191 |
|
|
|
(662 |
) |
|
|
307,682 |
|
Chilean
Central Bank notes
|
|
|
59,190 |
|
|
|
17 |
|
|
|
(75 |
) |
|
|
59,132 |
|
Others
Chilean Central Bank and Treasury securities
|
|
|
119,771 |
|
|
|
288 |
|
|
|
(1,158 |
) |
|
|
118,901 |
|
Subtotal
|
|
|
487,114 |
|
|
|
496 |
|
|
|
(1,895 |
) |
|
|
485,715 |
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
in Chilean Financial Institutions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mortgage
finance Bonds
|
|
|
301,794 |
|
|
|
591 |
|
|
|
(5,104 |
) |
|
|
297,281 |
|
Chilean
Corporate Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
301,794 |
|
|
|
591 |
|
|
|
(5,104 |
) |
|
|
297,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Govemment Foreign Securities
|
|
|
66,077 |
|
|
|
- |
|
|
|
(128 |
) |
|
|
65,949 |
|
Other
Foreign securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
66,077 |
|
|
|
- |
|
|
|
(128 |
) |
|
|
65,949 |
|
Total
|
|
|
854,985 |
|
|
|
1,087 |
|
|
|
(7,127 |
) |
|
|
848,945 |
|
Investments
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
Central Bank bonds
|
|
|
15,571 |
|
|
|
8 |
|
|
|
(51 |
) |
|
|
15,528 |
|
Chilean
Central Bank notes
|
|
|
75,324 |
|
|
|
136 |
|
|
|
(42 |
) |
|
|
75,418 |
|
Others
Chilean Central Bank and Treasury securities
|
|
|
21,665 |
|
|
|
124 |
|
|
|
(109 |
) |
|
|
21,680 |
|
Other
Securities
|
|
|
732 |
|
|
|
- |
|
|
|
(2 |
) |
|
|
730 |
|
Subtotal
|
|
|
113,292 |
|
|
|
268 |
|
|
|
(204 |
) |
|
|
113,356 |
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
in Chilean Financial Institutions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mortgage
finance Bonds
|
|
|
261,142 |
|
|
|
1,128 |
|
|
|
(1,762 |
) |
|
|
260,508 |
|
Chilean
Corporate Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
261,142 |
|
|
|
1,128 |
|
|
|
(1,762 |
) |
|
|
260,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Govemment Foreign Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
Foreign securities
|
|
|
30,677 |
|
|
|
- |
|
|
|
(793 |
) |
|
|
29,884 |
|
Subtotal
|
|
|
30,677 |
|
|
|
- |
|
|
|
(793 |
) |
|
|
29,884 |
|
Total
|
|
|
405,111 |
|
|
|
1,396 |
|
|
|
(2,759 |
) |
|
|
403,748 |
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
(1)
|
All
investments in an unrealized loss position are disclosed and segregated in
accordance with paragraph 17 of FSP FAS 115/124-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments . 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 some of its foreign-currency-denominated available-for-sale debt
securities had declines in value that were considered other than
temporary, resulting in a charge to net income of MCh$ 861 and MCh$ 6,538,
respectively, in order to record these securities at their market values.
Future unrealized gains or losses for these securities will be recorded in
other comprehensive income consistent with the accounting treatment for
available-for-sale securities.
|
The
following table shows the unrealized loss position of the available-for-sale
investments as of December 31, 2008 and 2007.
As
of December 31, 2008:
|
|
Less
than 12 months
|
|
|
12
months or more
|
|
|
Total
|
|
Available
for sale Investments
|
|
Amortized
cost
|
|
|
Fair
Value
|
|
|
Unrealized
loss
|
|
|
Amortized
cost
|
|
|
Fair
Value
|
|
|
Unrealized
losses
|
|
|
Amortized
cost
|
|
|
Fair
Value
|
|
|
Unrealized
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
Central Bank bonds
|
|
|
684,176 |
|
|
|
690,123 |
|
|
|
5,947 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
684,176 |
|
|
|
690,123 |
|
|
|
5,947 |
|
Chilean
Central Bank notes
|
|
|
50,349 |
|
|
|
49,204 |
|
|
|
(1,145 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50,349 |
|
|
|
49,204 |
|
|
|
(1,145 |
) |
Others
Chilean Central Bank and Treasury securities
|
|
|
94,318 |
|
|
|
93,128 |
|
|
|
(1,190 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
94,318 |
|
|
|
93,128 |
|
|
|
(1,190 |
) |
Subtotal
|
|
|
828,843 |
|
|
|
832,455 |
|
|
|
3,612 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
828,843 |
|
|
|
832,455 |
|
|
|
3,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
in Chilean Financial Institutions
|
|
|
3,092 |
|
|
|
1,305 |
|
|
|
(1,787 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,092 |
|
|
|
1,305 |
|
|
|
(1,787 |
) |
Mortgage
Finance Bonds
|
|
|
305,505 |
|
|
|
284,033 |
|
|
|
(21,472 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
305,505 |
|
|
|
284,033 |
|
|
|
(21,472 |
) |
Chilean
Corporate Bonds
|
|
|
13,847 |
|
|
|
13,522 |
|
|
|
(325 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,847 |
|
|
|
13,522 |
|
|
|
(325 |
) |
|
|
|
322,444 |
|
|
|
298,860 |
|
|
|
(23,584 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322,444 |
|
|
|
298,860 |
|
|
|
(23,584 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Foreing securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
Foreing Securities
|
|
|
448,925 |
|
|
|
448,925 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
448,925 |
|
|
|
448,925 |
|
|
|
- |
|
Subtotal
|
|
|
448,925 |
|
|
|
448,925 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
448,925 |
|
|
|
448,925 |
|
|
|
- |
|
Total
|
|
|
1,600,212 |
|
|
|
1,580,240 |
|
|
|
(19,972 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,600,212 |
|
|
|
1,580,240 |
|
|
|
(19,972 |
) |
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
As
of December 31, 2007:
|
|
Less
than 12 months
|
|
|
12
months or more
|
|
|
Total
|
|
Available
for sale Investments
|
|
Amortized
cost
|
|
|
FairValue
|
|
|
Unrealized
losses
|
|
|
Amortized
cost
|
|
|
Fair
Value
|
|
|
Unrealized
losses
|
|
|
Amortized
cost
|
|
|
Fair
Value
|
|
|
Unrealized
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
Central Bank bonds
|
|
|
308,153 |
|
|
|
307,682 |
|
|
|
(471 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
308,153 |
|
|
|
307,682 |
|
|
|
(471 |
) |
Chilean
Central Bank notes
|
|
|
59,190 |
|
|
|
59,132 |
|
|
|
(58 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
59,190 |
|
|
|
59,132 |
|
|
|
(58 |
) |
Others
Chilean Central Bank and Treasury securities
|
|
|
119,771 |
|
|
|
118,901 |
|
|
|
(870 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
119,771 |
|
|
|
118,901 |
|
|
|
(870 |
) |
Subtotal
|
|
|
487,114 |
|
|
|
485,715 |
|
|
|
(1,399 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
487,114 |
|
|
|
485,715 |
|
|
|
(1,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
in Chilean Financial Institutions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mortgage
Finance Bonds
|
|
|
301,794 |
|
|
|
297,281 |
|
|
|
(4,513 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
301,794 |
|
|
|
297,281 |
|
|
|
(4,513 |
) |
Chilean
Corporate Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
301,794 |
|
|
|
297,281 |
|
|
|
(4,513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301,794 |
|
|
|
297,281 |
|
|
|
(4,513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Foreing securities
|
|
|
66,077 |
|
|
|
65,949 |
|
|
|
(128 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
66,077 |
|
|
|
65,949 |
|
|
|
(128 |
) |
Others
Foreign Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Subtotal
|
|
|
66,077 |
|
|
|
65,949 |
|
|
|
(128 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
66,077 |
|
|
|
65,949 |
|
|
|
(128 |
) |
Total
|
|
|
854,985 |
|
|
|
848,945 |
|
|
|
(6,040 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
854,985 |
|
|
|
848,945 |
|
|
|
(6,040 |
) |
The
contractual maturities of securities classified by the Bank as
available-for-sale are as of December 31, 2008 and 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, 2008)
|
|
Central
Bank and Government Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
Central Bank bonds
|
|
|
98,100 |
|
|
|
406,933 |
|
|
|
185,090 |
|
|
|
- |
|
|
|
690,123 |
|
Chilean
Central Bank notes
|
|
|
23,326 |
|
|
|
24,738 |
|
|
|
1,140 |
|
|
|
- |
|
|
|
49,204 |
|
Others
Chilean Central Bank and Treasury Securities
|
|
|
27,571 |
|
|
|
10,841 |
|
|
|
32,637 |
|
|
|
22,079 |
|
|
|
93,128 |
|
Subtotal
|
|
|
148,997 |
|
|
|
442,512 |
|
|
|
218,867 |
|
|
|
22,079 |
|
|
|
832,455 |
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
in Chilean Financial institutions
|
|
|
- |
|
|
|
1,305 |
|
|
|
- |
|
|
|
- |
|
|
|
1,305 |
|
Mortgage
Finance Bonds
|
|
|
89 |
|
|
|
2,843 |
|
|
|
18,757 |
|
|
|
262,344 |
|
|
|
284,033 |
|
Chilean
corporate Bonds
|
|
|
- |
|
|
|
13,522 |
|
|
|
- |
|
|
|
- |
|
|
|
13,522 |
|
Subtotal
|
|
|
89 |
|
|
|
17,670 |
|
|
|
18,757 |
|
|
|
262,344 |
|
|
|
298,860 |
|
Other
Chilean Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Foreing Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
Foreign Securities
|
|
|
448,925 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
448,925 |
|
Subtotal
|
|
|
448,925 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
448,925 |
|
Total
|
|
|
598,011 |
|
|
|
460,182 |
|
|
|
237,624 |
|
|
|
284,423 |
|
|
|
1,580,240 |
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
Central Bank bonds
|
|
|
34,461 |
|
|
|
161,923 |
|
|
|
111,298 |
|
|
|
- |
|
|
|
307,682 |
|
Chilean
Central Bank notes
|
|
|
50,782 |
|
|
|
3,560 |
|
|
|
1,461 |
|
|
|
3,329 |
|
|
|
59,132 |
|
Others
Chilean Central Bank and Treasury Securities
|
|
|
19,907 |
|
|
|
31,436 |
|
|
|
47,671 |
|
|
|
19,887 |
|
|
|
118,901 |
|
Subtotal
|
|
|
105,150 |
|
|
|
196,919 |
|
|
|
160,430 |
|
|
|
23,216 |
|
|
|
485,715 |
|
Others
Financial Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
in Chilean Financial institutions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mortgage
Finance Bonds
|
|
|
65 |
|
|
|
2,498 |
|
|
|
12,484 |
|
|
|
282,234 |
|
|
|
297,281 |
|
Chilean
corporate Bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Subtotal
|
|
|
65 |
|
|
|
2,498 |
|
|
|
12,484 |
|
|
|
282,234 |
|
|
|
297,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Chilean Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Bank and Government Foreing Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Others
Foreing Securities
|
|
|
54,365 |
|
|
|
- |
|
|
|
11,584 |
|
|
|
- |
|
|
|
65,949 |
|
Subtotal
|
|
|
54,365 |
|
|
|
- |
|
|
|
11,584 |
|
|
|
- |
|
|
|
65,949 |
|
Total
|
|
|
159,580 |
|
|
|
199,417 |
|
|
|
184,498 |
|
|
|
305,450 |
|
|
|
848,945 |
|
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, 2006, 2007 and 2008, the Bank recognized in income net
unrealized holding gains (losses) of MCh$ 192 and MCh$ 819 and MCh$ (2,083)
respectively, on these securities.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
calculation 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$ 9,558 for the year ended December 31,
2006.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Based on
the loan loss 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 compared to 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$
|
|
|
MCh$
|
|
U.S.
GAAP loan loss allowance
|
|
|
(194,082 |
) |
|
|
(250,887 |
) |
|
|
(285,505 |
) |
Chilean
GAAP loan allowance required by the Superintendency of
Banks
|
|
|
203,640 |
|
|
|
250,887 |
|
|
|
285,505 |
|
Cumulative
U.S. GAAP adjustment
|
|
|
9,558 |
|
|
|
- |
|
|
|
- |
|
Based on
the back testing performed by the Bank, including the consumer credit portfolio,
as of December 31, 2007 and 2008 the cumulative adjustment recognized in prior
years was credited to income in both years.
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 (r)
below.
As of
December 31, 2006, 2007 and 2008, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS 114 totaled MCh$ 363,441,
MCh$ 446,779 and MCh$ 548,259, respectively, with a corresponding valuation
allowance of MCh$ 146,150, MCh$ 106,840 and MCh$ 128,734, respectively. For the
years ended December 31, 2006, 2007 and 2008, the average recorded investment in
impaired loans was MCh$ 317,728, MCh$ 330,659 and MCh$ 481,999, respectively.
For the three years ended December 31, 2006, 2007 and 2008, during the portion
of the year that the loans were impaired, the Bank recognized MCh$ 513, MCh$ 534
and MCh$1,182 of interest on impaired loans. As of December 31, 2008, 2007 and
2006 the Bank had made provisions against all loans which it considered to be
impaired.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Under
Chilean GAAP and U.S. GAAP recoveries of loans previously charged-off are
presented as a reduction of the provision for loan losses.
The
following table is an U.S. GAAP analysis, for the years ended December 31, 2006,
2007 and 2008, of the changes in the reserve for loan loss:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Beginning
allowances for loan losses in accordance with U.S. GAAP
|
|
|
176,657 |
|
|
|
203,640 |
|
|
|
250,887 |
|
Price-level
restatement (1)
|
|
|
(3,666 |
) |
|
|
(14,102 |
) |
|
|
(20,693 |
) |
Reclasification
to provision for contingent loans (see note 8 (b))
|
|
|
- |
|
|
|
(2,571 |
) |
|
|
- |
|
Loan
loss recoveries
|
|
|
55,065 |
|
|
|
56,587 |
|
|
|
37,894 |
|
Charge-offs
and recoveries
|
|
|
(167,854 |
) |
|
|
(219,004 |
) |
|
|
(268,129 |
) |
Addition
charged of operations
|
|
|
143,438 |
|
|
|
226,337 |
|
|
|
285,546 |
|
Ending
allowances for loan loss in accordance with U.S. GAAP
|
|
|
203,640 |
|
|
|
250,887 |
|
|
|
285,505 |
|
(1)
|
Reflects
the effect of inflation on the allowance of loan loss under Chilean GAAP
at the beginning of each period, adjusted to Chilean pesos of December 31,
2008.
|
As
discussed in Note 1 (m), under Chilean GAAP the Bank writes off loans when
collection efforts are exhausted. Under the rules and regulations established by
the Superintendency of Banks, charge-offs must be made within the following
maximum limits:
|
-
|
For
loans without collateral, 24 months (6 months for consumer loans) after a
loan is past due ;
|
|
-
|
For
loans with collateral, 36 months after a loan is past
due.
|
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 in accordance with
Chilean GAAP are substantially the same as those required under U.S. GAAP, and
therefore there are no potential material differences.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Under
Chilean GAAP, certain long-term investments of less than 20% of the outstanding
shares in other companies were recorded using the equity method of accounting
(see Note 10 (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 (r) below.
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.
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.
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 are similar to U.S. GAAP, SFAS No 133 and
related amendments.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Effective
January 1, 2006, in accordance with Circular No. 3,345 of the Superintendency of
Banks, the accounting for 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 UF (inflation index-linked
units of account), interest rate futures, currency and interest rate swaps,
currency and interest rate options, and others are now 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.
Even
thought the methodology to asses Hedge Accounting under Chilean GAAP and U.S.
GAAP are the same, there are certain criteria that are presented under US GAAP
and not under Chilean GAAP. As of December 31, 2006 hedge 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 for an
amount of $ 34,998 for the year ended December 31, 2006, in our reconciliation
of Net income in paragraph (r) below. As there are differences in Hedge
Accounting between Chilean GAAP and U.S. GAAP, as of December 31, 2006, 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, discontinued 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, there is no difference in Hedge accounting between Chilean
GAAP and U.S. GAAP.
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.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
For the
years ended December 31, 2006, 2007 and 2008, the effects of embedded
derivatives were not significant.
Under
Chilean GAAP, recoveries of charged-off loans as well as recoveries of 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, was
eliminated in the reconciliation to U.S. GAAP.
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 (r) below.
The
following business combinations occurred 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
paragraph(r):
(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 the“pooling of
interests” method. 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 was acquired by BCSH as explained in paragraph (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
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
As
instructed by the Superintendency of Banks, assets received in lieu of payment
are recorded at cost, less a global valuation allowance if the total of the fair
value of those assets is lower than the recorded amount. If the asset is not
sold within one year, then the recorded asset amounts are written-off after the
period established ends.
Under
U.S. GAAP, on an individual asset basis, assets received in lieu of payment are
initially recorded at fair value less any estimated costs to sell at the date of
foreclosure. Subsequent to foreclosure, valuations should be periodically
performed to record any impairment. The effect of recording these assets in
accordance with U.S. GAAP is included in the reconciliation of net income and
shareholders' equity in paragraph (r) below.
Under
Chilean GAAP, accrued interest and indexation adjustment are presented net with
the principle amounts of the investments to which they accrete. Under U.S. GAAP
accrued interest and indexation adjustment is presented as separate line items
in the balance sheet. The amount of this reclassification is not readily
determinable.
The
following is a reconciliation of net income under Chilean GAAP to the
corresponding amounts under U.S. GAAP:
|
|
Year
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
1.s)
|
|
Total Net income under Chilean
GAAP
|
|
|
334,282 |
|
|
|
338,324 |
|
|
|
331,017 |
|
|
|
516,206 |
|
Minority interest in accordance to
Circular No 3443 (Note 2)
(*)
|
|
|
(176 |
) |
|
|
(2,238 |
) |
|
|
(2,871 |
) |
|
|
(4,477 |
) |
Total Net income without minority interest under
Chilean
GAAP required to be
applied under Circular No 3443
|
|
|
334,106 |
|
|
|
336,086 |
|
|
|
328,146 |
|
|
|
511,729 |
|
Push-down accounting (Note 27 (a))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of trademarks and
other
|
|
|
(19,926 |
) |
|
|
(68,649 |
) |
|
|
(2,791 |
) |
|
|
(4,352 |
) |
Amortization of fair value
increase of net
assets
|
|
|
(4,499 |
) |
|
|
(4,500 |
) |
|
|
(1,771 |
) |
|
|
(2,762 |
) |
Other than temporary
impairment (Note 27 (h))
|
|
|
(6,538 |
) |
|
|
(861 |
) |
|
|
- |
|
|
|
- |
|
Investment securities (Note
27 (g))
|
|
|
(552 |
) |
|
|
861 |
|
|
|
(3,096 |
) |
|
|
(4,828 |
) |
Allowance for loan
loss (Note 27
(j))
|
|
|
- |
|
|
|
(9,558 |
) |
|
|
- |
|
|
|
- |
|
Investments in other companies
(Note 27 (k))
|
|
|
(137 |
) |
|
|
(97 |
) |
|
|
(293 |
) |
|
|
(457 |
) |
Derivatives (Note 27 (l))
|
|
|
(34,998 |
) |
|
|
6,298 |
|
|
|
16,045 |
|
|
|
25,021 |
|
Capitalization of interest expense (Note
27 (n))
|
|
|
(60 |
) |
|
|
(60 |
) |
|
|
(60 |
) |
|
|
(94 |
) |
Assets received in lieu of payment (Note 27
(p))
|
|
|
1,736 |
|
|
|
(3,716 |
) |
|
|
(1,261 |
) |
|
|
(1,966 |
) |
Stock compensation plan (Note
27 (e))
|
|
|
- |
|
|
|
(9,162 |
) |
|
|
- |
|
|
|
- |
|
Deferred tax effect of U.S. GAAP
adjustments
|
|
|
6,870 |
|
|
|
1,197 |
|
|
|
(1,977 |
) |
|
|
(3,083 |
) |
Net
income in accordance with U.S. GAAP
|
|
|
276,002 |
|
|
|
247,839 |
|
|
|
332,942 |
|
|
|
519,208 |
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
following is a reconciliation of comprehensive income under Chilean GAAP to U.S.
GAAP:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
1.s)
|
|
Total Other comprehensive income under Chilean
GAAP
|
|
|
16,781 |
|
|
|
(9,264 |
) |
|
|
1,884 |
|
|
|
2,938 |
|
Minority interest in accordance to
Circular No 3443 (Note 2) (*)
|
|
|
- |
|
|
|
- |
|
|
|
39 |
|
|
|
61 |
|
Total Other comprehensive income
without minority
interest under Chilean GAAP required to be applied under
Circular No 3443
|
|
|
16,781 |
|
|
|
(9,264 |
) |
|
|
1,923 |
|
|
|
2,999 |
|
Other than temporary
impairment (note 27
(h))
|
|
|
6,537 |
|
|
|
861 |
|
|
|
- |
|
|
|
- |
|
Investment
securities (note 27 (s))
|
|
|
(3,113 |
) |
|
|
(861 |
) |
|
|
3,096 |
|
|
|
4,828 |
|
Deferred tax effect of U.S. GAAP
adjustments
|
|
|
(583 |
) |
|
|
- |
|
|
|
(526 |
) |
|
|
(820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income in
accordance with U.S. GAAP
|
|
|
19,622 |
|
|
|
(9,264 |
) |
|
|
4,493 |
|
|
|
7,007 |
|
The
following is a reconciliation of shareholders’ equity under Chilean GAAP to U.S.
GAAP:
|
|
At
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
(Note
1.s)
|
|
Shareholders’
equity in accordance with Chilean GAAP
|
|
|
1,587,714 |
|
|
|
1,602,610 |
|
|
|
2,499,197 |
|
Minority
interest in accordance to Circular No 3443 (Note 2) (*)
|
|
|
(21,829 |
) |
|
|
(24,565 |
) |
|
|
(38,308 |
) |
Total
Shareholders’ equity without minority interest under Chilean GAAP required
to be applied under Cicular No 3443
|
|
|
1,565,885 |
|
|
|
1,578,045 |
|
|
|
2,460,889 |
|
Push
Down Accounting (Note 27 (a))
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
586,410 |
|
|
|
586,410 |
|
|
|
914,480 |
|
Fair value of
intangibles
|
|
|
2,791 |
|
|
|
- |
|
|
|
- |
|
Fair value increase of net
assets
|
|
|
1,771 |
|
|
|
- |
|
|
|
- |
|
Mandatory
dividends (Note 27 (c))
|
|
|
(100,826 |
) |
|
|
- |
|
|
|
- |
|
Investments in other companies (Note 27
(k))
|
|
|
248 |
|
|
|
(45 |
) |
|
|
(70 |
) |
Derivatives (Note 27
(l))
|
|
|
(30,944 |
) |
|
|
(14,899 |
) |
|
|
(23,234 |
) |
Recoveries
of loans (Note 27 (m))
|
|
|
(1,523 |
) |
|
|
(1,523 |
) |
|
|
(2,375 |
) |
Capitalization of interest
expense (Note
27 (q))
|
|
|
4,414 |
|
|
|
4,354 |
|
|
|
6,790 |
|
Assets received in lieu of payment (Note 27
(p))
|
|
|
2,348 |
|
|
|
1,087 |
|
|
|
1,695 |
|
Deferred tax effect of U.S. GAAP
adjustments
|
|
|
4,370 |
|
|
|
1,867 |
|
|
|
2,912 |
|
Acquisition of financial assets (Note 27
(o))
|
|
|
357,151 |
|
|
|
357,151 |
|
|
|
556,961 |
|
Shareholders’ equity in accordance
with U.S. GAAP
|
|
|
2,392,095 |
|
|
|
2,512,447 |
|
|
|
3,918,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*)
|
Under
Chilean GAAP, required to be applied under the Superintendency of Banks
Circular No 3443 equity includes the equity corresponding to the
shareholders of both the parent and the minority interest. Under U.S.
GAAP, total shareholders’ equity is made up only of the equity portion
attributable to equity holders of the parent. Therefore, for reporting
purposes, the minority interest portion is excluded of total shareholders’
equity.
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
following summarizes the changes in the shareholders’ equity of the Bank under
U.S. GAAP during the years ended December 31, 2006, 2007 and
2008:
|
|
As
of December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January
1
|
|
|
2,267,885 |
|
|
|
2,362,827 |
|
|
|
2,392,095 |
|
|
|
3,730,363 |
|
Price-level
restatement of
dividends paid and
others
|
|
|
(217 |
) |
|
|
(2,141 |
) |
|
|
(7,170 |
) |
|
|
(11,181 |
) |
Dividends
paid
|
|
|
(186,150 |
) |
|
|
(215,734 |
) |
|
|
(212,295 |
) |
|
|
(331,064 |
) |
Mandatory dividends, previous date
(Note 27 (c))
|
|
|
85,917 |
|
|
|
100,232 |
|
|
|
100,826 |
|
|
|
157,234 |
|
Mandatory dividends, closing date
(Note 27 (c))
|
|
|
(100,232 |
) |
|
|
(100,826 |
) |
|
|
(98,444 |
) |
|
|
(153,519 |
) |
Other comprehensive
income
|
|
|
19,622 |
|
|
|
(9,264 |
) |
|
|
4,493 |
|
|
|
7,007 |
|
- Available-for-sale
investments
|
|
|
23,641 |
|
|
|
(4,772 |
) |
|
|
(11,328 |
) |
|
|
(17,665 |
) |
- Hedge accounting cash
flow
|
|
|
- |
|
|
|
(6,389 |
) |
|
|
16,740 |
|
|
|
26,105 |
|
- Defered
Tax
|
|
|
(4,019 |
) |
|
|
1,897 |
|
|
|
(919 |
) |
|
|
(1,433 |
) |
Stock compensation
plan
|
|
|
- |
|
|
|
9,162 |
|
|
|
- |
|
|
|
- |
|
Net income in accordance with U.S.
GAAP
|
|
|
276,002 |
|
|
|
247,839 |
|
|
|
332,942 |
|
|
|
519,208 |
|
Balance at December
31
|
|
|
2,362,827 |
|
|
|
2,392,095 |
|
|
|
2,512,447 |
|
|
|
3,918,048 |
|
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 was effective as of
January 1, 2007 and Santander Investment S.A. Corredores de Bolsa became a
subsidiary of Banco Santander Chile and is legally responsible for 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 Bank should present the
statement of financial position and other financial information as of the
beginning of the period as though the assets and liabilities were transferred at
that date. The financial statements and financial information presented for
prior years should also be restated to furnish comparative information for the
effects of this business combination. The following information presents a
summary of the revenues, net income, total assets and total liabilities from
Santander Investment S.A. Corredores de Bolsa for the year ended December 31,
2006 as if these figures were included in the combined reconciliation of net
income and shareholders’ equity from Chilean GAAP to US GAAP:
|
|
2006
|
|
|
|
MCh$
|
|
Revenues
|
|
|
136 |
|
Net
income
|
|
|
2,673 |
|
Total
assets
|
|
|
150,668 |
|
Total
liabilities
|
|
|
134,932 |
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
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 were price level restated in constant Chilean pesos of
December 31, 2008 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 (r) were
incorporated.
The
principal reclassifications to the primary Chilean GAAP consolidated financial
statements in order to present them in accordance with 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, 2007 and 2008 were 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
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
|
|
As
of December 31,
|
|
|
|
|
2007(*)
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash and due from
banks
|
|
|
641,306 |
|
|
|
719,846 |
|
Interest bearing
deposits
|
|
|
762,793 |
|
|
|
327,845 |
|
Investments under agreements to
resell
|
|
|
37,022 |
|
|
|
- |
|
Investments:
|
|
|
|
|
|
|
|
|
Trading
|
|
|
1,186,905 |
|
|
|
1,161,631 |
|
Available-for-sale
|
|
|
848,945 |
|
|
|
1,580,240 |
|
Sub-total
|
|
|
3,476,971 |
|
|
|
3,789,562 |
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
13,586,478 |
|
|
|
14,877,647 |
|
Unearned
income
|
|
|
(187,545 |
) |
|
|
(193,695 |
) |
Allowance for loan
loss
|
|
|
(250,887 |
) |
|
|
(285,505 |
) |
Loans, net
|
|
|
13,148,046 |
|
|
|
14,398,447 |
|
Premises and equipment,
net
|
|
|
335,915 |
|
|
|
366,411 |
|
Goodwill,
net
|
|
|
943,561 |
|
|
|
943,561 |
|
Intangibles,
net
|
|
|
2,791 |
|
|
|
- |
|
Derivatives
|
|
|
850,186 |
|
|
|
1,846,509 |
|
Other
assets
|
|
|
566,351 |
|
|
|
584,494 |
|
Total
Assets
|
|
|
19,323,821 |
|
|
|
21,928,984 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non interest
bearing
|
|
|
3,123,803 |
|
|
|
2,949,757 |
|
Interest
bearing
|
|
|
9,786,315 |
|
|
|
11,181,331 |
|
Total
deposits
|
|
|
12,910,118 |
|
|
|
14,131,088 |
|
Short-term
borrowings
|
|
|
1,034,546 |
|
|
|
407,270 |
|
Investments sold under agreement
to repurchase
|
|
|
336,090 |
|
|
|
563,234 |
|
Derivatives
|
|
|
847,400 |
|
|
|
1,469,724 |
|
Other
liabilities
|
|
|
308,702 |
|
|
|
473,276 |
|
Long-term
debt
|
|
|
1,473,041 |
|
|
|
2,347,380 |
|
Sub-total
|
|
|
3,999,779 |
|
|
|
5,260,884 |
|
Minority
interest
|
|
|
21,829 |
|
|
|
24,565 |
|
Common
stock
|
|
|
891,303 |
|
|
|
891,303 |
|
Other shareholders’
equity
|
|
|
1,500,792 |
|
|
|
1,621,144 |
|
Total
Liabilities and Shareholders’ Equity
|
|
|
19,323,821 |
|
|
|
21,928,984 |
|
(*)
|
Balance
sheets and balance sheets derived information as of December 31, 2007
has been restated for comparative
purposes.
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
following income statements were 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,
|
|
|
|
|
2006(*)
|
|
|
|
2007(*)
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
|
|
1,206,793 |
|
|
|
1,619,924 |
|
|
|
2,048,847 |
|
Interest on
investments
|
|
|
116,201 |
|
|
|
137,780 |
|
|
|
142,741 |
|
Interest on deposits with
banks
|
|
|
6,194 |
|
|
|
9,614 |
|
|
|
9,515 |
|
Interest on investments under
agreement to resell
|
|
|
727 |
|
|
|
678 |
|
|
|
1,610 |
|
Total interest
income
|
|
|
1,329,915 |
|
|
|
1,767,996 |
|
|
|
2,202,713 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on
deposits
|
|
|
(409,846 |
) |
|
|
(634,975 |
) |
|
|
(724,478 |
) |
Interest on investments under
agreement to repurchase
|
|
|
(31,585 |
) |
|
|
(41,732 |
) |
|
|
(37,352 |
) |
Interest on short-term
debt
|
|
|
(4,467 |
) |
|
|
(6,432 |
) |
|
|
(4,956 |
) |
Interest on long-term
debt
|
|
|
(39,871 |
) |
|
|
(53,209 |
) |
|
|
(55,713 |
) |
Interest on other borrowed
funds
|
|
|
(161,964 |
) |
|
|
(206,757 |
) |
|
|
(341,572 |
) |
Price level restatement
(1)
|
|
|
(16,122 |
) |
|
|
(61,332 |
) |
|
|
(78,027 |
) |
Total interest
expense
|
|
|
(663,855 |
) |
|
|
(1,004,437 |
) |
|
|
(1,242,098 |
) |
Net interest
income
|
|
|
666,060 |
|
|
|
763,559 |
|
|
|
960,615 |
|
Provision for loan
loss
|
|
|
(142,956 |
) |
|
|
(234,226 |
) |
|
|
(285,953 |
) |
Net interest income after
provision for loan losses
|
|
|
523,104 |
|
|
|
529,333 |
|
|
|
674,662 |
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and commissions,
net
|
|
|
146,784 |
|
|
|
164,226 |
|
|
|
80,221 |
|
Gain (losses) on trading
activities
|
|
|
93,378 |
|
|
|
33,093 |
|
|
|
286,033 |
|
Net gains (losses) on foreign
exchange activities
|
|
|
(552 |
) |
|
|
83,007 |
|
|
|
(187,042 |
) |
Other
|
|
|
(25,170 |
) |
|
|
(17,550 |
) |
|
|
(24,896 |
) |
Total other
income
|
|
|
214,440 |
|
|
|
262,776 |
|
|
|
154,316 |
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
(186,281 |
) |
|
|
(200,282 |
) |
|
|
(209,134 |
) |
Net premises and equipment
expenses
|
|
|
(55,326 |
) |
|
|
(59,759 |
) |
|
|
(68,145 |
) |
Administration
expenses
|
|
|
(140,213 |
) |
|
|
(150,651 |
) |
|
|
(145,836 |
) |
Other
expenses
|
|
|
(18,328 |
) |
|
|
(72,462 |
) |
|
|
(4,345 |
) |
Minority
interest
|
|
|
(176 |
) |
|
|
(2,238 |
) |
|
|
(2,871 |
) |
Total other
expenses
|
|
|
(400,324 |
) |
|
|
(485,392 |
) |
|
|
(430,331 |
) |
Income before income
taxes
|
|
|
337,220 |
|
|
|
306,717 |
|
|
|
398,647 |
|
Income
taxes
|
|
|
(61,218 |
) |
|
|
(58,878 |
) |
|
|
(65,705 |
) |
Net income
|
|
|
276,002 |
|
|
|
247,839 |
|
|
|
332,942 |
|
(*)
|
Income
statement and income statement derived information for the years 2007 and
2006 have been restated for comparative
purposes.
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Other
comprehensive income:
|
|
Year
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
1.s)
|
|
Net
income in accordance with U.S. GAAP
|
|
|
276,002 |
|
|
|
247,839 |
|
|
|
332,942 |
|
|
|
519,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
19,622 |
|
|
|
(9,264 |
) |
|
|
4,493 |
|
|
|
7,007 |
|
-
Securities available for sale
|
|
|
23,641 |
|
|
|
(4,772 |
) |
|
|
(11,328 |
) |
|
|
(17,665 |
) |
-
Hedge accounting
|
|
|
- |
|
|
|
(6,389 |
) |
|
|
16,740 |
|
|
|
26,105 |
|
-
Income tax
|
|
|
(4,019 |
) |
|
|
1,897 |
|
|
|
(919 |
) |
|
|
(1,433 |
) |
Comprehensive
income
|
|
|
295,624 |
|
|
|
238,575 |
|
|
|
337,435 |
|
|
|
526,215 |
|
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 were 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” on the Chilean GAAP 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 were 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,
|
|
|
|
|
2006(*)
|
|
|
|
2007(*)
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
558,117 |
|
|
|
802,239 |
|
|
|
388,621 |
|
Net
cash used in (provided by) investing activities
|
|
|
(1,622,270 |
) |
|
|
(1,851,638 |
) |
|
|
(2,273,160 |
) |
Net
cash provided by financing activities
|
|
|
729,526 |
|
|
|
1,160,299 |
|
|
|
1,525,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flow
|
|
|
(334,627 |
) |
|
|
110,900 |
|
|
|
(359,534 |
) |
Inflation
effect on cash and cash equivalents
|
|
|
(7,908 |
) |
|
|
4,527 |
|
|
|
3,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and due from banks
|
|
|
(342,535 |
) |
|
|
115,427 |
|
|
|
(356,408 |
) |
Cash
and due from Banks, beginning of the year
|
|
|
1,631,207 |
|
|
|
1,288,672 |
|
|
|
1,404,099 |
|
Cash
and due from Banks, end of the year
|
|
|
1,288,672 |
|
|
|
1,404,099 |
|
|
|
1,047,691 |
|
(*)
|
As
discussed in Note 2, Circular No. 3443 of the Superintendency of Banks
amended the definition of “Cash and cash equivalent”. Such change is
defined as a change in accounting principle that requires a
reclassification of amounts in prior years’ financial statements presented
for comparative purposes.
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
reconciliation of the provision for income taxes under Chilean GAAP to U.S. GAAP
is as follows:
|
|
Year
ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Charge
for the period under Chilean GAAP
|
|
|
68,088 |
|
|
|
60,075 |
|
|
|
63,728 |
|
U.S.
GAAP Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax effect of U.S. GAAP adjustments
|
|
|
(6,870 |
) |
|
|
(1,197 |
) |
|
|
1,977 |
|
Charge
for the period under U.S. GAAP
|
|
|
61,218 |
|
|
|
58,878 |
|
|
|
65,705 |
|
Deferred
tax assets and liabilities for the Bank under U.S. GAAP are summarized as
follows:
|
|
As
of December 31,
|
|
Temporary
differences
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Assets
|
|
|
|
|
|
|
Allowance
for loan loss
|
|
|
30,662 |
|
|
|
31,008 |
|
Accrued
interest
|
|
|
2,068 |
|
|
|
615 |
|
Derivate
and Hedge Accounting
|
|
|
4,153 |
|
|
|
4,644 |
|
Other
provisions
|
|
|
15,081 |
|
|
|
19,480 |
|
Foreign
exchange
|
|
|
879 |
|
|
|
1,926 |
|
Bank
property, plant and equipment
|
|
|
14,916 |
|
|
|
2,867 |
|
Assets
received in lieu of payment
|
|
|
407 |
|
|
|
217 |
|
Other
|
|
|
500 |
|
|
|
2,528 |
|
Total
deferred tax assets
|
|
|
68,666 |
|
|
|
63,285 |
|
|
|
As
of December 31,
|
|
Temporary
differences
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Liabilities
|
|
|
|
|
|
|
Accelerated
depreciation
|
|
|
4,996 |
|
|
|
13,748 |
|
Valuation
of investments
|
|
|
3,271 |
|
|
|
147 |
|
Prepaid
expenses
|
|
|
2,658 |
|
|
|
2,434 |
|
Others
|
|
|
556 |
|
|
|
589 |
|
Total
deferred tax liabilities
|
|
|
11,481 |
|
|
|
16,918 |
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
57,185 |
|
|
|
46,367 |
|
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
27.
|
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:
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
Chilean
taxes due at the statutory rate
|
|
|
57,327 |
|
|
|
52,142 |
|
|
|
68,305 |
|
Increase
(decrease) in rates resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Permanent differences
|
|
|
(1,212 |
) |
|
|
(4,932 |
) |
|
|
(3,985 |
) |
-
Taxes on unallowable expenses Article No 21
|
|
|
225 |
|
|
|
375 |
|
|
|
221 |
|
-
Amortization of intangibles
|
|
|
3,387 |
|
|
|
11,670 |
|
|
|
474 |
|
-
Other
|
|
|
1,491 |
|
|
|
(377 |
) |
|
|
690 |
|
At
effective tax rate
|
|
|
61,218 |
|
|
|
58,878 |
|
|
|
65,705 |
|
The
Chilean statutory first category (corporate) income tax rate was 17% for the
years ended December 31, 2006, 2007 and 2008.
Additionally,
effective January 1, 2007, the Company adopted FASB Interpretation No. 48:
“Accounting for Uncertainty in Income Taxes – an interpretation of FASB
Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in
income taxes recognized in an enterpriseentity’s financial statements in
accordance with Statement of Financial Accounting Standards No. 109: “Accounting
for Income Taxes” (“FAS 109”). The Interpretation prescribes a threshold for the
financial statement recognition and measurement of a tax position taken or
expected to be taken within an income tax return. For each tax position, the
enterprise must determine whether it is more likely than not that the position
will be sustained upon examination by taxing authorities, based on the technical
merits of the position, including resolution of any related appeals or
litigation. A tax position that meets the more likely than not recognition
threshold is then measured to determine the amount of benefit to be recognized
within the financial statements. No benefits may be recognized for tax positions
that do not meet the more likely than not threshold. For tax positions that meet
the more likely than not threshold, the benefit to be recognized is the largest
amount that is greater than 50% likely of being realized upon ultimate
settlement.
As a
result of implementing FIN 48, there was no impact one the Bank’s Financial
Statements from the adoption of this interpretation. In addition, as of the date
of the adoption of FIN 48, the Bank did not have any accrued interest and
penalties related to unrecognized tax benefits.
Under
Chilean tax regime, as of December 31, 2008, fiscal years 2005 through 2007
remain subject to examination by the Internal Revenue Service (“Servicio de
Impuestos Internos”).
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
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 how the Bank is
internally managed. The Bank’s internal organization is structured on the basis
of the client segments of the Bank. We provide a full range of financial
services to corporate and individual customers. The following segment
information was re-classified according to the guidelines established in
Circular No 3443 of the Superintendency of Bank’s. As such, the segment
information for the year ended December 31, 2006 and 2007 will differ, in terms
of presentation, from the previous year report. We have the following
segments:
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$187) and Ch$ 400,000 (US$624), which are served
through our Banefe branch network. This segment accounts for 5.0% of our
loans at December 31, 2008. This segment offers customers a range of
products, including consumer loans, credit cards, auto loans, residential
mortgage loans, debit card accounts, savings products, mutual funds and
insurance brokerage.
|
·
|
Middle- and
upper-income, consisting of individuals with a monthly income
greater than Ch$ 400,000 (US$624). Clients in this segment account for
41.8% of our loans at December 31, 2008 and are offered a range of
products, including consumer loans, credit cards, auto loans, commercial
loans, foreign trade financing, residential mortgage loans, checking
accounts, savings products, mutual funds and insurance
brokerage.
|
·
|
Small businesses,
consisting of small companies with annual sales less than Ch$ 1,200
million (US$ 1.9 million). At December 31, 2008, 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, 2008, these
clients represented 1.5% 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.
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
Middle-market 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$1.9
million) and up to Ch$3,500 million (US$ 5.5 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, 2008,
these clients represented 7.6% of our total loans
outstanding.
|
·
|
Real estate. This
segment includes all companies in the real estate sector. At December 31,
2008, these clients represented 3.6% of our total loans outstanding.
Customers in this segment are offered, 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$5.5
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, 2008, 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$5.5 million). At December 31, 2008,
these clients represented 15.3% of our total loans outstanding. Customers
in this segment are offered a wide range of products, including commercial
loans, leasing, factoring, foreign trade, mortgage loans, checking
accounts, cash management, treasury services, financial advisory, savings
products, mutual funds and insurance
brokerage.
|
·
|
The
Treasury Division provides sophisticated financial products mainly to
companies in the wholesale banking and the middle market segments. This
includes products such as short-term financing and funding, securities
brokerage, interest rate and foreign currency derivatives, securitization
services and other tailor made financial products. The Treasury division
also manages the Bank’s trading positions as well as the non-trading
investment portfolio.
|
The
accounting policies of the segments are the same as those described in the
summary of significant accounting principles, and are customized to meet the
needs of management of the Bank. The Bank derives majority of its revenues from
interest income, fee income and provision expense and the chief operating
decision maker relies primarily on the interest revenue, fee income and
provision expense to assess the perfonmance of the segments and make decisions
about resources to be allocated to the segments.
The table
below outlines our lines of business and certain related statistical information
as of December 31, 2006, 2007 and 2008.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
For the twelve month period ended
December 31, 2008
|
|
|
|
|
|
(millions of constant Ch$ as of
December 31, 2008)
|
|
|
|
|
|
Segment
|
Loans
|
Net interest
revenue
|
Fees
|
Allowances for
loan losses
(1)
|
Financial transactions, net
(2)
|
Net segment contribution
(3)
|
Individuals
|
6,870,509
|
531,820
|
144,182
|
(211,875)
|
-
|
464,127
|
Santander Banefe
|
732,016
|
184,647
|
31,722
|
(90,503)
|
-
|
125,866
|
Middle-upper
income
|
6,138,493
|
347,173
|
112,460
|
(121,372)
|
-
|
338,261
|
SMEs
|
2,428,779
|
184,149
|
40,657
|
(54,360)
|
-
|
170,446
|
Institutional
|
224,738
|
12,273
|
1,728
|
(290)
|
-
|
13,711
|
Total
Retail
|
9,524,026
|
728,242
|
186,567
|
(266,525)
|
-
|
648,284
|
Middle-market
|
2,882,069
|
98,717
|
16,041
|
(16,189)
|
-
|
98,569
|
Mid-sized
companies
|
1,124,480
|
41,266
|
8,064
|
(8,557)
|
-
|
40,773
|
Real estate
|
522,399
|
16,224
|
1,522
|
(597)
|
-
|
17,149
|
Large
companies
|
1,235,190
|
41,227
|
6,455
|
(7,035)
|
-
|
40,647
|
Global Banking and
Markets
|
2,242,389
|
117,190
|
11,497
|
(759)
|
108,475
|
236,403
|
Wholesale
|
2,242,389
|
51,550
|
10,488
|
(759)
|
-
|
61,279
|
Treasury
(4)
|
-
|
65,640
|
1,009
|
-
|
108,475
|
175,124
|
Others (5)
|
51,890
|
(47,108)
|
9,488
|
(2,480)
|
(22,433)
|
(62,533)
|
Total
|
14,700,374
|
897,041
|
223,593
|
(285,953)
|
86,042
|
920,723
|
Other operating income,
net
|
|
|
|
|
|
16,512
|
Income (loss) attributable to
investments in other companies
|
|
|
|
851
|
Operating
expenses
|
|
|
|
|
|
(465,314)
|
Price level
restatement
|
|
|
|
|
|
(78,027)
|
Net income before
taxes
|
|
|
|
|
|
394,745
|
(1)
|
Allowance
for loan loss, net of releases on
recoveries.
|
(2)
|
Includes
the net gains from trading, net mark-to-market gains and foreign exchange
transactions.
|
(3)
|
Is
the sum of the net interest revenue, net fee income and net financial
transactions, minus net provision for loan
loss.
|
(4)
|
Includes
the Treasury’s segment and trading
business.
|
(5)
|
Includes
the contribution of non-segmented items such as interbank loans, the cost
of the Bank’s capital and fixed assets. Net financial transactions
included in other is mainly comprised of the results from the Financial
Management Division (Gestion Financiera). The area of Financial Management
manages the structural interest rate risk, the structural position in
inflation indexed assets and liabilities, shareholder’s equity and
liquity. The goal of Financial Management is to provide stability and
consistency to the net income of commercial activities and to assure the
Bank complies with internal and regulatory limits regarding liquidity,
regulatory capital, reserve requirements and market
risk.
|
NOTE
27.
|
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, 2008)
|
|
|
|
|
|
Segment
|
Loans
|
Net interest
revenue
|
Fees
|
Allowances for
loan losses
(1)
|
Financial transactions, net
(2)
|
Net segment contribution
(3)
|
Individuals
|
6,213,172
|
452,136
|
144,079
|
(178,046)
|
|
418,169
|
Santander Banefe
|
685,395
|
152,625
|
32,137
|
(82,758)
|
|
102,004
|
Middle-upper
income
|
5,527,777
|
299,511
|
111,942
|
(95,288)
|
|
316,165
|
SMEs
|
2,196,263
|
160,909
|
43,728
|
(39,949)
|
|
164,688
|
Institutional
|
226,549
|
12,048
|
2,373
|
(40)
|
|
14,381
|
Total
Retail
|
8,635,984
|
625,093
|
190,180
|
(218,035)
|
|
597,238
|
Middle-market
|
2,718,056
|
89,095
|
17,278
|
(4,527)
|
|
101,846
|
Mid-sized
companies
|
1,077,819
|
37,438
|
9,260
|
(3,110)
|
|
43,588
|
Real estate
|
553,948
|
15,145
|
1,734
|
(1,286)
|
|
15,593
|
Large
companies
|
1,086,289
|
36,512
|
6,284
|
(131)
|
|
42,665
|
Global Banking and
Markets
|
1,742,388
|
87,189
|
14,988
|
(60)
|
130,956
|
233,073
|
Wholesale
|
1,713,295
|
44,268
|
9,650
|
142
|
|
54,060
|
Treasury
(5)
|
29,093
|
42,921
|
5,338
|
(202)
|
130,956
|
179,013
|
Others (4)
|
301,853
|
(25,619)
|
(4,589)
|
(2,045)
|
(21,153)
|
(53,406)
|
Total
|
13,398,281
|
775,758
|
217,857
|
(224,667)
|
109,803
|
878,751
|
Other operating
income
|
|
|
|
|
|
28,433
|
Income (loss) attributable to
investments in other companies
|
|
|
|
(1,438)
|
Operating
expenses
|
|
|
|
|
|
(446,015)
|
Price level
restatement
|
|
|
|
|
|
(61,332)
|
Net income before
taxes
|
|
|
|
|
|
398,399
|
(1)
|
Allowance
for loan loss, net of releases on
recoveries.
|
(2)
|
Includes
the net gains from trading, net mark-to-market gains and foreign exchange
transactions.
|
(3)
|
Is
the sum of the net interest revenue, net fee income and net financial
transactions, minus net provision for loan
loss.
|
(4)
|
Includes
the Treasury’s segment and trading
business.
|
(5)
|
Includes
the contribution of non-segmented items such as interbank loans, the cost
of the Bank’s capital and fixed assets. Net financial transactions
included in other is mainly comprised of the results from the Financial
Management Division (Gestion Financiera). The area of Financial Management
manages the structural interest rate risk, the structural position in
inflation indexed assets and liabilities, shareholder’s equity and
liquity. The goal of Financial Management is to provide stability and
consistency to the net income of commercial activities and to assure the
Bank complies with internal and regulatory limits regarding liquidity,
regulatory capital, reserve requirements and market
risk.
|
(*)
Segment information as of December 31, 2007 has been restated for comparative
purposes.
NOTE
27.
|
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, 2008)
|
|
|
|
|
|
Segment
|
Loans
|
Net interest
revenue
|
Fees
|
Allowances for
loan losses
(1)
|
Financial transactions, net
(2)
|
Net segment contribution
(3)
|
Individuals
|
5,293,500
|
345,240
|
125,817
|
(119,042)
|
|
352,015
|
Santander Banefe
|
626,204
|
108,528
|
26,821
|
(60,711)
|
|
74,638
|
Middle-upper
income
|
4,667,296
|
236,712
|
98,996
|
(58,331)
|
|
277,377
|
SMEs
|
1,963,624
|
134,852
|
34,862
|
(24,381)
|
|
145,333
|
Institutional
|
238,079
|
9,876
|
1,460
|
562
|
|
11,898
|
Total
Retail
|
7,495,203
|
489,968
|
162,139
|
(142,861)
|
|
509,246
|
Middle-market
|
2,782,387
|
76,660
|
17,001
|
(843)
|
|
92,818
|
Mid-sized
companies
|
1,034,684
|
36,361
|
8,573
|
(3,550)
|
|
41,384
|
Real estate
|
575,662
|
10,748
|
1,730
|
1,912
|
|
14,390
|
Large
companies
|
1,172,041
|
29,551
|
6,698
|
795
|
|
37,044
|
Global Banking and
Markets
|
1,850,750
|
65,372
|
10,466
|
823
|
134,913
|
211,574
|
Wholesale
|
1,850,750
|
31,642
|
9,163
|
823
|
|
41,628
|
Treasury
(4)
|
-
|
33,730
|
1,303
|
-
|
134,913
|
169,946
|
Others (4)
|
495,652
|
3,821
|
8,041
|
(75)
|
|
11,787
|
Total
|
12,623,992
|
635,821
|
197,647
|
(142,956)
|
134,913
|
825,425
|
Other operating
income
|
|
|
|
|
|
16,779
|
Income (loss) attributable to
investments in other companies
|
|
|
|
919
|
Operating
expenses
|
|
|
|
|
|
(424,630)
|
Price level
restatement
|
|
|
|
|
|
(16,123)
|
Net income before
taxes
|
|
|
|
|
|
402,370
|
(1)
|
Allowance
for loan losses, net of releases on
recoveries.
|
(2)
|
Includes
the net gains from trading, net mark-to-market gains and foreign exchange
transactions.
|
(3)
|
Is
the sum of the net interest revenue, net fee income and net financial
transactions, minus net provision for loan
loss.
|
(4)
|
Includes
the Treasury’s segment and trading
business.
|
(5)
|
Includes
contribution of non-segmented income and
expenses.
|
(*)
Segment information as of December 31, 2006 has been restated for comparative
purposes.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
Disclosures
about fair value of financial instruments (SFAS 107)
SFAS No.
107, “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”)
requires the disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. SFAS No. 107 defines a financial instrument as cash,
evidence of an ownership in an entity, or a contract that either conveys or
imposes on an entity the contractual right or obligation to either receive or
deliver cash or another financial instrument. Fair value is defined as the
amount at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation,
and is best evidenced by a quoted market price, if one exists.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 summarizes the major methods and assumptions used in estimating the
fair values of financial instruments:
●
|
Cash
and due from banks
|
The
recorded 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
recorded 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 recorded 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 recorded value.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
For
variable-rate loans that reprice frequently and have no significant change in
credit risk, estimated fair values are based on recorded 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.
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 recorded
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 considered when 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 calculated 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, considering
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.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
estimated fair values of financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
641,306 |
|
|
|
641,306 |
|
|
|
719,846 |
|
|
|
719,846 |
|
Interest
bearing deposits
|
|
|
762,793 |
|
|
|
762,793 |
|
|
|
327,845 |
|
|
|
327,845 |
|
Investment
under agreements to resell
|
|
|
37,022 |
|
|
|
37,022 |
|
|
|
- |
|
|
|
- |
|
Financial
investments
|
|
|
2,035,850 |
|
|
|
2,035,850 |
|
|
|
2,741,871 |
|
|
|
2,741,871 |
|
Loans,
net
|
|
|
13,148,046 |
|
|
|
14,682,608 |
|
|
|
14,398,447 |
|
|
|
16,183,644 |
|
Derivatives
instruments
|
|
|
850,186 |
|
|
|
850,186 |
|
|
|
1,846,509 |
|
|
|
1,846,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
12,910,118 |
|
|
|
11,490,370 |
|
|
|
14,131,088 |
|
|
|
14,007,109 |
|
Investments
under agreements to repurchase
|
|
|
336,090 |
|
|
|
336,090 |
|
|
|
563,234 |
|
|
|
563,234 |
|
Short
and long-term debt
|
|
|
1,781,743 |
|
|
|
1,804,566 |
|
|
|
2,820,656 |
|
|
|
3,202,637 |
|
Derivative
financial instruments
|
|
|
847,400 |
|
|
|
847,400 |
|
|
|
1,469,724 |
|
|
|
1,469,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Recorded
amount correspond to Chilean GAAP figures US GAAP adjustments described in
paragraph (r) which are disclosed in Article 9 balance sheet
paragraph(s).
|
Fair
Value Measurement and Hierarchy
On
January 1, 2008, the Bank adopted the provisions FASB Statement No. 157, Fair Value Measurements
(“SFAS 157”),
for fair value measurements of financial assets and financial liabilities
and for fair value measurements of non-financial items that are recognized or
disclosed at fair value in the financial statements on a recurring basis.
Statement 157 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Statement 157 also establishes a framework
for measuring fair value and expands disclosures about fair value measurements.
FASB Staff Position FAS 157-2, “Effective Date of FASB Statement No. 157,”
delays the effective date of Statement 157 until fiscal years beginning after
November 15, 2008 for all non-financial assets and non-financial liabilities
that are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. In accordance with FSP FAS 157-2, the Bank has not applied
the provisions of Statement 157 to the initial measurement of intangible
assets.
On
January 1, 2009, the Bank will be required to apply the provisions of Statement
157 to fair value measurements of non-financial assets and non-financial
liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. The Bank is in the process of evaluating the
impact, if any, of applying these provisions on its financial position and
results of operations.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
In
October 2008, the FASB issued FASB Staff Position FAS 157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not Active,”
which was effective immediately. FSP FAS 157-3 clarifies the application of
Statement 157 in cases where the market for a financial instrument is not active
and provides an example to illustrate key considerations in determining fair
value in those circumstances. The Bank has considered the guidance provided by
FSP FAS 157- 3 in its determination of estimated fair values during
2008.
Statement
157 establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to measurements
involving significant unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy are as follows:
• Level 1
inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement
date.
• Level 2
inputs are inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly.
• Level 3
inputs are unobservable inputs for the asset or liability.
The level
in the fair value hierarchy within which a fair measurement in its entirety
falls is based on the lowest level input that is significant to the fair value
measurement in its entirety.
The
following table presents assets and liabilities that are measured at fair value
on a recurring basis (including items that are required to be measured at fair
value and items for which the fair value option has been elected) at December
31, 2008:
|
|
Fair
Value Measurement at Reporting Date Using
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets
for
identical
Assets(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
|
MCh$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
securities
|
|
|
1,161,631 |
|
|
|
1,161,631 |
|
|
|
- |
|
|
|
- |
|
Available-for-sale
securities
|
|
|
1,580,240 |
|
|
|
1,580,240 |
|
|
|
- |
|
|
|
- |
|
Derivatives
|
|
|
1,846,509 |
|
|
|
- |
|
|
|
1,765,205 |
|
|
|
81,304 |
|
Total
|
|
|
4,588,380 |
|
|
|
2,741,871 |
|
|
|
1,765,205 |
|
|
|
81,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
1,469,724 |
|
|
|
- |
|
|
|
1,418,323 |
|
|
|
51,401 |
|
Total
|
|
|
1,469,724 |
|
|
|
- |
|
|
|
1,418,323 |
|
|
|
51,401 |
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The
following table presents the Bank’s activity for assets measured at fair value
on a recurring basis using significant unobservable inputs (Level 3) as defined
in Statement 157 for the year ended December 31, 2008:
|
|
Assets
|
|
|
Liabilities
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Balance
at December 31, 2007
|
|
|
64,317 |
|
|
|
(7,183 |
) |
Total
realized and unrealized gains (losses):
|
|
|
|
|
|
|
|
|
Included
in earnings
|
|
|
16,987 |
|
|
|
(44,218 |
) |
Included
in other comprenhensive income
|
|
|
- |
|
|
|
- |
|
Purchases,
issuance, and settlements (net)
|
|
|
- |
|
|
|
- |
|
Balance
at December 31, 2008
|
|
|
81,304 |
|
|
|
(51,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
gains or losses for 2008 included in income attributable to the change in
unrealized gains (losses) relating to the assest or liabilities to at
December 31, 2008
|
|
|
16,987 |
|
|
|
(44,218 |
) |
Realized
and unrealized gains (or losses) included in income for 2008 for assets and
liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) as defined in Statement 157 are reported in the
Statement of Income within the Net gains from mark-to market and trading and
exchange differences captions.
The
financial statements as of and for the year ended December 31, 2008 do not
include any nonrecurring fair value measurements relating to assets or
liabilities for which the Bank has adopted the provisions of Statement 157. All
nonrecurring fair value measurements for 2008 involved non-financial assets and
the Bank will not adopt the provisions of Statement 157 for nonrecurring fair
value measurements involving non-financial assets and non-financial liabilities
until January 1, 2009.
Fair
Value Option
Statement
159, The Fair Value Option for Financial Assets and Financial Liabilities,
provides entities with an option to report most financial assets and financial
liabilities at fair value on an instrument-by-instrument basis, with changes in
fair value reported in earnings.As of December 31, 2008, the Bank opted not to
measure financial instruments, other than trading securities, available-for-sale
securities and derivatives, at fair value, thus the implementation of Statement
159 did not have a significant impact on the Bank’s consolidated financial
statements
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
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, 2008:
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
|
MCh$
|
|
Due
within 1 year
|
|
|
9,543 |
|
Due
after 1 year but within 2 years
|
|
|
7,863 |
|
Due
after 2 years but within 3 years
|
|
|
5,986 |
|
Due
after 3 years but within 4 years
|
|
|
4,011 |
|
Due
after 4 years but within 5 years
|
|
|
2,412 |
|
Due
after 5 years
|
|
|
3,240 |
|
Total
|
|
|
33,055 |
|
The
rental expense for the Bank was MCh$13,089, MCh$14,120 and MCh$16,249 for the
years ended December 31, 2006, 2007 and 2008, respectively.
Contingent
liabilities consist of open and unused letters of credit, together with
guarantees granted by the Bank in Chilean pesos, UF and foreign currencies
(principally U.S. dollars). The liability represents the Bank’s obligations
under such agreements.
|
|
As
of December 31, 2008
|
|
|
|
Recorded
value
|
|
|
Contract
amount
|
|
|
|
MCh$
|
|
|
MCh$
|
|
Standby
letters of credits
|
|
|
24 |
|
|
|
226,245 |
|
Foreign
office guarantees
|
|
|
2,428 |
|
|
|
764,146 |
|
Performance
bond
|
|
|
199 |
|
|
|
254,030 |
|
Total
|
|
|
2,651 |
|
|
|
1,244,421 |
|
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
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.
The
expiration of guarantees per period is as follows:
|
|
As
of December 31, 2008
|
|
|
|
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
|
|
|
153,542 |
|
|
|
36,214 |
|
|
|
26,795 |
|
|
|
9,694 |
|
|
|
226,245 |
|
Foreign
office guarantees
|
|
|
231,017 |
|
|
|
414,654 |
|
|
|
85,974 |
|
|
|
32,501 |
|
|
|
764,146 |
|
Performance
bonds
|
|
|
248,943 |
|
|
|
4,931 |
|
|
|
59 |
|
|
|
97 |
|
|
|
254,030 |
|
Total
|
|
|
633,502 |
|
|
|
455,799 |
|
|
|
112,828 |
|
|
|
42,292 |
|
|
|
1,244,421 |
|
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.
In this
regards certain high level executive of Santander Chile 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
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 (Plan I06) 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.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
The fair
value of each option granted is calculated at the grant date. The Bank, in order
to determine the value incentive-retention plan obtained two valuation reports
performed by two multinational investment banks. These investment banks 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 determined by the
Bank based upon the above mentioned valuations.
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Shares granted
(Plan I09)
|
281,187
|
-
|
Managers
|
181
|
23/06/2007
|
31/07/2009
|
Shares 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
|
-
|
|
|
|
|
Shares
granted (Plan I09)
|
137,709
|
|
Managers
|
(5)
|
23/06/2007
|
31/07/2009
|
Shares
granted (Plan I10)
|
136,320
|
|
Managers
|
(5)
|
23/06/2007
|
31/07/2010
|
Options
cancelled, net (Plan I06)
|
(149,300)
|
|
Managers
|
(3)
|
15/04/2008
|
15/01/2009
|
Options
exercised, net (Plan I06)
|
(3,010,300)
|
|
|
|
|
|
Plans
outstanding al December 31, 2008
|
1,472,929
|
|
|
|
|
|
|
|
|
|
|
|
|
Of
which:
|
|
|
|
|
|
|
Plan
I06
|
500,300
|
9.09
|
|
|
|
|
Plan
I09
|
418,896
|
-
|
|
|
|
|
Plan
I10
|
553,733
|
-
|
|
|
|
|
(**) 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.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
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). In June, 2008 the third 3 year cycle
was approved in the Parent Company linked to fulfillment of aims (PI 11). This
new 3 year cycle plan has not effects in the income statement of
2008.
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, 2008, the maximum number of shares to be delivered was 274,029 to
176 executives of Santander Chile (for a total of 137,709 for the first cycle
(PI09) and 136,320 for the second cycle (PI10)). The fair value of the equity
instruments granted under these plans was Ch$1,312 million (US$ 2,046 million),
PI09 Ch$662 million and PI10 Ch$650 million and this amount is charged to
“Personnel expenses” in the specific period in which the beneficiaries provide
their services to the Bank.
At
December 31, 2007, the maximum number of shares to be delivered was 698,600 to
181 executive of Santander Chile (for a total of 281,187 for the cycle (PI09)
and 417,413 for the second cycle (PI10). The fair value of the equity
instruments granted under theses plans was Ch$674 million (US$1.3 million), and
this amount is charged to “Personnel expenses” in the specific period in which
the beneficiaries provide their services to the Bank.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
At
December 31, 2008 the fair value of the Share Plans based on the achievement was
of the stated objectives 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 (Total
Shareholder Return) position was determined by an independent expert based
on the use of the Monte Carlo valuation model which carried out 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
decending order by calculating the weighted average and discounting this
amount at the risk-free interest
rate.
|
|
PI09
|
PI10
|
Expected
volatility(*)
|
16.25%
|
15.67%
|
Annual
dividend yield based on historical
|
3.23%
|
3.24%
|
Risk-free
interest rate [return on Treasury Bonds (zero coupon)] over the life of
the plan
|
4.473%
|
4.497%
|
(*)
Determined on the basic of historical volatility over the period (two or
three years)
|
The
application of the simulation model resulted 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 book value of the TSR-based
portion of the incentive. Since this valuation relates to a market condition, it
cannot be adjusted after the grant date.
In view
of the high correlation between TSR and EPS (Earning per Share), it was
considered reasonable to conclude 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
remainning 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.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007) “Business
Combinations”. This statement replaces SFAS No. 141 “Business Combinations”, but
retains its fundamental requirements that the acquisition method of accounting
be used for all business combinations and for an acquirer to be identified for
each business combination. This statement requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date;
it requires acquisition-related and expected restructuring costs to be
recognized separately from the acquisition. It also requires the acquirer in a
step acquisition to recognize the identifiable assets and liabilities, as well
as the noncontrolling interest in the acquiree, at the full amounts of their
fair values. This statement requires an acquirer to recognize assets acquired
and liabilities assumed arising from contractual and noncontractual
contingencies as of the acquisition date, measured at their acquisition-date
fair values (the latter only if it is more likely than not that they meet the
definition of an asset or a liability). It requires the acquirer to recognize
contingent consideration at the acquisition date, measured at its fair value at
that date; and it requires the acquirer to recognize any negative goodwill as a
gain attributable to the acquirer. Finally, this statement makes significant
amendments to other statements and other authoritative guidance, related to the
accounting for acquired in-process research and development and changes in an
acquirer’s valuation allowance on its previously existing deferred tax assets.
This statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it
before that date.
In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements” and 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 with
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 disclosures requirements which should be applied
retrospectively for all periods presented.The Bank currently presents minority
interests in accordance with SFAS No. 160.The effect of changes in ownership
interests and deconsolidation will be relevant for events that occur
post-adoption.
In
February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2 “Effective
Date of FASB Statement No. 157“.FSP FAS 157-2 delays the effective date of
Statement 157 “Fair Value Measurements” for all nonrecurring fair value
measurements of non financial assets and non financial liabilities until fiscal
years beginning after November 15, 2008.It states that a measurement should be
considered recurring if it happens at least annually, and defines non-financial
assets and liabilities as all assets and liabilities other than those meeting
the definition of a financial asset or financial liability in Statement 159 “The
Fair Value Option for Financial Liabilities”. The FSP became effective on
February 12, 2008 on which date it was adopted for the Bank.Further information
regarding the adoption of FSP FAS 157-2 can be found in Note 27.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
In
February 2008, the FASB issued FASB Staff Position 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 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.FSP 157-1 is effective from the
date of adoption of FAS 157. The adoption of FSP 157-1 did not have a material
impact on the results of operations, cash flows or financial position as the
scope exception resulted in no change to the Banks current accounting
policy.
In March
2008, the FASB issued 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 cash flows. 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. SFAS 161 is effective for periods beginning after
December 15, 2008.The adoption of SFAS 161 will not have a material impact on
the Group’s financial position or results of operations as it relates to
disclosures only.
In April
2008, the FASB issued FASB Staff Position FAS 142-3 “Determination of the Useful
Life of Intangible Assets” which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FASB Statement No. 142.The guidance allows
an entity to consider its own historical experience in relation to the effect of
renewal or extension provisions on the useful life of intangible assets, and in
the absence of historical experience to consider the assumptions that market
participants would use.FSP FAS 142-3 is effective for interim periods and fiscal
years beginning after December 15, 2008.The Bank does not expect the adoption of
FSP FAS 142-3 to have a material effect on its results of operations, cash flows
or financial position.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
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.
In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts”.This Statement addresses the recognition and measurement of
premiums received from the issuance of financial guarantee contracts by
insurance enterprises requiring that the premium received or expected to be
received be recognized as unearned premium income and to recognize the premium
over the period in which the insurance services are provided.It also requires
the recognition of a liability before a default event if there is evidence of a
credit deterioration of the guaranteed obligation.SFAS 163 is effective for
fiscal years and interim periods beginning after December 15, 2008 except for
certain risk-management disclosures which are effective for the first period
beginning after May 23, 2008.Early application is not permitted.The Bank does
not expect the adoption of SFAS No. 163 to have a material effect on its results
of operations, cash flows or financial position.
In May
2008, the FASB issued FSP APB 14-1 “Accounting for Convertible Debt Instruments
That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement”.The FSP requires that issuers of convertible debt securities within
its scope separate these securities into a debt and equity component and state
that proceeds are allocated first to the liability and then to the equity
component.The FSP is effective for fiscal years and interim periods beginning
after December 15, 2008 and should be applied retrospectively.Early adoption is
not permitted.As the Bank has not issued any convertible debt the adoption of
FSP APB 14-1 will have no effect on its results of operations, cash flows or
statement of position.
In June
2008, the FASB issued FSP EITF 03-6-1 “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities”.The FSP
requires that all share-based payment awards that accrue cash dividends each
time there is a distribution where those dividends do not need to be returned to
the entity if the employee forfeits the award are considered participating
securities.The issuing entity is therefore required to apply the two-class
method of computing basic and diluted EPS.The FSP is effective for fiscal years
and interim periods beginning after December 15, 2008.As the Bank does not enter
into share-based payment awards which are considered participating securities,
the adoption of the FSP will have no effect on its calculation of basic or
diluted EPS.
In
September, 2008, the FASB issued FSP FAS 133-1 and FIN 45-4 “Disclosures About
Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No.
133 and FASB Interpretation No. 45; and Clarification of the Effective Date of
FASB Statement No. 161”.The FSP requires sellers of credit derivatives to make
certain additional disclosures.Additionally it clarifies that Statement 161 is
effective for fiscal years and interim periods beginning on or after November
15, 2008.FSP FAS 133-1 and FIN 45-4 is effective for annual and interim periods
ending after November 15, 2008. As the Bank is not a seller of credit
derivatives the adoption of this standard will have no effect on its results of
operations, cash flows or financial position.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
In
October 2008, the FASB issued FSP FAS 157-3 “Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active”.FSP FAS 157-3
clarifies the guidance contained in FASB Statement No. 157 “Fair Value
Measurements” for situations where a market is not active and applies to
financial assets within the scope of accounting pronouncements that require or
permit fair value measurements in accordance with Statement 157.The guidance
concludes that not all market activity represents forced liquidations or
distressed sales during times of market dislocation; however it cannot be
automatically assumed that the transaction price is determinative of fair
value.Additionally it concluded that it is acceptable for a reporting entity to
use its own assumptions about future cash flows and appropriately risk-adjusted
discount rates when relevant observable inputs are not available, however broker
quotes are not necessarily determinative of fair value when an active market
does not exist.FSP 157-3 is effective from the date of adoption of FAS 157. The
adoption of FSP 157-3 did not have a material impact on the results of
operations, cash flows or financial position.
In
December 2008, the FASB issued FASB Staff Position FAS 140-4 and FIN 46(R)-8
“Disclosures by Public Entities (Enterprises) about Transfers of Financial
Assets and Interests in Variable Interest Entities” which requires public
companies to provide disclosures about the transfer of financial assets and
their involvement in Variable Interest Entities, including Qualifying Special
Purpose Entities.Under these requirements a transferor must disclose whether it
provided financial or other support to the transferee that it was not previously
contractually required to provide, including the reasons for the
support.Additionally it must disclose details of any arrangements that could
require further financial support.These disclosures must also include a
description of any QSPEs involved in the transfer including their nature,
purpose, size, activities and financing.The FSP is effective for the first
period ending after December 15, 2008. The Bank does not anticipate that the
adoption of this new statement at the required effective date will have a
material effect in its results of operations, financial position or its cash
flows.
In
December 2008, the FASB issued FSP FAS 132(R)-1 “Employers’ Disclosures About
Postretirement Benefit Plan Assets”.The FSP requires more detailed disclosures
regarding employers’ post retirement benefit plan assets, including investment
strategies, categories, concentrations of risk and valuation techniques.The FSP
is effective for fiscal years ending after December 15, 2009.As the Bank does
not hold any post retirement benefit plan assets the adoption of this standard
will have no effect on its results of operations, cash flows or financial
position.
In
January 2009, the FASB issued FSP EITF 99-20-1 “Amendments to the Impairment
Guidance of EITF Issue No. 99-20”. The amendments to EITF Issue No. 99-20
“Recognition of Interest Income and Impairment on Purchased Beneficial Interest
and Beneficial Interests that Continue to Be Held by a Transferor in Securitized
Financial Assets” allow the exercise of judgment when estimating future cash
flows and the probability of their collection when evaluating a beneficial
interest for other-than-temporary impairment, rather than relying solely on the
assumptions used by market participants.FSP EITF 99-20-1 is effective
prospectively for interim and annual periods ending after December 15, 2008. The
Bank does not anticipate that the adoption of this new statement at the required
effective date will have a material effect in its results of operations,
financial position or its cash flows.
NOTE
27.
|
DIFFERENCES
BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(continuation).
|
In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation
of Other-Than-Temporary Impairments”, which modifies the existing
Other-Than-Temporary Impairments model for investments in debt securities to one
where an Other-Than-Temporary Impairment is triggered if (1) an entity has the
intent to sell the security, (2) it is more likely than not that it will be
required to sell the security before recovery, or (3) it does not expect to
recover the entire amortized cost of the security.Additionally it requires that
an Other-Than-Temporary Impairment be presented in the income statement in
totality if the entity has the intent, or it is more likely than not that it
will be required, to sell the security.FSP FAS 115-2 and FAS 124-2 is effective
for fiscal years and interim periods ending after June 15, 2009.The Bank does
not expect that the adoption of FSP FAS 115-2 and FAS 124-2 will have a material
effect on its results of operations, cash flows or financial
position.
In April
2009, the FASB issued FASB Staff Position FAS 141(R)-1 “Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies”, which amends the guidance in Statement 141(R) to establish a
model to account for preacquisition contingencies which is similar to the model
described under Statement 141.The FSP requires that an acquirer recognizes at
fair value an asset acquired or liability assumed in a business combination that
arises from a contingency if the acquisition-date fair value of that asset or
liability can be determined during the measurement period.FSP FAS 141(R)-1 is
effective for business combinations where the acquisition date is on or after
the beginning of the first annual reporting period beginning after December 15,
2008.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”. The objective of this
Statement is to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to issued. In particular, this Statement sets forth:
(1) the period after the balance sheet date during which management of a
reporting entity should evaluates events or transactions that may occur for
potential recognition or disclosure in the financial statements; (2) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its finnacial statements; (3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS 165 should be applied to interim or
annual financial periods ending after June 15, 2009. The Bank does not expect
the adoption of SFAS 165 to have a material effect on its results of operations,
cash flows or financial position.
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets – an amendment of FASB Statement No. 140”. This Statement removes (1) the
exceptions for qualifying special-purpose entities from the consolidation
guidance and (2) the exception that permitted sale accounting for certain
mortgage securitizations when a transferor has not surrendered control over the
transferred financial assets. This Statement requires that a transferor
recognize and initially measure at fair value all assets obtained (including a
transferor’s beneficial interest) and liabilities incurred as a result of a
transfer of financial assets accounted for as a sale. SFAS 166 must be applied
as of the beginning of each reporting entity’s first annual reporting period
that begins after November 15, 2009, for interim periods within that first
annual reporting period and for interim and annual reporting periods thereafter.
Earlier application is prohibited. This Statement must be applied to
transfers occurring on or after the effective date. The Bank does not expect the
adoption of SFAS 166 to have a material effect on its results of operations,
cash flows or financial position.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No.46(R)”. This Statement amends Interpretation 46(R) to require an enterprise
to perform an analysis to determine whether the enterprise’s variable interest
or interests give it a controlling financial interest in a variable interest
entity. This analysis identifies the primary beneficiary of a variable interest
entity as the enterprise that has both of the following characteristics: (a) The
power to direct the activities of a variable interest entity that most
significantly
impact the entity’s economic performance, and (b) The obligation to absorb
losses of the entity that could potentially be significant to the variable
interest entity or the right to receive benefits from the entity that could
potentially be significant to the variable interest entity. Additionally, an
enterprise is required to assess whether it has an implicit financial
responsibility to ensure that a variable interest entity operates as designed
when determining whether it has the power to direct the activities of the
variable interest entity that most significantly impact the entity’s economic
performance. SFAS 167 shall be effective as of the beginning of each reporting
entity’s first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period, and for interim and
annual reporting periods thereafter. Earlier application is prohibited. The Bank
does not expect the adoption of SFAS 166 to have a material effect on its
results of operations, cash flows or financial position.
Transition
to the new rules established by the Superintendency of Banks and Chilean
Generally Accepted Accounting Principles
The
Superintendency of Banks together with other Chilean Superintendencies and
regulatory bodies agreed to a plan of convergence with International Financial
Reporting Standards (“IFRS”) in order to internationalize financial reporting
for public companies in Chile.
The
Superintendency of Banks, by means of Circular No 3410 on November 9, 2007,
issued its “Compendium of Accounting Standards” (the “Compendium”) which
contains the new accounting formats and reporting standards and policies for the
finance industry that will be applied beginning on January 1, 2009.
The Bank
is completing a plan for transition to the Compendium which includes, an
analysis of the accounting method differences, the selection of the accounting
methods to be applied when alternative treatment are permitted an assessment of
the changes in reporting procedures an systems.
In
accordance with instructions issued by the Superintendency of Banks regarding
the adoption of the Compendium, beginning on March 2009, Banco Santander Chile
should prepare its financial statements in accordance with such Compendium. The
preliminary effects of this change on the Bank’s financial statements have been
measured and informed to the Superintendency of Banks, and those adjustments
could differ from those to be final determined.
F-105