FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Commission File Number: 001-14554
Banco Santander Chile |
Santander Chile Bank |
(Translation of Registrant’s Name into English) |
Bandera 140 |
Santiago, Chile |
(Address of principal executive office) |
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F | ☒ | Form 40-F | ☐ |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes | ☐ | No | ☒ |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes | ☐ | No | ☒ |
Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes | ☐ | No | ☒ |
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A
BANCO SANTANDER CHILE
Consolidated financial statements
At December 31, 2018
CONTENTS
Statements of financial position | 3 |
Statements of income | 4 |
Statements of other comprehensive income | 5 |
Statements of changes in equity | 6 |
Statements of cash flows | 8 |
Notes to the financial statements | 10 |
$ - | Chilean pesos |
M$ - | Thousands of Chilean pesos |
US$ - | US Dollars |
MUS$ - | Thousands of US Dollars |
UF - | Unidades de fomento |
INDEPENDENT AUDITOR’S REPORT
(A free translation from the original in Spanish)
Santiago, February 28, 2019
To the Shareholders and Directors
Banco Santander Chile
We have audited the accompanying consolidated financial statements of Banco Santander Chile and its subsidiaries, which comprise the consolidated statements of financial position as of December 31, 2018 and 2017, the consolidated statements of income, other comprehensive income, changes in equity and cash flows for the years then ended, and the related notes thereto.
Management's Responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting standards and instructions issued by the Superintendence of Banks and Financial Institutions. This responsibility includes designing, implementing and maintaining internal control relevant for the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conduct our audits in accordance with Chilean generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement
An audit involves performing procedures to obtain audit evidence on the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant for the preparation and fair presentation of the consolidated financial statements of the entity in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we do not express such kind of opinion. An audit also includes evaluating the accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Santiago, February 28, 2019
Banco Santander Chile
2
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 its subsidiaries as of December 31, 2018 and 2017, and the results of its operations, and its cash flows for the years then ended, in conformity with accounting standards and instructions issued by the Superintendence of Banks and Financial Institutions.
Claudio Gerdtzen S. | ||
RUT: 12.264.594-0 |
CONTENT
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION FOR THE YEAR
As of December 31, | ||||||||||
2018 | 2017 | |||||||||
NOTE | MCh$ | MCh$ | ||||||||
ASSETS | ||||||||||
Cash and deposits in banks | 5 | 2,065,441 | 1,452,922 | |||||||
Cash items in process of collection | 5 | 353,757 | 668,145 | |||||||
Trading investments | 6 | 77,041 | 485,736 | |||||||
Investments under resale agreements | 7 | - | - | |||||||
Financial derivative contracts | 8 | 3,100,635 | 2,238,647 | |||||||
Interbank loans, net | 9 | 15,065 | 162,599 | |||||||
Loans and accounts receivables from customers, net | 10 | 29,470,270 | 26,747,542 | |||||||
Available for sale investments | 11 | 2,394,323 | 2,574,546 | |||||||
Held to maturity investments | - | - | ||||||||
Investments in associates and other companies | 12 | 32,293 | 27,585 | |||||||
Intangible assets | 13 | 66,923 | 63,219 | |||||||
Property, plant, and equipment | 14 | 253,586 | 242,547 | |||||||
Current taxes | 15 | - | - | |||||||
Deferred taxes | 15 | 382,934 | 385,608 | |||||||
Other assets | 16 | 984,988 | 755,183 | |||||||
TOTAL ASSETS | 39,197,356 | 35,804,279 | ||||||||
LIABILITIES | ||||||||||
Deposits and other demand liabilities | 17 | 8,741,417 | 7,768,166 | |||||||
Cash items in process of being cleared | 5 | 163,043 | 486,726 | |||||||
Obligations under repurchase agreements | 7 | 48,545 | 268,061 | |||||||
Time deposits and other time liabilities | 17 | 13,067,819 | 11,913,945 | |||||||
Financial derivative contracts | 8 | 2,517,728 | 2,139,488 | |||||||
Interbank borrowing | 18 | 1,788,626 | 1,698,357 | |||||||
Issued debt instruments | 19 | 8,115,233 | 7,093,653 | |||||||
Other financial liabilities | 19 | 215,400 | 242,030 | |||||||
Current taxes | 15 | 8,093 | 6,435 | |||||||
Deferred taxes | 15 | 15,395 | 9,663 | |||||||
Provisions | 21 | 329,940 | 324,329 | |||||||
Other liabilities | 22 | 900,408 | 745,363 | |||||||
TOTAL LIABILITIES | 35,911,647 | 32,696,216 | ||||||||
EQUITY | ||||||||||
Attributable to the equity holders of the Bank | 3,239,546 | 3,066,180 | ||||||||
Capital | 24 | 891,303 | 891,303 | |||||||
Reserves | 24 | 1,923,022 | 1,781,818 | |||||||
Valuation adjustments | 24 | 10,890 | (2,312 | ) | ||||||
Retained earnings | 414,331 | 395,371 | ||||||||
Retained earnings from prior years | - | - | ||||||||
Income for the year | 591,902 | 564,815 | ||||||||
Minus: Provision for mandatory dividends | 24 | (177,571 | ) | (169,444 | ) | |||||
Non-controlling interest | 26 | 46,163 | 41,883 | |||||||
TOTAL EQUITY | 3,285,709 | 3,108,063 | ||||||||
TOTAL LIABILITIES AND EQUITY | 39,197,356 | 35,804,279 |
The accompanying notes 1 to 40 form an integral part of these consolidated financial statements.
Consolidated Financial Statements December 2018 / Banco Santander Chile 3
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR
For the year ended
December 31, | ||||||||||
2018 | 2017 | |||||||||
NOTE | MCh$ | MCh$ | ||||||||
OPERATING INCOME | ||||||||||
Interest income | 27 | 2,244,317 | 2,058,446 | |||||||
Interest expense | 27 | (829,949 | ) | (731,755 | ) | |||||
Net interest income | 1,414,368 | 1,326,691 | ||||||||
Fee and commission income | 28 | 484,463 | 455,558 | |||||||
Fee and commission expense | 28 | (193,578 | ) | (176,495 | ) | |||||
Net fee and commission income | 290,885 | 279,063 | ||||||||
Net income (expense) from financial operations | 29 | 53,174 | 2,796 | |||||||
Net foreign exchange gain | 30 | 51,908 | 126,956 | |||||||
Other operating income | 35 | 39,526 | 87,163 | |||||||
Net operating profit before provision for loan losses | 1,849,861 | 1,822,669 | ||||||||
Provision for loan losses | 31 | (325,085 | ) | (299,205 | ) | |||||
NET OPERATING PROFIT | 1,524,776 | 1,523,464 | ||||||||
Personnel salaries and expenses | 32 | (397,564 | ) | (396,967 | ) | |||||
Administrative expenses | 33 | (245,089 | ) | (230,103 | ) | |||||
Depreciation and amortization | 34 | (79,280 | ) | (77,823 | ) | |||||
Impairment of property, plant, and equipment | 34 | (39 | ) | (5,644 | ) | |||||
Other operating expenses | 35 | (45,740 | ) | (96,014 | ) | |||||
Total operating expenses | (767,712 | ) | (806,551 | ) | ||||||
OPERATING INCOME | 757, 064 | 716,913 | ||||||||
Income from investments in associates and other companies | 12 | 5,095 | 3,963 | |||||||
Income before tax | 762,159 | 720,876 | ||||||||
Income tax expense | 15 | (165,897 | ) | (143,613 | ) | |||||
NET INCOME FOR THE YEAR | 596,262 | 577,263 | ||||||||
Attributable to: | ||||||||||
Equity holders of the Bank | 591,902 | 564,815 | ||||||||
Non-controlling interest | 26 | 4,360 | 12,448 | |||||||
Earnings per share attributable to Equity holders of the Bank: | ||||||||||
(expressed in Chilean pesos) | ||||||||||
Basic earnings | 24 | 3.141 | 2.997 | |||||||
Diluted earnings | 24 | 3.141 | 2.997 |
The accompanying notes 1 to 40 form an integral part of these consolidated financial statements.
Consolidated Financial Statements December 2018 / Banco Santander Chile 4
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME FOR THE YEAR
For the year ended
December 31, | ||||||||||
2018 | 2017 | |||||||||
NOTE | MCh$ | MCh$ | ||||||||
NET INCOME FOR THE YEAR | 596,262 | 577,263 | ||||||||
OTHER COMPREHENSIVE INCOME - ITEMS WHICH MAY BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS | ||||||||||
Available for sale investments | 24 | 4,569 | (5,520 | ) | ||||||
Cash flow hedge | 24 | 13,365 | (5,850 | ) | ||||||
Other comprehensive income which may be reclassified subsequently to profit or loss, before tax | 17,934 | (11,370 | ) | |||||||
Income tax related to items which may be reclassified subsequently to profit or loss | (4,816 | ) | 2,754 | |||||||
Other comprehensive income for the period which may be reclassified subsequently to profit or loss, net of tax | 13,118 | (8,616 | ) | |||||||
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS | - | - | ||||||||
TOTAL COMPREHENSIVE INCOME FOR THE YEAR | 609,380 | 568,647 | ||||||||
Attributable to: | ||||||||||
Equity holders of the Bank | 605,104 | 555,863 | ||||||||
Non-controlling interest | 26 | 4,276 | 12,784 |
The accompanying notes 1 to 40 form an integral part of these consolidated financial statements.
Consolidated Financial Statements December 2018 / Banco Santander Chile 5
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the year ended
RESERVES | VALUATION ADJUSTMENTS | RETAINED EARNINGS | ||||||||||||||||||||||||||||||||||||||||||||||
Effects of | ||||||||||||||||||||||||||||||||||||||||||||||||
merger of | ||||||||||||||||||||||||||||||||||||||||||||||||
Reserves | companies | Provision | Attributable | |||||||||||||||||||||||||||||||||||||||||||||
and other | under | Available for | Income | Retained | Income | for | to equity | Non- | ||||||||||||||||||||||||||||||||||||||||
retained | common | sale | Cash flow | tax | earnings of | for the | mandatory | holders of the | controlling | |||||||||||||||||||||||||||||||||||||||
Capital | earnings | control | investments | hedge | effects | prior years | year | dividends | Bank | interest | Total Equity | |||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||
Equity as of December 31, 2016 | 891,303 | 1,642,336 | (2,224 | ) | 6,449 | 2,288 | (2,097 | ) | - | 472,351 | (141,700 | ) | 2,868,706 | 29,341 | 2,898,047 | |||||||||||||||||||||||||||||||||
Distribution of income from previous period | - | - | - | - | - | - | 472,351 | (472,351 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||||
Equity as of January 1, 2017 | 891,303 | 1,642,336 | (2,224 | ) | 6,449 | 2,288 | (2,097 | ) | 472,351 | - | (141,700 | ) | 2,868,706 | 29,341 | 2,898,047 | |||||||||||||||||||||||||||||||||
Increase or decrease of capital and reserves | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Dividends distributions/ withdrawals made | - | - | - | - | - | - | (330,645 | ) | - | - | (330,645 | ) | - | (330,645 | ) | |||||||||||||||||||||||||||||||||
Transfer of retained earnings to reserves | - | 141,706 | - | - | - | - | (141,706 | ) | - | - | - | (242 | ) | (242 | ) | |||||||||||||||||||||||||||||||||
Provision for mandatory dividends | - | - | - | - | - | - | - | - | (27,744 | ) | (27,744 | ) | - | (27,744 | ) | |||||||||||||||||||||||||||||||||
Subtotals | - | 141,706 | - | - | - | - | (472,351 | ) | - | (27,744 | ) | (358,389 | ) | (242 | ) | (358,631 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | (5,990 | ) | (5,850 | ) | 2,888 | - | - | - | (8,952 | ) | 336 | (8,616 | ) | ||||||||||||||||||||||||||||||||
Income for the year | - | - | - | - | - | - | - | 564,815 | - | 564,815 | 12,448 | 577,263 | ||||||||||||||||||||||||||||||||||||
Subtotals | - | - | - | (5,990 | ) | (5,850 | ) | 2,888 | - | 564,815 | - | 555,863 | 12,784 | 568,647 | ||||||||||||||||||||||||||||||||||
Equity as of December 31, 2017 | 891,303 | 1,784,042 | (2,224 | ) | 459 | (3,562 | ) | 791 | - | 564,815 | (169,444 | ) | 3,066,180 | 41,883 | 3,108,063 | |||||||||||||||||||||||||||||||||
Equity as of December 31, 2017 | 891,303 | 1,784,042 | (2,224 | ) | 459 | (3,562 | ) | 791 | - | 564,815 | (169,444 | ) | 3,066,180 | 41,883 | 3,108,063 | |||||||||||||||||||||||||||||||||
Distribution of income from previous period | - | - | - | - | - | - | 564,815 | (564,815 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||||
Equity as of January 1, 2018 | 891,303 | 1,784,042 | (2,224 | ) | 459 | (3,562 | ) | 791 | - | 564,815 | (169,444 | ) | 3,066,180 | 41,883 | 3,108,063 | |||||||||||||||||||||||||||||||||
Increase or decrease of capital and reserves | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Dividends distributions/ withdrawals made | - | - | - | - | - | - | (423,611 | ) | - | - | (423,611 | ) | - | (423,611 | ) | |||||||||||||||||||||||||||||||||
Transfer of retained earnings to reserves | - | 141,204 | - | - | - | - | (141,204 | ) | - | - | - | 4 | 4 | |||||||||||||||||||||||||||||||||||
Provision for mandatory dividends | - | - | - | - | - | - | - | - | (8,127 | ) | (8,127 | ) | - | (8,127 | ) | |||||||||||||||||||||||||||||||||
Subtotals | - | 141,204 | - | - | - | - | (564,815 | ) | - | (8,127 | ) | (431,738 | ) | 4 | (431,734 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | 4,655 | 13,365 | (4,818 | ) | - | - | - | 13,202 | (84 | ) | 13,118 | ||||||||||||||||||||||||||||||||||
Income for the year | - | - | - | - | - | - | - | 591,902 | - | 591,902 | 4,360 | 596,262 | ||||||||||||||||||||||||||||||||||||
Subtotals | - | - | - | 4,655 | 13,365 | (4,818 | ) | - | 591,902 | - | 605,104 | 4,276 | 609,380 | |||||||||||||||||||||||||||||||||||
Equity as of December 31, 2018 | 891,303 | 1,925,246 | (2,224 | ) | 5,114 | 9,803 | (4,027 | ) | - | 591,902 | (177,571 | ) | 3,239,546 | 46,163 | 3,285,709 |
Consolidated Financial Statements December 2018 / Banco Santander Chile 6
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the year ended
Total attributable to | ||||||||||||||||||||||||
equity holders of the | Allocated to | Allocated to | Percentage | |||||||||||||||||||||
Bank | reserves | dividends | distributed | Number of | Dividend per share | |||||||||||||||||||
Period | MCh$ | MCh$ | MCh$ | % | shares | (in chilean pesos) | ||||||||||||||||||
Year 2017 (Shareholders Meeting April 2018) | 564,815 | 141,204 | 423,611 | 75 | 188,446,126,794 | 2.248 | ||||||||||||||||||
Year 2016 (Shareholders Meeting April 2017) | 472,351 | 141,706 | 330,645 | 70 | 188,446,126,794 | 1.775 |
The accompanying notes 1 to 40 form an integral part of these consolidated financial statements.
Consolidated Financial Statements December 2018 / Banco Santander Chile 7
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
December 31, | ||||||||||
2018 | 2017 | |||||||||
NOTE | MCh$ | MCh$ | ||||||||
A – CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
NET INCOME FOR THE YEAR | 596,262 | 577,263 | ||||||||
Debits (credits) to income that do not represent cash flows | (1,234,617 | ) | (1,198,140 | ) | ||||||
Depreciation and amortization | 34 | 79,280 | 77,823 | |||||||
Impairments of property, plant, and equipment | 34 | 39 | 5,644 | |||||||
Provision for loan losses | 31 | 413,566 | 382,520 | |||||||
Mark to market of trading investments | 1,438 | 1,438 | ||||||||
Income from investments in associates and other companies | 12 | (5,095 | ) | (3,963 | ) | |||||
Net gain on sale of assets received in lieu of payment | 35 | (23,503 | ) | (28,477 | ) | |||||
Provision on assets received in lieu of payment | 35 | 816 | 3,912 | |||||||
Profit on sale of participation in other companies | - | - | ||||||||
Utility for sale-controlled unities | - | - | ||||||||
Net gain on sale of property, plant, and equipment | 35 | (2,490 | ) | (23,229 | ) | |||||
Charge off of assets received in lieu of payment | 35 | 15,037 | 30,027 | |||||||
Net interest income | 27 | (1,414,368 | ) | (1,326,691 | ) | |||||
Net fee and commission income | 28 | (290,885 | ) | (279,063 | ) | |||||
Other debits (credits) to income that do not represent cash flows | (8,271 | ) | (29,903 | ) | ||||||
Changes in deferred taxes | 15 | (181 | ) | (8,178 | ) | |||||
Increase/decrease in operating assets and liabilities | 1,660,877 | 219,661 | ||||||||
(Increase) decrease of loans and accounts receivables from customers, net | (2,703,700 | ) | (629,605 | ) | ||||||
(Increase) decrease of financial investments | 588,918 | 752,611 | ||||||||
Decrease (increase) due to resale agreements (assets) | - | 6,736 | ||||||||
Decrease (increase) of interbank loans | 147,534 | 110,036 | ||||||||
(Increase) decrease of assets received or awarded in lieu of payment | 3,656 | 10,243 | ||||||||
Increase (decrease) of debits in customers checking accounts | 521,476 | 127,968 | ||||||||
Increase (decrease) of time deposits and other time liabilities | 1,153,874 | (1,237,764 | ) | |||||||
Increase (decrease) of obligations with domestic banks | (480 | ) | (364,956 | ) | ||||||
Increase (decrease) of other demand liabilities or time obligations | 451,775 | 110,883 | ||||||||
Increase (decrease) of obligations with foreign banks | 90,754 | 146,947 | ||||||||
Increase (decrease) of obligations with Central Bank of Chile | (5 | ) | (2 | ) | ||||||
Increase (decrease) of obligations under repurchase agreements | (219,516 | ) | 55,624 | |||||||
Increase (decrease) in other financial liabilities | (26,630 | ) | 2,014 | |||||||
Net increase of other assets and liabilities | (903,390 | ) | (166,361 | ) | ||||||
Redemption of letters of credit | (8,989 | ) | (11,772 | ) | ||||||
Mortgage bond issuances | - | - | ||||||||
Senior bond issuances | 1,156,057 | 911,581 | ||||||||
Redemption mortgage bonds and payments of interest | (5,911 | ) | (5,736 | ) | ||||||
Redemption and maturity of senior bonds and payments of interest | (289,837 | ) | (1,167,656 | ) | ||||||
Interest received | 2,244,317 | 2,058,446 | ||||||||
Interest paid | (829,949 | ) | (731,755 | ) | ||||||
Dividends received from investments in other companies | 12 | 38 | 116 | |||||||
Fees and commissions received | 28 | 484,463 | 455,558 | |||||||
Fees and commissions paid | 28 | (193,578 | ) | (176,495 | ) | |||||
Total cash flow provided by (used in) operating activities | 1,022,522 | (401,216 | ) |
The accompanying notes 1 to 40 form an integral part of these consolidated financial statements.
Consolidated Financial Statements December 2018 / Banco Santander Chile 8
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
December 31, | ||||||||||
2018 | 2017 | |||||||||
NOTE | MCh$ | MCh$ | ||||||||
B – CASH FLOWS FROM INVESTMENT ACTIVITIES: | ||||||||||
Purchases of property, plant, and equipment | 14 | (68,329 | ) | (58,771 | ) | |||||
Sales of property, plant, and equipment | 14 | 6,297 | 17,939 | |||||||
Purchases of investments in associates and other companies | 12 | - | (3 | ) | ||||||
Disposals of investments in companies | - | - | ||||||||
Purchases of intangible assets | 13 | (29,563 | ) | (32,624 | ) | |||||
Total cash flow provided by (used in) investment activities | (91,595 | ) | (73,459 | ) | ||||||
C – CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||||
From shareholder´s financing activities | 423,611 | (345,544 | ) | |||||||
Increase in other obligations | - | - | ||||||||
Placement of subordinated bonds | - | - | ||||||||
Redemption of subordinated bonds and payments of interest | - | (14,898 | ) | |||||||
Dividends paid | (423,611 | ) | (330,645 | ) | ||||||
From non-controlling interest financing activities | - | (242 | ) | |||||||
Dividends and/or withdrawals paid | - | (242 | ) | |||||||
Total cash flow used in financing activities | (423,611 | ) | (345,785 | ) | ||||||
D – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE PERIOD | 507,316 | (820,460 | ) | |||||||
E – EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS | 114,498 | (31,398 | ) | |||||||
F – INITIAL BALANCE OF CASH AND CASH EQUIVALENTS | 1,634,341 | 2,486,199 | ||||||||
FINAL BALANCE OF CASH AND CASH EQUIVALENTS | 5 | 2,256,155 | 1,634,341 |
December 31, | ||||||||||
Reconciliation of provisions for the Consolidated Statements | 2018 | 2017 | ||||||||
of Cash Flows for the periods | MCh$ | MCh$ | ||||||||
Provision for loan losses for cash flow purposes | 413,566 | 382,520 | ||||||||
Recovery of loans previously charged off | (88,481 | ) | (83,315 | ) | ||||||
Provision for loan losses - net | 31 | 325,085 | 299,205 |
Changes other than cash | ||||||||||||||||||||||||||||
Reconciliation of liabilities arising from financing activities | December, 31 2017 MCh$ | Cash Flow MCh$ | Acquisition MCh$ | Foreign Currency Movement MCh$ | UF Movement MCh$ | Fair Value Changes MCh$ | December, 31 2018 MCh$ | |||||||||||||||||||||
Subordinated Bonds | 773,192 | - | - | - | 22,765 | - | 795,957 | |||||||||||||||||||||
Dividends paid | - | (423,611 | ) | - | - | - | - | (423,611 | ) | |||||||||||||||||||
Other | - | - | - | - | - | - | - | |||||||||||||||||||||
Total liabilities from financing activities | 773,192 | (423,611 | ) | - | - | 22,765 | - | 372,346 |
The accompanying notes 1 to 40 form an integral part of these consolidated financial statements.
Consolidated Financial Statements December 2018 / Banco Santander Chile 9
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CORPORATE INFORMATION
Banco Santander Chile is a banking corporation (limited company) operating under the laws of the Republic of Chile, headquartered at Bandera N°140, Santiago. The corporation provides a broad range of general banking services to its customers, ranging from individuals to major corporations. Banco Santander Chile and its subsidiaries (collectively referred to as the “Bank” or “Banco Santander Chile”) offers commercial and consumer banking services, including (but not limited to) factoring, collection, leasing, securities and insurance brokering, mutual and investment fund management, and investment banking.
Banco Santander Spain controls Banco Santander Chile through its holdings in Teatinos Siglo XXI Inversiones Ltda. and Santander Chile Holding S.A., which are controlled subsidiaries of Banco Santander Spain. As of December 31, 2018, Banco Santander Spain owns or controls directly and indirectly 99.5% of Santander Chile Holding S.A. and 100% of Teatinos Siglo XXI Inversiones Ltda. This makes Banco Santander Spain have control over 67.18% of the Bank’s shares.
a) | Basis of preparation |
These Consolidated Financial Statements have been prepared in accordance with the Compendium of Accounting Standards issued by the Superintendency of Banks and Financial Institutions (SBIF), the Chilean regulatory agency. Article 15 of the General Banking Law states that banks must apply accounting standards established by SBIF. For those issues not covered by the SBIF, the Bank must apply generally accepted standards issued by the Colegio de Contadores de Chile A.G (Association of Chilean Accountants), which conform with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). In the event that any discrepancies exist between IFRS and accounting standards issued by the SBIF (Compendium of Accounting Standards and Instructions), the latter shall prevail.
For purposes of these financial statements the Bank uses certain terms and conventions. References to “US$”, “U.S. dollars” and “dollars” are to United States dollars, references to “EUR” are to European Economic Community Euro, references to “CNY” are to Chinese Yuan, references to “JPY” are to “Japanese Yen”, references to “CHF” are to Swiss franc, references to “Chilean pesos”, “pesos” or “Ch$” 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.
The Notes to the Consolidated Financial Statements contain additional information to support the figures submitted in the Consolidated Statement of Financial Position, Consolidated Statement of Income, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows for the year. These contain narrative descriptions and details of these statements in a clear, relevant, reliable and comparable manner.
b) | Basis of preparation for the Consolidated Financial Statements |
The Consolidated Financial Statements as of December 31, 2018 and 2017, incorporate the financial statements of the Bank entities over which the Bank has control (including structured entities); and includes the adjustments, reclassifications and eliminations needed to comply with the accounting and valuation criteria established by IFRS. Control is achieved when the Bank:
I. | Has power over the investee (i.e., it has rights that grant the current capacity of managing the relevant activities of the investee) |
II. | is exposed, or has rights, to variable returns from its involvement with the investee; and |
III. | has the ability to use its power to affect its returns. |
The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
When the Bank has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities over the investee unilaterally. The Bank considers all relevant facts and circumstances in assessing whether or not the Bank’s voting rights in an investee are sufficient to give it power, including:
● | The size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; |
● | The potential voting rights held by the Bank, other vote holders or other parties; |
● | The rights arising from other agreements; and |
Consolidated Financial Statements December 2018 / Banco Santander Chile 10
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
● | any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. |
Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control over the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Statement of Income and in the Consolidated Financial Statement of Comprehensive Income from the date the Bank gains control until the date when the Bank ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Bank and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit in certain circumstances.
When necessary, adjustments are made to the financial statements of the subsidiaries to ensure their accounting policies are consistent with the Bank’s accounting policies. All balances and transactions between consolidated entities are eliminated.
Changes in the consolidated entities ownership interests in subsidiaries that do not result in a loss of control over the subsidiaries are accounted for as equity transactions. The carrying values of the Bank’s equity and the non-controlling interests’ equity are adjusted to reflect the changes to their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Bank.
In addition, third parties’ shares in the Bank’s consolidated equity are presented as “Non-controlling interests” in the Consolidated Statement of Changes in Equity. Their share in the income for the year is presented as “Attributable to non-controlling interest” in the Consolidated Statement of Income.
The following companies are considered entities controlled by the Bank and are therefore within the scope of consolidation:
i. | Entities controlled by the Bank through participation in equity |
Percent ownership share | ||||||||||||||||||||||||||||
Place of | December 31, | |||||||||||||||||||||||||||
Incorporation | 2018 | 2017 | ||||||||||||||||||||||||||
and | Direct | Indirect | Total | Direct | Indirect | Total | ||||||||||||||||||||||
Name of the Subsidiary | Main Activity | operation | % | % | % | % | % | % | ||||||||||||||||||||
Santander Corredora de Seguros Limitada | Insurance brokerage | Santiago, Chile | 99.75 | 0.01 | 99.76 | 99.75 | 0.01 | 99.76 | ||||||||||||||||||||
Santander Corredores de Bolsa Limitada | Financial instruments brokerage | Santiago, Chile | 50.59 | 0.41 | 51.00 | 50.59 | 0.41 | 51.00 | ||||||||||||||||||||
Santander Agente de Valores Limitada (*) | Securities brokerage | Santiago, Chile | 99.03 | - | 99.03 | 99.03 | - | 99.03 | ||||||||||||||||||||
Santander S.A. Sociedad Securitizadora | Purchase of credits and issuance of debt instruments | Santiago, Chile | 99.64 | - | 99.64 | 99.64 | - | 99.64 |
The details of non-controlling interest in all the subsidiaries can be seen in Note 26 – Non-controlling interest (minority).
(*) On July 25, 2018, the company has stopped conducting foreign currency purchase and sale operations, henceforth this operation is directly in the bank.
ii. | Entities controlled by the Bank through other considerations |
The following companies have been consolidated as of December 31, 2018 and 2017 based on the fact that the activities relevant on them are determined by the Bank (companies complementary to the banking sector) and therefore the Bank exercises control:
- | Santander Gestión de Recaudación y Cobranza Limitada (collection services) |
- | Bansa Santander S.A. (management of repossessed assets and leasing of properties) |
Consolidated Financial Statements December 2018 / Banco Santander Chile 11
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
iii. | Associates |
An associate is an entity over which the Bank has the ability to exercise significant influence, but not control or joint control. This ability is usually represented by a share equal to or higher than 20% of the voting rights of the Company and is accounted for using the equity method.
The following companies are considered “Associates” in which the Bank accounts for its participation using the equity method:
Place of | Percentage of ownership share | |||||||||||
Incorporation | As of December 31, | |||||||||||
and | 2018 | 2017 | ||||||||||
Associates | Main activity | operation | % | % | ||||||||
Redbanc S.A. | ATM services | Santiago, Chile | 33.43 | 33.43 | ||||||||
Transbank S.A. | Debit and credit card services | Santiago, Chile | 25.00 | 25.00 | ||||||||
Centro de Compensación Automatizado S.A. | Electronic fund transfer and compensation services | Santiago, Chile | 33.33 | 33.33 | ||||||||
Sociedad Interbancaria de Depósito de Valores S.A. | Repository of publicly offered securities | Santiago, Chile | 29.29 | 29.29 | ||||||||
Cámara de Compensación de Pagos de Alto Valor S.A. | Payments clearing | Santiago, Chile | 15.00 | 14.23 | ||||||||
Administrador Financiero del Transantiago S.A. | Administration of boarding passes to public transportation | Santiago, Chile | 20.00 | 20.00 | ||||||||
Sociedad Nexus S.A. | Credit card processor | Santiago, Chile | 12.90 | 12.90 | ||||||||
Servicios de Infraestructura de Mercado OTC S.A. | Administration of the infrastructure for the financial market of derivative instruments | Santiago, Chile | 12.48 | 12.48 |
During the year 2017, the entities Rabobank Chile in Liquidation and Banco París, assigned to Banco Santander a portion of its participation in “Sociedad Operadora de la Cámara de Compensación de pagos de Valores S.A.”, with which the Bank’s participation increased to 15.00%.
In the case of Nexus S.A. and Compensation Chamber for High-Value Payments S.A., Banco Santander Chile has a representative in the Board of Directors of such companies, which is why the Administration has concluded that it exercises significant influence over the same.
In the case of Market Infrastructure Services OTC S.A. The Bank participates, through its executives, actively in the administration and in the organizational process, which is why the Administration has concluded that it exerts significant influence about it.
iv. | Share or rights in other companies |
Entities over which the Bank has no control or significant influences are presented in this category. These holdings are shown at acquisition value (historical cost) less impairment, if any.
c) | Non-controlling interest |
Non-controlling interest represents the portion of gains or losses and net assets which the Bank does not own, either directly or indirectly. It is presented separately in the Consolidated Statement of Income, and separately from shareholders’ equity in the Consolidated Statement of Financial Position.
In the case of entities controlled by the Bank through other considerations, income and equity are presented in full as non-controlling interest, since the Bank controls them, but does not have any ownership.
d) | Reporting segments |
Operating segments with similar economic characteristics often exhibit similar long-term financial performance. Two or more segments can be combined only if aggregation is consistent with International Financial Reporting Standard 8 “Operating Segments” (IFRS 8) and the segments have similar economic characteristics and are similar in each of the following respects:
i. | the nature of the products and services; |
ii. | the nature of the production processes; |
Consolidated Financial Statements December 2018 / Banco Santander Chile 12
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
iii. | the type or class of customers that use their products and services; |
iv. | the methods used to distribute their products or services; and |
v. | if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities. |
The Bank reports separately on each operating segment that exceeds any of the following quantitative thresholds:
i. | its reported revenue, from both external customers and intersegment sales or transfers, is 10% or more of the combined internal and external revenue of all the operating segments. |
ii. | the absolute amount of its reported profit or loss is equal to or greater than 10%: (i) the combined reported profit of all the operating segments that did not report a loss; (ii) the combined reported loss of all the operating segments that reported a loss. |
iii. | its assets represent 10% or more of the combined assets of all the operating segments. |
Operating segments that do not meet any of the quantitative threshold may be treated as segments to be reported, in which case the information must be disclosed separately if management believes it could be useful for the users of the Consolidated Financial Statements.
Information about other business activities of the segments not separately reported is combined and disclosed in the Corporate Activities (“others”) category.
According to the information presented, the Bank’s segments were selected based on an operating segment being a component of an entity that:
i. | engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses from transactions with other components of the same entity); |
ii. | whose operating results are regularly reviewed by the entity’s chief executive officer, who makes decisions about resources allocated to the segment and assess its performance; and |
iii. | for which discrete financial information is available. |
e) | Functional and presentation currency |
The Bank, in accordance with IAS 21 “Effects of Variations in Exchange Rates of the Foreign Currency”, has defined as functional and presentation currency the Chilean Peso, which is the currency of the primary economic environment in which the Bank operates, it also obeys the currency that influences the structure of costs and revenues. Therefore, all balances and transactions denominated in currencies other than the Chilean Peso are considered as “Foreign currency”.
f) | Foreign currency transactions |
The Bank performs transactions in foreign currencies, mainly the U.S. dollar. Assets and liabilities denominated in foreign currencies and held by the Bank are translated to Chilean pesos based on the representative market rate published by Reuters at 1:30 p.m. on the month end date. The rate used was Ch$697.76 per US$1 for December, 2018 (Ch$616,85 per US$1 for December, 2017).
The amount of net foreign exchange gains and losses include recognition of the effects that exchange rate variations have on assets and liabilities denominated in foreign currencies and the profits and losses on foreign exchange spot and forward transactions undertaken by the Bank.
g) | Definitions and classification of financial instruments |
i. | Definitions |
A “financial instrument” is any contract that gives rise to a financial asset of an entity, and a financial liability or equity instrument of another entity.
An “equity instrument” is a legal transaction that evidences a residual interest on the assets of an entity deducting all of its liabilities.
Consolidated Financial Statements December 2018 / Banco Santander Chile 13
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
A “financial derivative” is a financial instrument whose value changes in response to changes with regard to an observed market variable (such as an interest rate, a foreign exchange rate, a financial instrument’s price, or a market index, including credit ratings), whose initial investment is very small compared with other financial instruments having a similar response to changes in market factors, and which is generally settled at a future date.
“Hybrid financial instruments” are contracts that simultaneously include a non-derivative host contract together with a financial derivative, known as an embedded derivative, which is not separately transferable and has the effect that some of the cash flows of the hybrid contract vary in a way similar to a stand-alone derivative. During the year 2018 and 2017, Banco Santander did not keep implicit derivatives in its portfolio.
ii. | Classification of financial assets for measurement purposes |
Financial assets are classified into the following specified categories: financial assets trading investments at fair value through profit or loss (FVTPL), ‘held to maturity investments’, ‘available for sale investments’ (AFS) financial assets and ‘loans and accounts receivable from customers’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Regular way purchases or sales of financial assets require delivery of the asset within the time frame established by regulation or convention in the marketplace.
Financial assets are initially recognized at fair value plus, in the case of financial assets that aren’t accounted for at fair value with changes in profit or loss, transaction costs that are directly attributable to the acquisition or issue.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income is recognized on an effective interest basis for loans and accounts receivables other than those financial assets classified at fair value through profit or loss.
Financial assets FVTPL – (Trading investments)
Financial assets are classified as FVTPL when the financial asset is either held for trading or it is designated as fair value through profit or loss.
A financial asset is classified as held for trading if:
● | it has been acquired with the purpose of selling it in the short term; or |
● | on initial recognition it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent actual pattern of short-term profit-taking; or |
● | it is a derivative that is not designated and effective as a hedging instrument |
A financial asset other than a financial asset held for trading may be designated as FVTPL upon initial recognition if:
● | such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or |
● | the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed, and its performance is evaluated on a fair value basis, in accordance with the Bank’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or |
● | it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as FVTPL. |
Financial assets FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized incorporates any dividend or interest earned on the financial asset and is included in the ‘net income (expense) from financial operations’ line item.
Consolidated Financial Statements December 2018 / Banco Santander Chile 14
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Held to maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Bank has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less impairment.
Available for sale investments (AFS investments)
AFS investments are non-derivatives that are either designated as AFS or are not classified as (a) loans and accounts receivable from customers, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss (trading investments).
Financial instruments held by the Bank that are traded in an active market are classified as AFS and are stated at fair value at the end of each reporting period. The Bank also has investments in financial instruments that are not traded in an active market but that are also classified as AFS investments and stated at fair value at the end of each reporting period (because the directors consider that fair value can be reliably measured). Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency rates, interest income calculated using the effective interest method and dividends on AFS equity investments are recognized in profit or loss. Other changes in the carrying amount of available for sale investments are recognized in other comprehensive income and accumulated under the heading of “Valuation Adjustment”. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investment’s revaluation reserve is reclassified to profit or loss.
Dividends on AFS equity instruments are recognized in profit or loss when the Bank’s right to receive the dividends is established.
The fair value of AFS monetary financial assets denominated in a foreign currency is determined in that foreign currency and translated as the described in f) above. The foreign exchange gains and losses that are recognized in profit or loss are determined based on the amortized cost of the monetary asset.
Loans and accounts receivables from customers
Loans and accounts receivable from customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and accounts receivables from customers (including loans and accounts receivable from customers and owed by banks) are measured at amortized cost using the effective interest method, less any impairment.
Interest income is recognized by applying the effective interest rate, except for short-term receivables where discounting effects are immaterial.
iii. | Classification of financial assets for presentation purposes |
For presentation purposes, the financial assets are classified by their nature into the following line items in the Consolidated Financial Statements:
- | Cash and deposits in banks: this line includes cash balances, checking accounts and on-demand deposits with the Central Bank of Chile and other domestic and foreign financial institutions. Amounts invested as overnight deposits are included in this item and in the corresponding items. |
- | Cash items in process of collection: this item includes values of documents in process of transfer and balances from operations that, as agreed, are not settled the same day, and purchase of currencies not yet received. |
- | Trading investments: this item includes financial instruments held-for-trading and investments in mutual funds which must be adjusted to their fair value. |
- | Financial derivative contracts: financial derivative contracts with positive fair values are presented in this item. It includes both independent contracts as well as derivatives that should and can be separated from a host contract, whether they are for trading or accounted for as derivatives held for hedging, as shown in Note 8. |
● | Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments. |
● | Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments. |
Consolidated Financial Statements December 2018 / Banco Santander Chile 15
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- | Interbank loans: this item includes the balances of transactions with domestic and foreign banks, including the Central Bank of Chile, other than those reflected in certain other financial asset classifications listed above. |
- | Loans and accounts receivables from placements: these loans are non-derivative financial assets for which fixed or determined amounts are charged, that are not listed on an active market and which the Bank does not intend to sell immediately or in the short term. When the Bank is the lessor in a lease, and it substantially transfers the risks and rewards incidental to the leased asset, the transaction is presented in loans and accounts receivable from customers while the leased asset is removed from the Bank´s financial statements. |
- | Investment instruments: are classified into two categories: held-to-maturity investments, and available-for-sale investments. The held-to-maturity investment classification includes only those instruments for which the Bank has the ability and intent to hold to maturity. The remaining investments are treated as available for sale. |
iv. | Classification of financial liabilities for measurement purposes |
Financial liabilities are classified as either financial liabilities FVTPL or other financial liabilities:
Financial liabilities FVTPL
As of December 31, 2018, and 2017, the Bank does not have financial liabilities with changes in results.
Other financial liabilities
Other financial liabilities (including loans and accounts payable) are subsequently measured at amortized cost using the effective interest method.
v. | Classification of financial liabilities for presentation purposes |
Financial liabilities are classified by their nature into the following items in the Consolidated Statement of Financial Position:
- | Deposits and other on-demand liabilities: this includes all on-demand obligations except for term savings accounts, which are not considered on-demand instruments in view of their special characteristics. Obligations whose payment may be required during the period are deemed to be on-demand obligations. Operations which become callable the day after the closing date are not treated as on-demand obligations. |
- | Cash items in process of collection: this item includes balances from asset purchase operations that are not settled the same day, and sale of currencies not yet delivered. |
- | Obligations under repurchase agreements: this includes the balances of sales of financial instruments under securities repurchase and loan agreements. The Bank does not record as own portfolio instruments acquired under repurchase agreements. |
- | Time deposits and other time liabilities: this shows the balances of deposit transactions in which a term at the end of which they become callable has been stipulated. |
- | Financial derivative contracts: this includes financial derivative contracts with negative fair values, whether they are for trading or for hedge accounting, as set forth in Note 8. |
● | Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments. |
● | Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments. |
- | Interbank borrowings: this includes obligations due to other domestic banks, foreign banks, or the Central Bank of Chile, other than those reflected in certain other financial liability classifications listed above. |
- | Issued debt instruments: there are four types of instruments issued by the Bank: obligations under letters of credit, subordinated bonds, mortgage bonds and senior bonds placed in the local and foreign market. |
Consolidated Financial Statements December 2018 / Banco Santander Chile 16
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- | Other financial liabilities: this item includes credit obligations to persons other than domestic banks, foreign banks, or the Central Bank of Chile, for financing purposes or operations in the normal course of business. |
h) | Valuation of financial instruments and recognition of fair value changes |
Generally, financial assets and liabilities are initially recognized at fair value, which, in the absence of evidence against it, is deemed to be the transaction price. Financial instruments, other than those measured at fair value through profit or loss, are initially recognized at fair value plus transaction costs. Subsequently, and at the end of each reporting period, financial instruments are measured with the following criteria:
i. | Valuation of financial instruments |
Financial assets are measured according to their fair value, gross of any transaction costs that may be incurred in the course of a sale, except for credit investments and held to maturity investments.
According to IFRS 13 Fair Value Measurement, “fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. When measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.
The fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either: (a) in the principal market for the asset or liability, or (b) in the absence of a principal market, the most advantageous market for the asset or liability. Even when there is no observable market to provide pricing information in connection with the sale of an asset or the transfer of a liability at the measurement date, the fair value measurement shall assume that the transaction takes place, considered from the perspective of a potential market participant who intends to maximize value associated with the asset or liability.
When using valuation techniques, the Bank shall maximize the use of relevant observable inputs and minimize the use of unobservable inputs as available. If an asset or a liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fair value regardless of where the input is categorized within the fair value hierarchy (i.e. Level 1, 2 or 3). IFRS 13 establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
Every derivative is recorded in the Consolidated Statements of Financial Position at fair value as previously described. This value is compared to the valuation at the trade date. If the fair value is subsequently measured positive, this is recorded as an asset, if the fair value is subsequently measured negative, this is recorded as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price. The changes in the fair value of derivatives from the trade date are recorded in “Net income (expense) from financial operations” in the Consolidated Statement of Income.
Specifically, the fair value of financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price. If, for exceptional reasons, the quoted price cannot be determined on a given date, the fair value is determined using similar methods to those used to measure over the counter (OTC) derivatives. The fair value of OTC derivatives is the sum of the future cash flows resulting from the instrument, discounted to present value at the date of valuation (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV) and option pricing models, among other methods. Also, within the fair value of derivatives are included Credit Valuation Adjustment (CVA) and Debit Valuation Adjustment (DVA), all with the objective that the fair value of each instrument includes the credit risk of its counterparty and Bank´s own risk. Counterparty Credit Risk (CVA) is a valuation adjustment to derivatives contracted in non-organized markets as a result of exposure to counterparty credit risk. The CVA is calculated considering the potential exposure to each counterparty in future periods. Own-credit risk (DVA) is a valuation adjustment similar to the CVA but generated by the Bank’s credit risk assumed by our counterparties. As of December 31, 2018, the CVA and DVA are Ch $ 9,702 million and Ch $ 17,295 million, respectively.
Consolidated Financial Statements December 2018 / Banco Santander Chile 17
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
“Loans and accounts receivable from customers” and Held-to-maturity instrument portfolio are measured at amortized cost using the effective interest method. Amortized cost is the acquisition cost of a financial asset or liability, plus or minus, as appropriate, prepayments of principal and the cumulative amortization (recorded in the consolidated income statement) of the difference between the initial cost and the maturity amount as calculated under the effective interest method. For financial assets, amortized cost also includes any reductions for impairment or uncollectible. For loans and accounts receivable designated as hedged items in fair value hedges, the changes in their fair value related to the risk or risks being hedged are recorded in “Net income (expense) from financial operations”.
The “effective interest rate” is the discount rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows over its remaining life. For fixed-rate financial instruments, the effective interest rate incorporates the contractual interest rate established on the acquisition date. Where applicable, the fees and transaction costs that are a part of the financial return are included. For floating-rate financial instruments, the effective interest rate matches the current rate of return until the date of the next review of interest rates.
The amounts at which the financial assets are recorded represent the Bank’s maximum exposure to credit risk as at the reporting date. The Bank has also received collateral and other credit enhancements to mitigate its exposure to credit risk, which consist mainly of mortgage guarantees, equity instruments and personal securities, assets under leasing agreements, assets acquired under repurchase agreements, securities loans and derivatives.
ii. | Valuation techniques |
Financial instruments at fair value, determined on the basis of price quotations in active markets, include government debt securities, private sector debt securities, equity shares, short positions, and fixed-income securities issued.
In cases where price quotations cannot be observed in available markets, the Bank’s management determines a best estimate of the price that the market would set using its own internal models. In most cases, these models use data based on observable market parameters as significant inputs however for some valuations of financial instruments, significant inputs are unobservable in the market. To determine a value for those instruments, various techniques are employed to make these estimates, including the extrapolation of observable market data.
The most reliable evidence of the fair value of a financial instrument on initial recognition usually is the transaction price, however due to lack of availability of market information, the value of the instrument may be derived from other market transactions performed with the same or similar instruments or may be measured by using a valuation technique in which the variables used include only observable market data, mainly interest rates.
The main techniques used as of December 31, 2018 and 2017 by the Bank’s internal models to determine the fair value of the financial instruments are as follows:
i. | In the valuation of financial instruments permitting static hedging (mainly forwards and swaps), the present value method is used. Estimated future cash flows are discounted using the interest rate curves of the related currencies. The interest rate curves are generally observable market data. |
ii. | In the valuation of financial instruments requiring dynamic hedging (mainly structured options and other structured instruments), the Black-Scholes model is normally used. Where appropriate, observable market inputs are used to obtain factors such as the bid-offer spread, exchange rates, volatility, correlation indexes and market liquidity. |
iii. | In the valuation of certain financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors, the present value method (futures) and the Black-Scholes model (plain vanilla options) are used. The main inputs used in these models are observable market data, including the related interest rate curves, volatilities, correlations and exchange rates. |
The fair value of the financial instruments calculated by the aforementioned internal models considers contractual terms and observable market data, which include interest rates, credit risk, exchange rates, quoted market price of shares and raw materials, volatility, prepayments and liquidity. The Bank’s management considers that its valuation models are not significantly subjective, since these methodologies can be adjusted and evaluated, as appropriate, through the internal calculation of fair value and the subsequent comparison with the related actively traded price.
Consolidated Financial Statements December 2018 / Banco Santander Chile 18
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
iii. | Hedging transactions |
The Bank uses financial derivatives for the following purposes:
i. | to sell to customers who request these instruments in the management of their market and credit risks; |
ii. | to use these derivatives in the management of the risks of the Bank entities’ own positions and assets and liabilities (“hedging derivatives”), and |
iii. | to obtain profits from changes in the price of these derivatives (trading derivatives). |
All financial derivatives that are not held for hedging purposes are accounted for as trading derivatives.
A derivative qualifies for hedge accounting if all the following conditions are met:
1. | The derivative hedges one of the following three types of exposure: |
a. | Changes in the value of assets and liabilities due to fluctuations, among others, in inflation (UF), the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”); |
b. | Changes in the estimated cash flows arising from financial assets and liabilities, commitments and highly probable forecasted transactions (“cash flow hedge”); |
c. | The net investment in a foreign operation (“hedge of a net investment in a foreign operation”). |
2. | It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that: |
a. | At the date of arrangement, the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”). |
b. | There is sufficient evidence that the hedge was actually effective during the life of the hedged item or position (“retrospective effectiveness”). |
3. | There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks. |
The changes in the value of financial instruments qualifying for hedge accounting are recorded as follows:
a. | For fair value hedges, the gains or losses arising on both hedging instruments and the hedged items (attributable to the type of risk being hedged) are included as “Net income (expense) from financial operations” in the Consolidated Statement of Income. |
b. | For fair value hedges of interest rate risk on a portfolio of financial instruments, gains or losses that arise in measuring hedging instruments and other gains or losses due to changes in fair value of the underlying hedged item (attributable to the hedged risk) are recorded in the Consolidated Financial Statement of Income under “Net income (expense) from financial operations”. |
c. | For cash flow hedges, the change in fair value of the hedging instrument is included as “Cash flow hedge” in “Other comprehensive income”, until the hedged transaction occurs, thereafter being reclassified to the Consolidated Statement of Income, unless the hedged transaction results in the recognition of non-financial assets or liabilities, in which case it is included in the cost of the non-financial asset or liability. |
d. | The differences in valuation of the hedging instrument corresponding to the ineffective portion of the cash flow hedging transactions are recorded directly in the Consolidated Statement of Income under “Net income (expense) from financial operations”. |
If a derivative designated as a hedging instrument no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, hedge accounting treatment is discontinued. When “fair value hedging” is discontinued, the fair value adjustments to the carrying amount of the hedged item arising from the hedged risk are amortized to gain or loss from that date, when applicable.
Consolidated Financial Statements December 2018 / Banco Santander Chile 19
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
When cash flow hedges are discontinued, any cumulative gain or loss of the hedging instrument recognized under “Other comprehensive income” (from the period when the hedge was effective) remains recorded in equity until the hedged transaction occurs, at which time it is recorded in the Consolidated Statement of Income, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recorded immediately in the Consolidated Statement of Income.
iv. | Derivatives embedded in hybrid financial instruments |
Derivatives embedded in other financial instruments or in other host contracts are accounted for separately as derivatives if 1) their risks and characteristics are not closely related to the host contracts, 2) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and 3) provided that the host contracts are not classified as “Trading investments” or as other financial assets (liabilities) at fair value through profit or loss.
v. | Offsetting of financial instruments |
Financial asset and liability balances are offset, i.e., reported in the Consolidated Statements of Financial Position at their net amount, only if there is a legally enforceable right to offset the recorded amounts and the Bank intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
vi. | Derecognition of financial assets and liabilities |
The accounting treatment of transfers of financial assets is determined by the extent and the manner in which the risks and rewards associated with the transferred assets are transferred to third parties:
i. | If the Bank transfers substantially all the risks and rewards of ownership to third parties, as in the case of unconditional sales of financial assets, sales under repurchase agreements at fair value at the date of repurchase, sales of financial assets with a purchased call option or written put option deeply out of the money, utilization of assets in which the transferor does not retain subordinated debt nor grants any credit enhancement to the new holders, and other similar cases, the transferred financial asset is derecognized from the Consolidated Statement of Financial Position and any rights or obligations retained or created in the transfer are simultaneously recorded. |
ii. | If the Bank retains substantially all the risks and rewards of ownership associated with the transferred financial asset, as in the case of sales of financial assets under repurchase agreements at a fixed price or at the sale price plus interest, securities lending agreements under which the borrower undertakes to return the same or similar assets, and other similar cases, the transferred financial asset is not derecognized from the Consolidated Financial Statement of Financial Position and continues to be measured by the same criteria as those used before the transfer. However, the following items are recorded: |
- | An associated financial liability for an amount equal to the consideration received; this liability is subsequently measured at amortized cost. |
- | Both the income from the transferred (but not removed) financial asset as well as any expenses incurred due to the new financial liability. |
iii. | If the Bank neither transfers nor substantially retains all the risks and rewards of ownership associated with the transferred financial asset—as in the case of sales of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases, the following distinction is made: |
a. | If the transferor does not retain control of the transferred financial asset: the asset is derecognized from the Consolidated Statement of Financial Position and any rights or obligations retained or created in the transfer are recognized. |
b. | If the transferor retains control of the transferred financial asset: it continues to be recognized in the Consolidated Statement of Financial Position for an amount equal to its exposure to changes in value and a financial liability associated with the transferred financial asset is recorded. The net carrying amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value. |
Consolidated Financial Statements December 2018 / Banco Santander Chile 20
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Accordingly, financial assets are only derecognized from the Consolidated Statement of Financial Position when the rights over the cash flows they generate have terminated or when all the inherent risks and rewards of ownership have been substantially transferred to third parties. Similarly, financial liabilities are only derecognized from the Consolidated Financial Statement Financial Position when the obligations specified in the contract are discharged or cancelled or the contract has matured.
i) | Recognizing income and expenses |
The most significant criteria used by the Bank to recognize its revenues and expenses are summarized as follows:
i. | Interest revenue, interest expense, and similar items |
Interest revenue, expense and similar items are recorded on an accrual basis using the effective interest method.
However, when a given operation or transaction is past due by 90 days or more, when it originated from a refinancing or renegotiation, or when the Bank believes that the debtor poses a high risk of default, the interest and adjustments pertaining to these transactions are not recorded directly in the Consolidated Statement of Income unless they have been actually received.
This interest and adjustments are generally referred to as “suspended” and are recorded in they are reported as part of the complementary information thereto and as memorandum accounts (Note 27). This interest is recognized as income, when collected.
The resumption of interest income recognition of previously impaired loans only occurs when such loans become current (i.e. payments were received such that the loans are contractually past-due for less than 90 days) or they are no longer classified under the C3, C4, C5, or C6 risk categories (for loans individually evaluated for impairment).
ii. | Commissions, fees, and similar items |
Fee and commission income and expenses are recognized in the Consolidated Interim Statement of Income using criteria stablished in IFRS 15 “Revenue from contracts with customers”, using retrospectively with the cumulative effect recognized at the date of initial application method and therefore has not restated the prior comparative information, which continues to be reporting under IAS 18 “Revenue recognition”.
Under IFRS 15, the Bank recognize revenue when (or as) satisfied a performance obligations by transferring a service (i.e. an asset) to a customer; under this definition an asset is transferred when (or as) the customer obtains control of that asset. The Bank considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
The Bank transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time, and/or the Bank satisfies the performance obligation at a point in time.
Under IAS 18 “Revenue recognition”, fees and commission income and expense are recognized in according to their nature. The main criteria are: Fee and commission income and expenses on financial assets and liabilities are recognized when they are earned.
Those arising from transactions or services that are performed over a period of time are recognized over the life of these transactions or services. Those relating to services provided in a single transaction are recognized when the single transaction is performed.
The main income arising from commissions, fees and similar items correspond to:
- | Fees and commissions for lines of credits and overdrafts: includes accrued fees related to granting lines of credit and overdrafts in checking accounts. |
- | Fees and commissions for guarantees and letters of credit: includes accrued fees in the period relating to granting of guarantee payment for current and contingent third party obligations. |
- | Fees and commissions for card services: includes accrued and earned commissions in the period related to use of credit cards, debit cards and other cards |
- | Fees and commissions for management of accounts: includes accrued commissions for the maintenance of checking, savings and other accounts |
- | Fees and commissions for collections and payments: includes income arising from collections and payments services provided by the Bank. |
- | Fees and commissions for intermediation and management of securities: includes income from brokerage, placements, administration and securities’ custody services. |
Consolidated Financial Statements December 2018 / Banco Santander Chile 21
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- | Fees and commissions for insurance brokerage fees: includes income arising for insurances distribution. |
- | Other fees and commissions: includes income arising from currency changes, financial advisory, cashier check issuance, placement of financial products and online banking services. |
The main expense arising from commissions, fees and similar items correspond to:
- | Compensation for card operation: includes commission expenses for credit and debit card operations related to income commissions card services. |
- | Fees and commissions for securities transactions: includes commissions expense for deposits, securities custody service and securities’ brokerage. |
- | Other fees and commissions: includes mainly expenses generated from online services. |
The Bank has incorporated disaggregated revenue disclosure and reportable segment relationship in Note 25.
Additionally, the Bank maintains certain loyalty programs associated to its credit cards services, for which it has deferred a percentage of the consideration received in the statement of financial position to comply with its related performance obligation or has liquidated on a monthly basis as far they arise.
iii. | Non-financial income and expenses |
Non-financial income and expenses are recognized for accounting purposes on an accrual basis.
iv. | Commissions in the formalization of loans |
The financial commissions that arise in the formalization of loans, fundamentally the opening or study and information commissions, are periodized and recorded in the consolidated long-term result of the life of the loan.
j) | Impairment |
i. | Financial assets: |
A financial asset, other than that at fair value through profit and loss, is evaluated on each consolidated financial statement filing date to determine whether objective evidence of impairment exists.
A financial asset or group of financial assets will be impaired if, and only if, objective evidence of impairment exists as a result of one or more events that occurred after initial recognition of the asset (“event causing the loss”), and this event or events causing the loss have an impact on the estimated future cash flows of a financial asset or group of financial assets.
An impairment loss relating to financial assets recorded at amortized cost is calculated as the difference between the recorded amount of the asset and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
Individually significant financial assets are individually tested to determine their impairment. The remaining financial assets are evaluated collectively in groups that share similar credit risk characteristics.
All impairment losses are recorded in the consolidated statement of income in the caption “provisions for credit risk”. Any impairment loss related to a financial asset available for sale previously recorded in equity is transferred to income.
The reversal of an impairment loss occurs only if it can be objectively related to an event occurring after the initial impairment loss was recorded. The reversal of an impairment loss shall not exceed the carrying amount that would have been determined if no impairment loss has been recognized for the asset in prior years. The reversal is recorded in income with the exception of available for sale equity financial assets, in which case it is recorded in other comprehensive income.
ii. | Non-financial assets: |
The Bank’s non-financial assets, excluding investment properties, are reviewed at the reporting date to determine whether they show signs of impairment (i.e. the carrying amount exceeds its recoverable amount). If any such evidence exists, the recoverable amount of the asset is estimated, in order to determine the extent of the impairment loss.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
Consolidated Financial Statements December 2018 / Banco Santander Chile 22
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
If the recoverable amount of an asset is estimated to be less than the carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.
In connection with other assets, impairment losses recorded in prior periods are assessed at each reporting date to determine whether the loss has decreased and should be reversed. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years. Losses for goodwill impairment recognized through capital gains are not reversed.
k) | Property, plant, and equipment |
This category includes the amount of buildings, land, furniture, vehicles, computer hardware and other fixed assets owned by the consolidated entities or acquired under finance leases. Assets are classified according to their use as follows:
i. | Property, plant and equipment for own use |
Property, plant and equipment for own use includes but is not limited to tangible assets received by the consolidated entities in full or partial satisfaction of financial assets representing accounts receivable from third parties which are intended to be held for continuing own use and tangible assets acquired under finance leases. These assets are presented at acquisition cost less the related accumulated depreciation and, if applicable, any impairment losses resulting from comparing the net value of each item to the respective recoverable amount.
Depreciation is calculated using the straight-line method over the acquisition cost of assets less their residual value, assuming that the land on which buildings and other structures stand has an indefinite life and, therefore, is not subject to depreciation.
The Bank applies the following useful lives for the tangible assets that comprise its assets:
ITEM | Useful life (in months) | |||
Land | - | |||
Paintings and works of art | - | |||
Carpets and curtains | 36 | |||
Computers and hardware | 36 | |||
Vehicles | 36 | |||
IT systems and software | 36 | |||
ATMs | 60 | |||
Other machines and equipment | 60 | |||
Office furniture | 60 | |||
Telephone and communication systems | 60 | |||
Security systems | 60 | |||
Rights over telephone lines | 60 | |||
Air conditioning systems | 84 | |||
Other installations | 120 | |||
Buildings | 1,200 |
The consolidated entities assess at each reporting date whether there is any indication that the carrying amount of any tangible asset exceeds its recoverable amount. If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in accordance with the revised carrying amount and to the new remaining useful life.
The estimated useful lives of the items of property, plant and equipment held for own use are reviewed at the end of each reporting period to detect significant changes. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recorded in the Consolidated Statement of Income in future years on the basis of the new useful lives.
Maintenance expenses relating to tangible assets held for own use are recorded as an expense in the period in which they are incurred.
ii. | Assets leased out under operating leases |
The criteria used to record the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives, and to record their impairment losses, are the same as those for property, plant and equipment held for own use.
Consolidated Financial Statements December 2018 / Banco Santander Chile 23
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
l) Leasing
i. | Finance leases |
Finance leases are leases that substantially transfer all the risks and rewards incidental to ownership of the leased asset to the lessee.
When a consolidated entity is the lessor of an asset, the sum of the present value of the lease payments receivable from the lessee, including the exercise price of the lessee’s purchase option at the end of the lease term, which is equivalent to one additional lease payment and so is reasonably certain to be exercised, is recognized as lending to third parties and is therefore included under “Loans and accounts receivable from customers” in the Consolidated Statement of Financial Position.
When a consolidated entity is a lessee, it reports the cost of leased assets in the Consolidated Statement of Financial Position based on the nature of the leased asset, and simultaneously records a liability for the same amount (which is the lower of the fair value of the leased asset, and the sum of the present value of the lease payments payable to the lessor plus, if appropriate, the exercise price of the purchase option). The depreciation policy for these assets is the same as that for property, plant and equipment for own use.
In both cases, the finance income and finance expenses arising from these contracts are credited and debited, respectively, to “Interest income” and “Interest expense” in the Consolidated Statement of Income so as to achieve a constant rate of return over the lease term.
ii. | Operating leases |
In operating leases, ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor.
When a consolidated entity is the lessor, it reports the acquisition cost of the leased assets under “Property, plant and equipment”. The depreciation policy for these assets is the same as that for similar items of property, plant and equipment held for own use and revenues from operating leases is recorded on a straight-line basis under “Other operating income” in the Consolidated Statement of Income.
When a consolidated entity is the lessee, the lease expenses, including any incentives granted by the lessor, are charged on a straight-line basis to “Other operating expenses” in the Consolidated Statement of Income.
iii. | Sale and leaseback transactions |
For sale at fair value and operating leasebacks, the profit or loss generated is recorded at the time of sale. In the case of finance leasebacks, the profit or loss generated is amortized over the lease term.
m) | Factored receivables |
Factored receivables are valued at the amount disbursed by the Bank in exchange of invoices or other commercial instruments representing the credit which the transferor assigns to the Bank. The price difference between the amounts disbursed and the actual face value of the credits is recorded as interest income and adjustments in the Consolidated Statement of Income using the effective interest method over the financing period.
When the assignment of these instruments involves no liability on the part of the assignee, the Bank assumes the risks of insolvency of the parties responsible for payment.
n) | Intangible assets |
Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of legal or contractual rights. The Bank recognizes an intangible asset, whether purchased or self-created (at cost), when the cost of the asset can be measured reliably, and it is probable that the future economic benefits that are attributable to the asset will flow to the Bank.
Intangible assets are recorded initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortization and any accumulated impairment losses.
Internally developed computer software is recorded as an intangible asset if, among other requirements (basically the Bank’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated. The estimated useful life for software is 3 years.
Intangible assets are amortized on a straight-line basis over their estimated useful life; which has been defined as 36 months.
Consolidated Financial Statements December 2018 / Banco Santander Chile 24
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Expenditure on research activities is recorded as an expense in the year in which it is incurred and cannot be subsequently capitalized.
o) | Cash and cash equivalents |
The indirect method is used to prepare the consolidated cash flow statement, starting with the Bank’s consolidated pre-tax income and incorporating non-cash transactions, as well as income and expenses associated with cash flows, which are classified as investing or financing activities.
The cash flow statement was prepared considering the following definitions:
i. | Cash flows: Inflows and outflows of cash and cash equivalents, such as deposits with the Central Bank of Chile, deposits in domestic banks, and deposits in foreign banks. |
ii. | Operating activities: Principal revenue-producing activities performed by banks and other activities that cannot be classified as investing or financing activities. |
iii. | Investing activities: The acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents. |
iv. | Financing Activities: Activities that result in changes in the size and composition of equity and liabilities that are not operating or investing activities. |
p) | Allowances for loan losses |
The Bank continuously evaluates the entire loan portfolio and contingent loans, as it is established by the SBIF, to timely provide the necessary and sufficient provisions to cover expected losses associated with the characteristics of the debtors and their loans, which determine payment behavior and recovery.
The Bank has established allowances to cover probable losses on loans and account receivables in accordance with instructions issued by Superintendency of Banks and Financial Institutions (SBIF) and models of credit risk rating and assessment approved by the Board’s Committee, including the amendments introduced by Circular No. 3.573 (and its further modifications) applicable as of January 1, 2016 which establishes a standard method for residential mortgage loans and complements and specifies instructions on provisions and loans classified in the impaired portfolio, and subsequent amendments.
The Bank uses the following models established by the SBIF, to evaluate its loan portfolio and credit risk:
- | Individual assessment - where the Bank assesses a debtor as individually significant when their loans are significant, or when the debtor cannot be classified within a group of financial assets with similar credit risk characteristics, due to its size, complexity or level of exposure. |
- | Group assessment - a group assessment is relevant for analyzing a large number of transactions with small individual balances due from individuals or small companies. The Bank groups debtors with similar credit risk characteristics giving to each group a default probability and recovery rate based on a historical analysis. The Bank has implemented standard models for mortgage loans, established in Circular No. 3.573 (modified by Circular No. 3.584), and internal models for commercial and consumer loans. |
I. | Allowances for individual assessment |
An individual assessment of commercial debtors is necessary according to the SBIF, in the case of companies which, due to their size, complexity or level of exposure, must be known and analyzed in detail.
The analysis of the debtor is primarily focused on their credit quality and their risk category classification of the debtor and of their respective contingent loans and loans These are assigned to one of the following portfolio categories: Normal, Substandard and Impaired. The risk factors considered are industry or economic sector, owners or managers, financial situation and payment ability, and payment behavior.
The portfolio categories and their definitions are as follows:
i. | Normal Portfolio includes debtors with a payment ability that allows them to meet their obligations and commitments. Evaluations of the current economic and financial environment do not indicate that this will change. The classifications assigned to this portfolio are categories from A1 to A6. |
Consolidated Financial Statements December 2018 / Banco Santander Chile 25
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
ii. | Substandard Portfolio includes debtors with financial difficulties or a significant deterioration of their payment ability. There is reasonable doubt concerning the future reimbursement of the capital and interest within the contractual terms, with limited ability to meet short-term financial obligations. The classifications assigned to this portfolio are categories from B1 to B4. |
iii. | Impaired Portfolio includes debtors and their loans where repayment is considered remote, with a reduced or no likelihood of repayment. This portfolio includes debtors who have stopped paying their loans or that indicate that they will stop paying, as well as those who require forced debt restructuration, reducing the obligation or delaying the term of the capital or interest, and any other debtor who is over 90 days overdue in his payment of interest or capital. The classifications assigned to this portfolio are categories from C1 to C6. |
Normal and Substandard Compliance Portfolio
As part of individual assessment, the Bank classifies debtors into the following categories, assigning them a probability of non-performance (PNP) and severity (SEV), which result in the expected loss percentages.
Portfolio | Debtor’s Category | Probability of Non-Performance (%) | Severity (%) | Expected Loss (%) | ||||||||||
A1 | 0.04 | 90.0 | 0.03600 | |||||||||||
A2 | 0.10 | 82.5 | 0.08250 | |||||||||||
A3 | 0.25 | 87.5 | 0.21875 | |||||||||||
Normal portfolio | A4 | 2.00 | 87.5 | 1.75000 | ||||||||||
A5 | 4.75 | 90.0 | 4.27500 | |||||||||||
A6 | 10.00 | 90.0 | 9.00000 | |||||||||||
B1 | 15.00 | 92.5 | 13.87500 | |||||||||||
B2 | 22.00 | 92.5 | 20.35000 | |||||||||||
Substandard portfolio | B3 | 33.00 | 97.5 | 32.17500 | ||||||||||
B4 | 45.00 | 97.5 | 43.87500 |
The Bank first determines all credit exposures, which includes the accounting balances of loans and accounts receivable from customers plus contingent loans, less any amount recovered through executing the financial guarantees or collateral covering the operations. The percentages of expected loss are applied to this exposure. In the case of collateral, the Bank must demonstrate that the value assigned reasonably reflects the value obtainable on disposal of the assets or equity instruments. When the credit risk of the debtor is substituted for the credit quality of the collateral or guarantor, this methodology is applicable only when the guarantor or surety is an entity qualified in a similar investment grade by a local or international company rating agency recognized by the SBIF. Guaranteed securities cannot be deducted from the exposure amount, only financial guarantees and collateral can be considered.
Notwithstanding the foregoing, the Bank must maintain a minimum provision of 0.5% over loans and contingent loans in the normal portfolio.
Impaired Portfolio
The impaired portfolio includes all loans and the entire value of contingent loans of the debtors that are over 90 days overdue on the payment of interest or principal of any loan at the end of the month. It also includes debtors who have been granted a loan to refinance loans over 60 days overdue, as well as debtors who have undergone forced restructuration or partial debt condonation.
The impaired portfolio excludes: a) residential mortgage loans, with payments less than 90 days overdue; and, b) loans to finance higher education according to Law 20.027, provided the breach conditions outlined in Circular No. 3.454 of December 10, 2008 are not fulfilled.
The provision for an impaired portfolio is calculated by determining the expected loss rate for the exposure, adjusting for amounts recoverable through available financial guarantees and deducting the present value of recoveries made through collection services after the related expenses.
Once the expected loss range is determined, the related provision percentage is applied over the exposure amount, which includes loans and contingent loans related to the debtor.
Consolidated Financial Statements December 2018 / Banco Santander Chile 26
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
The allowance rates applied over the calculated exposure are as follows:
Classification | Expected range of loss | Allowance | ||||
C1 | Up to 3% | 2 | % | |||
C2 | Greater than 3% and less than 20% | 10 | % | |||
C3 | Greater than 20% and less than 30% | 25 | % | |||
C4 | Greater than 30% and less than 50% | 40 | % | |||
C5 | Greater than 50% and less than 80% | 65 | % | |||
C6 | Greater than 80% | 90 | % |
Loans are maintained in the impaired portfolio until their payment ability is normal, notwithstanding the write off of each particular credit that meets conditions of Title II of Chapter B-2 CNC of the SBIF. Once the circumstances that led to classification in the Impaired Portfolio have been overcome, the debtor can be removed from this portfolio once all the following conditions are met:
i. | the debtor has no obligations of the debtor with the Bank more than 30 days overdue; |
ii. | the debtor has not been granted loans to pay its obligations; |
iii. | at least one of the payments include the amortization of capital; Assignations for group evaluations |
iv. | if the debtor has made partial loan payments in the last six months, two payments have already been made; |
v. | if the debtor must pay monthly installments for one or more loans, four consecutive installments have been made; |
vi. | the debtor does not appear to have bad debts in the information provided by the SBIF, except for insignificant amounts. |
II. | Allowances for group assessments |
Group assessments are used to estimate allowances required for loans with low balances related to individuals or small companies.
Group assessments require the formation of groups of loans with similar characteristics by type of debtor and loan conditions, in order to establish both the group payment behavior and the recoveries of their defaulted loans, using technically substantiated estimates and prudential criteria. The model used is based on the characteristics of the debtor, payment history, outstanding loans and default among other relevant factors.
The Bank uses methodologies to establish credit risk, based on internal models to estimate the allowances for the group-evaluated portfolio. This portfolio includes commercial loans with debtors that are not assessed individually, mortgage and consumer loans (including installment loans, credit cards and overdraft lines). These methods allow the Bank to independently identify the portfolio behavior and establish the provision required to cover losses arising during the year.
The customers are classified according to their internal and external characteristics into profiles, using a customer-portfolio model to differentiate each portfolio’s risk in an appropriate manner. This is known as the profile allocation method.
The profile allocation method is based on a statistical construction model that establishes a relationship through logistic regression between variables (for example default, payment behavior outside the Bank, socio-demographic data) and a response variable which determines the client’s risk, which in this case is over 90 days overdue. Hence, common profiles are established and assigned a Probability of Non-Performance (PNP) and a recovery rate based on a historical analysis known as Severity (SEV).
Therefore, once the customers have been profiled, and the loan’s profile assigned a PNP and a SEV, the exposure at default (EXP) is calculated. This exposure includes the book value of the loans and accounts receivable from the customer, plus contingent loans, less any amount that can be recovered by executing guarantees (for credits other than consumer loans).
Notwithstanding the above, on establishing provisions associated with housing loans, the Bank must recognize minimum provisions according to standard methods established by the SBIF for this type of loan. While this is considered to be a prudent minimum base, it does not relieve the Bank of its responsibility to have its own methodologies of determining adequate provisions to protect the credit risk of the portfolio.
Consolidated Financial Statements December 2018 / Banco Santander Chile 27
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Standard method of residential mortgage loan provisions
As of January 1, 2016, and in accordance with Circular No. 3.573 issued by the SBIF, the Bank began applying the standard method of provisions for residential mortgage loans. According to this method, the expected loss factor applicable to residential mortgage loans will depend on the default of each loan and the relationship between the outstanding principal of each loan and the value of the associated mortgage guarantee (Loans to Value, LTV) at the end of each month.
The allowance rates applied according to default and LTV are the following:
LTV Range | Days overdue at month end | 0 | 1-29 | 30-59 | 60-89 | Impaired portfolio | ||||||||||||||||
PNP(%) | 1.0916 | 21.3407 | 46.0536 | 75.1614 | 100 | |||||||||||||||||
LTV≤40% | Severity (%) | 0.0225 | 0.0441 | 0.0482 | 0.0482 | 0.0537 | ||||||||||||||||
Expected Loss (%) | 0.0002 | 0.0094 | 0.0222 | 0.0362 | 0.0537 | |||||||||||||||||
PNP(%) | 1.9158 | 27.4332 | 52.0824 | 78.9511 | 100 | |||||||||||||||||
40%< LTV ≤80% | Severity (%) | 2.1955 | 2.8233 | 2.9192 | 2.9192 | 3.0413 | ||||||||||||||||
Expected Loss (%) | 0.0421 | 0.7745 | 1.5204 | 2.3047 | 3.0413 | |||||||||||||||||
PNP(%) | 2.5150 | 27.9300 | 52.5800 | 79.6952 | 100 | |||||||||||||||||
80%< LTV ≤90% | Severity (%) | 21.5527 | 21.6600 | 21.9200 | 22.1331 | 22.2310 | ||||||||||||||||
Expected Loss (%) | 0.5421 | 6.0496 | 11.5255 | 17.6390 | 22.2310 | |||||||||||||||||
PNP(%) | 2.7400 | 28.4300 | 53.0800 | 80.3677 | 100 | |||||||||||||||||
LTV >90% | Severity (%) | 27.2000 | 29.0300 | 29.5900 | 30.1558 | 30.2436 | ||||||||||||||||
Expected Loss (%) | 0.7453 | 8.2532 | 15.7064 | 24.2355 | 30.2436 |
LTV =Loan capital/Value of guarantee
If the same debtor has more than one residential mortgage loan with the Bank and one of them over 90 days overdue, all their loans shall be allocated to the impaired portfolio, calculating provisions for each them in accordance with their respective LTV.
For residential mortgage loans related to housing programs and grants from the Chilean government, the allowance rate may be weighted by a factor of loss mitigation (LM), which depends on the LTV percentage and the price of the property in the deed of sale (S), as long as the debtor has contracted auction insurance provided by the Chilean government.
III. | Additional provisions |
According to SBIF regulation, banks are allowed to establish provisions over the limits already described, to protect themselves from the risk of non-predictable economical fluctuations that could affect the macro-economic environment or a specific economic sector.
According to No. 9 of Chapter B-1 from the SBIF Compendium of Accounting Standards, these provisions will be recorded in liabilities, similar to provisions for contingent loans.
The bank has set up additional provisions at the end of the third quarter of 2018 for an amount of MCh $ 20,000, associated with the Bank's consumer portfolio, which have been approved by the bank's board of directors (Note 31).
IV. | Charge-offs |
As a general rule, charge-offs should be done when the contract rights over cash flow expire. In the case of loans, even if the above does not happen, the Bank will charge-off these amounts in accordance with Title II of Chapter B-2 of the Compendium of Accounting Standards (SBIF).
These charge-offs refer to the derecognition from the Consolidated Statements of Financial Position of the respective loan, including any not yet due future payments in the case of installment loans or leasing transactions (for which partial charge-offs do not exist).
Charge-offs are always recorded as a charge to loan risk allowances according to Chapter B-2 of the Compendium of Accounting Regulations, no matter the reason for the charge-off. Any payment received related to a loan previously charged-off will be recognized as recovery of loan previously charged-off at the Consolidated Statement of Income.
Consolidated Financial Statements December 2018 / Banco Santander Chile 28
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Loan and accounts receivable charge-offs are recorded for overdue, past due, and current installments when they exceed the time periods described below since reaching overdue status:
Type of loan | Term | |
Consumer loans with or without collateral | 6 months | |
Other transactions without collateral | 24 months | |
Commercial loans with collateral | 36 months | |
Mortgage loans | 48 months | |
Consumer leasing | 6 months | |
Other non-mortgage leasing transactions | 12 months | |
Mortgage leasing (household and business) | 36 months |
V. | Recovery of loans previously charged off and accounts receivable from customers |
Any recovery on "Loans and accounts receivable from customers" previously charged-off will be recognized as a reduction in the credit risk provisions in the Consolidated Statement of Income.
Any renegotiation of a loan previously charged-off will not give rise to income, as long as the operation continues being considered as impaired. The cash payments received must be treated as recoveries of charged-off loans.
The renegotiated loan can only be included again in assets if it is no longer considered as impaired, also recognizing the capitalization income as recovery of charged-off loans.
q) | Provisions, contingent assets, and contingent liabilities |
Provisions are liabilities of uncertain timing or amount. Provisions are recognized in the Consolidated Statements of Financial Position when the Bank:
i. | has a present obligation (legal or constructive) as a result of past events, and |
ii. | it is probable that an outflow of resources will be required to settle these obligations and the amount of these resources can be reliably measured. |
Contingent assets or contingent liabilities are any potential rights or obligations arising from past events whose existence will be confirmed only by the occurrence or non-occurrence if one or more uncertain future events that are not wholly within control of the Bank.
The Consolidated Financial Statements reflect all significant provisions for which it is estimated that the probability of having to meet the obligation is more than likely than not. Provisions are quantified using the best available information regarding the consequences of the event giving rise to them and are reviewed and adjusted at the end of accounting period. Provisions are used when the liabilities for which they were originally recognized are settled. Partial or total reversals are recognized when such liabilities cease to exist or are reduced.
Provisions are classified according to the obligation covered as follows:
- | Provision for employee salaries and expenses |
- | Provision for mandatory dividends |
- | Provision for contingent loan risks |
- | Provisions for contingencies |
r) | Income taxes and deferred taxes |
The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to differences between the carrying amount of assets and liabilities and their tax bases. The measurement of deferred tax assets and liabilities is based on the tax rate, in accordance with the applicable tax laws, using the tax rate that applies to the period when the deferred asset and liability will be recovered or settled. The future effects of changes in tax legislation or tax rates are recorded in deferred taxes from the date on which the law is enacted or substantially enacted.
Consolidated Financial Statements December 2018 / Banco Santander Chile 29
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
s) | Use of estimates |
The preparation of the financial statements requires the Bank's management to make estimates and assumptions that affect the application of the accounting policies and the reported values of assets, liabilities, revenues and expenses. Actual results may differ from these estimates.
In certain cases, International Financial Reporting Standards (IFRS) require that assets or liabilities be recorded or disclosed at their fair values. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between informed market participants at the measurement date. When available, quoted market prices in active markets have been used as the basis for measurement. When 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 internal modeling and other valuation techniques.
The Bank has established allowances to cover probable losses, to estimate allowances. These allowances must be regularly reviewed taking into consideration factors such as changes in the nature and volume of the loan portfolio, trends in forecasted portfolio quality, credit quality and economic conditions that may adversely affect the borrowers' ability to pay. Increases in the allowances for loan losses are reflected as "Provision for loan losses" in the Consolidated Statement of Income.
Loans are charged-off when the contractual rights for the cash flows expire, however, for loans and accounts receivable from customers the bank will charge-off in accordance with Title II of Chapter B-2 of the Compendium of Accounting Standards issued by the SBIF. Charge-offs are recorded as a reduction of the allowance for loan losses.
The relevant estimates and assumptions made to calculate provisions are regularly reviewed by the Bank's Management to quantify certain assets, liabilities, revenues, expenses, and commitments.
Revised accounting estimates are recorded in the period in which the estimate is revised and in any affected future period.
These estimates are based on the best available information and mainly refer to:
- | Allowances for loan losses (Notes 9, 10, and 31) |
- | Impairment losses of certain assets (Notes 8, 9, 10, 11, and 34) |
- | The useful lives of tangible and intangible assets (Notes 13, 14 and 34) |
- | The fair value of assets and liabilities (Notes 6, 7, 8, 11 and 38) |
- | Commitments and contingencies (Note 23) |
- | Current and deferred taxes (Note 15) |
t) | Non-current assets held for sale |
Non-current assets (or a group of assets and liabilities) that expect to be recovered mainly through the sale of these items rather than through their continued use, are classified as held for sale. Immediately prior to this classification, assets (or elements of a disposable group) are valued in accordance with the Bank's policies. The assets (or disposal group) are subsequently valued at the lower of carrying amount and fair value less selling costs.
u) | Assets received or awarded in lieu of payment |
Assets received or awarded in lieu of payment of loans and accounts receivable from clients are recognized at their fair value. A price is agreed upon by the parties through negotiation or, when the parties do not reach an agreement, at the amount at which the Bank is awarded those assets at a judicial auction. In the both cases, an independent appraisal is performed.
Any excess of the outstanding loan balance over the fair value is recognized in the Consolidated Statement of Income under "Provision for loan losses".
These assets are subsequently valued at the lower of the amount initially recorded and the net realizable value, which corresponds to its fair value (liquidity value determined through an independent appraisal) less their respective costs of sale. The difference between both are recognized in the Consolidated Statement under "Other operating expenses".
At the end of each year the Bank performs an analysis to review the "selling costs" of assets received or awarded in lieu of payments which will be applied at this date and during the following year. As of December 31, 2018, the average selling cost has been estimated at 2.2% of the appraisal value (3.4% for December 31, 2017).
Independent appraisals are obtained at least every 18 months and fair values are adjusted accordingly.
Consolidated Financial Statements December 2018 / Banco Santander Chile 30
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
In general, it is estimated that these assets will be disposed of within a term of one year from its date of award. As set forth in article 84 of the General Banking Act, those assets that are not sold within that term are charged-off in a single installment.
v) | Earnings per share |
Basic earnings per share are calculated by dividing the net income attributable to the equity holders of the Bank by the weighted average number of shares outstanding during the reported period.
Diluted earnings per share are calculated in a similar manner to basic earnings, but the weighted average number of outstanding shares is adjusted to take into consideration the potential diluting effect of stock options, warrants, and convertible debt.
As of December 31, 2018, and 2017, the Bank did not have any instruments that generated dilution.
w) | Temporary acquisition (assignment) of assets and liabilities |
Purchases or sales of financial assets under non-optional repurchase agreements at a fixed price (repos) are recorded in the Consolidated Statements of Financial Position as an financial assignment based on the nature of the debtor (creditor) under "Deposits in the Central Bank of Chile," "Deposits in financial institutions" or "Loans and accounts receivable from customers" ("Central Bank of Chile deposits," "Deposits from financial institutions" or "Customer deposits").
Differences between the purchase and sale prices are recorded as financial interest over the term of the contract.
x) | Assets under management and investment funds managed by the Bank |
Assets owned by third parties and managed by certain companies that are within the Bank's scope of consolidation (Santander S.A. Sociedad Securitizadora), are not included in the Consolidated Statement of Financial Position. Management fees are included in "Fee and commission income" in the Consolidated Statement of Income.
y) | Provision for mandatory dividends |
As of December 31, 2018, and 2017, the Bank recorded a provision for minimum mandatory dividends. This provision is made pursuant to Article 79 of the Corporations Act, which is in accordance with the Bank's internal policy, which requires at least 30% of net income for the period is distributed, except in the case of a contrary resolution adopted at the respective shareholders' meeting by unanimous vote of the outstanding shares. This provision is recorded as a deduction from "Retained earnings" — "Provision for mandatory dividends" in the Consolidated Statement of Changes in Equity with offset to Provisions.
z) | Employee benefits |
i. | Post-employment benefits — Defined Benefit Plan: |
According to current collective labor agreements and other agreements, the Bank has an additional benefit available to its principal executives, consisting of a pension plan, whose purpose is to endow them with funds for a better supplementary pension upon their retirement.
Features of the Plan:
The main features of the Post-Employment Benefits Plan promoted by the Banco Santander Chile are:
I. | Aimed at the Bank's management. |
II. | The general requirement is that the beneficiary must still be employed by the Bank when reaching 60 years old. |
III. | The Bank will mix collective life and savings insurance policy for each beneficiary in the plan. Regular voluntary installments will be paid into this fund by the beneficiary and matched by the Bank. |
IV. | The Bank will be responsible for granting the benefits directly. |
The projected unit credit method is used to calculate the present value of the defined benefit obligation and the current service cost.
Consolidated Financial Statements December 2018 / Banco Santander Chile 31
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Components of defined benefit cost include:
- | current service cost and any past service cost, which are recognized in profit or loss for the period; |
- | net interest on the liability (asset) for net defined benefit, which is recognized in profit or loss for the period; |
- | new liability (asset) remeasurements for net defined benefit include: |
(a) | actuarial gains and losses; |
(b) | the performance of plan assets, and; |
(c) | changes in the effect of the asset ceiling which are recognized in other comprehensive income. |
The liability (asset) for net defined benefit is the deficit or surplus, calculated as the difference between the present value of the defined benefit obligation less the fair value of plan assets.
Plan assets comprise the pension fund taken out by the Group with a third party that is not a related party. These assets are held by an entity legally separated from the Bank and exist solely to pay benefits to employees.
The Bank recognizes the present service cost and the net interest of the Personnel wages and expenses on the Consolidated Statement of Income. Given the plan's structure, it does not generate actuarial gains or losses. The plan's performance is established and fixed during the period; consequently, there are no changes in the asset's cap. Accordingly, there are no amounts recognized in other comprehensive income.
The post-employment benefits liability, recognized in the Consolidated Statement of Financial Position, represents the deficit or surplus in the defined benefit plans of the Bank. Any surplus resulting from the calculation is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions.
When employees leave the plan before meeting the requirements to be eligible for the benefit, contributions made by the Bank are reduced.
ii. | Severance provision: |
Severance provision for years of employment are recorded only when they actually occur or upon the availability of a formal and detailed plan in which the fundamental modifications to be made are identified, provided that such plan has already started to be implemented or its principal features have been publicly announced, or objective facts about its execution are known.
iii. | Cash-settled share-based compensation |
The Bank allocates cash-settled share-based compensation to executives of the Bank and its Subsidiaries in accordance with IFRS 2. The Bank measures the services received and the obligation incurred at fair value.
Until the obligation is settled, the Bank calculates the fair value at the end of each reporting period, as well as at the date of settlement, recognizing any change in fair value in the income statement for the period.
aa) | New accounting pronouncements |
i. | Adoption of new accounting standards and instructions issued both by the Superintendency of Banks and Financial Institutions and the International Accounting Standards Board: |
As of the issue date of these Consolidated Financial Statements, the following new accounting pronouncements have been issued by the both the SBIF and the IASB, which have been fully incorporated by the Bank and are detailed as follows:
1. | Accounting Standards issued by the Superintendency of Banks and Financial Institutions |
Circular No. 3.634 — Risk weighted assets, credit risk and credit limits that apply to derivatives compensated and liquidated by a clearing house-On March 9, 2018, the SBIF published this bulletin with the main objective being that Banks could recognize their own risk mitigation effects for derivatives that are compensated and liquidated by a clearing house, introducing an intermediate category to classify the credit risk equivalent for these derivatives, the risk weight granted for these assets will be 2%.
In order to determine the credit risk equivalent for these derivatives compensated and liquidated by a clearing house, the type of relationship and residual time between the bank and clearing house will have to be taken in consideration, as well as the corresponding safeguards and guarantees.
Consolidated Financial Statements December 2018 / Banco Santander Chile 32
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Additionally, the SBIF considers that the derivative operations negotiated by Banks constituted in Chile, including foreign bank branches, this limit is applicable to interbank loans, even when these operations are later compensated and liquidated in a clearing house.
These modifications are applicable from June 30, 2018 onwards. The administration has carried out the necessary adjustments to comply with this requirement in time and form. No relevant situations exist that indicate the contrary.
2. | Accounting Standards issued by the International Accounting Standards Board |
IFRS 15, Income from contracts with clients - On May 28, 2014, the IASB published IFRS 15, which aims to establish principles for reporting useful information to users of financial information about the nature, amount, timing and uncertainty of the income and cash flows generated from an entity's contracts with its customers. IFRS 15 eliminates IAS 11 Construction Contracts, IAS 18 Income, IFRIC 13 Loyalty Programs with Customers, IFRIC 15 Real Estate Construction Agreements, IFRIC 18 Transfer of Assets from Customers and SIC 31 Revenue - Exchange of Advertising Services.
On April 12, 2016, the IASB issued "Clarifications to IFRS 15 Revenue from contracts with customers", these amendments do not change the underlying principles of the standard, just clarify and offer some additional transition relief. The main topics addressed by this amendment comprise: Identifying performance obligations, Principal versus agent considerations and licensing in addition to transition relief.
This standard was applicable from January 1, 2018, with early application permitted. Management performed a detailed review of items under the scope and its adaptation to the new five-step model of revenue recognition and conclude that this standard did not have material impact on the Bank's financial statement.
Amendments to IFRS 2 Classification and measurement of share-based payment transactions — These amendments were published on June 20, 2016, to address issues with:
● | The accounting of share-based payment transactions paid in cash that include a performance condition |
● | The classification of share-based transactions |
● | Accounting for modifications of share-based payment transactions from cash-settled to equity-settled. |
This standard was applicable from January 1, 2018, with early application permitted. Management evaluation conclude that this amendment did not have material impact on the Bank's financial statement.
Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - The amendments are intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard (expected as IFRS 17 within the next six months). The amendments provide two options for entities that issue insurance contracts within the scope of IFRS 4:
- | an option that permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets (the "overlay approach"); |
- | an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4 (the "deferral approach"). |
An entity would apply the overlay approach retrospectively to qualifying financial assets when it first applies IFRS 9 while an entity would apply the deferral approach for annual periods beginning on or after January 1, 2018. Management evaluation conclude that this amendment did not have material impact on the Bank's financial statement.
IFRIC 22 Foreign Currency Transactions and Advance Consideration — These interpretations issued on December 8, 2016, clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The Interpretation covers foreign currency transactions when an entity recognizes a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income. It does not apply when an entity measures the related asset, expense or income on initial recognition at fair value or at the fair value of the consideration received or payed at a date other than the date of initial recognition of the non-monetary asset or non-monetary liability. Also, the Interpretation need not be applied to income taxes, insurance contracts or reinsurance contracts.
The date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt.
IFRIC 22 was effective for annual reporting periods beginning on or after 1 January 2018. Earlier application was permitted. Management evaluation conclude that this amendment did not have material impact on the Bank's financial statement.
Consolidated Financial Statements December 2018 / Banco Santander Chile 33
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Annual Improvement 2014-2016
IFRS 1 First time adoption of IFRS - Deletion of short-term exemptions for first-time adopters.
IAS 28 Investments in Associates and Joint Ventures - Measuring an associate or joint venture at fair value.
The amendments to IFRS 1 and IAS 28 were effective for annual periods beginning on or after 1 January 2018. Management concluded that this amendment did not have a material impact on the Bank's financial statement.
II. | New accounting standards and instructions issued by both the Superintendency of Banks and Financial Institutions and by the International Accounting Standards Board that have not come into effect as of December 31, 2018 |
As of the closing date of these financial statements, new International Financial Reporting Standards had been published as well as interpretations of them and SBIF rules, which were not mandatory as of December 31, 2018. Although in some cases the application is permitted by the IASB, the Bank has not made its application on that date.
1. | Accounting Standards issued by the Superintendency of Banks and Financial Institutions |
Circular No. 3.638- Establishes the standard provision method for commercial loans on a group portfolio- On July 6, 2018, the SBIF published this bulletin that establishes standard methods that must be utilized by banks for credit risk provisions directed for commercial loans on a group portfolio which are incorporated in Chapter B-1 of the Compendium of Accounting Standards.
● | Method used for the Commercial Leasing Portfolio: considers as overdue the asset type, the lease (real-estate or not) and the current value-to-value relation of the asset (LTV) of the operation. |
● | Method used for the Student Portfolio: considers the type of loan granted (whether it is CAE or not), the required payment and amount overdue, in case the loan has these characteristics. |
● | Method used for the Generic Commercial Portfolio: considers as overdue and the existence of real guarantees that warrant the loan. In case of mediated guarantees, the relation between the loan and real value of the collateral is considered. |
The use of the standard method to generate the provisions credits in the group commercial portfolio, will be mandatory starting on July 1, 2019, while the accounting effects of first application must be considered as a change in an accounting response according to IAS 8, and therefore accounted in profit or loss. The Administration is evaluating the potential impact for the adoption of this modification.
2. | Accounting Standards issued by the International Accounting Standards Board |
IFRS 9, Financial Instruments - On November 12, 2009, the International Accounting Standards Board (IASB) issued IFRS 9, Financial Instruments. This Standard introduces new requirements for the classification and measurement of financial assets. IFRS 9 specifies how an entity should classify and measure its financial assets. Requires that all financial assets are classified in their entirety on the basis of the entity's business model for the management of financial assets and the characteristics of the contractual cash flows of financial assets.
On October 28, 2010, the IASB published a revised version of IFRS 9, Financial Instruments. The revised Standard retains the requirements for the classification and measurement of financial assets that was published in November 2009 but adds guidelines on the classification and measurement of financial liabilities. Likewise, it has replicated the guidelines on the recognition of financial instruments and the implementation guides related from IAS 39 to IFRS 9. These new guidelines conclude the first phase of the IASB project to replace IAS 39. The other phases, impairment and hedge accounting, have not yet been finalized.
The guidance included in IFRS 9 on the classification and measurement of financial assets has not changed from those established in IAS 39. In other words, financial liabilities will continue to be measured either at amortized cost or at fair value with changes in results. The concept of bifurcation of derivatives incorporated in a contract for a financial asset has not changed Financial liabilities held for trading will continue to be measured at fair value with changes in results, and all other financial assets will be measured at amortized cost unless the value option is applied reasonable using the criteria currently in IAS 39.
Notwithstanding the foregoing, there are two differences with respect to IAS 39:
- | The presentation of the effects of changes in fair value attributable to the credit risk of a liability; and |
- | The elimination of the cost exemption for liabilities derivatives to be settled through the delivery of non-traded equity instruments. |
Consolidated Financial Statements December 2018 / Banco Santander Chile 34
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
On December 16, 2011, the IASB issued Mandatory Application Date of IFRS 9 and Disclosures of the Transition, deferring the effective date of both the 2009 and 2010 versions to annual periods beginning on or after January 1, 2015. Prior to the amendments, the application of IFRS 9 was mandatory for annual periods beginning on or after 2013. The amendments change the requirements for the transition from IAS 39 Financial Instruments: Recognition and Measurement to IFRS 9. In addition, they also modify IFRS 7 Financial Instruments: Disclosures to add certain requirements in the reporting period in which the date of application of IFRS 9 is included. Finally, on July 24, 2014, it is established that the date Effective application of this rule will be for annual periods beginning on January 1, 2018.
On November 19, 2013 ASB issued "Amendment to IFRS 9: hedge accounting and amendments to IFRS 9, IFRS 7 and IAS 39", which includes a new general hedge accounting model, which is more closely aligned with risk management, providing more useful information to the users of the financial statements. On the other hand, the requirements relating to the fair value option for financial liabilities were changed to address the credit risk itself, this improvement establishes that the effects of changes in the credit risk of a liability should not affect the result of the period a unless the liabilities remain to negotiate; the early adoption of this modification is permitted without the application of the other requirements of IFRS 9. In addition, it conditions the effective date of entry into force upon completion of the IFRS 9 project, allowing its adoption in the same way.
On July 24, 2014, the IASB published the final version of IFRS 9 - Financial Instruments, including the regulations already issued together with a new expected loss model and minor modifications to the classification and measurement requirements for financial assets, adding a new category of financial instruments: assets at fair value with changes in other comprehensive result for certain debt instruments. It also includes an additional guide on how to apply the business model and testing of contractual cash flow characteristics.
On October 12, 2017, "Amendment to IFRS 9: Characteristics of Anticipated Cancellation with Negative Compensation" was published, which clarifies that according to the current requirements of IFRS 9, the conditions established in Test SPPI are not met if the Bank should make a settlement payment when the client decides to terminate the credit. With the introduction of this modification, in relation to termination rights, it is allowed to measure at amortized cost (or FVOCI) in the case of negative compensation.
This regulation was effective as of January 1, 2018. Early application is allowed. The Administration in accordance with the Superintendency of Banks and Financial Institutions pronouncement, will not apply this standard meantime SBIF does not provide it as a mandatory standard for all Chilean banks.
Sale or Contributions of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) - Issued on September 11, 2014, the IASB has published 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)'. The amendments address a conflict between the requirements of IAS 28 'Investments in Associates and Joint Ventures' and IFRS 10 'Consolidated Financial Statements' and clarifies the treatment of the sale or contribution of assets from an investor to its associate or joint venture, as follows:
- | requires full recognition in the investor's financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations); |
- | requires the partial recognition of gains and losses where the assets do not constitute a business, i.e. a gain or loss is recognized only to the extent of the unrelated investors' interests in that associate or joint venture. |
On December 17, 2015 the IASB has published final amendments to "Sale or Contribution of Assets between an Investor and its Associate or Joint Venture". The amendments defer the effective date of the September 2014 amendments to these standards indefinitely until the research project on the equity method has been concluded. The Administration will be waiting for the new validity to evaluate the potential effects of this modification.
IFRS 16 Leases - On January 13, 2016, the IASB issued this new regulation which replaces IAS 17 Leases, IFRIC 4 Determination of whether an agreement contains a lease, SIC 15 Operating leases - incentives and SIC 27 Evacuation of the essence of Transactions that take the legal form of a lease. The main effects of this rule apply to tenant accounting, mainly because it eliminates the dual accounting model: operational or financial leasing, this means that tenants must recognize "a right to use an asset" and a liability for Lease (the present value of lease futures payments). In the case of the landlord the current practice is maintained - that is, lessors continue to classify leases as financial and operating leases. This regulation is applicable as of January 1, 2019, with early application permitted if IFRS 15 "Customer Contract Revenue" is applied. The Administration is evaluating the potential impact of the adoption of these regulations.
The bank has established a team that has reviewed the Bank's lease agreements, the new lease accounting guidelines in IFRS 16. The standard mainly affects the accounting of the Bank's operating leases. To date, the Bank has non-cancelable operating lease commitments and short-term leases, which are recognized in the straight line as lease expenses in the results. For lease commitments that are in accordance with the standard, the Bank becomes a right to use a supplier MCh$ 154,284 as of January 1, 2019 contract the steps for the same amount you are entitled to use the simplified transmission approach, The Bank intends to apply the simplified transition approach and will not re-express the comparative amounts for the year prior to adoption. The right-of-use assets for property leases are measured in the transition as the new rules would have always applied. All other assets for right of use are measured in the amount of the liability for the lease on adoption (adjusted for any lease expense paid in advance or accrued).
Consolidated Financial Statements December 2018 / Banco Santander Chile 35
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
IFRS 17 Insurance contracts — This standard issued on May 18, 2017 replaces the current IFRS 4. IFRS 17 will mainly change accounting for all entities that issue insurance contracts and investment contracts with discretionary participation characteristics. The standard applies to annual periods beginning on or after January 1, 2021, with early application permitted provided IFRS 15, "Revenue from contracts with customers" and IFRS 9, "Financial instruments" is applied. This norm does not apply directly to the bank, but, the Bank participates in the insurance business and will make sure that this norm is correctly applied.
IFRIC 23 Uncertainty over Income Tax Treatments — This standard issued on June 7, 2017, clarifies how the recognition and measurement requirements of IAS 12 apply when there is uncertainty about tax treatments. The standard applies to annual periods beginning on or after January 1, 2019, with early application permitted. The Bank's management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.
Amendments to IAS 28 long-term interest in Associates and Joint Ventures - This standard was issued in October 12, 2017 to clarify that an entity applies IFRS 9 including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted.
Annual Improvements to IFRS Standards 2015-2017 Cycle -This annual improvement issued in December 12, 2017, containing the following amendments:
IFRS 3 Business Combination and IFRS 11 Joint Arrangements — The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interest in that business.
IAS 12 Income taxes — The amendments clarify that all income tax consequences of dividends should be recognized in profit or loss, regardless of how the tax arises.
IAS 23 Borrowing cost — The amendments clarify that if any specific borrowing remain outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings.
The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted. The Bank's management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.
Amendments to IAS 19: Plan amendment, curtailment or settlement - The amendment was issued on February 7, 2018 and include the following changes:
- | If a plan amendment, curtailment or settlement occurs, it is now mandatory that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement. |
- | In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. |
The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted, but must be disclosed. The Bank's management is evaluating if these amendments will have material impact on the Bank's consolidated financial statements.
Conceptual framework for financial reporting - Issued on March 29, 2018, the purpose of the Conceptual Framework is to:
(a) | assist the International Accounting Standards Board to develop IFRS Standards that are based on consistent concepts; |
(b) | assist preparers to develop consistent accounting policies when no Standard applies to a particular transaction or other event, or when a Standard allows a choice of accounting policy; and |
(c) | assist all parties to understand and interpret the Standards |
The Conceptual Framework is not a Standard and not overrides any Standard or any requirement in a Standard. The revised Conceptual framework introduces the following main improvements:
- | Measurement: concepts on measurement, including factors to be considered when selecting a measurement basis. |
- | Presentation and disclosure: concepts on presentation and disclosure, including when to classify income and expenses in other comprehensive income. |
- | Derecognition: guidance on when assets and liabilities are removed from financial statements. |
This framework is effective for periods beginning on or after January 1, 2020. The Bank's management is evaluating if this conceptual framework will have material impact on the Bank's consolidated financial statements.
Consolidated Financial Statements December 2018 / Banco Santander Chile 36
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
ACCOUNTING CHANGES
As of January 1, 2018, the IFRS 15 regulations have entered into force. Revenue from ordinary activities from contracts with customers, this regulation under the activities carried out by the Bank affects the income from commissions and services.
The Bank has chosen to use the modified retrospective method of the initial application of this standard as an option to transition as an adjustment to the opening balance of the accumulated earnings of the annual presentation period that includes the initial application date, therefore, not it requires the presentation of the immediately previous period according to this new accounting policy.
As part of the process of implementing this standard, the Bank conducted a process of reviewing the income from commissions and services and their associated expenses, and based on the 5-step model established in the regulations, it was concluded that the adoption of this standard it did not have material quantitative impacts, but it did have a revelation, which have been included in Note 1, letter i) Main accounting criteria used and Note No. 28 Commissions.
Consolidated Financial Statements December 2018 / Banco Santander Chile 37
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
SIGNIFICANT EVENTS
I.- As of December 31, 2018, the following significant events have occurred and affected the Bank's operations and Consolidated Financial Statements.
a) | The Board |
During the ordinary session of the Board of Directors of Banco Santander-Chile, held on February 27, 2018, the following matters were agreed:
- | On the occasion of the resignation of Mr. Vittorio Corbo Lioi from his position as Director, it was held during said session, he was also exercised as Chairman of the Board of Directors, he was appointed in his place as Director and Chairman of the Board of Banco Santander-Chile Mr. Claudio Melandri Hinojosa, who will temporarily hold the position of General Manager until February 28, 2018 inclusive, in accordance with the provisions of Article 49 No. 8 of the General Banking Law. |
- | The Bank's General Manager has been appointed, as of March 1, 2018, Mr. Miguel Mata Huerta, who served as Deputy General Manager, the latter being charged and agreed to be abolished. |
During the ordinary session of the Board of Directors of Banco Santander-Chile, held on March 27, 2018, the following matters were agreed:
- | On the occasion of the resignation of the Regular Directors, Mr. Roberto Méndez Torres and Mr. Roberto Zahler Mayanz, made on this date, the Board of Directors has appointed Messrs. Félix de Vicente Mingo and Alfonso Gómez Morales as their regular Directors. independent |
- | Mr. Orlando Poblete Iturrate has been appointed First Vice President and Oscar Von Chrismar Carvajal as Second Vice President. |
- | It was agreed to call an Ordinary Meeting of Shareholders for April 24, 2018. |
At the Ordinary Shareholders' Meeting of Banco Santander-Chile, held on April 24, 2018, Claudio Melandri Hinojosa, appointed Chairman and the independent directors Alfonso Gómez Morales and José Félix de Vicente Mingo, were appointed as permanent directors. previously designated by the Board.
During the ordinary session of the Board of Directors of Banco Santander-Chile, held on July 12, 2018, the following agreements were adopted:
- | On the occasion of the resignation of the substitute director Mr. Raimundo Monge Zegers, the board of directors has appointed Mr. Oscar Von Chrismar Carvajal, who was the titular director. |
- | Mr. Rodrigo Vergara Montes has been appointed independent director. |
- | Mr. Rodrigo Vergara Montes and Second Vice President Mr. Orlando Poblete Iturrate have been appointed First Vice President. |
b) | Use of profits and distribution of dividends |
At the Ordinary Shareholders' Meeting of Banco Santander-Chile held on April 24, 2018, together with approving the Consolidated Financial Statements corresponding to the year 2017, it was agreed to distribute 75% of the net profits for the year (which are denominated in the financial statements). consolidated "Profit attributable to equity holders of the Bank"), which amounted to $ 564,815 million. These profits correspond to a dividend of $ 2.24791611 for each share. Likewise, it is approved that the remaining 25% of the profits will be used to increase the Bank's reserves.
c) | Appointment of External auditors |
In the Board indicated above, it was agreed to appoint the firm PricewaterhouseCoopers Consultores, Auditores y Compañía Limited, as external auditors of the Bank and its subsidiaries for the 2018 fiscal year.
Consolidated Financial Statements December 2018 / Banco Santander Chile 38
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 03
SIGNIFICANT EVENTS, continued
d) | Issuance of bonds — As of December 31, 2018 |
d.1) | Senior bonds year 2018 |
In the year ended December 31, 2018 the Bank has issued senior bonds int the amount of AUD 200,000,000, EUR 66,000,000, CHF 115,000,000, JPY 7,000,000,000 and USD 70,000,000 Debt issuance information is included in Note 19.
Series | Currency | Term | Term Original (annual) | Issuance date | Issuance amount | Maturity date | ||||||||||
AUD | AUD | 5 | 3.56 | % | 13-11-2018 | 20,000,000 | 13-11-2023 | |||||||||
Total | AUD | 20,000,000 | ||||||||||||||
CHF | CHF | 5 | 0.44 | % | 21-09-2018 | 115,000,000 | 21-12-2023 | |||||||||
Total | CHF | 115,000,000 | ||||||||||||||
EUR | EUR | 7 | 1.00 | % | 04-05-2018 | 26,000,000 | 28-05-2025 | |||||||||
EUR | EUR | 12 | 1.78 | % | 07-06-2018 | 40,000,000 | 15-06-2030 | |||||||||
Total | EUR | 66,000,000 | ||||||||||||||
JPY | JPY | 10.5 | 0.65 | % | 13-07-2018 | 4,000,000,000 | 13-01-2029 | |||||||||
JPY | JPY | 5 | 0.56 | % | 30-10-2018 | 3,000,000,000 | 30-10-2023 | |||||||||
Total | JPY | 7,000,000,000 | ||||||||||||||
USD | USD | 10 | 3.69 | % | 10-10-2018 | 50,000,000 | 10-10-2028 | |||||||||
USD | USD | 2 | 4.17 | % | 16-11-2018 | 20,000,000 | 16-11-2020 | |||||||||
Total | USD | 70,000,000 |
d.2) | Subordinated bonds year 2018 |
As of December 2018, the Bank did not issue subordinated bonds.
d.3) | Mortgage bonds year 2018 |
As of December 2018, the Bank did not issue mortgage bonds.
d.4) | Repurchased bonds year 2018 |
In the nine months ended December 31, 2018 the Bank has repurchased the following bonds:
Date | Type | Currency | Amount | |||||
04-01-2018 | Senior | CLP | 12,890,000,000 | |||||
04-01-2018 | Senior | CLP | 4,600,000,000 | |||||
22-01-2018 | Senior | UF | 24,000 | |||||
05-04-2018 | Senior | UF | 484,000 | |||||
06-04-2018 | Senior | UF | 184,000 | |||||
23-04-2018 | Senior | UF | 216,000 | |||||
24-04-2018 | Senior | UF | 4,000 | |||||
25-04-2018 | Senior | UF | 262,000 | |||||
10-05-2018 | Senior | UF | 800,000 | |||||
07-06-2018 | Senior | USD | 3,090,000 | |||||
11-12-2018 | Senior | USD | 250,000,000 |
Consolidated Financial Statements December 2018 / Banco Santander Chile 39
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 03
SIGNIFICANT EVENTS, continued
II.- As of December 31, 2017, the following significant events have occurred and affected the Bank's operations and Consolidated Financial Statements.
a) | The board |
On April 5, 2017, the bylaws of Banco Santander Chile, approved at the Extraordinary Shareholders' Meeting held on January 9, 2017, were published in the Official Gazette, whose minutes were reduced to a public deed on February 14, 2017, in Nancy de la Fuente Hernández's Notary of Santiago. Among others, a consolidated text of the bylaws was established and, after the reforms introduced, its essential clauses are the following:
- | Name: Banco Santander-Chile |
- | Purpose: The execution or conclusion of all acts, contracts, businesses or operations that the laws, especially the General Law of Banks, allow the banks to perform without prejudice to extend or restrict their sphere of action in harmony with the legal provisions in force or that are established in the future, without the need to amend the present statutes. |
- | Capital: $ 891,302,881,691, divided into 188,446,126,794 nominative shares, with no par value, of the same and only series. |
- | Directory: Corresponds to a Board composed of 9 full members and 2 alternates. |
At the Ordinary Shareholders' Meeting held on April 26, 2017, the Board of Directors was elected for a period of three years, consisting of nine Principal Directors and two Alternate Directors. The following persons were elected:
Principal Directors: Vittorio Corbo Lioi, Oscar von Chrismar Carvajal, Roberto Méndez Torres, Juan Pedro Santa María Pérez, Ana Dorrego de Carlos, Andreu Plaza López, Lucia Santa Cruz Sutil, Orlando Poblete Iturrate and Roberto Zahler Mayanz.
Alternate Directors: Blanca Bustamante Bravo and Raimundo Monge Zegers
b) | Use of Profits and Distribution of Dividends |
At the Ordinary General Shareholders' Meeting held on April 26, 2017, together with approving the Consolidated Financial Statements for 2016, it was agreed to distribute 70% of the net profits for the year (which are denominated in the consolidated financial statements "Profit attributable to holders Of the Bank "), which amounted to Ch $ 472,351 million. These profits correspond to a dividend of $ 1,75459102 per share.
Likewise, it was approved that the remaining 30% of the profits be destined to increase the Bank's reserves.
c) | Appointment of External Auditors |
At the Board mentioned above, it was agreed to appoint the firm PricewaterhouseCoopers Consultores, Auditores SpA, as external auditors of the Bank and its subsidiaries for 2017.
Consolidated Financial Statements December 2018 / Banco Santander Chile 40
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 03
SIGNIFICANT EVENTS, continued
d) | Issuance of bank bonds - As of December 31, 2017: |
d.1 | Senior Bonds as of December 31, 2017 |
In the year ended December 31, 2017 the Bank has issued senior bonds int the amount of USD 770,000,000 and AUD 30,000,000 Debt issuance information is included in Note 19.
Series | Currency | Amount | Term | Issuance rate | Issuance date | Issuance amount | Maturity date | |||||||||||
DN | USD | 100,000,000 | 3.0 | Libor-USD 3M+0,80% | 20-07-2017 | 100,000,000 | 27-07-2020 | |||||||||||
DN | USD | 50,000,000 | 3.0 | Libor-USD 3M+0,80% | 21-07-2017 | 50,000,000 | 27-07-2020 | |||||||||||
DN | USD | 50,000,000 | 3.0 | Libor-USD 3M+0,80% | 24-07-2017 | 50,000,000 | 27-07-2020 | |||||||||||
DN | USD | 10,000,000 | 4.0 | Libor-USD 3M+0,83% | 23-08-2017 | 10,000,000 | 23-11-2021 | |||||||||||
DN | USD | 10,000,000 | 4.0 | Libor-USD 3M+0,83% | 23-08-2017 | 10,000,000 | 23-11-2021 | |||||||||||
DN | USD | 50,000,000 | 3.0 | Libor-USD 3M+0,75% | 14-09-2017 | 50,000,000 | 15-09-2020 | |||||||||||
DN | USD | 500,000,000 | 3.0 | 2.50% | 12-12-2017 | 500,000,000 | 15-12-2020 | |||||||||||
Total | USD | 770,000,000 | 770,000,000 | |||||||||||||||
AUD | AUD | 30,000,000 | 10.0 | 3.96% | 05-12-2017 | 30,000,000 | 12-12-2027 | |||||||||||
Total | AUD | 30,000,000 | 30,000,000 |
d.2 | Subordinated Bonds as of December 31, 2017 |
As of December 2017, the Bank did not issue subordinated bonds.
d.3 | Mortgage bonds as of December 31, 2017 |
As of December 2017, the Bank did not issue mortgage bonds.
d.4 | Repurchased bonds |
As of 2017 the Bank has repurchased the following bonds:
Date | Type | Currency | Amount | |||||
06-03-2017 | Senior | USD | 6,900,000 | |||||
12-05-2017 | Senior | UF | 1,000,000 | |||||
16-05-2017 | Senior | UF | 690,000 | |||||
17-05-2017 | Senior | UF | 15,000 | |||||
26-05-2017 | Senior | UF | 340,000 | |||||
01-06-2017 | Senior | UF | 590,000 | |||||
02-06-2017 | Senior | UF | 300,000 | |||||
05-06-2017 | Senior | UF | 130,000 | |||||
19-06-2017 | Senior | UF | 265,000 | |||||
10-07-2017 | Senior | UF | 770,000 | |||||
21-07-2017 | Senior | UF | 10,000 | |||||
28-08-2017 | Senior | UF | 400,000 | |||||
29-08-2017 | Senior | UF | 272,000 | |||||
03-11-2017 | Senior | UF | 14,000 | |||||
29-11-2017 | Senior | UF | 400,000 | |||||
06-12-2017 | Senior | UF | 20,000 | |||||
12-12-2017 | Senior | CLP | 10,990,000,000 |
Consolidated Financial Statements December 2018 / Banco Santander Chile 41
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
REPORTING SEGMENTS
The Bank manages and measures the performance of its operations by business segments. The information disclosed in this note is not necessarily comparable to that of other financial institutions, since it is based on management's internal information system by segment.
Inter-segment transactions are conducted under normal arm's length commercial terms and conditions. Each segment's assets, liabilities, and income include items directly attributable to the segment to which they can be allocated on a reasonable basis.
In order to achieve compliance with the strategic objectives established by senior management and adapt to changing market conditions, from time to time, the Bank makes adjustments in its organization, modifications that in turn impact to a greater or lesser extent, in the way in which it is managed or managed. Thus, the present disclosure provides information on how the Bank is managed as of December 31, 2018. Regarding the information corresponding to the year 2017, it has been prepared with the current criteria at the closing of these financial statements in order to achieve the due comparability of the figures.
The Bank has the reportable segments noted below:
Retail Banking
Consists of individuals and small to middle-sized entities (PYMEs) with annual income less than Ch$1,200 million. This segment gives customers a variety of services, including consumer loans, credit cards, auto loans, commercial loans, foreign exchange, mortgage loans, debit cards, checking accounts, savings products, mutual funds, stockbrokerage, and insurance brokerage. Additionally, the PYMEs clients are offered government-guaranteed loans, leasing and factoring.
Middle-market
This segment is made up of companies and large corporations with annual sales exceeding Ch$1,200 million. It serves institutions such as universities, government entities, local and regional governments and companies engaged in the real estate industry who carry out projects to sell properties to third parties and annual sales exceeding Ch$800 million with no upper limit. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, savings products, mutual funds, and insurance brokerage. Also, companies in the real estate industry are offered specialized services to finance residential projects, with the aim of expanding sales of mortgage loans.
Global Corporate Banking
This segment consists of foreign and domestic multinational companies with sales over Ch$10,000 million. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, investments, savings products, mutual funds and insurance brokerage.
This segment also consists of a Treasury Division which provides sophisticated financial products, mainly to companies in the Middle-market and Global Corporate Banking segments. These include products such as short-term financing and fund raising, brokerage services, derivatives, securitization, and other tailor-made products. The Treasury area may act as brokers to transactions and also manages the Bank's investment portfolio.
Corporate Activities ("Other")
This segment mainly includes the results of our Financial Management Division, which develops global management functions, including managing inflation rate risk, foreign currency gaps, interest rate risk and liquidity risk. Liquidity risk is managed mainly through wholesale deposits, debt issuances and the Bank's available for sale portfolio. This segment also manages capital allocation by unit. These activities usually result in a negative contribution to income.
In addition, this segment encompasses all the intra-segment income and all the activities not assigned to a given segment or product with customers.
The segments' accounting policies are those described in the summary of accounting policies. The Bank earns most of its income in the form of interest income, fee and commission income and income from financial operations. To evaluate a segment's financial performance and make decisions regarding the resources to be assigned to segments, the Chief Operating Decision Maker (CODM) bases his assessment on the segment's interest income, fee and commission income, and expenses.
Consolidated Financial Statements December 2018 / Banco Santander Chile 42
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 04
REPORTING SEGMENTS, continued
Below are the tables showing the Bank's results by business segment, for the periods ending as of December 31, 2018 and 2017:
December 31, 2018 | ||||||||||||||||||||||||||||
Loans and accounts receivable from customers (1) | Net interest income | Net fee and commission income | Financial transactions net (2) | Provision for loan losses | Support expenses (3) | Segment`s net contribution | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Retail Banking | 20,786,637 | 949,764 | 220,532 | 19,694 | (275,351 | ) | (553.157 | ) | 361.482 | |||||||||||||||||||
Middle-market | 7,690,380 | 272,912 | 36,746 | 16,848 | (26,314 | ) | (92.377 | ) | 207.815 | |||||||||||||||||||
Commercial Banking | 28,477,017 | 1,222,676 | 257,278 | 36,542 | (301,665 | ) | (645,534 | ) | 569,297 | |||||||||||||||||||
Global Corporate Banking | 1,681,697 | 96,722 | 35,064 | 57,340 | 2,339 | (64,913 | ) | 126,552 | ||||||||||||||||||||
Corporate Activities (“others”) | 123,309 | 94,970 | (1,457 | ) | 11,200 | (25,759 | ) | (11,486 | ) | 67,468 | ||||||||||||||||||
Total | 30,282,023 | 1,414,368 | 290,885 | 105,082 | (325,085 | ) | (721,933 | ) | 763,317 | |||||||||||||||||||
Other operating income | 39,526 | |||||||||||||||||||||||||||
Other operating expenses | (45,779 | ) | ||||||||||||||||||||||||||
Income from investments in associates and other companies | 5,095 | |||||||||||||||||||||||||||
Income tax expense | (165,897 | ) | ||||||||||||||||||||||||||
Net income for the year | 596,262 |
(1) | Loans receivable from customers plus the balance indebted by banks, without deducting their allowances for loan losses. |
(2) | The sum of net income (expense) from financial operations and foreign exchange gains or losses. |
(3) | The sum of personnel salaries and expenses, administrative expenses, depreciation and amortization. |
Consolidated Financial Statements December 2018 / Banco Santander Chile 43
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 04
REPORTING SEGMENTS, continued
December 31, 2017 | ||||||||||||||||||||||||||||
Loans and accounts receivable from customers (1) | Net interest income | Net fee and commission income | Financial transactions, net (2) | Provision for loan losses | Support expenses (3) | Segment`s net contribution | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Retail Banking | 19,233,169 | 970,332 | 206,449 | 20,595 | (290,156 | ) | (534,970 | ) | 372,250 | |||||||||||||||||||
Middle-market | 6,775,734 | 264,663 | 36,280 | 13,751 | (19,312 | ) | (91,882 | ) | 203,500 | |||||||||||||||||||
Commercial Banking | 26,008,903 | 1,234,995 | 242,729 | 34,346 | (309,468 | ) | (626,852 | ) | 575,750 | |||||||||||||||||||
Global Corporate Banking | 1,633,796 | 100,808 | 27,626 | 50,714 | 4,008 | (62,685 | ) | 120,471 | ||||||||||||||||||||
Corporate Activities (“others”) | 83,215 | (9,112 | ) | 8,708 | 44,692 | 6,255 | (15,356 | ) | 35,187 | |||||||||||||||||||
Total | 27,725,914 | 1,326,691 | 279,063 | 129,752 | (299,205 | ) | (704,893 | ) | 731,408 | |||||||||||||||||||
Other operating income | 87,163 | |||||||||||||||||||||||||||
Other operating expenses | (101,658 | ) | ||||||||||||||||||||||||||
Income from investments in associates and other companies | 3,963 | |||||||||||||||||||||||||||
Income tax expense | (143,613 | ) | ||||||||||||||||||||||||||
Net income for the period | 577,263 |
(1) | Loans receivable from customers plus the balance indebted by banks, without deducting their allowances for loan losses. |
(2) | The sum of net income (expense) from financial operations and foreign exchange gains or losses. |
(3) | The sum of personnel salaries and expenses, administrative expenses, depreciation and amortization. |
Consolidated Financial Statements December 2018 / Banco Santander Chile 44
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
CASH AND CASH EQUIVALENTS
a) | The detail of the balances included under cash and cash equivalents is as follows: |
As of December 31, | ||||||||
2018 | 2017 | |||||||
MCh$ | MCh$ | |||||||
Cash and deposit in banks | ||||||||
Cash | 824,863 | 613,361 | ||||||
Deposit in the Central Bank of Chile | 953,016 | 441,683 | ||||||
Deposit in domestic banks | 664 | 393 | ||||||
Deposit in foreign banks | 286,898 | 397,485 | ||||||
Subtotal | 2,065,441 | 1,452,922 | ||||||
Cash in process of collection, net | 190,714 | 181,419 | ||||||
Cash and cash equivalents | 2,256,155 | 1,634,341 |
The balance of funds held in cash and deposits in the Central Bank of Chile reflects the reserves that the Bank must maintain on average each month.
b) | Operations in process of settlement: |
Operations in process of settlement are transactions with only settlement pending, which will increase or decrease the funds of the Central Bank of Chile or of banks abroad, usually within the next 24 or 48 working hours to each end of period. These operations are as follows:
As of December 31, | ||||||||
2018 | 2017 | |||||||
MCh$ | MCh$ | |||||||
Assets | ||||||||
Documents held by other banks (document to be cleared) | 210,546 | 199,619 | ||||||
Funds receivable | 143,211 | 468,526 | ||||||
Subtotal | 353,757 | 668,145 | ||||||
Liabilities | ||||||||
Funds payable | 163,043 | 486,726 | ||||||
Subtotal | 163,043 | 486,726 | ||||||
Cash in process of collection, net | 190,714 | 181,419 |
Consolidated Financial Statements December 2018 / Banco Santander Chile 45
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
TRADING INVESTMENTS
The detail of instruments deemed as financial trading investments is as follows:
As of December 31, | ||||||||
2018 | 2017 | |||||||
MCh$ | MCh$ | |||||||
Chilean Central Bank and Government securities | ||||||||
Chilean Central Bank Bonds | 22,947 | 272,272 | ||||||
Chilean Central Bank Notes | - | - | ||||||
Other Chilean Central Bank and Government securities | 48,211 | 209,370 | ||||||
Subtotal | 71,158 | 481,642 | ||||||
Other Chilean securities | ||||||||
Time deposits in Chilean financial institutions | - | - | ||||||
Mortgage finance bonds of Chilean financial institutions | - | - | ||||||
Chilean financial institutions bonds | - | - | ||||||
Chilean corporate bonds | - | - | ||||||
Other Chilean securities | - | - | ||||||
Subtotal | - | - | ||||||
- | ||||||||
Foreign financial securities | ||||||||
Foreign Central Banks and Government securities | - | - | ||||||
Other foreign financial instruments | 5,883 | - | ||||||
Subtotal | 5,883 | - | ||||||
Investments in mutual funds | ||||||||
Funds managed by related entities | - | 4,094 | ||||||
Funds managed by third parties | - | - | ||||||
Subtotal | - | 4,094 | ||||||
Total | 77,041 | 485,736 |
As of December 31, 2018, and 2017, there were no trading investments sold under contracts to resell to clients and financial institutions.
Consolidated Financial Statements December 2018 / Banco Santander Chile 46
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS
a) | Rights arising from agreements |
The Bank purchases financial instruments agreeing to resell them at a future date, As December 31, 2018 and 2017, rights associated with instruments acquired under contracts to resell are as follows.
As December 31, | ||||||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||||||
From 1 day and less than 3 month MCh$ |
More tan 3 months and less than 1 year MCh$ |
More than 1 year MCh$ |
Total MCh$ |
From 1 day and less than 3 months MCh$ |
More than 3 months and less than 1 year MCh$ |
More than 1 year MCh$ |
Total MCh$ |
|||||||||||||||||||||||||
Securities from the Chilean Government and the Chilean Central Bank: | ||||||||||||||||||||||||||||||||
Chilean Central Bank Bonds | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Chilean Central Bank Notes | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Other securities from the Government and the Chilean Central Bank | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Instruments from other domestic institutions: | ||||||||||||||||||||||||||||||||
Time-deposits in Chilean financial institutions | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Mortgage finance bonds of Chilean financial institutions | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Chilean financial institutions bonds | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Chilean corporate bonds | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Other Chilean securities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Foreign financial securities: | ||||||||||||||||||||||||||||||||
Foreign government or central bank securities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Other Chilean securities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Investments in mutual funds: | ||||||||||||||||||||||||||||||||
Funds managed by related entities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Funds managed by other | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total | - | - | - | - | - | - | - | - |
Consolidated Financial Statements December 2018 / Banco Santander Chile 47
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 07
INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATION UNDER REPURCHASE AGREEMENTS, continued
b) | Obligations arising from repurchase agreements |
The bank raises funds by selling financial instruments and committing itself to buy them back at future dates, plus interest at a predetermined rate. As of December 31, 2018, and 2017, obligation related to instruments sold under repurchase agreements are as follow:
As of December 31, | ||||||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||||||
More | ||||||||||||||||||||||||||||||||
More tan | than 3 | |||||||||||||||||||||||||||||||
3 months | months | |||||||||||||||||||||||||||||||
From 1 day | and less | More | From 1 day | and less | More | |||||||||||||||||||||||||||
and less tan | than 1 | than | and less | than 1 | than 1 | |||||||||||||||||||||||||||
3 months | year | 1year | Total | than3 month | year | year | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Securities from the Chilean Government and the Chilean Central Bank: | ||||||||||||||||||||||||||||||||
Chilean Central Bank Bonds | 48,307 | - | - | 48,307 | - | - | - | - | ||||||||||||||||||||||||
Chilean Central Bank Notes | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Other securities from the Government and the Chilean Central Bank | 110 | - | - | 110 | 241,995 | - | - | 241,995 | ||||||||||||||||||||||||
Subtotal | 48,417 | - | - | 48,417 | 241,995 | - | - | 241,995 | ||||||||||||||||||||||||
Instruments from other domestic institutions: | ||||||||||||||||||||||||||||||||
Time-deposits in Chilean financial institutions | 128 | - | - | 128 | 1,118 | 38 | - | 1,156 | ||||||||||||||||||||||||
Mortgage finance bonds of Chilean financial institutions | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Chilean financial institutions bonds | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Chilean corporate bonds | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Other Chilean securities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | 128 | - | - | 128 | 1,118 | 38 | - | 1,156 | ||||||||||||||||||||||||
Foreign financial securities: | ||||||||||||||||||||||||||||||||
Foreign government or central bank securities | - | - | - | - | 24,910 | - | - | 24,910 | ||||||||||||||||||||||||
Other foreign Chilean securities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | - | - | - | - | 24,910 | - | - | 24,910 | ||||||||||||||||||||||||
Investments in mutual funds: | - | - | - | - | ||||||||||||||||||||||||||||
Funds managed by related entities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Funds managed by other | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total | 48,545 | - | - | 48,545 | 268,023 | 38 | - | 268,061 |
Consolidated Financial Statements December 2018 / Banco Santander Chile 48
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
NOTE 07
INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATION UNDER REPURCHASE AGREEMENTS, continued
c) | Below is the detail by portfolio of collateral associated with repurchase agreements as of December 31, 2018 and 2017, value at fair value: |
As of December 31, | ||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||
Available | ||||||||||||||||||||||||
Available for | Trading | for sale | Trading for | |||||||||||||||||||||
sale portfolio | portfolio | Total | portfolio | sale portfolio | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Securities from the Chilean Government and the Chilean Central Bank: | ||||||||||||||||||||||||
Chilean Central Bank Bonds | 49,040 | - | 49,040 | - | - | - | ||||||||||||||||||
Chilean Central Bank Notes | - | - | - | - | - | - | ||||||||||||||||||
Other securities from the Government and the Chilean Central Bank | 109 | - | 109 | 241,995 | - | 241,995 | ||||||||||||||||||
Subtotal | 49,149 | - | 49,109 | 241,995 | - | 241,995 | ||||||||||||||||||
Other Chilean securities: | ||||||||||||||||||||||||
Time deposits in Chilean financial institutions | 131 | - | 131 | 1,156 | - | 1,156 | ||||||||||||||||||
Mortgage finance bond of Chilean financial institutions | 1 | - | 1 | - | - | - | ||||||||||||||||||
Chilean financial institution bonds | - | - | - | - | - | - | ||||||||||||||||||
Chilean corporate bonds | - | - | - | - | - | - | ||||||||||||||||||
Other Chilean securities | - | - | - | - | - | - | ||||||||||||||||||
Subtotal | 132 | - | 132 | 1,156 | - | 1,156 | ||||||||||||||||||
Foreign financial securities: | ||||||||||||||||||||||||
Foreign Central Bank and Government securities | - | - | - | 24,910 | - | 24,910 | ||||||||||||||||||
Other Foreign financial instruments | - | - | - | - | - | - | ||||||||||||||||||
Subtotal | - | - | - | 24,910 | - | 24,910 | ||||||||||||||||||
Investment in mutual funds: | ||||||||||||||||||||||||
Funds managed by related entities | - | - | - | - | - | - | ||||||||||||||||||
Funds managed by other | - | - | - | - | - | - | ||||||||||||||||||
Subtotal | - | - | - | - | - | - | ||||||||||||||||||
Total | 49,281 | - | 49,281 | 268,061 | - | 268,061 |
Consolidated Financial Statements December 2018 / Banco Santander Chile 49
Banco Santander Chile and Subsidiaries
Notes to the Consolidated Financial Statements
AS OF DECEMBER 31, 2018, AND 2017
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
a) | As of December 31, 2018, and 2017, the Bank holds the following portfolio of derivative instruments: |
As of December 31, 2018 | ||||||||||||||||||||||||
Notional amount | Fair value | |||||||||||||||||||||||
More than 3 | ||||||||||||||||||||||||
Up to 3 | months to | More than | ||||||||||||||||||||||
Months | 1 year | 1 year | Total | Assets | Liabilities | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Fair value hedge derivatives |