UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
(Mark
One)
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o
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REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
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OR
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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for
the fiscal year ended December 31, 2007
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission
file number: 1-14554
BANCO
SANTANDER-CHILE
(d/b/a
Santander, Banco Santander, Banco Santander Santiago, and Santander
Santiago)
(Exact
name of Registrant as specified in its charter)
SANTANDER-CHILE
BANK
(d/b/a
Santander, Banco Santander, Santander Santiago Bank, and Santander
Santiago)
(Translation
of Registrant’s name into English)
Chile
(Jurisdiction
of incorporation)
Bandera
140
Santiago,
Chile
Telephone:
011-562 320-2000
(Address
of principal executive offices)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
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Name
of each exchange on which registered
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American
Depositary Shares, each representing the right to receive 1,039 Shares of
Common
Stock without par value
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New
York Stock Exchange
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Shares
of Common Stock, without par value*
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New
York Stock Exchange
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*
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Santander-Chile’s
shares of common stock are not listed for trading, but only in connection
with the registration of the American Depositary Shares pursuant to the
requirements of the New York Stock
Exchange.
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Securities
registered or to be registered pursuant to Section 12(g) of the
Act:
None
(Title of
Class)
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:
7.375%
Subordinated Notes due 2012
Indicate
the number of outstanding shares of each class of common stock of Banco
Santander-Chile at December 31, 2007, was:
188,446,126,794
Shares of Common Stock, without par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
x Yes o No
If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
o Yes x No
Note –
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
their obligations under those Sections.
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
x Yes o No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer x Accelerated
filer o Non-Accelerated
filer o
Indicate by check mark which basis of
accounting the registrant has used to prepare the financial statements included
in this filing:
o U.S. GAAP
o International Financial Reporting
Standards as issued by the International Accounting Standards
Board
x Other
If “Other” has been checked in response
to the previous question, indicate by check mark which financial statement
item the registrant has
elected to follow.
o Item
17 x Item 18
If this is
an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
o Yes
x No
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Page
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1
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2
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4
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PART I |
5 |
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5
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5
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21
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37
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38
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99
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110
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113
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114
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115
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136
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158
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159
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159
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159
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159
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161
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161
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161
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162
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162
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162
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PART III |
162 |
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162
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162
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162
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We have
made statements in this Annual Report on Form 20-F that constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements appear throughout this report and include
statements regarding our intent, belief or current expectations
regarding:
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asset
growth and alternative sources of
funding
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growth
of our fee based business
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·
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exposure
to market risks:
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projected
capital expenditures
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our
financial condition
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·
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our
results of operation
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The
sections of this Annual Report which contain forward-looking statements include,
without limitation, “Item 3: Key Information—Risk Factors,” “Item 4: Information
on the Company—Strategy,” “Item 5: Operating and Financial Review and
Prospects,” “Item 8: Financial Information—Legal Proceedings,” and “Item 11:
Quantitative and Qualitative Disclosures About Market Risk.” Our forward-looking
statements also may be identified by words such as “believes,” “expects,”
“anticipates,” “projects,” “intends,” “should,” “could,” “may,” “seeks,” “aim,”
“combined,” “estimates,” “probability,” “risk,” “VaR,” “target,” “goal,”
“objective,” “future” or similar expressions.
You should
understand that the following important factors, in addition to those discussed
elsewhere in this Annual Report and in the documents which are incorporated by
reference, could affect our future results and could cause those results or
other outcomes to differ materially from those expressed in our forward looking
statements:
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changes
in capital markets in general that may affect policies or attitudes
towards lending to Chile or Chilean
companies
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changes
in economic conditions
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·
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the
monetary and interest rate policies of the Central
Bank
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unanticipated
turbulence in interest rates
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movements
in foreign exchange rates
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movements
in equity prices or other rates or
prices
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changes
in Chilean and foreign laws and
regulations
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·
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competition,
changes in competition and pricing
environments
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·
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our
inability to hedge certain risks
economically
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·
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the
adequacy of loss allowances
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·
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changes
in consumer spending and saving
habits
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·
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unanticipated
increases in financing and other costs or the inability to obtain
additional debt or equity financing on attractive
terms
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·
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changes
in, or failure to comply with, banking
regulations
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our
ability to successfully market and sell additional services to our
existing customers
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·
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disruptions
in client service
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·
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implementation
of new technologies
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·
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an
inaccurate or ineffective client segmentation
model
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You should
not place undue reliance on such statements, which speak only as of the date
that they were made.
The forward looking statements contained in this document speak only as
of the date of this Annual Report, and we do not undertake to update any
forward-looking statement to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
As used in
this Annual Report, “Santander-Chile”, “the Bank”, “we,” “our” and “us” mean
Banco Santander-Chile and its consolidated subsidiaries, the bank resulting from
the merger of Santiago and Old Santander-Chile.
When we
refer to “Santiago” in this Annual Report, we refer to Banco Santiago and its
consolidated subsidiaries prior to its merger with Old Santander-Chile. When we
refer to “Old Santander-Chile” in this Annual Report, we refer to the former
Banco Santander-Chile and its consolidated subsidiaries, which ceased to exist
upon its merger into Santiago, effected on August 1, 2002.
When we
refer to “Banco Santander Spain” or “Santander Spain”, we refer to our parent
company Banco Santander, S.A.
As used in
this Annual Report, the term “billion” means one thousand million
(1,000,000,000).
In this
Annual Report, references to “$”, “US$”, “U.S. dollars” and “dollars” are to
United States dollars, references to “Chilean pesos,” “pesos” or “Ch$” are to
Chilean pesos and references to “UF” are to Unidades de
Fomento. The UF is an
inflation indexed Chilean monetary unit with a value in Chilean pesos that
changes daily to reflect changes in the official Consumer Price Index (“CPI”) of
the Instituto Nacional de
Estadísticas (the Chilean National Institute of Statistics) for the
previous month. See “Item 5: Operating and Financial Review and Prospects” and
Note 1(d) to the Audited Consolidated Financial Statements.
In this
Annual Report, references to the Audit Committee are to the Bank’s Comité de Directores y
Auditoría.
In this
Annual Report, references to “BIS” are to the Bank for International Settlement,
and references to “BIS ratio” are to the capital adequacy ratio as calculated in
accordance with the Basel Capital Accord.
Currency
and Accounting Principles
Santander-Chile
is a Chilean bank and maintains its financial books and records in Chilean pesos
and prepares its Audited Consolidated Financial Statements in conformity with
generally accepted accounting principles in Chile and the rules of the Superintendencia de Bancos e
Instituciones Financieras de Chile (the Superintendency of Banks and
Financial Institutions, which is referred to herein as the “Superintendency of
Banks”), which together differ in certain significant respects from generally
accepted accounting principles in the United States (“U.S. GAAP”). References to
“Chilean GAAP” in this Annual Report are to accounting principles generally
accepted in Chile, as supplemented by the applicable rules of the
Superintendency of Banks. See Note 28 to the Audited Consolidated Financial
Statements of Santander-Chile as of December 31, 2006 and 2007, and for the
years ended December 31, 2005, 2006 and 2007, contained elsewhere in this Annual
Report (together with the notes thereto, the “Audited Consolidated Financial
Statements”) for a description of the principal differences between Chilean GAAP
and U.S. GAAP, as they relate to Santander-Chile, and a reconciliation to U.S.
GAAP of net income and shareholders’ equity.
Pursuant
to Chilean GAAP, amounts expressed in the Audited Consolidated Financial
Statements and all other amounts included elsewhere throughout this Annual
Report for all periods expressed in Chilean pesos are expressed in constant
Chilean pesos as of December 31, 2007. See Note 1(c) to the Audited Consolidated
Financial Statements.
Loans
Unless
otherwise specified, all references herein (except in the Audited Consolidated
Financial Statements) to loans are to loans and financial leases before
deduction for loan loss allowance, and, except as otherwise specified, all
market share data presented herein are based on information published
periodically by the Superintendency of Banks. Non performing loans include loans
for which either principal or interest is overdue, and which do not accrue
interest. Restructured loans for which no payments are overdue are not
ordinarily classified as non performing loans. Past due loans include, with
respect to any loan, only the portion of principal and interest that is overdue
for 90 or more days, and do not include the installments of such loan that are
not overdue or that are overdue for less than 90 days, unless legal proceedings
have been commenced for the entire outstanding balance according to the terms of
the loan, in which case the entire loan is considered past due within 90 days
after initiation of such proceedings. This practice differs from that normally
followed in the United States, where the amount classified as past due would
include the entire amount of principal and interest on any and all loans which
have any portion overdue. See “Item 5: F. Selected Statistical
Information—Classification of Loan Portfolio Based on the Borrower’s Payment
Performance.”
According
to the regulations established by the Superintendency of Banks, Santander-Chile
is required to charge-off commercial loan installments no later than 24 months
after being classified as past due, if unsecured, and if secured, no later than
36 months after being classified as past due. When an installment of a past due
corporate loan (whether secured or unsecured) is charged-off, we must charge-off
all installments which are overdue, notwithstanding our right to charge-off the
entire amount of the loan. Once any amount of a loan is charged off, each
subsequent installment must be charged off as it becomes overdue,
notwithstanding our right to charge-off the entire amount of the loan. In the
case of past due consumer loans, a similar practice applies, except that after
the first installment becomes three months past due, Santander-Chile must
charge-off the entire remaining part of the loan. We may charge-off any loan
(whether commercial or consumer) before the first installment becomes overdue,
but only in accordance with special procedures established by the
Superintendency of Banks. Loans are charged off against the loan loss reserve to
the extent of any required allowances for such loans; the remainder of such
loans is charged off against income. See “Item 5: F. Selected Statistical
Information—Analysis of Loan Loss Allowance.”
Outstanding
loans and the related percentages of Santander-Chile’s loan portfolio consisting
of corporate and consumer loans in the section entitled “Item 4: B. Business
Overview” are categorized based on the nature of the borrower. Outstanding loans
and related percentages of the loan portfolio of Santander-Chile consisting of
corporate and consumer loans in the section entitled “Item 5: F. Selected
Statistical Information” are categorized in accordance with the reporting
requirements of the Superintendency of Banks, which are based on the type and
term of loans.
Effect
of Rounding
Certain
figures included in this Annual Report and in the Audited Consolidated Financial
Statements have been rounded for ease of presentation. Percentage figures
included in this Annual Report have not in all cases been calculated on the
basis of such rounded figures but on the basis of such amounts prior to
rounding. For this reason, certain percentage amounts in this Annual Report may
vary from those obtained by performing the same calculations using the figures
in the Audited Consolidated Financial Statements. Certain other amounts that
appear in this Annual Report may not sum due to rounding.
Economic
and Market Data
In this
Annual Report, unless otherwise indicated, all macro economic data related to
the Chilean economy is based on information published by the Banco Central de Chile (the
“Central Bank”), and all market share and other data related to the Chilean
financial system is based on information published by the Superintendency of
Banks and our analysis of such information. Information regarding the
consolidated risk index of the Chilean financial system as a whole is not
available.
Exchange
Rates
This
Annual Report contains translations of certain Chilean peso amounts into U.S.
dollars at specified rates solely for the convenience of the reader. These
translations should not be construed as representations that the Chilean peso
amounts actually represent such U.S. dollar amounts, were converted from U.S.
dollars at the rate indicated in preparing the audited consolidated financial
statements, could be converted into U.S. dollars at the rate indicated, were
converted or will be converted at all.
Unless
otherwise indicated, all the U.S. dollar amounts at any year end or for any full
year have been translated from Chilean pesos based on the interbank market rate
published by Reuters at 1:30pm on the last business day of the year. The market rate informed by
Reuters on December 31, 2007, was Ch$497.78 per US$1.00. Our subsidiaries use
the first observed exchange rate published by the Central Bank of Chile for 2008
on Jan. 2, 2008. The
observed exchange rate reported by the Central Bank on December 31, 2007, was
Ch$495.82 per US$1.00 and Ch$496.89 on Jan. 2, 2008. The Federal Reserve Bank of
New York does not report a noon buying rate for the Chilean peso. For more
information on the observed exchange rate. See “Item 3: A. Selected Financial
Data—Exchange Rates.”
Not
Applicable.
Not
Applicable.
A.
Selected Financial Data
The
following table presents historical financial information about us as of the
dates and for each of the periods indicated. The following table should be read
in conjunction with, and is qualified in its entirety by reference to, our
Audited Consolidated Financial Statements appearing elsewhere in this Annual
Report. Our Audited Consolidated Financial Statements are prepared in accordance
with Chilean GAAP, which differs in certain significant respects from U.S. GAAP.
Note 28 to our Audited Consolidated Financial Statements provides a description
of the material differences between Chilean GAAP and U.S. GAAP and a
reconciliation to U.S. GAAP of net income for the years ended December 31, 2005,
2006 and 2007, and shareholders’ equity at December 31, 2006 and
2007.
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At
and for the years ended December 31,
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(in
millions of constant Ch$ of December 31, 2007)(1)
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(in
thousands of US$)(1)(2)
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CONSOLIDATED
INCOME STATEMENT DATA
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Chilean
GAAP:
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Net
interest revenue (3)
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352,656 |
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539,896 |
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599,801 |
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657,806 |
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825,616 |
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1,658,596 |
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Provisions
for loan losses
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|
(78,549 |
) |
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|
(91,809 |
) |
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|
(69,706 |
) |
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|
(132,175 |
) |
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(182,411 |
) |
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(366,449 |
) |
Total
fees and income from services, net
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130,303 |
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137,527 |
|
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151,813 |
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174,643 |
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192,925 |
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387,571 |
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Other
operating income, net (3)
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185,832 |
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15,838 |
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(14,606 |
) |
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20,030 |
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(79,726 |
) |
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(160,163 |
) |
Other
income and expenses, net
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2,338 |
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(4,614 |
) |
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(23,553 |
) |
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(3,846 |
) |
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6,423 |
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12,904 |
|
Operating
expenses
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|
(291,574 |
) |
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(305,004 |
) |
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(306,170 |
) |
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(332,293 |
) |
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(342,684 |
) |
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(688,425 |
) |
Loss
from price-level restatement
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(8,973 |
) |
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(13,623 |
) |
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(19,902 |
) |
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(14,807 |
) |
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(56,325 |
) |
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(113,152 |
) |
Income
before income taxes
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|
292,033 |
|
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|
278,211 |
|
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317,677 |
|
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369,358 |
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363,818 |
|
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730,881 |
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Income
(taxes) benefits
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|
(50,889 |
) |
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(52,202 |
) |
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(54,671 |
) |
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(62,529 |
) |
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(55,171 |
) |
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|
(110,834 |
) |
Net
income
|
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241,144 |
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|
226,009 |
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263,006 |
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306,829 |
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308,647 |
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620,047 |
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Net
income per share (7)
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1.28 |
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1.20 |
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1.40 |
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1.63 |
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|
1.64 |
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0.00329 |
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Net
income per ADS (4)(7)
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1,329.55 |
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1,246.10 |
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1,450.09 |
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1,691.71 |
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1,701.73 |
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3.42 |
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Dividends
per share (5)
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0.98 |
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1.28 |
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1.20 |
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0.90 |
|
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|
1.06 |
|
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|
0.00106 |
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Dividends
per ADS (5)
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1,015.89 |
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1,329.55 |
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1,246.10 |
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|
942.55 |
|
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|
1,099.61 |
|
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|
2.21 |
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Weighted-average
shares outstanding (in millions)
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|
|
188,446.1 |
|
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|
188,446.1 |
|
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188,446.1 |
|
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|
188,446.1 |
|
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|
188,446.1 |
|
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|
— |
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|
|
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U.S.
GAAP:
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|
|
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|
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|
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|
Net
interest income (6)
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|
|
328,930 |
|
|
|
510,003 |
|
|
|
606,874 |
|
|
|
678,572 |
|
|
|
807,291 |
|
|
|
1,621,783 |
|
Provision
for loan losses
|
|
|
(99,945 |
) |
|
|
(74,052 |
) |
|
|
(70,835 |
) |
|
|
(132,175 |
) |
|
|
(191,189 |
) |
|
|
(384,083 |
) |
Net
income
|
|
|
208,220 |
|
|
|
226,160 |
|
|
|
248,011 |
|
|
|
253,468 |
|
|
|
227,604 |
|
|
|
457,237 |
|
Net
income per Share (7)
|
|
|
1.10 |
|
|
|
1.20 |
|
|
|
1.32 |
|
|
|
1.35 |
|
|
|
1.21 |
|
|
|
0.00243 |
|
Net
income per ADS (4)(7)
|
|
|
1,148.02 |
|
|
|
1,246.93 |
|
|
|
1,367.41 |
|
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|
1,397.50 |
|
|
|
1,254.90 |
|
|
|
2.52 |
|
Weighted-avg.
shares outstanding (in millions)
|
|
|
188,446.10 |
|
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|
188,446.10 |
|
|
|
188,446.10 |
|
|
|
188,446.10 |
|
|
|
188,446.1 |
|
|
|
— |
|
Weighted-avg.
ADS outstanding (in millions)
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
181.373 |
|
|
|
— |
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CONSOLIDATED
BALANCE SHEET DATA
|
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|
|
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Chilean
GAAP:
|
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Cash
and due from banks
|
|
|
1,146,529 |
|
|
|
1,078,060 |
|
|
|
1,344,000 |
|
|
|
1,173,682 |
|
|
|
1,291,634 |
|
|
|
2,594,789 |
|
Investments
(8)
|
|
|
2,229,537 |
|
|
|
2,261,837 |
|
|
|
1,369,429 |
|
|
|
1,090,920 |
|
|
|
1,819,266 |
|
|
|
3,654,759 |
|
Loans,
net of allowances
|
|
|
8,680,393 |
|
|
|
9,602,618 |
|
|
|
10,967,834 |
|
|
|
12,479,044 |
|
|
|
13,236,214 |
|
|
|
26,590,491 |
|
Loan
loss allowances
|
|
|
(195,998 |
) |
|
|
(197,008 |
) |
|
|
(162,234 |
) |
|
|
(187,014 |
) |
|
|
(232,766 |
) |
|
|
(467,608 |
) |
Derivatives
(9)
|
|
|
— |
|
|
|
— |
|
|
|
449,953 |
|
|
|
400,416 |
|
|
|
780,775 |
|
|
|
1,568,514 |
|
Other
assets (3)
|
|
|
333,402 |
|
|
|
475,492 |
|
|
|
659,445 |
|
|
|
803,730 |
|
|
|
1,094,841 |
|
|
|
2,199,447 |
|
Total
assets (6)
|
|
|
12,723,280 |
|
|
|
13,722,924 |
|
|
|
14,790,662 |
|
|
|
15,947,792 |
|
|
|
18,222,730 |
|
|
|
36,608,000 |
|
Deposits
|
|
|
6,439,090 |
|
|
|
7,670,933 |
|
|
|
8,860,279 |
|
|
|
10,091,122 |
|
|
|
10,821,355 |
|
|
|
21,739,232 |
|
Other
interest-bearing liabilities
|
|
|
3,950,509 |
|
|
|
3,597,911 |
|
|
|
3,118,682 |
|
|
|
2,817,251 |
|
|
|
3,713,460 |
|
|
|
7,460,043 |
|
Derivatives
(9)
|
|
|
— |
|
|
|
— |
|
|
|
420,975 |
|
|
|
382,403 |
|
|
|
778,217 |
|
|
|
1,563,375 |
|
Shareholders'
equity
|
|
|
1,185,353 |
|
|
|
1,172,996 |
|
|
|
1,186,962 |
|
|
|
1,337,992 |
|
|
|
1,438,042 |
|
|
|
2,888,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
12,310,365 |
|
|
|
13,447,843 |
|
|
|
14,737,134 |
|
|
|
15,776,131 |
|
|
|
17,883,856 |
|
|
|
35,727,229 |
|
Long-term
borrowings
|
|
|
2,793,310 |
|
|
|
2,052,132 |
|
|
|
1,566,415 |
|
|
|
1,703,576 |
|
|
|
2,597,095 |
|
|
|
5,217,355 |
|
Shareholders'
equity
|
|
|
2,107,428 |
|
|
|
2,097,439 |
|
|
|
2,082,730 |
|
|
|
2,169,921 |
|
|
|
2,196,797 |
|
|
|
4,413,191 |
|
Goodwill
|
|
|
866,526 |
|
|
|
866,526 |
|
|
|
866,526 |
|
|
|
866,526 |
|
|
|
866,526 |
|
|
|
1,740,781 |
|
|
|
At
and for the year ended
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability
and performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin (10)
|
|
|
3.0 |
% |
|
|
4.5 |
% |
|
|
4.7 |
% |
|
|
4.7 |
% |
|
|
5.8 |
% |
Return
on average total assets (11)
|
|
|
1.8 |
% |
|
|
1.7 |
% |
|
|
1.8 |
% |
|
|
1.9 |
% |
|
|
1.9 |
% |
Return
on average shareholders’ equity (12)
|
|
|
22.1 |
% |
|
|
20.2 |
% |
|
|
24.1 |
% |
|
|
24.8 |
% |
|
|
23.4 |
% |
Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shareholders’ equity as a percentage of average total
assets
|
|
|
8.1 |
% |
|
|
8.2 |
% |
|
|
7.4 |
% |
|
|
7.8 |
% |
|
|
8.0 |
% |
Total
liabilities as a multiple of shareholders’ equity
|
|
|
9.7 |
|
|
|
11.7 |
|
|
|
12.1 |
|
|
|
11.9 |
|
|
|
12.7 |
|
Credit
Quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
loans as a percentage of total loans (13)
|
|
|
3.6 |
% |
|
|
3.7 |
% |
|
|
2.6 |
% |
|
|
2.9 |
% |
|
|
3.3 |
% |
Allowance
for loan losses as percentage of total loans
|
|
|
2.2 |
% |
|
|
2.0 |
% |
|
|
1.5 |
% |
|
|
1.5 |
% |
|
|
1.7 |
% |
Past
due loans as a percentage of total loans (14)
|
|
|
2.2 |
% |
|
|
1.5 |
% |
|
|
1.1 |
% |
|
|
0.8 |
% |
|
|
0.9 |
% |
Operating
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses/operating revenue (15)
|
|
|
43.6 |
% |
|
|
44.0 |
% |
|
|
41.5 |
% |
|
|
39.0 |
% |
|
|
36.5 |
% |
Operating
expenses/average total assets
|
|
|
2.2 |
% |
|
|
2.2 |
% |
|
|
2.1 |
% |
|
|
2.1 |
% |
|
|
1.9 |
% |
Ratio
of earnings to fixed charges (16):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including
interest on deposits
|
|
|
1.81 |
|
|
|
1.77 |
|
|
|
1.65 |
|
|
|
1.61 |
|
|
|
1.43 |
|
Excluding
interest on deposits
|
|
|
2.34 |
|
|
|
2.26 |
|
|
|
2.46 |
|
|
|
2.56 |
|
|
|
2.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP(17):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability
and performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin (18)
|
|
|
2.8 |
% |
|
|
4.3 |
% |
|
|
4.8 |
% |
|
|
4.8 |
% |
|
|
5.7 |
% |
Return
on average total assets (19)
|
|
|
1.6 |
% |
|
|
1.8 |
% |
|
|
1.7 |
% |
|
|
1.6 |
% |
|
|
1.4 |
% |
Return
on average shareholders’ equity (20)
|
|
|
9.9 |
% |
|
|
10.8 |
% |
|
|
11.9 |
% |
|
|
11.7 |
% |
|
|
10.4 |
% |
Ratio
of earnings to fixed charges (16):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including
interest on deposits
|
|
|
1.83 |
|
|
|
1.87 |
|
|
|
1.71 |
|
|
|
1.60 |
|
|
|
1.38 |
|
Excluding
interest on deposits
|
|
|
2.35 |
|
|
|
2.43 |
|
|
|
2.51 |
|
|
|
2.52 |
|
|
|
1.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation
Rate(21)
|
|
|
1.1 |
% |
|
|
2.4 |
% |
|
|
3.7 |
% |
|
|
2.6 |
% |
|
|
7.8 |
% |
Revaluation
(devaluation) rate (Ch$/US$) at period end (21)
|
|
|
(15.9 |
%) |
|
|
(6.6 |
%) |
|
|
(8.1 |
%) |
|
|
3.9 |
% |
|
|
(7.2 |
%) |
Number
of employees at period end
|
|
|
7,535 |
|
|
|
7,380 |
|
|
|
7,482 |
|
|
|
8,184 |
|
|
|
9,174 |
|
Number
of branches and offices at period end (22)
|
|
|
345 |
|
|
|
315 |
|
|
|
364 |
|
|
|
413 |
|
|
|
467 |
|
(1)
|
Except
per share data, percentages and ratios, share numbers, employee numbers
and branch numbers.
|
(2)
|
Amounts
stated in U.S. dollars at and for the year ended December 31, 2007, have
been translated from Chilean pesos at the interbank
market exchange rate of Ch$497.78 = US$1.00 as of December 31,
2007. See “Item 3: A. Selected Financial Data—Exchange Rates” for more
information on the observed exchange
rate.
|
(3)
|
In
accordance with Circular No. 3345 issued by the Superintendency of Banks,
which became effective on June 30, 2006, the accounting standards for
valuing financial instruments acquired for trading or investment purposes,
including derivative instruments on the balance sheets, were amended. The
new accounting standards require that these instruments be carried at
their market or fair value, and the historical differences in valuation of
such instruments recognized with respect to any dates prior to 2006 be
adjusted directly against the Bank’s equity. Banks were required
to adopt the new accounting standards set forth in Circular No. 3345 in
preparing their financial statements at and for the six-months ended June
30, 2006, and going forward. In order to implement these new accounting
standards, we have created a new line item “derivatives” under both
“assets” and “liabilities” in our consolidated balance sheet, and
reclassified certain other items within other assets, other liabilities,
financial instruments, interest income, interest expenses and other
operating income, net, in our consolidated balance sheet and income
statement at and for the year ended December 31, 2006. For comparison
purposes, we have also retrospectively reclassified these items at
December 31, 2005, but did not retrospectively apply the new accounting
standards to these items. We did not reclassify
any of these items at any date or for any period prior to 2005. See “Item 5: A.
Accounting Standards for Financial Investments and
Derivatives.”
|
(4)
|
1
ADS = 1,039 shares of common stock.
|
(5)
|
The
dividends per share of common stock and per ADS are determined based on
the previous year’s net income. The dividend per ADS is calculated on the
basis of 1,039 shares per ADS.
|
(6)
|
Net
interest income and total assets on a U.S. GAAP basis have been determined
by applying the relevant U.S. GAAP adjustments to net interest income and
total assets presented in accordance with Article 9 of Regulation S-X. See
Note 28 to our Consolidated Financial Statements at and for the years
ended December 31, 2003 and 2004, and Note 28 of our
|
|
Consolidated
Financial Statements for the year ended December 31, 2005, 2006 and 2007,
included in our Annual Report on Form
20-F. |
(7)
|
Net
income per share and per ADS in accordance with U.S. GAAP has been
calculated on the basis of the weighted-average number of shares or ADSs,
as applicable, outstanding during the
period.
|
(8)
|
Includes
principally Chilean government securities, corporate securities, other
financial investments and investment collateral under agreements to
repurchase (reverse repo).
|
(9)
|
For
figures at December 31, 2006 and 2007, derivatives are valued at market
price and classified as a separate line item on the balance sheet. Our
derivatives holdings at December 31, 2005, have been reclassified from
“other assets” and “other liabilities” to “derivatives”, but have not been
marked to market as would be required under currently applicable
accounting principles. At prior dates, derivatives are classified under
“other assets” or “other liabilities”, and generally recorded at net
notional amount.
See “Item 5: A. Accounting Standards for Financial Investments and
Derivatives” and Note 1 of our Consolidated Financial
Statements.
|
(10)
|
Net
interest revenue divided by average interest earning assets (as presented
in “Item 5: F. Selected Statistical
Information”).
|
(11)
|
Net
income divided by average total assets (as presented in “Item 5: F.
Selected Statistical Information”).
|
(12)
|
Net
income divided by average shareholders’ equity (as presented in “Item 5:
F. Selected Statistical
Information”).
|
(13)
|
Substandard
loans in the old rating system included all loans rated B- or worse. In
the new loan risk classification system which took effect in 2004,
substandard loans include all consumer and mortgage loans rated B- or
worse and all commercial loans rated C2 or worse. See “Item 5: F. Selected
Statistical Information—Analysis of Substandard Loans and Amounts Past
Due.” Therefore, the historical figures in 2003 are not strictly
comparable to figures in 2004, 2005, 2006 or
2007.
|
(14)
|
Past
due loans are loans the principal or interest amount of which is overdue
for 90 or more days, and do not include the installments of such loans
that are not overdue or that are less than 90 days overdue, unless legal
proceedings have been commenced for the entire outstanding balance
according to the terms of the loan.
|
(15)
|
Operating
revenue includes “Net interest revenue,” “Total fees and income from
services, net” and “Other operating income,
net.”
|
(16)
|
For
the purpose of computing the ratios of earnings to fixed charges, earnings
consist of earnings before income tax and fixed charges. Fixed charges
consist of gross interest expense and the proportion deemed representative
of the interest factor of rental
expense.
|
(17)
|
The
following ratios have been calculated using U.S. GAAP figures except for
net interest margin.
See footnote 18 regarding calculation of net interest
margin.
|
(18)
|
Net
interest margin has been determined by applying the relevant U.S. GAAP
adjustments to net interest income for the years ended December 31, 2003,
2004, 2005, 2006 and 2007, presented in accordance with Article 9 of
Regulation S-X divided by average interest earning assets calculated on a
Chilean GAAP basis.
See Note 28(y) to our Consolidated Financial Statements at and for
the years ended December 31, 2002, 2003 and 2004, and Note 28(v) of our
Consolidated Financial Statements for the years ended December 31, 2005,
2006 and 2007.
|
(19)
|
Net
income divided by average total assets. Average total assets were
calculated as an average of the beginning and ending balances for each
year, and total assets on a U.S. GAAP basis have been determined by
applying the relevant U.S. GAAP adjustments to total assets presented in
accordance with Article 9 of Regulation S-X. See Note 28 to our Audited
Consolidated Financial Statements.
|
(20)
|
Average
shareholders’ equity was calculated as an average of the beginning and
ending balances for each year. Shareholders’ equity on a U.S. GAAP basis
has been determined by applying the relevant U.S. GAAP adjustments to
shareholders’ equity presented in accordance with Article 9 of Regulation
S-X. See Note 28 to our Audited Consolidated Financial
Statements.
|
(21)
|
Based
on information published by the Central
Bank.
|
(22)
Figures prior to 2005 do not include special payment centers.
Exchange
Rates
Chile has
two currency markets, the Mercado Cambiario Formal, or
the Formal Exchange Market and the Mercado Cambiario Informal,
or the Informal Exchange Market. According to Law 18,840, the organic law of the
Central Bank, and the Central Bank Act (Ley Orgánica Constitucional del
Banco Central de Chile), the Central Bank determines which purchases and
sales of foreign currencies must be carried out in the Formal Exchange Market.
Pursuant to Central Bank regulations which are currently in effect, all
payments, remittances or transfers of foreign currency abroad which are required
to be effected through the Formal Exchange Market may be effected with foreign
currency procured outside the Formal Exchange Market. The Formal Exchange Market
is comprised of the banks and other entities so authorized by the Central Bank.
The conversion from pesos to U.S. dollars of all
payments
and distributions with respect to the ADSs described in this Annual Report must
be transacted at the spot market rate in the Formal Exchange Market. Current
regulations require that the Central Bank be informed of certain transactions
and that they be effected through the Formal Exchange Market.
Purchases
and sales of foreign currencies performed may be legally carried out in the
Informal Exchange Market. The Informal Exchange Market reflects transactions
carried out at informal exchange rates by entities not expressly authorized to
operate in the Formal Exchange Market. There are no limits imposed on the extent
to which the rate of exchange in the Informal Exchange Market can fluctuate
above or below the observed exchange rate. On December 31, 2007, and March 31,
2008, the exchange rate in the Informal Exchange Market as published by Reuters
at 1:30pm on these days was Ch$497.78 and Ch$436.15, or 0.4% and -0.67%,
respectively, more expensive than the published observed exchange rate for such
date of Ch$495.82 and Ch$439.09, respectively, per US$1.00.
The
following table sets forth the annual low, high, average and period end observed
exchange rate for U.S. dollars for each of the following periods, as reported by
the Central Bank. We make no representation that the Chilean peso or the U.S.
dollar amounts referred to herein actually represent, could have been or could
be converted into U.S. dollars or Chilean pesos, as the case may be, at the
rates indicated, at any particular rate or at all.
|
|
Daily Observed Exchange Rate Ch$ Per US$(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
593.10 |
|
|
|
758.21 |
|
|
|
691.54 |
|
|
|
599.42 |
|
2004
|
|
|
559.21 |
|
|
|
649.45 |
|
|
|
609.55 |
|
|
|
559.83 |
|
2005
|
|
|
509.70 |
|
|
|
592.75 |
|
|
|
559.86 |
|
|
|
514.21 |
|
2006
|
|
|
511.44 |
|
|
|
549.63 |
|
|
|
530.26 |
|
|
|
534.43 |
|
2007
|
|
|
493.14 |
|
|
|
548.67 |
|
|
|
522.69 |
|
|
|
495.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
2007
|
|
|
495.49 |
|
|
|
506.79 |
|
|
|
499.28 |
|
|
|
495.82 |
|
January
2008
|
|
|
463.58 |
|
|
|
498.05 |
|
|
|
480.90 |
|
|
|
465.30 |
|
February
2008
|
|
|
458.02 |
|
|
|
476.44 |
|
|
|
467.22 |
|
|
|
458.02 |
|
March
2008
|
|
|
431.22 |
|
|
|
454.94 |
|
|
|
442.94 |
|
|
|
439.09 |
|
April
2008
|
|
|
433.98 |
|
|
|
459.16 |
|
|
|
446.43 |
|
|
|
459.16 |
|
May
2008
|
|
|
461.49 |
|
|
|
479.66 |
|
|
|
470.10 |
|
|
|
479.66 |
|
June
2008 (throughout June 25)
|
|
|
479.54 |
|
|
|
505.11 |
|
|
|
490.32 |
|
|
|
505.11 |
|
(2)
|
Exchange
rates are the actual low and high, on a day-by-day basis for each
period.
|
(3)
|
The
average of monthly average rates during the
year.
|
(4)
|
As
reported by the Central Bank the first business day of the following
period.
|
Dividends
Under the
current General Banking Law, a Chilean bank may only pay a single dividend per
year (i.e., interim
dividends are not permitted). Santander-Chile’s annual dividend is proposed by
its Board of Directors and is approved by the shareholders at the annual
ordinary shareholders’ meeting held the year following that in which the
dividend is generated. For example, the 2007 dividend must be proposed and
approved during the first four months of 2008. Following shareholder approval,
the proposed dividend is declared and paid. Historically, the dividend for a
particular year has been declared and paid no later than one month following the
shareholders’ meeting. Dividends are paid to shareholders of record on the fifth
day preceding the date set for payment of the dividend. The applicable record
dated for the payment of dividends to holders of ADSs will, to the extent
practicable, be the same.
Under the
General Banking Law a bank must distribute cash dividends in respect of any
fiscal year in an amount equal to at least 30% of its net income for that year,
as long as the dividend does not result in the infringement of minimal capital
requirements. The
balances of our distributable net income are generally retained for use in our
business (including for the maintenance of any required legal reserves).
Although our Board of Directors currently intends to pay regular annual
dividends, the amount of dividend payments will depend upon,
among
other factors, our then current level of earnings, capital and legal reserve
requirements, as well as market conditions, and there can be no assurance as to
the amount or timing of future dividends.
Dividends
payable to holders of ADSs are net of foreign currency conversion expenses of
the Bank of New York as depositary (the “Depositary”) and will be subject to the
Chilean withholding tax currently at the rate of 35% (subject to credits in
certain cases as described in “Item 10: E. Taxation—Material Tax Consequences of
Owning Shares of Our Common Stock or ADSs).
Under the
Foreign Investment Contract (as defined herein), the Depositary, on behalf of
ADS holders, is granted access to the Formal Exchange Market to convert cash
dividends from Chilean pesos to U.S. dollars and to pay such U.S. dollars to ADS
holders outside Chile, net of taxes, and no separate registration by ADS holders
is required. In the past, Chilean law required that holders of shares of Chilean
companies who were not residents of Chile to register as foreign investors under
one of the foreign investment regimes contemplated by Chilean law in order to
have dividends, sale proceeds or other amounts with respect to their shares
remitted outside Chile through the Formal Exchange Market. On April 19, 2001,
the Central Bank deregulated the Exchange Market eliminating the need to obtain
approval from the Central Bank in order to remit dividends, but at the same time
this eliminated the possibility of accessing the Formal Exchange Market. These
changes do not affect the current Foreign Investment Contract, which was signed
prior to April 19, 2001, which grants access to the Formal Exchange Market with
prior approval of the Central Bank. See “Item 10: D. Exchange
Controls.”
The
following table presents dividends declared and paid by us in nominal terms in
the following years:
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
206,975 |
|
|
|
1.10 |
|
|
|
1,141.16 |
|
|
|
100 |
|
2005
|
|
|
198,795 |
|
|
|
1.05 |
|
|
|
1,096.06 |
|
|
|
100 |
|
2006
|
|
|
155,811 |
|
|
|
0.83 |
|
|
|
859.06 |
|
|
|
65 |
|
2007
|
|
|
185,628 |
|
|
|
0.99 |
|
|
|
1,023.46 |
|
|
|
65 |
|
2008
|
|
|
200,620 |
|
|
|
1.06 |
|
|
|
1,106.12 |
|
|
|
65 |
|
(1)
|
Million
of nominal pesos.
|
(2)
|
Calculated
on the basis of 188,446 million
shares.
|
(3)
|
Calculated
on the basis of 1,039 shares per
ADS.
|
(4)
|
Calculated
by dividing dividend paid in the year by net income for the previous
year.
|
B.
Capitalization and Indebtedness
Not
applicable.
C.
Reasons for the Offer and Use of Proceeds
Not
applicable.
D.
Risk Factors
You should
carefully consider the following risk factors, as well as all the other
information presented in this Annual Report before investing in securities
issued by us. The risks and uncertainties described below are not the only ones
that we face. Additional risks and uncertainties that we do not know about or
that we currently think are immaterial may also impair our business operations.
Any of the following risks, if they actually occur, could materially and
adversely affect our business, results of operations, prospects and financial
condition.
We are
subject to market risks that are presented both in this subsection and in “Item
5: Operating and Financial Review and Prospects” and “Item 11: Quantitative and
Qualitative Disclosures about Market Risk.”
Risks
Associated with Our Business
Increased
competition and industry consolidation may adversely affect results of our
operations.
The
Chilean market for financial services is highly competitive. We compete with
other Chilean private sector domestic and foreign banks, with Banco del Estado,
a public sector bank, with department stores and the larger supermarket chains
that make consumer loans and sell other financial products to a large portion of
the Chilean population. The lower middle to middle income segments of the
Chilean population and the small and medium sized corporate segments have become
the target markets of several banks, and competition in these segments is likely
to increase. As a result, net interest margins in these segments are likely to
decline. Although we believe that demand for financial products and services
from individuals and for small and medium sized companies will continue to grow
during the remainder of the decade, we cannot assure you that net interest
margins will be maintained at their current levels.
We also
face competition from non-bank and non-finance competitors (principally
department stores and the larger supermarket chains) with respect to some of our
credit products, such as credit cards, consumer loans and insurance brokerage.
In addition, we face competition from non-bank finance competitors, such as
leasing, factoring and automobile finance companies, with respect to credit
products, and from mutual funds, pension funds and insurance companies, with
respect to savings products. For the time being, banks continue to be the main
suppliers in Chile for leasing, factoring and mutual funds, and the insurance
sales business has seen rapid growth.
The
increase in competition within the Chilean banking industry in recent years has
led to, among other things, consolidation in the industry. We expect the trends
of increased competition and consolidation to continue and result in the
formation of new large financial groups. Consolidation, which can result in the
creation of larger and stronger competitors, may adversely affect our financial
condition and results of operations by decreasing the net interest margins we
are able to generate. In addition, Law No. 19,769 allows insurance companies to
participate and compete with banks in the residential mortgage and credit card
businesses.
Our
allowances for impairment losses may not be adequate to cover our future actual
losses to our loan portfolio.
At
December 31, 2007, our allowance for impairment losses on loans was Ch$232,766
million, and the ratio of our allowance for impairment losses to total loans was
1.73%. The amount of allowances is based on our current assessment of and
expectations concerning various factors affecting the quality of our loan
portfolio. These factors include, among other things, our borrowers’ financial
conditions, repayment abilities and repayment intentions, the realizable value
of any collateral, the prospects for support from any guarantor, Chile’s
economy, government macroeconomic policies, interest rates and legal and
regulatory environment. Many of these factors are beyond our control. If our
assessment of and expectations concerning the above mentioned factors differ
from actual developments, or if the quality of our loan portfolio deteriorates
or the future actual losses exceed our estimates, our allowance for impairment
losses may not be adequate to cover actual losses and we may need to make
additional provisions for impairment losses, which may materially and adversely
affect our results of operations and financial condition.
Our
exposure to individuals and small businesses could lead to higher levels of past
due loans, allowances for loan losses and charge-offs.
A
substantial number of our customers consist of individuals (approximately 42.7%
of the value of the total loan portfolio at December 31, 2007) and, to a lesser
extent, small and medium sized companies (those with annual sales of less than
US$2.2 million) which comprised approximately 15.8% of the value of the total
loan portfolio at December 31, 2007. As part of our business strategy, we seek
to increase lending and other services to small companies and individuals. Small
companies and individuals are, however, more likely to be adversely affected by
downturns in the Chilean economy than large corporations and high income
individuals. In
addition, at December 31, 2007, our residential mortgage loans, both, financed
by mortgage bonds and otherwise totaled Ch$3,328,786 million, representing 24.7%
of our total loans (27.1% of total loans excluding contingent loans. See “Item
5: F. Selected Statistical Information—Loan Portfolio” and “Item 5: F. Selected
Statistical Information—Loans by Economic Activity” for a description and
presentation of residential mortgages in the balance sheet). If the economic
conditions and real estate market in Chile experience a significant downturn,
our asset quality, results of operations and financial condition may be
materially and adversely affected. Economic activities in Chile may
slow down in
2008 given
the volatility of international markets and the possible slow down of the world
economic growth as a result of the credit crisis that is affecting the U.S.
economy. At the same time, higher energy costs and a restrictive interest rate
environment due to higher inflation could also negatively affect the economy. As
a result of these factors, in the future we may experience higher levels of past
due loans, which could result in higher provisions for loan losses. There can be
no assurance that the levels of past due loans and subsequent write offs will
not be materially higher in the future.
If
we are unable to maintain the quality of our loan portfolio, our financial
condition and results of operations may be materially and adversely
affected.
At
December 31, 2007, our past due loans were Ch$116,654 million, and the ratio of
our past due loans to total loans was 0.87%. For additional information on our
asset quality, see “Item 5: F. Selected Statistical Information—Analysis of
Substandard Loans and Amounts Past Due.” We seek to continue to improve
our credit risk management policies and procedures. However, we cannot assure
you that our credit risk management policies, procedures and systems are free
from any deficiency. Failure of credit risk management policies may result in an
increase in level of non performing loans and adversely affect the quality of
our loan portfolio. In addition, the quality of our loan portfolio may also
deteriorate due to various other reasons, including factors beyond our control.
If such deterioration were to occur, it would materially and adversely affect
our financial conditions and results of operations.
The
value of the collateral securing our loans may not be sufficient, and we may be
unable to realize the full value of the collateral securing our loan
portfolio.
The value
of the collateral securing our loan portfolio may significantly fluctuate or
decline due to factors beyond our control, including macroeconomic factors
affecting Chile’s economy. However, we may not have current information on the
value of collateral, which may result in an inaccurate assessment for impairment
losses of our loans secured by such collateral. If this were to occur, we may
need to make additional provisions to cover actual impairment losses of our
loans, which may materially and adversely affect our results of operations and
financial condition.
Additionally,
there are certain provisions under Chilean law that may affect our ability to
foreclose or liquidate residential mortgages granted to us by our customers if
the affected real estate has been declared as “family property” by a court.
Also, foreclosure will be extremely limited if any party using the real estate
has filed with a court a petition requesting that such real estate be declared
as family property.
The
growth of our loan portfolio may expose us to increased loan
losses.
From
December 31, 2002, to December 31, 2007, our aggregate loan portfolio (on an
unconsolidated combined basis) grew by 45.6% in real terms to Ch$13,468,981
million (US$27.2 billion), while our consumer loan portfolio grew by 143.7% in
nominal terms to Ch$2,003,125 million (US$4,040 million), excluding lines of
credit and calculated in accordance with the loan classification system of the
Superintendency of Banks. Because the method of classification of loans used by
the Superintendency of Banks for its public information differs in minor
respects from that used by us for internal accounting purposes, the foregoing
figures may differ from the figures included in our financial statements. The
further expansion of our loan portfolio (particularly in the consumer, small and
mid sized companies and real estate segments) can be expected to expose us to a
higher level of loan losses and require us to establish higher levels of
provisions for loan losses.
Our
loan portfolio may not continue to grow at the same rate.
There can
be no assurance that in the future our loan portfolio will continue to grow at
the same or similar rates as the historical growth rate. A reversal of the rate of
growth of the Chilean economy, a slowdown in the growth of customer demand, an
increased in market competition or changes in governmental regulations, could
adversely affect the rate of growth of our loan portfolio and our risk index
and, accordingly, increase our required allowances for loan losses.
The
effectiveness of our credit risk management is affected by the quality and scope
of information available in Chile.
In
assessing customers’ creditworthiness, we rely largely on the credit information
available from our own internal databases, the Superintendency of Banks, Dicom
(a nationwide credit bureau) and other sources. Due to limitations on
the availability of information and the developing information infrastructure in
Chile, our assessment of the credit risks associated with a particular customer
may not be based on complete, accurate or reliable information. In addition,
although we have been improving our credit scoring systems to better assess
borrowers’ credit risk profiles, we cannot assure you that our credit scoring
systems collect complete or accurate information reflecting the actual behavior
of customers or that their credit risk can be assessed correctly. Without
complete, accurate and reliable information, we have to rely on other publicly
available resources and our internal resources, which may not be effective. As a
result, our ability to effectively manage our credit risk may be materially and
adversely affected.
Fluctuations
in the rate of inflation may affect our results of operations.
Inflation
in Chile gained momentum in 2007. In 2007, inflation reached 7.8% compared to
2.6% in 2006. High levels of inflation in Chile could adversely affect the
Chilean economy and have an adverse effect on our business, financial condition
and results of operations.
Our assets
and liabilities are denominated in Chilean pesos, UF and foreign currencies. The
UF is revalued in monthly cycles. On each day in the period beginning the tenth
day of the current month through the ninth day of the succeeding month, the
nominal peso value of the UF is indexed up (or down in the event of deflation)
in order to reflect a proportional amount of the change in the Chilean Consumer
Price Index during the prior calendar month. For more information regarding the
UF see “Item 5: F. Selected Statistical Information—Average Balance Sheets,
Income Earned from Interest-Earning Assets And Interest Paid on Interest Bearing
Liabilities.” Although we currently benefit inflation in Chile, due to the
current structure of our assets and liabilities (i.e., a significant portion of
our loans are indexed to the inflation rate, but there are no corresponding
features in deposits, or other funding sources that would increase the size of
our funding base), there can be no assurance that our business, financial
condition and result of operations in the future will not be adversely affected
by changing levels of inflation, including from extended periods of inflation
that adversely affect economic growth or periods of deflation.
Our
results of operations are affected by interest rate volatility.
Our
results of operations depend to a great extent on our net interest revenue. In
2007, net interest revenue represented 87.9% of our operating revenue. Changes
in market interest rates could affect the interest rates earned on our interest
earning assets differently from the interest rates paid on our interest bearing
liabilities leading to a reduction in our net interest revenue or result in a
decrease in customer’s demand for our loan or deposit products. Interest rates are highly
sensitive to many factors beyond our control, including the reserve policies of
the Central Bank, deregulation of the financial sector in Chile, domestic and
international economic and political conditions and other factors. Any changes
in interest rates could adversely affect our business, our future financial
performance and the price of our securities. The following table
shows the yields on the Chilean government’s 90-day notes as reported by the
Central Bank of Chile at year end for the last five years.
|
|
Period-end
90
day note (%)
|
2003
|
|
2.58
|
2004
|
|
2.32
|
2005
|
|
4.75
|
2006
|
|
5.10
|
2007
|
|
6.15
|
Since
our principal sources of funds are short-term deposits, a sudden shortage of
funds could cause an increase in costs of funding and an adverse effect on our
revenues. The restrictions on the exposure of Chilean pension funds may affect
our access to funding.
Customer
deposits are our primary source of funding. At December 31, 2007, 79.5% of our
customer deposits had remaining maturities of one year or less, or were payable
on demand. A significant portion of our assets have longer maturities, resulting
in a mismatch between the maturities of liabilities and the maturities of
assets. If a substantial number of our depositors withdraw their demand deposits
or do not roll over their time deposits upon maturity, our liquidity position,
results of operations and financial condition may be materially and adversely
affected. We cannot
assure you that in the event of a sudden or unexpected shortage of funds in the
banking system, any money markets in which we operate will be able to maintain
levels of funding without incurring high funding costs or the liquidation of
certain assets. If this were to happen, our results of operations and financial
condition may be materially and adversely affected.
Chilean
regulations impose restrictions on the share of assets that a Chilean pension
fund management company (Administrador de Fondos de
Pension, an “AFP”) may allocate to a single issuer, which is currently 7%
per fund managed by an AFP (including any securities issued by the issuer and
any bank deposits with the issuer). If the exposure of an AFP to a single issuer
exceeds the 7% limit, the AFP is required to reduce its exposure below the limit
within three years. At December 31, 2007, the aggregate exposure of AFPs to us
was approximately US$7.7 billion or 6.5% of their total assets, and the largest
exposure of a single AFP to us was 7.2% of its total assets. If the exposure of
any AFP to us exceeds the regulatory limit, we would need to seek alternative
sources of funding, which could be more expensive and, as a consequence, may
have a material adverse effect on our financial condition and results of
operations.
Pension
funds must also comply with other investment limits. Recently approved
legislation in Chile (Reformas
al Mercado de Capitales II (also known as MK2) relaxed the limits on
making investments abroad in order to permit pension funds to further diversify
their investment portfolios. In 2007, the limit on making investments abroad was
increased from 30% to 45%. In 2009 this limit will increase to 60% and in 2011
it will reach 80%. As a result, pension funds may change the composition of
their portfolios, including reducing their deposits with local banks. At
December 31, 2007, 32.7% of the Bank’s time deposits were from AFPs. Although
the legislation referred to above is intended to promote a gradual relaxation of
the investment limits, and we may be able to substitute the reduced
institutional funds with retail deposits, there can be no assurance that this
occurrence will not have a material adverse impact on our business, financial
condition and results of operations.
We
may be unable to meet requirements relating to capital adequacy.
We are
required by the General Banking Law to maintain regulatory capital of at least
8% of our risk-weighted assets, net of required loan loss allowance and
deductions, and paid in capital and reserves (“basic capital”) of at least 3% of
our total assets, net of required loan loss allowances. As a result of the
merger between Old Santander-Chile and Santiago, we were required to maintain a
minimum regulatory capital to risk weighted assets ratio of 12%, which was
reduced to 11% as of January 1, 2005. At December 31, 2007, the ratio of our
basic capital to total assets, net of loan loss allowance, was 6.0%, and the
ratio of our regulatory capital to risk weighted assets, net of loan loss
allowance and deductions, was 12.2%. Certain developments could affect our
ability to continue to satisfy the current capital adequacy requirements
applicable to us, including:
|
·
|
the
increase of risk-weighted assets as a result of the expansion of our
business;
|
|
·
|
the
failure to increase our capital
correspondingly;
|
|
·
|
losses
resulting from a deterioration in our asset
quality;
|
|
·
|
declines
in the value of our investment instrument
portfolio;
|
|
·
|
changes
in accounting rules;
|
|
·
|
and
changes in the guidelines regarding the calculation of the capital
adequacy ratios of banks in Chile. In 2010, the Chilean banks will most
likely adopt the guidelines set forth under Basel II with adjustments
incorporated by the Superintendency of Banks. This should result in a
different level of minimum capital
|
|
|
required
to be maintained by the Bank. No assurance can be given that this will not
have a material impact on the Bank’s capitalization
ration. |
We may
also be required to raise additional capital in the future in order to maintain
our capital adequacy ratios above the minimum required levels. Our ability to
raise additional capital may be limited by numerous factors, including: our
future financial condition, results of operations and cash flows; any necessary
government regulatory approvals; our credit ratings; general market conditions
for capital raising activities by commercial banks and other financial
institutions; and domestic and international economic, political and other
conditions.
If we
require additional capital in the future, we cannot assure you that we will be
able to obtain such capital on favorable terms, in a timely manner or at all.
Furthermore, the Superintendency of Banks may increase the minimum capital
adequacy requirements applicable to us. Accordingly, although we currently meet
the applicable capital adequacy requirements, we may face difficulties in
meeting these requirements in the future. If we fail to meet the capital
adequacy requirements, we may be required to take corrective actions. These
measures could materially and adversely affect our business reputation,
financial condition and results of operations. In addition, if we are unable to
raise sufficient capital in a timely manner, the growth of our loan portfolio
and other risk weighted assets may be restricted, and we may face significant
challenges in implementing our business strategy. As a result, our prospects,
results of operations and financial condition could be materially and adversely
affected.
Our
business is highly dependant on proper functioning and improvement of
information technology systems.
Our
business is highly dependant on the ability of our information technology
systems to accurately process a large number of transactions across numerous and
diverse markets and products in a timely manner. The proper functioning of our
financial control, risk management, accounting, customer service and other data
processing systems is critical to our business and our ability to compete
effectively. We have backup data for our key data processing systems that could
be used in the event of a catastrophe or a failure of our primary systems, and
have established alternative communication networks where available. However, we
do not operate all of our redundant systems on a real time basis and cannot
assure you that our business activities would not be materially disrupted if
there were a partial or complete failure of any of these primary information
technology systems or communication networks. Such failures could be caused by,
among other things, software bugs, computer virus attacks or conversion errors
due to system upgrading. In addition, any security breach caused by unauthorized
access to information or systems, or intentional malfunctions or loss or
corruption of data, software, hardware or other computer equipment, could have a
material adverse effect on our business, results of operations and financial
condition.
Our
ability to remain competitive and achieve further growth will depend in part on
our ability to upgrade our information technology systems and increase our
capacity on a timely and cost effective basis. Any substantial failure to
improve or upgrade information technology systems effectively or on timely basis
could materially and adversely affect our competitiveness, results of operations
and financial condition.
Operational
problems or errors can have a material adverse impact on our business, financial
condition and results of operations.
Santander-Chile,
like all large financial institutions, is exposed to many types of operational
risks, including the risk of fraud by employees and outsiders, failure to obtain
proper internal authorizations, failure to properly document transactions,
equipment failures and errors by employees. Fraud or other misconduct by
employees or third parties may be difficult to detect and prevent and could
subject us to financial losses and sanctions imposed by governmental authorities
as well as seriously harm our reputation. Although Santander-Chile
maintains a system of operational controls, there can be no assurance that
operational problems or errors will not occur and that their occurrence will not
have a material adverse impact on our business, financial condition and results
of operations.
Banking
regulations may restrict our operations and thereby adversely affect our
financial condition and results of operations.
We are
subject to regulation by the Superintendency of Banks. In addition, we are
subject to regulation by the Central Bank with regard to certain matters,
including reserve requirements and interest rates and foreign exchange
mismatches and market risks . During the Chilean financial crisis of 1982 and
1983, the Central Bank and the Superintendency of Banks strictly controlled the
funding, lending and general business matters of the banking industry in
Chile.
Pursuant
to the Ley General de Bancos,
Decreto con Fuerza de Ley No. 3 de 1997, or the General Banking Law, all
Chilean banks may, subject to the approval of the Superintendency of Banks,
engage in certain businesses other than commercial banking depending on the risk
associated with such business and the financial strength of the bank. Such
additional businesses include securities brokerage, mutual fund management,
securitization, insurance brokerage, leasing, factoring, financial advisory,
custody and transportation of securities, loan collection and financial
services. The General Banking Law also applies to the Chilean banking system a
modified version of the capital adequacy guidelines issued by the Basel
Committee on Banking Regulation and Supervisory Practices and limits the
discretion of the Superintendency of Banks to deny new banking licenses. There
can be no assurance that regulators will not in the future impose more
restrictive limitations on the activities of banks, including us, than those
currently in effect. Any such change could have a material adverse effect on our
financial condition or results of operations.
Historically,
Chilean banks have not paid interest on amounts deposited in checking accounts.
However, since June 1, 2002, the Central Bank allows banks to pay interest on
checking accounts. Currently, there are no applicable restrictions on the
interest that may be paid on checking accounts. We have begun to pay interest on
some checking accounts under certain conditions. If competition or other factors
lead us to pay higher interest rates on checking accounts, to relax the
conditions under which we pay interest or to increase the number of checking
accounts on which we pay interest, any such change could have a material adverse
effect on our financial condition or results of operations.
We must
maintain higher regulatory capital to risk-weighted assets than other banks in
Chile. The merger of Old Santander-Chile and Santiago required a special
regulatory preapproval of the Superintendency of Banks, which was granted on May
16, 2002. The resolution granting this preapproval imposed a mandatory minimum
regulatory capital to risk weighted assets ratio of 12% for the merged bank
compared to the 8% minimum for other banks in Chile. Effective January 1, 2005,
the Superintendency of Banks lowered our minimum regulatory capital to risk
weighted assets ratio to 11%. Although we have not failed in the past to comply
with our capital maintenance obligations, there can be no assurance that we will
be able to do so in the future.
Beginning
January 1, 2009, Chilean banks will adopt accounting standards more congruent
with International Accounting Standards and we will be restating 2008 figures
under these new accounting principles. Although the exact impact of this change
is still under discussion, there can be no assurance that this will not have a
material impact on our financial condition or results of operation.
We
are subject to regulatory inspections and examinations.
We are
also subject to various inspections, examinations, inquiries, audits and other
regulatory requirements by Chilean regulatory authorities. We cannot assure you that
we will be able to meet all the applicable regulatory requirements and
guidelines, or that we will not be subject to sanctions, fines and other
penalties in the future as a result of non compliance. If sanctions, fines and
other penalties are imposed on us for failure to comply with applicable
requirements, guidelines or regulations, our business, financial condition,
results of operations and our reputation and ability to engage in business may
be materially and adversely affected.
Risks
Relating to Chile
Our
growth and profitability depend on the level of economic activity in
Chile.
A
substantial amount of our loans are to borrowers doing business in Chile.
Accordingly, the recoverability of these loans in particular, our ability to
increase the amount of loans outstanding and our results of operations and
financial condition in general, are dependent to a significant extent on the
level of economic activity in Chile. Our results of operations and financial
condition could be affected by changes in economic or other policies of the
Chilean government, which has exercised and continues to exercise a substantial
influence over many aspects of the private sector, or other political or
economic developments in Chile. We cannot assure you that the Chilean economy
will continue to grow in the future or that those future developments in or
affecting Chile’s exports will not materially and adversely affect our business,
financial condition or results of operations.
Economic
and political problems encountered by other countries may adversely affect the
Chilean economy, our results of operations and the market value of our
securities.
The prices
of securities issued by Chilean companies, including banks, are to varying
degrees influenced by economic and market considerations in other countries. We
cannot assure you that future developments in or affecting the Chilean economy,
including consequences of economic difficulties in other markets, will not
materially and adversely affect our business, financial condition or results of
operations.
We are
directly exposed to risks related to the weakness and volatility of the economic
and political situation in other parts of the world, mainly, the United States,
Europe, China, Brazil and Argentina. A significant economic deterioration in one
of these countries or regions could result in lower economic growth in Chile,
lower loan growth, an increase our loan allowances, and therefore, this could
affect our financial results, our results of operations and the price of our
securities. The recent cuts in gas exports from Argentina to Chile could also
adversely affect economic growth in Chile as the prices of alternate sources of
energy have risen strongly in recent periods and this may increase inflation
rates in Chile. Chile is also involved in an international litigation with Peru
regarding maritime borders.
At
December 31, 2007, approximately 3.1% of our loans were held abroad and 0.37% of
our loans were comprised of loans to companies in Latin American countries. We
cannot assure you that crisis and political uncertainty in other Latin American
countries will not have an adverse effect on Chile, the price of our securities
or our business.
Currency
fluctuations could adversely affect our financial condition and results of
operations and the value of our securities.
Any future
changes in the value of the Chilean peso against the U.S. dollar could affect
the dollar value of our securities. The peso has been subject to large
devaluations and appreciations in the past and could be subject to significant
fluctuations in the future. Our results of operations may be affected by
fluctuations in the exchange rates between the peso and the dollar despite our
policy and Chilean regulations relating to the general avoidance of material
exchange rate exposure. In order to avoid material exchange rate exposure, we
enter into forward exchange transactions. The following table shows the value of
the Chilean peso relative to the U.S. dollar as reported by the Central Bank at
year end for the last four years.
|
|
Exchange
rate (Ch$)
Year-end
|
|
Devaluation
(Revaluation) (%)
|
2003
|
|
599.42
|
|
(15.9%)
|
2004
|
|
559.83
|
|
(6.6%)
|
2005
|
|
514.21
|
|
(8.1%)
|
2006
|
|
534.43
|
|
3.9%
|
2007
|
|
495.82
|
|
(7.2%)
|
2008
(as per June 11)
|
|
485.61
|
|
(2.1%)
|
We may
decide to change our policy regarding exchange rate exposure. Regulations that
limit such exposures may also be amended or eliminated. Greater exchange rate
risk will increase our exposure to the devaluation of the peso, and any such
devaluation may impair our capacity to service foreign currency obligations and
may, therefore, materially and adversely affect our financial condition and
results of operations. Notwithstanding the existence of general policies and
regulations that limit material exchange rate exposures, the economic policies
of the Chilean government and any future fluctuations of the peso against the
dollar could affect our financial condition and results of
operations.
Furthermore,
Chilean trading in the shares underlying our ADSs will be conducted in pesos.
Cash distributions with respect to our shares of common stock are received in
Chilean pesos by the Depositary which then will convert such amounts to U.S.
dollars at the then prevailing exchange rate for the purpose of making payments
in respect of our ADSs. If the value of the Chilean peso falls relative to the
U.S. dollar, the dollar value of our ADSs and any distributions to be received
from the Depositary will be reduced. In addition, the Depositary will incur
customary current conversion costs (to be borne by the holders of our ADSs) in
connection with the conversion and subsequent distribution of dividends or other
payments.
Chile’s
banking regulatory and capital markets environment is continually evolving and
may change.
Changes in
banking regulations may materially and adversely affect the bank’s business,
financial condition and results of operations. Chilean laws, regulations,
policies and interpretations of laws relating to the banking sector and
financial institutions are continually evolving and changing. In 2007
regulations governing the Chilean capital markets were approved (Reformas al Mercado de Capitales
II; also known as MK2). These modifications, among other things, modified
certain provisions set forth in the General Banking Law. Under new legislation,
the limit in terms of regulatory capital that banks are allowed to grant
unsecured loans to one individual or entity was increased to 10% of regulatory
capital and 30% of the regulatory capital of the bank if the amount that exceeds
said 10% corresponds to loans secured by collateral with an aggregate value
equal to or higher than such excess. Previously, these limits were set at 5% and
25%, respectively. Although any such increase may increase our lending activity,
it may also increase the risks associated with the growth of our loan portfolio
and increase competition as the number of banks that can compete in the
corporate segment increases as they are less constrained by this
requirement. See “Item
3: Risk Factors—Risks Associated with Our Business—The growth of our loan
portfolio may expose us to increased loan losses.”
In
addition, changes in the investment limits abroad on behalf of Chilean pension
funds and the modification to minimum capital requirements to be introduced in
line with Basel II requirements may materially and adversely affect the bank’s
business, financial condition and results of operations. See “Item 3: Risk
Factors—Risks Associated with Our Business—Since our principal sources of funds
are short-term deposits, a sudden shortage of funds could cause an increase in
costs of funding and an adverse effect on our revenues. The restrictions on the
exposure of Chilean pension funds may affect our access to funding” and “—We may
be unable to meet requirements relating to capital adequacy.”
A
worsening of labor relations in the Chile could impact our
business.
Labor
relations in industries such as the copper and salmon industry have worsened
leading to prolonged work stoppage, which has affected their respective output.
As of December 31, 2007, on a consolidated basis we had 9,174 employees of which
41.1% were unionized. In March 2007, a new collective bargaining agreement
became effective that will expire on March 1, 2011, but this may be negotiated
ahead of schedule if management and union agree to. We generally apply the terms
of our collective bargaining agreement to unionized and non-unionized employees.
We have traditionally enjoyed good relations with our employees and their
unions, but we cannot assure you that in the future a strengthening of
cross-industry labor movements will not materially and adversely affect our
business, financial condition or results of operations.
Any
downgrading of Chile debt credit rating for domestic and international debt by
international credit rating agencies may adversely affect our business, our
future financial performance, stockholder’s equity and the price of our shares
and ADSs.
Our
ratings are equivalent to the Chilean sovereign ratings. In 2007, Moody’s and
Standard and Poor’s improved their rating for the Republic of Chile and also for
us. Any adverse revisions to Chile’s credit ratings for domestic and
international debt by international rating agencies may adversely affect our
ratings, and our business, future financial performance, stockholder’s equity
and the price of our equity shares and ADSs.
Chile
has different corporate disclosure and accounting standards than those you may
be familiar with in the United States.
We prepare
our financial statements in accordance with Chilean GAAP, which requires
management to make estimates and assumptions with respect to certain matters
that are inherently uncertain. The consolidated financial statements include
various estimates and assumptions, including but not limited to the adequacy of
the allowance for loan losses, estimates of the fair value of certain financial
instruments, the selection of useful lives of certain assets and the valuation
and recoverability of goodwill and deferred taxes. We evaluate these estimates
and judgments on an ongoing (mark-to-market) basis. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances. Actual results in
future periods could differ from those produced by such estimates and
assumptions, and if these differences were significant enough, our reported
results of operations would be affected materially.
Accounting,
financial reporting and securities disclosure requirements in Chile differ from
those in the United States. Accordingly, the information about us available to
you will not be the same as the information available to
shareholders
of a U.S. financial institution. There are also material differences between
Chilean and U.S. accounting and financial reporting standards. As a result,
Chilean financial statements and reported earnings generally differ from those
reported based on U.S. accounting and reporting standards.
As a
regulated financial institution, we are required to submit to the
Superintendency of Banks unaudited unconsolidated balance sheets and income
statements, excluding any note disclosure, prepared in accordance with Chilean
GAAP and the rules of the Superintendency of Banks on a monthly basis. Such
disclosure differs in a number of significant respects from information
generally available in the United States with respect to U.S. financial
institutions.
The
securities laws of Chile, which govern open or publicly listed companies such as
us, have as a principal objective promoting disclosure of all material corporate
information to the public. Chilean disclosure requirements, however, differ from
those in the United States in some material respects. In addition, although
Chilean law imposes restrictions on insider trading and price manipulation,
applicable Chilean laws are different from those in the United States and in
certain respects the Chilean securities markets are not as highly regulated and
supervised as the U.S. securities markets.
Our
status as a controlled company and a foreign private issuer exempts us from
certain of the corporate governance standards of the New York Stock Exchange
(“NYSE”), limiting the protections afforded to investors.
We are a
“controlled company” and a “foreign private issuer” within the meaning of the
NYSE corporate governance standards. Under the NYSE rules, a controlled company
is exempt from certain NYSE corporate governance requirements. In addition, a
foreign private issuer may elect to comply with the practice of its home country
and not to comply with certain NYSE corporate governance requirements, including
the requirements that (1) a majority of the Board of Directors consist of
independent directors, (2) a nominating and corporate governance committee be
established that is composed entirely of independent directors and has a written
charter addressing the committee's purpose and responsibilities, (3) a
compensation committee be established that is composed entirely of independent
directors and has a written charter addressing the committee's purpose and
responsibilities and (4) an annual performance evaluation of the nominating and
corporate governance and compensation committees be undertaken. We currently use
these exemptions and intend to continue using these exemptions. Accordingly, you
will not have the same protections afforded to shareholders of companies that
are subject to all NYSE corporate governance requirements.
Chile
imposes controls on foreign investment and repatriation of investments that may
affect your investment in, and earnings from, our ADSs.
Equity
investments in Chile by persons who are not Chilean residents have generally
been subject to various exchange control regulations which restrict the
repatriation of the investments and earnings therefrom. In April 2001, the
Central Bank eliminated the regulations that affected foreign investors except
that investors are still required to provide the Central Bank with information
related to equity investments and conduct such operations within Chile’s Formal
Exchange Market. The ADSs are subject to a contract, dated May 17, 1994, among
the Depositary, us and the Central Bank (the “Foreign Investment Contract”) that
remains in full force and effect. The ADSs continue to be
governed by the provisions of the Foreign Investment Contract subject to the
regulations in existence prior to April 2001. The Foreign Investment
Contract grants the Depositary and the holders of the ADSs access to the Formal
Exchange Market, which permits the Depositary to remit dividends it receives
from us to the holders of the ADSs. The Foreign Investment
Contract also permits ADS holders to repatriate the proceeds from the sale of
shares of our common stock withdrawn from the ADR facility, or that have been
received free of payment as a consequence of spin offs, mergers, capital
increases, wind ups, share dividends or preemptive rights transfers, enabling
them to acquire the foreign currency necessary to repatriate earnings from such
investments. Pursuant to Chilean law, the Foreign Investment Contract cannot be
amended unilaterally by the Central Bank, and there are judicial precedents
(although not binding with respect to future judicial decisions) indicating that
contracts of this type may not be abrogated by future legislative changes or
resolutions of the Advisory Council of the Central Bank. Holders of shares of
our common stock, except for shares of our common stock withdrawn from the ADS
facility or received in the manner described above, are not entitled to the
benefits of the Foreign Investment Contract, may not have access to the Formal
Exchange Market, and may have restrictions on their ability to repatriate
investments in shares of our common stock and earnings therefrom.
Holders of
ADSs are entitled to receive dividends on the underlying shares to the same
extent as the holders of shares. Dividends received by holders of ADSs will be
paid net of foreign currency exchange fees and expenses of the Depositary and
will be subject to Chilean withholding tax, currently imposed at a rate of 35.0%
(subject to credits in certain cases). If for any reason, including changes in
Chilean law, the Depositary were unable to convert Chilean pesos to U.S.
dollars, investors would receive dividends and other distributions, if any, in
Chilean pesos.
We cannot
assure you that additional Chilean restrictions applicable to holders of our
ADSs, the disposition of the shares underlying them or the repatriation of the
proceeds from such disposition or the payment of dividends will not be imposed
in the future, nor can we advise you as to the duration or impact of such
restrictions if imposed.
ADS
holders may not be able to effect service of process on, or enforce judgments or
bring original actions against, us, our directors or our executive officers,
which may limit the ability of holders of ADSs to seek relief against
us.
We are a
Chilean corporation. None of our directors are residents of the United States
and most of our executive officers reside outside the United States. In
addition, a substantial portion of our assets and the assets of our directors
and executive officers are located outside the United States. As a result, it
may be difficult for ADS holders to effect service of process outside Chile upon
us or our directors and executive officers or to bring an action against us or
such persons in the United States or Chile to enforce liabilities based on U.S.
federal securities laws. It may also be difficult for ADS holders to enforce in
the United States or in Chilean courts money judgments obtained in United States
courts against us or our directors and executive officers based on civil
liability provisions of the U.S. federal securities laws. If a U.S. court grants
a final money judgment in an action based on the civil liability provisions of
the federal securities laws of the United States, enforceability of this money
judgment in Chile will be subject to the obtaining of the relevant "exequatur"
(i.e., recognition and enforcement of the foreign judgment) according to Chilean
civil procedure law currently in force, and consequently, subject to the
satisfaction of certain factors. The most important of these factors are the
existence of reciprocity, the absence of a conflicting judgment by a Chilean
court relating to the same parties and arising from the same facts and
circumstances and the Chilean courts’ determination that the U.S. courts had
jurisdiction, that process was appropriately served on the defendant and that
enforcement would not violate Chilean public policy. Failure to satisfy any of
such requirements may result in non-enforcement of your rights.
We
cannot assure you of the accuracy or comparability of facts, forecasts and
statistics contained in this report with respect to Chile, its economy and
global banking industries.
Facts,
forecasts and statistics in this document relating to Chile, Chile’s economy and
Chilean global banking industries, including market share information, are
derived from various official and other publicly available sources generally
believed to be reliable. However, we cannot guarantee the quality and
reliability of such official and other sources of materials. In addition, these
facts, forecasts and statistics have not been independently verified by us and,
therefore, we make no representation as to the accuracy of such facts, forecasts
and statistics, which may not be consistent with other information compiled
within or outside of Chile and may not be complete or up to date. We have taken
reasonable care in reproducing or extracting the information from such sources.
However, because of possible flawed or ineffective methodologies underlying the
published information or discrepancies between the published information and
market practice and other problems, these facts, forecasts or statistics may be
inaccurate and may not be comparable from period to period or to facts,
forecasts or statistics produced for other economies, and you should not unduly
rely upon them.
Risks
Relating to our ADSs
There
may be a lack of liquidity and market for our shares and ADSs.
The ADSs
are listed and traded on the NYSE. The common stock is listed and traded on the
Santiago Stock Exchange, the Chile Electronic Stock Exchange and the Valparaiso
Stock Exchange, which we refer to collectively as the Chilean Stock Exchanges,
although the trading market for the common stock is small by international
standards. At December 31, 2007, we had 188,446,126,794 shares of common stock
outstanding. The Chilean securities markets are substantially smaller, less
liquid and more volatile than major securities markets in the United States.
According to Article 14 of the Ley de Mercado de Valores, Ley No.
18,045, or the Chilean Securities Market Law, the Superintendencia de Valores y
Seguros, or the Superintendency of Securities and Insurance, may suspend
the offer, quotation or trading of shares of any company listed on one or more
Chilean Stock Exchanges for up to 30
days if,
in its opinion, such suspension is necessary to protect investors or is
justified for reasons of public interest. Such suspension may be extended for up
to 120 days. If, at the expiration of the extension, the circumstances giving
rise to the original suspension have not changed, the Superintendency of
Securities and Insurance will then cancel the relevant listing in the registry
of securities. In addition, the Santiago Stock Exchange may inquire as to any
movement in the price of any securities in excess of 10% and suspend trading in
such securities for a day if it deems necessary.
Although
the common stock is traded on the Chilean Stock Exchanges, there can be no
assurance that a liquid trading market for the common stock will continue.
Approximately 23.09% of our outstanding common stock is held by the public
(i.e., shareholders other than Banco Santander Spain and its affiliates),
including our shares that are represented by ADSs trading on the NYSE. A limited trading market in
general and our concentrated ownership in particular may impair the ability of
an ADS holder to sell in the Chilean market shares of common stock obtained upon
withdrawal of such shares from the ADR facility in the amount and at the price
and time such holder desires, and could increase the volatility of the price of
the ADSs.
You
may be unable to exercise preemptive rights.
The Ley Sobre Sociedades Anónimas, Ley
No. 18,046 and the Reglamento de Sociedades
Anónimas, which we refer to collectively as the Chilean Companies Law,
and applicable regulations require that whenever we issue new common stock for
cash, we grant preemptive rights to all of our shareholders (including holders
of ADSs), giving them the right to purchase a sufficient number of shares to
maintain their existing ownership percentage. Such an offering would not be
possible unless a registration statement under the U.S. Securities Act of 1933
(“Securities Act”), as amended, were effective with respect to such rights and
common stock or an exemption from the registration requirements thereunder were
available.
Since we
are not obligated to elect to make a registration statement available with
respect to such rights and the common stock, you may not be able to exercise
your preemptive rights. If a registration statement is not filed or an
applicable exemption is not available, the Depositary will sell such holders’
preemptive rights and distribute the proceeds thereof if a premium can be
recognized over the cost of any such sale.
You
may have fewer and less well defined shareholders’ rights than with shares of a
company in the United States.
Our
corporate affairs are governed by our estatutos, or by-laws, and
the laws of Chile. Under such laws, our shareholders may have fewer or less well
defined rights than they might have as shareholders of a corporation
incorporated in a U.S. jurisdiction. For example, under legislation applicable
to Chilean banks, our shareholders would not be entitled to appraisal rights in
the event of a merger or other business combination undertaken by
us.
A.
History and Development of the Company
Overview
We are the
largest bank in Chile in terms of total assets, total deposits, loans and
shareholders’ equity. At December 31, 2007, we had total assets of Ch$18,222,730
million (US$36,608 million), loans net of allowances outstanding of
Ch$13,236,214 million (US$26,590 million), deposits of Ch$10,821,355 million
(US$21,739 million) and shareholders’ equity of Ch$1,438,042 million (US$2,889
million). As of December 31, 2007, we employed 9,174 people (on a consolidated
basis) and had the largest private branch network in Chile with 467 branches
(includes payment centers Santander SuperCaja and auxiliary tellers). Our
headquarters are located in Santiago and we operate in every major region of
Chile.
We provide
a broad range of commercial and retail banking services to our customers,
including Chilean peso and foreign currency denominated loans to finance a
variety of commercial transactions, trade financing, foreign currency forward
contracts, credit lines and a variety of retail banking services, including
mortgage financing. We seek to offer our customers a wide range of products
while providing high levels of service. In addition to our traditional banking
operations, we offer a variety of financial services including financial
leasing, financial advisory services, mutual fund management, securities
brokerage, insurance brokerage and investment management.
The legal
predecessor of Santander-Chile was Banco Santiago (“Santiago”). Santiago was
incorporated by public deed dated September 7, 1977 granted at the Notary Office
of Alfredo Astaburuaga Gálvez. Santiago received its permission to incorporate
and function as a bank by Resolution No. 118 of the Superintendency of Banks on
October 27, 1977. Santiago’s by-laws were approved by Resolution No. 103 of the
Superintendency of Banks on September 22, 1977. In January 1997, Santiago merged
with Banco O’Higgins with Santiago being the surviving entity. In 1999, Santiago became a
controlled subsidiary of Banco Santander Spain. As of June 30, 2002,
Santiago was the second largest private sector bank in Chile in terms of total
assets, deposits, loans and shareholders’ equity.
Old
Santander-Chile was established as a subsidiary of Banco Santander Spain in
1978. In 1982, Old Santander-Chile acquired a significant portion of the assets
and liabilities of Banco Español-Chile, a domestic bank that had become
insolvent. In July 1996, Old Santander-Chile was merged into Banco Osorno y la
Unión becoming “Banco Santander-Chile”, the third largest private bank in terms
of outstanding loans at that date.
On August
1, 2002, Santiago and Old Santander Chile merged, whereby the latter ceased to
exist and Santander-Chile (formerly known as Santiago) being the surviving
entity.
Our
principal executive offices are located at Bandera 140, Santiago, Chile. Our
telephone number is +562-320-2000 and our website is www.santandersantiago.cl.
None of the information contained on our website is incorporated by reference
into, or forms part of, this Annual Report. Our agent for service of process in
the United States is Puglisi & Associates.
Relationship
with Banco Santander Spain
We believe
that our relationship with our controlling shareholder, Banco Santander Spain,
offers us a significant competitive advantage over our peer Chilean banks. Banco
Santander Spain is one of the largest financial groups in Latin America, in
terms of total assets measured on a region-wide basis. It is the largest
financial group in Spain and is a major player elsewhere in Europe, including
the United Kingdom through its Abbey subsidiary and Portugal, where it is the
third-largest banking group.
Through Santander Consumer it also operates a leading consumer finance
franchise in the United States as well as in Germany, Italy, Spain, and several
other European countries.
Our
relationship with Banco Santander Spain provides us with access to the group’s
client base, while its multinational focus allows us to offer international
solutions to our clients’ financial needs. We also have the benefit of
selectively borrowing from Banco Santander Spain’s product offerings in other
countries as well as benefiting from their know-how in systems management. We
believe that our relationship with Banco Santander Spain will also enhance our
ability to manage credit and market risks by adopting policies and know-how
developed by Banco Santander Spain. Our internal auditing function has been
strengthened and is more independent from management as a result of the addition
of an internal auditing department that concurrently reports directly to our
Audit Committee and the audit committee of Banco Santander Spain. We believe
that this structure leads to improved monitoring and control of our exposure to
operational risks.
Banco
Santander Spain’s support includes the assignment of managerial personnel to key
supervisory areas of Santander-Chile, like Risks, Auditing, Accounting and
Financial Control. Santander-Chile does not pay any management fees to Banco
Santander Spain in connection with these support services.
B.
Organizational Structure
Banco
Santander Spain controls Santander-Chile through its holdings in Teatinos Siglo
XXI Inversiones Ltda. and Santander-Chile Holding, which are controlled
subsidiaries. This gives Banco Santander Spain control over 76.91% of the shares
of the Bank and actual participation when excluding minority shareholders that
participate in Santander Chile Holding is 76.74%.
|
|
|
|
|
|
|
Teatinos
Siglo XXI Inversiones Ltda.
|
|
|
78,108,391,607 |
|
|
|
41.45 |
% |
Santander
Chile Holding
|
|
|
66,822,519,695 |
|
|
|
35.46 |
% |
Management
Team
The chart
below sets forth the names and areas of responsibility of our senior commercial
managers.
The chart
below sets forth the names and areas of responsibilities of our operating
managers.
C.
Business Overview
We have
467 total branches, 256 of which operated under the Santander brand name, 109
under the Santander Banefe brand name, 42 that operate under the brand name
SuperCaja, 18 that operate under the BancaPrime brand name and 42 auxiliary and
payment centers. We
provide a full range of financial services to corporate and individual
customers. We divide our clients into the following segments: (i) Retail, (ii)
Institutional, (iii) Middle-market, and (iv) Global Banking and
Market.
The Retail
segment is comprised of the following sub-segments:
Lower-middle to middle-income
(Santander Banefe), consisting of individuals with monthly income between
Ch$120,000 (US$241) and Ch$400,000 (US$ 805), which are served through our
Santander Banefe branch network. This segment accounts for 4.7% of our loans at
December 31, 2007. This segment offers customers a range of products, including
consumer loans, credit cards, auto loans, residential mortgage loans, debit card
accounts, savings products, mutual funds and insurance
brokerage.
Middle- and upper-income,
consisting of individuals with a monthly income greater than Ch$400,000
(US$805). Clients in this segment account for 38.0% of our loans at December 31,
2007, and are offered a range of products, including consumer loans, credit
cards, auto loans, commercial loans, foreign trade financing, residential
mortgage loans, checking accounts, savings products, mutual funds and insurance
brokerage.
Small businesses, consisting
of small companies with annual sales less than Ch$1,200 million (US$2.4
million). At December 31, 2007, small companies represented approximately 15.8%
of our total loans outstanding. Customers in this segment are offered a range of
products, including commercial loans, leasing, factoring, foreign trade, credit
cards, mortgage loans, checking accounts, savings products, mutual funds and
insurance brokerage.
The
Institutional segment is comprised of:
Institutional organizations,
such as universities, government agencies, municipalities and regional
governments. At December 31, 2007, these clients represented 1.7% of our total
loans outstanding and offer customers a range of products, including commercial
loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking
accounts, cash management, savings products, mutual funds and insurance
brokerage.
The
Middle-market segment is comprised of mid-sized companies, companies in the real
estate sector and large companies as follows:
Mid-sized companies,
consisting of companies with annual sales over Ch$1,200 million (US$2.4 million)
and up to Ch$3,500 million (US$7.0 million). Customers in this segment are
offered a wide range of products, including commercial loans, leasing,
factoring, foreign trade, credit cards, mortgage loans, checking accounts, cash
management, treasury services, financial advisory, savings products, mutual
funds and insurance brokerage. At December 31, 2007, these clients represented
8.3% of our total loans outstanding.
Real estate, including all
companies in the real estate sector. At December 31, 2007, these clients
represented 4.8% of our total loans outstanding. To clients in the real estate
sector we offer apart from traditional banking services, specialized services
for financing primarily residential projects in order to increase the sale of
residential mortgage loans.
Large companies, consisting
of companies with annual sales over Ch$3,500 million (US$7.0 million). Customers
in this segment are offered a wide range of products, including commercial
loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking
accounts, cash management, treasury services, financial advisory, savings
products, mutual funds and insurance brokerage. At December 31, 2007, these
clients represented 8.5% of our total loans outstanding.
The Global
Banking and Markets segment is comprised of:
Wholesale banking, consisting
of companies that are foreign multinationals or part of a large Chilean economic
group with sales over Ch$3,500 million (US$7.0 million). At December 31, 2007,
these clients represented 16.6% of our total loans outstanding. Customers in
this segment are offered a wide range of products, including commercial loans,
leasing, factoring, foreign trade, mortgage loans, checking accounts, cash
management, treasury services, financial advisory, savings products, mutual
funds and insurance brokerage.
The Treasury Division
provides sophisticated financial products mainly to companies in the wholesale
banking and the middle market segments. This includes products such as
short-term financing and funding, securities brokerage, interest rate and
foreign currency derivatives, securitization services and other tailor made
financial products. The Treasury division also manages the Bank’s trading
positions as well as the non-trading investment portfolio.
The table
below sets forth our lines of business and certain statistical information
relating to each of them for the year ended December 31, 2007. Please see Note
28(y) to our Audited Consolidated Financial Statements for details of revenue by
business segment in the last three years.
At
and for the year ended December 31, 2007
(in
millions of constant Ch$ as of December 31, 2007)
Segment
|
|
Loans
|
|
|
Net
interest revenue
|
|
|
Fees
|
|
|
Net
loan loss allowances (1)
|
|
|
Financial
transactions, net (2)
|
|
|
Net
segment contribution (3)
|
|
Individuals
|
|
|
5,744,801 |
|
|
|
452,136 |
|
|
|
123,877 |
|
|
|
(148,771 |
) |
|
|
-
|
|
|
|
427,242 |
|
Santander
Banefe
|
|
|
633,299 |
|
|
|
152,625 |
|
|
|
27,631 |
|
|
|
(71,692 |
) |
|
|
-
|
|
|
|
108,564 |
|
Middle-upper
income
|
|
|
5,111,502 |
|
|
|
299,511 |
|
|
|
96,246 |
|
|
|
(77,079 |
) |
|
|
-
|
|
|
|
318,678 |
|
SMEs
|
|
|
2,133,312 |
|
|
|
160,909 |
|
|
|
37,596 |
|
|
|
(31,510 |
) |
|
|
-
|
|
|
|
166,995 |
|
Institutional
|
|
|
228,716 |
|
|
|
12,048 |
|
|
|
2,041 |
|
|
|
(29 |
) |
|
|
-
|
|
|
|
14,060 |
|
Total
Retail
|
|
|
8,106,829 |
|
|
|
625,093 |
|
|
|
163,514 |
|
|
|
(180,310 |
) |
|
|
-
|
|
|
|
608,297 |
|
Middle-market
|
|
|
2,914,782 |
|
|
|
89,095 |
|
|
|
14,856 |
|
|
|
(612 |
) |
|
|
-
|
|
|
|
103,339 |
|
Mid-sized
companies
|
|
|
1,116,642 |
|
|
|
37,438 |
|
|
|
7,962 |
|
|
|
(1,325 |
) |
|
|
-
|
|
|
|
44,075 |
|
Real
estate
|
|
|
649,250 |
|
|
|
15,145 |
|
|
|
1,491 |
|
|
|
(300 |
) |
|
|
-
|
|
|
|
16,336 |
|
Large
companies
|
|
|
1,148,890 |
|
|
|
36,512 |
|
|
|
5,403 |
|
|
|
1,013 |
|
|
|
-
|
|
|
|
42,928 |
|
Global
Banking and Markets
|
|
|
2,269,392 |
|
|
|
87,189 |
|
|
|
13,635 |
|
|
|
215 |
|
|
|
12,639 |
|
|
|
113,678 |
|
Wholesale
|
|
|
2,242,510 |
|
|
|
44,268 |
|
|
|
8,297 |
|
|
|
400 |
|
|
|
|
|
|
|
52,965 |
|
Treasury
|
|
|
26,882 |
|
|
|
42,921 |
|
|
|
5,338 |
|
|
|
(185 |
) |
|
|
12,639 |
|
|
|
60,713 |
|
Others
(4)
|
|
|
177,977 |
|
|
|
24,239 |
|
|
|
920 |
|
|
|
(1,704 |
) |
|
|
(46,952 |
) |
|
|
(23,497 |
) |
Total
|
|
|
13,468,980 |
|
|
|
825,616 |
|
|
|
192,925 |
|
|
|
(182,411 |
) |
|
|
(34,313 |
) |
|
|
801,817 |
|
Other
operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,413 |
) |
Other
income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,423 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(342,684 |
) |
Price
level restatement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,325 |
) |
Net
income before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363,818 |
|
|
(1)
Includes gross provisions for loan losses, net of releases on
recoveries.
|
|
(2)
Includes the net gains from trading, net mark-to-market gains and net
foreign exchange transactions.
|
|
(3)
Equal to the sum of net interest revenue, net fee income and net financial
transactions, minus net provision for loan
losses.
|
|
(4)
Includes contribution of other Bank subsidiaries and other non-segmented
items such as interbank loans. Financial transactions, net included in
Others is the results from inflation and interest rate
hedging.
|
Operations
through Subsidiaries
Today, the
General Banking Law permits us to provide directly the leasing and financial
advisory services we could formerly offer only through our subsidiaries, to
offer investment advisory services outside of Chile and to undertake activities
we could not formerly offer directly or through subsidiaries, such as factoring,
securitization, foreign investment funds, custody and transport of securities
and insurance brokerage services. For the year ended December 31, 2007, our
subsidiaries collectively accounted for approximately 11.8% of our consolidated
net income. The assets and operating income of these subsidiaries as of and for
the year ended December 31, 2007, represented 5.7% and 8.7% of our total assets
and operating income, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santander
Leasing S.A (1)
|
|
|
99.50 |
|
|
|
— |
|
|
|
99.50 |
|
|
|
99.50 |
|
|
|
— |
|
|
|
99.50 |
|
Santiago
Corredores de Bolsa Ltda. (2)
|
|
|
99.19 |
|
|
|
0.81 |
|
|
|
100.00 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Santander
Investment S.A. Corredores de Bolsa (2)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50.59 |
|
|
|
0.41 |
|
|
|
51.00 |
|
Santander
Asset Management S.A. Administradora General de Fondos (3)
|
|
|
99.96 |
|
|
|
0.02 |
|
|
|
99.98 |
|
|
|
99.96 |
|
|
|
0.02 |
|
|
|
99.98 |
|
Santander
S.A. Agente de Valores
|
|
|
99.03 |
|
|
|
— |
|
|
|
99.03 |
|
|
|
99.03 |
|
|
|
— |
|
|
|
99.03 |
|
Santander
S.A. Sociedad Securitizadora (4)
|
|
|
99.64 |
|
|
|
— |
|
|
|
99.64 |
|
|
|
99.64 |
|
|
|
— |
|
|
|
99.64 |
|
Santander
Corredora de Seguros Ltda. (5)
|
|
|
99.99 |
|
|
|
— |
|
|
|
99.99 |
|
|
|
99.99 |
|
|
|
— |
|
|
|
99.99 |
|
Santander
Servicios de Recaudación y Pagos Ltda.
|
|
|
99.90 |
|
|
|
0.10 |
|
|
|
100.00 |
|
|
|
99.90 |
|
|
|
0.10 |
|
|
|
100.00 |
|
|
(1)
|
Formerly,
Santiago Leasing S.A.
|
|
(2)
|
In
2007, the Board of Directors approved the merger between Santiago
Corredores de Bolsa Ltda, a subsidiary of the Bank, and Santander
Investment S.A. Corredores de Bolsa, an indirect subsidiary of Banco
Santander Spain.
As a result of the proposed merger, the Bank owns 51.0% of the
merged entity.
|
|
(3)
|
Formerly,
Santander Santiago S.A. Administradora General de
Fondos
|
|
(4)
|
Formerly,
Santander Santiago S.A. Sociedad Securitizadora
|
|
(5)
|
Formerly, Santander
Santiago Corredora de Seguros
Ltda.
|
In 2008, the Board of Directors has
approved the merger of Santander Corredora de Seguros Ltda. with Santander
Leasing S.A. and the merged entity will be called Santander Corredora de Seguros
S.A. We expect the merger to be concluded in July 2008.
Competition
Overview
The
Chilean financial services market consists of a variety of largely distinct
sectors. The most important sector, commercial banking, includes a number of
privately-owned banks and one public-sector bank, Banco del Estado (which
operates within the same legal and regulatory framework as the private sector
banks). The private-sector banks include local banks and a number of
foreign-owned banks which are operating in Chile. The Chilean banking system is
comprised of 24 private-sector banks and one public-sector bank. Five
private-sector banks along with the state-owned bank together accounted for
79.9% of all outstanding loans by Chilean financial institutions at December 31,
2007.
The
Chilean banking system has experienced increased competition in recent years
largely due to consolidation in the industry and new legislation. Effective
November 29, 2007, Scotiabank Sud Americano merged with Banco del Desarrollo,
while at January 1, 2008, Banco de Chile merged with Citibank Chile. We also
face competition from non-bank and non-finance competitors (principally
department stores) with respect to some of our credit products, such as credit
cards, consumer loans and insurance brokerage. In addition, we face competition
from non-bank finance competitors, such as leasing, factoring and automobile
finance companies, with respect to credit products, and mutual funds, pension
funds and insurance companies, with respect to savings products. Currently,
banks continue to be the main suppliers of leasing, factoring and mutual funds,
and the insurance sales business has grown rapidly.
As shown
in the following table, we are the market leader in practically every banking
service in Chile:
|
|
Market
Share
at
December 31,
2006
|
|
|
Market
Share
at
December 31,
2007
|
|
|
Rank
as of
at
December 31,
2007
|
|
Commercial
loans
|
|
|
18.7 |
% |
|
|
17.5 |
% |
|
|
2 |
|
Consumer
loans
|
|
|
26.7 |
|
|
|
26.2 |
|
|
|
1 |
|
Mortgage
loans (residential and general purpose)
|
|
|
24.2 |
|
|
|
23.4 |
|
|
|
1 |
|
Residential
mortgage loans
|
|
|
25.9 |
|
|
|
24.8 |
|
|
|
2 |
|
Foreign
trade loans (loans for export, import and contingent)
|
|
|
21.5 |
|
|
|
22.0 |
|
|
|
1 |
|
Total
loans
|
|
|
22.3 |
|
|
|
21.1 |
|
|
|
1 |
|
Deposits
(1)
|
|
|
22.0 |
|
|
|
21.3 |
|
|
|
1 |
|
Mutual
funds (assets managed)
|
|
|
22.1 |
|
|
|
21.5 |
|
|
|
2 |
|
Credit
card accounts
|
|
|
35.8 |
|
|
|
36.0 |
|
|
|
1 |
|
Checking
Accounts (1)
|
|
|
27.1 |
|
|
|
27.9 |
|
|
|
1 |
|
Branches
(2)
|
|
|
20.3 |
|
|
|
20.2 |
|
|
|
1 |
|
ATM
locations (3)
|
|
|
28.6 |
|
|
|
30.8 |
|
|
|
1 |
|
Source:
Superintendency of Banks
|
(2)
According to latest data available as of November
2007.
|
|
(3)
According to latest data available as of December 2007. Excluding
special-service payment centers.
|
|
(4)
According to latest data available as of September
2007.
|
Our market
share in Chile’s commercial loan market decreased from December 31, 2006, to
December 31, 2007, and we ranked the second in this market at December 31, 2007.
This is primarily due to our reduction of relatively low yielding large
corporate portfolio.
The
following tables set out certain statistics comparing our market position to
that of our peer group, defined as the five largest banks in Chile in terms of
shareholders’ equity as of December 31, 2007.
Loans
As of
December 31, 2007, our loan portfolio was the largest among Chilean banks. Our
loan portfolio on a stand-alone basis represented 21.1% of the market for loans
in the Chilean financial system at such date. The following table sets forth our
and our peer group’s market shares in terms of loans at the dates
indicated.
|
|
At
December 31, 2007
|
|
|
At
December 31, 2006
|
|
Loans
|
|
Ch$
million
|
|
|
US$
million
|
|
|
Market
Share
|
|
|
Market
Share
|
|
Santander-Chile
|
|
|
13,442,328 |
|
|
|
27,111 |
|
|
|
21.1 |
% |
|
|
22.3 |
% |
Banco
de Chile
|
|
|
11,761,218 |
|
|
|
23,721 |
|
|
|
18.5 |
|
|
|
18.0 |
|
Banco
del Estado
|
|
|
8,187,822 |
|
|
|
16,514 |
|
|
|
12.8 |
|
|
|
13.3 |
|
Banco
de Crédito e Inversiones
|
|
|
7,877,412 |
|
|
|
15,888 |
|
|
|
12.4 |
|
|
|
12.4 |
|
BBVA,
Chile
|
|
|
5,310,119 |
|
|
|
10,710 |
|
|
|
8.3 |
|
|
|
8.1 |
|
Corpbanca
|
|
|
4,345,435 |
|
|
|
8,764 |
|
|
|
6.8 |
|
|
|
6.3 |
|
Others
|
|
|
12,810,762 |
|
|
|
25,838 |
|
|
|
20.1 |
|
|
|
19.6 |
|
Chilean
financial system
|
|
|
63,735,096 |
|
|
|
128,545 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Source:
Superintendency of Banks
Deposits
On a stand
alone basis, we had a 21.3% market share in deposits, ranking the first place
among banks in Chile at December 31, 2007. Deposit market share is based on
total time and demand deposits at the respective dates. The following table sets
forth our and our peer group’s market shares in terms of deposits at the dates
indicated.
|
|
At December
31, 2007
|
|
|
At
December 31, 2006
|
|
Deposits
|
|
Ch$
million
|
|
|
US$
million
|
|
|
Market
Share
|
|
|
Market
Share
|
|
Santander-Chile
|
|
|
10,799,111 |
|
|
|
21,780 |
|
|
|
21.3 |
% |
|
|
22.1 |
% |
Banco
de Chile
|
|
|
8,669,331 |
|
|
|
17,485 |
|
|
|
17.1 |
|
|
|
17.7 |
|
Banco
del Estado
|
|
|
7,713,725 |
|
|
|
15,558 |
|
|
|
15.2 |
|
|
|
15.4 |
|
Banco
de Crédito e Inversiones
|
|
|
6,279,831 |
|
|
|
12,666 |
|
|
|
12.4 |
|
|
|
12.6 |
|
BBVA,
Chile
|
|
|
4,113,902 |
|
|
|
8,297 |
|
|
|
8.1 |
|
|
|
8.0 |
|
Corpbanca
|
|
|
2,755,194 |
|
|
|
5,557 |
|
|
|
5.4 |
|
|
|
4.6 |
|
Others
|
|
|
10,375,646 |
|
|
|
20,926 |
|
|
|
20.5 |
|
|
|
19.5 |
|
Chilean
financial system
|
|
|
50,706,740 |
|
|
|
102,268 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Source:
Superintendency of Banks
Shareholders’
equity
With
Ch$1,438,042 million (US$2,889 million) in shareholders’ equity, at December 31,
2007, we were the largest commercial bank in Chile in terms of shareholders’
equity. The following table sets forth our and our peer group’s shareholders’
equity at December 31, 2006 and 2007.
|
|
At
December 31, 2007
|
|
|
At
December 31, 2007
|
|
Equity(1)
|
|
Ch$
million
|
|
|
US$
million
|
|
|
Market
Share
|
|
|
Market
Share
|
|
Santander-Chile
|
|
|
1,438,042 |
|
|
|
2,889 |
|
|
|
20.7 |
% |
|
|
21.8 |
% |
Banco
de Chile
|
|
|
1,051,393 |
|
|
|
2,121 |
|
|
|
15.2 |
|
|
|
14.6 |
|
Banco
del Estado
|
|
|
582,492 |
|
|
|
1,175 |
|
|
|
8.4 |
|
|
|
8.9 |
|
Banco
de Crédito e Inversiones
|
|
|
703,934 |
|
|
|
1,420 |
|
|
|
10.1 |
|
|
|
10.3 |
|
BBVA,
Chile
|
|
|
366,748 |
|
|
|
740 |
|
|
|
5.3 |
|
|
|
5.2 |
|
Corpbanca
|
|
|
484,674 |
|
|
|
978 |
|
|
|
7.0 |
|
|
|
7.6 |
|
Others
|
|
|
2,312,462 |
|
|
|
4,664 |
|
|
|
33.3 |
|
|
|
31.5 |
|
Chilean
financial system
|
|
|
6,939,745 |
|
|
|
13,997 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Source:
Superintendency of Banks.
(1)
|
Percentage
of total shareholders’ equity of all Chilean
banks.
|
Efficiency
For the
year ended December 31, 2007, we were the most efficient bank in our peer group.
The following table sets forth our and our peer group’s efficiency ratio
(defined as operating expenses as a percentage of operating revenue, which is
aggregate of net interest revenue, fees and income from services (net) and other
operating income (net) for the year indicated.
Efficiency
ratio
|
|
As
of December 31, 2007
|
|
|
As
of December 31, 2006
|
|
|
|
%
|
|
|
%
|
|
Santander-Chile
|
|
|
37.9 |
% |
|
|
40.6 |
% |
Banco
de Chile
|
|
|
45.8 |
|
|
|
51.1 |
|
Banco
del Estado
|
|
|
57.0 |
|
|
|
59.0 |
|
Banco
de Crédito e Inversiones
|
|
|
51.1 |
|
|
|
53.7 |
|
BBVA,
Chile
|
|
|
62.7 |
|
|
|
66.6 |
|
Corpbanca
|
|
|
42.4 |
|
|
|
50.1 |
|
Chilean
financial system
|
|
|
48.7 |
% |
|
|
52.1 |
% |
Source:
Superintendency of Banks, on a stand alone basis
Return
on average equity
As of
December 31, 2007, we were the second most profitable bank in our peer group (as
measured by return on average equity) and the most capitalized bank as measured
by the BIS ratio. The following table sets forth our and our peer group’s return
on average equity for the year ended December 31, 2006 and 2007, and BIS ratio
at the dates indicated:
|
|
Return
on average equity
at December
31,
|
|
|
BIS
Ratio
at December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
Santander-Chile
|
|
|
23.4 |
% |
|
|
24.8 |
% |
|
|
12.2 |
% |
|
|
12.6 |
% |
Banco
de Chile
|
|
|
27.7 |
|
|
|
25.5 |
|
|
|
10.7 |
|
|
|
10.7 |
|
Banco
del Estado
|
|
|
9.2 |
|
|
|
9.9 |
|
|
|
10.8 |
|
|
|
11.1 |
|
Banco
de Crédito e Inversiones
|
|
|
21.7 |
|
|
|
22.6 |
|
|
|
10.4 |
|
|
|
10.3 |
|
BBVA,
Chile
|
|
|
9.8 |
|
|
|
10.0 |
|
|
|
10.3 |
|
|
|
10.3 |
|
Corpbanca
|
|
|
11.6 |
|
|
|
9.5 |
|
|
|
11.3 |
|
|
|
13.6 |
|
Chilean
Financial System
|
|
|
16.0 |
% |
|
|
16.7 |
% |
|
|
12.2 |
% |
|
|
12.5 |
% |
Source:
Superintendency of Banks, except Santander-Chile. Calculated by dividing annual
net income by monthly average equity. For Santander-Chile, the average equity is
calculated on a daily basis by the Bank (see “Item 5: F. Selected Statistical
Information—Average Balance Sheets, Income Earned from Interest-Earning Assets
And Interest Paid on Interest Bearing Liabilities”).
Asset
Quality
At
December 31, 2007, on a stand alone basis, we had the second lowest loan loss
allowance to total loans ratio in our peer group. The following table sets forth
our and our peer group’s loan loss allowance to total loans ratio as defined by
the Superintendency of Banks at the dates indicated.
|
|
Loan
Loss allowances/total loans
at
December 31,
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
%
|
|
Santander-Chile
|
|
|
1.71 |
% |
|
|
1.46 |
% |
Banco
de Chile
|
|