FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Commission File Number: 001-14554
Banco Santander Chile |
Santander Chile Bank |
(Translation of Registrant’s Name into English) |
Bandera 140 |
Santiago, Chile |
(Address of principal executive office) |
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F | x | Form 40-F | ¨ |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes | ¨ | No | x |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes | ¨ | No | x |
Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes | ¨ | No | x |
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A
2 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BANCO SANTANDER-CHILE | ||
By: | /s/ Cristian Florence | |
Name: | Cristian Florence | |
Title: | General Counsel |
Date: March 26, 2013
CONTENT
Consolidated Financial Statements | |
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | 5 |
CONSOLIDATED STATEMENTS OF INCOME | 6 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | 7 |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | 8 |
CONSOLIDATED STATEMENTS OF CASH FLOW | 9 |
Notes to the Consolidated Financial Statements | |
NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 11 |
NOTE 02 ACCOUNTING CHANGES | 45 |
NOTE 03 SIGNIFICANT EVENTS | 47 |
NOTE 04 OPERATING SEGMENTS | 50 |
NOTE 05 CASH AND CASH EQUIVALENTS | 54 |
NOTE 06 TRADING INVESTMENTS | 55 |
NOTE 07 INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS | 56 |
NOTE 08 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING | 59 |
NOTE 09 INTERBANK LOANS | 67 |
NOTE 10 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS | 68 |
NOTE 11 LOAN PURCHASES AND SALES | 75 |
NOTE 12 AVAILABLE FOR SALE INVESTMENTS | 78 |
NOTE 13 INVESTMENTS IN ASSOCIATES AND OTHER COMPANIES | 82 |
NOTE 14 INTANGIBLE ASSETS | 84 |
NOTE 15 PROPERTY, PLANT, AND EQUIPMENT | 86 |
NOTE 16 CURRENT AND DEFERRED TAXES | 89 |
NOTE 17 OTHER ASSETS | 94 |
NOTE 18 TIME DEPOSITS AND OTHER TIME LIABILITIES | 95 |
NOTE 19 INTERBANK BORROWINGS | 96 |
NOTE 20 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES | 98 |
NOTE 21 MATURITY OF ASSETS AND LIABILITIES | 104 |
NOTE 22 PROVISIONS | 106 |
NOTE 23 OTHER LIABILITIES | 108 |
NOTE 24 CONTINGENCIES AND COMMITMENTS | 109 |
NOTE 25 EQUITY | 110 |
NOTE 26 CAPITAL REQUIREMENTS (BASEL) | 113 |
NOTE 27 NON CONTROLLING INTEREST | 115 |
NOTE 28 INTEREST INCOME AND INFLATION-INDEXING ADJUSTMENT | 118 |
NOTE 29 FEES AND COMMISSIONS | 120 |
NOTE 30 PROFIT AND LOSS FROM FINANCIAL OPERATIONS | 121 |
NOTE 31 NET FOREIGN EXCHANGE GAIN (LOSS) | 122 |
NOTE 32 PROVISION FOR LOAN LOSSES | 122 |
NOTE 33 PERSONNEL SALARIES AND EXPENSES | 124 |
NOTE 34 ADMINISTRATIVE EXPENSES | 128 |
NOTE 35 DEPRECIATION, AMORTIZATION, AND IMPAIRMENT | 129 |
NOTE 36 OTHER OPERATING INCOME AND EXPENSES | 131 |
NOTE 37 TRANSACTIONS WITH RELATED PARTIES | 133 |
NOTE 38 PENSION PLANS | 136 |
NOTE 39 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES | 139 |
NOTE 40 RISK MANAGEMENT | 144 |
NOTE 41 SUBSEQUENT EVENTS | 157 |
2 |
Deloitte | |
Auditores y Consultores Limitada | |
RUT: 80.276.200-3 | |
Rosario Norte 407 | |
Las Condes, Santiago | |
Chile | |
Fono: (56-2) 2729 7000 | |
Fax: (56-2) 2374 9177 | |
e-mail: deloittechile@deloitte.com | |
www.deloitte.cl |
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of
Banco Santander Chile
We have audited the accompanying consolidated financial statements of Banco Santander Chile and its subsidiaries (the "Bank"), which comprise the consolidated statements of financial position as of December 31, 2013 and 2012, and the related consolidated statements of income, statements of comprehensive income, statements of changes in equity, and statements of cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the accounting standards and instructions issued by the Superintendency of Banks and Financial Institutions. This responsibility includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Chile. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Bank’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Deloitte® se refiere a Deloitte Touche Tohmatsu Limited una compañía privada limitada por garantía, de Reino Unido, y a su red de firmas miembro, cada una de las cuales es una entidad legal separada e independiente. Por favor, vea en www.deloitte.cl/acerca de la descripción detallada de la estructura legal de Deloitte Touche Tohmatsu Limited y sus firmas miembro.
Deloitte Touche Tohmatsu Limited es una compañía privada limitada por garantía constituida en Inglaterra & Gales bajo el número 07271800, y su domicilio registrado: Hill House, 1 Little New Street, London, EC4A 3TR, Reino Unido.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Banco Santander Chile and its subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with accounting standards and instructions issued by the Superintendency of Banks and Financial Institutions.
Emphasis on an issue
As indicated in Note 3 to the consolidated financial statements, during December 2013 the Bank sold its entire ownership in Santander Asset Management S.A. Administradora General de Fondos to SAM Investment Holdings Limited for 99.99% of total shares and to Santander Assets Management UK Holdings Limited for the remaining 0.01% of total shares, both related companies, generating a profit of Ch$78,122 million.
Other matters
The accompanying financial statements have been translated into English for the convenience of readers outside Chile.
January 20, 2014
Santiago, Chile
Mauricio Farías
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of December 31, | ||||||||||
2013 | 2012 | |||||||||
NOTE | MCh$ | MCh$ | ||||||||
ASSETS | ||||||||||
Cash and deposits in banks | 5 | 1,571,810 | 1,250,414 | |||||||
Cash items in process of collection | 5 | 604,077 | 520,267 | |||||||
Trading investments | 6 | 287,567 | 338,287 | |||||||
Investments under resale agreements | 7 | 17,469 | 6,993 | |||||||
Financial derivative contracts | 8 | 1,494,018 | 1,293,212 | |||||||
Interbank loans, net | 9 | 125,395 | 90,527 | |||||||
Loans and accounts receivable from customers, net | 10 | 20,327,021 | 18,325,957 | |||||||
Available for sale investments | 12 | 1,700,993 | 1,826,158 | |||||||
Held to maturity investments | - | - | ||||||||
Investments in associates and other companies | 13 | 9,681 | 7,614 | |||||||
Intangible assets | 14 | 66,703 | 87,347 | |||||||
Property, plant, and equipment | 15 | 180,215 | 162,214 | |||||||
Current taxes | 16 | 1,643 | 10,227 | |||||||
Deferred taxes | 16 | 230,215 | 186,407 | |||||||
Other assets | 17 | 400,025 | 655,217 | |||||||
TOTAL ASSETS | 27.016.832 | 24.760.841 | ||||||||
LIABILITIES | ||||||||||
Deposits and other demand liabilities | 18 | 5,620,763 | 4.970.019 | |||||||
Cash items in process of being cleared | 5 | 276,379 | 284.953 | |||||||
Obligations under repurchase agreements | 7 | 208,972 | 304.117 | |||||||
Time deposits and other time liabilities | 18 | 9,675,272 | 9.112.213 | |||||||
Financial derivative contracts | 8 | 1,300,109 | 1.146.161 | |||||||
Interbank borrowings | 19 | 1,682,377 | 1.438.003 | |||||||
Issued debt instruments | 20 | 5,198,658 | 4.571.289 | |||||||
Other financial liabilities | 20 | 189,781 | 192.611 | |||||||
Current taxes | 16 | 50,242 | 525 | |||||||
Deferred taxes | 16 | 25,088 | 9.544 | |||||||
Provisions | 22 | 236,232 | 221.089 | |||||||
Other liabilities | 23 | 198,777 | 341.274 | |||||||
TOTAL LIABILITIES | 24.662.650 | 22,591,798 | ||||||||
EQUITY | ||||||||||
Attributable to the Bank's shareholders: | 2,325,678 | 2.134.778 | ||||||||
Capital | 25 | 891,303 | 891.303 | |||||||
Reserves | 25 | 1,130,991 | 975.460 | |||||||
Valuation adjustments | 25 | (5,964 | ) | (3.781 | ) | |||||
Retained earnings | 309,348 | 271.796 | ||||||||
Retained earnings from prior years | - | - | ||||||||
Income for the period | 441,926 | 388.282 | ||||||||
Minus: Provision for mandatory dividends | 25 | (132,578 | ) | (116.486 | ) | |||||
Non-controlling interest | 27 | 28,504 | 34.265 | |||||||
TOTAL EQUITY | 2,354,182 | 2,169,043 | ||||||||
TOTAL LIABILITIES AND EQUITY | 27,016,832 | 24,760,841 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 5 |
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the years ended
December 31, | ||||||||||
2013 | 2012 | |||||||||
NOTE | MCh$ | MCh$ | ||||||||
OPERATING INCOME | ||||||||||
Interest income | 28 | 1,871,204 | 1,890,953 | |||||||
Interest expense | 28 | (794,442 | ) | (848,219 | ) | |||||
Net interest income | 1,076,762 | 1,042,734 | ||||||||
Fee and commission income | 29 | 346,120 | 360,467 | |||||||
Fee and commission expense | 29 | (116,284 | ) | (102,780 | ) | |||||
Net fee and commission income | 229,836 | 257,687 | ||||||||
Net loss from financial operations (net trading loss) | 30 | (28,613 | ) | (64,079 | ) | |||||
Net foreign exchange gain | 31 | 144,726 | 146,378 | |||||||
Other operating income | 36 | 20,508 | 19,758 | |||||||
Net operating profit before provision for loan losses | 1,443,219 | 1,402,478 | ||||||||
Provision for loan losses | 32 | (364,031 | ) | (366,702 | ) | |||||
NET OPERATING PROFIT | 1,079,188 | 1,035,776 | ||||||||
Personnel salaries and expenses | 33 | (308,344 | ) | (299,904 | ) | |||||
Administrative expenses | 34 | (188,191 | ) | (175,883 | ) | |||||
Depreciation and amortization | 35 | (61,074 | ) | (56,369 | ) | |||||
Impairment of property, plant, and equipment | 35 | (244 | ) | (90 | ) | |||||
Other operating expenses | 36 | (62,351 | ) | (59,716 | ) | |||||
Total operating expenses | (620,204 | ) | (591,962 | ) | ||||||
OPERATING INCOME | 458,984 | 443,814 | ||||||||
Income from investments in associates and other companies | 13 | 79,544 | 267 | |||||||
Income before tax | 538,528 | 444,081 | ||||||||
Income tax expense | 16 | (94,467 | ) | (51,174 | ) | |||||
NET INCOME FOR THE YEAR | 444,061 | 392,907 | ||||||||
Attributable to: | ||||||||||
Equity holders of the Bank | 441,926 | 388,282 | ||||||||
Non-controlling interest | 27 | 2,135 | 4,625 | |||||||
Earnings per share attributable to Equity holders of the Bank : | ||||||||||
(expressed in Chilean pesos) | ||||||||||
Basic earnings | 25 | 2.345 | 2.060 | |||||||
Diluted earnings | 25 | 2.345 | 2.060 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 6 |
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
For the years ended
December 31, | ||||||||||
2013 | 2012 | |||||||||
NOTE | MCh$ | MCh$ | ||||||||
NET INCOME FOR THE YEAR | 444,061 | 392,907 | ||||||||
OTHER COMPREHENSIVE INCOME - ITEMS WHICH MAY BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS: | ||||||||||
Available for sale investments | 12 | 10,857 | (13,060 | ) | ||||||
Cash flow hedge | 25 | (13,572 | ) | 4,921 | ||||||
Other comprehensive income which may be reclassified subsequently to profit or loss, before tax taxes | (2,715 | ) | (8,139 | ) | ||||||
Income tax related to items which may be reclassified subsequently to profit or loss | 16 | 543 | 1,572 | |||||||
Other comprehensive income for the year which may be reclassified subsequently to profit or loss, net of tax | (2,172 | ) | (6,567 | ) | ||||||
OTHER COMPREHENSIVE INCOME THAT MAY NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS | - | - | ||||||||
TOTAL COMPREHENSIVE INCOME FOR THE YEAR | 441,889 | 386,340 | ||||||||
Attributable to: | ||||||||||
Equity holders of the Bank | 439,743 | 381,669 | ||||||||
Non-controlling interests | 27 | 2,146 | 4,671 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 7 |
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2013 and 2012
RESERVES | ACCUMULATED OTHER COMPREHENSIVE INCOME | RETAINED EARNINGS | ||||||||||||||||||||||||||||||||||||||||||||||
Capital | Reserves and other retained earnings | Effects of merger of companies under common control | Available for sale investments | Cash flow hedge | Income tax effects | Retained earnings of prior years | Income for the year | Provision for mandatory dividends | Total attributable to shareholders | Non-controlling interest | Total Equity | |||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||
Equity as of December 31, 2011 | 891,303 | 804,752 | (2,224 | ) | 3,077 | 394 | (639 | ) | - | 435,084 | (130,525 | ) | 2,001,222 | 33,801 | 2,035,023 | |||||||||||||||||||||||||||||||||
Adjustment for accounting changes (IAS 19) (*) | - | (1,101 | ) | - | - | - | - | - | - | - | (1,101 | ) | - | (1,101 | ) | |||||||||||||||||||||||||||||||||
Distribution of income from previous period | - | - | - | - | - | - | 435,084 | (435,084 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||||
Equity as of January 1, 2012 | 891,303 | 803,651 | (2,224 | ) | 3,077 | 394 | (639 | ) | 435,084 | - | (130,525 | ) | 2,000,121 | 33,801 | 2,033,922 | |||||||||||||||||||||||||||||||||
Dividends distributions/ withdrawals made | - | - | - | - | - | - | (261,051 | ) | - | 130,525 | (130,526 | ) | (4,207 | ) | (134,733 | ) | ||||||||||||||||||||||||||||||||
Transfer of retained earnings to reserves | - | 174,033 | - | - | - | - | (174,033 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Provision for mandatory dividends | - | - | - | - | - | - | - | - | (116,486 | ) | (116,486 | ) | - | (116,486 | ) | |||||||||||||||||||||||||||||||||
Subtotals | - | 174,033 | - | - | - | - | (435,084 | ) | - | 14,039 | (247,012 | ) | (4,207 | ) | (251,219 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | (13,118 | ) | 4,921 | 1,584 | - | - | - | (6,613 | ) | 46 | (6,567 | ) | |||||||||||||||||||||||||||||||||
Income for the year | - | - | - | - | - | - | - | 388,282 | - | 388,282 | 4,625 | 392,907 | ||||||||||||||||||||||||||||||||||||
Subtotals | - | - | - | (13,118 | ) | 4,921 | 1,584 | - | 388,282 | - | 381,669 | 4,671 | 386,340 | |||||||||||||||||||||||||||||||||||
Equity as of December 31, 2012 | 891,303 | 977,684 | (2,224 | ) | (10,041 | ) | 5,315 | 945 | - | 388,282 | (116,486 | ) | 2,134,778 | 34,265 | 2,169,043 | |||||||||||||||||||||||||||||||||
Equity as of December 31, 2012 | 891,303 | 977,684 | (2,224 | ) | (10,041 | ) | 5,315 | 945 | - | 388,282 | (116,486 | ) | 2,134,778 | 34,265 | 2,169,043 | |||||||||||||||||||||||||||||||||
Distribution of income from previous period | - | - | - | - | - | - | 388,282 | (388,282 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||||
Equity as of January 1, 2013 | 891,303 | 977,684 | (2,224 | ) | (10,041 | ) | 5,315 | 945 | 388,282 | - | (116,486 | ) | 2,134,778 | 34,265 | 2,169,043 | |||||||||||||||||||||||||||||||||
Own shares transactions (1) | - | 29 | - | - | - | - | - | - | - | 29 | - | 29 | ||||||||||||||||||||||||||||||||||||
Dividends distributions/ withdrawals made | - | - | - | - | - | - | (232,780 | ) | - | 116,486 | (116,294 | ) | (7,907 | ) | (124,201 | ) | ||||||||||||||||||||||||||||||||
Transfer of retained earnings to reserves (*) | - | 155,502 | - | - | - | - | (155,502 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Provision for mandatory dividends | - | - | - | - | - | - | - | - | (132,578 | ) | (132,578 | ) | - | (132,578 | ) | |||||||||||||||||||||||||||||||||
Subtotals | - | 155,531 | - | - | - | - | (388,282 | ) | - | (16,092 | ) | (248,843 | ) | (7,907 | ) | (256,750 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | 10,843 | (13,572 | ) | 546 | - | - | - | (2,183 | ) | 11 | (2,172 | ) | |||||||||||||||||||||||||||||||||
Income for the year | - | - | - | - | - | - | - | 441,926 | - | 441,926 | 2,135 | 444,061 | ||||||||||||||||||||||||||||||||||||
Subtotals | - | - | - | 10,843 | (13,572 | ) | 546 | - | 441,926 | - | 439,743 | 2,146 | 441,889 | |||||||||||||||||||||||||||||||||||
Equity as of December 31, 2013 | 891,303 | 1,133,215 | (2,224 | ) | 802 | (8,257 | ) | 1,491 | - | 441,926 | (132,578 | ) | 2,325,678 | 28,504 | 2,354,182 |
(1) | Corresponds to the profit on sale of own shares received in lieu of payment, see Note 03 - Significant events. |
Total attributable to Bank shareholders | Allocated to reserves | Allocated to dividends | Percentage distributed | Number of | Dividend per share | |||||||||||||||||||
Period | MCh$ | MCh$ | MCh$ | % | shares | (in pesos) | ||||||||||||||||||
Year 2012 (Shareholders Meeting April 2013) (*) | 387,967 | 155,187 | 232,780 | 60 | 188,446,126,794 | 1.235 | ||||||||||||||||||
Year 2011 (Shareholders Meeting April 2012) | 435,084 | 174,033 | 261,051 | 60 | 188,446,126,794 | 1.385 |
(*) For presentation purposes, these amounts have been adjusted to reflect the requirements established by IAS 19 - Revised 'Employee Benefits'. The amount of dividends distributed in 2012, are shown as that amount approved at the time by the Shareholders meeting. See Note 02 - Accounting changes.
Consolidated Financial Statements December 2013 / Banco Santander Chile 8 |
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOW
For the years ended
December 31, | ||||||||||
2013 | 2012 | |||||||||
NOTE | MCh$ | MCh$ | ||||||||
A - CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||
CONSOLIDATED INCOME BEFORE TAX | 538,528 | 441,081 | ||||||||
Debits (credits) to income that do not represent cash flows | ||||||||||
Depreciation and amortization | 35 | 61,074 | 56,369 | |||||||
Impairment of property, plant, and equipment | 15 | 244 | 90 | |||||||
Provision for loan losses | 32 | 419,315 | 399,717 | |||||||
Mark to market of trading investments | (13,711 | ) | (9,978 | ) | ||||||
Income from investments in associates and other companies | 13 | (1,422 | ) | (267 | ) | |||||
Net gain on sale of assets received in lieu of payment | 36 | (17,046 | ) | (9,307 | ) | |||||
Provision on assets received in lieu of payment | 36 | 3,580 | 3,902 | |||||||
Net gain on sale of investments in associates and other companies | 36 | - | (599 | ) | ||||||
Net gain on sale of subsidiary companies | 13 | (78,122 | ) | - | ||||||
Net gain on sale of property, plant and equipment | 36 | (176 | ) | (9,194 | ) | |||||
Charge off of assets received in lieu of payment | 36 | 8,796 | 9,180 | |||||||
Net interest income | 28 | (1,076,762 | ) | (1,042,734 | ) | |||||
Net fee and commission income | 29 | (229,836 | ) | (257,687 | ) | |||||
Debits (credits) to income that do not represent cash flows | 38,580 | 18,324 | ||||||||
Changes in deferred taxes | 16 | (27,721 | ) | (32,653 | ) | |||||
Increase/decrease in operating assets and liabilities | ||||||||||
Decrease (increase) of loans and accounts receivables from customers, net | (1,978,593 | ) | (1,272,687 | ) | ||||||
Decrease (increase) of financial investments | 175,886 | (93,372 | ) | |||||||
Decrease (increase) due to resale agreements (assets) | (10,476 | ) | 5,935 | |||||||
Decrease (increase) of interbank loans | (34,868 | ) | (2,985 | ) | ||||||
Decrease (increase) of assets received or awarded in lieu of payment | 4,053 | 45,280 | ||||||||
Increase of debits in customers checking accounts | 397,383 | 462,367 | ||||||||
Increase (decrease) of time deposits and other time liabilities | 563,059 | 195,535 | ||||||||
Increase (decrease) of obligations with domestic banks | 500 | - | ||||||||
Increase (decrease) of other demand liabilities or time obligations | 253,361 | 93,838 | ||||||||
Increase (decrease) of obligations with foreign banks | 244,051 | (481,677 | ) | |||||||
Increase (decrease) of obligations with Central Bank of Chile | (177 | ) | (412 | ) | ||||||
Increase (decrease) obligations under repurchase agreements | (95,145 | ) | (240,264 | ) | ||||||
Increase (decrease) in other financial liabilities: | (2,830 | ) | 16,012 | |||||||
Net increase of other assets and liabilities | (421,648 | ) | (629,131 | ) | ||||||
Redemption of letters of credit | (40,231 | ) | (45,830 | ) | ||||||
Mortgage bond issuance | 70,339 | - | ||||||||
Senior bond issuances | 664,422 | 623,457 | ||||||||
Redemption of senior bonds and payments of interest | (190,719 | ) | (507,369 | ) | ||||||
Interest received | 1,905,532 | 1,910,729 | ||||||||
Interest paid | (729,942 | ) | (871,130 | ) | ||||||
Dividends received from investments in other companies | 13 | 775 | 896 | |||||||
Fees and commissions received | 29 | 346,120 | 360,467 | |||||||
Fees and commissions paid | 29 | (116,284 | ) | (102,780 | ) | |||||
Income tax paid | 16 | (94,467 | ) | (51,174 | ) | |||||
Total cash flow provided by (used in) operating activities | 535,422 | (1,018,051 | ) |
Consolidated Financial Statements December 2013 / Banco Santander Chile 9 |
Banco Santander Chile and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOW
For the years ended
December 31, | ||||||||||
2013 | 2012 | |||||||||
NOTE | MCh$ | MCh$ | ||||||||
B - CASH FLOWS FROM INVESTMENT ACTIVITIES: | ||||||||||
Purchases of property, plant, and equipment | 15 | (40,789 | ) | (36,738 | ) | |||||
Sales of property, plant, and equipment | 15 | 348 | 6,573 | |||||||
Purchases of investments in associates and other companies | 13 | (1,440 | ) | (61 | ) | |||||
Sales of investments in associates and other companies | 13 | 90,281 | 401 | |||||||
Purchases of intangible assets | 14 | (18,400 | ) | (42,262 | ) | |||||
Total cash flow provided by (used in) investment activities | 30,000 | (72,087 | ) | |||||||
C - CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||||
From shareholders’ financing activities | (123,036 | ) | (396,932 | ) | ||||||
Issuance of subordinated bonds | 141,043 | - | ||||||||
Redemption of subordinated bonds and payments of interest | (31,299 | ) | (135,881 | ) | ||||||
Dividends paid | (232,780 | ) | (261,051 | ) | ||||||
From non-controlling interest financing activities | (7,907 | ) | (4,207 | ) | ||||||
Dividends and/or withdrawals paid | (7,907 | ) | (4,207 | ) | ||||||
Total cash flow used in financing activities | (130,943 | ) | (401,139 | ) | ||||||
D – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE YEAR | 434,479 | (1,491,277 | ) | |||||||
E – EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS | (20,699 | ) | (3,664 | ) | ||||||
F - INITIAL BALANCE OF CASH AND CASH EQUIVALENTS | 1,485,728 | 2,980,669 | ||||||||
FINAL BALANCE OF CASH AND CASH EQUIVALENTS | 5 | 1,899,508 | 1,485,728 |
December 31 | ||||||||||
Reconciliation of provisions for the Consolidated Statement of Cash Flow for | 2013 | 2012 | ||||||||
the year | MCh$ | MCh$ | ||||||||
Provision for loan losses for cash flow purposes | 32 | 419,315 | 399,717 | |||||||
Recovery of loans previously charged off | 32 | (55,284 | ) | (33,015 | ) | |||||
Provision for loan losses - net | 364,031 | 366,702 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 10 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Notes to the Consolidated Financial Statements
As of and for the years ended December 31, 2013 and 2012
CORPORATE INFORMATION
Banco Santander Chile (formerly Banco Santiago) is a corporation (limited company bank) organized under the laws of the Republic of Chile, headquartered at Bandera #140, Santiago, which provides a broad range of general banking services to its customers, from individuals to major corporations. Banco Santander Chile and its subsidiaries (collectively referred to herein as the “Bank” or “Banco Santander Chile”) offers commercial and consumer banking services, as well as other services, including factoring, collection, leasing, securities and insurance brokerage, mutual and investment fund management, and investment banking.
A Special Meeting of Shareholders of Banco Santiago was held on July 18, 2002, the minutes of which were notarized as a public deed on July 19, 2002 at the Notarial Office of Santiago before Notary Nancy de la Fuente Hernández, and it was agreed to merge Banco Santander Chile with Banco Santiago by merging the former into the latter, which acquired the former’s assets and liabilities. It was likewise agreed to dissolve Banco Santander Chile in advance and change the name of Banco Santiago to Banco Santander Chile. This change was authorized by Resolution No.79 of the Superintendency of Banks and Financial Institutions (SBIF), adopted on July 26, 2002, published in the Official Journal on August 1, 2002 and registered on page 19,992 under number 16,346 for the year 2002 in the Registry of Commerce of the Curator of Real Estate of Santiago.
In addition to the amendments to the bylaws discussed above, the bylaws have been amended on multiple occasions, the last time at the Special Shareholders Meeting of April 24, 2007, the minutes of which were notarized as a public deed on May 24, 2007 at the Notarial Office of Nancy de la Fuente Hernández. This amendment was approved pursuant to Resolution No.61 of June 6, 2007 of the Superintendency of Banks and Financial Institutions. An extract thereof and the resolution were published in the Official Journal of June 23, 2007 and registered in the Registry of Commerce for 2007 on page 24,064 under number 17,563 of the aforementioned Curator.
By means of this last amendment, Banco Santander Chile, pursuant to its bylaws and as approved by the Superintendency of Banks and Financial Institutions, may also use the names Banco Santander Santiago or Santander Santiago or Banco Santander or Santander.
Banco Santander Spain controls Banco Santander-Chile through its holdings in Teatinos Siglo XXI Inversiones Ltda. and Santander-Chile Holding S.A., which are controlled subsidiaries of Banco Santander Spain. As of December 31, 2013 Banco Santander Spain owns or controls directly and indirectly 99.5% of Santander-Chile Holding S.A. and 100% of Teatinos Siglo XXI Inversiones Ltda. This gives Banco Santander Spain control over 67.18% of the Bank’s shares.
a) | Basis of preparation |
These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). In the event of discrepancies between the accounting principles and the accounting criteria issued by the SBIF (Compendium of Accounting Standard), the latter will prevail.
For purposes of these Consolidated Financial Statements, the Bank uses certain terms and conventions for currency. “USD” refers to “U.S. dollar”, “EUR” refers to “euro”, “CNY” refers to “Chinese yuan”, “CHF” refers to “Swiss franc”, and “UF” refers to “unidad de fomento”, a national inflation-indexed unit.
The Notes to the consolidated financial statements contain additional information to that submitted in the Consolidated Statement of Financial Position, Consolidated Statement of Income, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows. The notes provide narrative descriptions and other information regarding those statements in a clear, relevant, reliable and comparable manner.
Consolidated Financial Statements December 2013 / Banco Santander Chile 11 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
b) | Basis of preparation for the Financial Statements |
The Consolidated Financial Statements as of December 31, 2013 and 2012 consolidate the financial statements of the Bank entities over which the bank has control (including structured entities). Control is achieved when the Bank:
I. | Has power over the investee; | |
II. | Is exposed, or has rights, to variable returns from its involvement with the investee; and | |
III. | Has the ability to use its power to affect its returns. |
The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above..
When the Bank has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities over the investee unilaterally. The Bank considers all relevant facts and circumstances in assessing whether or not the Bank’s voting rights in an investee are sufficient to give it power, including:
· | the size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; |
· | potential voting rights held by the Bank, other vote holders or other parties; |
· | rights arising from other agreements; and |
· | any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings |
Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control over the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Statement of Income and in the Consolidated Statement of Other Comprehensive Income from the date the Bank gains control until the date when the Bank ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Bank and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of the subsidiaries to bring their accounting policies into line with the Bank accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between consolidated entities are eliminated in full on consolidation.
Changes in the consolidated entities ownership interests in subsidiaries that do not result in losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interest and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Bank.
In addition, third parties’ shares in the Consolidated Bank’s equity are presented as “Non controlling interests” in the Consolidated Statement of Changes in Equity. Their share in the income for the year is presented as “Attributable to non-controlling interests” in the Consolidated Statement of Income
Consolidated Financial Statements December 2013 / Banco Santander Chile 12 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
The following companies are considered entities controlled by the Bank and are therefore within the scope of consolidation:
i. | Entities controlled by the Bank through participation in equity |
Percent ownership share | ||||||||||||||||||||||||||||
As of December 31 | ||||||||||||||||||||||||||||
Place of | 2013 | 2012 | ||||||||||||||||||||||||||
Incorporation and | Direct | Indirect | Total | Direct | Indirect | Total | ||||||||||||||||||||||
Name of the Subsidiary | Main activity | operation | % | % | % | % | % | % | ||||||||||||||||||||
Santander Corredora de Seguros Limitada | Insurance brokerage | Santiago, Chile | 99.75 | 0.01 | 99.76 | 99.75 | 0.01 | 99.76 | ||||||||||||||||||||
Santander S.A. Corredores de Bolsa | Financial instruments brokerage | Santiago, Chile | 50.59 | 0.41 | 51.00 | 50.59 | 0.41 | 51.00 | ||||||||||||||||||||
Santander Asset Management S.A. Administradora General de Fondos (*) | Third-party funds administration | Santiago, Chile | - | - | - | 99.96 | 0.02 | 99.98 | ||||||||||||||||||||
Santander Agente de Valores Limitada | Securities brokerage | Santiago, Chile | 99.03 | - | 99.03 | 99.03 | - | 99.03 | ||||||||||||||||||||
Santander S.A. Sociedad Securitizadora | Purchase of credits and issuance of debt instruments | Santiago, Chile | 99.64 | - | 99.64 | 99.64 | - | 99.64 | ||||||||||||||||||||
Santander Servicios de Recaudación y Pagos Limitada | Support society, making and receiving payments | Santiago, Chile | 99.90 | 0.10 | 100.00 | 99.90 | 0.10 | 100.00 |
(*) Santander Asset Management S.A. Administradora General de Fondos was sold in December 2013, see Note 03 - Significant events.
The Bank only holds complete controlling participation in Santander Servicios de Recaudación y Pagos Limitada. The detail of non-controlling participation on all the remaining subsidiaries can be seen in Note 27 - Non controlling interest.
ii. | Entities controlled by the Bank through other considerations |
The following companies have been consolidated based on the determination that the Bank has control as previously defined above and in accordance with IFRS 10, Consolidated Financial Statements:
- | Santander Gestión de Recaudación y Cobranza Limitada (collection services) |
- | Multinegocios S.A. (management of sales force). |
- | Servicios Administrativos y Financieros Limitada (management of sales force) |
- | Fiscalex Limitada (collection services) |
- | Multiservicios de Negocios Limitada (call center) |
- | Bansa Santander S.A. (management of repossessed assets and leasing of properties) |
iii. | Associates |
An associate is an entity over which the Bank has significant influence. Significant influence, in this case, is defined as the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate.
The following companies are considered “Associates” in which the Bank accounts for its participation using the equity method:
Consolidated Financial Statements December 2013 / Banco Santander Chile 13 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Percent ownership share | ||||||||||||
Place of | As of December 31 | |||||||||||
Incorporation | 2013 | 2012 | ||||||||||
Name Subsidiaries | Main activity | and operation | % | % | ||||||||
Redbanc S.A. | ATM services | Santiago, Chile | 33.43 | 33.43 | ||||||||
Transbank S.A. | Debit and credit card services | Santiago, Chile | 25.00 | 25.00 | ||||||||
Centro de Compensación Automatizado | Electronic fund transfer and compensation services | Santiago, Chile | 33.33 | 33.33 | ||||||||
Sociedad Interbancaria de Depósito de Valores S.A. | Delivery of securities on public offer | Santiago, Chile | 29.28 | 29.28 | ||||||||
Cámara Compensación de Alto Valor S.A. | Payments clearing | Santiago, Chile | 14.14 | 14.14 | ||||||||
Administrador Financiero del Transantiago S.A. | Administration of boarding passes to public transportation | Santiago, Chile | 20.00 | 20.00 | ||||||||
Sociedad Nexus S.A. | Credit card processor | Santiago, Chile | 12.90 | 12.90 | ||||||||
Servicios de Infraestructura de Mercado OTC S.A. | Administration of the infrastructure for the financial market of derivative instruments | Santiago, Chile | 11.11 | - |
In the case of Nexus S.A. and Cámara Compensación de Alto Valor S.A., Banco Santander Chile has a representative on the Board of Directors. According to this fact and definitions previously mentioned , the Bank has concluded that it exerts significant influence over those entities.
In July, 2013 national banks jointly created the company Servicios de Infraestructura de Mercado OTC S.A, and its objective is to offer certain services to the financial market, granting services of registration, confirmation, storage, consolidation and reconciliation of operations with derivative financial instruments. Banco Santander possesses an 11.11% equity participation (see Note 03 - Significant events and Note 13 - Investments in associates and other companies). This investee is considered an associate since, through its executives, the Bank has been actively involved in managing the company, in the process of organization and in the implementation of the functional structure of this company, resulting in significant influence over this company.
iv. | Share or rights in other companies |
Entities in which the Bank has no control or significant influence are presented in this category. These holdings are shown at purchase value.
c) | Non-controlling interest |
Non-controlling interest represents the portion of net income and net assets which the Bank does not own, either directly or indirectly. It is presented as “Attributable to non-controlling interest” separately in the Consolidated Statement of Income, and separately from shareholders’ equity in the Consolidated Statement of Financial Position.
In the case of entities controlled by the Bank through other considerations, income and equity are presented in full as non-controlling interest, since the Bank controls them, but does not have any ownership expressed as a percentage..
d) | Operating segments |
The Bank discloses separate information for each operating segment that
i. | has been identified |
ii. | exceeds the quantitative thresholds stipulated for a segment. |
Operating segments with similar economic characteristics often have a similar long-term financial performance. Two or more segments can be combined only if aggregation is consistent with International Financial Reporting Standards 8 “Operating Segments” (IFRS 8) and the segments have similar economic characteristics and are similar in each of the following respects:
Consolidated Financial Statements December 2013 / Banco Santander Chile 14 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
i. | the nature of the products and services; |
ii. | the nature of the production processes; |
iii. | the type or class of customers that use their products and services; |
iv. | the methods used to distribute their products or services; and |
v. | if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities. |
The Bank reports separately on each operating segment that exceeds any of the following quantitative thresholds:
i. | Its reported revenue, from both external customers and intersegment sales or transfers, is 10% or more of the combined internal and external revenue of all the operating segments. |
ii. | The absolute amount of its reported profit or loss is 10% or more of the greater in absolute amount of: (i) the combined reported profit of all the operating segments that did not report a loss; (ii) the combined reported loss of all the operating segments that reported a loss. |
iii. | Its assets represent 10% or more of the combined assets of all the operating segments. |
Operating segments that do not meet any of the quantitative thresholds may be treated as segments to be reported, in which case the information must be disclosed separately if management believes it could be useful for the users of the Consolidated Financial Statements.
Information about other business activities of the operating segments not separately reported is combined and disclosed in the “Other segments” category.
According to the information presented, the Bank’s segments were determined under the following definitions: An operating segment is a component of an entity:
i. | that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses from transactions with other components of the same entity); |
ii. | whose operating results are regularly reviewed by the entity’s chief executive officer, who makes decisions about resources allocated to the segment and assess its performance; and |
iii. | for which discrete financial information is available. |
e) | Functional and presentation currency |
According to International Accounting Standard No.21 “The Effects of Changes in Foreign Exchange Rates” (IAS 21), the Chilean peso, which is the currency of the primary economic environment in which the Bank operates and the currency which influences its costs and revenues structure, has been defined as the Bank’s functional and presentation currency.
Accordingly, all balances and transactions denominated in currencies other than the Chilean Peso are treated as “foreign currency.”
f) | Foreign currency transactions |
The Bank grants loans and accepts deposits in amounts denominated in foreign currencies, mainly the U.S. dollar. Assets and liabilities denominated in foreign currencies, held by the Bank are translated to Chilean pesos based on the market rate published by Reuters at 1:30 p.m. on the last business day of every month; the rate used was Ch$524.20 per US$1 as of December 31, 2013 (Ch$478.75 per US$1 as of December 31, 2012).
The amounts of net foreign exchange gains and losses includes recognition of the effects that exchange rate variations have on assets and liabilities denominated in foreign currencies and the profits and losses on foreign exchange spot and forward transactions undertaken by the Bank.
Consolidated Financial Statements December 2013 / Banco Santander Chile 15 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
g) | Definitions and classification of financial instruments |
i. | Definitions |
A “financial instrument” is any contract that gives rise to a financial asset of one entity, and a financial liability or equity instrument of another entity.
An “equity instrument” is a legal transaction that evidences a residual interest in the assets of an entity deducting all of its liabilities.
A “Financial derivative” is a financial instrument whose value changes in response to the changes in an observable market variable (such as an interest rate, a foreign exchange rate, a financial instrument’s price, or a market index, including credit ratings), whose initial investment is very small compared with other financial instruments having a similar response to changes in market factors, and which is generally settled at a future date.
“Hybrid financial instruments” are contracts that simultaneously include a non-derivative host contract together with a financial derivative, known as an embedded derivative, which is not separately transferable and has the effect that some of the cash flows of the hybrid contract vary in a way similar to a stand-alone derivative.
ii. | Classification of financial assets for measurement purposes |
The financial assets are initially classified into the various categories used for management and measurement purposes.
Financial assets are included for measurement purposes in one of the following categories:
- | Trading investments portfolio (at fair value through profit and loss): This category includes the financial assets acquired for the purpose of generating a profit in the short term from fluctuations in their prices. This category includes the portfolio of trading investments and financial derivative contracts not designated as hedging instruments. |
- | Available for sale investment portfolio: is comprised of debt instruments not classified as “held-to-maturity investments,” “Credit investments (loans and accounts receivable from customers or interbank loans)” or “Financial assets at fair value through profit or loss”. Available for sale (AFS) investments are initially recorded at cost, which includes transaction costs that are directly attributable to the acquisition. AFS instruments are subsequently measured at fair value, or based on appraisals made with the use of internal models when appropriate. Unrealized gains or losses stemming from changes in fair value are recorded as a debit or credit to Other Comprehensive Income under the heading “Other comprehensive income” within equity. When these investments are disposed of or become impaired, the cumulative amount of the adjustments at fair value recognized in Other Comprehensive Income is transferred to the Consolidated Statement of Income under “Net income from financial operations.” |
- | Held to maturity instruments portfolio: this category includes debt securities traded on an active market, with a fixed maturity, and with fixed or determinable payments, for which the Bank has both the intent and a proven ability to hold to maturity. Held to maturity investments are recorded at their amortized cost plus interest earned, minus any impairment losses established when their carrying amount exceeds the present value of estimated future cash flows. |
- | Credit investments (loans and accounts receivable from customers or interbank loans): this category includes financing granted to third parties, based on their nature, regardless of the type of borrower and the form of financing. It includes loans and accounts receivable from customers, interbank loans, and financial lease transactions in which the consolidated entities act as lessor. Loans and receivable shall be measured at amortized cost using the effective interest method. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 16 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
iii. | Classification of financial assets for presentation purposes |
For presentation purposes, the financial assets are classified by their nature into the following line items in the consolidated financial statements:
- | Cash and deposits in banks: This line includes cash balances, checking accounts and on-demand deposits with the Central Bank of Chile and other domestic and foreign financial institutions. Amounts invested or received as overnight deposits are included in this item. |
- | Cash in process of collection: : This item represents domestic transactions in the process of transfer through a central domestic clearinghouse or international transactions which may be delayed in settlement due to time differences, etc. |
- | Trading investments: This item includes financial instruments held-for-trading and investments in mutual funds which must be adjusted to their fair value in the same way as instruments acquired for trading. |
- | Financial derivative contracts: Financial derivative contracts with positive fair values are presented in this item. It includes both independent contracts as well as derivatives that should and can be separated from a host contract, whether they are for trading or accounting hedging, as shown in Note 8 to the Consolidated Financial Statements. |
- | Trading derivatives: Includes the fair value in favor of the Bank of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments. |
- | Hedging derivatives: Includes the fair value in favor of the Bank of derivatives designated as hedging instruments in hedge accounting, including the embedded derivatives separated from the hybrid financial instruments designated as hedging instruments in hedge accounting. |
- | Interbank loans: This item includes the balances of transactions with domestic and foreign banks, including the Central Bank of Chile, other than those reflected in the preceding items. |
- | Loans and accounts receivables from customers: These loans are non-derivative financial assets for which fixed or determined amounts are charged, that are not listed on an active market and which the Bank does not intend to sell immediately or in the short term. When the Bank is the lessor in a lease, and it substantially transfers the risks and benefits incidental to the leased asset, the transaction is presented in loans and accounts receivable from customers. |
- | Investment instruments: Are classified into two categories: held-to-maturity investments, and available-for-sale investments. The held-to-maturity investment category includes only those instruments for which the Bank has the ability and intent to hold them until their maturity. The remaining investments are treated as available for sale. |
iv. | Classification of financial liabilities for measurement purposes |
The financial liabilities are initially classified into the various categories used for management and measurement purposes.
Financial liabilities are included, for measurement purposes, in one of the following categories:
- | Financial liabilities held for trading (at fair value through profit or loss): financial liabilities issued to generate a short-term profit from fluctuations in their prices, financial derivatives not deemed to qualify for hedge accounting and financial liabilities arising from firm commitment under repurchase agreements or those entered into under short term commitments.. |
- | Financial liabilities at amortized cost: financial liabilities, regardless of their type and maturity, not included in any of the aforementioned categories which arise from the borrowing activities of financial institutions. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 17 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
v. | Classification of financial liabilities for presentation purposes |
The financial liabilities are classified by their nature into the following line items in the consolidated statements of financial position:
- | Deposits and other demand liabilities: This item includes all on-demand obligations except for term savings accounts, which are not considered on-demand instruments in view of their special characteristics. Obligations whose payment may be required during the period are deemed to be on-demand obligations. Operations which become callable the day after the closing date are not treated as on-demand obligations. |
- | Cash in process of being cleared: : This item represents domestic transactions in the process of transfer through a central domestic clearinghouse or international transactions which may be delayed in settlement due to time differences, etc.. |
- | Obligations under repurchase agreements: This item includes the balances of sales of financial instruments under securities repurchase and loan agreements. According to actual applicable regulation, the Bank does not record instruments acquired under resale agreements in its investment portfolio, but as investments under resale agreements. |
- | Time deposits and other demand liabilities: This item shows the balances of deposit transactions in which a term at the end of which they become callable has been stipulated. |
- | Financial derivative contracts: This item includes financial derivative contracts with negative fair values (i.e. against the Bank), whether they are for trading or for accounting hedging purposes, as set forth in Note 8. |
- | Trading derivatives: Includes the fair value against the Bank of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments. |
- | Hedging derivatives: Includes the fair value against the Bank of derivatives designated as hedging instruments in hedge accounting, including the embedded derivatives separated from the hybrid financial instruments designated as hedging instruments in hedge accounting. |
- | Interbank borrowings: This item includes obligations due to other domestic banks, foreign banks, or the Central Bank of Chile, which were not classified in any of the previous categories. |
- | Debt instruments issued: This encompasses three items; Obligations under letters of credit, Subordinated bonds and senior bonds placed in the local and foreign market. |
- | Other financial liabilities: This item includes credit obligations to persons other than domestic banks, foreign banks, or the Central Bank of Chile, for financing purposes or operations in the normal course of business. |
h) | Valuation of financial assets and liabilities and recognition of fair value changes |
In general, financial assets and liabilities are initially recorded at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments not measured at fair value through profit or loss includes transaction costs. Subsequently, and at the end of each reporting period, they are measured pursuant to the following criteria:
i. | Valuation of financial assets |
Financial assets are measured according to their fair value, gross of any transaction costs that may be incurred for their sale, except for loans and accounts receivable.
According to IFRS 13 Fair Value Measurement (effective date from January 1, 2013), “fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. A fair value measurement is for a particular asset or liability. Therefore, when measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.
Consolidated Financial Statements December 2013 / Banco Santander Chile 18 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
The fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place: (a) in the principal market for the asset or liability, or (b) in the absence of a principal market, the most advantageous for the asset or liability. When there is no observable market to provide pricing information in connection with the sale of an asset or transfer a liability at the measurement date, the fair value shall be assumed in a transaction that date, considered from the perspective of a potential market who intends to maximize value associated with the asset or liability.
For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
· | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; |
· | Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and |
· | Level 3 inputs are unobservable inputs for the asset or liability. |
All derivatives are recorded in the Consolidated Statements of Financial Position at the fair value from their trade date. If their fair value is positive, they are recorded as an asset, and if their fair value is negative, they are recorded as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price. The changes in the fair value of derivatives from the trade date are recorded in “Net income from financial operations” in the Consolidated Statement of Income.
Specifically, the fair value of financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price. If, for exceptional reasons, the quoted price cannot be determined on a given date, the fair value is determined using similar methods to those used to measure over the counter (OTC) derivatives. The fair value of OTC derivatives is the sum of the future cash flows resulting from the instrument, discounted to present value at the date of valuation (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV) and option pricing models, among other methods. Also, within the fair value of derivatives are included Credit Valuation Adjustment (CVA), all with the objective that the fair value of each instrument includes the credit risk of its counterparty.
“Loans and accounts receivable from customers” and “Held-to-maturity instrument portfolio” are measured at amortized cost using the “effective interest method.” “Amortized cost” is the acquisition cost of a financial asset or liability, plus or minus, as appropriate, prepayments of principal and the cumulative amortization (recorded in the consolidated income statement) of the difference between the initial cost and the maturity amount as calculated under the effective interest rate method. For financial assets, amortized cost also includes any reductions for impairment or uncollectibility. For loans and accounts receivable designated as hedged items in fair value hedges, the changes in their fair value related to the risk or risks being hedged are recorded in “Net income from financial operations”.
The “effective interest method” is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument , or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
For fixed-rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date plus, where applicable, the fees and transaction costs that, because of their nature, are a part of the financial return. For floating-rate financial instruments, the effective interest rate coincides with the rate of return prevailing until the next benchmark interest reset date.
Consolidated Financial Statements December 2013 / Banco Santander Chile 19 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
The amounts at which the financial assets are recorded represent, in all material respects, the Bank’s maximum exposure to credit risk at each reporting date. The Bank has also received collateral and other credit enhancements to mitigate its exposure to credit risk, which consist mainly of mortgage guarantees, equity instruments and personal securities, assets leased out under leasing and rental agreements, assets acquired under repurchase agreements, securities loans and derivatives.
Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as trading investments.
ii. | Valuation of financial liabilities |
In general, financial liabilities are measured at amortized cost, as defined above, except for those financial liabilities designated as hedged items or hedging instruments and financial liabilities held for trading, which are measured at fair value.
iii. | Valuation techniques |
Financial instruments at fair value, determined on the basis of quotations in active markets, include government debt securities, private sector debt securities, shares, short positions, and fixed-income securities issued.
In cases where price quotations cannot be observed, the Management makes its best estimate of the price that the market would set using its own internal models. In most cases, these models use data based on observable market parameters as significant inputs and, in very specific cases, they use significant inputs based on unobservable data. . Various techniques are employed to make these estimates, including the extrapolation of observable market data.
IFRS 13 defines “fair value" as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions. Fair value under IFRS 13 is an exit price regardless of whether that price is directly observable or estimated using another valuation technique.
The main techniques used as of December 31, 2013 and 2012 by the Bank’s internal models to determine the fair value of the financial instruments are as follows:
i. | In the valuation of financial instruments permitting static hedging (mainly “forwards” and “swaps”), the “present value” method is used. Estimated future cash flows are discounted using the interest rate curves of the related currencies. The interest rate curves are generally observable market data. |
ii. | In the valuation of financial instruments requiring dynamic hedging (mainly structured options and other structured instruments), the Black-Scholes model is normally used. Where appropriate, observable market inputs are used to obtain factors such as the bid-offer spread, exchange rates, volatility, correlation indexes and market liquidity. |
iii. | In the valuation of certain financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors, the present value method (futures) and the Black-Scholes model (plain vanilla options) are used. The main inputs used in these models are observable market data, including the related interest rate curves, volatilities, correlations and exchange rates. |
The fair value of the financial instruments arising from the abovementioned internal models considers contractual terms and observable market data, which include interest rates, credit risk, exchange rates, the quoted market price of shares, volatility and prepayments, among other things. These methodologies can be adjusted and evaluated, as appropriate, through the internal calculation of fair value and the subsequent comparison with the related actively traded price.
Consolidated Financial Statements December 2013 / Banco Santander Chile 20 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
iv. | Recording results |
As a general rule, changes in the carrying amount of financial assets and liabilities are recorded in the Consolidated Statement of Income, distinguishing between those arising from the accrual of interest (which are recorded under interest income or interest expense as appropriate); and those arising for other reasons, which are recorded at their net amount under “Net income from financial operations”.
In the case of trading investments, the fair value adjustments, interest income, indexation and foreign exchange, are included in the Consolidated Statement of Income under “Net income from financial operations.”
Adjustments due to changes in fair value from:
“Available-for-sale financial instruments” are recorded in Other Comprehensive Income and accumulated under the heading “Other comprehensive income” within Equity.
- | When the AFS instruments are disposed of or are determined to be impaired, the amount of the fair value adjustments accumulated as “Valuation Adjustment” is reclassified to the Consolidated Statement of Income. |
v. | Hedging transactions |
The Bank uses financial derivatives for the following purposes:
i. | to sell to customers who request these instruments in the management of their market and credit risks, |
ii. | to use these derivatives in the management of the risks of the Bank entities’ own positions and assets and liabilities (“hedging derivatives”), and |
iii. | to obtain profits from changes in the price of these derivatives (“trading derivatives”). |
All financial derivatives that do not qualify for hedge accounting are accounted for as “trading derivatives.”
A derivative qualifies for hedge accounting if all the following conditions are met:
1. | The derivatives hedge one of the following three types of exposure: |
a. | Changes in the value of assets and liabilities due to fluctuations, among others, in inflation (UF), in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”); |
b. | Changes in the estimated cash flows arising from financial assets and liabilities, commitments and highly probable forecasted transactions (“cash flow hedge”); |
c. | The net investment in a foreign operation (“hedge of a net investment in a foreign operation”). |
2. | It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that: |
a. | At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”); |
b. | There is sufficient evidence that the hedge was actually effective during the life of the hedged item or position (“retrospective effectiveness”). |
3. | There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 21 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
The changes in the value of financial instruments qualifying for hedge accounting are recorded as follows:
a. | In fair value hedges, the gains or losses arising on both hedging instruments and the hedged items (attributable to the type of risk being hedged) are recorded directly in the Consolidated Statement of Income. |
b. | In fair value hedges of interest rate risk on a portfolio of financial instruments, gains or losses that arise in measuring hedging instruments are recorded directly in the Consolidated Statement of Income, whereas gains or losses due to changes in fair value of the hedged item (attributable to the hedged risk) are recorded in the Consolidated Statement of Income as a charge or credit, as applicable, to “Net income from financial operations”. |
c. | In cash flow hedges, the effective portion of the change in value of the hedging instrument is recorded under the heading “Cash flow hedge” within the Equity component “Other comprehensive income”, until the hedged transaction occurs, thereafter being recorded in the Consolidated Statement of Income, unless the hedged transaction results in the recognition of non–financial assets or liabilities, in which case it is included in the cost of the non-financial asset or liability. |
d. | The differences in valuation of the hedging instrument corresponding to the ineffective portion of the cash flow hedging transactions are recorded directly in the Consolidated Statement of Income under “Net income from financial operations . ”. |
Hedge accounting is discontinued in a fair value hedge when the Bank revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized to profit or loss from that date.
When cash flow hedges are discontinued, any cumulative gain or loss of the hedging instrument recognized in other comprehensive income under “Valuation adjustments” (from the period when the hedge was effective) remains recorded in equity until the hedged transaction occurs, at which time it is recorded in the Consolidated Statement of Income, unless the transaction, in the case of a forecast transaction cash flow hedge, is no longer expected to occur, in which case any cumulative profit or loss is recorded immediately in the Consolidated Statement of Income.
vi. | Derivatives embedded in hybrid financial instruments |
Derivatives embedded in other financial instruments or in other host contracts are accounted for separately as derivatives if their risks and characteristics are not closely related to those of the host contracts, provided that the host contracts are not classified as “Other financial assets (liabilities) at fair value through profit or loss” or as “Trading investments portfolio.”
vii. | Offsetting of financial instruments |
Financial asset and liability balances are offset, i.e., reported in the Consolidated Statements of Financial Position at their net amount, only if there is a legally enforceable right to offset the recorded amounts and an intent either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
viii. | Derecognition of financial assets and liabilities |
The accounting treatment of transfers of financial assets depends on the extent and the manner in which the risks and rewards associated with the transferred assets are transferred to third parties:
i. | If the Bank transfers substantially all the risks and rewards to third parties, as in the case of unconditional sales of financial assets, sales under repurchase agreements at fair value at the date of repurchase, sales of financial assets with a purchased call option or written put option deeply out of the money, utilization of assets in which the assignor does not retain subordinated debt nor grants any credit enhancement to the new holders, and other similar cases, the transferred financial asset is removed from the Consolidated Statements of Financial Position. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 22 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
ii. | If the Bank retains substantially all the risks and rewards associated with the transferred financial asset, as in the case of sales of financial assets under repurchase agreements to repurchase at a fixed price or at the sale price plus interest, securities lending agreements under which the borrower undertakes to return the same or similar assets, and other similar cases, the transferred financial asset is not removed from the Consolidated Statements of Financial Position and continues to be measured by the same criteria as those used before the transfer. However, the following items are recorded: |
- | An associated financial liability for an amount equal to the consideration received; this liability is subsequently measured at amortized cost. |
- | The income from the transferred asset as well as the expenses associated with the liability contracted. |
iii. | If the Bank neither transfers nor substantially retains all the risks and rewards associated with the transferred financial asset—as in the case of sales of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases— the following distinction is made: |
a. | If the transferor does not retain control over the transferred financial asset: the asset is removed from the Consolidated Statements of Financial Position and any rights or obligations retained or created in the transfer are recorded. |
b. | If the transferor retains control over the transferred financial asset: it continues to be recorded in the Consolidated Statements of Financial Position for an amount equal to its exposure to changes in value and a financial liability associated with the transferred financial asset is recorded. The net carrying amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained if the transferred asset is measured at amortized cost. If the rights and obligations are retained, the asset is measured at fair value. |
Accordingly, financial assets are only removed from the Consolidated Statements of Financial Position when the rights over the cash flows they generate have terminated or when all the inherent risks and rewards of ownership have been substantially transferred to third parties. Similarly, financial liabilities are only derecognized from the Consolidated Statements of Financial Position when the obligations specified in the contract are discharged or cancelled or the contract has matured.
i) | Recognizing income and expenses |
The most significant criteria used by the Bank to recognize its revenues and expenses are summarized as follows:
i. | Interest revenue, interest expense, and similar items |
Interest revenue and expense are recorded on an accrual basis using the effective interest method.
However, when a given operation or transaction is past due by 90 days or more, when it originated from a refinancing or renegotiation, or when the Bank believes that the debtor poses a high risk of default, the interest and inflation adjustments pertaining to these transactions are not recorded directly in the Consolidated Statement of Income unless they have been actually received.
This interest and inflation adjustments are generally referred to as “suspended” and are recorded in memo accounts. This interest is recognized as income, when collected.
The resumption of interest income recognition of previously impaired loans only occurs when such loans became current (i.e., payments were received such that the loans are contractually past-due for less than 90 days) or they are no longer classified under the C3, C4, D1 or D2 categories (for loans individually evaluated for impairment).
Dividends received from companies classified as “Investments in other companies” are recorded as income when the right to receive them arises.
Consolidated Financial Statements December 2013 / Banco Santander Chile 23 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
ii. | Commissions, fees, and similar items |
Fee and commission income and expenses are recognized in the Consolidated Statement of Income using criteria that vary according to their nature. The main criteria are:
- | Fee and commission income and expenses relating to financial assets and liabilities which are measured at fair value through profit or loss are recognized when they are earned. |
- | Those arising from transactions or services that are performed over a period of time are recognized over the life of these transactions or services. |
- | Those relating to services provided in a single act are recognized when the single act is performed. |
iv. | Loan arrangement fees |
Fees that arise as a result of the origination of a loan, mainly application and analysis-related fees, are deferred and recognized. in the Consolidated Statement of Income over the term of the loan.
j) | Impairment |
i. | Financial assets: |
A financial asset, other than that at fair value through profit and loss, is evaluated on each financial statement filing date to determine whether objective evidence of impairment exists.
A financial asset or group of financial assets will be impaired if, and only if, objective evidence of impairment exists as a result of one or more events that occurred after initial recognition of the asset (“event causing the loss”), and this event or events causing the loss have an impact on the estimated future cash flows of a financial asset or group of financial assets.
An impairment loss relating to financial assets recorded at amortized cost is calculated as the difference between the recorded amount of the asset and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
An impairment loss relating to a financial asset available for sale is calculated based on a significant or prolonged decline in its fair value.
Individually significant financial assets are individually tested to determine their impairment. The remaining financial assets are evaluated collectively in groups that share similar credit risk characteristics.
All impairment losses are recorded in income. Any impairment loss relating to a financial asset available for sale previously recorded in equity is transferred to profit or loss.
The reversal of an impairment loss occurs only if it can be objectively related to an event occurring after the initial impairment loss was recorded. The reversal of an impairment loss shall not exceed the carrying amount that would have been determined if no impairment loss has been recognized for the asset in prior years. The reversal is recorded in income with the exception of available for sale financial assets; any reversal is recorded in other comprehensive income.
ii. | Non-financial assets: |
The Bank’s non-financial assets, excluding investment properties, are reviewed at reporting date to determine whether they show signs of impairment (i.e. its carrying amount exceeds its recoverable amount). If such evidence exists, the amount to be recovered from the assets is then estimated.
Consolidated Financial Statements December 2013 / Banco Santander Chile 24 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
In connection to other assets, impairment losses recorded in prior periods are assessed at each reporting date in search of any indication that the loss has decreased or disappeared and should be reversed. An impairment loss shall be reversed only if it does not exceed the carrying amount of loss for impairment recognized for the asset in prior years.
k) | Property, plant, and equipment |
This category includes the amount of buildings, land, furniture, vehicles, computer hardware and other fixtures owned by the consolidated entities or acquired under finance leases. Assets are classified according to their use as follows:
i. | Property, plant and equipment for own use |
Property, plant and equipment for own use (including, among other things, tangible assets received by the consolidated entities in full or partial satisfaction of financial assets representing accounts receivable from third parties which are intended to be held for continuing own use and tangible assets acquired under finance leases) are presented at acquisition cost less the related accumulated depreciation and, if applicable, any impairment losses (net carrying amount higher than recoverable amount).
Depreciation is calculated using the straight line method over the acquisition cost of assets less their residual value, assuming that the land on which buildings and other structures stand has an indefinite life and, therefore, is not subject to depreciation.
The Bank must apply the following useful lives for the tangible assets that comprise its assets:
ITEM | Useful life (Months) | |||
Land | - | |||
Paintings and works of art | - | |||
Assets retired for disposal | - | |||
Carpets and curtains | 36 | |||
Computers and hardware | 36 | |||
Vehicles | 36 | |||
Computational systems and software | 36 | |||
ATM’s | 60 | |||
Machines and equipment in general | 60 | |||
Office furniture | 60 | |||
Telephone and communication systems | 60 | |||
Security systems | 60 | |||
Rights over telephone lines | 60 | |||
Air conditioning systems | 84 | |||
Installations in general | 120 | |||
Security systems (acquisitions up to October 2002) | 120 | |||
Buildings | 1,200 |
The consolidated entities assess at each reporting date whether there is any indication that the carrying amount of any of their tangible assets’ exceeds its recoverable amount. If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in proportion to the revised carrying amount and to the new remaining useful life, if the useful life needs to be revised.
Similarly, if there is an indication of a recovery in the value of a tangible asset, the consolidated entities record the reversal of the impairment loss recorded in prior periods and adjust the future depreciation charges accordingly. In no circumstance may the reversal of an impairment loss on an asset increase its carrying value above the one it would have had if no impairment losses had been recorded in prior years.
Consolidated Financial Statements December 2013 / Banco Santander Chile 25 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
The estimated useful lives of the items of property, plant and equipment held for own use are reviewed at least at the end of each reporting period to detect significant changes therein. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recorded in the Consolidated Statement of Income in future years on the basis of the new useful lives.
Maintenance expenses relating to tangible assets (property, plant and equipment) held for own use are recorded as an expense in the period in which they are incurred.
ii. | Assets leased out under operating leases |
The criteria used to record the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives, and to record the impairment losses thereof, are consistent with those described in relation to property, plant and equipment held for own use.
l) | Leasing |
i. | Finance leases |
Finance leases are leases that substantially transfer all the risks and rewards incidental to ownership of the leased asset to the lessee.
When the consolidated entities act as the lessor of an asset, the sum of the present value of the lease payments receivable from the lessee, including the exercise price of the lessee’s purchase option at the end of the lease term, which is equivalent to one additional lease payment and so is reasonably certain to be exercised, is recognized as lending to third parties and is therefore included under “Loans and accounts receivables from customers” in the Consolidated Statements of Financial Position.
When the consolidated entities act as lessees, they show the cost of the leased assets in the Consolidated Statements of Financial Position based on the nature of the leased asset, and simultaneously record a liability for the same amount (which is the lower of the fair value of the leased asset and the sum of the present value of the lease payments payable to the lessor plus, if appropriate, the exercise of the purchase option). The depreciation policy for these assets is consistent with that for property, plant and equipment for own use.
In both cases, the finance income and finance expenses arising from these contracts are credited and debited, respectively, to “Interest income” and “Interest expense” in the Consolidated Statement of Income so as to achieve a constant rate of return over the lease term.
ii. | Operating leases |
In operating leases, ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor.
When the consolidated entities act as the lessor, they present the acquisition cost of the leased assets under "Property, plant and equipment”. The depreciation policy for these assets is consistent with that for similar items of property, plant and equipment held for own use and revenues from operating leases is recorded on a straight line basis under “Other operating income” in the Consolidated Statement of Income.
When the consolidated entities act as the lessees, the lease expenses, including any incentives granted by the lessor, are charged on a straight line basis to “Administrative and other expenses” in the Consolidated Statement of Income.
iii. | Sale and leaseback transactions |
For sale at fair value and operating leasebacks, the profit or loss generated is recorded at the time of sale except in the case of excess of proceeds over fair value, which difference is amortized over the period of use of the asset. In the case of finance leasebacks, the profit or loss generated is amortized over the lease term.
Consolidated Financial Statements December 2013 / Banco Santander Chile 26 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
m) | Factored receivables |
Factored receivables are valued at the amount disbursed by the Bank in exchange of invoices or other commercial instruments representing the credit which the transferor assigns to the Bank. The price difference between the amounts disbursed and the actual face value of the credits is recorded as interest income in the Consolidated Statement of Income by the effective interest method over the financing period.
When the assignment of these instruments involves no recourse the assignor, the Bank assumes the risk..
n) | Intangible assets |
Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of a legal transaction (contractual terms) or are developed internally by the consolidated entities. They are assets whose cost can be estimated reliably and from which the consolidated entities have control and consider it probable that future economic benefits will be generated.
Intangible assets are recorded initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortization and any accumulated impairment losses.
Internally developed computer software
Internally developed computer software is recorded as an intangible asset if, among other requirements (basically the Bank’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated. The estimated useful life for software is 3 years.
Intangible assets are amortized on a straight-line basis over their estimated useful life; which has been defined as 36 months.
Expenditure on research activities is recorded as an expense in the year in which it is incurred and cannot be subsequently capitalized.
o) | Cash and cash equivalents |
For the preparation of the cash flow statement, the indirect method was used, beginning with the Bank’s consolidated pre-tax income and incorporating non-cash transactions, as well as income and expenses associated with cash flows, which are classified as investment or financing activities.
For the preparation of the cash flow statement, the following items are considered:
i. | Cash flows: Inflows and outflows of cash and cash equivalents, such as deposits with the Central Bank of Chile, deposits in domestic banks, and deposits in foreign banks. |
ii. | Operationing activities: Normal activities performed by banks and other activities that cannot be classified as investing or financing activities. |
iii. | Investing activities: The acquisition, sale, or disposal by other means of long-term assets and other investments not included in cash and cash equivalents. |
iv. | Financing activities: Activities that result in changes in the size and composition of the equity and liabilities that are not operating activities. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 27 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
p) | Allowances for Loan Losses |
The Bank has established allowances to cover probable losses on loans and account receivables from customers in accordance with instructions issued by Superintendency of Banks and Financial Institutions and models and risk assessment as approved by the Board of Directors.
The Bank has developed models to determine allowances and provisions for loan losses according to the type of portfolio or operations. Loans and accounts receivables from customers are divided into three categories:
i. | Consumer loans, |
ii. | Mortgage loans, and |
iii. | Commercial loans. |
The Bank performs an assessment of the risk associated with loans and accounts receivable from customers to determine their allowance for loan losses as described below:
- | Individual assessment - represents the case where the Bank assesses a debtor as individually significant, or when he/she cannot be classified within a group of financial assets with similar credit risk characteristics, due to their size, complexity or level of exposure. |
- | Group assessment - A group assessment is relevant for analyzing a large number of operations with small individual balances from individuals or small-size companies. The Bank groups debtors with similar credit risk characteristics giving to each group a default probability and recovery rate based on a historical analysis. |
The models used to determine credit risk allowances are described as follows:
I. | Allowances for individual assessment |
An individual assessment of commercial debtors is necessary in the case of companies which, due to their size, complexity or level of exposure regarding the entity, must be known and analyzed in detail according to the SBIF.
For the purposes of establishing its provisions, the Bank assigns to each debtor, for both loans and contingent loans, a risk category, after assigning him/her to one of the portfolio categories: Normal, Substandard and Impaired. Risk factors used on the assignment are: industry or sector of the borrower, owners or managers of the borrower, their financial position and payment ability, and payment behavior.
The portfolio categories and their definitions are as follows:
i. | Normal Compliance Portfolio, which corresponds to debtors with a payment ability that allows them to comply with their obligations and commitments and which is not likely to change, based on their current economic and financial position. The classifications assigned to this portfolio are categories from A1 to A6. |
ii. | Substandard Portfolio, includes debtors with financial difficulties or a significant worsening of their payment ability and about which exist reasonable doubts about the full payment of principal and interest within the agreed terms, showing some doubt as to fulfillment of their short-term financial obligations. The classifications assigned to this portfolio are categories from B1 to B4. |
iii. | Impaired Portfolio, includes debtors and their loans from which payment is considered remote since they show deteriorated or null payment ability, with signs of a possible bankruptcy, who required a forced debt restructuring or any debtor who has been in default for over 90 days in his payment of interest or capital, are included in this portfolio. The classifications assigned to this portfolio are categories from C1 to C6. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 28 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Normal Compliance and Substandard Portfolios
As part of individual debtor analysis, the Bank classifies debtors in the following categories, assigning them a percentage for probability of default and loss given default, which result in the expected loss percentages.
Type of Portfolio | Debtor’s Category | Probability of Non- Performance (%) | Severity (%) | Expected Loss (%) | ||||||||||
A1 | 0.04 | 90.0 | 0.03600 | |||||||||||
A2 | 0.10 | 82.5 | 0.08250 | |||||||||||
Normal portfolio | A3 | 0.25 | 87.5 | 0.21875 | ||||||||||
A4 | 2.00 | 87.5 | 1.75000 | |||||||||||
A5 | 4.75 | 90.0 | 4.27500 | |||||||||||
A6 | 10.00 | 90.0 | 9.00000 | |||||||||||
B1 | 15.00 | 92.5 | 13.87500 | |||||||||||
Substandard Portfolio | B2 | 22.00 | 92.5 | 20.35000 | ||||||||||
B3 | 33.00 | 97.5 | 32.17500 | |||||||||||
B4 | 45.00 | 97.5 | 43.87500 |
At the beginning, the Bank determines credit exposure, which includes the book value of loans and accounts receivable from customers plus contingent loans, minus any amount that would be recovered through guarantees execution. To the net exposure amount determined, the respective expected loss percentage is applied.
Impaired Portfolio
The allowance to impaired portfolio for the calculated, starting with the determination of the expected loss rate, deducting any amount that would be recovered through guarantee execution and the present value of recoveries through collection actions, net of related expenses.
Once expected loss range is determined, related allowance percentage is applied over the exposure amount, which includes loans plus contingent loans related to a debtor.
The allowance percentages applied over exposure are as follows:
Classification | Estimated range of loss | Allowance | ||||
C1 | Up to 3% | 2 | % | |||
C2 | More than 3% and up to 20% | 10 | % | |||
C3 | More than 20% and up to 30% | 25 | % | |||
C4 | More than 30% and up to 50% | 40 | % | |||
C5 | More than 50% and up to 80% | 65 | % | |||
C6 | More than 80% | 90 | % |
Consolidated Financial Statements December 2013 / Banco Santander Chile 29 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
II. | Allowances for group assessment |
The collective assessment is relevant to address a large number of smaller balance loans related to individuals and small-size companies.
Levels of required allowances have been established by the Bank, in accordance with loan losses methodology by classifying and grouping the loan portfolio based on similar credit risk characteristic indicative of debtor’s ability to pay all amounts due according to the contractual terms. The Bank uses models based on debtors’ characteristics, payment history, outstanding loans, and overdue loans, among others.
The Bank uses methodologies to establish credit risk, based on internally developed models to estimate the allowances for the group-evaluated portfolio, which include non-individually commercial significant loans, mortgage and consumer loans (including installment loans, credit cards and overdraft lines). This methodology allows the Bank to independently identify the portfolio behavior and establish the required allowance to cover losses arising during the year.
Customers are classified according to their internal and external characteristics, using customer- specific portfolio models to differentiate each portfolio’s risk in an appropriate manner. This is known as the allocation profile method.
The allocation profile method is based on a statistical construction model that establishes a relation through logistic regression between variables such as default, payment behavior outside the Bank, and socio-demographic data, among others, and a response variable which determines the client’s risk, in this case is 90 days or more of non-performance. Afterwards, common profiles are established and assigned a Probability of Non-Performance (PNP) and a recovery rate based on a historical analysis known as Severity (SEV).
Therefore, once the customers have been profiled and assigned a PNP and a SEV relating to the loan’s profile, the exposure at default (EXP) is calculated. This exposure includes the book value of the loans and accounts receivable from the customer, plus contingent loans, minus any amount that would be recovered by guarantee execution (for credits other than consumer loans).
Changes in accounting estimates
In 2012, and as a response to the ongoing improvement and monitoring process of the allowance models, the Bank updated its allowance model for consumer loans. Until June 2012, estimated loss rates in said model were established by the historical behavior of net charge-offs of recoveries for each risk profile. It is important to mention that this method only considered historical debt data for each specific profile and did not include the use of any other statistical information. Since June 2012, loss rate has been estimated with the product of the Probability of Default (PD) and Loss Given Default (LGD); established according to the historical behavior of the different profiles and based on a duly based historical analysis. These changes generated an effect on the income of Ch$24,753 million. The effect of these improvements was considered as a change of estimate, following International Accounting Standards No. 8 “Accounting Policies, Changes in Accounting Estimates and Errors”; therefore, the effect was reported on the Consolidated Statement of Income.
III. | Additional Provisions |
According to SBIF rules, banks are allowed to establish provisions over the limits described below to protect themselves from the risk of non-predictable economical fluctuations that could affect the macroeconomical environment or the situation of a specific economical sector.
According to Chapter B-1, No. 10, from the SBIF Compendium of Accounting Standards, these provisions will be recorded in liabilities, similar to provisions for contingent loans.
As of December 31 2013 and 2012, the Bank has not established provisions for these concepts.
Consolidated Financial Statements December 2013 / Banco Santander Chile 30 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
IV. | Charge-offs |
As a general rule, charge-offs should be done when the contract rights over cash flow expire. In the case of loans and account receivable from customers, even if the above rights have not expired, the Bank will charge-off these amounts in accordance with Title II of Chapter B-2 of the Compendium of Accounting Standards (SBIF).
These charge-offs consist of derecognition from the Consolidated Statements of Financial Position of the corresponding loans operations in its entirety, and, therefore, include portions not past-due of a loan in the case of installments loans or leasing operations (no partial charge-offs exists).
Charge-offs are always recorded within provision for loan losses through the Consolidated Statement of Income in accordance with Chapter B-1 of the Compendium of Accounting Standards (SBIF), no matter what causes the charge-off. Subsequent payments obtained from charged-off loans will be recognized in the Consolidated Statement of Income as a recovery of loans previously charged-off.
Loan and accounts receivable charge-offs are recorded for overdue, past due, and current installments based on the time periods expired since reaching overdue status, as described below:
Type of loan | Term | |||
Consumer loans with or without collateral | 6 months | |||
Other transactions without collateral | 24 months | |||
Commercial loans with collateral | 36 months | |||
Mortgage loans | 48 months | |||
Consumer leasing | 6 months | |||
Other non-mortgage leasing transactions | 12 months | |||
Mortgage leasing (household and business) | 36 months |
Any renegotiation of an already charged-off loan will not give rise to income—as long as the operation is still in an impaired status—and the effective payments received are accounted for as a recovery from loans previously charged-off.
Renegotiated loans will be recognized as an asset if they are no longer accounted for as impaired, generating a recovery from loan previously charged-off.
V. | Recovery of loans previously charged off and accounts receivable from customers |
Recovery of previously charged-off loans and accounts receivable from customers, are recorded in the Consolidated Statement of Income as a deduction from provisions for loan losses.
q) | Provisions, contingent assets, and contingent liabilities |
Provisions are liabilities of uncertain timing or amount. These provisions are recognized in the Consolidated Statements of Financial Position when the Bank:
i. | has a present obligation (legal or constructive) as a result of past events, and |
ii. | To the date of these financial statements, it is probable that an outflow of resources will be required to settle these obligations and the amount of these resources can be readily measured. |
Contingent assets or contingent liabilities are any potential rights or obligations arising from past events whose existence will be confirmed only by the occurrence or non-occurrence if one or more uncertain future events that are not wholly under control of the Bank.
Consolidated Financial Statements December 2013 / Banco Santander Chile 31 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
The following are classified as contingent in the supplementary information:
i. | Guarantees and bonds: Encompasses guarantees, bonds, and standby letters of credit referred to on Chapter 8-10 of the Updated Regulations Compendium. It also includes payment guarantees from factoring transactions in accordance with Chapter 8-38 of said Compendium. |
ii. | Confirmed foreign letters of credit: Encompasses letters of credit confirmed by the Bank. |
iii. | Documentary letters of credit: Includes documentary letters of credit issued by the Bank, which have not yet been negotiated. |
iv. | Documented guarantees: Guarantees with promissory notes referred to on Chapter 8-11 of the Updated Regulations Compendium. |
v. | Interbank guarantee: Guarantee letters issued according to the provisions of Title II of Chapter 8-12 of the Updated Regulations Compendium. |
vi. | Unrestricted credit lines: The unused amount of credit lines that allow customers to draw without prior approval by the Bank (for example, using credit cards or overdrafts in checking accounts). |
vii. | Other credit commitments: Amounts not yet lent under committed loans, which must be disbursed at an agreed future date when events contractually agreed upon with the customer occur, such as in the case of lines of credit linked to the progress of a construction or similar projects. |
viii. | Other contingent credits: It includes any other kind of commitment by the Bank which may exist and give rise to lending when certain future events occur. In general, this includes unusual transactions such as pledges made to secure the payment of loans among third parties or derivative contracts made by third parties that may result in a payment obligation and are not covered by deposits. |
The consolidated annual accounts reflect all significant provisions for which it is estimated that the probability of having to meet the obligation is more likely than not.
Provisions are quantified using the best available information on the consequences of the event giving rise to them and are reviewed and adjusted at the end of each year and are used to address the specific liabilities for which they were originally recognized. Partial or total reversals are recorded when such liabilities cease to exist or decrease.
Provisions are classified according to the obligation covered as follows:
- | Provision for employee salaries and expenses. |
- | Provision for mandatory dividends |
- | Provisions for contingent credit risks |
- | Provisions for contingencies |
r) | Deferred income taxes and other deferred taxes |
The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to differences between the carrying amount of assets and liabilities and their tax bases. The measurement of deferred tax assets and liabilities is based on the tax rate, according to the applicable tax laws, using the tax rate that applies to the period when the deferred asset and liability will be settled.. The future effects of changes in tax legislation or tax rates are recorded in deferred taxes beginning on the date on which the law approving such changes is published.
Consolidated Financial Statements December 2013 / Banco Santander Chile 32 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
s) | Use of estimates |
The preparation of the financial statements requires Management to make estimates and assumptions that affect the application of the accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates.
In certain cases, generally accepted accounting policies require that assets or liabilities be recorded or disclosed at their fair values. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, quoted market prices in active markets have been used as the basis for measurement. Where quoted market prices in active markets are not available, the Bank has estimated such values based on the best information available, including the use of internal valuation models and other valuation techniques.
The Bank has established allowances to cover incurred losses in accordance with regulations issued by the Superintendency of Banks and Financial Institutions. These regulations require that, to estimate the allowances, they must be regularly evaluated taking into consideration factors such as changes in the nature and volume of the loan portfolio, trends in forecasted portfolio quality, credit quality and economic conditions that may adversely affect the borrowers’ ability to pay. Increases in the allowances for loan losses are reflected as “Allowance for loan losses” in the Consolidated Statement of Income. Loans are charged-off when Management determines that a loan or a portion thereof is uncollectible. Charge-offs are recorded as a reduction of the allowance for loan losses.
The relevant estimates and assumptions are regularly reviewed by the Bank’s Management to quantify certain assets, liabilities, revenues, expenses, and commitments. Revised accounting estimates are recorded in the period in which the estimate is revised. .
These estimates, made on the basis of the best available information, mainly refer to:
- | Impairment losses of certain assets (Notes 8, 9, 10, and 35) |
- | The useful lives of tangible and intangible assets (Notes 14, 15, and 35) |
- | The fair value of assets and liabilities (Notes 6, 7,8, 12, and 39) |
- | Commitments and contingencies (Note 24) |
- | Current and deferred taxes (Note 16) |
t) | Non-current assets held for sale |
Non-current assets (or a group which includes assets and liabilities for disposal) expected to be recovered mainly through sales rather than through continued use, are classified as held for sale. Immediately prior to this classification, assets (or elements of a disposable group) are re-measured in accordance with the Bank’s policies. The assets (or disposal group) are measured at the lower of carrying amount or fair value minus cost of sales.
As of December 31, 2013 and 2012, the Bank has not classified any non-current assets as held for sale.
Assets received or awarded in lieu of payment
Assets received or awarded in lieu of payment of loans and accounts receivable from clients are recognized at their fair value (as determined by an independent appraisal). A price is agreed upon by the parties through negotiation, or, when the parties do not reach an agreement, at the amount at which the Bank is awarded those assets at a judicial auction. In the both cases, an independent appraisal is performed. Any excess of the fair value over the outstanding loan balance, less costs to sell of the collateral, is returned to the client.
Consolidated Financial Statements December 2013 / Banco Santander Chile 33 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
These assets are subsequently adjusted to their net recoverable amount less cost to sale (assuming a forced sale). The difference between the fair value of the asset and the estimated net recoverable amount less costs to sell is charged to net income for the period, under “Other operating expenses”. The result obtained in the sale of the asset is subsequently recorded under “Other operating income”.
Independent appraisals are obtained at least every 18 months and fair values are adjusted accordingly. No adjustments have been made between appraisals considering the stability of the real estate market in Chile during past years and the expected stability of the real estate market in the coming years.
At least once a year, the Bank performs the necessary analysis to update these assets’ costs to sell. According to the Bank’s survey, as of December 31, 2013 the average cost to sell was estimated at 5.7% of the appraised value (4.5% as of December 31, 2012).
u) | Earnings per share |
Basic earnings per share are determined by dividing the net income attributable to the Bank shareholders for the period by the weighted average number of shares outstanding during the year.
Diluted earnings per share are determined in the same way as basic earnings, but the weighted average number of outstanding shares is adjusted to take into account the potential diluting effect of stock options, warrants, and convertible debt.
As of December 31, 2013 and 2012 the Bank did not have any instruments that generated diluting effects over equity.
v) | Temporary acquisition (assignment) of assets |
Purchases (sales) of financial assets under non-optional resale (repurchase) agreements at a fixed price (“repos”) are recorded in the Consolidated Statements of Financial Position based on the nature of the debtor (creditor) under “Deposits in the Central Bank of Chile,” “Deposits in financial institutions” or “Loans and accounts receivable from customers” (“Central Bank of Chile deposits,” “Deposits from financial institutions” or “Customer deposits”).
Differences between the purchase and sale prices are recorded as financial interest over the term of the contract.
w) | Assets under management and investment funds managed by the Bank |
Assets owned by third parties and managed by certain companies that are within the Bank’s scope of consolidation (Santander Asset Management S.A., Administradora General de Fondos and Santander S.A. Sociedad Securitizadora), are not included in the Consolidated Statements of Financial Position. Management fees for this activity are included in “Fee and commission income” item income in the Consolidated Statement of Income.
x) | Provision for mandatory dividends |
As of December 31, 2013 and 2012 the Bank recorded an asset (provision) for mandatory dividends. This provision is made pursuant to Article 79 of the Corporations Act, which is in accordance with the Bank’s internal policy, pursuant to which at least 30% of net income for the period is distributed, except in the case of a contrary resolution adopted at the respective shareholders’ meeting by unanimous vote of the outstanding shares. This provision is recorded, as a deducting item, under the “Retained earnings – provisions for mandatory dividends” line of the Consolidated Statement of Changes in Equity.with offset to Provisions.
Consolidated Financial Statements December 2013 / Banco Santander Chile 34 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
y) | Employee benefits |
i. | Post-employment benefits – Defined Benefit Plan: |
According to current collective labor agreements and other agreements, Grupo Santander Chile has an additional benefit available to its principal executives, consisting of a pension plan whose purpose is to endow them with funds for a better supplementary pension upon their retirement.
Features of the Plan:
The main features of the Post-Employment Benefits Plan promoted by the Santander Chile Group are:
a. | Aimed at the Group’s management |
b. | The general requisite to apply for this benefit is that the employee must be carrying out his/her duties when turning 60 years old. |
c. | The Santander Group will take on insurance (pension fund) on your behalf that it will pay (contribution) periodically. |
d. | The Santander Group will be responsible for granting the benefits directly. |
For determine the present value of the defined benefit obligation and the current service cost, the method of projected unit credit is used.
Components of defined benefit cost include:
- | current service cost and any past service cost, which are recognized in profit or loss for the period; |
- | net interest on the liability (asset) for net defined benefit, which is recognized in profit or loss for the period; |
- | new liability (asset) measurements for net defined benefit include: (a) actuarial gains and losses; (b) the performance of the plan assets and; (c) changes in the effect of the asset ceiling, which are recognized in other comprehensive income. |
The liability (asset) for net defined benefit is the deficit or surplus, determined as the difference between the present value of the defined benefit obligation minus the fair value of plan assets.
Plan assets comprise the insurance policies taken out by the Group with a third party that is not a related party. These assets are held by an entity legally separated from the Group and exist solely to pay benefits to employees.
The Bank presents the present service cost and the net interest of the Personnel wages and expenses on the Consolidated Financial Statements of Income. Given the structure of the plan, this does not generate actuarial gains and losses, the performance plan is established and fixed during the period, so that there are no changes in the asset ceiling. Given the above, there are no recognized amounts in other comprehensive income.
The liability for post-employment benefits recognized in the Consolidated Statement of Financial represents the deficit or surplus in the defined benefit plans of the Bank. Any surplus resulting from the calculation is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions.
When employees leave the plan before meeting the requirements to be eligible for the benefit, contributions made by the Group are reduced.
Consolidated Financial Statements December 2013 / Banco Santander Chile 35 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
ii. | Severance Provision: |
Severance for years of employment are recorded only when they actually occur or upon the availability of a formal and detailed plan in which the fundamental modifications to be made are identified, provided that such plan has already started to be implemented or its principal features have been publicly announced, or objective facts about its execution are known.
iii. | Share-based compensation: |
The allocation of equity instruments to executives of the Bank and its Subsidiaries as a form of compensation for their services, when those instruments are provided at the end of a specific period of employment, is recorded as an expense in the Consolidated Statement of Income under the “Personnel expenses” item, as the relevant executives provide their services over the course of the period.
These benefits do not generate diluting effects, since they are based on shares of Banco Santander S.A. (the parent company of Banco Santander Chile, headquartered in Spain).
z) | Reclassification of items |
Banco Santander Chile reclassifies items in the Financial Statements to present more clear and relevant information.
These reclassifications have no significant impact on the current Consolidated Financial Statements.
aa) | New accounting standards |
i. | New and revised standards affecting amounts reported and/or disclosures in the financial statements: |
In the current year, the Bank has applied a number of new revised IFRSs issued by the international Accounting Standard Boar (IASB) as well as accounting standards as issued by the both the SBIF that are mandatory effective for an accounting period that begins on or after 1 January 2013. These standards have been fully incorporate by the Bank and are detailed as follows:
1. | Accounting Regulations Issued by the SBIF |
Circular Letter No. 3548 - On March 19, 2013 the SBIF issued this circular letter to match the name used in the instructions to the newest amendments to IAS 1 replacing “Income Statement” and “Other Comprehensive Income” by “Statement of Financial Position” and “Statement of other Comprehensive Income for the period”. Management has applied this circular letter in these Financial Statements.
2. | New and revised IFRS standards effective in current year |
Amendment to IAS 12, Income Taxes – On December 20, 2010 the IASB published Deferred Taxes: Recovery of Underlying Assets – Modifications to IAS 12. The modifications establish an exemption to the IAS 12 general principle that the measurement of assets and liabilities by deferred taxes should reflect the tax consequences that would continue the way the entity expects to recover the book value of an asset. The exemption applies specifically to assets and liabilities by deferred taxes originating from investment properties measured using the fair value model from IAS 40 and investment properties acquired in a business combination, if this is afterwards measured using the IAS 40 fair value model. The modification incorporates the assumption that the current value of the investment property will be recovered when sold, except when the property is depreciable and kept within a business model that aims at consuming substantially all economic benefits through time rather than through sale. These modifications should be back applied demanding a back re issuance of all assets and liabilities by differed taxes within the reach of this modification, including those initially recorded in a business combination. These amendments did not have an impact on our consolidated financial statements.
Amendment to IFRS 1, First Time Adoption of international financial reporting standards IFRS – On December 20, 2010 the IASB published certain modifications to IFRS 1, specifically:
Consolidated Financial Statements December 2013 / Banco Santander Chile 36 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
(i) Elimination of Set Dates for First Time Adopters - These modifications help first time adopters of IFRS by replacing the back application date of the un-record of financial assets and liabilities of ‘January 1, 2004’ with the ‘transition date to IFRS’. In this way, first time IFRS adopters do not have to apply the un-record requirements of IAS 39 retrospectively to a previous date and free adopters to recalculate profit and losses of ‘day 1’ over transactions that took place before the transition date to IFRS.
(ii) Severe hyperinflation – These modifications provide guidelines for entities coming from a sever hyperinflation, allowing them at the date of transaction of entities, to measure all assets and liabilities held before the normalization of functional currency date to fair value on the transition to IFRS date and use that fair value as the attributed cost for those assets and liabilities in the statements of opening financial position under IFRS. Entities using this exemption will have to describe the circumstances of how and why their functional currency was subjected to sever hyperinflation and the circumstances that led to end those conditions.
These modifications will be mandatorily applied for yearly periods beginning on or after July 1, 2012. Early implementation is permitted. The implementation of this amendment did not have an impact on the Bank’s Consolidated Financial Statements since we are already preparing our Statements according to IFRS.
IFRS 10, Consolidated Financial Statements - IFRS 10 replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements and SIC-12 Consolidation – Special Purpose Entities. IFRS 10 changes the definition of control such that an investor has control over an investee when a) it has power over the investee, b) it is exposed, or has rights, to variable returns from its involvement with the investee and c) has the ability to use its power to affect its returns. All three of these criteria must be met for an investor to have control over an investee. Previously, control was defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Additional guidance has been included in IFRS 10 to explain when an investor has control over an investee. Some guidance included in IFRS 10 that deals with whether or not an investor that owns less than 50% of the voting rights in an investee has control over the investee is relevant to the Bank. The implementation of this standard did not have a significant impact on our consolidated financial statements.
IFRS 11, Joint Arrangements — IFRS 11 replaces IAS 31 Interests in Joint Ventures, and the guidance contained in a related interpretation, SIC-13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers, has been incorporated in IAS 28 (as revised in 2011). IFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified and accounted for. Under IFRS 11, there are only two types of joint arrangements – joint operations and joint ventures. The classification of joint arrangements under IFRS 11 is determined based on the rights and obligations of parties to the joint arrangements by considering the structure, the legal form of the arrangements, the contractual terms agreed by the parties to the arrangement, and, when relevant, other facts and circumstances. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement. Previously, IAS 31 contemplated three types of joint arrangements – jointly controlled entities, jointly controlled operations and jointly controlled assets. The classification of joint arrangements under IAS 31 was primarily determined based on the legal form of the arrangement (e.g. a joint arrangement that was established through a separate entity was accounted for as a jointly controlled entity).
The initial and subsequent accounting of joint ventures and joint operations is different. Investments in joint ventures are accounted for using the equity method (proportionate consolidation is no longer allowed). Investments in joint operations are accounted for such that each joint operator recognises its assets (including its share of any assets jointly held), its liabilities (including its share of any liabilities incurred jointly), its revenue (including its share of revenue from the sale of the output by the joint operation) and its expenses (including its share of any expenses incurred jointly). Each joint operator accounts for the assets and liabilities, as well as revenues and expenses, relating to its interest in the joint operation in accordance with the applicable Standards. The implementation of this standard did not have a significant impact on our consolidated financial statements.
IFRS 12, Disclosure of Interests in Other Entities - On May 12, 2011, the IASB issued IFRS 12 Disclosure of Interests in Other Entities, which requires further disclosures related to interests in subsidiaries, joint agreements, associates and/or unconsolidated structured entities. IFRS 12 establishes disclosure objectives and specifies minimum disclosures that an entity should provide to fulfill those objectives. An entity should disclose information that allows users of its financial statements evaluate the nature and risks associated with interests in other entities and the effects of those interests on its financial statements. The disclosure requirements are extensive and represent and effort that could require gathering the necessary information. The implementation of this standard did not have a significant impact on our consolidated financial statements.
Consolidated Financial Statements December 2013 / Banco Santander Chile 37 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
IFRS 13, Fair Value Measurement - IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The scope of IFRS 13 is broad; the fair value measurement requirements of IFRS 13 apply to both financial instrument items and non-financial instrument items for which other IFRSs require or permit fair value measurements and disclosures about fair value measurements, except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IAS 17 Leases, and measurements that have some similarities to fair value but are not fair value (e.g. net realisable value for the purposes of measuring inventories or value in use for impairment assessment purposes).
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions. Fair value under IFRS 13 is an exit price regardless of whether that price is directly observable or estimated using another valuation technique. Also, IFRS 13 includes extensive disclosure requirements.
IFRS 13 requires prospective application from 1 January 2013. In addition, specific transitional provisions were given to entities such that they need not apply the disclosure requirements set out in the Standard in comparative information provided for periods before the initial application of the Standard. This standard was applied by the Bank in all matters that are not in conflict with the provisions of Chapter 7-12 "Fair value of financial instruments" issued by SBIF regarding the determination of fair value and IAS 39 (2009) "Financial Instruments: Recognition and Measurement.
Amendment to IAS 1 - Presentation of Items of Other Comprehensive Income - The amendments introduce new terminology, whose use is not mandatory, for the statement of comprehensive income and income statement. Under the amendments to IAS 1, the ‘statement of comprehensive income’ is renamed as the ‘statement of profit or loss and other comprehensive income’ [and the ‘income statement’ is renamed as the ‘statement of profit or loss’]. The amendments to IAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require items of other comprehensive income to be grouped into two categories in the other comprehensive income section: (a) items that will not be reclassified subsequently to profit or loss and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis – the amendments do not change the option to present items of other comprehensive income either before tax or net of tax. The amendments have been applied retrospectively, and hence the presentation of items of other comprehensive income has been modified to reflect the changes. Other than the above mentioned presentation changes, the application of the amendments to IAS 1 does not result in any impact on profit or loss, other comprehensive income and total comprehensive income.
Amendment to IAS 19 - Employee Benefits - IAS 19 (as revised in 2011) changes the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence eliminate the ‘corridor approach’ permitted under the previous version of IAS 19 and accelerate the recognition of past service costs. All actuarial gains and losses are recognized immediately through other comprehensive income in order for the net pension asset or liability recognised in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus. Furthermore, the interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with a ‘net interest’ amount under IAS 19 (as revised in 2011), which is calculated by applying the discount rate to the net defined benefit liability or asset. These changes have had an impact on the amounts recognized in profit or loss and other comprehensive income in prior years (see Note 2 – Accounting changes). In addition, IAS 19 (as revised in 2011) introduces certain changes in the presentation of the defined benefit cost including more extensive disclosures.
Specific transitional provisions are applicable to first-time application of IAS 19 (as revised in 2011). The Bank applied this amendment, in accordance with IAS 8 - Accounting Policies Changes. The effect of this application is shown in detail on Note 02 - Accounting changes, on these Consolidated Financial Statements.
Annual Improvements and International Standards to Financial Information – On May 17, 2012 the IASB issued “Annual Improvements to IFRS: 2009-2011 Cycle”, incorporating amendments to five standards.
- | IFRS 1 - First-time adoption of standards Related to the relative implementation of the IFRS 1and loan costs. |
- | IAS 1 - Presentation of Financial Statements: Clarification on the requirements for comparative information. |
- | IAS 16 - Property, Plant and Equipment: Regarding the classification of the auxiliary equipment. |
- | IAS 32 - Financial Instruments: Presentation: On the tax effect of distributions to holders of equity instruments. |
- | IAS 34 - Interim Financial Reporting: Interim financial reporting and segmented information for total assets and liabilities. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 38 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
The amendments to the IFRS, cycle 2009-2011, are effective for annual periods beginning on or after January 1, 2013, although early application is permitted. These amendments did not have a material impact on our consolidated financial statements.
IAS 27 (2011), Separated Financial Statements - IAS 27 Consolidated and Separated Financial Statements was modified by IFRS 10 but keeps the current guidelines for separated financial statements. These amendments did not have a material impact on our consolidated financial statements.
IAS 28 (2011) - Investments in Associates and Joint Ventures - IAS 28 Investments in Associates was modified to conform the changes related to the issuing of IFRS 10 and IFRS 11. These amendments did not have a material impact on our consolidated financial statements.
Amendment to IFRS 10 - Consolidated Financial Statements, IFRS 11 - Joint Agreements and IFRS 12 - Disclosure of Interests in Other Entities - Transition Guidance - On June 28, 2012, the IASB published Consolidated Financial Statements, Joint Agreements and Disclosure of interests in Other Entities (amendments to IFRS 10, IFRS 11 and IFRS 12). Amendments are meant to lighten up the transition from IFRS 10, IFRS 11 and IFRS 12 by "limiting the requirement to provide comparative information adjusted only for the immediately preceding year comparative." Also, the amendments to IFRS 11 and IFRS 12 eliminate the requirement of providing comparative information for the periods prior to the immediately following year. The effective date of these amendments is for annual periods beginning on or after January 1, 2013, in line with the effective dates of IFRS 10, IFRS 11 and IFRS 12. Management believes that this amendment will be adopted in the consolidated financial statements of the Bank for the period beginning on January 1, 2014. These amendments did not have a material impact on our consolidated financial statements.
Amendment to IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities - The Bank has applied the amendments to IFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities for the first time in the current year. The amendments to IFRS 7 require entities to disclose information about rights of offset and related arrangements (such as collateral posting requirements) for financial instruments under an enforceable master netting agreement or similar arrangement.
The amendments have been applied retrospectively. The application of the amendments has had no material impact on the disclosures or on the amounts recognised in the consolidated financial statements.
IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine - On October 19, 2012, the IFRS Interpretations Committee published IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine (“IFRIC 20”). IFRIC 20 applies for all type of natural resources extracted by using the surface mine process. Individual costs of the stripping activity that improve the access to minerals must be recognized as non-current asset (“stripping activity asset”) when certain criteria are met; while the costs of normal continuous stripping activities must be recording following IAS 2 - Inventories. The stripping activity asset must be initially measured at the lower cost and, later, at lower cost or revalued amount minus depreciation or amortization and impairment losses. The interpretation is effective for yearly periods beginning on or after January 1, 2013. Early application is permitted. The amendment did not have an impact on our financial statements since its business activities do not consider the mining of natural resources.
ii. | New accounting regulations and instructions issued by the SBIF and new and revised IFRSs in issue but not yet effective. |
As of the date of issuance of these consolidated financial statements new IFRS had been issued by the IASB as well as accounting standards by the SBIF that were not enforced as of December 31, 2013.
1. | Accounting Regulations issued by the SBIF |
As of December 31, 2013 there are no new Accounting Regulations issued by the SBIF to be implemented.
2. | New and revised IFRS standards issued by the IASB |
IFRS 9, Financial Instruments – On November 12, 2009 the IASB issued IFRS 9, Financial Instruments. This regulation incorporates new requirements for the classification and measurement of financial assets and it is effective for yearly periods beginning on or after January 1, 2013. Early application is permitted. IFRS 9 specifies how an entity should classify and measure its financial assets. It requires that all financial assets be classified in their entirely on the basis of the entity’s business model for the management of financial assets and the features of the financial assets agreement cash flows.
Consolidated Financial Statements December 2013 / Banco Santander Chile 39 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Financial assets are measured whether by amortized cost or fair value. Only financial assets classified as measured to amortize cost will be tested for Impairment. On October 28, 2010, the IFRS issued a revised version of IFRS 9, Financial Instruments. The revised Standard keeps the requirements for classification and measurement of financial assets published on November 2009 but it adds guidelines on classification and measurement of financial liabilities. As part of the restructuring of IFRS 9, the IASB has also reproduced the guidelines on un-record of financial instruments and related implementation guidelines from IAS 39 to IFRS 9. These new guidelines constitute the first stage of the IASB project to replace IAS 39. The other stages, impairment and hedge accounting, have not been finished yet.
The guidelines included in IFRS 9 about the classification and measurement of financial assets have not changed from those established in IAS 39. In other words, financial liabilities will continue to be measured whether by amortized cost or fair value with change in income. The concept of bifurcation of embedded derivatives in a contract by financial asset has not change either. Financial liabilities held for trade will continue to be measured at fair value with changes in profit and loss, and all other financial assets will be measured at amortized cost unless the fair value option is applied using currently existing criteria in IAS 39.
Notwithstanding the latter, there are two differences with regards to IAS 39:
· | The presentation of effects from changes in fair value attributable to a liability’s credit risk; and |
· | The elimination of the cost exemption for liability derivatives to be settled by giving non traded equity instruments. |
On December 16, 2012 the IASB issued Mandatory Implementation Date of IFRS 9 and Transition Disclosures, deferring the effective date versions of both 2009 and 2010 for annual periods beginning on or after 01 January 2015. Prior to the amendments, the application of IFRS 9 was mandatory for annual periods beginning on or after 2013. Modifications change the requirements for the transition from IAS 39 Financial Instruments: Recognition and Measurement to IFRS 9. In addition, the amendments also modify IFRS 7 Financial Instruments: Disclosures, to add certain requirements in the reporting period including the enforcement date of IFRS 9.
Amendments are effective for yearly periods beginning on or after January 1, 2015; early application is permitted. Management, pursuant to SBIF requirements, will not early adopt this standard. Moreover, it will not be applied until the SBIF establishes it as mandatory for all banks.
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities - The amendments to IFRS 10 define an investment entity and require a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries at fair value through profit or loss in its consolidated and separate financial statements.
To qualify as an investment entity, a reporting entity is required to:
· | obtain funds from one or more investors for the purpose of providing them with professional investment management services; |
· | commit to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and |
· | measure and evaluate performance of substantially all of its investments on a fair value basis. |
Consequential amendments have been made to IFRS 12 and IAS 27 to introduce new disclosure requirements for investment entities. Management believes that this amendment will be adopted in the consolidated financial statements of the Bank for the period beginning on January 1, 2014.
Investment entities – Amendments to IFRS 10 – Consolidated Financial Statements; IFRS 12 – Disclosures of Interests in Other Entities and IAS 27 – Separated Financial Statements - On October 31, 2012, the IASB issued “Investment entities (amendments to IFRS 10, IFRS 12 and IAS 27)”, providing an exception to the consolidation of subsidiaries under IFRS 10 Consolidated Financial Statements for entities that follow the definition of “investment entity”, as well as some investment funds. Instead, said entities will measure their investments in subsidiaries at fair value through profit and loss, pursuant to IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement.
Amendments also require additional disclosure about whether the entity is considered an investment entity, details of non-consolidated subsidiaries, the nature of the relationship and certain transactions between the investment entity and its subsidiaries. On the other hand, amendments force an investment entity to account for its investment in a subsidiary in the same way in the consolidated financial statements as well as in its individual financial statements (or just provide individual financial statements if all subsidiaries are not consolidated). These modifications will be effective for yearly periods beginning on or after January 1, 2014. In-advance enforcement is allowed. Early application permitted. Management believes this new regulation will be adopted in the Bank’s Consolidated Financial Statements for the period beginning on January 1, 2013. Management is currently evaluating the possible impact this might have. The Bank’s management is assessing the potential impact of the adoption of these modifications.
Consolidated Financial Statements December 2013 / Banco Santander Chile 40 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities
The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realisation and settlement. The Bank’s management is assessing the potential impact of the adoption of these modifications.
IFRIC 21 - Levies – On May 20, 2013 the IASB issued this interpretation addressing the accounting for a liability to pay a levy if such liability is within the IAS 37. It also addresses the accounting for a liability to pay a levy which amount and maturity is true. For the purposes of this Interpretation, a levy is an outflow of resources embodying economic benefits imposed by governments to entities according to legislation (laws and regulations). This is different from the outflow of resources within the reach of IAS 12 Income Tax, and fines or other penalties imposed for breaches of the legislation. An entity shall apply these modifications retrospectively for annual periods beginning on or after January 1, 2014. Earlier application permitted. If an entity applies this Interpretation for prior periods shall disclose this fact. Changes in accounting policies resulting from the application of this Interpretation shall be accounted for retrospectively in accordance with IAS 8 - Accounting policies, changes in accounting estimates and errors. The Bank’s management is assessing the potential impact of the adoption of these modifications.
Amendment IAS 36, Impairment of the Assets – On May 29, 2013 the IASB issued Recoverable Amount Disclosures for Non-Financial Assets. The objective of this amendment is to harmonize the disclosure requirements about fair value without the disposal costs and value in use, when present value techniques are used to measure the recoverable amount of assets that are considered value impaired, requiring an entity to disclose the discount rates that have been used to determine the recoverable amount of assets that are considered value impaired .. An entity shall apply these modifications retrospectively for annual periods beginning on or after January 1, 2014. In-advance enforcement is allowed. An entity shall not apply these modifications to periods (including comparative periods) in which IFRS 13 is not applied. The Bank’s management is assessing the potential impact of the adoption of these modifications.
Amendment IAS 39, Financial instruments: recognition and measurement – On June, 27, 2013 the IASB issued the amendment Novation of Derivatives and Continuation of Hedge Accounting, establishing that a derived contract novation with a central counterparty (clearing house) would generate a hedged interruption, derecognition of the original derivative and the recognition of the new derivative contract novated. While product novation laws or regulations do not qualify for derecognition and therefore hedge accounting will not be interrupted (if requirements are met). The effective date of application for annual periods beginning on January 1, 2014, may be applied in advance. An entity shall apply the amendment retrospectively in accordance with IAS 8 - Accounting policies, changes in accounting estimates and errors. The Bank’s management is assessing the potential impact of the adoption of these modifications.
IFRS 9 - Financial Instruments – Coverage and Amendments accounting for IFRS 9, IFRS 7 and IAS 39 – On November 19, IASB issued this amendment which includes a new coverage accounting general model. It is more closely aligned with risk management, providing more useful information to users of financial statements. Moreover, the requirements relating to the fair value option for financial liabilities were changed to address own credit risk. This improvement requires that the effects of changes in credit risk of liability should not affect the income of the period unless the liabilities are hold for trading. Early adoption of this amendment is allowed without the application of the other requirements of IFRS 9. Additionally, it conditions the effective date of entry into force to the end of the draft IFRS 9, allowing equally to be adopted. The Bank’s management is assessing the potential impact of the adoption of these modifications regarding IFRS 7 and IAS 39, given that those regarding IFRS 9 shall not be applied to the financial statements of the Bank by express provision of SBIF.
Amendment IAS 19 – Defined benefit plans: employee contributions – On November 21, 2013 the IASB issued these modifications establishing the treatment for employee or third party contributions when accounting for the defined benefit plans. Therefore, if the amount of the contributions is independent of the number of years of service, it allows an entity to recognize these contributions as a reduction in service costs in the period in which the related service is rendered, instead of attributing contributions to periods of service, and if the amount of the contribution depends on the number of years of service, an entity to attribute these contributions to periods of service is required, using the same method of allocation required by paragraph 70 of the IAS 19, for gross proceeds (that is, using the contribution plan formula or a linear basis). These modifications apply for annual periods starting as of July 1, 2014 retroactively, as stated by IAS 8 - Accounting policies changes in accounting estimates and errors. Earlier application permitted. The Bank’s management is assessing the potential impact of the adoption of these modifications.
Consolidated Financial Statements December 2013 / Banco Santander Chile 41 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 01
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Annual modifications, cycle 2010-2012 – On December 12, 2013 this document covering seven standards was issued:
- | IFRS 2 - Share-based Payments: It modifies the definition of 'concession consolidation condition (irrevocability)' y 'market conditions' and adds the definition of 'execution conditions' and ' service condition' (which was a part of the definition of the concession consolidation condition). |
- | IFRS 3 - Business Combinations: it states that the contingent considerations classified as assets or liabilities must be measure to fair value on each report date. |
- | NIFRS 8 - Operating Segments: it required that and entity reveals the judgments made by the administration regarding the implementations of the criteria for the operating segments aggregation and it states that the entity must only provide reconciliation between all the assets of the reportable segment and the entity's assets if the previous ones are reported regularly. |
- | IFRS 13 - Fair value measurement: it states that the issuing of IFRS 13 and the modification of IFRS 9 and IAS 39 did not eliminate the possibility of measuring the accounts receivable and pay in the short term those that lack an established interest rate on the invoice amount without discounting if the effect of such action is intangible. |
- | IAS 16 - Property, plant and equipment: it states that when a property, plant and equipment element is revaluated, the gross carrying value is adjusted consistently with the revaluation of the carrying value. |
- | IAS 24 - Related party disclosures: it states that an entity providing administration personnel services key to the informing entity or to the parent of the reporting entity, this is a related party of the reporting entity. |
- | IAS 38 - Intangibles: it states that when an intangible element is revaluated, the gross carrying value is adjusted consistently with the revaluation of the carrying value. |
IFRS annual modifications, 2010-2012 cycle, must be implemented for annual periods starting on or after July 1, 2014. Early application permitted. The Bank’s management is assessing the potential impact of the adoption of these modifications.
Annual modifications, cycle 2011-2013 – On December 12, 2013 this document covering four standards was issued:
- | IFRS 1 - First-time Adoption: It states that an entity, on its first financial statements under IFRS, has the possibility of choosing between applying an existing and currently effective IFRS, and applying a new or revised IFRS which is not currently mandatory, provided earlier application is permitted. It is required that the entity applies the same version of the IFRS throughout the periods covered by the first financial statements according to IFRS. |
- | IFRS 3 - Business Combinations: It states that the IFRS 3 excludes from its scope the accounting for the formation of a joint agreement on the financial statements of the joint arrangement itself. |
- | IFRS 13 - Fair Value Measurement: It states that the scope of the exception of portfolio defined in paragraph 52 of IFRS 13, includes all contracts included under the scope of 'IAS 39 - Financial Instruments: Recognition and measurement' and 'IFRS 9 - Financial Instruments', regardless of whether they conform to the definition of financial assets or financial liabilities as set out in 'IAS 32 - Financial Instruments: Presentation'. |
- | IAS 40 - Investment Property: It states that if a certain transaction complies with the definition of a business combination -as defined by IFRS 3 -Business Combinations- and of investment properties -as defined by IAS 40 Investment Property-, it needs to implement both norms independently and separately. |
IFRS annual modifications, 2011-2013 cycle, must be implemented for annual periods beginning on or after July 1, 2014. Earlier application permitted. The Bank’s management is assessing the potential impact of the adoption of these modifications.
Consolidated Financial Statements December 2013 / Banco Santander Chile 42 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 02
ACCOUNTING CHANGES
IAS 19 – “Employee Benefits Revised” was implemented as of January 1, 2013. Regarding the Pension Plan (Defined benefits), the main change of the new version of the IAS 19 is the inability to defer the costs of 'past services' of the defined benefit plans, they have to be recognized within income at the moment of formalizing the plan and when it is modified. The amendments require an accounting change that must be applied retroactively following IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”.
The required adjustments to comply with the IAS 19 - Employee Benefits amendments within the Consolidated Financial Statements as of December 31, 2012 are as follows:
Consolidated Statement of Financial | Closing balance as of December 31, | Adjusted balance as of December 31, | ||||||||||
Position | 2012 | Adjustments | 2012 | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Asset | ||||||||||||
Deferred taxes | 186,210 | 197 | 186,407 | |||||||||
Other assets | 656,200 | (983 | )(*) | 655,217 | ||||||||
Total Assets | 842,410 | (786 | ) | 841,624 | ||||||||
Liabilities | ||||||||||||
Provisions | 220,993 | 96 | 221,089 | |||||||||
Total Liabilities | 220,993 | 96 | 221,089 | |||||||||
Equity | ||||||||||||
Reserves | 976,561 | (1,101 | )(**) | 975,460 | ||||||||
Income for the period | 387,967 | 315 | (***) | 388,282 | ||||||||
Minus: Provision for mandatory dividends | (116,390 | ) | (96 | ) | (116,486 | ) | ||||||
Total Equity | 1,248,138 | (882 | ) | 1,247,256 |
(*) Corresponds to decrease in deferred past service costs
(**) Corresponds to the effect, net of taxes, on pension plans that was deferred as of December 31, 2011
(***) Corresponds to an effect on income for the period
The adjustments required by the IAS 19 modifications as of January 1, 2012 are as follows:
Consolidated Statement of Financial | Closing balance as of January 1, | Adjusted balance as of January 1, | ||||||||||
Position | 2012 | Adjustments | 2012 | |||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Assets | ||||||||||||
Deferred taxes | 147,754 | 276 | 148,030 | |||||||||
Other assets | 546,470 | (1,377 | )(*) | 545,093 | ||||||||
Total Assets | 694,224 | (1,101 | ) | 693,123 | ||||||||
Equity | ||||||||||||
Reserves | 802,528 | (1,101 | )(**) | 801,427 | ||||||||
Total Equity | 802,528 | (1,101 | ) | 801,427 |
(*) Corresponds to decrease in pension plan for deferred pension plan
(**) Corresponds to pension plans amount pending of deferral as of December 31, 2011 (net of income tax)
Consolidated Financial Statements December 2013 / Banco Santander Chile 43 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 02
ACCOUNTING CHANGES, continued
The recasted Consolidated Statements with modifications required by IAS 19 - Employee Benefits are as follows:
Closing balance as of December 31, | IAS 19 | Adjusted balance as of December 31, | ||||||||||
2012 | adjustments | 2012 | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
ASSETS | ||||||||||||
Cash and deposits in banks | 1,250,414 | - | 1,250,414 | |||||||||
Cash items in process of collection | 520,267 | - | 520,267 | |||||||||
Trading investments | 338,287 | - | 338,287 | |||||||||
Investments under resale agreements | 6,993 | - | 6,993 | |||||||||
Financial derivative contracts | 1,293,212 | - | 1,293,212 | |||||||||
Interbank loans, net | 90,527 | - | 90,527 | |||||||||
Loans and accounts receivable from customers | 18,325,957 | - | 18,325,957 | |||||||||
Available for sale investments | 1,826,158 | - | 1,826,158 | |||||||||
Held to maturity investments | - | - | - | |||||||||
Investments in associates and other companies | 7,614 | - | 7,614 | |||||||||
Intangible assets | 87,347 | - | 87,347 | |||||||||
Property, plant, and equipment | 162,214 | - | 162,214 | |||||||||
Current taxes | 10,227 | - | 10,227 | |||||||||
Deferred taxes | 186,210 | 197 | 186,407 | |||||||||
Other assets | 656,200 | (983 | ) | 655,217 | ||||||||
TOTAL ASSETS | 24.761.627 | (786 | ) | 24,760,841 | ||||||||
LIABILITIES | ||||||||||||
Deposits and other demand liabilities | 4,970,019 | - | 4,970,019 | |||||||||
Cash items in process of being cleared | 284,953 | - | 284,953 | |||||||||
Obligations under repurchase agreements | 304,117 | - | 304,117 | |||||||||
Time deposits and other time liabilities | 9,112,213 | - | 9,112,213 | |||||||||
Financial derivative contracts | 1,146,161 | - | 1,146,161 | |||||||||
Interbank borrowings | 1,438,003 | - | 1,438,003 | |||||||||
Issued debt instruments | 4,571,289 | - | 4,571,289 | |||||||||
Other financial liabilities | 192,611 | - | 192,611 | |||||||||
Current taxes | 525 | - | 525 | |||||||||
Deferred taxes | 9,544 | - | 9,544 | |||||||||
Provisions | 220,993 | 96 | 221,089 | |||||||||
Other liabilities | 341,274 | - | 341,274 | |||||||||
TOTAL LIABILITIES | 22.591.702 | 96 | 22,591,798 | |||||||||
EQUITY | ||||||||||||
Attributable to the Bank's shareholders: | 2,135,660 | (882 | ) | 2,134,778 | ||||||||
Capital | 891,303 | - | 891,303 | |||||||||
Reserves | 976,561 | (1,101 | ) | 975,460 | ||||||||
Valuation adjustments | (3,781 | ) | - | (3,781 | ) | |||||||
Retained earnings | 271,577 | 219 | 271,796 | |||||||||
Retained earnings of prior years | - | - | - | |||||||||
Income for the period | 387,967 | 315 | 388,282 | |||||||||
Minus: Provision for mandatory dividends | (116,390 | ) | (96 | ) | (116,486 | ) | ||||||
Non-controlling interest | 34,265 | - | 34,265 | |||||||||
TOTAL EQUITY | 2.169.925 | (882 | ) | 2,169,043 | ||||||||
TOTAL LIABILITIES AND EQUITY | 24.761.627 | (786 | ) | 24,760,841 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 44 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 02
ACCOUNTING CHANGES, continued
The necessary reclassifications made to the Income Statement for comparative purposes along with adjustments required by IAS 19 as of December 31, 2012 are detailed below:
Closing balance as of December 31 | IAS 19 | Adjusted balance as of December 31 | ||||||||||||||
2012 | Reclassification | adjustments | 2012 | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
OPERATING INCOME | ||||||||||||||||
Interest income | 1,890,953 | - | - | 1,890,953 | ||||||||||||
Interest expense | (848,219 | ) | - | - | (848,219 | ) | ||||||||||
Net interest income | 1,042,734 | - | - | 1,042,734 | ||||||||||||
Fee and commission income (1) | 360,427 | 40 | - | 360,467 | ||||||||||||
Fees and commissions expense (1) | (89,855 | ) | (12,925 | ) | - | (102,780 | ) | |||||||||
Net fee and commission income | 270,572 | (12,885 | ) | - | 257,687 | |||||||||||
Net income from financial operations | (64,079 | ) | - | - | (64,079 | ) | ||||||||||
Foreign exchange profit (loss), net | 146,378 | - | - | 146,378 | ||||||||||||
Other operating income | 19,758 | - | - | 19,758 | ||||||||||||
Net operating profit before provision for loan losses | 1,415,363 | (12,885 | ) | - | 1,402,478 | |||||||||||
Provisions for loan losses | (366,702 | ) | - | - | (366,702 | ) | ||||||||||
NET OPERATING PROFIT | 1,048,661 | (12,885 | ) | - | 1,035,776 | |||||||||||
Personnel salaries and expenses | (300,298 | ) | - | 394 | (299,904 | ) | ||||||||||
Administrative expenses (1) | (183,379 | ) | 7,496 | - | (175,883 | ) | ||||||||||
Depreciation and amortization | (56,369 | ) | - | - | (56,369 | ) | ||||||||||
Impairment | (90 | ) | - | - | (90 | ) | ||||||||||
Other operational expenses (1) | (65,105 | ) | 5,389 | - | (59,716 | ) | ||||||||||
TOTAL OPERATIONAL EXPENSES | (605,241 | ) | 12,885 | 394 | (591,962 | ) | ||||||||||
OPERATING INCOME | 443,420 | - | 394 | 443,814 | ||||||||||||
Income from investments in associates and other companies | 267 | - | - | 267 | ||||||||||||
Income before tax | 443,687 | - | 394 | 444,081 | ||||||||||||
Income tax expense | (51,095 | ) | - | (79 | ) | (51,174 | ) | |||||||||
NET INCOME FOR THE PERIOD | 392,592 | - | 315 | 392,907 | ||||||||||||
Attributable to: | ||||||||||||||||
Bank shareholders | 387,967 | - | - | 388,282 | ||||||||||||
Non-controlling interest | 4,625 | - | - | 4,625 | ||||||||||||
Earnings per share attributable to Bank shareholders: (expressed in Chilean pesos) | ||||||||||||||||
Basic earnings | 2.059 | - | 0.001 | 2.060 | ||||||||||||
Diluted earnings | 2.059 | - | 0.001 | 2.060 |
(1) | Reclassifications implemented during 2013 and retroactively applied for comparability purposes. These reclassifications did not modify net income for the year. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 45 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 03
SIGNIFICANT EVENTS
As of December 31, 2013, the following significant events have occurred and had an impact on the Bank’s operations on the Consolidated Financial Statements.
a) The Board
At the Ordinary Board Meeting No. 446 on August 20, 2013, Mr. Jesús María Zabalza Lotina presented his resignation as First Vice-president. During this session, the Board appointed Mr. Oscar von Chrismar Carvajal as Vice-president and Mr. Juan Pedro Santa María Pérez as General Director of the Bank.
Use of profit and distribution of dividends
The Ordinary Shareholders’ Meeting of Banco Santander Chile was held on April 29, 2013, chaired by Mr. Mauricio Larraín Garcés (Chairman), and attended by Jesús María Zabalza Lotina (First Vice President), Oscar von Chrismar Carvajal (Second Vice President), Víctor Arbulú Crousillat, Lisandro Serrano Spoerer, Marco Colodro Hadjes, Vittorio Corbo Lioi, Carlos Olivos Marchant, Roberto Méndez Torres, Lucía Santa Cruz Sutil, Roberto Zahler Mayanz, Juan Pedro Santa María Pérez, and Raimundo Monge Zegers (Alternate Director). Also, the CEO Claudio Melandri Hinojosa and CAO Felipe Contreras Fajardo attended the meeting.
According to the information presented during said meeting, the net profit of the 2012 period (named as Profit attributable to Bank shareholders in the financial statements) was MCh$387,967. The distribution of 60% of such profit was approved. Such percentage divided by the number of shares issued is equivalent to a dividend of CLP 1,235 per share payable as of April 30, 2013.
b) Issuance of bonds - year 2013
In 2013, the Bank issued bonds for CHF 300,000,000, UF 4,000,000, USD 250,000,000 and a mortgage bond for UF 300,000,000. The loan detail for 2013 is included in Note 20.
b.1) | Senior bonds year 2013 |
Series | Amount | Term | Issuing Rate | Date of Issue | Maturity date | |||||||
CHF floating bond | CHF | 150,000,000 | 4 years | Libor (3 months) + 100 bp | 03-28-2013 | 03-28-2017 | ||||||
Bond | CHF | 150,000,000 | 6 years | 1.75 per annum simple | 09-26-2013 | 09-26-2019 | ||||||
Total | CHF | 300,000,000 | ||||||||||
Bond | UF | 2,000,000 | 10 years | 3.5 per annum simple | 11-28-2013 | 01-01-2023 | ||||||
Bond | UF | 2,000,000 | 10 years | 3.5 per annum simple | 11-28-2013 | 09-01-2023 | ||||||
Total | UF | 4,000,000 | ||||||||||
USD floating bond | USD | 250,000,000 | 5 years | Libor (3 months) + 100 bp | 06-07-2013 | 06-07-2018 | ||||||
Total | USD | 250,000,000 |
b.2) | Mortgage bonds year 2013 |
Series | Amount | Term | Interest Rate | Date of Issue | Maturity date | |||||||
Mortgage bond (*) | UF | 3,000,000 | 15 years | 3.2 per annum simple | 08-01-2013 | 07-01-2028 | ||||||
Total | UF | 3,000,000 |
(*)Two placements were made, each for UF 1,500,000. The first placement was made on August 1, 2013 and the second on November 20, 2013.
Consolidated Financial Statements December 2013 / Banco Santander Chile 46 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 03
SIGNIFICANT EVENTS, continued:
b.3) | Subordinated bonds year 2013 |
In 2013, the Bank did not issued subordinated bonds.
b.4) | Bonds repurchase |
In 2013, the Bank made the following bond repurchases:
Date | Type | Amount | ||||
05-22-2013 | Subordinated | USD | 45,556,000 | |||
06-16-2013 | Subordinated | USD | 2,230,000 | |||
06-26-2013 | Senior | CLP | 29,245,000,000 | |||
07-01-2013 | Senior | CLP | 20,000,000,000 |
c) | Selling of the subsidiary Santander Asset Management S.A. Administradora General de Fondos |
On December, 2013 our subsidiary Santander Asset Management S.A Administradora General de Fondos was sold through a formal offer of purchase received in May 2013. The sale price was Ch$90,281 million for 100% of the shares. 99.99% were acquired by SAM Investment Holdings Limited and the remaining 0.01% by Santander Asset Management UK Holdings Limited. This operation generated MCh$78,122 of profit recorded within Income from investments in other companies. Additionally, the entities entered into a management service agreement for a 10-year period.
This transaction was revised by independent external evaluators who were of the opinion that the price for the offer was reasonable in consideration of their fair value appraisals. The Audit Committee and the Board of Directors ratified the appraiser’s opinion. On December 5, 2013 an Extraordinary Shareholders’ meeting was held. The offer was accepted and thus, on December 6, 2013 the SBIF was informed of this transaction.
d) | La Polar blended bonds swap |
In June 2013 the Bank decided to accept the option offered by the company La Polar S.A. to exchange outstanding debt and the option acceptance was communicated to the Chilean Superintendency of Securities and Insurance on June 7, 2013. This swap transaction offered the creditors of the senior and junior debt to opt for the replacement of their credit for F (senior) and G (junior) series bonds. The bonds received for this operation were originally classified as “Trading investments”. In 2013, the Bank sold all the bonds received for said swap. The net effect recorded within Income from financial operations associated to this operation was Ch$272 million loss.
e) | Reception of own shares in lieu of payment |
In December 2013, the Bank received 26,241,318 of its own shares in lieu of payment. The value of the shares was 757,586,851 pesos (28.87 pesos per share). Those shares were sold in the stock market during the same month, generating a price difference of Ch$29 million, which was recorded within Equity, as a reserve increase.
Consolidated Financial Statements December 2013 / Banco Santander Chile 47 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 03
SIGNIFICANT EVENTS, continued:
f) Constitution of “Servicios de Infraestructura de Mercado OTC S.A.”
On July 19, 2013, Banco Santander made a contribution of 1,439,574,238 pesos to participate in the company "Servicios de Infraestructura de Mercado OTC S.A.", equivalent to 1,111 shares and 1,295,746.3890 pesos each, representing 11.11% ownership.
This company`s objective is to manage infrastructure for the financial market, providing registration, confirmation, storage, consolidation and conciliation services for financial derivatives transactions, as well as granting related or complementary services.
g) Merger by absorption of Santander Servicios de Recaudación y Pagos Limitada
On December 17, 2013, at an Extraordinary Board of Directors meeting, a proposal for consultation was made to merge the subsidiary Santander Servicios de Recaudación y Pagos Ltda. during 2014. The Board approved the merger and commissioned the CEO to present the merger to the SBIF for authorization and for legal procedures to formalize properly.
Consolidated Financial Statements December 2013 / Banco Santander Chile 48 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 04
OPERATING SEGMENTS
The Bank manages and measures the performance of its operations by operating segment. The information disclosed in this note is not necessarily comparable to that of other financial institutions, since it is based on management’s internal information system by segment.
Inter-segment transactions are conducted under normal arm’s length commercial terms and conditions. Each segment’s assets, liabilities, and income include items directly attributable to the segment to which they can be allocated on a reasonable basis.
To achieve the strategic objectives adopted by management and adapt to changing market conditions, the Bank makes changes in its organization from time to time, which in turn have a greater or lesser impact on how it is managed or administered. Hence, this disclosure furnishes information on how the Bank is managed as of December 31, 2013. The prior year segment information presented herein has been recast to reflect the change in segment mentioned in the following paragraph..
During the second term of 2013, commercial banking operations were streamlined to better meet market requirements. The Institutions segment was incorporated into the Companies segment resulting in such pre-existing segments being reported to the Chief Operating Decision Maker as one.
The Bank has the following operating segments:
Individuals and PYME (Middle Market entities)
Individuals
a. | Santander Banefe |
Serves individuals with monthly incomes from Ch$150,000 pesos to Ch$400,000 pesos, who receive services through Santander Banefe. This segment gives customers a variety of services, including consumer loans, credit cards, auto loans, mortgage loans, debit cards, savings products, mutual funds, and insurance brokerage.
b. | Commercial banking |
Serves individuals with monthly incomes over Ch$400,000 pesos. This segment gives customers a variety of services, including consumer loans, credit cards, auto loans, commercial loans, foreign exchange, mortgage loans, debit cards, checking accounts, savings products, mutual funds, stockbrokerage, and insurance brokerage.
Small and mid-sized companies (PYMEs)
Considers small companies with annual sales lower than Ch$1,200 million. This segment gives customers a variety of products, including commercial loans, government-guaranteed loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, savings products, mutual funds, and insurance brokerage.
Companies and institutions
Associated
The Companies segment includes the Companies, Real Estate and Large Corporations sub segments:
a. | Companies |
Considers companies with annual sales over Ch$1,200 million up to Ch$10,000 million. This segment provides a wide variety of products, including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, savings products, mutual funds, and insurance brokerage.
Consolidated Financial Statements December 2013 / Banco Santander Chile 49 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 04
OPERATING SEGMENTS, continued
b. | Real estate |
This segment includes all the companies engaged in the real estate industry who carry out projects to sell properties to third parties and all builders with annual sales exceeding Ch$800 million with no ceiling. These clients are offered not only the traditional banking services but also specialized services to finance projects, chiefly residential, with the aim of expanding sales of mortgage loans.
c. | Large Corporations |
Considers companies with annual sales exceeding Ch$10.000 million. This segment provides a wide variety of products, including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, investment, savings products, mutual funds, and insurance.
Institutional
Serves institutions such as universities, government entities, local and regional governments. This segment provides a wide variety of products, including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, savings products, mutual funds, and insurance.
Global Banking and Markets
The Global Banking and Markets segment is comprised of:
a. | Corporate |
Foreign and domestic multinational companies with sales over MCh$10.000. This segment provides a wide variety of products, including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, investments, savings products, mutual funds, and insurance brokerage.
b. | Treasury |
The Treasury Division provides sophisticated financial products, mainly to companies in the Wholesale Banking area and the Companies segment. These include products such as short-term financing and fund raising, brokerage services, derivatives, securitization, and other tailor-made products. The Treasury area may act as brokers to transactions and also manages the Bank’s investment portfolio.
Corporate Activities (“Other”)
This segment includes Financial Management, which develops global management functions, involving the parent company’s structural interest risk and liquidity risk. Liquidity risk is managed mainly through debt issuances. This segment also manages the Bank’s personal funds, capital allocation by unit, and the financing of investments made. The foregoing usually results in a negative contribution to income.
In addition, this segment encompasses all the intra-segment income and all the activities not assigned to a given segment or product with customers.
The segments’ accounting policies are the same as those described in the summary of accounting policies. The Bank earns most of its income in the form of interest income, fee and commission income and income from financial operations. To evaluate a segment’s financial performance and make decisions regarding the resources to be assigned to segments, the Chief Operating Decision Maker (CODM) bases his assessment on the segment's interest income, fee and commission income, and expenses.
Consolidated Financial Statements December 2013 / Banco Santander Chile 50 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
NOTE 04
OPERATING SEGMENTS, continued
Below are the tables showing the Bank’s results by operating segment, for the years ended December 31, 2013 and 2012 in addition to the corresponding balances of loans and accounts receivable from customers:
As of December 31, 2013 | ||||||||||||||||||||||||||||
Loans and accounts receivable from customers (1) | Net fee for interests and inflation adjustments | Net income for commissions | ROF (2) | Provisions for loan losses | Support expenses (3) | Segment’s net contribution | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Segments | ||||||||||||||||||||||||||||
Individuals | 10,437,701 | 605,374 | 149,144 | 8,732 | (214,006 | ) | (350,543 | ) | 198,701 | |||||||||||||||||||
Santander Banefe | 727,452 | 99,182 | 25,648 | 1,614 | (56,309 | ) | (52,370 | ) | 17,765 | |||||||||||||||||||
Commercial Banking | 9,710,249 | 506,192 | 123,496 | 7,118 | (157,697 | ) | (298,173 | ) | 180,936 | |||||||||||||||||||
Small and mid-sized companies (PYMEs) | 3,223,215 | 260,856 | 37,641 | 4,798 | (101,187 | ) | (79,633 | ) | 122,475 | |||||||||||||||||||
Individuals + PYME | 13,660,916 | 866,230 | 186,785 | 13,530 | (315,193 | ) | (430,176 | ) | 321,176 | |||||||||||||||||||
Associated | 4,678,243 | 163,466 | 26,634 | 13,674 | (32,642 | ) | (53,939 | ) | 117,193 | |||||||||||||||||||
Associated | 1,757,586 | 73,906 | 14,020 | 7,457 | (19,982 | ) | (27,947 | ) | 47,454 | |||||||||||||||||||
Large Corporations | 1,923,810 | 62,953 | 9,026 | 5,930 | (8,292 | ) | (19,937 | ) | 49,680 | |||||||||||||||||||
Real estate | 996,847 | 26,607 | 3,588 | 287 | (4,368 | ) | (6,055 | ) | 20,059 | |||||||||||||||||||
Institutional | 353,509 | 30,283 | 2,615 | 562 | 317 | (15,889 | ) | 17,888 | ||||||||||||||||||||
Companies and institutions | 5,031,752 | 193,749 | 29,249 | 14,236 | (32,325 | ) | (69,828 | ) | 135,081 | |||||||||||||||||||
Commercial Banking | 18,692,668 | 1,059,979 | 216,034 | 27,766 | (347,518 | ) | (500,004 | ) | 456,257 | |||||||||||||||||||
Global Banking and Markets | 2,219,045 | 72,932 | 18,022 | 42,393 | (16,904 | ) | (37,728 | ) | 78,715 | |||||||||||||||||||
Corporate | 2,219,045 | 63,036 | 16,295 | 687 | (16,904 | ) | (19,802 | ) | 43,312 | |||||||||||||||||||
Treasury | - | 9,896 | 1,727 | 41,706 | - | (17,926 | ) | 35,403 | ||||||||||||||||||||
Other | 149,048 | (56,149 | ) | (4,220 | ) | 45,954 | 391 | (20,121 | ) | (34,145 | ) | |||||||||||||||||
Total | 21,060,761 | 1,076,762 | 229,836 | 116,113 | (364,031 | ) | (557,853 | ) | 500,827 | |||||||||||||||||||
Other operating income | 20.508 | |||||||||||||||||||||||||||
Other operating expenses | (62,351 | ) | ||||||||||||||||||||||||||
Income from investments in other companies | 79,544 | |||||||||||||||||||||||||||
Income tax | (94,467 | ) | ||||||||||||||||||||||||||
Net income for the year | 444,061 |
(1) Corresponds to loans and accounts receivable from customers, net, without deducting their allowances for loan losses.
(2) Corresponds to the sum of the net income from financial operations and the foreign exchange profit.
(3) Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation, amortization, and impairment.
Consolidated Financial Statements December 2013 / Banco Santander Chile 51 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 04
OPERATING SEGMENTS, continued
Operating segments according to the new segmentation criteria are as follows:
As of December 31, 2012 (*) | ||||||||||||||||||||||||||||
Loans and accounts receivable from customers (1) | Net fee for interests and inflation adjustments | Net income for commissions | ROF (2) | Provisions for loan losses | Support expenses (3) | Segment’s net contribution | ||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||
Segments | ||||||||||||||||||||||||||||
Individuals | 9,672,222 | 622,465 | 162,914 | 9,901 | (266,850 | ) | (335,863 | ) | 192,567 | |||||||||||||||||||
Santander Banefe | 730,362 | 123,043 | 26,357 | 1,288 | (73,882 | ) | (44.301 | ) | 32,505 | |||||||||||||||||||
Commercial Banking | 8,941,860 | 499,422 | 136,557 | 8,613 | (192,968 | ) | (291,562 | ) | 160,062 | |||||||||||||||||||
Small and mid-sized companies (PYMEs) | 2,890,251 | 233,622 | 38,115 | 5,009 | (80,144 | ) | (76,560 | ) | 120,042 | |||||||||||||||||||
Individuals + PYME | 12,562,473 | 856,087 | 201,029 | 14,910 | (346,994 | ) | (412,423 | ) | 312,609 | |||||||||||||||||||
Associated | 4,058,693 | 148,177 | 25,903 | 11,062 | (24,186 | ) | (50,375 | ) | 110,581 | |||||||||||||||||||
Associated | 1,626,606 | 70,747 | 13,885 | 5,118 | (21,531 | ) | (26,672 | ) | 41,547 | |||||||||||||||||||
Large Corporations | 1,661,837 | 56,086 | 8,722 | 5,623 | (3,361 | ) | (17,958 | ) | 49,112 | |||||||||||||||||||
Real estate | 770,250 | 21,344 | 3,296 | 321 | 706 | (5,745 | ) | 19,922 | ||||||||||||||||||||
Institutional | 355,518 | 28,472 | 2,470 | 615 | (346 | ) | (15,297 | ) | 15,914 | |||||||||||||||||||
Company and institutions | 4,414,211 | 176,649 | 28,373 | 11,677 | (24,532 | ) | (65,672 | ) | 126,495 | |||||||||||||||||||
Commercial Banking | 16,976,684 | 1,032,736 | 229,402 | 26,587 | (371,526 | ) | (478,095 | ) | 439,104 | |||||||||||||||||||
Global Banking and Markets | 1,863,595 | 50,477 | 19,159 | 52,277 | 5,546 | (35,476 | ) | 91,983 | ||||||||||||||||||||
Corporate | 1,863,595 | 57,822 | 16,832 | 763 | 5.546 | (17,564 | ) | 63,399 | ||||||||||||||||||||
Treasury | - | (7,345 | ) | 2,327 | 51,514 | - | (17,912 | ) | 28,584 | |||||||||||||||||||
Other | 126,373 | (40,479 | ) | 9,126 | 3,435 | (722 | ) | (18,675 | ) | (47,315 | ) | |||||||||||||||||
Total | 18,966,652 | 1,042,734 | 257,687 | 82,299 | (366,702 | ) | (532,246 | ) | 483,772 | |||||||||||||||||||
Other operating income | 19.758 | |||||||||||||||||||||||||||
Other operating expenses | (59,716 | ) | ||||||||||||||||||||||||||
Income from investments in other companies | 267 | |||||||||||||||||||||||||||
Income tax | (51,174 | ) | ||||||||||||||||||||||||||
Net income for the year | 392,907 |
(1) Corresponds to loans and accounts receivable from customers, net without deducting their allowances for loan losses.
(2) Corresponds to the sum of the net income from financial operations and the foreign exchange profit.
(3) Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation, amortization, and impairment.
(*) Adjusted for comparative purposes, as previously described in Note 02.
Consolidated Financial Statements December 2013 / Banco Santander Chile 52 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 05
CASH AND CASH EQUIVALENTS
a) | The detail of the balances included under cash and cash equivalents is as follows: |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Cash and deposits in banks | ||||||||
Cash | 551,136 | 435,687 | ||||||
Deposits in the Central Bank of Chile | 797,363 | 520,031 | ||||||
Deposits in domestic banks | 81 | 4,057 | ||||||
Deposits in foreign banks | 223,230 | 290,639 | ||||||
Subtotals – Cash and deposits in banks | 1,571,810 | 1,250,414 | ||||||
Cash in process of collection, net | 327,698 | 235,314 | ||||||
Cash and cash equivalents | 1,899,508 | 1,485,728 |
The level of funds in cash and at the Central Bank of Chile, which are included in the “Deposits in the Central Bank of Chile” line, reflects regulations governing the reserves that the Bank must maintain on average each month.
b) | Cash in process of collection and in process of being cleared: |
Cash items in process of collection and in process of being cleared represent domestic transactions in the process of transfer through a central domestic clearinghouse or international transactions which may be delayed in settlement due to time differences. These transactions are as follows:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Assets | ||||||||
Documents held by other banks (documents to be cleared) | 289,723 | 238,714 | ||||||
Funds receivable | 314,354 | 281,553 | ||||||
Subtotal | 604,077 | 520,267 | ||||||
Liabilities | ||||||||
Funds payable | 276,379 | 284,953 | ||||||
Subtotal | 276,379 | 284,953 | ||||||
Cash in process of collection, net | 327,698 | 235,314 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 53 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 06
TRADING INVESTMENTS
The detail of instruments deemed as financial trading investments is as follows:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Chilean Central Bank and Government securities | ||||||||
Chilean Central Bank Bonds | 75,577 | 267,008 | ||||||
Chilean Central Bank Notes | 100 | 3,397 | ||||||
Other Chilean Central Bank and Government securities | 189,962 | 48,160 | ||||||
Subtotal | 265.639 | 318,565 | ||||||
Other Chilean securities | ||||||||
Time deposits in Chilean financial institutions | - | 3,531 | ||||||
Mortgage finance bonds of Chilean financial institutions | - | - | ||||||
Chilean financial institution bonds | 10,042 | - | ||||||
Chilean corporate bonds | 2,229 | - | ||||||
Other Chilean securities | - | - | ||||||
Subtotal | 12,271 | 3,531 | ||||||
Foreign financial securities | ||||||||
Foreign Central Banks and Government securities | - | - | ||||||
Other foreign financial instruments | - | - | ||||||
Subtotal | - | - | ||||||
Investments in mutual funds | ||||||||
Funds managed by related entities | 9,657 | 16,191 | ||||||
Funds managed by others | - | - | ||||||
Subtotal | 9,657 | 16,191 | ||||||
Total | 287,567 | 338,287 |
As of December 31, 2013 and 2012, there were no securities sold under contracts to resell to clients and financial institutions.
Consolidated Financial Statements December 2013 / Banco Santander Chile 54 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 07
INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS
a) | Rights arising from resale agreements |
The Bank purchases financial instruments agreeing to resell them at a future date. As of December 31, 2013 and 2012, rights associated with instruments acquired under contracts to resell are as follows:
As of December 31, | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
From 1 day and less than 3 months | More than 3 months and less than 1 year | More than 1 year | Total | From 1 day and less than 3 months | More than 3 months and less than 1 year | More than 1 year | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Securities from the Chilean Government and the Chilean Central Bank | ||||||||||||||||||||||||||||||||
Chilean Central Bank Bonds | - | - | - | - | 6,993 | - | - | 6,993 | ||||||||||||||||||||||||
Chilean Central Bank Notes | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Other securities from the Government and the Chilean Central Bank | 17,469 | - | - | 17,469 | - | - | - | - | ||||||||||||||||||||||||
Subtotal | 17,469 | - | - | 17,469 | 6,993 | - | - | 6,993 | ||||||||||||||||||||||||
Instruments from other domestic institutions domestic institutions: | ||||||||||||||||||||||||||||||||
Time deposits in Chilean financial institutions | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Mortgage finance bonds of Chilean financial institutions | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Chilean financial institution bonds | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Chilean corporate bonds | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Other Chilean securities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Foreign financial securities: | ||||||||||||||||||||||||||||||||
Foreign government or central banks securities central banks securities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Other foreign financial instruments | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Investments in mutual funds: | ||||||||||||||||||||||||||||||||
Funds managed by related entities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Funds managed by others | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total | 17,469 | - | - | 17,469 | 6,993 | - | - | 6,993 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 55 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 07
INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS, continued:
b) | Obligations arising from repurchase agreements |
The Bank raises funds by selling financial instruments and committing itself to buy them back at future dates, plus interest at a predetermined rate. As of December 31, 2013 and 2012, obligations related to instruments sold under repurchase agreements are as follows:
As of December 31, | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
From 1 day to less than 3 months | More than 3 months and less than 1 year | More than 1 year | Total | From 1 day to less than 3 months | More than 3 months and less than 1 year | More than 1 year | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Securities from Chilean Government and the Chilean Central Bank | ||||||||||||||||||||||||||||||||
Chilean Central Bank Bonds | 66,937 | - | - | 66,937 | 155,869 | - | - | 155,869 | ||||||||||||||||||||||||
Chilean Central Bank Notes | 22 | - | - | 22 | 33 | - | - | 33 | ||||||||||||||||||||||||
Other securities from the Government and the Chilean Central Bank | 23,879 | - | - | 23,879 | - | - | - | - | ||||||||||||||||||||||||
Subtotal | 90,838 | - | - | 90,838 | 155,902 | - | - | 155,902 | ||||||||||||||||||||||||
Instruments from other domestic institutions: | ||||||||||||||||||||||||||||||||
Time deposits in Chilean financial institutions | 112,743 | 5,391 | - | 118,134 | 144,935 | 3,280 | - | 148,215 | ||||||||||||||||||||||||
Mortgage finance bonds of Chilean financial institutions | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Chilean financial institution bonds | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Chilean corporate bonds | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Other Chilean securities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | 112,743 | 5,391 | - | 118,134 | 144,935 | 3,280 | - | 148,215 | ||||||||||||||||||||||||
Foreign financial securities: | ||||||||||||||||||||||||||||||||
Foreign government or central banks securities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Other foreign financial instruments | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Investments in mutual funds: | ||||||||||||||||||||||||||||||||
Funds managed by related entities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Funds managed by others | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Subtotal | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total | 203,581 | 5,391 | - | 208,972 | 300,837 | 3,280 | - | 304,117 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 56 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 07
INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS, continued:
c) Below is the detail by portfolio of collateral associated with repurchase agreements as of December 31, 2013 and 2012, valued at fair value:
As of December 31, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
Available for sale portfolio | Trading portfolio | Total | Available for sale portfolio | Trading portfolio | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Chilean Central Bank and Government securities: | ||||||||||||||||||||||||
Chilean Central Bank Bonds | 66,933 | - | 66,933 | 156,307 | - | 156,307 | ||||||||||||||||||
Chilean Central Bank Notes | 22 | - | 22 | 33 | - | 33 | ||||||||||||||||||
Other securities from the Government and the Chilean Central Bank | 23,863 | - | 23,863 | - | - | - | ||||||||||||||||||
Subtotal | 90,818 | - | 90,818 | 156,340 | - | 156,340 | ||||||||||||||||||
Other Chilean securities: | ||||||||||||||||||||||||
Time deposits in Chilean financial institutions | 118,195 | - | 118,195 | 148,277 | - | 148,277 | ||||||||||||||||||
Mortgage finance bonds of Chilean financial institutions | - | - | - | - | - | - | ||||||||||||||||||
Chilean financial institution bonds | - | - | - | - | - | - | ||||||||||||||||||
Chilean corporate bonds | - | - | - | - | - | - | ||||||||||||||||||
Other Chilean securities | - | - | - | - | - | - | ||||||||||||||||||
Subtotal | 118,195 | - | 118,195 | 148,277 | - | 148,277 | ||||||||||||||||||
Foreign financial securities: | ||||||||||||||||||||||||
Foreign Central Banks and Government securities | - | - | - | - | - | - | ||||||||||||||||||
Other foreign financial instruments | - | - | - | - | - | - | ||||||||||||||||||
Subtotal | - | - | - | - | - | - | ||||||||||||||||||
Investments in mutual funds: | ||||||||||||||||||||||||
Funds managed by related entities | - | - | - | - | - | - | ||||||||||||||||||
Funds managed by others | - | - | - | - | - | - | ||||||||||||||||||
Subtotal | - | - | - | - | - | - | ||||||||||||||||||
Total | 209,013 | - | 209,013 | 304,617 | - | 304,617 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 57 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 08
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
a) | As of December 31, 2013 and 2012 the Bank holds the following portfolio of derivative instruments: |
As of December 31, 2013 | ||||||||||||||||||||||||
Notional amount | Fair value | |||||||||||||||||||||||
Up to 3 months | More than 3 months to 1 year | More than 1 year | Total | Assets | Liabilities | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Fair value hedge derivatives | ||||||||||||||||||||||||
Currency forwards | - | - | - | - | - | - | ||||||||||||||||||
Interest rate swaps | - | 55,000 | 375,599 | 430,599 | 9,951 | 1,020 | ||||||||||||||||||
Cross currency swaps | - | 233,824 | 899,293 | 1,133,117 | 63,528 | 1,754 | ||||||||||||||||||
Call currency options | - | - | - | - | - | - | ||||||||||||||||||
Call interest rate options | - | - | - | - | - | - | ||||||||||||||||||
Put currency options | - | - | - | - | - | - | ||||||||||||||||||
Put interest rate options | - | - | - | - | - | - | ||||||||||||||||||
Interest rate futures | - | - | - | - | - | - | ||||||||||||||||||
Other derivatives | - | - | - | - | - | - | ||||||||||||||||||
Subtotal | - | 288,824 | 1,274,892 | 1,563,716 | 73,479 | 2,774 | ||||||||||||||||||
Cash flow hedge derivatives | ||||||||||||||||||||||||
Currency forwards | - | - | - | - | - | - | ||||||||||||||||||
Interest rate swaps | - | - | - | - | - | - | ||||||||||||||||||
Cross currency swaps | 522,451 | 937,529 | 661,676 | 2,121,656 | 60,453 | 13,927 | ||||||||||||||||||
Call currency options | - | - | - | - | - | - | ||||||||||||||||||
Call interest rate options | - | - | - | - | - | - | ||||||||||||||||||
Put currency options | - | - | - | - | - | - | ||||||||||||||||||
Put interest rate options | - | - | - | - | - | - | ||||||||||||||||||
Interest rate futures | - | - | - | - | - | - | ||||||||||||||||||
Other derivatives | - | - | - | - | - | - | ||||||||||||||||||
Subtotal | 522,451 | 937,529 | 661,676 | 2,121,656 | 60,453 | 13,927 | ||||||||||||||||||
Trading derivatives | ||||||||||||||||||||||||
Currency forwards | 14,972,304 | 9,801,554 | 1,749,378 | 26,523,236 | 198,130 | 188,745 | ||||||||||||||||||
Interest rate swaps | 4,526,349 | 11,332,697 | 25,005,852 | 40,864,898 | 241,528 | 243,326 | ||||||||||||||||||
Cross currency swaps | 1,634,855 | 3,927,402 | 14,246,746 | 19,809,003 | 915,099 | 847,821 | ||||||||||||||||||
Call currency options | 443,944 | 42,805 | 5,557 | 492,306 | 1,327 | 2,403 | ||||||||||||||||||
Call interest rate options | - | 7,031 | - | 7,031 | - | - | ||||||||||||||||||
Put currency options | 428,638 | 38,450 | 2,936 | 470,024 | 3,831 | 1,108 | ||||||||||||||||||
Put interest rate options | - | - | - | - | - | - | ||||||||||||||||||
Interest rate futures | - | - | - | - | - | - | ||||||||||||||||||
Other derivatives | 54,777 | - | - | 54,777 | 171 | 5 | ||||||||||||||||||
Subtotal | 22,060,867 | 25,149,939 | 41,010,469 | 88,221,275 | 1,360,086 | 1,283,408 | ||||||||||||||||||
Total | 22,583,318 | 26,376,292 | 42,947,037 | 91,906,647 | 1,494,018 | 1,300,109 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 58 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 08
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued
As of December 31, 2012 | ||||||||||||||||||||||||
Notional amount | Fair value | |||||||||||||||||||||||
Up to 3 months | More than 3 months to 1 year | More than 1 year | Total | Assets | Liabilities | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Fair value hedge derivatives | ||||||||||||||||||||||||
Currency forwards | - | - | - | - | - | - | ||||||||||||||||||
Interest rate swaps | 95,200 | 397,092 | 395,471 | 887,763 | 12,647 | 4,054 | ||||||||||||||||||
Cross currency swaps | 25,396 | 14,975 | 671,942 | 712,313 | 12,716 | 4,361 | ||||||||||||||||||
Call currency options | - | - | - | - | - | - | ||||||||||||||||||
Call interest rate options | - | - | - | - | - | - | ||||||||||||||||||
Put currency options | - | - | - | - | - | - | ||||||||||||||||||
Put interest rate options | - | - | - | - | - | - | ||||||||||||||||||
Interest rate futures | - | - | - | - | - | - | ||||||||||||||||||
Other derivatives | - | - | - | - | - | - | ||||||||||||||||||
Subtotal | 120,596 | 412,067 | 1,067,413 | 1,600,076 | 25,363 | 8,415 | ||||||||||||||||||
Cash flow hedge derivatives | ||||||||||||||||||||||||
Currency forwards | 13,704 | - | - | 13,704 | - | 298 | ||||||||||||||||||
Interest rate swaps | - | - | - | - | - | - | ||||||||||||||||||
Cross currency swaps | 268,693 | 666,668 | 689,045 | 1,624,406 | 1,851 | 52,589 | ||||||||||||||||||
Call currency options | - | - | - | - | - | - | ||||||||||||||||||
Call interest rate options | - | - | - | - | - | - | ||||||||||||||||||
Put currency options | - | - | - | - | - | - | ||||||||||||||||||
Put interest rate options | - | - | - | - | - | - | ||||||||||||||||||
Interest rate futures | - | - | - | - | - | - | ||||||||||||||||||
Other derivatives | - | - | - | - | - | - | ||||||||||||||||||
Subtotal | 282,397 | 666,668 | 689,045 | 1,638,110 | 1,851 | 52,887 | ||||||||||||||||||
Trading derivatives | ||||||||||||||||||||||||
Currency forwards | 17,560,012 | 7,109,216 | 563,301 | 25,232,529 | 159,624 | 187,304 | ||||||||||||||||||
Interest rate swaps | 4,578,678 | 9,882,478 | 13,752,690 | 28,213,846 | 204,800 | 230,380 | ||||||||||||||||||
Cross currency swaps | 1,126,961 | 3,215,654 | 11,639,636 | 15,982,251 | 899,174 | 665,100 | ||||||||||||||||||
Call currency options | 413,452 | 8,032 | - | 421,484 | 567 | 1,485 | ||||||||||||||||||
Call interest rate options | 3,917 | 14,458 | 12,481 | 30,856 | 24 | 20 | ||||||||||||||||||
Put currency options | 402,234 | 1,928 | - | 404,162 | 1,777 | 516 | ||||||||||||||||||
Put interest rate options | - | - | - | - | - | - | ||||||||||||||||||
Interest rate futures | - | - | - | - | - | - | ||||||||||||||||||
Other derivatives | 19,415 | - | - | 19,415 | 32 | 54 | ||||||||||||||||||
Subtotal | 24,104,669 | 20,231,766 | 25,968,108 | 70,304,543 | 1,265,998 | 1,084,859 | ||||||||||||||||||
Total | 24,507,662 | 21,310,501 | 27,724,566 | 73,542,729 | 1,293,212 | 1,146,161 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 59 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 08
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued
b) | Hedge Accounting |
Fair Value Hedge:
The Bank uses cross-currency swaps, interest rate swaps, and call money swaps to hedge its exposure to changes in fair value of hedged items attributable to interest rates. The aforementioned hedging instruments change the effective cost of long-term issuances from a fixed interest rate to a variable interest rate.
Below is a detail of the hedged elements and hedge instruments under fair value hedges as of December 31, 2013 and 2012, classified by term to maturity:
As of December 31, 2013 | ||||||||||||||||||||
Within 1 year | Between 1 and 3 years | Between 3 and 6 years | Over 6 years | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Hedged item | ||||||||||||||||||||
Loans and accounts receivables from customers: | ||||||||||||||||||||
Mortgage loan | 12,213 | - | - | - | 12,213 | |||||||||||||||
Available for sale investments: | ||||||||||||||||||||
Yankee Bond | - | - | - | 28,308 | 28,308 | |||||||||||||||
Mortgage finance bonds | - | - | - | 3,652 | 3,652 | |||||||||||||||
Time deposits and other demand liabilities: | ||||||||||||||||||||
Time deposits | 55,000 | - | - | 27,971 | 82,971 | |||||||||||||||
Debt instruments issued: | ||||||||||||||||||||
Senior bonds | - | 335,805 | 109,497 | 769,659 | 1,214,961 | |||||||||||||||
Subordinated bonds | 104,840 | - | - | - | 104,840 | |||||||||||||||
Interbank borrowings: | ||||||||||||||||||||
Interbank loans | 116,771 | - | - | - | 116,771 | |||||||||||||||
Total | 288,824 | 335,805 | 109,497 | 829,590 | 1,563,716 | |||||||||||||||
Hedging instrument: | ||||||||||||||||||||
Cross currency swaps | 233,824 | 178,545 | 109,497 | 611,251 | 1,133,117 | |||||||||||||||
Interest rate swaps | 55,000 | 157,260 | - | 218,339 | 430,599 | |||||||||||||||
Total | 288,824 | 335,805 | 109,497 | 829,590 | 1,563,716 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 60 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 08
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued
As of December 31, 2012 | ||||||||||||||||||||
Within 1 year | Between 1 and 3 years | Between 3 and 6 years | Over 6 years | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Hedged item | ||||||||||||||||||||
Available for sale investments: | ||||||||||||||||||||
Senior bonds | 10,295 | - | - | 25,000 | 35,295 | |||||||||||||||
Yankee Bond | - | - | - | 4,791 | 4,791 | |||||||||||||||
Mortgage finance bonds | - | - | - | 3,995 | 3,995 | |||||||||||||||
Time deposits and other demand liabilities: | ||||||||||||||||||||
Time deposits | 497,368 | - | - | 27,409 | 524,777 | |||||||||||||||
Debt instruments issued: | ||||||||||||||||||||
Senior bonds | - | 300,769 | 4,568 | 557,226 | 862,563 | |||||||||||||||
Subordinated bonds | - | 143,655 | - | - | 143,655 | |||||||||||||||
Other financial liabilities: | ||||||||||||||||||||
Short-term loans | 25,000 | - | - | - | 25,000 | |||||||||||||||
Total | 532,663 | 444,424 | 4,568 | 618,421 | 1,600,076 | |||||||||||||||
Hedging instrument: | ||||||||||||||||||||
Cross currency swaps | 40,371 | 300,769 | 4,568 | 366,605 | 712,313 | |||||||||||||||
Interest rate swaps | 492,292 | 143,655 | - | 251,816 | 887,763 | |||||||||||||||
Total | 532,663 | 444,424 | 4,568 | 618,421 | 1,600,076 |
Cash flow hedges:
The Bank uses cross currency swaps to hedge the risk from variability of cash flows attributable to changes in the interest rates of bonds and interbank loans at a variable rate. To cover the inflation risk in some items, both forwards as well as currency swaps are used.
Below is the nominal amount of the hedged items as of December 31, 2013 and 2012, and the period when the cash flows will be generated:
As of December 31, 2013 | ||||||||||||||||||||
Within 1 year | Between 1
and 3 years | Between 3
and 6 years | Over 6 years | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Hedged item | ||||||||||||||||||||
Loans and accounts receivables from customers: | ||||||||||||||||||||
Mortgage loan | 21,623 | 69,502 | - | - | 91,125 | |||||||||||||||
Available for sale investments: | ||||||||||||||||||||
Yankee Bond | - | - | - | 118,577 | 118,577 | |||||||||||||||
Chilean Central Bank Bonds | - | 22,958 | - | 18,084 | 41,042 | |||||||||||||||
Time deposits | 379,331 | 11,328 | - | - | 390,659 | |||||||||||||||
Debt instruments issued: | ||||||||||||||||||||
Senior bonds (variable rate) | 288,310 | 102,062 | 219,567 | - | 609,939 | |||||||||||||||
Senior bonds (fixed rate) | 43,189 | - | - | - | 43,189 | |||||||||||||||
Interbank borrowings: | ||||||||||||||||||||
Interbank loans | 727,527 | 99,598 | - | - | 827,125 | |||||||||||||||
Total | 1,459,980 | 305,448 | 219,567 | 136,661 | 2,121,656 | |||||||||||||||
Hedging instrument: | ||||||||||||||||||||
Cross currency swaps | 1,459,980 | 305,448 | 219,567 | 136,661 | 2,121,656 | |||||||||||||||
Total | 1,459,980 | 305,448 | 219,567 | 136,661 | 2,121,656 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 61 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 08
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued
As of December 31, 2012 | ||||||||||||||||||||
Within
1 year | Between
1 and 3 years | Between
3 and 6 years | Over
6 years | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Hedged item | ||||||||||||||||||||
Loans and accounts receivables from customers: | ||||||||||||||||||||
Mortgage loans | - | 44,649 | - | - | 44,649 | |||||||||||||||
Available for sale investments: | ||||||||||||||||||||
Senior bonds | - | - | - | 28,265 | 28,265 | |||||||||||||||
Time deposits | 33,502 | 11,328 | - | - | 44,830 | |||||||||||||||
Time deposits and other demand liabilities: | ||||||||||||||||||||
Time deposits | 51,008 | - | - | - | 51,008 | |||||||||||||||
Debt instruments issued: | ||||||||||||||||||||
Senior bonds (variable rate) | 52,780 | 239,425 | 93,232 | - | 385,437 | |||||||||||||||
Senior bonds (fixed rate) | 57,102 | 106,942 | - | - | 164,044 | |||||||||||||||
Interbank borrowings: | ||||||||||||||||||||
Interbank loans | 754,673 | 165,204 | - | - | 919,877 | |||||||||||||||
Total | 949,065 | 567,548 | 93,232 | 28,265 | 1,638,110 | |||||||||||||||
Hedging instrument: | ||||||||||||||||||||
Cross currency swaps | 935,361 | 567,548 | 93,232 | 28,265 | 1,624,406 | |||||||||||||||
Currency forwards | 13,704 | - | - | - | 13,704 | |||||||||||||||
Total | 949,065 | 567,548 | 93,232 | 28,265 | 1,638,110 |
Below is an estimate of the periods in which flows are expected to be produced:
b.1) Forecasted cash flows for interest rate risk:
As of December 31, 2013 | ||||||||||||||||||||
Within 1 year | Between 1 and 3 years | Between 3 and 6 years | Over 6 years | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Hedged item | ||||||||||||||||||||
Inflows | 21,532 | 10,870 | 4,102 | 1,614 | 38,118 | |||||||||||||||
Outflows | (12,180 | ) | (10,667 | ) | (6,107 | ) | - | (28,954 | ) | |||||||||||
Net flows | 9,352 | 203 | (2,005 | ) | 1,614 | 9,164 | ||||||||||||||
Hedging instrument | ||||||||||||||||||||
Inflows | 12,180 | 10,667 | 6,107 | - | 28,954 | |||||||||||||||
Outflows (*) | (21,532 | ) | (10,870 | ) | (4,102 | ) | (1,614 | ) | (38,118 | ) | ||||||||||
Net flows | (9,352 | ) | (203 | ) | 2,005 | (1,614 | ) | (9,164 | ) |
(*)Only includes cash flow forecast portion of the hedge instruments used to cover interest rate risk.
Consolidated Financial Statements December 2013 / Banco Santander Chile 62 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 08
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued
As of December 31, 2012 | ||||||||||||||||||||
Within 1 year | Between 1 and 3 years | Between 3 and 6 years | Over 6 years | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Hedged item | ||||||||||||||||||||
Inflows | 3,084 | - | - | - | 3,084 | |||||||||||||||
Outflows | (16,759 | ) | (6,515 | ) | (577 | ) | - | (23,851 | ) | |||||||||||
Net flows | (13,675 | ) | (6,515 | ) | (577 | ) | - | (20,767 | ) | |||||||||||
Hedging instrument | ||||||||||||||||||||
Inflows | 16,759 | 6,515 | 577 | - | 23,851 | |||||||||||||||
Outflows | (3,084 | ) | - | - | - | (3,084 | ) | |||||||||||||
Net flows | 13,675 | 6,515 | 577 | - | 20,767 |
(*)Only includes cash flow forecast portion of the hedge instruments used to cover interest rate risk.
b.2) Forecasted cash flows for inflation risk:
As of December 31, 2013 | ||||||||||||||||||||
Within 1 year | Between 1 and 3 years | Between 3 and 6 years | Over 6 years | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Hedged item | ||||||||||||||||||||
Inflows | 104,730 | 10,861 | - | - | 115,591 | |||||||||||||||
Outflows | (425 | ) | (927 | ) | (1,783 | ) | (1,709 | ) | (4,844 | ) | ||||||||||
Net flows | 104,305 | 9,934 | (1,783 | ) | (1,709 | ) | 110,747 | |||||||||||||
Hedging instrument | ||||||||||||||||||||
Inflows | 425 | 927 | 1,783 | 1,709 | 4,844 | |||||||||||||||
Outflows | (104,730 | ) | (10,861 | ) | - | - | (115,591 | ) | ||||||||||||
Net flows | (104,305 | ) | (9,934 | ) | 1,783 | 1,709 | (110,747 | ) |
As of December 31, 2012 | ||||||||||||||||||||
Within 1 year | Between 1
and 3 years | Between 3
and 6 years | Over 6 years | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Hedged item | ||||||||||||||||||||
Inflows | 24,089 | 20,802 | - | - | 44,891 | |||||||||||||||
Outflows | (2,938 | ) | (2,658 | ) | (2,301 | ) | (2,991 | ) | (10,888 | ) | ||||||||||
Net flows | 21,151 | 18,144 | (2,301 | ) | (2,991 | ) | 34,003 | |||||||||||||
Hedging instrument | ||||||||||||||||||||
Inflows | 2,938 | 2,658 | 2,301 | 2,991 | 10,888 | |||||||||||||||
Outflows | (24,089 | ) | (20,802 | ) | - | - | (44,891 | ) | ||||||||||||
Net flows | (21,151 | ) | (18,144 | ) | 2,301 | 2,991 | (34,003 | ) |
Consolidated Financial Statements December 2013 / Banco Santander Chile 63 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 08
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued
b.3) Forecasted cash flows for interest rate risk:
As of December 31, 2013 | ||||||||||||||||||||
Within 1 year | Between 1 and 3 years | Between 3 and 6 years | Over 6 years | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Hedged item | ||||||||||||||||||||
Inflows | - | - | - | - | - | |||||||||||||||
Outflows | (64,772 | ) | - | - | - | (64,772 | ) | |||||||||||||
Net flows | (64,772 | ) | - | - | - | (64,772 | ) | |||||||||||||
Hedging instrument | ||||||||||||||||||||
Inflows | 64,772 | - | - | - | 64,772 | |||||||||||||||
Outflows | - | - | - | - | - | |||||||||||||||
Net flows | 64,772 | - | - | - | 64,772 |
As of December 31, 2012 | ||||||||||||||||||||
Within 1 year | Between 1 and 3 years | Between 3
and 6 years | Over 6 years | Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Hedged item | ||||||||||||||||||||
Inflows | - | - | - | - | - | |||||||||||||||
Outflows | (1,825 | ) | (64,772 | ) | - | - | (66,597 | ) | ||||||||||||
Net flows | (1,825 | ) | (64,772 | ) | - | - | (66,597 | ) | ||||||||||||
Hedging instrument | ||||||||||||||||||||
Inflows | 1,825 | 64,772 | - | - | 66,597 | |||||||||||||||
Outflows | - | - | - | - | - | |||||||||||||||
Net flows | 1,825 | 64,772 | - | - | (66,597 | ) |
c) | The accumulated effect of the mark to market adjustmnet of cash flow hedges validation produced by hedge instruments used in hedged cash flow was recorded in the Consolidated Statement of Changes in Equity -specifically within Other comprehensive income, as of December 31, 2013 and 2013, is as follows: |
As of December 31, | ||||||||
2013 | 2012 | |||||||
Hedged item | MCh$ | MCh$ | ||||||
Interbank loans | (3,809 | ) | 2,943 | |||||
Time deposits and other time liabilities | - | (551 | ) | |||||
Issued debt instruments | (723 | ) | 3,349 | |||||
Available for sale investments | (3,744 | ) | (560 | ) | ||||
Loans and accounts receivable from customers | 19 | 134 | ||||||
Net flows | (8,257 | ) | 5,315 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 64 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 08
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued
Since the inflows and outflows for both the hedged element and the hedging instrument mirror each other, the hedges are nearly 100% effective, which means that the fluctuations of fair value attributable to risk components are almost completely offset. As of December 31, 2013 and 2012, Ch$152 million and Ch$46 million respectively, were recognized in income.
During the period, the Bank did not have any cash flow hedges of forecast transactions.
d) | Below is a presentation of income generated by cash flow hedges amount that were reclassified from other comprehensive income to the period's income: |
For the year ended December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Bond hedging derivatives | (33 | ) | (863 | ) | ||||
Interbank loans hedging derivatives | 1,550 | 1,458 | ||||||
Cash flow hedge net income | 1,517 | 595 |
See Note 25 - Equity, letter d) |
e) | Net investment hedges in foreign operations: |
As of December 31, 2013 and 2012, the Bank does not have any foreign net investment hedges in its hedge accounting portfolio.
Consolidated Financial Statements December 2013 / Banco Santander Chile 65 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 09
INTERBANK LOANS
a) | At the end of the 2013 and 2012 reporting periods, the balances in the “Interbank loans” item are as follows: |
As of December 31, | ||||||||
2013 MCh$ | 2012 MCh$ | |||||||
Domestic banks | ||||||||
Loans and advances to banks | - | - | ||||||
Deposits in the Central Bank of Chile - not available | - | - | ||||||
Non-transferable Chilean Central Bank Bonds | - | - | ||||||
Other Central Bank of Chile loans | - | - | ||||||
Interbank loans | 66 | 27 | ||||||
Overdrafts in checking accounts | - | - | ||||||
Non-transferable domestic bank loans | - | - | ||||||
Other domestic bank loans | - | - | ||||||
Allowances and impairment for domestic bank loans | - | - | ||||||
Foreign Interbank Loans | ||||||||
Interbank loans - Foreign | 125,383 | 90,546 | ||||||
Overdrafts in checking accounts | - | - | ||||||
Non-transferable foreign bank deposits | - | - | ||||||
Other foreign bank loans | - | - | ||||||
Provisions and impairment for foreign bank loans | (54 | ) | (46 | ) | ||||
Total | 125,395 | 90,527 |
b) | The amount in each period for provisions and impairment of interbank loans is shown below: |
As of December 31 | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
Domestic banks | Foreign banks | Total | Domestic banks | Foreign banks | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Balance as of January 1 | - | 46 | 46 | 1 | 146 | 147 | ||||||||||||||||||
Charge-offs | - | - | - | - | - | - | ||||||||||||||||||
Provisions established | - | 127 | 127 | - | 299 | 299 | ||||||||||||||||||
Provisions release | - | (119 | ) | (119 | ) | (1 | ) | (399 | ) | (400 | ) | |||||||||||||
Total | - | 54 | 54 | - | 46 | 46 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 66 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 10
LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS
a) | Loans and accounts receivable from customers |
As of December 31, 2013 and 2012, the composition of the loan portfolio is as follows:
Assets before allowances | Provisions established | |||||||||||||||||||||||||||||||
Normal portfolio | Substandard Portfolio | Impaired portfolio | Total | Individual allowances | Group allowances | Total | Assets net balance | |||||||||||||||||||||||||
As of December 31, 2013 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||
Commercial loans | 6,993,770 | 246,661 | 557,251 | 7,797,682 | 123,354 | 81,478 | 204,832 | 7,592,850 | ||||||||||||||||||||||||
Foreign trade loans | 1,731,328 | 47,164 | 61,842 | 1,840,334 | 50,574 | 878 | 51,452 | 1,788,882 | ||||||||||||||||||||||||
Checking accounts debtors | 264,957 | 3,176 | 11,524 | 279,657 | 3,513 | 4,755 | 8,268 | 271,389 | ||||||||||||||||||||||||
Factoring transactions | 310,228 | 2,613 | 3,273 | 316,114 | 4,305 | 617 | 4,922 | 311,192 | ||||||||||||||||||||||||
Leasing transactions | 1,235,369 | 73,819 | 40,626 | 1,349,814 | 13,739 | 5,016 | 18,755 | 1,331,059 | ||||||||||||||||||||||||
Other loans and account receivable | 99,524 | 617 | 18,510 | 118,651 | 4,745 | 7,426 | 12,171 | 106,480 | ||||||||||||||||||||||||
Subtotal | 10,635,176 | 374,050 | 693,026 | 11,702,252 | 200,230 | 100,170 | 300,400 | 11,401,852 | ||||||||||||||||||||||||
Mortgage loans | ||||||||||||||||||||||||||||||||
Loans with mortgage finance bonds | 69,273 | - | 3,024 | 72,297 | - | 470 | 470 | 71,827 | ||||||||||||||||||||||||
Mortgage mutual loans | 69,742 | - | 2,091 | 71,833 | - | 380 | 380 | 71,453 | ||||||||||||||||||||||||
Other mortgage mutual loans | 5,163,396 | - | 318,286 | 5,481,682 | - | 42,456 | 42,456 | 5,439,226 | ||||||||||||||||||||||||
Subtotal | 5,302,411 | - | 323,401 | 5,625,812 | - | 43,306 | 43,306 | 5,582,506 | ||||||||||||||||||||||||
Consumer loans | ||||||||||||||||||||||||||||||||
Installment consumer loans | 1,847,289 | - | 320,832 | 2,168,121 | - | 221,723 | 221,723 | 1,946,398 | ||||||||||||||||||||||||
Credit card balances | 1,212,134 | - | 23,747 | 1,235,881 | - | 37,300 | 37,300 | 1,198,581 | ||||||||||||||||||||||||
Leasing transactions | 3,383 | - | 68 | 3,451 | - | 68 | 68 | 3,383 | ||||||||||||||||||||||||
Other consumer loans | 195,030 | - | 4,765 | 199,795 | - | 5,494 | 5,494 | 194,301 | ||||||||||||||||||||||||
Subtotal | 3,257,836 | - | 349,412 | 3,607,248 | - | 264,585 | 264,585 | 3,342,663 | ||||||||||||||||||||||||
Total | 19,195,423 | 374,050 | 1,365,839 | 20,935,312 | 200,230 | 408,061 | 608,291 | 20,327,021 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 67 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 10
LOANS AND ACCOUNTS RECEIVABLES FROM CUSTOMERS, continued
Assets before allowances | Provisions established | |||||||||||||||||||||||||||||||
Normal portfolio | Substandard Portfolio | Impaired portfolio | Total | Individual allowances | Group allowances | Total | Assets Net balance | |||||||||||||||||||||||||
As of December 31, 2012 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||
Commercial loans | 6,585,063 | 187,762 | 543,592 | 7,316,417 | 108,184 | 83,690 | 191,874 | 7,124,543 | ||||||||||||||||||||||||
Foreign trade loans | 1,220,303 | 28,085 | 22,035 | 1,270,423 | 26,306 | 921 | 27,227 | 1,243,196 | ||||||||||||||||||||||||
Checking accounts debtors | 191,714 | 3,692 | 9,949 | 205,355 | 1,709 | 2,519 | 4,228 | 201,127 | ||||||||||||||||||||||||
Factoring transactions | 317,837 | 869 | 3,536 | 322,242 | 3,538 | 784 | 4,322 | 317,920 | ||||||||||||||||||||||||
Leasing transactions | 1,168,825 | 66,724 | 42,006 | 1,277,555 | 14,985 | 5,987 | 20,972 | 1,256,583 | ||||||||||||||||||||||||
Other loans and account receivable | 78,506 | 765 | 17,758 | 97,029 | 213 | 2,037 | 2,250 | 94,779 | ||||||||||||||||||||||||
Subtotal | 9,562,248 | 287,897 | 638,876 | 10,489,021 | 154,935 | 95,938 | 250,873 | 10,238,148 | ||||||||||||||||||||||||
Mortgage loans | ||||||||||||||||||||||||||||||||
Loans with mortgage finance bonds | 88,643 | - | 3,561 | 92,204 | - | 493 | 493 | 91,711 | ||||||||||||||||||||||||
Mortgage mutual loans | 43,690 | - | 2,415 | 46,105 | - | 936 | 936 | 45,169 | ||||||||||||||||||||||||
Other mortgage mutual loans | 4,910,218 | - | 223,054 | 5,133,272 | - | 34,561 | 34,561 | 5,098,711 | ||||||||||||||||||||||||
Subtotal | 5,042,551 | - | 229,030 | 5,271,581 | - | 35,990 | 35,990 | 5,235,591 | ||||||||||||||||||||||||
Consumer loans | ||||||||||||||||||||||||||||||||
Installment consumer loans | 1,502,346 | - | 355,311 | 1,857,657 | - | 218,474 | 218,474 | 1,639,183 | ||||||||||||||||||||||||
Credit card balances | 1,023,776 | - | 30,697 | 1,054,473 | - | 38,719 | 38,719 | 1,015,754 | ||||||||||||||||||||||||
Leasing transactions | 3,433 | - | 255 | 3,688 | - | 160 | 160 | 3,528 | ||||||||||||||||||||||||
Other consumer loans | 192,937 | - | 6,722 | 199,659 | - | 5,906 | 5,906 | 193,753 | ||||||||||||||||||||||||
Subtotal | 2,722,492 | - | 392,985 | 3,115,477 | - | 263,259 | 263,259 | 2,852,218 | ||||||||||||||||||||||||
Total | 17,327,291 | 287,897 | 1,260,891 | 18,876,079 | 154,935 | 395,187 | 550,122 | 18,325,957 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 68 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 10
LOANS AND ACCOUNTS RECEIVABLES FROM CUSTOMERS, continued
b) | Portfolio characteristics: |
As of December 31, 2013 and 2012, the portfolio before allowances is as follows, by customer’s economic activity:
Domestic loans (*) | Foreign
interbank loans (**) | Total loans | Distribution percentage | |||||||||||||||||||||||||||||
As of December 31 | As of December 31, | As of December 31, | As of December 31, | |||||||||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | % | % | |||||||||||||||||||||||||
Commercial loans | ||||||||||||||||||||||||||||||||
Manufacturing | 1,216,914 | 1,014,777 | - | - | 1,216,914 | 1,014,777 | 5.78 | 5.35 | ||||||||||||||||||||||||
Mining | 464,865 | 292,217 | - | - | 464,865 | 292,217 | 2.21 | 1.54 | ||||||||||||||||||||||||
Electricity, gas, and water | 222,110 | 337,269 | - | - | 222,110 | 337,269 | 1.05 | 1.78 | ||||||||||||||||||||||||
Agriculture and livestock | 806,092 | 770,558 | - | - | 806,092 | 770,558 | 3.83 | 4.06 | ||||||||||||||||||||||||
Forest | 183,716 | 120,002 | - | - | 183,716 | 120,002 | 0.87 | 0.63 | ||||||||||||||||||||||||
Fishing | 265,917 | 188,803 | - | - | 265,917 | 188,803 | 1.26 | 1.00 | ||||||||||||||||||||||||
Transport | 721,931 | 511,407 | - | - | 721,931 | 511,407 | 3.43 | 2.70 | ||||||||||||||||||||||||
Communications | 249,499 | 179,544 | - | - | 249,499 | 179,544 | 1.18 | 0.95 | ||||||||||||||||||||||||
Construction | 1,337,791 | 1,130,194 | - | - | 1,337,791 | 1,130,194 | 6.35 | 5.96 | ||||||||||||||||||||||||
Commerce | 2,578,979 | 2,396,428 | 125,383 | 90,546 | 2,704,362 | 2,486,974 | 12.84 | 13.11 | ||||||||||||||||||||||||
Services | 447,861 | 400,716 | - | - | 447,861 | 400,716 | 2.13 | 2.11 | ||||||||||||||||||||||||
Other | 3,206,643 | 3,147,133 | - | - | 3,206,643 | 3,147,133 | 15.23 | 16.59 | ||||||||||||||||||||||||
Subtotal | 11,702,318 | 10,489,048 | 125,383 | 90,546 | 11,827,701 | 10,579,594 | 56.16 | 55.78 | ||||||||||||||||||||||||
Mortgage loans | 5,625,812 | 5,271,581 | - | - | 5,625,812 | 5,271,581 | 26.71 | 27.79 | ||||||||||||||||||||||||
Consumer loans | 3,607,248 | 3,115,477 | - | - | 3,607,248 | 3,115,477 | 17.13 | 16.43 | ||||||||||||||||||||||||
Total | 20,935,378 | 18,876,106 | 125,383 | 90,546 | 21,060,761 | 18,966,652 | 100.00 | 100.00 |
(**) | Includes domestic interbank loans for Ch$66 million as of December 31, 2013 (Ch$27 million as of December 31, 2012), see Note 9. |
(**) | Includes foreign interbank loans for Ch$125,383 million as of December 31, 2013 (Ch$90,546 million as of December 31, 2012), see Note 9. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 69 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 10
LOANS AND ACCOUNTS RECEIVABLES FROM CUSTOMERS, continued
c) | Impaired Portfolio (*) |
i) | As of December 31, 2013 and 2012, the impaired portfolio is as follows: |
As of December 31, | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
Commercial | Mortgage | Consumer | Total | Commercial | Mortgage | Consumer | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Individual impaired portfolio | 317,534 | - | - | 317,534 | 298,868 | - | - | 298,868 | ||||||||||||||||||||||||
Non-performing loans | 364,890 | 155,688 | 92,723 | 613,301 | 320,461 | 159,802 | 117,504 | 597,767 | ||||||||||||||||||||||||
Other impaired portfolio | 122,464 | 167,713 | 256,689 | 546,866 | 96,793 | 69,228 | 275,481 | 441,502 | ||||||||||||||||||||||||
Total | 804,888 | 323,401 | 349,412 | 1,477,701 | 716,122 | 229,030 | 392,985 | 1,338,137 |
(*) Impaired portfolio includes loans classified as substandard in groups B3 and B4, as well as the impaired portfolio.
ii) | The impaired portfolio with or without guarantee as of December 31, 2013 and 2012 is as follows: |
As of December 31, | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
Commercial | Mortgage | Consumer | Total | Commercial | Mortgage | Consumer | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Secured debt | 385,712 | 302,219 | 49,051 | 736,982 | 377,169 | 208,616 | 51,549 | 637,334 | ||||||||||||||||||||||||
Unsecured debt | 419,176 | 21,182 | 300,361 | 740,719 | 338,953 | 20,414 | 341,436 | 700,803 | ||||||||||||||||||||||||
Total | 804,888 | 323,401 | 349,412 | 1,477,701 | 716,122 | 229,030 | 392,985 | 1,338,137 |
iii) | The portfolio of non-performing loans as of December 31, 2013 and 2012 is as follows: |
As of December 31, | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
Commercial | Mortgage | Consumer | Total | Commercial | Mortgage | Consumer | Total | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Secured debt | 151,494 | 136,768 | 7,241 | 295,503 | 154,675 | 143,814 | 8,293 | 306,782 | ||||||||||||||||||||||||
Unsecured debt | 213,396 | 18,920 | 85,482 | 317,798 | 165,786 | 15,988 | 109,211 | 290,985 | ||||||||||||||||||||||||
Total | 364,890 | 155,688 | 92,723 | 613,301 | 320,461 | 159,802 | 117,504 | 597,767 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 70 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 10
LOANS AND ACCOUNTS RECEIVABLES FROM CUSTOMERS, continued
d) | Allowances |
The changes in allowance balances during 2013 and 2012 are as follows:
Commercial loans | Mortgage loans | Consumer loans | ||||||||||||||||||
Individual | Group | Group | Group | Total | ||||||||||||||||
Activity during 2013 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
Balance as of December 31, 2012 | 154,935 | 95,938 | 35,990 | 263,259 | 550,122 | |||||||||||||||
Allowances established | 85,628 | 36,724 | 21,314 | 155,921 | 299,587 | |||||||||||||||
Allowances release | (22,014 | ) | (11,151 | ) | (9,216 | ) | (35,482 | ) | (77,863 | ) | ||||||||||
Released allowances by charge-off | (18,319 | ) | (21,341 | ) | (4,782 | ) | (119,113 | ) | (163,555 | ) | ||||||||||
Balances as of December 31, 2013 | 200,230 | 100,170 | 43,306 | 264,585 | 608,291 |
Commercial loans | Mortgage loans | Consumer loans | ||||||||||||||||||
Individual | Group | Group | Group | Total | ||||||||||||||||
Activity during 2012 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
Balances as of December 31, 2011 | 147,917 | 97,115 | 35,633 | 243,022 | 523,687 | |||||||||||||||
Allowances established | 48,745 | 31,772 | 10,741 | 239,607 | 330,865 | |||||||||||||||
Allowances release | (20,716 | ) | (16,624 | ) | (7,449 | ) | (38,471 | ) | (83,260 | ) | ||||||||||
Charge-off released allowances | (21,011 | ) | (16,325 | ) | (2,935 | ) | (180,899 | ) | (221,170 | ) | ||||||||||
Balances as of December 31, 2012 | 154,935 | 95,938 | 35,990 | 263,259 | 550,122 |
In addition to credit risk provisions, there are provisions held for:
i) | Country risk to cover the risk taken when holding or commiting resources with any foreign country. These allowances are established according to country risk classifications as set for Chapter 7-13 of the Updated Compilation of Rules issued by the SBIF. The balances of allowances as of December 31, 2013 and 2012 are Ch$470 million and Ch$88 million, respectively. |
ii) | According to SBIF's regulations (Compendium of Accounting Standards), the Bank has established allowances related to unused balances of credit lines with free disposal and contingent loans. The balances of allowances as of December 31, 2013 and 2012 are Ch$18,767 million and Ch$17,850 million, respectively. |
e) | Allowances established on customers and interbank loans |
The following chart shows the balance of allowances established, associated with credits granted to customers and banks:
As of December 31 | ||||||||
2013 | 2012 | |||||||
Customers loans | 299,587 | 330,865 | ||||||
Interbank loans | 127 | 299 | ||||||
Total | 299,714 | 331,164 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 71 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 10
LOANS AND ACCOUNTS RECEIVABLES FROM CUSTOMERS, continued
f) | Portfolio by its Impaired and non-impaired status. |
As of December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-impaired | Impaired | Portfolio total | ||||||||||||||||||||||||||||||||||||||||||||||
Commercial | Mortgage | Consumer | Total non impaired | Commercial | Mortgage | Consumer | Total impaired | Commercial | Mortgage | Consumer | Total portfolio | |||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||
Current portfolio | 10,665,404 | 5,017,319 | 3,071,977 | 18,754,700 | 335,382 | 102,214 | 151,804 | 589,400 | 11,000,786 | 5,119,533 | 3,223,781 | 19,344,100 | ||||||||||||||||||||||||||||||||||||
Overdue for 1-29 days | 142,613 | 103,335 | 122,088 | 368,036 | 34,715 | 23,111 | 57,693 | 115,519 | 177,328 | 126,446 | 179,781 | 483,555 | ||||||||||||||||||||||||||||||||||||
Overdue for 30-89 days | 89,347 | 181,757 | 63,771 | 334,875 | 74,863 | 51,143 | 54,202 | 180,208 | 164,210 | 232,900 | 117,973 | 515,083 | ||||||||||||||||||||||||||||||||||||
Overdue for 90 days or more | - | - | - | - | 359,928 | 146,933 | 85,713 | 592,574 | 359,928 | 146,933 | 85,713 | 592,574 | ||||||||||||||||||||||||||||||||||||
Total portfolio before allowances | 10,897,364 | 5,302,411 | 3,257,836 | 19,457,611 | 804,888 | 323,401 | 349,412 | 1,477,701 | 11,702,252 | 5,625,812 | 3,607,248 | 20,935,312 | ||||||||||||||||||||||||||||||||||||
Overdue loans (less than 90 days) presented as portfolio percentage | 2.13 | % | 5.38 | % | 5.70 | % | 3,61 | % | 13.61 | % | 22.96 | % | 32.02 | % | 20.01 | % | 2.92 | % | 6.39 | % | 8.25 | % | 4,77 | % | ||||||||||||||||||||||||
Overdue loans (90 days or more) presented as portfolio percentage. | - | - | - | - | 44.72 | % | 45.43 | % | 24.53 | % | 40.10 | % | 3.08 | % | 2,61 | % | 2.38 | % | 2,83 | % |
Consolidated Financial Statements December 2013 / Banco Santander Chile 72 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 10
LOANS AND ACCOUNTS RECEIVABLES FROM CUSTOMERS, continued
g) | Portfolio by its Impaired and non-impaired status, continued. |
As of December 31, 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-impaired | Impaired | Portfolio total | ||||||||||||||||||||||||||||||||||||||||||||||
Commercial | Mortgage | Consumer | Total non impaired | Commercial | Mortgage | Consumer | Total impaired | Commercial | Mortgage | Consumer | Total portfolio | |||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||
Current portfolio | 9,500,231 | 4,725,955 | 2,511,869 | 16,738,055 | 273,481 | 43,502 | 160,480 | 477,463 | 9,773,712 | 4,769,457 | 2,672,349 | 17,215,518 | ||||||||||||||||||||||||||||||||||||
Overdue for 1-29 days | 195,667 | 202,142 | 132,475 | 530,284 | 63,868 | 18,391 | 60,055 | 142,314 | 259,535 | 220,533 | 192,530 | 672,598 | ||||||||||||||||||||||||||||||||||||
Overdue for 30-89 days | 77,001 | 114,454 | 78,148 | 269,603 | 75,659 | 34,240 | 68,316 | 178,215 | 152,660 | 148,694 | 146,464 | 447,818 | ||||||||||||||||||||||||||||||||||||
Overdue for 90 days or more | - | - | - | - | 303,114 | 132,897 | 104,134 | 540,145 | 303,114 | 132,897 | 104,134 | 540,145 | ||||||||||||||||||||||||||||||||||||
Total portfolio before allowances | 9,772,899 | 5,042,551 | 2,722,492 | 17,537,942 | 716,122 | 229,030 | 392,985 | 1,338,137 | 10,489,021 | 5,271,581 | 3,115,477 | 18,876,079 | ||||||||||||||||||||||||||||||||||||
Overdue loans (less than 90 days) presented as portfolio percentage | 2.79 | % | 6.28 | % | 7.74 | % | 4.56 | % | 19.48 | % | 22.98 | % | 32.67 | % | 23.95 | % | 3.93 | % | 7.00 | % | 10.88 | % | 5.94 | % | ||||||||||||||||||||||||
Overdue loans (90 days or more) presented as portfolio percentage | - | - | - | - | 42.33 | % | 58.03 | % | 26.50 | % | 40.37 | % | 2.89 | % | 2.52 | % | 3.34 | % | 2.86 | % |
Consolidated Financial Statements December 2013 / Banco Santander Chile 73 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 11
LOAN PURCHASES AND SALES
a) | Sale of portfolios |
In 2013 and 2012 the following loan trading operations were conducted:
For the year ended December 31, 2013 | ||||||||||||||||||||
Book value | Selling price | Income from financial operations | Provisions on Credit risk | Net income total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Sale of Charged-off loans (1) | - | 70 | 70 | - | 70 | |||||||||||||||
Sale of Charged-off loans (1) | - | 1,548 | 1,548 | - | 1,548 | |||||||||||||||
Sale of Current loans (2) | 109 | 23 | (86 | ) | 38 | (48 | ) | |||||||||||||
Sale of Current loans (2) | 4,827 | 6,590 | 1,763 | - | 1,763 | |||||||||||||||
Charged-off portfolio (*) | - | - | (118 | ) | - | (118 | ) | |||||||||||||
Total | 4,936 | 8,231 | 3,177 | 38 | 3,215 |
(*) Difference in selling price of charged-off portfolios from previous years is Ch$118 million loss.
For the year ended December 31, 2012 | ||||||||||||||||||||
Book value | Selling price | Income from financial operations | Reserve fund | Net income Total | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Sale of Charged-off loans (1) | - | 2,608 | 2,608 | (518 | ) | 2,090 | ||||||||||||||
Sale of Current loans (2) | 17,808 | 18,587 | 779 | - | 779 | |||||||||||||||
Sale of Current loans (2) | 5,689 | 7,655 | 1,966 | - | 1,966 | |||||||||||||||
Total | 23,497 | 28,850 | 5,353 | (518 | ) | 4,835 |
(1) | Sale of charged-off loans |
In 2013, Banco Santander Chile signed an agreement to sell charged-off consumer loans to Matic Kart S.A (March) and to Vantrust (September). Details are as follows:
Portfolio nominal value | Selling price | |||||||
Date | MCh$ | MCh$ | ||||||
03-01-2013 (a) | 2,035 | 70 | ||||||
09-27-2013 (b) | 72,915 | 1,548 | ||||||
Total | 74,950 | 1,618 |
a) | Sale of allowance portfolio previously charged-off. The total sale of the portfolio was Ch$81 million. However, there was a refund for Ch$11 million in June, 2013 generating a net profit of Ch$70 million which was recorded as gains from sales of charged-off portfolio. |
b) | Sale of allowance portfolio previously charged-off. The total sale of the portfolio was Ch$1,839 million. However, there was a refund for Ch$291 million generating a net profit of Ch$$1,548 million which was recorded as gains from sales of charged-off portfolio. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 74 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 11
LOAN PURCHASES AND SALES, continued:
In 2012, Banco Santander Chile signed an agreement to sell loans previously charged-off to Fondo de Inversiones Cantábrico. These were the sales:
Portfolio nominal value | Selling price | |||||||
Date | MCh$ | MCh$ | ||||||
01-24-2012 | 13,130 | 853 | ||||||
02-21-2012 | 13,357 | 868 | ||||||
03-20-2012 | 13,638 | 887 | ||||||
Total | 40,125 | 2,608 |
The income from these transactions was Ch$ 2,090 million. This amount was recorded as income from sale of loans previously charged-off within "Income from financial operations”. See Note 30.
(2) | Sale of current loans |
In 2013, Banco Santander Chile signed an agreement to sell current consumer loans to Matic Kart S.A and to the Chilean Government. Details of these transactions are as follows:
Portfolio nominal value | Selling price | |||||||
Date | MCh$ | MCh$ | ||||||
03-01-2013 (a) | 109 | 23 | ||||||
12-27-2013 (b) | 4,827 | 6,590 | ||||||
Total | 4,936 | 6,613 |
a) | Sale of current portfolio totaled Ch$ 109 million, the effect on income was approximately Ch$ 23 million. |
b) | Sale of current portfolio for Ch$4,827 million. The portfolio was sold for Ch$6,590 million, generating a profit for Ch$1,763 million. |
In 2012, Banco Santander Chile signed an agreement to sell current mortgage loans to Metlife Chile Seguros de Vida S.A. Details of these transactions are as follows:
Portfolio nominal value | Selling price | |||||||
Date | MCh$ | MCh$ | ||||||
01-19-2012 (a) | 9,032 | 9,349 | ||||||
02-02-2012 (a) | 7,849 | 8,250 | ||||||
08-13-2012 (a) | 927 | 988 | ||||||
12-27-2012 (b) | 5,689 | 7,655 | ||||||
Total | 23,497 | 26,242 |
(a) | The income from mortgage loan portfolio sale was Ch$779 million, which was recorded within Income from Financial Operations. See Note 30. |
(b) | The income from mortgage loan portfolio sale was Ch$1,966 million, which was recorded within Income from Financial Operations. See Note 30. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 75 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 11
LOAN PURCHASES AND SALES, continued:
b) | Loan purchase |
i. | In 2012, there were no purchases of loans. |
ii. | In September 2013, the following loan purchase transactions were performed: |
On September 12, 2013, the Bank purchased a loan portfolio from Corpbanca for Ch$24,317 million. Loans purchased correspond to loans granted to Sociedad Nacional de Oleoductos S.A for Ch$10,741 million; and to Colbún for Ch$13,576 million. Total loans purchase amount Ch$24,238 million.
Additionally, on December 27, 2013, loans granted by Corpbanca to Falabella were purchased for Ch$18,350 million.
Consolidated Financial Statements December 2013 / Banco Santander Chile 76 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 12
AVAILABLE FOR SALE INVESTMENTS
As of December 31, 2013 and 2012, the detail of the instruments deemed as available for sale investments is as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Chilean Central Bank and Government securities | ||||||||
Chilean Central Bank Bonds | 364,821 | 712,278 | ||||||
Chilean Central Bank Notes | 1,078 | 8,270 | ||||||
Other Chilean Central Bank and Government securities | 146,295 | 296,010 | ||||||
Subtotal | 512,194 | 1,016,558 | ||||||
Other Chilean securities | ||||||||
Time deposits in Chilean financial institutions | 1,011,354 | 756,136 | ||||||
Mortgage finance bonds of Chilean financial institutions | 33,856 | 37,319 | ||||||
Chilean financial institution bonds | - | - | ||||||
Chilean corporate bonds | - | - | ||||||
Other Chilean securities | - | 321 | ||||||
Subtotal | 1,045,210 | 793,776 | ||||||
Foreign financial securities | ||||||||
Foreign Central Banks and Government securities | 143,589 | - | ||||||
Other foreign financial securities | - | 15,824 | ||||||
Subtotal | 143,589 | 15,824 | ||||||
Total | 1,700,993 | 1,826,158 |
As of December 31, 2012 and 2013, the line item Chilean Central Bank and Government securities item includes securities sold with repurchase agreements to clients and financial institutions for Ch$ 90,818 million and Ch$ 156,340 million, respectively.
As of December 31, 2013 and 2012, the line item Other National Institutions Securities includes securities sold to customers and financial institutions under repurchase agreements totaling Ch$ 118,195 million and Ch$ 148,277 million, respectively.
As of December 31, 2013 available for sale investments included a net unrealized profit of Ch$ 840 million, recorded as a “Valuation adjustment” in Equity, distributed between a profit of Ch$ 802 million attributable to Bank shareholders and a profit of Ch$ 38 million attributable to non-controlling interest.
As of December 31, 2012 available for sale investments included a net unrealized loss of Ch$ 10,017 million, recorded as a “Valuation adjustment” in Equity, distributed between a loss of Ch$ 10,041 million attributable to Bank shareholders and a profit of Ch$ 24 million attributable to non-controlling interest.
Consolidated Financial Statements December 2013 / Banco Santander Chile 77 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 12
AVAILABLE FOR SALE INVESTMENTS, continued
Gross profits and losses realized on the sale of available for sale instruments as of December 31, 2013 and 2012, are as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Sale of available for sale investments generating realized profits | 3,826,358 | 4,886,706 | ||||||
Realized profits | 9,326 | 2,574 | ||||||
Sale of available for sale investments generating realized losses | 388,401 | 665,779 | ||||||
Realized losses | 1,098 | 503 |
The Bank evaluated those instruments with unrealized losses as of December 31, 2013 and 2012 and concluded they were only temporary impairments. This review consisted of evaluating the economic reasons for any declines, the credit ratings of the securities’ issuers, and the Bank’s intention and ability to hold the securities until the unrealized loss is recovered. Based on this analysis, the Bank believes that there were no other than temporary impairments in its investment portfolio, since most of the decline in fair value of these securities was caused by market conditions which the Bank considers to be temporary. All of the instruments that have unrealized losses as of December 31, 2013 and 2012, were in a continuous unrealized loss position for less than one year.
Consolidated Financial Statements December 2013 / Banco Santander Chile 78 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 12
AVAILABLE FOR SALE INVESTMENTS, continued
The following charts show the available for sale investments unrealized profit and loss, as of December 31, 2013 and 2012.
As of December 31, 2013:
Under 12 months | Over 12 months | Total | ||||||||||||||||||||||||||||||||||||||||||||||
Amortized
cost | Fair value | Unrealized
profit | Unrealized loss | Amortized
cost | Fair value | Unrealized
profit | Unrealized loss | Amortized cost | Fair value | Unrealized
profit | Unrealized
loss | |||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||
Chilean Central Bank and Government securities | ||||||||||||||||||||||||||||||||||||||||||||||||
Chilean Central Bank Bonds | 363,708 | 364,821 | 1,708 | (595 | ) | - | - | - | - | 363,708 | 364,821 | 1,708 | (595 | ) | ||||||||||||||||||||||||||||||||||
Chilean Central Bank Notes | 1,088 | 1,078 | - | (10 | ) | - | - | - | - | 1,088 | 1,078 | - | (10 | ) | ||||||||||||||||||||||||||||||||||
Other Chilean Central Bank and Government securities | 145,870 | 146,295 | 596 | (171 | ) | - | - | - | - | 145,870 | 146,295 | 596 | (171 | ) | ||||||||||||||||||||||||||||||||||
Subtotal | 510,666 | 512,194 | 2,304 | (776 | ) | 510,666 | 512,194 | 2,304 | (776 | ) | ||||||||||||||||||||||||||||||||||||||
Other Chilean securities | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
Time deposits in Chilean financial institutions | 1,009,661 | 1,011,354 | 1,811 | (118 | ) | - | - | - | - | 1,009,661 | 1,011,354 | 1,811 | (118 | ) | ||||||||||||||||||||||||||||||||||
Mortgage finance bonds of Chilean financial institutions | 34,154 | 33,856 | 108 | (406 | ) | - | - | - | - | 34,154 | 33,856 | 108 | (406 | ) | ||||||||||||||||||||||||||||||||||
Chilean financial institution bonds | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Chilean corporate bonds | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Other Chilean securities | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Subtotals | 1,043,815 | 1,045,210 | 1,919 | (524 | ) | 1,043,815 | 1,045,210 | 1,919 | (524 | ) | ||||||||||||||||||||||||||||||||||||||
Foreign financial securities | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
Foreign Central Banks and Government securities | 145,672 | 143,589 | - | (2,083 | ) | - | - | - | - | 145,672 | 143,589 | - | (2,083 | ) | ||||||||||||||||||||||||||||||||||
Other foreign financial securities | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
Subtotal | 145,672 | 143,589 | - | (2,083 | ) | 145,672 | 143,589 | - | (2,083 | ) | ||||||||||||||||||||||||||||||||||||||
- | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Total | 1,700,153 | 1,700,993 | 4,223 | (3,383 | ) | - | - | - | - | 1,700,153 | 1,700,993 | 4,223 | (3,383 | ) |
Consolidated Financial Statements December 2013 / Banco Santander Chile 79 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 12
AVAILABLE FOR SALE INVESTMENTS, continued
As of December 31, 2012:
Under 12 months | Over 12 months | Total | ||||||||||||||||||||||||||||||||||||||||||||||
Amortized
cost | Fair value | Unrealized
profit | Unrealized
loss | Amortized cost | Fair value | Unrealized
profit | Unrealized loss | Amortized
cost | Fair value | Unrealized
profit | Unrealized
loss | |||||||||||||||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||||||||||||
Chilean Central Bank and Government securities | ||||||||||||||||||||||||||||||||||||||||||||||||
Chilean Central Bank Bonds | 720,198 | 712,278 | 362 | (8,282 | ) | - | - | - | - | 720,198 | 712,278 | 362 | (8,282 | ) | ||||||||||||||||||||||||||||||||||
Chilean Central Bank Notes | 8,408 | 8,270 | - | (138 | ) | - | - | - | - | 8,408 | 8,270 | - | (138 | ) | ||||||||||||||||||||||||||||||||||
Other Chilean Central Bank and Government instruments | 297,863 | 296,010 | 521 | (2,374 | ) | - | - | - | - | 297,863 | 296,010 | 521 | (2,374 | ) | ||||||||||||||||||||||||||||||||||
Subtotals | 1,026,469 | 1,016,558 | 883 | (10,794 | ) | - | - | - | - | 1,026,469 | 1,016,558 | 883 | (10,794 | ) | ||||||||||||||||||||||||||||||||||
Other Chilean securities | ||||||||||||||||||||||||||||||||||||||||||||||||
Time deposits in Chilean financial institutions | 755,903 | 756,136 | 498 | (265 | ) | - | - | - | - | 755,903 | 756,136 | 498 | (265 | ) | ||||||||||||||||||||||||||||||||||
Mortgage finance bonds of Chilean financial institutions | 37,925 | 37,319 | 71 | (677 | ) | - | - | - | - | 37,925 | 37,319 | 71 | (677 | ) | ||||||||||||||||||||||||||||||||||
Chilean financial institution bonds | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Chilean corporate bonds | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Other Chilean securities | 320 | 321 | 1 | - | - | - | - | - | 320 | 321 | 1 | - | ||||||||||||||||||||||||||||||||||||
Subtotals | 794,148 | 793,776 | 570 | (942 | ) | - | - | - | - | 794,148 | 793,776 | 570 | (942 | ) | ||||||||||||||||||||||||||||||||||
Foreign financial securities | ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign Central Banks and Government securities | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Other foreign financial securities | 15,558 | 15,824 | 266 | - | - | - | - | - | 15,558 | 15,824 | 266 | - | ||||||||||||||||||||||||||||||||||||
Subtotals | 15,558 | 15,824 | 266 | - | - | - | - | - | 15,558 | 15,824 | 266 | - | ||||||||||||||||||||||||||||||||||||
Total | 1,836,175 | 1,826,158 | 1,719 | (11,736 | ) | - | - | - | - | 1,836,175 | 1,826,158 | 1,719 | (11,736 | ) |
Consolidated Financial Statements December 2013 / Banco Santander Chile 80 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 13
INVESTMENTS IN ASSOCIATES AND OTHER COMPANIES
a) | The Consolidated Statements of Financial Position reflect investments in other companies amounting to Ch$ 9,681 million as of December 31, 2013, and Ch$ 7,614 million, as of December 31, 2012, as shown in the following table: |
Investment | ||||||||||||||||||||||||
Ownership
interest As of December 31 | Investment
value As of December 31, | Profit
and loss As of December 31, | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
% | % | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Company | ||||||||||||||||||||||||
Redbanc S.A. (1) | 33.43 | 33.43 | 1,513 | 1,374 | 139 | (199 | ) | |||||||||||||||||
Transbank S.A. (2) | 25.00 | 25.00 | 1,309 | 1,607 | 9 | 306 | ||||||||||||||||||
Centro de Compensación Automatizado | 33.33 | 33.33 | 673 | 548 | 125 | 116 | ||||||||||||||||||
Sociedad Interbancaria de Depósito de Valores S.A. | 29.28 | 29.28 | 585 | 501 | 112 | 86 | ||||||||||||||||||
Cámara de Compensación de Alto Valor S.A. (4) | 14.14 | 14.14 | 673 | 678 | 63 | 114 | ||||||||||||||||||
Administrador Financiero del Transantiago S.A. (3) | 20.00 | 20.00 | 1,947 | 1,215 | 732 | (527 | ) | |||||||||||||||||
Sociedad Nexus S.A. | 12.90 | 12.90 | 972 | 1,106 | 145 | 278 | ||||||||||||||||||
Servicios de Infraestructura de Mercado OTC S.A. (5) | 11.11 | - | 1,424 | - | (16 | ) | - | |||||||||||||||||
Subtotal | 9,096 | 7,029 | 1,309 | 174 | ||||||||||||||||||||
Shares or rights in other companies | ||||||||||||||||||||||||
Bladex | 136 | 136 | 16 | 13 | ||||||||||||||||||||
Stock Exchanges | 417 | 417 | 97 | 80 | ||||||||||||||||||||
Others | 32 | 32 | - | - | ||||||||||||||||||||
Subtotal | 9,681 | 7,614 | 1,422 | 267 | ||||||||||||||||||||
Selling of Santander Asset Management S.A. Administradora General de Fondos (6) | - | - | 78,122 | - | ||||||||||||||||||||
Total | 9,681 | 7,614 | 79,544 | 267 |
(1) | Losses arising from these investments were mainly due to the charge-off of Accounts receivable from Banco Estado which had to make a payment for brand usage under arbitration procedures. On May 31, 2012, the arbitrating judge decided that the payment did not comply with the contract between Redbank and Banco Estado, and Redbanc charged-off that payment, with an effect on income of Ch$ 1,176 million. |
(2) | In July 2012, Banco Santander Chile sold 3,628,154 shares from the Sociedad de apoyo Transbank S.A, decreasing its share from 32.71% to 25%. The transaction amount was Ch$1,000 million and the book value of such investment was Ch$401 million, generating a profit of Ch$599 million recorded as other income. See Note 36. |
(3) | Losses arising from this investment were mainly due to the end of the renegotiation process with the Ministry of Transport and Telecommunications of our current service contract. The Bank signed a complementary contract of “Mutual Termination of Contract” for “Providing of complementary financial administration services of the Santiago Public Transportation System resources”. As a result, Administrador Financiero del Transantiago S.A. had to adjust its income, charging Ch$ 7,177 million against 2012 income. |
(4) | In August 2012, Banco Santander Chile bought 144 shares from Sociedad Operadora de la Cámara de Compensación de pagos de Alto Valor S.A through Banco Scotiabank Chile, increasing its ownership from 12.65% to 14.14%. The purchase of such shares was for Ch$61 million. |
(5) | In July 2013, Banco Santander Chile bought 1,111 shares from Servicios de Infraestructura de Mercado OTC for Ch$1,440 million. |
(6) | In December 2013, the subsidiary Santander Asset Management S.A General de Fondos was sold for Ch$90,281 million. This generated profit of Ch$78,122 million which was included within income from investments in associates and other companies. |
b) | Investments in associates and other companies do not have market prices. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 81 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 13
INVESTMENTS IN ASSOCIATES AND OTHER COMPANIES, continued
c) | Summary of financial information of associates as of and for the years ended December 31, 2013 and 2012: |
As of December 31, | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
Assets | Liabilities | Equity | Net income | Assets | Liabilities | Equity | Net income | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Centro de Compensación Automatizado | 2,994 | 1,012 | 1,606 | 376 | 2,014 | 405 | 1,263 | 346 | ||||||||||||||||||||||||
Redbanc S.A. | 18,023 | 13,622 | 3,984 | 417 | 15,973 | 11,863 | 4,706 | (596 | ) | |||||||||||||||||||||||
Transbank S.A. | 483,004 | 477,772 | 5,196 | 36 | 316,881 | 310,576 | 5,076 | 1,224 | ||||||||||||||||||||||||
Sociedad Interbancaria de Depósito de Valores S.A. | 2,113 | 20 | 1,711 | 382 | 1,714 | 4 | 1,415 | 295 | ||||||||||||||||||||||||
Sociedad Nexus S.A. | 13,309 | 6,112 | 6,075 | 1,122 | 14,439 | 8,027 | 4,256 | 2,156 | ||||||||||||||||||||||||
Servicios de Infraestructura de Mercado OTC S.A. | 14,608 | 3,188 | 11,560 | (140 | ) | - | - | - | - | |||||||||||||||||||||||
Administrador Financiero del Transantiago S.A. | 63,981 | 54,244 | 6,076 | 3,661 | 81,017 | 74,940 | 8,714 | (2,637 | ) | |||||||||||||||||||||||
Cámara de Compensación de Alto Valor S.A. | 5,435 | 906 | 4,085 | 444 | 5,109 | 772 | 3,631 | 706 | ||||||||||||||||||||||||
Total | 603,467 | 556,876 | 40,293 | 6,298 | 437,147 | 406,587 | 29,061 | 1,494 |
d) | Restrictions over the ability of associated companies to transfer funds to investors. |
There are no significant restrictions regarding the capacity of associates to transfer funds, whether in cash dividends, refund of loans, or advance payments to the Bank.
e) | Activity with respect to investments in other companies during 2013 and 2012 is as follows: |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Initial book value | 7,614 | 8,728 | ||||||
Acquisition of investments (1) | 1,440 | 61 | ||||||
Sale of investments (2) (4) | - | (401 | ) | |||||
Participation in income | 1,422 | 267 | ||||||
Dividends received (3) | (663 | ) | (690 | ) | ||||
Other equity adjustments | (132 | ) | (351 | ) | ||||
Total | 9,681 | 7,614 |
(1) | See letter a), reference (4) and (5) |
(2) | See letter a), reference (2) |
(3) | As of December 31, 2013 y 2012, dividends from investments accounted for the cost method were Ch$112 million and Ch$206 million, respectively, are not included. |
(4) | The sale of Santander Asset Management S.A. Administradora General de Fondos is not included due to this was a subsidiary. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 82 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 14
INTANGIBLE ASSETS
a) | As of December 31, 2013 and 2012, the composition of the item is as follows: |
As of December 31, 2013 | ||||||||||||||||||||||||
Years of useful life | Average remaining useful life | Net opening balance January 1, 2013 | Gross balance | Accumulated amortization | Net balance | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||
Licenses | 3 | 2 | 2,621 | 9,955 | (7,758 | ) | 2,197 | |||||||||||||||||
Software development | 3 | 2 | 84,726 | 242,023 | (177,517 | ) | 64,506 | |||||||||||||||||
Total | 87,347 | 251,978 | (185,275 | ) | 66,703 |
As of December 31, 2012 | ||||||||||||||||||||||||
Years of useful life | Average remaining useful life | Net opening balance January 1, 2012 | Gross balance | Accumulated amortization | Net balance | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||
Licenses | 3 | 2 | 2,496 | 9,329 | (6,708 | ) | 2,621 | |||||||||||||||||
Software development | 3 | 2 | 78,243 | 224,671 | (139,945 | ) | 84,726 | |||||||||||||||||
Total | 80,739 | 234,000 | (146,653 | ) | 87,347 |
b) | The activity in intangible assets during December 31, 2013 and 2012 is as follows: |
b.1) Gross balance
Licenses | Software development | Total | ||||||||||
Gross balances | MCh$ | MCh$ | MCh$ | |||||||||
Balances as of January 1, 2013 | 9,329 | 224,671 | 234,000 | |||||||||
Acquisitions | 626 | 17,774 | 18,400 | |||||||||
Disposals | - | - | - | |||||||||
Other | - | (422 | ) | (422 | ) | |||||||
Balances as of December 31, 2013 | 9,955 | 242,023 | 251,978 | |||||||||
Balances as of January 1, 2012 | 8,085 | 184,133 | 192,218 | |||||||||
Acquisitions | 1,244 | 41,018 | 42,262 | |||||||||
Disposals | - | (480 | ) | (480 | ) | |||||||
Other | - | - | - | |||||||||
Balances as of December 31, 2012 | 9,329 | 224,671 | 234,000 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 83 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 14
INTANGIBLE ASSETS, continued
b.2) Accumulated amortization
Licenses | Software development | Total | ||||||||||
Accumulated amortization | MCh$ | MCh$ | MCh$ | |||||||||
Balances as of January 1, 2013 | (6,708 | ) | (139,945 | ) | (146,653 | ) | ||||||
Period year’s amortization | (1,050 | ) | (37,572 | ) | (38,622 | ) | ||||||
Other changes | - | - | - | |||||||||
Balances as of December 31, 2013 | (7,758 | ) | (177,517 | ) | (185,275 | ) | ||||||
Balances as of January 1, 2012 | (5,589 | ) | (105,890 | ) | (111,479 | ) | ||||||
Year’s amortization | (1,119 | ) | (34,055 | ) | (35,174 | ) | ||||||
Other changes | - | - | - | |||||||||
Balances as of December 31, 2012 | (6,708 | ) | (139,945 | ) | (146,653 | ) |
c) | The Bank has no restriction on intangible assets as of December 31, 2013 and 2012. Additionally, the intangibles assets have not been pledged as guarantee for fulfillment of financial liabilities. Also, the Bank has no debt related to Property, plant, and equipment as of those dates. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 84 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 15
PROPERTY, PLANT, AND EQUIPMENT
a) | As of December 31, 2013 and 2012, the composition of property, plant, and equipment is as follows: |
As of December 31, 2013 | ||||||||||||||||
Net opening balance January 1, 2012 | Gross balance | Accumulated depreciation | Net balance | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Land and buildings | 119,853 | 184,711 | (56,592 | ) | 128,119 | |||||||||||
Equipment | 28,625 | 85,857 | (47,016 | ) | 38,841 | |||||||||||
Ceded under operating leases | 4,507 | 4,888 | (559 | ) | 4,329 | |||||||||||
Other | 9,229 | 32,207 | (23,281 | ) | 8,926 | |||||||||||
Total | 162,214 | 307,663 | (127,448 | ) | 180,215 |
As of December 31, 2012 | ||||||||||||||||
Net opening balance January 1, 2012 | Gross balance | Accumulated depreciation | Net balance | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Land and buildings | 118,493 | 167,241 | (47,388 | ) | 119,853 | |||||||||||
Equipment | 22,570 | 66,170 | (37,545 | ) | 28,625 | |||||||||||
Ceded under operating leases | 4,071 | 4,996 | (489 | ) | 4,507 | |||||||||||
Other | 7,925 | 28,957 | (19,728 | ) | 9,229 | |||||||||||
Total | 153,059 | 267,364 | (105,150 | ) | 162,214 |
b) | The activity in property, plant, and equipment during 2013 and 2012 is as follows: |
b.1) | Gross balance |
Land and buildings | Equipment | Ceded under an operating leases | Other | Total | ||||||||||||||||
2013 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
Balances as of January 1, 2013 | 167,241 | 66,170 | 4,996 | 28,957 | 267,364 | |||||||||||||||
Additions | 17,470 | 20,171 | - | 3,148 | 40,789 | |||||||||||||||
Disposals | - | (240 | ) | (108 | ) | - | (348 | ) | ||||||||||||
Impairment due to damage (i) | - | (244 | ) | - | - | (244 | ) | |||||||||||||
Other | - | - | - | 102 | 102 | |||||||||||||||
Balances as of December 31, 2013 | 184,711 | 85,857 | 4,888 | 32,207 | 307,663 |
i) | Banco Santander Chile recognized on its financial statements as of December 31, 2013 Ch$ 244 million impairment from damages to ATMs. Compensation received from insurance totaled Ch$ 725 million, which is presented within Other operating income and expenses (Note 36). |
Consolidated Financial Statements December 2013 / Banco Santander Chile 85 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 15
PROPERTY, PLANT, AND EQUIPMENT, continued
Land and buildings | Equipment | Ceded under an operating leases | Other | Total | ||||||||||||||||
2012 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
Balances as of January 1, 2012 | 156,950 | 51,781 | 4,477 | 24,081 | 237,289 | |||||||||||||||
Additions | 16,658 | 14,570 | 519 | 4,991 | 36,738 | |||||||||||||||
Disposals (i) | (6,367 | ) | (91 | ) | - | (115 | ) | (6,573 | ) | |||||||||||
Impairment due to damage (ii) | - | (90 | ) | - | - | (90 | ) | |||||||||||||
Transfers | - | - | - | - | - | |||||||||||||||
Other | - | - | - | - | - | |||||||||||||||
Balances as of December 31, 2012 | 167,241 | 66,170 | 4,996 | 28,957 | 267,364 |
i) | As disclosed in Note 36 - Other operating income and expenses, Banco Santander Chile sold 17 offices, which at the time of the sale had a net book value of approximately Ch$ 6,367 million. |
ii) | Banco Santander Chile recognized on its financial statements as of December 31, 2012 Ch$ 90 million impairment from damages to ATMs. Compensation received from insurance totaled Ch$ 262 million, which is presented within “Other operating income and expenses” (Note 36). |
b.2) Accumulated depreciation
Land and buildings | Equipment | Ceded under an operating | Other | Total | ||||||||||||||||
2013 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
Balances as of January 1, 2013 | (47,388 | ) | (37,545 | ) | (489 | ) | (19,728 | ) | (105,150 | ) | ||||||||||
Depreciation charges in the period | (9,207 | ) | (9,554 | ) | (89 | ) | (3,602 | ) | (22,452 | ) | ||||||||||
Sales and disposals in the period | 3 | 83 | 19 | 49 | 154 | |||||||||||||||
Transfers | - | - | - | - | - | |||||||||||||||
Other | - | - | - | - | - | |||||||||||||||
Balances as of December 31, 2013 | (56,592 | ) | (47,016 | ) | (559 | ) | (23,281 | ) | (127,448 | ) |
Land and buildings | Equipment | Ceded under an operating leases | Other | Total | ||||||||||||||||
2012 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||
Balances as of January 1, 2012 | (38,485 | ) | (29,211 | ) | (378 | ) | (16,156 | ) | (84,230 | ) | ||||||||||
Depreciation charges in the period | (9,125 | ) | (8,351 | ) | (111 | ) | (3,608 | ) | (21,195 | ) | ||||||||||
Sales and disposals in the period | 222 | 17 | - | 36 | 275 | |||||||||||||||
Transfers | - | - | - | - | - | |||||||||||||||
Other | - | - | - | - | - | |||||||||||||||
Balances as of December 31, 2012 | (47,388 | ) | (37,545 | ) | (489 | ) | (19,728 | ) | (105,150 | ) |
Consolidated Financial Statements December 2013 / Banco Santander Chile 86 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 15
PROPERTY, PLANT, AND EQUIPMENT, continued
c) | Operational leases – Lessor |
As of December 31, 2013 and 2012, the future minimum lease cash inflows under non-cancellable operating leases are as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | 637 | 1.163 | ||||||
Due after 1 year but within 2 years | 508 | 626 | ||||||
Due after 2 years but within 3 years | 300 | 502 | ||||||
Due after 3 years but within 4 years | 263 | 294 | ||||||
Due after 4 years but within 5 years | 263 | 258 | ||||||
Due after 5 years | 2,148 | 2,148 | ||||||
Total | 4,119 | 4,991 |
d) | Operational leases – Lessee |
Certain Bank’s premises and equipment are leased under various operating leases. Future minimum rental payments under non-cancellable leases are as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | 18,941 | 16,266 | ||||||
Due after 1 year but within 2 years | 16,948 | 14,845 | ||||||
Due after 2 year but within 3 years | 15,161 | 12,960 | ||||||
Due after 3 years but within 4 years | 14,083 | 11,443 | ||||||
Due after 4 years but within 5 years | 12,902 | 10,465 | ||||||
Due after 5 years | 61,730 | 63,035 | ||||||
Total | 139,765 | 129,014 |
e) | As of December 31, 2013 and 2012, the Bank has no financial leases which cannot be unilaterally rescinded. |
f) | The Bank has no restriction on intangible assets as of December 31, 2013 and 2012. Additionally, the property, plant, and equipment have not been surrendered as guarantees for the compliance of financial liabilities. Also, the Bank has no debt regarding Property, plant, and equipment as of those dates. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 87 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 16
CURRENT AND DEFERRED TAXES
a) Current taxes
As of December 31, 2013 and 2012, the bank recognizes an income tax provision, which is determined based on the currently applicable tax legislation. This provision is recorded net of recoverable taxes, as shown as follows:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Summary of current tax liabilities (assets) | ||||||||
Current tax (assets) | (1,643 | ) | (10,227 | ) | ||||
Current tax liabilities | 50,242 | 525 | ||||||
Total tax payable (recoverable) | 48,599 | (9,702 | ) | |||||
(Assets) liabilities current taxes detail (net) | ||||||||
Income tax, tax rate 20% | 117,095 | 83,381 | ||||||
Minus: | ||||||||
Provisional monthly payments (PPM) | (61,730 | ) | (84,940 | ) | ||||
Credit for training expenses | (1,656 | ) | (1,505 | ) | ||||
Land taxes leasing | (2,987 | ) | (2,939 | ) | ||||
Grant credits | (1,892 | ) | (2,534 | ) | ||||
Other | (231 | ) | (1,165 | ) | ||||
Total tax payable (recoverable) | 48,599 | (9,702 | ) |
b) Effect on income
The effect of tax expense on income for the years ended December 31, 2013 and 2012 is comprised of the following items:
As of December 31 | ||||||||
2013 MCh$ | 2012 MCh$ | |||||||
Income tax expense | ||||||||
Current tax | 117,095 | 83,381 | ||||||
Credits (debits) for deferred taxes | ||||||||
Origination and reversal of temporary differences | (27,721 | ) | (32,653 | ) | ||||
Subtotals | 89,374 | 50,728 | ||||||
Tax for rejected expenses (Article No.21) | 392 | 936 | ||||||
Other | 4,701 | (490 | ) | |||||
Net charges for income tax expense | 94,467 | 51,174 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 88 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 16
CURRENT AND DEFERRED TAXES, continued:
c) | Effective tax rate reconciliation |
The reconciliation between the income tax rate and the effective rate applied in determining tax expenses as of December 31, 2013 and 2012, is as follows:
As of December 31 | ||||||||||||||||
2013 | 2012 | |||||||||||||||
Tax rate | Amount | Tax rate | Amount | |||||||||||||
% | MCh$ | % | MCh$ | |||||||||||||
Tax calculated over profit before tax | 20.00 | 107,706 | 20,00 | 88,816 | ||||||||||||
Permanent differences | (2.04 | ) | (10,989 | ) | (2.74 | ) | (12,161 | ) | ||||||||
Single penalty tax (rejected expenses) | 0.07 | 392 | 0.21 | 936 | ||||||||||||
Rate change effect (*) | - | - | (3.66 | ) | (16,221 | ) | ||||||||||
Real estate taxes | (0.55 | ) | (2,987 | ) | (1.87 | ) | (8,324 | ) | ||||||||
Other | 0.06 | 345 | (0.42 | ) | (1,872 | ) | ||||||||||
Effective rates and expenses for income tax | 17,54 | 94,467 | 11.52 | 51,174 |
(*)Law No. 20,455 from 2010 increased the first class tax rate to be applied to companies on the taxable income during 2011 and 2012, to 20% and 18.5% respectively. Nonetheless, law No. 20,630 published in the Official Newspaper on September 27, 2012 increased the First Class Rate from 18.5% to 20%, permanently, for transactions accounted from January 1, 2012 onwards. This created income for MCh$ 16,221, corresponding to the fluctuation of the deferred tax expense/benefit.
d) Effect of deferred taxes on comprehensive income
Below is a summary of the separate effect of deferred tax on Equity, showing the asset and liability balances, for the years ended December 31, 2013 and 2012:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Deferred tax assets | ||||||||
Available for sale investments | 31 | 2,004 | ||||||
Cash flow hedges | 1,651 | 389 | ||||||
Total deferred tax assets affecting other with effect in other comprehensive incomes | 1,682 | 2,393 | ||||||
Deferred tax liabilities | ||||||||
Available for sale investments | (199 | ) | (1 | ) | ||||
Cash flow hedges | - | (1,452 | ) | |||||
Total deferred tax liabilities affecting other with effect in other comprehensive incomes | (199 | ) | (1,453 | ) | ||||
Net deferred tax balances in equity | 1,483 | 940 | ||||||
Deferred taxes in equity attributable to Bank shareholders | 1,491 | 945 | ||||||
Deferred tax in equity attributable to non-controlling interests | (8 | ) | (5 | ) |
Consolidated Financial Statements December 2013 / Banco Santander Chile 89 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 16
CURRENT AND DEFERRED TAXES, continued
e) | Effect of deferred taxes on income |
As of 2013 and 2012, the Bank has recorded deferred tax effects in its financial statements.
Below are the effects of deferred taxes on assets, liabilities and income as of December 31, 2013 and 2012:
As of December 31 | ||||||||
2013 MCh$ | 2012 MCh$ | |||||||
Deferred tax assets | ||||||||
Interests and adjustments | 7,203 | 7,854 | ||||||
Non-recurring charge-offs | 9,787 | 12,046 | ||||||
Assets received in lieu of payment | 1,149 | 1,265 | ||||||
Property, plant and equipment | 3,579 | 3,654 | ||||||
Allowance for loan losses | 92,088 | 96,071 | ||||||
Provision for expenses | 19,130 | 17,903 | ||||||
Derivatives | 19 | 54 | ||||||
Leased assets | 52,447 | 39,168 | ||||||
Subsidiaries tax losses | 5,716 | 5,232 | ||||||
Other | 37,415 | 767 | ||||||
Total deferred tax assets | 228,533 | 184,014 | ||||||
Deferred tax liabilities | ||||||||
Valuation of investments | (11,593 | ) | (6,555 | ) | ||||
Depreciation | (315 | ) | (261 | ) | ||||
Other | (12,981 | ) | (1,275 | ) | ||||
Total deferred tax liabilities | (24,889 | ) | (8,091 | ) |
f) | Summary of deferred tax assets and liabilities |
Below is a summary of the deferred taxes impact on equity and income.
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Deferred tax assets | ||||||||
Recognized through other comprehensive income | 1,682 | 2,393 | ||||||
Recognized through profit or loss | 228,533 | 184,014 | ||||||
Total deferred tax assets | 230,215 | 186,407 | ||||||
Deferred tax liabilities | ||||||||
Recognized through other comprehensive income | (199 | ) | (1,453 | ) | ||||
Recognized through profit or loss | (24,889 | ) | (8,091 | ) | ||||
Total deferred tax liabilities | (25,088 | ) | (9,544 | ) |
Consolidated Financial Statements December 2013 / Banco Santander Chile 90 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 16
CURRENT AND DEFERRED TAXES, continued:
g) | Supplementary information related to the Circular issued by the local tax authority and SBIF: |
g.1) Loans and accounts receivables from customers
As of December 31, 2013 | As of December 31, 2012 | |||||||||||||||||||||||||||||||
Tax value assets | Tax value assets | |||||||||||||||||||||||||||||||
Non-performing loans | Non-performing loans | |||||||||||||||||||||||||||||||
Financial | With | Without | Financial | With | Without | |||||||||||||||||||||||||||
value assets | Total | Guarantees | Guarantees | value assets | Total | Guarantees | Guarantees | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Interbank loans | 125,449 | 125,449 | - | - | 90,573 | 90,527 | - | - | ||||||||||||||||||||||||
Commercial loans | 11,702,252 | 10,063,170 | 123,387 | 134,807 | 10,489,021 | 8,914,074 | 108,784 | 117,987 | ||||||||||||||||||||||||
Consumer loans | 3,607,248 | 3,651,539 | 321 | 14,995 | 3,115,477 | 3,171,438 | 519 | 15,420 | ||||||||||||||||||||||||
Mortgage loans | 5,625,812 | 5,636,214 | 77,861 | 1,154 | 5,271,581 | 5,281,568 | 64,616 | 12,312 | ||||||||||||||||||||||||
Total | 21,060,761 | 19,476,372 | 201,569 | 150,956 | 18,966,652 | 17,457,607 | 173,919 | 145,719 |
g.2) Provisions for substandard loans without bonds
Balance as of 01.01.2013 | Allowance charge-offs | Provisions established | Provisions release | Balance as of 12.31.2013 | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Commercial loans | 117,987 | (63,380 | ) | 212,042 | (131,842 | ) | 134,807 | |||||||||||||
Consumer loans | 15,420 | (191,994 | ) | 229,482 | (37,913 | ) | 14,995 | |||||||||||||
Mortgage loans | 12,312 | (5,715 | ) | 29,859 | (35,302 | ) | 1,154 | |||||||||||||
Total | 145,719 | (261,089 | ) | 471,383 | (205,057 | ) | 150,956 |
Balance as of 01.01.2012 | Allowance charge-offs | Provisions established | Provisions release | Balance as of 12.31.2012 | ||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||
Commercial loans | 93,672 | (981 | ) | 134,081 | (108,785 | ) | 117,987 | |||||||||||||
Consumer loans | 13,068 | (4,738 | ) | 77,114 | (70,024 | ) | 15,420 | |||||||||||||
Mortgage loans | 3,777 | (481 | ) | 37,780 | (28,764 | ) | 12,312 | |||||||||||||
Total | 110,517 | (6,200 | ) | 248,975 | (207,573 | ) | 145,719 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 91 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 16
CURRENT AND DEFERRED TAXES, continued:
g.3) Direct charge offs and recoveries
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Direct charges offs Art. 31 No.4 Paragraphs II | 31,551 | 6,454 | ||||||
Cancellations that created release of provisions | - | |||||||
Retrieval or renegotiations of charged-off loans | 53,952 | 31,322 | ||||||
Total | 85,503 | 37,776 |
g.4) Enforcement of art.31 No.4 Paragraphs I and II
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Charge-offs according to paragraph I | - | - | ||||||
Cancellations according to paragraph III | 32,496 | 7,698 | ||||||
Total | 32,496 | 7,698 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 92 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 17
OTHER ASSETS
Other assets item includes the following:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Assets for leasing (*) | 41,402 | 42,891 | ||||||
Assets received or awarded in lieu of payment (**) | ||||||||
Assets received in lieu of payment | 14,448 | 15,058 | ||||||
Assets awarded at judicial sale | 6,530 | 9,974 | ||||||
Provision on assets received in lieu of payment or awarded | (2,914 | ) | (3,091 | ) | ||||
Subtotals | 18,064 | 21,941 | ||||||
Other assets | ||||||||
Guarantee deposits | 68,330 | 256,854 | ||||||
Gold investments | 373 | 464 | ||||||
VAT credit | 8,705 | 10,337 | ||||||
Income tax recoverable | 42,354 | 28,274 | ||||||
Prepaid expenses | 34,970 | 50,870 | ||||||
Assets recovered from leasing for sale | 5,747 | 3,335 | ||||||
Pension plan assets | 1,283 | 1,989 | ||||||
Accounts and notes receivable | 60,256 | 82,378 | ||||||
Notes receivable through brokerage and simultaneous transactions | 75,145 | 89,314 | ||||||
Other receivable assets | 9,746 | 29,883 | ||||||
Other assets | 33,650 | 36,687 | ||||||
Subtotals | 340,559 | 590,385 | ||||||
Total | 400,025 | 655,217 |
(*) | Assets available to be granted under the financial leasing agreements. |
(**) | Assets received in lieu of payment correspond to assets received as payment of overdue debts. The total assets held that correspond to this type must not exceed 20% of the Bank’s effective equity. These assets currently represent 0.48% (0.55% as of December 31, 2012) of the Bank’s effective equity. |
Assets awarded in judicial sales correspond to those acquired in a judicial sale as payment of debts previously subscribed with the Bank. The assets awarded through a judicial sale are not subject to the aforementioned requirement. These properties are assets available for sale. For most assets, sale is expected to be completed within one year from the date on which the asset was received or acquired. If the asset in question is not sold within the year, it must be written off.
In addition, a provision is recorded for the initial award value plus its additions and its estimated realization value (appraisal) if the first is higher.
Consolidated Financial Statements December 2013 / Banco Santander Chile 93 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 18
TIME DEPOSITS AND OTHER TIME LIABILITIES
As of December 31, 2013 and 2012, the composition of the line item Time deposits and other liabilities is as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Deposits and other demand liabilities | ||||||||
Checking accounts | 4,403,526 | 4,006,143 | ||||||
Other deposits and demand accounts | 569,395 | 455,315 | ||||||
Other demand liabilities | 647,842 | 508,561 | ||||||
Total | 5,620,763 | 4,970,019 | ||||||
Time deposits and other time liabilities | ||||||||
Time deposits | 9,567,855 | 9,008,902 | ||||||
Time savings account | 104,143 | 101,702 | ||||||
Other time liabilities | 3,274 | 1,609 | ||||||
Total | 9,675,272 | 9,112,213 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 94 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 19
INTERBANK BORROWINGS
At December 31, 2013 and 2012 the line item Interbank borrowings is as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Loans from financial institutions and the Central Bank of Chile | ||||||||
Other obligations with Central Bank of Chile | 220 | 398 | ||||||
Subtotals | 220 | 398 | ||||||
Loans from domestic financial institutions | 500 | - | ||||||
Loans from foreign financial institutions | ||||||||
Standard Chartered Bank - New York | 349,433 | 279,966 | ||||||
Citibank N.A. - New York | 181,107 | 187,036 | ||||||
Wells Fargo Bank N.A. – New York | 144,284 | - | ||||||
Mizuho Corporate Bank | 131,273 | 95,290 | ||||||
Landesbank Baden Wuerttemberg | 108,566 | - | ||||||
Commerzbank A.G. - Frankfurt | 107,843 | 88,801 | ||||||
Banco Interamericano del Desarrollo | 104,929 | - | ||||||
Sumitomo Mitsui Banking Corporation | 102,379 | 67,105 | ||||||
Bank of America | 94,388 | 139,570 | ||||||
Bank of Montreal – Toronto | 80,820 | 112,236 | ||||||
The Toronto Dominion Bank – Toronto | 70,803 | 74,486 | ||||||
Banco Santander – Montevideo | 52,442 | 57,532 | ||||||
Royal Bank of Scotland – London | 44,608 | 40,784 | ||||||
The Bank of New York Mellon | 26,224 | - | ||||||
HSBC Bank of New York | 26,222 | - | ||||||
National Bank of Abu Dhabi | 15,741 | - | ||||||
Deutsche Bank A.G.- New York | 13,109 | 245 | ||||||
Wachovia Bank N.A.- Miami | 7,394 | 204,184 | ||||||
Banco Santander – Hong Kong | 5,781 | 4,283 | ||||||
Commerzbank N.A. – Miami | 5,254 | 14,368 | ||||||
Standard Chartered Bank - Hong Kong | 1,059 | - | ||||||
Unicrédito Italiana SPA | 993 | - | ||||||
Woori Bank | 627 | - | ||||||
Lanschot Bankiers N.V. | 446 | - | ||||||
Banco Popolare di Novara | 351 | 308 | ||||||
National Agricultural Cooperative | 259 | - | ||||||
Banco de Sabadell S.A. | 250 | - | ||||||
Banco de Occidente | 248 | - | ||||||
Banco Popular Español S.A. | 224 | - | ||||||
Banco Bilbao Vizcaya Argentaria | 221 | - | ||||||
HSBC Bank USA | 179 | - | ||||||
Bank of Tokio Mitsubishi | 174 | - | ||||||
U.S. Bank | 174 | 513 | ||||||
Intesa Sanpaolo SPA - USA | 173 | - | ||||||
J.P. Morgan Chase Bank N.A. - New York | 164 | 48,176 | ||||||
United Bank of India | 160 | - | ||||||
Banco do Brasil S.A. – London | 146 | 285 | ||||||
National Westminster Bank PLC | 136 | - | ||||||
Bank of China | 105 | 1,510 | ||||||
State Bank of India | 89 | - | ||||||
Banca Popolare di Vicenza SCPA | 76 | 208 | ||||||
Discount Bank – Montevideo | 73 | 3,835 | ||||||
Banco Bradesco S.A. | 60 | 245 | ||||||
Unicredit Banca d Impresa | 47 | 544 | ||||||
Banca Nazionale del Lavoro S.P. | 38 | 216 | ||||||
BBVA Banco Francés S.A. | 26 | - | ||||||
Banca Commerciale Italiana S.P. | 23 | 494 | ||||||
Turkiye Halk Bankasi | 23 | 403 | ||||||
Bancolombia S.A. - Panamá | 9 | 709 | ||||||
UBS A.G. | - | 3,786 | ||||||
Banca Antoniana Popolare – Venetto | - | 746 | ||||||
Unicrédito Italiano - New York | - | 410 | ||||||
Banco Santander – Madrid | 500 | 660 | ||||||
Banco General S.A. | - | 349 | ||||||
Banco Español de Crédito | - | 281 | ||||||
ING Bank N.V. - Vienna | - | 257 | ||||||
Banco Sofisa | - | 212 | ||||||
Other | 2,004 | 7,572 | ||||||
Subtotals | 1,681,657 | 1,437,605 | ||||||
Total | 1,682,377 | 1,438,003 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 95 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 19
INTERBANK BORROWINGS, continued:
a) | Obligations with Central Bank of Chile |
Debts to the Central Bank of Chile include credit lines for the renegotiation of loans and other borrowings. These credit lines were provided by the Central Bank of Chile for the renegotiation of loans due to the need to refinance debt as a result of the economic recession and crisis of the banking system in the early 1980s.
The outstanding amounts owed to the Central Bank of Chile under these credit lines are as follows:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Totals Line of credit for renegotiation with Central Bank of Chile | 220 | 398 |
b) | Loans from domestic financial institutions |
These obligations’ maturities are as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | 500 | - | ||||||
Due within 1 and 2 year | - | - | ||||||
Due within 2 and 3 year | - | - | ||||||
Due within 3 and 4 year | - | - | ||||||
Due after 5 years | - | - | ||||||
Total loans from domestic financial institutions | 500 | - |
c) | Foreign obligations |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | 1,529,511 | 1,272,994 | ||||||
Due within 1 and 2 year | 152,146 | 164,611 | ||||||
Due within 2 and 3 year | - | - | ||||||
Due within 3 and 4 year | - | - | ||||||
Due after 5 years | - | - | ||||||
Total loans from foreign financial institutions | 1,681,657 | 1,437,605 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 96 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 20
ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES
As of December 31, 2013 and 2012, the composition of the related item is as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Other financial liabilities | ||||||||
Obligations to public sector | 68,075 | 96,185 | ||||||
Other domestic obligations | 118,683 | 93,653 | ||||||
Foreign obligations | 3,023 | 2,773 | ||||||
Subtotals | 189,781 | 192,611 | ||||||
Issued debt instruments | ||||||||
Mortgage finance bonds | 101,667 | 128,086 | ||||||
Senior bonds | 4,190,918 | 3,717,213 | ||||||
Mortgage bond | 70,339 | - | ||||||
Subordinated bonds | 835,734 | 725,990 | ||||||
Subtotals | 5,198,658 | 4,571,289 | ||||||
Total | 5,338,439 | 4,763,900 |
Debts classified as current are either demand obligations or will mature in one year or less. All other debts are classified as non-current. The Bank’s debts, both current and non-current, are summarized below:
As of December 31, 2013 | ||||||||||||
Current | Non-current | Total | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Mortgage finance bonds | 6,493 | 95,174 | 101,667 | |||||||||
Senior bonds | 1,603,929 | 2,586,989 | 4,190,918 | |||||||||
Mortgage bond | - | 70,339 | 70,339 | |||||||||
Subordinated bonds | 138,466 | 697,268 | 835,734 | |||||||||
Issued debt instruments | 1,748,888 | 3,449,770 | 5,198,658 | |||||||||
Other financial liabilities | 101,698 | 88,083 | 189,781 | |||||||||
Total | 1,850,586 | 3,537,853 | 5,388,439 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 97 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 20
ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued:
As of December 31, 2012 | ||||||||||||
Current | Non-current | Total | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Mortgage finance bonds | 6,863 | 121,223 | 128,086 | |||||||||
Senior bonds | 534,852 | 3,182,361 | 3,717,213 | |||||||||
Subordinated bonds | 16,037 | 709,953 | 725,990 | |||||||||
Issued debt instruments | 557,752 | 4,013,537 | 4,571,289 | |||||||||
Other financial liabilities | 101,335 | 91,276 | 192,611 | |||||||||
Total | 659,087 | 4,104,813 | 4,763,900 |
a) | Mortgage finance bonds |
These bonds are used to finance mortgage loans. Their principal amounts are amortized on a quarterly basis. The range of maturities of these bonds is between five and twenty years. Loans are indexed to UF and create a yearly interest rate of 5.21% as of December 31, 2013 (5.95% as of December 31, 2012).
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | 6,493 | 6,863 | ||||||
Due after 1 year but within 2 years | 9,760 | 7,595 | ||||||
Due after 2 year but within 3 years | 8,768 | 14,752 | ||||||
Due after 3 year but within 4 years | 9,921 | 11,026 | ||||||
Due after 4 year but within 5 years | 12,511 | 11,923 | ||||||
Due after 5 years | 54,214 | 75,927 | ||||||
Total mortgage bonds | 101,667 | 128,086 |
b) | Senior bonds |
The following table shows senior bonds by currency:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Santander bonds in UF | 1,964,905 | 2,025,105 | ||||||
Santander bonds in USD | 1,658,789 | 1,269,454 | ||||||
Santander bonds in CHF | 246,284 | 90,249 | ||||||
Santander bonds in Ch$ | 277,530 | 293,933 | ||||||
Santander bonds in CNY | 43,410 | 38,472 | ||||||
Total senior bonds | 4,190,918 | 3,717,213 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 98 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 20
ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued:
i. | Placement of senior bonds: |
In 2013, the Bank placed bonds for UF 13,768,000; CLP 32,500,000,000; CHF 300,000,000; and USD 250,000,000 detailed as follows:
Series | Amount | Term | Issuance rate | Issuance date | Series issued amount | Maturity date | ||||||||||
E1 Series | UF | 2,742,000 | 5 years | 3.5% per annum simple | 02-01-2011 | UF | 4,000,000 | 02-01-2016 | ||||||||
E2 Series | UF | 952,000 | 7 years | 3.0% per annum simple | 01-01-2012 | UF | 4,000,000 | 07-01-2018 | ||||||||
E3 Series | UF | 2,244,000 | 8.5 years | 3.5% per annum simple | 01-01-2011 | UF | 4,000,000 | 07-01-2019 | ||||||||
E6 Series | UF | 3,720,000 | 10 years | 3.5% per annum simple | 04-01-2012 | UF | 4,000,000 | 04-01-2022 | ||||||||
E9 Series | UF | 2,000,000 | 10 years | 3.5% per annum simple | 01-01-2013 | UF | 2,000,000 | 01-01-2023 | ||||||||
FD Series | UF | 110,000 | 5 years | 3.0% per annum simple | 08-01-2010 | UF | 110,000 | 08-01-2015 | ||||||||
EC Series | UF | 2,000,000 | 10 years | 3.5 % per annum simple | 11-28-2013 | UF | 2,000,000 | 09-01-2023 | ||||||||
Total UF | UF | 13,768,000 | ||||||||||||||
E4 Series | CLP | 7,500,000,000 | 5 years | 6.75 % per annum simple | 06-01-2011 | CLP | 50,000,000,000 | 06-01-2016 | ||||||||
E8 Series | CLP | 25,000,000,000 | 10 years | 6.75% per annum simple | 11-01-2012 | CLP | 25,000,000,000 | 11-01-2022 | ||||||||
CLP Total | CLP | 32,500,000,000 | ||||||||||||||
CHF floating bond | CHF | 150,000,000 | 4 years | Libor (3 months) + 100 bp | 03-28-2013 | CHF | 150,000,000 | 03-28-2017 | ||||||||
CHF Bond | CHF | 150,000,000 | 6 years | 1.75% per annum simple | 09-26-2013 | CHF | 150,000,000 | 09-26-2019 | ||||||||
CHF Total | CHF | 300,000,000 | ||||||||||||||
USD floating bond | USD | 250,000,000 | 5 years | Libor (3 months) + 100 bp | 06-07-2013 | USD | 250,000,000 | 06-07-2018 | ||||||||
USD Total | USD | 250,000,000 |
During 2013, the Bank performed a partial repurchase of bonds for Ch$ 49,245,000,000
Consolidated Financial Statements December 2013 / Banco Santander Chile 99 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 20
ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued:
In 2012, the Bank placed bonds for UF 698,000; CLP 55,600,000,000; USD 1,085,990,000; and CNY 500,000,000 detailed as follows:
Series | Amount | Term | Issuance rate | Issuance date | Series issued amount |
Maturity date | ||||||||||
FD | UF | 50,000 | 5 years | 3.00% per annum simple | 08-01-2010 | UF | 3,000,000 | 08-01-2015 | ||||||||
E1 | UF | 362,000 | 5 years | 3.00% per annum simple | 02-01-2011 | UF | 4,000,000 | 02-01-2016 | ||||||||
E3 | UF | 6,000 | 8.5 years | 3.50 % per annum simple | 01-01-2011 | UF | 4,000,000 | 07-01-2019 | ||||||||
E6 | UF | 280,000 | 10 years | 3.50 % per annum simple | 04-01-2012 | UF | 4,000,000 | 04-01-2022 | ||||||||
Total UF | UF | 698,000 | ||||||||||||||
E4 | CLP | 5,600,000,000 | 5 years | 6.75 % per annum simple | 06-01-2011 | CLP | 50,000,000,000 | 06-01-2016 | ||||||||
E5 | CLP | 25,000,000,000 | 10 years | 6,30% per annum simple | 12-01-2011 | CLP | 25,000,000,000 | 12-01-2021 | ||||||||
E7 | CLP | 25,000,000,000 | 5 years | 6.75 % per annum simple | 03-01-2012 | CLP | 25,000,000,000 | 03-01-2017 | ||||||||
CLP Total | CLP | 55,600,000,000 | ||||||||||||||
Floating rate bond | USD | 250,000,000 | 2 years | Libor (3 months) + 200 bp | 02-14-2012 | USD | 250,000,000 | 02-14-2014 | ||||||||
Zero coupon floating bond | USD | 85,990,000 | 1 year | Libor (3 months) + 100 bp | 08-29-2012 | USD | 85,990,000 | 08-30-2013 | ||||||||
Senior bonds | USD | 750,000,000 | 10 years | 3.875% per annum simple | 0920-2012 | USD | 750,000,000 | 09-20-2022 | ||||||||
USD Total | USD | 1,085,990,000 | ||||||||||||||
Senior bonds | CNY | 500,000,000 | 2 years | 3.75% per annum simple | 11-26-2012 | CNY | 500,000,000 | 11-26-2014 | ||||||||
CNY Total | CNY | 500,000,000 |
During 2012, partial repurchases of bonds were made for CHF 45,000,000 and USD 53,500,000.
ii. | Nominal bonds to be placed: |
As of December 31, 2013, there are no outstanding amounts not previously authorized bonds still to be placed.
iii. | The maturities of senior bonds are as follows: |
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | 1,603,929 | 534,852 | ||||||
Due after 1 year but within 2 years | 674,784 | 600,723 | ||||||
Due after 2 year but within 3 years | 338,853 | 643,791 | ||||||
Due after 3 year but within 4 years | 321,589 | 610,817 | ||||||
Due after 4 year but within 5 years | 154,368 | 323,474 | ||||||
Due after 5 years | 1,097,395 | 1,003,556 | ||||||
Total senior bonds | 4,190,918 | 3,717,213 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 100 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 20
ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued
c) | Mortgage bonds |
Detail of mortgage bonds per currency is as follows:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Mortgage bonds in UF | 70,339 | - | ||||||
Total mortgage bonds | 70,339 | - |
i. | Allocation of mortgage bonds |
In 2013, the Bank issued bonds for UF 3,000,000, detailed as follows:
Series | Amount | Term | Issuance rate | Issuance date | Series issued amount |
Maturity date | ||||||||||
BH | UF | 3,000,000 | 15 years | 3.2% per annum simple | 07-31-2013 | UF | 3,000,000 | 07-31-2028 | ||||||||
Total UF | UF | 3,000,000 |
The maturities of senior Mortgage bond are as follows:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | - | - | ||||||
Due after 1 year but within 2 years | - | - | ||||||
Due after 2 year but within 3 years | - | - | ||||||
Due after 3 year but within 4 years | - | - | ||||||
Due after 4 year but within 5 years | - | - | ||||||
Due after 5 years | 70,339 | - | ||||||
Total senior bonds | 70,339 | - |
d) | Subordinated bonds |
Detail of the subordinated bonds per currency is as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Subordinated bonds denominated in USD | 139,802 | 174,285 | ||||||
Subordinated bonds denominated in UF | 695,932 | 551,705 | ||||||
Total subordinated bonds | 835,734 | 725,990 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 101 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 20
ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued:
i. | Allocation of subordinated bonds |
During 2013, the Bank places subordinated bonds for UF 5,900,000.
The following chart shows details related to subordinated bonds allocations:
Series | Amount | Term | Issuance rate | Issuance date | Series issued amount | Maturity date | ||||||||||
G5 | UF | 1,900,000 | 20 years | 3.9 % per annum simple | 04-05-2011 | UF | 4,000,000 | 04-01-2031 | ||||||||
H1 | UF | 4,000,000 | 30 years | 3.9 % per annum simple | 11-04-2011 | UF | 4,000,000 | 04-01-2041 | ||||||||
Total | UF | 5,900,000 |
During the first half of 2012, the Bank performed a partial repurchase of bonds for USD 47,786,000.
During 2012, the Bank did not issued any subordinated bonds on the market.
The maturities of subordinated bonds considered non-current, are as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | 138,466 | 16,037 | ||||||
Due after 1 year but within 2 years | 14,039 | 182,844 | ||||||
Due after 2 year but within 3 years | 4,140 | 9,535 | ||||||
Due after 3 year but within 4 years | - | 5,760 | ||||||
Due after 4 year but within 5 years | - | - | ||||||
Due after 5 years | 679,089 | 511,814 | ||||||
Total subordinated bonds | 835,734 | 725,990 |
c) | Other financial liabilities |
The composition of other financial obligations, by maturity, is detailed below:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Due within 1 year | ||||||||
Due after 1 year but within 2 years | 3,389 | 3,897 | ||||||
Due after 2 year but within 3 years | 2,389 | 2,501 | ||||||
Due after 3 year but within 4 years | 3,045 | 3,090 | ||||||
Due after 4 year but within 5 years | 20,862 | 2,937 | ||||||
Due after 5 years | 58,398 | 78,851 | ||||||
Non-current portion subtotals | 88,083 | 91,276 | ||||||
Current portion: | ||||||||
Amounts due to credit card operators | 97,027 | 70,410 | ||||||
Acceptance of letters of credit | 741 | 1,683 | ||||||
Other long-term financial obligations, short-term portion | 3,930 | 29,242 | ||||||
Current portion subtotals | 101,698 | 101,335 | ||||||
Total other financial liabilities | 189,781 | 192,611 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 102 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 21
MATURITY OF ASSETS AND LIABILITIES
As of December 31, 2013 and 2012, the detail of the maturities of assets and liabilities is as follows:
Demand | Up to 1 month | Between 1 and 3 months | Between 3 and 12 months | Subtotal up to 1 year | Between 1 and 5 years | More than 5 years | Subtotal More than 1 year | Total | ||||||||||||||||||||||||||||
As of December 31, 2013 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Cash and deposits in banks | 1,571,810 | - | - | - | 1,571,810 | - | - | - | 1,571,810 | |||||||||||||||||||||||||||
Cash items in process of collection | 604,077 | - | - | - | 604,077 | - | - | - | 604,077 | |||||||||||||||||||||||||||
Trading investments | - | 10,018 | 17 | - | 10,035 | 203,608 | 73,924 | 277,532 | 287,567 | |||||||||||||||||||||||||||
Investments under resale agreements | - | - | 17,469 | - | 17,469 | - | - | - | 17,469 | |||||||||||||||||||||||||||
Financial derivative contracts | - | 168,785 | 99,471 | 225,617 | 493,873 | 565,329 | 434,816 | 1,000,145 | 1,494,018 | |||||||||||||||||||||||||||
Interbank loans (*) | 1,224 | 66,264 | 56,901 | 1,060 | 125,449 | - | - | - | 125,449 | |||||||||||||||||||||||||||
Loans and accounts receivables from customers (**) | 773,387 | 2,173,231 | 1,776,530 | 3,533,313 | 8,256,461 | 6,367,870 | 6,310,981 | 12,678,851 | 20,935,312 | |||||||||||||||||||||||||||
Available for sale investments | - | 228,997 | 240,018 | 627,052 | 1,096,067 | 275,281 | 329,645 | 604,926 | 1,700,993 | |||||||||||||||||||||||||||
Held to maturity investments | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Total assets | 2,950,498 | 2,647,295 | 2,190,406 | 4,387,042 | 12,175,241 | 7,412,088 | 7,149,366 | 14,561,454 | 26,736,695 | |||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||
Deposits and other demand liabilities | 5,620,763 | - | - | - | 5,620,763 | - | - | - | 5,620,763 | |||||||||||||||||||||||||||
Cash items in process of being cleared | 276,379 | - | - | - | 276,379 | - | - | - | 276,379 | |||||||||||||||||||||||||||
Obligations under repurchase agreements | - | 185,140 | 18,466 | 5,366 | 208,972 | - | - | - | 208,972 | |||||||||||||||||||||||||||
Time deposits and other time liabilities | 104,233 | 5,351,489 | 2,333,001 | 1,743,525 | 9,532,248 | 87,380 | 55,644 | 143,024 | 9,675,272 | |||||||||||||||||||||||||||
Financial derivative contracts | - | 126,257 | 89,128 | 223,414 | 438,799 | 510,661 | 350,649 | 861,310 | 1,300,109 | |||||||||||||||||||||||||||
Interbank borrowings | 8,199 | 104,490 | 216,472 | 1,201,070 | 1,530,231 | 152,146 | - | 152,146 | 1,682,377 | |||||||||||||||||||||||||||
Issued debt instruments | - | 470,600 | 688,261 | 590,027 | 1,748,888 | 1,548,733 | 1,901,037 | 3,449,770 | 5,198,658 | |||||||||||||||||||||||||||
Other financial liabilities | 97,027 | 568 | 1,111 | 2,992 | 101,698 | 29,685 | 58,398 | 88,083 | 189,781 | |||||||||||||||||||||||||||
Total liabilities | 6.106.601 | 6.238.544 | 3.346.439 | 3.766.394 | 19.457.978 | 2.328.605 | 2.365.728 | 4.694.333 | 24.152.311 |
(*) | Interbank loans are presented on a gross basis. The amount of allowance is MCh$54. |
(**) | Loans and accounts receivables from customers are presented on a gross basis. Provisions amounts according to type of loan are detailed as follows: Commercial loans Ch$300,400 million, Mortgage loans Ch$43,306 million, and Consumer loansCh$264,585 million. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 103 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 21
MATURITY OF ASSETS AND LIABILITIES, continued:
Demand | Up to 1 month | Between 1 and 3 months | Between 3 and 12 months | Subtotal up to 1 year | Between 1 and 5 years | More than 5 years | Subtotal More than 1 year | Total | ||||||||||||||||||||||||||||
As of December 31, 2012 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Cash and deposits in banks | 1,250,414 | - | - | - | 1,250,414 | - | - | - | 1,250,414 | |||||||||||||||||||||||||||
Cash items in process of collection | 520,267 | - | - | - | 520,267 | - | - | - | 520,267 | |||||||||||||||||||||||||||
Trading investments | - | 19,565 | 2,597 | 237,726 | 259,888 | 58,138 | 20,261 | 78,399 | 338,287 | |||||||||||||||||||||||||||
Investments under resale agreements | - | 6,993 | - | - | 6,993 | - | - | - | 6,993 | |||||||||||||||||||||||||||
Financial derivative contracts | - | 58,311 | 77,728 | 216,832 | 352,871 | 571,315 | 369,026 | 940,341 | 1,293,212 | |||||||||||||||||||||||||||
Interbank loans (*) | 60,654 | - | 29,919 | - | 90,573 | - | - | - | 90,573 | |||||||||||||||||||||||||||
Loans and accounts receivables from customers (**) | 1,123,417 | 1,156,145 | 1,736,942 | 2,995,860 | 7,012,364 | 5,925,100 | 5,938,615 | 11,863,715 | 18,876,079 | |||||||||||||||||||||||||||
Available for sale investments | - | 112,173 | 234,566 | 519,181 | 865,920 | 506,152 | 454,086 | 960,238 | 1,826,158 | |||||||||||||||||||||||||||
Held to maturity investments | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Total assets | 2,954,752 | 1,353,187 | 2,081,752 | 3,969,599 | 10,359,290 | 7,060,705 | 6,781,988 | 13,842,693 | 24,201,983 | |||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||
Deposits and other demand liabilities | 4,970,019 | - | - | - | 4,970,019 | - | - | - | 4,970,019 | |||||||||||||||||||||||||||
Cash items in process of being cleared | 284,953 | - | - | - | 284,953 | - | - | - | 284,953 | |||||||||||||||||||||||||||
Obligations under repurchase agreements | - | 275,303 | 25,534 | 3,280 | 304,117 | - | - | - | 304,117 | |||||||||||||||||||||||||||
Time deposits and other time liabilities | 65,854 | 4,981,947 | 2,278,958 | 1,600,701 | 8,927,460 | 133,760 | 50,993 | 184,753 | 9,112,213 | |||||||||||||||||||||||||||
Financial derivative contracts | - | 71,445 | 80,484 | 208,473 | 360,402 | 503,036 | 282,723 | 785,759 | 1,146,161 | |||||||||||||||||||||||||||
Interbank borrowings | 5,820 | 82,965 | 185,730 | 998,877 | 1,273,392 | 164,611 | - | 164,611 | 1,438,003 | |||||||||||||||||||||||||||
Issued debt instruments | - | 10,855 | 168,817 | 378,080 | 557,752 | 2,422,240 | 1,591,297 | 4,013,537 | 4,571,289 | |||||||||||||||||||||||||||
Other financial liabilities | 70,136 | 718 | 733 | 29,748 | 101,335 | 12,425 | 78,851 | 91,276 | 192,611 | |||||||||||||||||||||||||||
Total liabilities | 5,396,782 | 5,423,233 | 2,740,256 | 3,219,159 | 16,779,430 | 3,236,072 | 2,003,864 | 5,239,936 | 22,019,366 |
(*) | Interbank loans are presented on a gross basis. The amount of allowance is MCh$ 46. |
(**) | Loans and accounts receivables from customers are presented on a gross basis. Provisions amounts according to type of loan are detailed as follows: Commercial loans Ch$250,873 million, Mortgage loans Ch$35,990 million, and Consumer loans Ch$263,259 million. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 104 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 22
PROVISIONS
a) | As of December 31, 2013 and 2012, the composition shown is as follows: |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Provisions for personnel salaries and expenses. | 39,501 | 47,574 | ||||||
Provisions for mandatory dividends | 132,578 | 116,486 | ||||||
Provisions for contingent loan risk | ||||||||
Provision for immediately available credit lines | 18,767 | 17,850 | ||||||
Other allowances for contingent loan risk | 11,847 | 8,941 | ||||||
Provisions for contingencies | 33,069 | 30,150 | ||||||
Provisions for Country risk | 470 | 88 | ||||||
Total | 236,232 | 221,089 |
b) | Below is the activity regarding provisions during the years ended December 31, 2013 and 2012: |
Provisions for | ||||||||||||||||||||||||
Personnel salaries and expenses | Allowance for contingent loans | Contingencies | Mandatory dividends | Risk country | Total | |||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||
Balances as of January 1, 2013 | 47,574 | 26,791 | 30,150 | 116,486 | 88 | 221,089 | ||||||||||||||||||
Provisions established | 35,515 | 9,788 | 98,964 | 132,578 | 635 | 277,480 | ||||||||||||||||||
Application of provisions | (43,588 | ) | - | (3,675 | ) | (116,486 | ) | - | (163,749 | ) | ||||||||||||||
Provisions released | - | (5,965 | ) | (88,932 | ) | - | (253 | ) | (95,150 | ) | ||||||||||||||
Reclassifications | - | - | (3,438 | ) | - | - | (3,438 | ) | ||||||||||||||||
Other | - | - | - | - | - | - | ||||||||||||||||||
Balances as of December 31, 2013 | 39,501 | 30,614 | 33,069 | 132,578 | 470 | 236,232 | ||||||||||||||||||
Balances as of January 1, 2012 | 42,974 | 24,988 | 20,557 | 130,525 | 19 | 219,063 | ||||||||||||||||||
Provisions established | 39,151 | 7,926 | 26,382 | 116,486 | 464 | 190,409 | ||||||||||||||||||
Application of provisions | (34,551 | ) | (6,123 | ) | (12,469 | ) | (130,525 | ) | - | (183,668 | ) | |||||||||||||
Provisions released | - | - | (4,862 | ) | - | (395 | ) | (5,257 | ) | |||||||||||||||
Reclassifications | - | - | 542 | - | - | 542 | ||||||||||||||||||
Other | - | - | - | - | - | - | ||||||||||||||||||
Balances as of December 31, 2012 | 47,574 | 26,791 | 30,150 | 116,486 | 88 | 221,089 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 105 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 22
PROVISIONS, continued
c) | Provisions for personnel salaries and expenses. |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Provision for seniority compensation | 691 | 1,299 | ||||||
Provision for stock-based personnel benefits | 809 | 1,986 | ||||||
Provision for performance bonds | 18,218 | 23,667 | ||||||
Provision for vacations | 18,741 | 18,802 | ||||||
Provision for other personnel benefits | 1,042 | 1,820 | ||||||
Total | 39,501 | 47,574 |
d) | Seniority compensation: |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Balances as of January 1, 2013 | 1,299 | 1,510 | ||||||
Increase in provisions | 2,096 | 2,069 | ||||||
Payments made | (2,704 | ) | (2,280 | ) | ||||
Prepayments | - | - | ||||||
Provisions released | - | - | ||||||
Other | - | - | ||||||
Total | 691 | 1,299 |
e) | Movements in provision for performance bonds: |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Balances as of January 1, 2013 | 23,667 | 21,788 | ||||||
Provisions established | 23,063 | 22,737 | ||||||
Application of provisions | (27,005 | ) | (20,858 | ) | ||||
Provisions released | (1,507 | ) | - | |||||
Other | - | - | ||||||
Total | 18,218 | 23,667 |
f) | Movements in provision for personnel vacation |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Balances as of January 1, 2013 | 18,802 | 17,196 | ||||||
Provisions established | 12,311 | 13,019 | ||||||
Application of provisions | (12,372 | ) | (11,413 | ) | ||||
Provisions released | - | - | ||||||
Other | - | - | ||||||
Total | 18,741 | 18,802 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 106 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 23
OTHER LIABILITIES
The other liabilities line item is as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Accounts and notes payable | 84,729 | 89,034 | ||||||
Unearned income | 384 | 426 | ||||||
Guarantees received (threshold) | 2,631 | 179,820 | ||||||
Other payable obligations | 95,266 | 59,824 | ||||||
Withheld VAT | 1,165 | 1,254 | ||||||
Other liabilities | 14,602 | 10,916 | ||||||
Total | 198,777 | 341,274 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 107 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 24
CONTINGENCIES AND COMMITMENTS
a) | Lawsuits and legal procedures |
As of the issuance date of these financial statements, the Bank and its affiliates were subject to certain legal actions in the normal course of their business. As of December 31, 2013, the Banks and its subsidiaries have provisions for this item of Ch$ 1,224 million (Ch$ 428 million as of December 31, 2012) which is included in “Contingency Provisions” in the Consolidated Statements of Financial Position. In addition, there are other lawsuits for UF26,512, which primarily relates to the litigation between Santander Corredores de Seguros Limitada and its clients for leasing assets.
b) | Contingent loans |
The following table shows the Bank’s contractual obligations to issue loans:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Letters of credit issued | 218,032 | 199,420 | ||||||
Foreign letters of credit confirmed | 127,600 | 113,878 | ||||||
Guarantees | 1,212,799 | 1,046,114 | ||||||
Personal guarantees | 181,416 | 139,059 | ||||||
Subtotals | 1,739,847 | 1,498,471 | ||||||
Available on demand credit lines | 5,141,831 | 4,933,335 | ||||||
Other irrevocable credit commitments | 47,376 | 63,828 | ||||||
Total | 6,929,054 | 6,495,634 |
c) | Held securities |
The Bank holds securities in the normal course of its business as follows:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Third party operations | ||||||||
Collections | 217,948 | 287,128 | ||||||
Assets from third parties managed by the Bank and its affiliates (1) | 1,015,817 | 821,080 | ||||||
Subtotals | 1,233,765 | 1,108,208 | ||||||
Custody of securities | ||||||||
Securities held in custody | 304,535 | 227,554 | ||||||
Securities held in custody deposited in other entity | 532,072 | 573,129 | ||||||
Issued securities held in custody | 15,351,545 | 14,931,587 | ||||||
Subtotals | 16,188,152 | 15,732,270 | ||||||
Total | 17,421,917 | 16,840,478 |
(1) | This includes the portfolios run by private-sector banking for $1,015,781 and $821,045 million as of December 31, 2013 and 2012, respectively. |
d) | Guarantees |
Banco Santander Chile has a comprehensive officer fidelity insurance policy, No. 2823611, with the Chilena Consolidada de Seguros insurance company, for USD $5,000,000, which jointly covers both the Bank and its affiliates for the period from July 1, 2013 to June 30, 2014.
Consolidated Financial Statements December 2013 / Banco Santander Chile 108 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 24
CONTINGENCIES AND COMMITMENTS, continued:
e) | Contingent loans and liabilities |
To satisfy its clients’ needs, the Bank took on several contingent loans and liabilities, yet these could not be recognized in the Consolidated Statements of Financial Position; these contain loan risks and they are, therefore, part of the Bank’s global risk.
Santander Agente de Valores Limitada
i) | To ensure correct and full performance of all its obligations as an Agent, in conformity with Articles No.30 and onward of Law No.18,045 on the Securities Market, the Company provided a guarantee in the amount of UF 4,000 through Insurance Policy No.213117286, underwritten by the Compañía de Seguros de Crédito Continental S.A., which matures on December 19, 2014. |
Santander S.A. Corredores de Bolsa
i) | The Company has given guarantees to the Bolsa de Comercio de Santiago for a current value of Ch$ 17,660 million to cover simultaneous operations. |
ii) | In addition, the company has issued a guarantee to CCLV Contraparte Central S.A. (formerly known as Cámara de Compensación) in cash, for a total Ch$ 3,000 million and an additional guarantee to the Santiago Stock Exchange for MCh$ 953 as of December 31, 2013. |
iii) | The company possesses a performance bond No.B008643 from Banco Santander Chile to comply with the General rule (Norma de Carácter General) No.120 issued by SVS for USD 500,000, which covers participants who acquire Morgan Stanley Sicav foreign mutual funds valid until September 12, 2014. |
Santander Corredora de Seguros Limitada
i) | In accordance with Circular No.1,160 of the Chilean Securities and Insurance Supervisor, the Company has an insurance policy to fully implement and comply with its financial liabilities in connection with its obligations as an intermediary in insurance contracts. The company purchased a guarantee policy for insurance brokers (No.10023615), and a professional liability policy (No.10023624) for its insurance brokers, from the Consorcio Nacional de Seguros S.A. Insurance Company, which have UF 500 and UF 60,000 coverage, respectively, and are valid from April 15, 2013 to April 14, 2014. |
ii) | The Company keeps a performance bond with Banco Santander Chile to guarantee fulfillment of the terms of the public tendering for payment protection insurance and payment protection insurance plus ITP 2/3. The amount equals UF5,000 and is valid until July 31, 2015. For the same reason, the Company holds a performance bond for fulfillment of the public tendering for fire insurance for UF5,000 with said banking institution. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 109 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 25
EQUITY
a) | Capital |
As of December 31, 2013 and 2012 the Bank had 188,446,126,794 shares outstanding, all of which are subscribed for and paid in full. All shares have the same rights, and have no preferences or restrictions.
The activity with respect to shares during 2013 and 2012 was as follows:
SHARES As of December 31, | ||||||||
2013 | 2012 | |||||||
Issued as of January 1 | 188,446,126,794 | 188,446,126,794 | ||||||
Issue of paid shares | - | - | ||||||
Issue of outstanding shares | - | - | ||||||
Stock options exercised | - | - | ||||||
Issued as period end | 188,446,126,794 | 188,446,126,794 |
As of December 31, 2013 and 2012 the Bank does not have any of its own shares in treasury, nor do any of the consolidated companies.
As of December 31, 2013 the shareholder composition was as follows:
Corporate Name or Shareholder's Name | Shares | ADRs (*) | Total | % of equity holding | ||||||||||||
Teatinos Siglo XXI Inversiones Limitada | 59,770,481,573 | - | 59,770,481,573 | 31.72 | ||||||||||||
Santander Chile Holding S.A. | 66,822,519,695 | - | 66,822,519,695 | 35.46 | ||||||||||||
J.P. Morgan Chase Bank | - | 30,087,328,471 | 30,087,328,471 | 15.97 | ||||||||||||
Banks and stock brokers on behalf of third parties | 12,264,223,820 | - | 12,264,223,820 | 6.51 | ||||||||||||
AFP on behalf of third parties | 4,412,572,678 | - | 4,412,572,678 | 2.34 | ||||||||||||
Other minority holders | 3,660,897,625 | 11,428,102,932 | 15,089,000,557 | 8.00 | ||||||||||||
Total | 188,446,126,794 | 100.00 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 110 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 25
EQUITY, continued
As of December 31, 2012 the shareholder composition was as follows:
Corporate Name or Shareholder's Name | Shares | ADRs (*) | Total | % of equity holding | ||||||||||||
Teatinos Siglo XXI Inversiones Limitada | 59,770,481,573 | - | 59,770,481,573 | 31.72 | ||||||||||||
Santander Chile Holding S.A. | 66,822,519,695 | - | 66,822,519,695 | 35.46 | ||||||||||||
J.P. Morgan Chase Bank | - | 35,111,060,871 | 35,111,060,871 | 18.63 | ||||||||||||
BNP Paribas Arbitrage | 173,328,889 | - | 173,328,889 | 0.09 | ||||||||||||
MBI Arbitrage Fondo de Inversion | 495,766,248 | - | 495,766,248 | 0.26 | ||||||||||||
Banks and stock brokers on behalf of third parties | 12,473,837,817 | - | 12,473,837,817 | 6.62 | ||||||||||||
AFP on behalf of third parties | 6,346,809,483 | - | 6,346,809,483 | 3.37 | ||||||||||||
Other minority holders | 3,839,358,209 | 3,412,964,009 | 7,252,322,218 | 3.85 | ||||||||||||
Total | 188,446,126,794 | 100.00 |
(*) | American Depository Receipts (ADR) are certificates issued by a U.S. commercial bank to be traded on the U.S. securities markets. |
b) | Reserves |
In April 2013, due to the Shareholders’ Meeting, the Bank agreed to capitalized 40% of the profits from 2012 as reserves; which equals Ch$ 155,502 million (Ch$ 174,033 million in 2012).
c) | Dividends |
The distribution of dividends is detailed in the chart of the Consolidated Statements of Changes in Equity.
d) | As of December 31, diluted earnings and basic earnings were as follows: |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
a) Basic earnings per share | ||||||||
Total attributable to Bank shareholders | 441,926 | 388,282 | ||||||
Weighted average number of outstanding shares | 188,446,126,794 | 188,446,126,794 | ||||||
Basic earnings per share (in Ch$) | 2.345 | 2.060 | ||||||
b) Diluted earnings per share | ||||||||
Total attributable to Bank shareholders | 441,926 | 388,282 | ||||||
Weighted average number of outstanding shares | 188,446,126,794 | 188,446,126,794 | ||||||
Assumed conversion of convertible debt | - | - | ||||||
Adjusted number of shares | 188,446,126,794 | 188,446,126,794 | ||||||
Diluted earnings per share (in Ch$) | 2.345 | 2.060 |
As of December 31, 2013 and 2012 the Bank does not own instruments with dilutive effects.
Consolidated Financial Statements December 2013 / Banco Santander Chile 111 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 25
EQUITY, continued
d) | Other comprehensive income of available for sale investments and cash flow hedges: |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Available for sale investments | ||||||||
As of January 1 | (10,017 | ) | 3,043 | |||||
Gain (losses) on the re-measurement of available for sale investments, before tax | 2,629 | (15,131 | ) | |||||
Reclassification from other comprehensive income to income | 8.,228 | 2.,071 | ||||||
Subtotals | 10.,857 | (13,060 | ) | |||||
Total | 840 | (10.,017 | ) | |||||
Cash flow hedges | ||||||||
As of January 1 | 5.,315 | 394 | ||||||
Gains (losses) on the re-measurement of cash flow hedges, before tax | (15,089 | ) | 4.,326 | |||||
Reclassification adjustments on cash flow hedges, before tax | 1.,517 | 595 | ||||||
Amounts removed from equity and included in carrying amount of non-financial asset (liability) which acquisition or incurrence was hedged as a highly probable transition | - | - | ||||||
Subtotals | (13,572 | ) | 4.,921 | |||||
Total | (8,257 | ) | 5.,315 | |||||
Other comprehensive income, before taxes | (7,417 | ) | (4,702 | ) | ||||
Income tax related to other comprehensive income components | ||||||||
Income tax relating to available for sale investments | (168 | ) | 2.,003 | |||||
Income tax relating to cash flow hedges | 1.,651 | (1,063 | ) | |||||
Total | 1.,483 | (940 | ) | |||||
Other comprehensive income, net of tax | (5,934 | ) | (3,762 | ) | ||||
Attributable to: | ||||||||
Bank shareholders (Equity holders of the Bank) | (5,964 | ) | (3,781 | ) | ||||
Non-controlling interest | 30 | 19 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 112 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 26
CAPITAL REQUIREMENTS (BASEL)
Pursuant to the Chilean General Banking Law, the Bank must maintain a minimum ratio of effective equity to risk-weighted consolidated assets of 8% net of required allowances, and a minimum ratio of basic equity to consolidated total assets of 3%, net of required allowances. However, as a result of the Bank’s merger in 2002, the SBIF has determined that the Bank’s combined effective equity cannot be lower than 11% of its risk-weighted assets. Effective equity is defined for these purposes as basic equity (capital and reserves) plus subordinated bonds, up to a maximum of 50% of basic equity.
Assets are allocated to different risk categories, each of which is assigned a weighted percentage according to the amount of capital required to be held for each type of asset. For example, cash, deposits in banks and financial instruments issued by the Central Bank of Chile have a 0% weighted risk, meaning that it is not necessary to hold equity to back these assets according to current regulations. Property, plant and equipment have a 100% weighted risk, meaning that a minimum capital equivalent to 11% of these assets must be held. All derivatives traded off the exchanges are also assigned a weighted risk, using a conversion factor applied to their notional values, to determine the amount of their exposure to credit risk. Off-balance-sheet contingent credits are also included for weighting purposes, as “Credit equivalents.”
According to Chapter 12-1 of the SBIF’s Recopilación Actualizada de Normas [Updated Compilation of Rules] effective January 2010, the SBIF changed existing regulation with the enforcement of Chapter B-3 from the Compendium of Accounting Standards, with changed the risk exposure of contingent loans from 100% exposition to the following:
Type of contingent loan | Exposure | |||
a) Pledges and other commercial commitments | 100 | % | ||
b) Foreign letters of credit confirmed | 20 | % | ||
c) Letters of credit issued | 20 | % | ||
d) Guarantees | 50 | % | ||
e) Interbank guarantee letters | 100 | % | ||
f) Available lines of credit | 50 | % | ||
h) Other loan commitments | ||||
- Higher Education Loans Law No. 20,027 | 15 | % | ||
- Other | 100 | % | ||
h) Other contingent loans | 100 | % |
Consolidated Financial Statements December 2013 / Banco Santander Chile 113 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 27
CAPITAL REQUIREMENTS (BASEL), continued:
The levels of basic capital and effective net equity as of December 31, 2013 y 2012 are as follows:
Consolidated assets | Risk-weighted assets | |||||||||||||||
As of December 31, | As of December 31, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Balance-sheet assets (net of allowances) | ||||||||||||||||
Cash and deposits in banks | 1,571,810 | 1,250,414 | - | - | ||||||||||||
Cash items in process of collection | 604,077 | 520,267 | 66,672 | 75,429 | ||||||||||||
Trading investments | 287,567 | 338,287 | 40,924 | 21,713 | ||||||||||||
Investments under repurchase agreements | 17,469 | 6,993 | 3,494 | 6,993 | ||||||||||||
Financial derivative contracts (*) | 1,008,026 | 937,291 | 862,810 | 830,133 | ||||||||||||
Interbank loans | 125,395 | 90,527 | 25,079 | 18,105 | ||||||||||||
Loans and accounts receivable from customers | 20,327,021 | 18,325,957 | 18,071,792 | 16,205,004 | ||||||||||||
Available for sale investments | 1,700,993 | 1,826,158 | 238,835 | 200,285 | ||||||||||||
Investments in other companies | 9,681 | 7,614 | 9,681 | 7,614 | ||||||||||||
Intangible assets | 66,703 | 87,347 | 66,703 | 87,347 | ||||||||||||
Property, plant, and equipment | 180,215 | 162,214 | 180,215 | 162,214 | ||||||||||||
Current taxes | 1,643 | 10,227 | 164 | 1,023 | ||||||||||||
Deferred taxes | 230,215 | 186,407 | 23,022 | 18,641 | ||||||||||||
Other assets | 400,025 | 655,217 | 346,533 | 402,547 | ||||||||||||
Off-balance-sheet assets | ||||||||||||||||
Contingent loans | 3,436,773 | 3,201,028 | 2,013,057 | 1,903,368 | ||||||||||||
Total | 29,967,613 | 27,605,948 | 21,948,981 | 19,940,416 |
“Financial derivative contracts” are presented at their “Credit Equivalent Risk” value as established in Chapter 12-1 of the Updated Compilation of Ruled issued by the SBIF.
The levels of basic capital and effective net equity at the close of each period are as follows:
Ratio | ||||||||||||||||
As of December 31, | As of December 31, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
MCh$ | MCh$ | % | % | |||||||||||||
Basic capital | 2,325,678 | 2,134,778 | 7.76 | 7.73 | ||||||||||||
Effective net equity | 3,033,741 | 2,734,434 | 13.82 | 13.71 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 114 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 27
NON-CONTROLLING INTEREST
a) | The non-controlling interest included in the equity and the income from the subsidiaries is summarized as follows: |
Other comprehensive income | ||||||||||||||||||||||||||||
Non- controlling | Equity | Income | Available for sale investments | Deferred tax | Total other comprehensive income | Comprehensive income | ||||||||||||||||||||||
As of December 31, 2013 | % | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||
Subsidiaries: | ||||||||||||||||||||||||||||
Santander Agente de Valores Limitada | 0.97 | 471 | 87 | 3 | (1 | ) | 2 | 89 | ||||||||||||||||||||
Santander S.A. Sociedad Securitizadora | 0.36 | 2 | - | - | - | - | - | |||||||||||||||||||||
Santander S.A. Corredores de Bolsa (*) | 49.00 | 19,698 | 1,656 | 11 | (2 | ) | 9 | 1,665 | ||||||||||||||||||||
Santander Asset Management S.A. (**) Administradora General de Fondos | 0.02 | - | 9 | - | - | - | 9 | |||||||||||||||||||||
Santander Corredora de Seguros Limitada | 0.25 | 149 | 1 | - | - | - | 1 | |||||||||||||||||||||
Subtotals | 20,320 | 1,753 | 14 | (3 | ) | 11 | 1,764 | |||||||||||||||||||||
Entities controlled through other considerations: | ||||||||||||||||||||||||||||
Bansa Santander S.A. | 100.00 | 3,435 | 1,307 | - | - | - | 1,307 | |||||||||||||||||||||
Santander Gestión de Recaudación y Cobranzas Limitada | 100.00 | 275 | (2,230 | ) | - | - | - | (2,230 | ) | |||||||||||||||||||
Multinegocios S.A. | 100.00 | 477 | 234 | - | - | - | 234 | |||||||||||||||||||||
Servicios Administrativos y Financieros Limitada. | 100.00 | 1,686 | 276 | - | - | - | 276 | |||||||||||||||||||||
Servicios de Cobranzas Fiscalex Limitada | 100.00 | 632 | 416 | - | - | - | 416 | |||||||||||||||||||||
Multiservicios de Negocios Limitada. | 100.00 | 1,679 | 379 | - | - | - | 379 | |||||||||||||||||||||
Subtotals | 8,184 | 382 | - | - | - | 382 | ||||||||||||||||||||||
Total | 28,504 | 2,135 | 14 | (3 | ) | 11 | 2,146 |
(*) | In June 2013, Santander S.A Corredores de Bolsa, distributed total accumulated income from previous years, decreasing equity. The amount of dividends distributed to non-controlling interest was Ch$7,590 million. |
(**) | According to Note 3 Significant events, letter c), this subsidiary was sold in December 2013. This note presents the effect of the consolidation of the subsidiary until November 2013. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 115 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 27
NON-CONTROLLING INTERESTS continued
Other comprehensive income | ||||||||||||||||||||||||||||
Non- controlling | Equity | Income | Available for sale investments | Deferred tax | Total other comprehensive income | Comprehensive income | ||||||||||||||||||||||
As of December 31, 2012 | % | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||
Subsidiaries: | ||||||||||||||||||||||||||||
Santander Agente de Valores Limitada | 0.97 | 656 | 84 | 1 | - | 1 | 85 | |||||||||||||||||||||
Santander S.A. Sociedad Securitizadora | 0.36 | 3 | - | - | - | - | - | |||||||||||||||||||||
Santander S.A. Corredores de Bolsa | 49.00 | 25,646 | 2,423 | 57 | (12 | ) | 45 | 2,468 | ||||||||||||||||||||
Santander Asset Management S.A. Administradora General de Fondos | 0.02 | 10 | 4 | - | - | - | 4 | |||||||||||||||||||||
Santander Corredora de Seguros Limitada | 0.25 | 148 | 4 | - | - | - | 4 | |||||||||||||||||||||
Subtotals | 26,463 | 2,515 | 58 | (12 | ) | 46 | 2,561 | |||||||||||||||||||||
Entities controlled through other considerations: | ||||||||||||||||||||||||||||
Bansa Santander S.A. | 100.00 | 2,127 | 1,098 | - | - | - | 1,098 | |||||||||||||||||||||
Santander Gestión de Recaudación y Cobranzas Limitada | 100.00 | 2,505 | 171 | - | - | - | 171 | |||||||||||||||||||||
Multinegocios S.A. | 100.00 | 244 | 93 | - | - | - | 93 | |||||||||||||||||||||
Servicios Administrativos y Financieros Limitada. | 100.00 | 1,411 | 328 | - | - | - | 328 | |||||||||||||||||||||
Servicios de Cobranzas Fiscalex Limitada | 100.00 | 216 | 64 | - | - | - | 64 | |||||||||||||||||||||
Multiservicios de Negocios Limitada. | 100.00 | 1,299 | 356 | - | - | - | 356 | |||||||||||||||||||||
Subtotals | 7,802 | 2,110 | - | - | - | 2,110 | ||||||||||||||||||||||
Total | 34,265 | 4,625 | 58 | (12 | ) | 46 | 4,671 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 116 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 27
NON-CONTROLLING INTERESTS, continued
b) | The overview of the financial information of the subsidiaries included in the consolidation of the Bank that possess non-controlling interests is as follows, which does not include consolidation or homogenization adjustments: |
As of December 31 | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
Net | Net | |||||||||||||||||||||||||||||||
Assets | Liabilities | Capital | income | Assets | Liabilities | Capital | income | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Santander Corredora de Seguros Limitada | 67,956 | 8,484 | 59,012 | 460 | 69,863 | 10,520 | 57,795 | 1,548 | ||||||||||||||||||||||||
Santander S.A. Corredores de Bolsa | 110,917 | 70,799 | 36,735 | 3,383 | 138,147 | 85,921 | 47,193 | 5,033 | ||||||||||||||||||||||||
Santander Asset Management S.A. Administradora General de Fondos (*) | - | - | - | - | 58,186 | 8,981 | 27,262 | 21,943 | ||||||||||||||||||||||||
Santander Agente de Valores Limitada | 194,812 | 146,255 | 39,581 | 8,976 | 215,126 | 147,545 | 58,900 | 8,681 | ||||||||||||||||||||||||
Santander S.A. Sociedad Securitizadora | 725 | 74 | 764 | (113 | ) | 849 | 87 | 836 | (74 | ) | ||||||||||||||||||||||
Santander Gestión de Recaudación y Cobranzas Ltda. | 4,978 | 4,703 | 2,505 | (2,230 | ) | 6,313 | 3,808 | 2,334 | 171 | |||||||||||||||||||||||
Multinegocios S.A. (management of sales force) | 1,441 | 963 | 244 | 234 | 2,020 | 1,777 | 150 | 93 | ||||||||||||||||||||||||
Servicios Administrativos y Financieros Limitada (management of sales force). | 2,412 | 725 | 1,411 | 276 | 2,748 | 1,337 | 1,083 | 328 | ||||||||||||||||||||||||
Servicio de Cobranza Fixcalex Ltda. | 4,008 | 3,376 | 216 | 416 | 3,500 | 3,284 | 152 | 64 | ||||||||||||||||||||||||
Multiservicios de Negocios Limitada (call center). | 3,049 | 1,371 | 1,299 | 379 | 3,483 | 2,183 | 944 | 356 | ||||||||||||||||||||||||
Bansa Santander S.A. | 28,490 | 25,055 | 2,128 | 1,307 | 28,938 | 26,810 | 1,029 | 1,099 | ||||||||||||||||||||||||
Total | 418,788 | 261,805 | 143,895 | 13,088 | 529,173 | 292,253 | 197,678 | 39,242 |
(*) Santander Asset Management S.A. Administradora General de Fondos was sold in December 2013. See Note 3 - Significant events
Consolidated Financial Statements December 2013 / Banco Santander Chile 117 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 28
INTEREST AND INFLATION-INDEXING ADJUSTMENTS
This item refers to interest earned in the period from the financial assets whose return, whether implicitly or explicitly, is determined by applying the effective interest rate method, regardless of the value at fair value, as well as the reclassifications of products as a consequence of hedge accounting.
a) | As of December 31, 2013 and 2012 the composition of income from interest and inflation-indexing adjustments, not including income from hedge accounting, is as follows: |
As of December 31, | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
Interest | Inflation adjustments | Prepaid fees | Total | Interest | Inflation adjustments | Prepaid fees | Total | |||||||||||||||||||||||||
Items | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||
Repurchase agreements | 2,254 | - | - | 2,254 | 4,796 | (10 | ) | - | 4,786 | |||||||||||||||||||||||
Interbank loans | 195 | - | - | 195 | 790 | - | - | 790 | ||||||||||||||||||||||||
Commercial loans | 728,597 | 72,570 | 4,980 | 806,147 | 698,925 | 78,762 | 4,924 | 782,611 | ||||||||||||||||||||||||
Mortgage loans | 232,860 | 108,702 | 13,234 | 354,796 | 227,994 | 123,297 | 11,401 | 362,692 | ||||||||||||||||||||||||
Consumer loans | 611,936 | 2,184 | 3,030 | 617,150 | 613,543 | 2,804 | 2,797 | 619,144 | ||||||||||||||||||||||||
Investment instruments | 77,240 | 7,815 | - | 85,055 | 95,732 | 2,011 | - | 97,743 | ||||||||||||||||||||||||
Other interest income | 5,282 | (1,063 | ) | - | 4,219 | 19,880 | 3,037 | - | 22,917 | |||||||||||||||||||||||
Interest income | 1,658,364 | 190,208 | 21,244 | 1,869,816 | 1,661,660 | 209,901 | 19,122 | 1,890,683 |
b) | As indicated in section i), Note 1, suspended interest correspond to operations with late payments up to 90 days or more, which are recorded in off-balance-sheet accounts until they are effectively received. |
As of December 31, 2013 and 2012, the detail of income from suspended interest is as follows:
As of December 31, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
Interest | Inflation adjustments | Total | Interest | Inflation adjustments | Total | |||||||||||||||||||
Off balance sheet | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||
Commercial loans | 17,219 | 4,426 | 21,645 | 16,907 | 3,688 | 20,595 | ||||||||||||||||||
Mortgage loans | 3,935 | 4,549 | 8,484 | 3,962 | 4,882 | 8,844 | ||||||||||||||||||
Consumer loans | 6,004 | 749 | 6,753 | 7,825 | 917 | 8,742 | ||||||||||||||||||
Total | 27,158 | 9,724 | 36,882 | 28,694 | 9,487 | 38,181 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 118 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 28
INTEREST AND INFLATION-INDEXING ADJUSTMENTS, continued:
c) | As of December 31, 2013 and 2012, the composition of expense from interest and inflation-indexing adjustments, excluding expense from hedge accounting is as follows: |
As of December 31, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
Interest | Inflation adjustments | Total | Interest | Inflation adjustments | Total | |||||||||||||||||||
Items | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||
Demand deposits | (5,225 | ) | (588 | ) | (5,813 | ) | (3,601 | ) | (535 | ) | (4,136 | ) | ||||||||||||
Repurchase agreements | (12,092 | ) | - | (12,092 | ) | (10,707 | ) | 9 | (10,698 | ) | ||||||||||||||
Time deposits and liabilities | (426,812 | ) | (22,787 | ) | (449,599 | ) | (456,348 | ) | (45,743 | ) | (502,091 | ) | ||||||||||||
Interbank loans | (21,233 | ) | (5 | ) | (21,238 | ) | (26,182 | ) | (14 | ) | (26,196 | ) | ||||||||||||
Issued debt instruments | (171,659 | ) | (53,952 | ) | (225,611 | ) | (172,138 | ) | (64,006 | ) | (236,144 | ) | ||||||||||||
Other financial liabilities | (4,712 | ) | (661 | ) | (5,373 | ) | (4,884 | ) | (881 | ) | (5,765 | ) | ||||||||||||
Other interest expense | (2,340 | ) | (3,749 | ) | (6,089 | ) | (2,366 | ) | (3,435 | ) | (5,801 | ) | ||||||||||||
Interest expense total | (644,073 | ) | (81,742 | ) | (725,815 | ) | (676,226 | ) | (114,605 | ) | (790,831 | ) |
d) | As of December 31, 2013 and 2012, the overview of interests and inflation-indexing adjustments is as follows: |
As of December 31, | ||||||||
2013 | 2012 | |||||||
Items | MCh$ | MCh$ | ||||||
Interest income | 1,869,816 | 1,890,683 | ||||||
Interest expense | (725,815 | ) | (790,831 | ) | ||||
Interest income | 1,144,001 | 1,099,852 | ||||||
Income from hedge accounting (net) | (67,239 | ) | (57,118 | ) | ||||
Total net interest income | 1,076,762 | 1,042,734 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 119 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 29
FEES AND COMMISSIONS
This item includes the amount of fees earned and paid in the period, except for those which are an integral part of the financial instrument’s effective interest rate:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Fee and commission income | ||||||||
Fees and commissions for lines of credits and overdrafts | 7,025 | 9,296 | ||||||
Fees and commissions for guarantees and letters of credit | 30,131 | 28,523 | ||||||
Fees and commissions for card services | 127,101 | 127,437 | ||||||
Fees and commissions for management of accounts | 28,044 | 28,755 | ||||||
Fees and commissions for collections and payments | 45,190 | 56,481 | ||||||
Fees and commissions for intermediation and management of securities | 10,482 | 11,272 | ||||||
Fees and commissions for investments in mutual funds or others | 31,154 | 33,414 | ||||||
Insurance brokerage fees | 32,253 | 34,670 | ||||||
Office banking | 15,165 | 13,507 | ||||||
Other fees earned | 19,575 | 17,112 | ||||||
Total | 346,120 | 360,467 |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Fee and commission expense | ||||||||
Compensation for card operation | (87,776 | ) | (78,892 | ) | ||||
Fees and commissions for securities transactions | (4,287 | ) | (1,687 | ) | ||||
Office banking and other fees | (24,221 | ) | (22,201 | ) | ||||
Total | (116,284 | ) | (102,780 | ) | ||||
Net fees and commissions income | 229,836 | 257,687 |
The fees earned in transactions with letters of credit are presented on the Consolidated Statements of Income in the line item “Interest income”.
Consolidated Financial Statements December 2013 / Banco Santander Chile 120 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 30
PROFIT AND LOSS FROM FINANCIAL OPERATIONS
This item includes adjustments for changes in financial instruments, except for interest attributable to the application of the effective interest rate method for adjustments to asset values, as well as the income earned in purchases and sales of financial instruments.
As of December 31, 2013 and 2012, the detail of the income from financial operations is as follows:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Net income from financial operations | ||||||||
Trading derivatives | (76,525 | ) | (104,344 | ) | ||||
Trading investments | 29,985 | 36,338 | ||||||
Sale of loans and accounts receivables from customers | ||||||||
Current portfolio (Note 11) | 1,677 | 2,745 | ||||||
Charged-off portfolio (Note 11) | 1,500 | 2,090 | ||||||
Available for sale investments | 10,258 | (1,764 | ) | |||||
Repurchase of issued bonds | 4,502 | 760 | ||||||
Other income from financial operations | (10 | ) | 96 | |||||
Total | (28,613 | ) | (64,079 | ) |
NOTE 31
NET FOREIGN EXCHANGE GAIN (LOSS)
This item includes the income earned from foreign currency trading, differences arising from converting monetary items in a foreign currency to the functional currency, and those generated by non-monetary assets in a foreign currency at the time of their sale.
As of December 31, 2013 and 2012, the detail of foreign exchange income is as follows:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Currency exchange differences | ||||||||
Net profit (loss) from currency exchange differences | (242,841 | ) | 270,990 | |||||
Hedging derivatives: | 379,910 | (120,610 | ) | |||||
Income from inflation-indexed assets in foreign currency | 8,600 | (5,574 | ) | |||||
Income from inflation-indexed assets in foreign currency | (943 | ) | 1,572 | |||||
Total | 144,726 | 146,378 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 121 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 32
PROVISIONS FOR LOAN LOSSES
a) | The 2013 and 2012 activity within income for allowances and impairment is as follows: |
Loans and accounts receivable from customers | ||||||||||||||||||||||||||||||||
Interbank
loans | Commercial
loans | Mortgage loans | Consumer loans | Contingent
loans | ||||||||||||||||||||||||||||
Individual | Individual | Group | Group | Group | Individual | Group | Total | |||||||||||||||||||||||||
As of December 31, 2013 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||
Charged-off individually significant loans | - | (8,071 | ) | - | - | - | - | - | (8,071 | ) | ||||||||||||||||||||||
Provisions established | (127 | ) | (85,628 | ) | (98,715 | ) | (42,487 | ) | (258,446 | ) | (6,679 | ) | (3,109 | ) | (495,191 | ) | ||||||||||||||||
Total provisions and charge-offs | (127 | ) | (93,699 | ) | (98,715 | ) | (42,487 | ) | (258,446 | ) | (6,679 | ) | (3,109 | ) | (503,262 | ) | ||||||||||||||||
Provisions released | 119 | 22,014 | 11,151 | 9,216 | 35,482 | 2,128 | 3,837 | 83,947 | ||||||||||||||||||||||||
Recovery of loans previously charged off | - | 4,572 | 9,973 | 4,735 | 36,004 | - | - | 55,284 | ||||||||||||||||||||||||
Net charge to income | (8 | ) | (67,113 | ) | (77,591 | ) | (28,536 | ) | (186,960 | ) | (4,551 | ) | 728 | (364,031 | ) |
Loans and accounts receivable from customers | ||||||||||||||||||||||||||||||||
Interbank loans | Commercial
loans | Mortgage loans | Consumer loans | Contingent loans | ||||||||||||||||||||||||||||
Individual | Individual | Group | Group | Group | Individual | Group | Total | |||||||||||||||||||||||||
As of December 31, 2012 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||||||||||||||
Charged-off individually significant loans | - | (5,470 | ) | - | - | - | - | - | (5,470 | ) | ||||||||||||||||||||||
Provisions established | (299 | ) | (48,745 | ) | (83,181 | ) | (25,314 | ) | (318,565 | ) | (3,292 | ) | (4,634 | ) | (484,030 | ) | ||||||||||||||||
Total provisions and charge-offs | (299 | ) | (54,215 | ) | (83,181 | ) | (25,314 | ) | (318,565 | ) | (3,292 | ) | (4,634 | ) | (489,500 | ) | ||||||||||||||||
Provisions released | 400 | 20,716 | 16,624 | 7,449 | 38,471 | 2,017 | 4,106 | 89,783 | ||||||||||||||||||||||||
Recovery of loans previously charged off | - | 1,991 | 6,704 | 2,305 | 22,015 | - | - | 33,015 | ||||||||||||||||||||||||
Net charge to income | 101 | (31,508 | ) | (59,853 | ) | (15,560 | ) | (258,079 | ) | (1,275 | ) | (250 | ) | (366,702 | ) |
b) | The detail of Charge-off of individually significant loans, is as follows: |
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Charge-off of loans | 26,390 | 26,481 | ||||||
Provision applied | (18,319 | ) | (21,011 | ) | ||||
Net charge offs of individually significant loans | 8,071 | 5,470 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 122 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 33
PERSONNEL SALARIES AND EXPENSES
a) | Composition of personnel salaries and expenses |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Personnel compensation | 197,695 | 188,563 | ||||||
Bonuses or gratifications | 67,805 | 66,666 | ||||||
Stock-based benefits | 684 | 1,747 | ||||||
Seniority compensation: | 8,828 | 8,966 | ||||||
Pension plans (*) | (311 | ) | 58 | |||||
Training expenses | 2,366 | 2,423 | ||||||
Day care and kindergarten | 2,542 | 2,487 | ||||||
Health funds | 3,493 | 3,571 | ||||||
Welfare fund | 76 | 397 | ||||||
Other personnel expenses | 25,166 | 25,026 | ||||||
Total | 308,344 | 299,904 |
(*) As of January 1, 2013, the modifications to the IAS 19 - Employee Benefits, were launched with retroactive effects. See Note 02 - Accounting Changes.
b) | Share-based compensation: |
Banco Santander Chile and Subsidiaries, as part of Santander Group in Spain (Banco Santander S.A.), adheres to the variable offsetting plans designed by the central office regarding the salaries of their employees, linked to the achievement of objectives, which is evaluated and rewarded on a quarterly and/or yearly basis. In addition, there are multi-year variable compensation plans aimed at keeping and motivating sellers. Their payment depends on the extent to which objectives are achieved. Goals are based on individual and group performance, and measured at least once a year.
Long-term incentive policy
The Board of Directors of the equity holders of Banco Santander S.A. (with its Central Office located in Spain, hereinafter the "Parent Company"), approved a long-term incentive plan which was ratified locally. This plan focuses on the Santander Group’s executive directors and certain executive employees in Spain and other Santander Group companies.
Stock performance plan
The plan includes a multi-year incentive plan compensated in shares by the Parent Company. The beneficiaries are Executive Directors, other Senior management members and other employees determined by the Directors Committee from the Parent Company or its deputy, the Executive Committee. These shares will be distributed if the following criteria are met:
i. | The share price reaches the top 10 as compared to 30 other global banks. |
ii. | Earnings per share reach the top 10 as compared to 30 other global banks. |
iii. | The Bank has achieved its commercial and financial budget objectives in the last two years. |
iv. | The executive has achieved his/her personal targets during the last two years and has continued to work at the Bank until the end of the program. |
This plan involves the implementation of successive cycles of shares delivered to the beneficiaries. Each cycle lasts three years so, each year a new cycle will begin and, since 2009 onwards, another cycle will end. The aim is to establish a proper sequence between the end of the incentive program linked to the previous plan (I06) and the following cycles of this plan. Therefore, the first two cycles started in July, 2007. The first one lasted two years (PI09) and the second one adhered to the three year standard duration (PI10)
Consolidated Financial Statements December 2013 / Banco Santander Chile 123 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 33
PERSONNEL SALARIES AND EXPENSES, continued
The commencement of the third-cycle (PI11) and fourth-cycle (PI12) incentive plans were approved by the Parent Company in June 2008 and 2010, respectively. These new plans consist of three-year cycles and are linked to the fulfillment of the predetermined objectives. In June, 2010, the fifth cycle (PI13) was approved. In June, 2011 the sixth and last plan of shares linked to the fulfillment of objectives (PI14) was approved. The first cycle (PI09) was cancelled on July 31, 2009, the second one (PI10) was cancelled on July 31, 2010, the third one (PI11) was cancelled on July 31, 2011, and the forth one (P12) was cancelled on July 31, 2012.
For each cycle, the maximum number of shares that may correspond to each beneficiary is established based on who had been active in the Group over the period covered by the plan. The objective -which fulfillment will determine the number of shares to be delivered- is defined by comparing the evolution of the Group with a group of financial entities of reference. It will be linked solely to the Total Shareholder Return (TSR). Regarding the plans approved prior to June 2008, the objectives that had determined the number of shares to deliver were defined by comparing the evolution of the Group with a group of financial entities of reference, linked to two parameters: the Total Shareholder Return (TSR) and the Growth of Earnings per Share (EPS).
The final number of shares to be granted in each cycle is determined by the degree of fulfillment of the objectives on the third anniversary of each cycle (with the exception of the first cycle, for which the second anniversary is used), and the shares are delivered within seven months from the date the cycle ends.
Regarding PI13, by the completion of the relevant cycle, the TSR was calculated relative to Santander and every entity of the reference group. The list of reference entities was ordered from largest to smallest, thus determining the percentage of shares to be delivered, on the basis of the following scale and according to the relative position of Santander within the group of financial entities for reference:
Santander’s position in the TSR Ranking | Maximum percentage of shares earned | |||
1st to 5th | 100.00 | % | ||
6th | 82.50 | % | ||
7th | 65.00 | % | ||
8th | 47.50 | % | ||
9th | 30.00 | % | ||
10th and more | 0.00 | % |
As for PI14, the application of a certain criterion related to TSR will determine the percentage of shares to be delivered, on the basis of the following scale and according to the relative position of Banco Santander S.A. (Spain) within the group of financial entities of reference:
Position of Santander on the TSR Ranking | Percentage of shares earned above the average | |||
1st to 5th | 100.00 | % | ||
6th | 86.05 | % | ||
7th | 72.00 | % | ||
8th | 58.00 | % | ||
9th | 44.00 | % | ||
10th | 30.00 | % | ||
11th to 17th | 0.00 | % |
If any of the entities of the reference group was to be acquired by a different company, it would be eliminated from the reference group. In such case, the percentage will be determined based on Santander`s placement in relation to the remaining entities, based on quartiles. If Santander falls within the first quartile (including the top 25th percentile) of the reference group, Santander will earn the highest share percentage, as noted above. No share will be earned if Santander falls below the average (50th percentile) of the reference group. If Santander equals the median (50th percentile), it will earn 30% of the maximum amount. Lastly, for positions in-between the average (50th percentile exclusive) and the first quartile (25th percentile exclusive), it will be calculated be means of linear interpolation.
Consolidated Financial Statements December 2013 / Banco Santander Chile 124 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 33
PERSONNEL SALARIES AND EXPENSES, continued
As of December 31, 2013, the objectives were not met, so Plan I13 was terminated, however as of December 31, 2012, the objectives were met completely for Plan I12. Plan I14 is still active, so the Bank has recorded an anount of MCh$684 (MCh$ $1,747 as of December 31, 2012), which is included within the income of the specific period on which beneficiaries provided their services to Banco Santander Chile. This program had no effects on non-controlling interest. The fair value was calculated as described:
The fair value of each of those plans conceived by the Group is calculated on the grant date. Volatility is measured using an implied volatility model.
The calculation of the fair value of the stock plan linked to objectives is as follows:
- | It has been considered that the beneficiaries will not leave over the period of each plan. |
- | The fair value of the relative position of the TSR was determined by the Banco Santander S.A.(Spain) on the grant date based on an independent expert report using a the Monte Carlo valuation model. The expert ran 10,000 simulations to determine the TSR for each of the reference financial institutions (benchmark), considering the aforementioned variables. The results (each of which represents the distribution of a number of shares) are classified in descending order through the calculation of the weighted average, and this amount is discounted at the risk-free interest rate. |
PI12 | PI13 | PI14 | ||||||||||
Expected volatility (*) | 42.36 | % | 49.65 | % | 51.35 | % | ||||||
Historical annual dividend return | 4.88 | % | 6.34 | % | 6.06 | % | ||||||
Risk-free interest rate | 2.04 | % | 3.33 | % | 4.07 | % |
(*) Determined based on the historical volatility of the corresponding period (three years).
The application of the simulations under the Monte Carlo model results in a percentage value representing the probability of vesting of 55.42% for the I12 plan, 62.62% for the I13 plan and 55.39% for the I14 plan. Fair value measurement takes into account market conditions (TSR and EPS) and we recognize compensation expense for employees who satisfy vesting conditions (such as service conditions).
This appraisal as the price per share (determined as an average of the 15 working days after April 1st of the year when each plan was implemented) determine the cost per share this benefit shall have for Chile.
Consolidated Financial Statements December 2013 / Banco Santander Chile 125 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 33
PERSONNEL SALARIES AND EXPENSES, continued
Below is a table which provides a detail of the foregoing:
Number of | Exercise price | Number of | Maturity commencement of the exercise | Date of termination of exercise | ||||||||||||||
shares | € | Group of employees | individuals | period | period | |||||||||||||
Options granted (Plan I12) | 327,882 | - | Manager | 157 | 07-01-2009 | 06-30-2012 | ||||||||||||
Options granted (Plan I12) | 36,848 | - | Other non-managerial positions | 76 | 07-01-2009 | 06-30-2012 | ||||||||||||
Plans in force on December 31, 2009 | 364,730 | |||||||||||||||||
2010 Flow | ||||||||||||||||||
Options granted (Plan I12) | 564,339 | - | Manager | 170 | 07-01-2009 | 06-30-2012 | ||||||||||||
Options granted (Plan I12) | 43,787 | - | Other non-managerial positions | 63 | 07-01-2009 | 06-30-2012 | ||||||||||||
Options granted (Plan I13) | 310,902 | - | Manager | 166 | 07-01-2010 | 06-30-2013 | ||||||||||||
Options granted (Plan I13) | 65,148 | - | Other non-managerial positions | 68 | 07-01-2010 | 06-30-2013 | ||||||||||||
Plans in force on December 31, 2010 | 1,348,906 | |||||||||||||||||
2011 Flow | ||||||||||||||||||
Options granted (Plan I12) | 591,686 | - | Manager | 157 | 07-01-2009 | 06-30-2012 | ||||||||||||
Options granted (Plan I12) | 79,631 | - | Other non-managerial positions | 77 | 07-01-2009 | 06-30-2012 | ||||||||||||
Options granted (Plan I13) | 650,474 | - | Manager | 166 | 07-01-2011 | 06-30-2013 | ||||||||||||
Options granted (Plan I13) | 136,303 | - | Other non-managerial positions | 68 | 07-01-2011 | 06-30-2013 | ||||||||||||
Options granted (Plan I14) | 268,318 | - | Manager | 147 | 07-01-2012 | 06-30-2014 | ||||||||||||
Options granted (Plan I14) | 27,185 | - | Other non-managerial positions | 82 | 07-01-2012 | 06-30-2014 | ||||||||||||
Plans in force on December 31, 2011 | 3,102,503 | |||||||||||||||||
2012 Flow | ||||||||||||||||||
Options granted Plan I12 | 601,101 | - | Manager | 157 | 07-01-2009 | 06-30-2012 | ||||||||||||
Options granted Plan I12 | 63,254 | - | Other non-managerial positions | 77 | 07-01-2009 | 06-30-2012 | ||||||||||||
Options granted Plan I13 | 501,456 | - | Manager | 166 | 07-01-2010 | 06-30-2013 | ||||||||||||
Options granted Plan I13 | 129,076 | - | Other non-managerial positions | 114 | 07-01-2010 | 06-30-2013 | ||||||||||||
Options granted Plan I14 | 508,144 | - | Manager | 147 | 07-01-2011 | 06-30-2014 | ||||||||||||
Options granted Plan I14 | 46,810 | - | Other non-managerial positions | 82 | 07-01-2011 | 06-30-2014 | ||||||||||||
Options exercised Plan I12 | (2,085,008 | ) | - | Manager | 157 | 07-01-2009 | 06-30-2012 | |||||||||||
Options exercised Plan I12 | (223,520 | ) | - | Other non-managerial positions | 77 | 07-01-2009 | 06-30-2012 | |||||||||||
Plans in force on December 31, 2012 | 2,643,816 | |||||||||||||||||
2013 Flow | ||||||||||||||||||
Plan I13 terminated (*) | (1,462,832 | ) | - | Manager | 166 | - | - | |||||||||||
Plan I13 terminated (*) | (330,527 | ) | - | Other non-managerial positions | 114 | - | - | |||||||||||
Plans in force on December 31, 2013 | 850,457 | |||||||||||||||||
Plan I14 | 850,457 |
(*) Plan I13 does not comply with the assignation requirements
Consolidated Financial Statements December 2013 / Banco Santander Chile 126 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 34
ADMINISTRATIVE EXPENSES
As of December 31, 2013 and 2012, the composition of the item is as follows:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
General administrative expenses | 116,685 | 106,308 | ||||||
Maintenance and repair of property, plant and equipment | 15,368 | 14,290 | ||||||
Office lease | 26,105 | 24,369 | ||||||
Equipment lease | 106 | 367 | ||||||
Insurance payments | 2,989 | 2,420 | ||||||
Office supplies | 4,579 | 5,796 | ||||||
IT and communication expenses | 29,144 | 24,873 | ||||||
Lighting, heating, and other utilities | 3,871 | 4,086 | ||||||
Security and valuables transport services | 15,879 | 11,929 | ||||||
Representation and personnel travel expenses | 5,255 | 5,101 | ||||||
Judicial and notarial expenses | 1,619 | 1,113 | ||||||
Fees for technical reports and auditing | 6,400 | 7,396 | ||||||
Other general administrative expenses | 5,370 | 4,568 | ||||||
Outsourced services | 44,411 | 41,127 | ||||||
Data processing | 26,489 | 26,581 | ||||||
Products sale | 1,820 | 1,686 | ||||||
Archive services | 1,728 | 795 | ||||||
Valuation services | 2,265 | 1,957 | ||||||
Furniture storage | 579 | 478 | ||||||
Outsourcing | 9,489 | 8,253 | ||||||
Other | 2,041 | 1,377 | ||||||
Board expenses | 1,154 | 1,073 | ||||||
Marketing expenses | 15,800 | 16,899 | ||||||
Taxes, payroll taxes, and contributions | 10,141 | 10,476 | ||||||
Real estate taxes | 1,201 | 1,615 | ||||||
Patents | 1,843 | 1,961 | ||||||
Other taxes | 4 | 15 | ||||||
Contributions to SBIF | 7,093 | 6,885 | ||||||
Total | 188,191 | 175,883 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 127 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 35
DEPRECIATION, AMORTIZATION, AND IMPAIRMENT
a) | Depreciation, amortization and impairment charges for the years ended December 31, 2013 and 2012, are detailed below: |
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Depreciation and amortization | ||||||||
Depreciation of property, plant, and equipment | (22,452 | ) | (21,195 | ) | ||||
Amortizations of Intangible assets | (38,622 | ) | (35,174 | ) | ||||
Total depreciation and amortization | (61,074 | ) | (56,369 | ) | ||||
Impairment of property, plant, and equipment | (244 | ) | (90 | ) | ||||
Total | (61,318 | ) | (56,459 | ) |
As of December 31, 2013, the costs for Property, plant, and equipment impairment totaled Ch$ 244 million, mainly due to damages to ATMs (Ch$ 90 million as of December 31, 2012).
b) | The reconciliation between the book values and balances as of December 31, 2013 and 2012 is as follows: |
Depreciation and amortization | ||||||||||||
2013 | ||||||||||||
Property, plant, and equipment | Intangible assets | Total | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Balances as of January 1, 2013 | (105,150 | ) | (146,653 | ) | (251,803 | ) | ||||||
Depreciation and amortization charges in the period | (22,452 | ) | (38,622 | ) | (61,074 | ) | ||||||
Sales and disposals in the period | 154 | - | 154 | |||||||||
Other | - | - | - | |||||||||
Balances as of December 31, 2013 | (127,448 | ) | (185,275 | ) | (312,723 | ) |
Depreciation and amortization | ||||||||||||
2012 | ||||||||||||
Property, plant, and equipment | Intangible assets | Total | ||||||||||
MCh$ | MCh$ | MCh$ | ||||||||||
Balances as of January 1, 2012 | (84,230 | ) | (111,479 | ) | (195,709 | ) | ||||||
Depreciation and amortization charges in the period | (21,195 | ) | (35,174 | ) | (56,369 | ) | ||||||
Sales and disposals in the period | 275 | - | 275 | |||||||||
Other | - | - | - | |||||||||
Balances as of December 31, 2012 | (105,150 | ) | (146,653 | ) | (251,803 | ) |
Consolidated Financial Statements December 2013 / Banco Santander Chile 128 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 36
OTHER OPERATING INCOME AND EXPENSES
a) | Other operating expenses are comprised of the following components: |
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Income from assets received in lieu of payment | ||||||||
Income from sale of assets received in lieu of payment | 6,571 | 2,654 | ||||||
Recovery of charge-offs and income from assets received in lieu of payment | 10,475 | 6,653 | ||||||
Subtotals | 17,046 | 9,307 | ||||||
Income from sale of investments in other companies | ||||||||
Gain on sale of investments in other companies | - | 599 | ||||||
Subtotals | - | 599 | ||||||
Other income | ||||||||
Leases | 328 | 142 | ||||||
Income from sale of property, plant and equipment (1) | 176 | 9,194 | ||||||
Recovery of provisions for contingencies | 77 | - | ||||||
Compensation from insurance companies due to damages | 725 | 262 | ||||||
Other | 2,156 | 254 | ||||||
Subtotals | 3,462 | 9,852 | ||||||
Total | 20,508 | 19,758 |
(1) | During 2013, no offices were sold. As of December 31, 2012 the sale of offices is detailed as follows: |
Number of | Book value | Selling price | Profit | |||||||||||||
As of December 31, 2012 | assets | MCh$ | MCh$ | MCh$ | ||||||||||||
August | 2 | 361 | 1,045 | 684 | ||||||||||||
September | 9 | 4,578 | 9,485 | 4,907 | ||||||||||||
October | 4 | 704 | 1,274 | 570 | ||||||||||||
December | 2 | 724 | 3,127 | 2,403 | ||||||||||||
Total | 17 | 6,367 | 14,931 | 8,564 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 129 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 36
OTHER OPERATING INCOMES AND EXPENSES continued:
b) | Other operating expenses are detailed as follows: |
December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Allowances and expenses for assets received in lieu of payment | ||||||||
Charge-offs of assets received in lieu of payment | 8,796 | 9,180 | ||||||
Provision on assets received in lieu of payment | 3,580 | 3,902 | ||||||
Expenses for maintenance of assets received in lieu of payment | 2,461 | 2,630 | ||||||
Subtotals | 14,837 | 15,712 | ||||||
Credit card expenses | 2,157 | 973 | ||||||
Customer services | 10,954 | 8,674 | ||||||
Other expenses | ||||||||
Operating charge-offs (1) | 8,222 | 8,366 | ||||||
Life insurance and general product insurance policies | 7,348 | 7,211 | ||||||
Additional tax on expenses paid overseas | 2,862 | 3,283 | ||||||
Income for sale of property, plant and equipment | 46 | 72 | ||||||
Provisions for contingencies | 5,805 | 7,964 | ||||||
Expense for compensations | 5,873 | 5,594 | ||||||
Retail Association Payment | 1,079 | 1,279 | ||||||
Expense for adopting chip technology on cards | 2,283 | - | ||||||
Other | 885 | 588 | ||||||
Subtotals | 34,403 | 34,357 | ||||||
Total | 62,351 | 59,716 |
(1) | Includes Ch$ 1,566 million paid to our customers as compensation for the delay in fund transferring that took place on October 31, 2012. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 130 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 37
TRANSACTIONS WITH RELATED PARTIES
In addition to Affiliates and associated entities, the Bank’s “related parties” include its “key personnel” from the executive staff (members of the Bank’s Board of Directors and Managers of Banco Santander Chile and its affiliates, together with their close relatives), as well as the entities over which the key personnel could exercise significant influence or control.
The Bank also considers the companies that are part of the Santander Group worldwide as related parties, given that all of them have a common parent, i.e., Banco Santander S.A. (located in Spain).
Article 89 of the Ley de Sociedades Anónimas (Public Companies Act), which is also applicable to banks, provides that any transaction with a related party must be made under equitable conditions similar to those that customarily prevail in the market.
Moreover, Article 84 of the Ley General de Bancos (General Banking Act) establishes limits for loans that can be granted to related parties and prohibits lending to the Bank’s directors, managers, or representatives.
Transactions between the Bank and its related parties are specified below. To facilitate comprehension, we have divided the information into four categories:
Santander Group Companies
This category includes all the companies that are controlled by the Santander Group around the world, and hence, it also includes the companies over which the Bank exercises any degree of control (Affiliates and special-purpose entities).
Associated companies
This category includes the entities over which the Bank, in accordance with section b) of Note 1 to these Financial Statements, exercises a significant degree of influence and which generally belong to the group of entities known as “business support companies.”
Key personnel
This category includes members of the Bank’s Board of Directors and managers of Banco Santander Chile and its affiliates, together with their close relatives.
Other
This category encompasses the related parties that are not included in the groups identified above and which are, in general, entities over which the key personnel could exercise significant influence or control.
The terms for transactions with related parties are equivalent to those which prevail in transactions made under market conditions or to which the corresponding considerations in kind have been attributed.
Consolidated Financial Statements December 2013 / Banco Santander Chile 131 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 37
TRANSACTIONS WITH RELATED PARTIES, continued:
a) Loans to related parties:
Below are loans and receivables as well as contingent loans that correspond to related entities:
As of December 31 | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
Companies
of the Group | Associated
companies | Key personnel | Other | Companies
of the Group | Associated
companies | Key personnel | Other | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Loans and accounts receivables: | ||||||||||||||||||||||||||||||||
Commercial loans | 47,305 | 618 | 4,022 | 51,141 | 46,790 | 668 | 2,910 | 57,723 | ||||||||||||||||||||||||
Mortgage loans | - | - | 15,561 | - | - | - | 15,089 | - | ||||||||||||||||||||||||
Consumer loans | - | - | 2,061 | - | - | - | 1,513 | - | ||||||||||||||||||||||||
Loans and accounts receivables: | 47,305 | 618 | 21,644 | 51,141 | 46,790 | 668 | 19,512 | 57,723 | ||||||||||||||||||||||||
Allowance for loan losses | (326 | ) | (3 | ) | (444 | ) | (6 | ) | (326 | ) | (3 | ) | (39 | ) | (9 | ) | ||||||||||||||||
Net loans | 47,067 | 615 | 21,600 | 51,135 | 46,461 | 665 | 19,473 | 57,714 | ||||||||||||||||||||||||
Guarantees | 124,420 | - | 19,237 | 2,326 | 9 | - | 17,909 | 1,349 | ||||||||||||||||||||||||
Contingent loans: | ||||||||||||||||||||||||||||||||
Personal guarantees | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Letters of credit | 30,714 | - | - | - | 25,697 | - | - | - | ||||||||||||||||||||||||
Guarantees | 172,274 | - | - | 9,989 | 34,897 | - | - | 1,443 | ||||||||||||||||||||||||
Contingent loans: | 202,988 | - | - | 9,989 | 60,594 | - | - | 1,443 | ||||||||||||||||||||||||
Provisions for contingent loans | (22 | ) | - | - | (4 | ) | (513 | ) | - | - | (2 | ) | ||||||||||||||||||||
Net contingent loans | 202,966 | - | - | 9,985 | 60,579 | - | - | 1,441 |
Loan activity to related parties during the years 2013 and 2012 is shown below:
As of December 31, | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
Societies | Companies | Group | Societies | Companies | Group | |||||||||||||||||||||||||||
Personnel | key | partners | Other | of the Group | key | partners | Other | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Opening balances as of January 1, | 107,384 | 668 | 19,512 | 59,166 | 52,673 | 663 | 19,698 | 63,081 | ||||||||||||||||||||||||
Loans granted | 161,763 | 377 | 7,313 | 14,858 | 78,586 | 21 | 6,132 | 10,927 | ||||||||||||||||||||||||
Loans payments | (18,854 | ) | (427 | ) | (5,181 | ) | (12,894 | ) | (23,875 | ) | (16 | ) | (6,318 | ) | (14,842 | ) | ||||||||||||||||
Total | 250,293 | 618 | 21,644 | 61,130 | 107,384 | 668 | 19,512 | 59,166 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 132 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 37
TRANSACTIONS WITH RELATED PARTIES, continued:
b) | Assets and liabilities with related parties |
As of December 31, | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
Companies of the Group | Associated companies | Key personnel | Other | Companies of the Group | Associated companies | Key personnel | Other | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and deposits in banks | 5,306 | - | - | - | 5,357 | - | - | - | ||||||||||||||||||||||||
Trading investments | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Obligations under repurchase agreements loans | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Financial derivative contracts | 557,026 | - | - | - | 526,734 | - | - | - | ||||||||||||||||||||||||
Available for sale investments | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Other assets | 2,460 | - | - | - | 4,339 | - | - | - | ||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Deposits and other demand liabilities | 58,030 | 10,406 | 2,783 | 23,300 | 65,386 | 2,563 | 2,286 | 17,211 | ||||||||||||||||||||||||
Obligations under repurchase agreements loans | 59,703 | - | - | - | 92,862 | - | - | - | ||||||||||||||||||||||||
Time deposits and other time liabilities | 54,212 | 299 | 3,774 | 156,977 | 97,449 | 373 | 2,842 | 39,193 | ||||||||||||||||||||||||
Financial derivative contracts | 537,162 | - | - | - | 387,903 | - | - | - | ||||||||||||||||||||||||
Issued debt instruments | 96,872 | - | - | - | 67,368 | - | - | - | ||||||||||||||||||||||||
Other financial liabilities | 3,912 | - | - | - | 103,207 | - | - | - | ||||||||||||||||||||||||
Other liabilities | 462 | - | - | - | 1,241 | - | - | - |
c) | Income (expenses) recorded due to transactions with related parties |
As of December 31, | ||||||||||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||||||||||
Companies of the Group | Associated companies | Key personnel | Other | Companies of the Group | Associated companies | Key personnel | Other | |||||||||||||||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||
Income (expense) recorded | ||||||||||||||||||||||||||||||||
Income and expenses from interest and inflation adjustments | (8,812 | ) | 50 | 1,065 | (1,082 | ) | (11,660 | ) | 54 | 948 | (2,819 | ) | ||||||||||||||||||||
Income and expenses from fees and services | - | 75 | 120 | 3,615 | (1,191 | ) | 59 | 114 | 214 | |||||||||||||||||||||||
Net income from financial operations and foreign exchange transactions (*) | (8,690 | ) | - | (4 | ) | (1,534 | ) | 241,424 | - | (1 | ) | 107 | ||||||||||||||||||||
Other operating revenues and expenses | 955 | - | - | - | 643 | - | - | - | ||||||||||||||||||||||||
Income for Investments in other companies (**) | 78,122 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Key personnel compensation and expenses | - | - | (31,652 | ) | - | - | - | (30,999 | ) | - | ||||||||||||||||||||||
Administrative and other expenses | (28,371 | ) | (30,758 | ) | - | - | (23,121 | ) | (20,461 | ) | - | - | ||||||||||||||||||||
Total | 33,204 | (30,633 | ) | (30,471 | ) | 999 | 206,095 | (20,348 | ) | (29,938 | ) | (2,498 | ) |
(*) | Primarily relates to derivative contracts used to financially cover exchange risk of assets and liabilities that cover positions of the Bank and its subsidiaries. |
(**) | Corresponds to the profit from the sale of the Santander Asset Management S.A Administradora General de Fondos subsidiary. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 133 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 37
TRANSACTIONS WITH RELATED PARTIES, continued:
d) | Payments to Board members and key management personnel |
The compensation received by key management personnel, including Board members and all the executives holding Manager positions shown in the “Personnel salaries and expenses” and/or “Administrative expenses” items of the Consolidated Statements of Income, corresponds to the following categories:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Personnel compensation | 16,954 | 16,880 | ||||||
Board members’ salaries and expenses | 1,083 | 1,034 | ||||||
Bonuses or gratifications | 11,267 | 10,255 | ||||||
Compensation in stock | 684 | 1,508 | ||||||
Training expenses | 55 | 138 | ||||||
Seniority compensation | 1,064 | 12 | ||||||
Health funds | 290 | 289 | ||||||
Other personnel expenses | 566 | 431 | ||||||
Pension plans (*) | (311 | ) | 452 | |||||
Total | 31,652 | 30,999 |
(*) Some of the executives that qualified for this benefit are no longer members of the Group for various reasons, lowering the amount of the obligation thus generating an income from allowance reversals.
e) | Composition of key personnel |
As of December 31, 2013 and 2012, the composition of the Bank’s key personnel is as follows:
No. of executives | ||||||||
As of December 31 | ||||||||
Position | 2013 | 2012 | ||||||
Director | 12 | 13 | ||||||
Division manager | 16 | 19 | ||||||
Department manager | 80 | 85 | ||||||
Manager | 60 | 63 | ||||||
Total key personnel | 168 | 180 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 134 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 37
TRANSACTIONS WITH RELATED PARTIES, continued:
f) | Stock-based benefits |
The following table details the activity in stock-based benefits paid to key personnel of the Bank and its subsidiaries. The detail for each of these benefit plans is described in section b) of Note 33:
Number of | Exercise price |
Number of | Date of commencement of the exercise |
Date of termination of exercise | |||||||||||||||
shares | € | Group of employees | individuals | period | period | ||||||||||||||
Options granted (Plan I12) | 327,882 | - | Manager | 157 | 07-01-2009 | 06-30-2012 | |||||||||||||
Plans in force on December 31, 2009 | 327,882 | ||||||||||||||||||
2010 Flow | |||||||||||||||||||
Options granted (Plan I12) | 564,339 | - | Manager | 170 | 07-01-2009 | 06-30-2012 | |||||||||||||
Options granted (Plan I13) | 310,902 | - | Manager | 166 | 07-01-2010 | 06-30-2013 | |||||||||||||
Plans in force on December 31, 2010 | 1,203,123 | ||||||||||||||||||
2011 Flow | |||||||||||||||||||
Options granted (Plan I12) | 591,686 | - | Manager | 157 | 07-01-2009 | 06-30-2012 | |||||||||||||
Options granted (Plan I13) | 650,474 | - | Manager | 166 | 07-01-2010 | 06-30-2013 | |||||||||||||
Options granted (Plan I14) | 268,318 | - | Manager | 147 | 07-01-2011 | 06-30-2014 | |||||||||||||
Plans in force on December 31, 2011 | 2,713,601 | ||||||||||||||||||
2012 Flow | |||||||||||||||||||
Options granted Plan I12 | 601,101 | - | Manager | 157 | 07-01-2009 | 06-30-2012 | |||||||||||||
Options granted Plan I13 | 501,456 | - | Manager | 166 | 07-01-2010 | 06-30-2013 | |||||||||||||
Options granted Plan I14 | 508,144 | - | Manager | 147 | 07-01-2011 | 06-30-2014 | |||||||||||||
Options exercised Plan I12 | (2,085,008 | ) | - | Manager | 157 | 07-01-2009 | 06-30-2012 | ||||||||||||
Plans in force on December 31, 2012 | 2,239,294 | ||||||||||||||||||
2013 Flow | |||||||||||||||||||
Plan I13 terminated (*) | (1,462,832 | ) | - | Manager | 166 | - | - | ||||||||||||
Plans in force on December 31, 2013 | 776,462 | ||||||||||||||||||
Plan I14 | 776,462 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 135 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 38
PENSION PLANS
The Bank has an additional benefit available to its principal executives, consisting of a pension plan. The purpose of the pension plan is to endow the executives with funds for a better supplementary pension upon their retirement.
For this purpose, the Bank will match the voluntary contributions made by the beneficiaries for their future pensions with an equivalent contribution. The executives will be entitled to receive this benefit only when they fulfill the following conditions:
e. | The plan is aimed at the Group’s management |
f. | The general requirement to apply for this benefit is that the employee must be carrying out his/her duties when turning 60 years old. |
g. | The Santander Group will take on insurance (pension fund) for the employee’s behalf where it will pay (defined contribution) periodically. |
h. | The Santander Group will be responsible for granting the benefits directly. |
If the working relationship between the manager and the respective company ends, before s/he fulfills the abovementioned requirements, s/he will have no rights under this benefit plan.
In the event of the executive’s death or total or partial disability, s/he will be entitled to receive this benefit.
The Bank will make contributions to this benefit plan on the basis of mixed collective insurance policies whose beneficiary is the Bank. The life insurance company with whom such policies are executed is not an entity linked or related to the Bank or any other Santander Group company.
Rights owned by the Bank due to the plan at the end of 2013 totaled Ch$ 5,171 million (Ch$ 5,584 million in 2012).
The amount of the defined benefit plans has been quantified by the Bank, based on the following criteria:
Calculation method:
Use of the credit unit projected method which considers each working year as generating an additional amount of rights over benefits and values each unit separately. It is calculated based primarily on fund contributions, as well as other factors such as the legal annual pension limit, seniority, age and yearly income for each unit valued individually.
Actuarial hypothesis assumptions:
Actuarial assumptions with respect to demographic and financial variables are non-biased and mutually compatible with each other. The most significant actuarial hypotheses considered in the calculations were:
Plans employment | Plans employment | |||
2013 | 2012 | |||
Mortality chart | RV-2009 | RV-2009 | ||
Termination of contract rates | 5.0% | 5.0% | ||
Impairment chart | PDT 1985 | PDT 1985 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 136 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 38
PENSION PLANS, continued:
Assets related to the pension fund contributed by the Bank into the Seguros Euroamérica insurance company with respect to defined benefit plans are presented as net of associated commitments.
Activity for post-employment benefits is as follows:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Plan assets | 5,171 | 5,584 | ||||||
Commitments for defined-benefit plans | ||||||||
For active personnel | (3,888 | ) | (3,595 | ) | ||||
Incurred by inactive personnel | - | - | ||||||
Minus: | ||||||||
Unrealized actuarial (gain) losses | - | - | ||||||
Balances at the period end | 1,283 | 1,989 |
Year’s cash flow for post-employment benefits is as follows:
As of December 31, | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
a) Fair value of plan assets | ||||||||
Opening balance | 5,584 | 5,508 | ||||||
Expected yield of insurance contracts | 247 | 326 | ||||||
Employer contributions | (660 | ) | (250 | ) | ||||
Actuarial (gain) losses (*) | - | - | ||||||
Premiums paid | - | - | ||||||
Benefits paid | - | - | ||||||
Fair value of plan assets at year end | 5,171 | 5,584 | ||||||
b) Present value of obligations | ||||||||
Present value of obligations opening balance | (3,594 | ) | (3,143 | ) | ||||
Net incorporation of Group companies | - | - | ||||||
Service cost | (311 | ) | (452 | ) | ||||
Interest cost | - | - | ||||||
Curtailment/settlement effect | - | - | ||||||
Benefits paid | - | - | ||||||
Past service cost | - | - | ||||||
Actuarial (gain) losses | 17 | - | ||||||
Other | - | - | ||||||
Present value of obligations at year end | (3,888 | ) | (3,595 | ) | ||||
Net balance at year end | 1,283 | 1,989 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 137 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 38
PENSION PLANS, continued:
Plan expected profit:
As of December 31 | ||||||||
2013 | 2012 | |||||||
Type of expected yield from the plan’s assets | UF + 2.50% annual | UF + 2.50% annual | ||||||
Type of yield expected from the reimbursement rights | UF + 2.50% annual | UF + 2.50% annual |
Plan associated expenses:
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Current period service expenses | 311 | 452 | ||||||
Interest cost | - | - | ||||||
Expected yield from plan’s assets | (247 | ) | (326 | ) | ||||
Expected yield of insurance contracts linked to the Plan: | ||||||||
Extraordinary allocations | - | - | ||||||
Actuarial (gain)/ losses recorded in the period | (17 | ) | - | |||||
Past service cost | - | - | ||||||
Other | - | - | ||||||
Total | 47 | 126 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 138 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 39
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The measurement of fair value assumes the transaction to sale and asset or the transference of the liability happens within the main asset or liability market, or the most advantageous market for the asset or liability.
For financial instruments with no available market prices, fair values have been estimated by using recent transactions in analogous instruments, and in the absence thereof, the present values or other valuation techniques based on mathematical valuation models sufficiently accepted by the international financial community. In the use of these models, consideration is given to the specific particularities of the asset or liability to be valued, and especially to the different kinds of risks associated with the asset or liability.
These techniques are inherently subjective and are significantly influenced by the assumptions used, including the discount rate, the estimates of future cash flows and prepayment expectations. Hence, the fair value estimated for an asset or liability may not coincide exactly with the price at which that asset or liability could be delivered or settled on the date of its valuation, and may not be justified in comparison with independent markets.
Determination of fair value of financial instruments
Below is a comparison between the value at which the Bank’s financial assets and liabilities are recorded and their fair value as of December 31, 2013 and 2012:
As of December 31, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
Book value | Fair value | Book value | Fair value | |||||||||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Assets | ||||||||||||||||
Cash and deposits in banks | 1,571,810 | 1,571,810 | 1,250,414 | 1,250,414 | ||||||||||||
Cash items in process of collection | 604,077 | 604,077 | 520,267 | 520,267 | ||||||||||||
Trading investments | 287,567 | 287,567 | 338,287 | 338,287 | ||||||||||||
Investments under resale agreements | 17,469 | 17,469 | 6,993 | 6,993 | ||||||||||||
Financial derivative contracts | 1,494,018 | 1,494,018 | 1,293,212 | 1,293,212 | ||||||||||||
Loans and accounts receivable from customers and interbank loans | 20,452,416 | 23,562,746 | 18,416,484 | 20,682,784 | ||||||||||||
Available for sale investments | 1,700,993 | 1,700,993 | 1,826,158 | 1,826,158 | ||||||||||||
Liabilities | ||||||||||||||||
Deposits and interbank borrowings | 16,978,412 | 16,921,614 | 15,520,235 | 15,495,714 | ||||||||||||
Cash items in process of being cleared | 276,379 | 276,379 | 284,953 | 284,953 | ||||||||||||
Investments under repurchase agreements | 208,972 | 208,972 | 304,117 | 304,117 | ||||||||||||
Financial derivative contracts | 1,300,109 | 1,300,109 | 1,146,161 | 1,146,161 | ||||||||||||
Issued debt instruments and other financial liabilities | 5,388,439 | 5,729,213 | 4,763,900 | 5,300,998 |
In addition, the fair value estimates presented above do not attempt to estimate the value of the Bank’s profits generated by its business activity, nor its future activities, and accordingly, they do not represent the Bank’s value as a going concern. Below is a detail of the methods used to estimate the financial instruments’ fair value
a) | Cash and deposits in banks |
The recorded value of cash and interbank loans approximates its estimated fair value in view of these instruments’ short-term nature.
b) | Cash items in process of collection, trading investments, available for sale investment instruments, and investments under resale agreements |
The estimated fair value of these financial instruments was established using market values or estimates from an available dealer, or quoted market prices of similar financial instruments. Investments with maturity of less than one year are evaluated at recorded value since, due to their short maturity term, they are considered as having a fair value not significantly different from their recorded value. To estimate the fair value of debt investments or representative values in these lines of businesses, we take into consideration additional variables and elements, as long as they apply, including the estimate of prepayment rates and credit risk of issuers.
Consolidated Financial Statements December 2013 / Banco Santander Chile 139 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 39
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES continued:
c) | Loans and accounts receivable from customers and interbank loans |
Fair value of commercial, mortgage and consumer loans and credit cards is measured through a discounted cash flow (DCF) analysis. To do so, we use current market interest rates considering product, term, amount and similar loan quality. Fair value of loans with 90 days or more of delinquency are measured by means of the market value of the associated guarantee, minus the rate and term of expected payment. For variable rate loans whose interest rates change frequently (monthly or quarterly) and that are not subjected to any significant credit risk change, the estimated fair value is based on their book value.
d) | Deposits |
Disclosed fair value of deposits that do not bear interest and saving accounts is the amount payable at the reporting date and, therefore, equals the recorded amount. Fair value of time deposits is calculated through a discounted cash flow calculation that applies current interest rates from a monthly calendar of scheduled maturities in the market.
e) | Short and long term issued debt instruments |
The fair value of these financial instruments is calculated by using a discounted cash flow analysis based on the current incremental lending rates for similar types of loans having similar maturities.
f) | Financial derivative contracts |
The estimated fair value of financial derivative contracts is calculated using the prices quoted on the market for financial instruments having similar characteristics.
The fair value of interest rate swaps represents the estimated amount that the Bank expects to receive or pay to rescind the contracts or agreements, bearing in mind the term structures of the interest rate curve, the underlying asset’s volatility, and the counterparty’s credit risk.
If there are no quoted prices from the market (either direct or indirect) for any derivative instrument, the respective fair value estimates have been calculated by using models and valuation techniques such as Black-Scholes, Hull, and Monte Carlo simulations, taking into consideration the relevant inputs/outputs such as volatility of options, observable correlations between underlying assets, counterparty credit risk, implicit price volatility, the velocity with which the volatility reverts to its average value, and the straight-line relationship (correlation) between the value of a market variable and its volatility, among others.
Measurement of fair value and hierarchy
IFRS 13 - Fair Value Measurement, provides a hierarchy of reasonable values which separates the inputs and/or valuation technique assumptions used to measure the fair value of financial instruments. The hierarchy reflects the significance of the inputs used in making the measurement. The three levels of the hierarchy of fair values are the following:
• Level 1: the inputs are quoted prices (unadjusted) on active markets for identical assets and liabilities that the Bank can access on the measurement date.
• Level 2: inputs other than the quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
• Level 3: inputs are unobservable inputs for the asset or liability i.e. they are not based on observable market data.
Consolidated Financial Statements December 2013 / Banco Santander Chile 140 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 39
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES continued:
The hierarchy level within which the fair value measurement is categorized in its entirety is determined based on the lowest level of input that is significant to the fair value measurement in its entirety.
The best evidence of a financial instrument’s fair value at the initial time is the transaction price (Level 1).
In cases where quoted market prices cannot be observed, Management makes its best estimate of the price that the market would set using its own internal models which in most cases use data based on observable market parameters as a significant input (Level 2) and, in very specific cases, significant inputs not observable in market data (Level 3). Various techniques are employed to make these estimates, including the extrapolation of observable market data.
Financial instruments at fair value and determined by quotations published in active markets (Level 1) include:
- | Chilean Government and Department of Treasury bonds |
Instruments which cannot be 100% observable in the market are valued according to other inputs observable in the market (Level 2).
The following financial instruments are classified under Level 2:
Type of financial instrument |
Model used in valuation |
Description | ||
ž Mortgage and private bonds | Present Value of Cash Flows Model | Internal Rates of Return (“IRRs”) are provided by RiskAmerica, according to the following criterion: If, at the valuation day, there are one or more valid transactions at the Santiago Stock Exchange for a given nemotechnic, the reported rate is the weighted average amount of the observed rates. In the case there are no valid transactions for a given nemotechnic on the valuation day, the reported rate is the IRR base from a reference structure, plus a spread model based on historical spread for the same item or similar ones.
| ||
ž Time deposits | Present Value of Cash Flows Model | IRRs are provided by RiskAmerica, according to the following criterion: If, at the valuation day, there are one or more valid transactions at the Santiago Stock Exchange for a given nemotechnic, the reported rate is the weighted average amount of the observed rates. In the case there are no valid transactions for a given nemotechnic on the valuation day, the reported rate is the IRR base from a reference structure, plus a spread model based on issuer curves. | ||
ž Constant Maturity Swaps (CMS), FX and Inflation Forward (Fwd) , Cross Currency Swaps (CCS), Interest Rate Swap (IRS) | Present Value of Cash Flows Model | IRRs are provided by ICAP, GFI, Tradition, and Bloomberg according to this criterion: With published market prices, a valuation curve is created by the bootstrapping method and is then used to value different derivative instruments. | ||
ž FX Options | Black-Scholes | Formula adjusted by the volatility smile (implicit volatility). Prices (volatility) are provided by BGC Partners, according to this criterion: With published market prices, a volatility surface is created by interpolation and then these volatilities are used to value options. |
In limited occasions significant inputs not observable in market data are used (Level 3). To carry out this estimate, several techniques are used, including extrapolation of observable market data or a mix of observable data.
Consolidated Financial Statements December 2013 / Banco Santander Chile 141 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 39
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES continued:
The following financial instruments are classified under Level 3:
Type of financial instrument |
Model used in valuation |
Description | ||
ž Caps/ Floors/ Swaptions | Black Normal Model for Cap/Floors and Swaptions | There is no observable input of implicit volatility. | ||
ž UF options | Black – Scholes | There is no observable input of implicit volatility. | ||
ž Cross currency swap with window | Hull-White | Hybrid HW model for rates and Brownian motion for FX There is no observable input of implicit volatility. | ||
ž CCS (special contracts) | Implicit Forward Rate Agreement (FRA) | Start Fwd unsupported by MUREX (platform) due to the UF forward estimate. | ||
ž Cross currency swap, Interest rate swap, Call money swap in Tasa Activa Bancaria (Active Bank Rate) TAB, | Present Value of Cash Flows Model | Validation obtained by using the interest curve and interpolating at flow maturities, but TAB is not a directly observable variable and is not correlated to any market input. | ||
ž Bonds (in our case, low liquidity bonds) | Present Value of Cash Flows Model | Valued by using similar instrument prices plus a charge/off rate by liquidity. |
The following table presents the assets and liabilities that are measured at fair value on a recurrent basis, as of December 31, 2013 and 2012:
Fair value measurement | ||||||||||||||||
2013 | Level 1 | Level 2 | Level 3 | |||||||||||||
December 31, | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||
Assets | ||||||||||||||||
Trading investments | 287,567 | 275,296 | 12,271 | - | ||||||||||||
Available for sale investments | 1,700,993 | 654,945 | 1,045,210 | 838 | ||||||||||||
Derivatives | 1,494,018 | - | 1,442,752 | 51,266 | ||||||||||||
Total | 3,482,578 | 930,241 | 2,500,233 | 52,104 | ||||||||||||
Liabilities | ||||||||||||||||
Derivatives | 1,300,109 | - | 1,298,690 | 1,419 | ||||||||||||
Total | 1,300,109 | - | 1,298,690 | 1,419 |
Fair value measurement | ||||||||||||||||
2012 | Level 1 | Level 2 | Level 3 | |||||||||||||
December 31, | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||||||
Assets | ||||||||||||||||
Trading investments | 338,287 | 334,756 | 3,531 | - | ||||||||||||
Available for sale investments | 1,826,158 | 1,020,904 | 803,895 | 1,359 | ||||||||||||
Derivatives | 1,293,212 | - | 1,231,422 | 61,790 | ||||||||||||
Total | 3,457,657 | 1,355,660 | 2,038,848 | 63,149 | ||||||||||||
Liabilities | ||||||||||||||||
Derivatives | 1,146,161 | - | 1,145,055 | 1,106 | ||||||||||||
Total | 1,146,161 | - | 1,145,055 | 1,106 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 142 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 39
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES continued:
The following table presents the Bank’s activity for assets and liabilities measured at fair value on a recurrent basis using unobserved significant entries (Level 3) as of December 31, 2013 and 2012:
Assets | Liabilities | |||||||
MCh$ | MCh$ | |||||||
As of January 1, 2013 | 63,149 | (1,106 | ) | |||||
Total realized and unrealized profits (losses): | ||||||||
Included in statement of income | (10,524 | ) | (313 | ) | ||||
Included in other comprehensive income | (521 | ) | - | |||||
Purchases, issuances, and loans (net) | - | - | ||||||
As of December 31, 2013 | 52,104 | (1,419 | ) | |||||
Total profits or losses included in comprehensive income for 2013 that are attributable to change in | (11,045 | ) | (313 | ) |
Assets | Liabilities | |||||||
MCh$ | MCh$ | |||||||
As of January 1, 2012 | 83,483 | (1,369 | ) | |||||
Total realized and unrealized profits (losses): | ||||||||
Included in statement of income | (19,724 | ) | 263 | |||||
Included in other comprehensive income | (610 | ) | - | |||||
Purchases, issuances, and loans (net) | - | - | ||||||
As of December 31, 2012 | 63,149 | (1,106 | ) | |||||
Total profits or losses included in comprehensive income for 2012 that are attributable to change in | (20,334 | ) | 263 |
The realized and unrealized profits (losses) included in comprehensive income for 2013 and 2012, in the assets and liabilities measured at fair value on a recurrent basis through unobservable market data (Level 3) are recorded in the Statement of Comprehensive Income in the associate line item.
The potential effect as of December 31, 2013 and 2012 on the valuation of assets and liabilities valued at fair value on a recurrent basis through unobservable significant entries (level 3), generated by changes in the principal assumptions if other reasonably possible assumptions that are less or more favorable were used, is not considered by the Bank to be significant.
The following sheet shows the financial instruments subject to offsetting according to IAS 32:
As of December 31, 2013 | ||||||||||||||||||||||||||||||||||||
Linked financial
instruments subject to offsetting | Linked financial
instruments not subject to offsetting | Other financial instruments | ||||||||||||||||||||||||||||||||||
Gross value of financial assets | Gross value of financial liabilities compensated on the balance sheet | Net amount ("+" or "-") of financial assets presented on the balance sheet | Financial instruments- Assets | Financial instruments- Liabilities | Net amount | Assets | Liabilities | Net amount | ||||||||||||||||||||||||||||
Financial instrument | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||||||||
Financial derivative contracts | - | - | - | 1,309,025 | 1,240,820 | 68,205 | 184,993 | 59,289 | 125,704 | |||||||||||||||||||||||||||
Repurchase agreements | - | - | - | - | - | - | 17,469 | 208,972 | (191,503 | ) | ||||||||||||||||||||||||||
Total | - | - | - | 1,309,025 | 1,240,820 | 68,205 | 202,462 | 268,261 | (65,799 | ) |
Consolidated Financial Statements December 2013 / Banco Santander Chile 143 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT
Introduction and general description
The Bank, due to its activities with financial instruments is exposed to several types of risks. The main risks related to financial instruments that apply to the Bank are as follows:
- | Market risk: rises from holding financial instruments whose value may be affected by fluctuations in market conditions, generally including the following types of risk: |
a. | Foreign exchange risk: this arises as a consequence of exchange rate fluctuations among currencies. |
b. | Interest rate risk: this arises as a consequence of fluctuations in market interest rates. |
c. | Price risk: this arises as a consequence of changes in market prices, either due to factors specific to the instrument itself or due to factors that affect all the instruments negotiated in the market. |
d. | Inflation risk: this arises as a consequence of changes in Chile’s inflation rate, whose effect would be mainly applicable to financial instruments denominated in UFs. |
- | Credit risk: this is the risk that one of the parties to a financial instrument fails to meet its contractual obligations for reasons of insolvency or inability of the individuals or legal entities in question to continue as a going concern, causing a financial loss to the other party. |
- | Liquidity risk: is the possibility that an entity may be unable to meet its payment commitments, or that in order to meet them, it may have to raise funds with onerous terms or risk damage to its image and reputation. |
- | Operating risk: this is a risk arising from human errors, system errors, fraud or external events which may damage the Bank’s reputation, may have legal or regulatory implications, or cause financial losses. |
This note includes information on the Bank’s exposure to these risks and on its objectives, policies, and processes involved in their measurement and management.
Risk management structure
The Board is responsible for the establishment and monitoring of the Bank’s risk management structure, for which purpose it has an on-line corporate governance system which incorporates international recommendations and trends, adapted to Chilean regulatory conditions and given it the ability to apply the most advanced practices in the markets in which the Bank operates. To optimize the performance of this function, the Board of Directors has established the Asset and Liability Committee (“ALCO”), whose principal task is to assist in carrying out its functions relating to oversight and management of the Bank’s risks. To complement the ALCO in the risk management function, the Board also has three key committees: the Markets Committee (“CDM,” the acronym in Spanish) the Executive Credit Committee (“CEC,” the acronym in Spanish) and the Audit Committee (“CDA,” the acronym in Spanish). Each of these committees is composed of directors and executive members of the Bank’s management.
The ALCO is responsible for developing risk handling policies of the Bank following the Board and Santander Spain Global Risk Department guidelines, as well as the requirements of the Chilean SBIF. Said policies have been created mainly to identify and analyze the risks the Bank faces, establishing risk limits and adequate control monitoring risks, and the abiding by of limits. Risk handling policies and systems are revised regularly to reflect changes in market conditions and products or services offered. The Bank, through the creation and management of regulations and procedures, aims at developing a disciplined and constructive control environment in which all employees understand their role and duties.
To carry out its duties, the ALCO works directly with the Bank’s control and risk departments, whose joint objectives include the following:
- | evaluate risks whose magnitude might threaten the Bank’s solvency or which might potentially pose significant risks to its operations or reputation; |
- | ensure that the Bank is equipped with the means, systems, structures, and resources, consistent with best practices, which enable the implementation of the risk management strategy; |
- | ensure the integration, control, and management of all the Bank’s risks; |
- | apply homogeneous risk principles, policies, and metrics throughout the Bank and its businesses; |
- | develop and implement a risk management model at the bank, in order for risk exposure to be adequately integrated into the different decision making processes; |
Consolidated Financial Statements December 2013 / Banco Santander Chile 144 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
- | identify risk concentrations and mitigation alternatives, monitor the macroeconomic and competitive environment, quantifying sensitivities and the foreseeable impact of different scenarios on risk positioning; and |
- | carry out the management of structural liquidity, interest rate, and exchange rate risks, as well as those arising from the Bank’s own resource base. |
To achieve the aforementioned objectives, the Bank (its management and the ALCO) performs a variety of activities relating to risk management, including the following: calculate exposures to risk from different portfolios and/or investments, taking into consideration mitigating factors (guarantees, netting, collateral, etc.); calculate the probabilities of expected loss for each portfolio and/or investment; assign loss factors to new transactions (rating and scoring); measure the risk values of the portfolios and/or investments based on different scenarios by means of historical simulations; specify limits for potential losses based on the different risks incurred; determine the potential impact of the structural risks on the Bank’s Consolidated Statements of Income; set limits and alerts which guarantee the Bank’s liquidity; and identify and quantify the operating risks by line of business, so as to facilitate their mitigation through corrective actions.
The CDA is mainly responsible for supervising compliance with the Bank’s risk management policies and procedures, and for reviewing the adaptation of the risk management framework to the risks faced by the Bank.
Credit risk
Credit risk is the risk that one of the parties to a financial instrument fails to meet its contractual obligations for reasons of insolvency or inability of the individuals or legal entities in question to continue as a going concern, causing a financial loss to the other party. To manage credit risk, the Bank consolidates all elements and components of credit risk exposure (e.g. individual delinquency risk, innate risk of a business line or segment, and/or geographical risk).
Mitigation of credit risk for loans and accounts receivable
The Board has delegated the duty of credit risk management to the ALCO and CEC, as well as to the Bank’s risk departments, whose roles are summarized below:
- | Formulation of credit policies, by consulting with the business units, meeting requirements of guarantees, credit evaluation, risk rating and submission of reports, documentation and legal procedures in compliance with the regulatory, legal and internal requirements of the Bank. |
- | Establish the structure to approve and renew credit requests. The Bank structures credit risks by assigning limits to the concentration of that risk in terms of individual debtors, debtor groups, industry segment and country. Approval levels are assigned to the correspondent officials of the business unit (commercial, consumer, SMEs) to be exercised by that level of management. In addition, those limits are revised constantly. Teams in charge of risk evaluation at the branch level interact on a regular basis with customers; however, for larger credit requests, the risk team from the head office and even the CEC work directly with customers to assess credit risks and prepare risk requests. Moreover, Banco Santander España participates in the process to approve larger credits; for example, to customers or economic groups with debts over USD 40 million. |
- | Limit concentrations of exposure to customers or counterparties in geographic areas or industries (for accounts receivable or loans), and by issuer, credit rating, and liquidity (for investments). |
- | Develop and maintain the Bank’s credit risk classifications for the purpose of classifying risks according to the degree of exposure to financial loss that is exhibited by the respective financial instruments, with the aim of focusing risk management specifically on the associated risks. |
- | Revise and evaluate credit risk. Review and evaluate credit risk. Management’s risk divisions are largely independent of the Bank’s commercial division and evaluate all credit risks in excess of the specified limits prior to loan approvals for customers or prior to the acquisition of specific investments. Credit renewal and revisions are subject to similar processes. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 145 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
When preparing a credit request for a corporate customer, the Bank verifies several parameters such as debt service capacity (generally including future cash flows), the customer's financial records and/or projections for their economic sector. The risk division is closely involved in this process. All applications include an analysis of the customer’s strengths and weaknesses, as well as a risk classification and a recommendation. Credit limits are not established over customers’ outstanding balances but on the direct and indirect credit risk of the financial group. For example, a corporation would be evaluated together with subsidiaries and affiliates.
Consumer loans are evaluated and approved by their respective risk divisions (individual, SME), and the evaluation process is based on an evaluation system known as Garra (Banco Santander) and Syseva (Santander Banefe). Both of these processes are decentralized, automated, and based on a scoring system that includes the credit risk policies adopted by the Bank’s Board. The loan application process is based on a collection of information to determine the customer’s financial condition and payment capacity. The parameters used to assess the credit risk of the applicant include different variables such as income levels, duration of current job, indebtedness, reports from credit reporting agencies, etc.
- | Provide advice, training, and specialized knowledge to the business units in order to promote the Bank’s best practices in credit risk management. |
Mitigation of credit risk of other financial assets (investments, derivatives, commitments)
As a part of the acquisition process of financial investments and financial instruments, the Bank examines the probability of uncollectability from issuers or counterparties, using internal and external evaluations, such as risk evaluators that are independent from the Bank. The Bank is also governed by a strict and conservative policy which ensures that the issuers of its investments and the counterparties in derivative transactions are highly reputable.
In addition, the Bank holds a variety of instruments which imply credit risk, but are not reflected in the Consolidated Statement of Financial Position, such as: guarantees and bonds, documentary letters of credit, performance bonds, and commitments to grant loans.
Guarantees and bonds represent an irrevocable payment obligation. If a guaranteed customer fails to meet their obligations to third parties secured by the Bank, the Bank will make the relevant payments; hence, these transactions imply the same credit risk exposure as an ordinary loan.
Documentary letters of credit are commitments documented by the Bank on behalf of customers, which are secured by the shipped merchandise to which they relate, and hence, have a lower risk than direct indebtedness. Performance bonds are contingent commitments which become enforceable only if the customer fails to carry out the work agreed upon with a third party who is secured by such performance bonds.
In the case of loan commitments, the Bank is potentially exposed to losses for an amount equivalent to the amount unused of the commitment. However, the expected loss amount is lower than the commitment’s unused amount. The Bank controls the maturity term of credit lines since generally, long-term obligations have a larger credit risk than short-term ones.
Maximum credit risk exposure
For financial assets recorded in the Consolidated Statements of Financial Position, risk exposure equals their book amount. For financial guarantees granted, the maximum exposure to credit risk equals the maximum amount the Banks would have to pay if the financial guaranty was executed.
Consolidated Financial Statements December 2013 / Banco Santander Chile 146 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
Below is the distribution by financial asset of the Bank’s maximum exposure to credit risk as of December 31, 2013 and 2012, without deduction of collateral or credit improvements received:
As of December 31 | ||||||||||
2013 | 2012 | |||||||||
Amount of exposure | Amount of exposure | |||||||||
Note | MCh$ | MCh$ | ||||||||
Cash and deposits in banks | 5 | 1,571,810 | 1,250,414 | |||||||
Cash items in process of collection | 5 | 604,077 | 520,267 | |||||||
Trading investments | 6 | 287,567 | 338,287 | |||||||
Investments under resale agreements | 7 | 17,469 | 6,993 | |||||||
Financial derivative contracts | 8 | 1,494,018 | 1,293,212 | |||||||
Loans and accounts receivable from customers and interbank loans, net | 9 and 10 | 20,452,416 | 18,416,484 | |||||||
Available for sale investments | 12 | 1,700,993 | 1,826,158 | |||||||
Off-balance commitments: | ||||||||||
Letters of credit issued | 24 | 218,032 | 199,420 | |||||||
Foreign letters of credit confirmed | 24 | 127,600 | 113,878 | |||||||
Guarantees | 24 | 1,212,799 | 1,046,114 | |||||||
Available credit lines | 24 | 5,141,831 | 4,933,335 | |||||||
Personal guarantees | 24 | 181,416 | 139,059 | |||||||
Other irrevocable credit commitments | 24 | 47,376 | 63,828 | |||||||
Total | 33,057,404 | 30,147,449 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 147 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
Credit quality is classified as described in the SBIF’s Compendium of Standards as of December 31, 2013 and 2012:
December 31 | ||||||||||||||||||||||||||||||||
Category | 2013 | 2012 | ||||||||||||||||||||||||||||||
Commercial | Individual | Percentage | Allowance | Percentage | Individual | Percentage | Allowance | Percentage | ||||||||||||||||||||||||
Portfolio | MCh$ | % | MCh$ | % | MCh$ | % | MCh$ | % | ||||||||||||||||||||||||
A1 | 381,551 | 1.81 | % | 135 | 0.02 | % | 169,601 | 0.89 | % | 59 | 0.01 | % | ||||||||||||||||||||
A2 | 2,013,820 | 9.56 | % | 1,323 | 0.22 | % | 1,945,252 | 10.26 | % | 1,249 | 0.23 | % | ||||||||||||||||||||
A3 | 2,730,837 | 12.97 | % | 2,923 | 0.48 | % | 2,531,416 | 13.35 | % | 2,650 | 0.48 | % | ||||||||||||||||||||
A4 | 2,115,403 | 10.04 | % | 15,823 | 2.60 | % | 1,587,998 | 8.37 | % | 12,230 | 2.22 | % | ||||||||||||||||||||
A5 | 838,697 | 3.98 | % | 13,712 | 2.25 | % | 701,917 | 3.70 | % | 12,356 | 2.25 | % | ||||||||||||||||||||
A6 | 443,059 | 2.10 | % | 11,981 | 1.97 | % | 335,676 | 1.77 | % | 13,972 | 2.54 | % | ||||||||||||||||||||
B1 | 181,676 | 0.86 | % | 8,061 | 1.33 | % | 133,240 | 0.70 | % | 5,699 | 1.04 | % | ||||||||||||||||||||
B2 | 80,513 | 0.38 | % | 4,229 | 0.70 | % | 77,411 | 0.41 | % | 4,714 | 0.86 | % | ||||||||||||||||||||
B3 | 77,940 | 0.37 | % | 10,430 | 1.72 | % | 41,266 | 0.22 | % | 5,393 | 0.98 | % | ||||||||||||||||||||
B4 | 33,922 | 0.16 | % | 5,318 | 0.87 | % | 35,980 | 0.19 | % | 7,331 | 1.33 | % | ||||||||||||||||||||
C1 | 56,040 | 0.27 | % | 1,121 | 0.18 | % | 45,104 | 0.24 | % | 902 | 0.16 | % | ||||||||||||||||||||
C2 | 46,996 | 0.22 | % | 4,700 | 0.77 | % | 30,796 | 0.16 | % | 3,080 | 0.56 | % | ||||||||||||||||||||
C3 | 20,780 | 0.10 | % | 5,195 | 0.85 | % | 34,685 | 0.18 | % | 8,672 | 1.58 | % | ||||||||||||||||||||
C4 | 43,109 | 0.21 | % | 17,243 | 2.83 | % | 28,246 | 0.15 | % | 11,298 | 2.05 | % | ||||||||||||||||||||
C5 | 61,246 | 0.29 | % | 39,811 | 6.54 | % | 36,545 | 0.19 | % | 23,754 | 4.32 | % | ||||||||||||||||||||
C6 | 64,755 | 0.31 | % | 58,279 | 9.59 | % | 46,246 | 0.24 | % | 41,622 | 7.57 | % | ||||||||||||||||||||
Subtotal | 9,190,344 | 43.63 | % | 200,284 | 32.92 | % | 7,781,379 | 41.02 | % | 154,981 | 28.18 | % |
Group | Percentage | Allowance | Percentage | Group | Percentage | Allowance | Percentage | |||||||||||||||||||||||||
MCh$ | % | MCh$ | % | MCh$ | % | MCh$ | % | |||||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||||||
Normal portfolio | 2,237,256 | 10.62 | % | 30,864 | 5.07 | % | 2,380,961 | 12.55 | % | 33,821 | 6.15 | % | ||||||||||||||||||||
Impaired portfolio | 400,101 | 1.90 | % | 69,306 | 11.39 | % | 417,254 | 2.20 | % | 62,117 | 11.29 | % | ||||||||||||||||||||
Subtotal | 2,637,357 | 12.52 | % | 100,170 | 16.46 | % | 2,798,215 | 14.75 | % | 95,938 | 17.44 | % | ||||||||||||||||||||
Mortgage | ||||||||||||||||||||||||||||||||
Normal portfolio | 5,302,411 | 25.18 | % | 15,701 | 2.58 | % | 5,042,551 | 26.59 | % | 17,485 | 22.99 | % | ||||||||||||||||||||
Impaired portfolio | 323,401 | 1.54 | % | 27,605 | 4.54 | % | 229,030 | 1.21 | % | 18,505 | 24.85 | % | ||||||||||||||||||||
Subtotal | 5,625,812 | 26.72 | % | 43,306 | 7.12 | % | 5,271,581 | 27.80 | % | 35,990 | 47.84 | % | ||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||
Normal portfolio | 3,257,836 | 15.47 | % | 112,468 | 18.49 | % | 2,722,492 | 14.36 | % | 126,493 | 3.18 | % | ||||||||||||||||||||
Impaired portfolio | 349,412 | 1.66 | % | 152,117 | 25.01 | % | 392,985 | 2.07 | % | 136,766 | 3.36 | % | ||||||||||||||||||||
Subtotal | 3,607,248 | 17.13 | % | 264,585 | 43.50 | % | 3,115,477 | 16.43 | % | 263,259 | 6.54 | % | ||||||||||||||||||||
Total | 21,060,761 | 100.00 | % | 608,345 | 100.00 | % | 18,966,652 | 100.00 | % | 550,168 | 100.00 | % |
Consolidated Financial Statements December 2013 / Banco Santander Chile 148 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
Regarding the individually evaluated portfolio, the different categories and levels within each category correspond to:
- | Category A or Normal Portfolio. Consists of debtors with a payment capacity that allows them to fulfill their financial obligations and commitments and who, according to their financial situation, are not likely to experience a change in this condition in the short term. |
- | Category B or Substandard Portfolio. Includes debtors with financial difficulties or whose payment capacity has been diminished and about whom the Bank has considerable doubts about the total reimbursement of the capital and interest according to the agreed terms, showing they have a mess likelihood of meeting their financial obligations in the short term. |
- | Category C or Default Portfolio. Consists of those debtors where the Bank considers the ability of reimbursement remote since they have an impaired or null payment capacity. |
Regarding the portfolios evaluated on a group basis, all of the associated operations are evaluated together.
See Note 32 for the detail of the Bank’s impaired loans and the associated allowances. Also, see Note 21 for a detail of the maturity of the Bank’s financial assets.
Exposure to credit risk in foreign derivative contracts
As of December 31, 2013, the Bank’s foreign exposure -including counterparty risk in the derivative instruments’ portfolio- was USD 991 million or 1.9% of assets. In the table below, exposure to derivative instruments is calculated by using the equivalent credit risk; which equals the replacement carrying amount plus the maximum potential value, considering the cash collateral that minimizes exposure.
Below, there are additional details regarding our exposure to Spain and Italy, since they are classified above 1 and where most of our exposure to categories other than 1 is. We do not have sovereign exposure to Spain or Italy. Below we detail exposure to Italy and Spain as of December 31, 2013, considering fair value of derivative instruments.
Country | Classification (1) | Derivative
Instruments (adjusted to market) USD MM | Deposits
USD MM | Loans
USD MM | Financial
investments USD MM | Total
Exposure USD MM | ||||||||||||||||||
Spain | 2 | 0,28 | 8,56 | 0,04 | - | 8,88 | ||||||||||||||||||
Italy | 2 | 66,40 | 4,04 | 0,84 | - | 71,28 | ||||||||||||||||||
Other | 2 | 5,08 | 0,17 | 0,98 | - | 6,23 | ||||||||||||||||||
Total | 71,76 | 12,77 | 1,86 | - | 86,39 |
(1) Corresponds to country’s classification established in Chapter B-6 of the Compendium of Accounting Standards issued by the SBIF.
* | The total amount of this exposure to derivative instruments must be compensated daily with collateral and, therefore, the net credit exposure is USD 0 |
Our exposure to Spain within the group is as follows:
Counterpart | Country | Classification | Derivative instruments (market adjusted) USD MM | Deposits USD MM | Loans USD MM | Financial Investments USD MM | Exposure Exposure USD MM | |||||||||||||||||||
Banco Santander España | Spain | 2 | 0,28 | 8,56 | - | - | 8,84 |
* | The total amount of this exposure to derivative instruments must be compensated daily with collateral and, therefore, the net credit exposure is USD 0.28 |
** | We have included our exposure to Santander branches in New York and Hong Kong as exposure to Spain. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 149 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
Impairment of other financial instruments
As of December 31, 2013 and 2012, the Bank had no significant impairments of its financial assets other than loans and accounts receivable
Security interests and credit improvements
The maximum exposure to credit risk is reduced in some cases by security interests, credit improvements, and other actions which mitigate the Bank’s exposure. Based on the foregoing, the creation of security interests are a necessary but not a sufficient condition for granting a loan; accordingly, the Bank’s acceptance of risks requires the verification of other variables and parameters, such as the ability to pay or generate funds in order to mitigate the risk being taken on.
Procedures for management and valuation of securities are described in the internal policies of risk management. Said policies set the basic principles for credit risk management, including the management of securities received in customers’ operations. In this sense, the risk management model includes valuating the existence of adequate and sufficient guarantees that allow recovering the credit when the debtor’s circumstances prevent them from fulfilling their obligations.
The procedures used for the valuation of security interests utilize the prevailing market practices, which provide for the use of appraisals for mortgage securities, market prices for stock securities, fair value of the participating interest for investment funds, etc. All security interests received must be instrumented properly and registered on the relevant register, as well as have the approval of legal divisions of the Bank.
In addition, the Bank has classification tools that allow it to group the credit quality of transactions or customers. To study how this probability varies, the Bank has historical databases that keep this internally generated information. Classification tools vary according to the analyzed customer (commercial, consumer, SMEs, etc.).
Below is the detail of security interests, collateral, or credit improvements provided to the Bank as of December 31, 2013 and 2012.
As of December 31 | ||||||||
2013 | 2012 | |||||||
MCh$ | MCh$ | |||||||
Non-impaired financial assets: | ||||||||
Properties/mortgages | 12,701,836 | 11,462,572 | ||||||
Investments and others | 1,347,770 | 869,036 | ||||||
Impaired financial assets: | ||||||||
Properties/ mortgages | 663,889 | 1,145,721 | ||||||
Investments and others | 27,810 | 105,903 | ||||||
Total | 14,741,305 | 13,583,232 |
Consolidated Financial Statements December 2013 / Banco Santander Chile 150 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
Liquidity risk
Liquidity risk is the risk that the Bank may have difficulty meeting the obligations associated with its financial obligations.
Liquidity risk management
The Bank is exposed on a daily basis to requirements for cash funds from various banking activities, such as wires from checking accounts, fixed-term deposit payments, guarantee payments, disbursements on derivatives transactions, etc. As typical in the banking industry, the Bank does not hold cash funds to cover the balance of all the positions, as experience shows that only a minimum level of these funds will be withdrawn, which can be accurately predicted with a high degree of certainty.
The Bank’s approach to liquidity management is to ensure— whenever possible—to have enough liquidity on hand to fulfill its obligations at maturity, in both normal and stressed conditions, without entering into unacceptable debts or risking the Bank’s reputation. The Board establishes limits on the minimal part of available funds close to maturity to fulfill said payments as well as over a minimum level of interbank operations and other loan facilities that should be available to cover transfers at unexpected demand levels. This is constantly reviewed. Additionally, the Bank must comply with the regulation limits established by the SBIF for maturity mismatches.
These limits affect the mismatches of future flows of income and expenditures of the Bank on an individual basis. They are:
i. mismatches of up to 30 days for all currencies, up to the amount of basic capital;
ii. mismatches of up to 30 days for foreign currencies, up to the amount of basic capital; and
iii. mismatches of up to 90 days for all currencies, twice the basic capital.
The Bank’s treasury department (“Treasury”) receives information from all business units about the liquidity profile of its financial assets and liabilities in addition to details from other future cash flows that arise from future business transactions. Based on this information, Treasury keeps a short-term liquid assets portfolio, mainly composed of liquid investments, interbank loans, and advanced payments, to guarantee that the Bank has enough liquidity. Liquidity needs of business units are fulfilled through short-term transfers from Treasury to cover any short-term variation and long-term financing to address all structural liquidity requirements.
The Bank monitors its liquidity position daily to establish future flows of inflow and outflow. At each month's closing, stress tests are carried out in which a variety of scenarios are used, from normal market conditions to those that contain significant fluctuations. Liquidity policy and procedures are subjected to review and approval of the Bank’s Board. There are periodic reports which detail the Bank’s, and its subsidiaries’, liquidity position, including any exceptions and adopted correcting measures, which are also reviewed periodically by the ALCO.
The Bank relies on customer (retail) and institutional deposits, obligations to banks, debt instruments, and time deposits as its main sources of funding. Although most obligations to banks, debt instruments and time deposits have maturities of more than one year, customer (retail) and institutional deposits tend to have shorter maturities and a large proportion of them are payable within 90 days. The short-term nature of these deposits increases the Bank’s liquidity risk, and hence, the Bank actively manages this risk through continual supervision of the market trends and price management.
Consolidated Financial Statements December 2013 / Banco Santander Chile 151 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
Exposure to liquidity risk
A similar, yet not identical, measure is the calculation used to measure the Bank´s liquidity limit as established by the SBIF. The Bank determines a mismatch percentage for purposes of calculating such liquidity limit which is calculated by dividing its benefits (assets) by its obligations (liabilities) according to maturity based on estimated repricing. The mismatch amount permitted for the 30 day and under period is 1 times [regulatory] capital and for the 90 day and under period – 2 times [regulatory] capital.
The following table displays the actual derived percentages as calculated per above:
As of December 31, | ||||||||
2013 | 2012 | |||||||
% | % | |||||||
30 days | 30.00 | 51.00 | ||||||
30 days foreign currency | (22.00 | ) | 3.00 | |||||
90 days | 31.00 | 29.00 |
Next, is the breakdown by maturity, of the asset and liability balances of the Bank as of December 31, 2013 and 2012, which also includes off-balance commitments:
Demand | Up to 1 month | Between 1 and 3 months | Between 3 and 12 months | Between 1 and 5 years | More than 5 years | Total | ||||||||||||||||||||||
As of December 31, 2013 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||
Maturity of assets (Note 21) | 2,950,498 | 2,647,295 | 2,190,406 | 4,387,042 | 7,412,088 | 7,149,366 | 26,736,695 | |||||||||||||||||||||
Maturity of liabilities (Note 21) | (6,106,601 | ) | (6,238,544 | ) | (3,346,439 | ) | (3,766,394 | ) | (2,328,605 | ) | (2,365,728 | ) | (24,152,311 | ) | ||||||||||||||
Net maturity | (3,156,103 | ) | (3,591,249 | ) | (1,156,033 | ) | 620,648 | 5,083,483 | 4,783,638 | 2,584,384 | ||||||||||||||||||
Off-balance commitments: | ||||||||||||||||||||||||||||
Personal guarantees | - | (7,745 | ) | (9,292 | ) | (137,269 | ) | (19,001 | ) | (8,109 | ) | (181,416 | ) | |||||||||||||||
Foreign letters of credit confirmed | - | (17,347 | ) | (50,984 | ) | (24,639 | ) | (26,543 | ) | (8,087 | ) | (127,600 | ) | |||||||||||||||
Letters of credit issued | - | (48,634 | ) | (101,181 | ) | (46,210 | ) | (22,007 | ) | - | (218,032 | ) | ||||||||||||||||
Guarantees | - | (128,171 | ) | (145,878 | ) | (493,530 | ) | (419,414 | ) | (25,806 | ) | (1,212,799 | ) | |||||||||||||||
Net maturity, including commitments | (3,156,103 | ) | (3,793,146 | ) | (1,463,368 | ) | (81,000 | ) | 4,596,518 | 4,741,636 | 844,537 |
Demand | Up to 1 month | Between
1 and 3 months | Between 3 and 12 months | Between 1 and 5 years | More than 5 years | Total | ||||||||||||||||||||||
As of December 31, 2012 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||||||||||
Maturity of assets (Note 21) | 2,954,752 | 1,353,187 | 2,081,752 | 3,969,599 | 7,060,705 | 6,781,988 | 24,201,983 | |||||||||||||||||||||
Maturity of liabilities (Note 21) | (5,396,782 | ) | (5,423,233 | ) | (2,740,256 | ) | (3,219,159 | ) | (3,236,072 | ) | (2,003,864 | ) | (22,019,366 | ) | ||||||||||||||
Net maturity | (2,442,030 | ) | (4,070,046 | ) | (658,504 | ) | 750,440 | 3,824,633 | 4,778,124 | 2,182,617 | ||||||||||||||||||
Off-balance commitments: | ||||||||||||||||||||||||||||
Personal guarantees | - | (23,315 | ) | (24,201 | ) | (22,051 | ) | (65,571 | ) | (3,921 | ) | (139,059 | ) | |||||||||||||||
Foreign letters of credit confirmed | - | (4,786 | ) | (22,127 | ) | (40,870 | ) | (46,095 | ) | - | (113,878 | ) | ||||||||||||||||
Letters of credit issued | - | (520,56 | ) | (103,153 | ) | (6,351 | ) | (37,860 | ) | - | (199,420 | ) | ||||||||||||||||
Guarantees | - | (82,428 | ) | (136,561 | ) | (312,299 | ) | (488,770 | ) | (26,056 | ) | (1,046,114 | ) | |||||||||||||||
Net maturity, including commitments | (2,442,030 | ) | (4,232,631 | ) | (944,546 | ) | 368,869 | 3,186,337 | 4,748,147 | 684,146 |
The tables above show cash flows without deducting financial assets and liabilities over the estimated maturity base. Future cash flows from these instruments might vary significantly compared to this analysis. For example, we expect that demand deposits remain stable or grow steadily and we do not expect to execute all unrecognized loan obligations. In addition, the above detail excludes available credit lines since they do not have contractually defined maturities.
Consolidated Financial Statements December 2013 / Banco Santander Chile 152 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
Market risk
Market risk arises as a consequence of the market activity, by means of financial instruments whose value can be affected by market variations, reflected in different assets and financial risk factors. The risk can be diminished by means of hedging through other products (assets/liabilities or derivative instruments) or terminating the open transaction/position. The objective of market risk management is to manage and control market risk exposure within acceptable parameters.
There are four major risk factors that affect the market prices: type of interest, type of exchange, price, and inflation. In addition and for certain positions, it is necessary to consider other risks as well, such as spread risk, base risk, commodity risk, volatility or correlation risk.
Market risk management
The Bank’s internal management measure market risk based mainly on the procedures and standards of Santander Spain, which are in turn based on analysis of management in three principal components:
- | trading portfolio; |
- | domestic financial management portfolio; |
- | foreign financial management portfolio. |
The trading portfolio is comprised mainly of investments, valued at fair value, and free of any restriction on their immediate sale, which are often bought and sold by the Bank with the intent of selling them in the short term in order to benefit from short-term price fluctuations. The financial management portfolios include all the financial investments not considered a part of trading portfolio.
The ALCO has the general responsibility for the market risk. The Bank’s risk/finance department is responsible for formulating detailed management policies and applying them to the Bank’s operations, in conformity with the guidelines adopted by the ALCO and the Global Risk Department of Banco Santander – Spain.
The department’s functions in connection with trading portfolio include the following:
i. | apply the “Value at Risk” (VaR) techniques to measure interest rate risk, |
ii. | adjust the trading portfolios to market and measure the daily income and loss from commercial activities, |
iii. | compare the real VaR with the established limits, |
iv. | establish procedures to prevent losses in excess of predetermined limits, and |
v. | furnish information on the trading activities to the ALCO, other members of the Bank’s management, and the Global Risk Department of Santander – Spain. |
The department’s functions in connection with financial management portfolios include the following:
i. | perform sensitivity simulations (as explained below) to measure interest rate risk for activities denominated in local currency and the potential losses forecasted by these simulations, and |
ii. | provide daily reports thereon to the ALCO, other members of the Bank’s management, and the Global Risk Department of Santander - Spain. |
Market risk - trading portfolio
The Bank applies VaR methods to measure the market risk of its trading portfolio. The Bank has a consolidated commercial position that is made up of fixed income investments, foreign exchange trading, and a minimum position of investments in equity shares. This portfolio is mostly made of Chilean Central Bank bonds, mortgage bonds and corporate bonds issued locally at low risk. At the closing date, the trading portfolio did not show investments in another portfolio.
Consolidated Financial Statements December 2013 / Banco Santander Chile 153 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
For the Bank, the VaR estimate is done through the historical simulation method which consists of observing the behavior of profit and loss that might have taken place with the current portfolio if the market conditions at a given time had been present and, based on that information, infer maximum losses with a determined confidence level. This method has the advantage of reflecting precisely the historical distribution of market values and not requiring any distribution assumption for a specific probability. All VaR measures are designed to establish the distribution function for the value change in a given portfolio and, once this distribution is known, to calculate the percentile related to the necessary confidence level, which will match the risk value in virtue of those parameters. As calculated by the Bank, the VaR is an estimate of the maximum expected loss of market value of a given portfolio in one day, with 99.00% confidence. It is the maximum loss in one day the Bank could expect in a given portfolio with a confidence level of 99.00%. In other words, it is the loss the Bank would have to deal only 1.0% of the time. VaR provides a single estimation of the market risk that cannot be compared with other market risks. Returns are calculated using a time window of 2 years or, at least, 520 data points gathered since the reference date in the past to calculate VaR.
The Bank does not calculate three separate VaRs. Only one VaR is calculated for the entire trading portfolio which, in addition, is separated into risk types. The VaR program carries out a historical simulation and calculates a profit (ganancia or “G”) and loss (pérdida or “P”) G&P Statement for 520 data points (days) for each risk factor (fixed income, currency, and variable income). Each risk factor’s G&P is added and a consolidated VaR is calculated with 520 data points or days. In addition, the VaR is calculated for each risk factor based on the individual G&P calculated for each. Additionally, a weighted VaR is calculated following the above mentioned method but giving a larger weight to the 30 most recent data points. The highest VaR is reported. In 2011 and 2010, we were still using the same VaR model and the methodology has not changed.
The Bank uses VaR estimates to issue a warning in case the statistically estimated losses for the trading portfolio exceed the cautionary levels.
Limitations of the VaR model
When applying a calculation methodology, no assumptions are made regarding the probability distribution of the changes in the risk factors; the historically observed changes are used for the risk factors on which each position in the portfolio will be valued.
It is necessary to define a valuation function fj(xi) for each instrument j, preferably the same one used to calculate the market value and income of the daily position. This valuation function will be applied in each scenario to generate simulated prices for all the instruments in each scenario.
In addition, the VaR methodology should be interpreted taking into consideration the following limitations:
- | Changes in market rates and prices may not be independent and identically distributed random variables, and may not have a normal distribution. In particular, the assumption of normal distribution may underestimate the probability of extreme market movements; |
- | The historical data used by the Bank may not provide the best estimate of the joint distribution of changes in the risk factors in the future, and any modification of the data may be inadequate. In particular, the use of historical data may fail to capture the risk of potential extreme and adverse market fluctuations, regardless of the time period used; |
- | A 1-day time horizon may not fully capture the market risk positions which cannot be liquidated or covered in a single day. It would not be possible to liquidate or cover all the positions in a single day; |
- | The VaR is calculated at the close of business, but trading positions may change substantially in the course of the trading day; |
- | The use of a 99% level of confidence does not take account of, or make any statement about, the losses that could occur outside of that degree of confidence; and |
- | A model such as the VaR does not capture all the complex effects of the risk factors over the value of the positions or portfolios, and accordingly, it could underestimate potential losses. |
Consolidated Financial Statements December 2013 / Banco Santander Chile 154 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
At no time in 2013 and 2012 did the Bank exceed the VaR limits in connection with the three components which comprise the trading portfolio: fixed-income investments, variable-income investments and foreign currency investments.
The Bank carries out back-testings on a daily basis and, generally, discovers that trading losses exceed the estimated VaR almost one out hundred business days. Also, a maximum VaR limit was established that can be applied over the trading portfolio. Both in 2013 and 2012, the Bank has kept within the maximum limit it established for the VaR; even when the real VaR exceeded estimations.
High, low and average levels for each component and year were as follows:
VaR | 2013 USDMM | 2012 USDMM | ||||||
Consolidated: | ||||||||
High | 3,48 | 4,62 | ||||||
Low | 1,061 | 0,96 | ||||||
Average | 1,72 | 2,33 | ||||||
Fixed-income investments: | ||||||||
High | 2,39 | 4,99 | ||||||
Low | 0,97 | 0,95 | ||||||
Average | 1,57 | 2,24 | ||||||
Variable-income investments | ||||||||
High | 0,19 | 0,07 | ||||||
Low | 0,00 | 0,00 | ||||||
Average | 0,00 | 0,00 | ||||||
Foreign currency investments | ||||||||
High | 3,20 | 3,23 | ||||||
Low | 0,06 | 0,03 | ||||||
Average | 0,69 | 0,66 |
Market risk - local and foreign financial management
The Bank’s financial management portfolio includes most of the Bank’s non-trading assets and liabilities, including the credit/loan portfolio. For these portfolios, investment and financing decisions are strongly influenced by the Bank’s commercial strategies.
The Bank uses a sensitivity analysis to measure market risk for domestic and foreign currencies (not included in the trading portfolio). The Bank carries out a simulation of scenarios that will be calculated as the difference between current flows in the chosen scenario (curve with a parallel movement of 100 basis points (“bp”) in all its sections) and its value in the base scenario (current market). All positions in domestic currency indexed to inflation (UF) are adjusted by a sensitivity factor of 0.57 which represents a change in the curve of 57bp in all real rates and 100 bp in nominal rates. The same scenario is carried out for net positions in foreign currency and interest rates in USD. In addition, the Bank has established limits regarding maximum loss this kind of movement in interest rates can have over capital and net financial income budgeted for the year.
To establish the consolidated limit, we add the foreign currency limit to the domestic currency limit and multiple by 2 the sum of the multiplication of them together both for net financial loss limit as well as for the capital and reserves loss limit, using the following formula:
Consolidated limit = square root of a2 + b2 + 2ab
a: domestic currency limit
b: foreign currency limit
Since we assume the correlation is 0; 2ab = 0. 2ab = 0.
Consolidated Financial Statements December 2013 / Banco Santander Chile 155 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
Limitations of the sensitivity models
The most important assumption is using an exchange rate of 100 bp based on yield curve (57 bp for real rates). The Bank uses a 100 bp exchange since sudden changes of this magnitude are considered realistic. Santander Spain Global Risk Department has also established comparable limits by country, so as to compare, control and consolidate market risk by country in a realistic and orderly fashion.
In addition, the sensitivity simulation methodology should be interpreted taking into consideration the following limitations:
- | The simulation of scenarios assumes that the volumes remain consistent in the Bank’s Consolidated Statements of Financial Position and are always renewed at maturity, thereby omitting the fact that certain credit risk and prepayment considerations may affect the maturity of certain positions. |
- | This model assumes an identical change along the entire length of the yield curve and does not take into account the different movements for different maturities. |
- | The model does not take into account the volume sensitivity which results from interest rate changes. |
- | The limits to losses of budgeted financial income are calculated based on the financial income foreseen for the year, which may not be actually earned, meaning that the real percentage of financial income at risk may be higher than the expected one. |
Market risk – Financial management portfolio – December 31, 2013 and 2012
2013 | 2012 | |||||||||||||||
Effect on financial income | Effect on capital | Effect on financial income | Effect on capital | |||||||||||||
Financial management portfolio – local currency (MCh$) | ||||||||||||||||
Loss limit | 35,500 | 167,530 | 37,300 | 167,530 | ||||||||||||
High | 28,923 | 86,196 | 26,233 | 100,175 | ||||||||||||
Low | 21,129 | 69,729 | 13,885 | 85,546 | ||||||||||||
Average | 25,124 | 77,849 | 20,054 | 92,312 | ||||||||||||
Financial management portfolio – foreign currency (in millions of $US) | ||||||||||||||||
Loss limit | 30 | 30 | 40,0 | 40,0 | ||||||||||||
High | 17 | 26 | 24,3 | 14,7 | ||||||||||||
Low | 2 | 2 | 3,7 | 4,5 | ||||||||||||
Average | 10 | 19 | 12,8 | 11,7 | ||||||||||||
Financial management portfolio – consolidated (in MCh$) | ||||||||||||||||
Loss limit | 35,500 | 167,530 | 39,200 | 167,530 | ||||||||||||
High | 28,958 | 86,212 | 26,437 | 100,201 | ||||||||||||
Low | 21,204 | 69,787 | 17,037 | 85,566 | ||||||||||||
Average | 25,146 | 77,891 | 21,165 | 92,457 |
Operating risk
Operating risk is the risk of direct or indirect losses stemming from a wide variety of causes related to the Bank’s processes, personnel, technology, and infrastructure, as well as external factors other than credit, market, or liquidity, such as those related to legal or regulatory requirements. Operating risks arise from all the Bank’s operations.
The Bank’s objective is to manage operating risk in order to mitigate economic losses and damage to the Bank’s reputation through a flexible internal control structure.
The Bank’s management has the main responsibility to develop and apply controls to mitigate operating risks. This responsibility is supported by the global development of the Bank’s standards for operating risk management in the following areas:
- | Requirements for adequate segregation of duties, including independent authorization of transactions |
- | Requirements for reconciliation and supervision of transactions |
Consolidated Financial Statements December 2013 / Banco Santander Chile 156 |
Banco Santander Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2013 AND 2012 |
NOTE 40
RISK MANAGEMENT, continued:
- | Compliance with the applicable legal and regulatory requirements |
- | Documentation of controls and procedures |
- | Requirements for periodic evaluation of applicable operating risks and improvement of the controls and procedures to address the risks that are identified |
- | Requirements for disclosure of operating losses and the proposed corrective measures |
- | Development of contingency plans |
- | Training and professional development |
- | Adoption of ethical business standards |
- | Reduction or mitigation of risks, including acquisition of insurance policies if they are effective |
Compliance with the Bank’s standards is supported by a program of periodic reviews conducted by the Bank’s internal audit unit, whose results are internally submitted to the management of the business unit that was examined and to the CDA.
Risk Concentration
The Bank operates mainly in Chile, thus most of its financial instruments are concentrated in that country. See Note 10 of the financial statements for a detail of the concentration of the Bank’s loans and accounts receivable by industry.
NOTE 41
SUBSEQUENT EVENTS
In January 2014, a bond was issued for CHF 300,000,000, with an interest rate of 1% and a maturity date on July 31, 2017.
Between January 1, 2014 and the date on which these Consolidated Financial Statements were issued (January 20, 2014), no other events have occurred which could significantly affect their interpretation.
FELIPE CONTRERAS FAJARDO Accounting Manager |
CLAUDIO MELANDRI HINOJOSA Chief Executive Officer |
Consolidated Financial Statements December 2013 / Banco Santander Chile 157 |