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Document and Entity Information	12 Months Ended
Document and Entity Information	Dec. 31, 2017 shares
Document And Entity Information
Entity Registrant Name	BANCO SANTANDER CHILE
Entity Central Index Key	0001027552
Document Type	20-F
Trading symbol	BSAC
Document Period End Date	Dec. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity a Well-known Seasoned Issuer	Yes
Entity a Voluntary Filer	No
Entity's Reporting Status Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding	0
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2017

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - CLP ($)
$ in Millions

Dec. 31, 2017

Dec. 31, 2016

ASSETS

Cash and deposits in banks

$ 1,452,922

$ 2,279,389

Cash items in process of collection

668,145

495,283

Trading investments

485,736

396,987

Investments under resale agreements

6,736

Financial derivative contracts

2,238,647

2,500,782

Interbank loans, net

162,213

268,672

Loans and accounts receivable from customers, net

26,772,544

26,147,154

Available for sale investments

2,574,546

3,388,906

Investments in associates and other companies

^[1]

27,585

23,780

Intangible assets

63,219

58,085

Property, plant, and equipment

242,547

257,379

Deferred taxes

371,091

359,600

Other assets

764,410

847,272

TOTAL ASSETS

35,823,605

37,030,025

LIABILITIES

Deposits and other demand liabilities

7,768,166

7,539,315

Cash items in process of being cleared

486,726

288,473

Obligations under repurchase agreements

268,061

212,437

Time deposits and other time liabilities

11,913,945

13,151,709

Financial derivative contracts

2,139,488

2,292,161

Interbank borrowings

1,698,357

1,916,368

Issued debt instruments

709,365

7,326,372

Other financial liabilities

242,030

240,016

Current taxes

6,435

29,294

Deferred taxes

9,663

7,686

Provisions

303,798

292,210

Other liabilities

745,363

795,785

TOTAL LIABILITIES

32,675,685

34,091,826

Attributable to the equity holders of the Bank:

Capital

891,303

Reserves

1,781,818

1,640,112

Valuation adjustments

(2,312)

6,640

Retained earnings

Retained earnings from prior years

41,267

37,551

Income for the year

562,801

476,067

Minus: Provision for mandatory dividends

(168,840)

(142,815)

Retained earnings

435,228

370,803

Attributable to the equity holders of the Bank

3,106,037

2,908,858

Non-controlling interest

41,883

29,341

TOTAL EQUITY

3,147,920

2,938,199

TOTAL LIABILITIES AND EQUITY

$ 35,823,605

$ 37,030,025

[1]	Investments in associates and other companies do not have market prices.

CONSOLIDATED STATEMENTS OF INCOME - CLP ($) $ in Millions	12 Months Ended
CONSOLIDATED STATEMENTS OF INCOME - CLP ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
OPERATING INCOME
Interest income	$ 2,058,446	$ 2,137,044	$ 2,085,988
Interest expense	(731,755)	(855,678)	(830,782)
Net interest income	1,326,691	1,281,366	1,255,206
Fee and commission income	455,558	431,184	402,900
Fee and commission expense	(176,495)	(176,760)	(165,273)
Net fee and commission income	279,063	254,424	237,627
Net income (expense) from financial operations	2,796	(367,034)	(457,897)
Net foreign exchange gain	126,956	507,392	603,396
Other operating income	62,016	6,427	6,439
Net operating profit before provision for loan losses	1,797,522	1,682,575	1,644,771
Provision for loan losses	(302,255)	(342,083)	(399,277)
NET OPERATING PROFIT	1,495,267	1,340,492	1,245,494
Personnel salaries and expenses	(396,967)	(395,133)	(387,063)
Administrative expenses	(230,103)	(226,413)	(220,531)
Depreciation and amortization	(77,823)	(65,359)	(53,614)
Impairment of property, plant, and equipment	(5,644)	(234)	(21)
Other operating expenses	(68,413)	(68,902)	(58,729)
Total operating expenses	(778,950)	(756,041)	(719,958)
OPERATING INCOME	716,317	584,451	525,536
Income from investments in associates and other companies	3,963	3,012	2,588
Income before tax	720,280	587,463	528,124
Income tax expense	(145,031)	(109,031)	(76,395)
NET INCOME FOR THE YEAR	575,249	478,432	451,729
Attributable to:
Equity holders of the Bank	562,801	476,067	448,466
Non-controlling interest	$ 12,448	$ 2,365	$ 3,263
Earnings per share attributable to Equity holders of the Bank :
Basic earnings	$ 2,987	$ 2,526	$ 2,380
Diluted earnings	$ 2,987	$ 2,526	$ 2,380

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - CLP ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Consolidated Statement Of Comprehensive Income
NET INCOME FOR THE YEAR	$ 575,249	$ 478,432	$ 451,729
OTHER COMPREHENSIVE INCOME ITEMS WHICH MAY BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS
Available for sale investments	(5,520)	14,468	(28,777)
Cash flow hedge	(5,850)	(6,338)	(2,099)
Other comprehensive income items which may be reclassified subsequently to profit or loss, before tax	(11,370)	8,130	(30,876)
Income tax related to items which may be reclassified subsequently to profit or loss	2,754	(1,975)	6,462
Other comprehensive income items which may be reclassified subsequently to profit or loss, net of tax	(8,616)	6,155	(24,414)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	566,633	484,587	427,315
Attributable to:
Equity holders of the Bank	553,849	481,419	424,154
Non-controlling interests	$ 12,784	$ 3,168	$ 3,161

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - CLP ($) $ in Millions	Capital [Member]	Reserves And Other Retained Earnings [Member]	Effects Of Merger Of Companies Under Common Control [Member]	Available For Sale Investments [Member]	Cash Flow Hedge [Member]	Income Tax Effects [Member]	Retained Earnings Of Prior Years [Member]	Income For The Year [Member]	Provision For Mandatory Dividends [Member]	Total Attributable To Equity Holders Of The Bank [Member]	Non-controlling Interest [Member]	Total
Equity at Dec. 31, 2014	$ 891,303	$ 1,309,985	$ (2,224)	$ 21,680	$ 10,725	$ (6,805)	$ 18,384	$ 569,910	$ (170,973)	$ 2,641,985	$ 33,083	$ 2,675,068
Changes in equity [Roll Forward]
Distribution of income from previous period							569,910	(569,910)
Equity at Dec. 31, 2014	891,303	1,309,985	(2,224)	21,680	10,725	(6,805)	588,294		(170,973)	2,641,985	33,083	2,675,068
Changes in equity [Roll Forward]
Dividends distributions/ withdrawals made							(330,199)		170,973	(159,226)		(159,226)
Transfer of retained earnings to reserves		220,132					(220,132)				(6,063)	(6,063)
Provision for mandatory dividends									(134,539)	(134,539)		(134,539)
Subtotal		220,132					(550,331)		36,434	(293,765)	(6,063)	(299,828)
Other comprehensive income				(28,645)	(2,099)	6,432				(24,312)	(102)	(24,414)
Income for the year								448,466		448,466	3,263	451,729
Subtotal				(28,645)	(2,099)	6,432		448,466		424,154	3,161	427,315
Equity at Dec. 31, 2015	891,303	1,530,117	(2,224)	(6,965)	8,626	(373)	37,963	448,466	(134,539)	2,772,374	30,181	2,802,555
Changes in equity [Roll Forward]
Distribution of income from previous period							448,466	(448,466)
Equity at Dec. 31, 2015	891,303	1,530,117	(2,224)	(6,965)	8,626	(373)	486,429		(134,539)	2,772,374	30,181	2,802,555
Changes in equity [Roll Forward]
Dividends distributions/ withdrawals made							(336,659)		134,539	(202,120)	(4,008)	(206,128)
Transfer of retained earnings to reserves		112,219					(112,219)
Provision for mandatory dividends									(142,815)	(142,815)		(142,815)
Subtotal		112,219					(448,878)		(8,276)	(344,935)	(4,008)	(348,943)
Other comprehensive income				13,414	(6,338)	(1,724)				5,352	803	6,155
Income for the year								476,067		476,067	2,365	478,432
Subtotal				13,414	(6,338)	(1,724)		476,067		481,419	3,168	484,587
Equity at Dec. 31, 2016	891,303	1,642,336	(2,224)	6,449	2,288	(2,097)	37,551	476,067	(142,815)	2,908,858	29,341	2,938,199
Changes in equity [Roll Forward]
Distribution of income from previous period							476,067	(476,067)
Equity at Dec. 31, 2016	891,303	1,642,336	(2,224)	6,449	2,288	(2,097)	513,618		(142,815)	2,908,858	29,341	2,938,199
Changes in equity [Roll Forward]
Dividends distributions/ withdrawals made							(330,645)		142,815	(187,830)	(242)	(188,072)
Transfer of retained earnings to reserves		141,706					(141,706)
Provision for mandatory dividends									(168,840)	(168,840)		(168,840)
Subtotal		141,706					(472,351)		(26,025)	(356,670)	(242)	(356,912)
Other comprehensive income				(5,990)	(5,850)	2,888				(8,952)	336	(8,616)
Income for the year								562,801		562,801	12,448	575,249
Subtotal				(5,990)	(5,850)	2,888		562,801		553,849	12,784	566,633
Equity at Dec. 31, 2017	$ 891,303	$ 1,784,042	$ (2,224)	$ 459	$ (3,562)	$ 791	$ 41,267	$ 562,801	$ (168,840)	$ 3,106,037	$ 41,883	$ 3,147,920

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) - CLP ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Statement of changes in equity [abstract]
Total attributable to equity holders of the Bank	$ 472,351	$ 448,878
Allocated to reserves	141,706	112,219
Allocated to dividends	$ 330,645	$ 336,659
Number of shares	188,446,126,794	188,446,126,794
Dividend per share (in dollars per shares)	$ 1.755	$ 1.787

CONSOLIDATED STATEMENT OF CASH FLOWS - CLP ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
A - CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME FOR THE YEAR	$ 575,249	$ 478,432	$ 451,729
Debits (credits) to income that do not represent cash flows	(1,198,330)	(1,082,975)	(927,591)
Depreciation and amortization	77,823	65,359	53,614
Impairment of property, plant, and equipment	5,644	234	21
Provision for loan losses	385,782	420,381	467,417
Mark to market of trading investments	1,438	(2,682)	(3,001)
Income from investments in associates and other companies	(3,962)	(3,012)	(2,588)
Net gain on sale of assets received in lieu of payment	(3,330)	(1,663)	(2,455)
Provision on assets received in lieu of payment	3,912	9,246	7,803
Net gain on sale of property, plant and equipment	(23,229)	(2,017)	(381)
Net interest income	(1,326,691)	(1,281,366)	(1,255,206)
Net fee and commission income	(279,063)	(254,424)	(237,627)
Debits (credits) to income that do not represent cash flows	(29,903)	4,238	90,484
Changes in deferred taxes	(6,751)	(37,269)	(45,672)
Increase/decrease in operating assets and liabilities	206,724	1,340,696	1,163,658
(Increase) of loans and accounts receivables from customers, net	(629,605)	(1,643,744)	(2,083,854)
Decrease (increase) of financial investments	725,611	(1,417,211)	(57,731)
Decrease (increase) due to resale agreements (assets)	6,736	(4,273)	2,463
Decrease (increase) of interbank loans	110,036	(261,744)	(1,057)
Decrease of assets received or awarded in lieu of payment	4,125	18,238	4,157
Increase of debits in customers checking accounts	127,968	268,695	744,863
(Decrease) increase of time deposits and other time liabilities	(1,237,764)	968,942	1,768,827
Increase (decrease) of obligations with domestic banks	(364,956)	365,436	(66,006)
Increase (decrease) of other demand liabilities or time obligations	100,883	(85,502)	130,763
Increase of obligations with foreign banks	146,947	243,355	142,069
(Decrease) increase of obligations with Central Bank of Chile	(2)	3	(90)
(Decrease) increase of obligations under repurchase agreements	55,624	68,748	(248,437)
Increase in other financial liabilities	2,014	19,489	15,402
(Decrease) increase of other assets and liabilities	(158,281)	259,899	(1,286,057)
Redemption of letters of credit	(11,772)	(16,606)	(26,720)
Senior bond issuances	911,581	3,537,855	878,389
Redemption of mortgage bonds and payments of interest	(5,736)	(5,492)	(5,343)
Redemption of senior bonds and payments of interest	(1,167,656)	(2,499,271)	(231,972)
Redemption of subordinated bonds and payments of interest	(14,899)	(12,128)	(10,397)
Interest received	2,058,446	2,137,044	2,093,028
Interest paid	(731,755)	(855,678)	(836,544)
Dividends received from investments in other companies	116	217	278
Fees and commissions received	455,558	431,184	402,900
Fees and commissions paid	(176,495)	(176,760)	(165,273)
Total cash flow (used in) provided by operating activities	(416,357)	736,153	687,796
B - CASH FLOWS FROM INVESTMENT ACTIVITIES:
Purchases of property, plant, and equipment	(58,772)	(62,355)	(65,111)
Sales of property, plant, and equipment	17,941	560	121
Purchases of investments in associates and other companies	(3)	(1,123)	(302)
Purchases of intangible assets	(32,624)	(27,281)	(27,573)
Total cash flow .used in investment activities	(73,458)	(90,199)	(92,865)
C - CASH FLOW FROM FINANCING ACTIVITIES:
From shareholders' financing activities	(330,645)	(336,659)	(330,199)
Dividends paid	(330,645)	(336,659)	(330,199)
Total cash flow used in financing activities	(330,645)	(336,659)	(330,199)
D - NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE YEAR	(820,460)	309,295	264,732
E - EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS	(31,398)	(150,266)	203,436
F - INITIAL BALANCE OF CASH AND CASH EQUIVALENTS	2,486,199	2,327,170	1,859,002
FINAL BALANCE OF CASH AND CASH EQUIVALENTS	1,634,341	2,486,199	2,327,170
Reconciliation of provisions for the Consolidated Statement of Cash Flow for the year ended
Provision for loan losses for cash flow purposes	385,782	420,381	467,417
Recovery of loans previously charged off	(83,527)	(78,298)	(68,140)
Provision for loan losses - net	$ 302,255	$ 342,083	$ 399,277

CONSOLIDATED STATEMENT OF CASH FLOWS (Parenthetical) $ in Millions	12 Months Ended
	Dec. 31, 2017 CLP ($)
Reconciliation of liabilities that arise from financing activities [Roll Forward]
Balance as of beginning	$ 759,665
Cash flow	(330,645)
Changes not related to cash flows
Adquisition
Foreign currency exchange
Price level restatement	13,527
Fair value changes
Balance as of end	442,547
Other liabilities [Member]
Reconciliation of liabilities that arise from financing activities [Roll Forward]
Balance as of beginning
Cash flow
Changes not related to cash flows
Adquisition
Foreign currency exchange
Price level restatement
Fair value changes
Balance as of end
Paid dividend [Member]
Reconciliation of liabilities that arise from financing activities [Roll Forward]
Balance as of beginning
Cash flow	(330,645)
Changes not related to cash flows
Adquisition
Foreign currency exchange
Price level restatement
Fair value changes
Balance as of end	(330,645)
Subordinated bonds [Member]
Reconciliation of liabilities that arise from financing activities [Roll Forward]
Balance as of beginning	759,665
Changes not related to cash flows
Adquisition
Foreign currency exchange
Price level restatement	13,527
Fair value changes
Balance as of end	$ 773,192

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2017

Summary Of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CORPORATE INFORMATION

Banco Santander Chile is a banking corporation (limited company) operating under the laws of the Republic of Chile, headquartered at Bandera N°140, Santiago. The corporation provides a broad range of general banking services to its customers, ranging from individuals to major corporations. Banco Santander Chile and its subsidiaries (collectively referred to herein as the “Bank” or “Banco Santander Chile”) offers commercial and consumer banking services, including (but not limited to) factoring, collection, leasing, securities and insurance brokering, mutual and investment fund management brokering, and investment banking.

Banco Santander Spain controls Banco Santander-Chile through its holdings in Teatinos Siglo XXI Inversiones Ltda. and Santander-Chile Holding S.A., which are controlled subsidiaries of Banco Santander Spain. As of December 31, 2017 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) (hereinafter referred to as IFRS).

For purposes of these financial statements we use certain terms and conventions. References to “US$”, “U.S. dollars” and “dollars” are to United States dollars, references to “EUR” are to European Economic Community Euro, references to “CNY” are to Chinese Yuan, references to “CHF” are to Swiss franc, references to “Chilean pesos”, “pesos” or “Ch$” are to Chilean pesos, and references to “UF” are to Unidades de Fomento. The UF is an inflation-indexed Chilean monetary unit with a value in Chilean pesos that changes daily to reflect changes in the official Consumer Price Index (“CPI”) of the Instituto Nacional de Estadísticas (the Chilean National Institute of Statistics) for the previous month.

The UF is revalued in monthly cycles. Each day in the period beginning on the tenth day of the current month through the ninth day of the succeeding month, the nominal peso value of the UF is indexed up (or down in the event of deflation) in order to reflect a proportionate amount of the change in the Chilean Consumer Price Index during the prior calendar month. One UF is equaled to Ch$26,798.14 as of December 31, 2017 and Ch$26,347.98 as of December 31, 2016. In 2017, UF inflation was 2.3% compared to 2.7% in 2016. The effect of any changes in the nominal peso value of our UF-denominated interest earning assets and interest bearing liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest income and expense, respectively.

The Notes to the Consolidated Financial Statements contain additional information to support the figures submitted in the Consolidated Statement of Financial Position, Consolidated Statement of Income, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows for the period.

b) Basis of preparation for the Consolidated Financial Statements

The Consolidated Financial Statements for the years ended December 31, 2017, 2016 and 2015, incorporate the financial statements of the entities over which the Bank has control (including structured entities); and includes the adjustments, reclassifications and eliminations needed to comply with the accounting and valuation criteria established by IFRS. Control is achieved when the Bank:

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 Comprehensive Income from the date the Bank gains control until the date when the Bank ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Bank and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit in certain circumstances.

When necessary, adjustments are made to the financial statements of the subsidiaries to ensure their accounting policies are consistent with the Bank’s accounting policies.

All intragroup assets, 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 a loss of control over the subsidiaries are accounted for as equity transactions. The carrying values of the Bank’s equity and the non-controlling interests’ equity are adjusted to reflect the changes to their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Bank.

In addition, third parties’ shares in the Bank’s consolidated equity are presented as “Non-controlling interests” in the Consolidated Statement of Changes in Equity. Their share in the income for the year is presented as “Attributable to non-controlling interest” in the Consolidated Statement of Income.

The following companies are considered entities controlled by the Bank and are therefore within the scope of consolidation:

Entities controlled by the Bank through participation in equity

Name of the Subsidiary			Percent ownership share
			As of December 31,
		Place of Incorporation and operation	2017			2016			2015
			Direct	Indirect	Total	Direct	Indirect	Total	Direct	Indirect	Total
	Main Activity		%	%	%	%	%	%	%	%	%

Santander Corredora de Seguros Limitada	Insurance brokerage	Santiago, Chile	99.75	0.01	99.76	99.75	0.01	99.76	99.75	0.01	99.76
Santander Corredores de Bolsa Limitada(*)	Financial instruments brokerage	Santiago, Chile	50.59	0.41	51.00	50.59	0.41	51.00	50.59	0.41	51.00
Santander Agente de Valores Limitada	Securities brokerage	Santiago, Chile	99.03	-	99.03	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	99.64	-	99.64

The detail of non-controlling participation on all the remaining subsidiaries can be seen in Note 24– 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)

- 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:

				Percentage of ownership share
			As of December 31,
		Place of Incorporation and operation	2017		2016	2015
Associates	Main activity	Place of Incorporation and operation	%		%	%
Redbanc S.A.	ATM services	Santiago, Chile	33.43		33.43	33.43
Transbank S.A.	Debit and credit card services	Santiago, Chile	25.00		25.00	25.00
Centro de Compensación Automatizado	Electronic fund transfer and compensation services	Santiago, Chile	33.33		33.33	33.33
Sociedad Interbancaria de Depósito de Valores S.A.	Delivery of securities on public offer	Santiago, Chile	29.29		29.29	29.29
Cámara Compensación de Alto Valor S.A.	Payments clearing	Santiago, Chile	15.00		14.93	14.23
Administrador Financiero del Transantiago S.A.	Administration of boarding passes to public transportation	Santiago, Chile	20.00		20.00	20.00
Sociedad Nexus S.A.	Credit card processor	Santiago, Chile	12.90		12.90	12.90
Servicios de Infraestructura de Mercado OTC S.A.	Administration of the infrastructure for the financial market of derivative instruments	Santiago, Chile	12.07		12.07	11.11

In the case of Sociedad Nexus S.A. and Cámara Compensación de Pagos Alto Valor S.A., Banco Santander Chile has a representative on the Board of Directors. As per the definition of associates, the Bank has concluded that it exerts significant influence over those entities.

During 2017, Rabobank Chile in liquidation process and Banco París, ceded to Banco Santander Chile a portion of its share in the company "Sociedad Operadora de la Cámara de Compensación de pagos de Alto Valor S.A.", thereby increasing the Bank's share.

During the last quarter of 2016, Banco Penta ceded to Banco Santander Chile a portion of its share in the companies "Sociedad Operadora de la Cámara de Compensación de pagos de Alto Valor S.A." and "Servicios de Infraestructura de Mercado OTC S.A.", thereby increasing the Bank's share to 14.93% and 12.07% respectively.

As of the ended (2016), Deutsche Bank ceded to Banco Santander Chile a portion of its share in the companies "Sociedad Operadora de la Cámara de Compensación de pagos de Alto Valor S.A." and "Servicios de Infraestructura de Mercado OTC S.A.", thereby increasing the Bank's share to 14.84% and 11.93% respectively.

At the Extraordinary Shareholders meeting held in April 21, 2016, Transbank S.A. agreed to increase its capital by capitalizing the accumulated profits, through the placement of shares for Ch$4,000 million approximately. Banco Santander Chile participated proportionally in its participation (25%), therefore subscribed and paid in for Ch$1,000 million. Previously, Transbank agreed to capital increase at an Extraordinary Shareholders' Meeting held in April 2015, Banco Santander subscribed to that agreement, maintaining its ownership.

In October 2015, HSBC Bank Chile sold its ownership share in Camara de Compensación de Pagos de Alto Valor S.A. to Banco Santander Chile, increasing its participation to 14.23%.

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) Reporting segments

Operating segments are components of an entity:

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.

Two or more segments can be combined only if aggregation is consistent with International Financial Reporting Standard 8 “Operating Segments” (IFRS 8) and the segments have similar economic characteristics and are similar in each of the following respects:

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

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:

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 threshold may be treated as segments to be reported, in which case the information must be disclosed separately if management believes it could be useful for the users of the Consolidated Financial Statements.

Information about other business activities of the operating segments not separately reported is combined and disclosed in the “Other segments” category.

e) Functional and presentation currency

According to International Accounting Standard (IAS) 21 “The Effects of Changes in Foreign Exchange Rates”, 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 revenue 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”.

The Bank maintains its accounting records and prepares its financial statements in Chilean pesos. The US dollar amounts disclosed in the accompanying financial statements are presented solely for the convenience of the reader as of December 31, 2017 using the observed exchange rate of Ch$616.85 per US$1.00. Such translations should not be construed as representations that the (local currency) amounts represent, or have been or could be converted into, United States dollars at that or any other rate.

f) Foreign currency transactions

The Bank makes transactions 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. representative of the month end reported; the rate used was Ch$616.85 per US$1 as of December 31, 2017 (Ch$666.00 per US$1 as of December, 2016).

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.

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 underlying 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

Financial assets are classified into the following specified categories: trading investments at fair value through profit or loss (FVTPL), ‘held to maturity investments’, ‘available for sale investments (AFS)’ and ‘loans and accounts receivable from customers'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular purchases or sales of financial asset are recognized and derecognized on a trade basis.

Regular way purchases or sales of financial assets require delivery of the asset within the time frame established by regulation or convention in the marketplace.

Financial assets are initially recognized at fair value plus, in the case of a financial assets not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis for loans and accounts receivables other than those financial assets classified as at fair value through profit or loss.

Financial assets FVTPL - Trading investments

Financial assets are classified as FVTPL when the financial asset is either held for trading or it is designated as at fair value through profit or loss.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling it in the near term; or

on initial recognition it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent actual pattern of short-term profit-taking; or

it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Bank's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘net income (expense) from financial operations' line item.

Held to maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Bank has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method less any impairment.

Available for sale investments (AFS investments)

AFS investments are non-derivatives that are either designated as AFS or are not classified as (a) loans and accounts receivable from customers, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss (trading investments).

Financial instruments held by the Bank that are traded in an active market are classified as AFS and are stated at fair value at the end of each reporting period. The Bank also has investments in financial instruments that are not traded in an active market but that are also classified as AFS investments and stated at fair value at the end of each reporting period (because the Bank considers that fair value can be reliably measured). Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency rates, interest income calculated using the effective interest method and dividends on AFS equity investments are recognised in profit or loss. Other changes in the carrying amount of available for sale investments are recognised in other comprehensive income and accumulated under the heading of “Valuation Adjustment”. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.

Dividends on AFS equity instruments are recognised in profit or loss when the Bank's right to receive the dividends is established.

The fair value of AFS monetary financial assets denominated in a foreign currency is determined in that foreign currency and translated as the described in f) above. The foreign exchange gains and losses that are recognised in profit or loss are determined based on the amortised cost of the monetary asset.

Loans and accounts receivable from customers

Loans and accounts receivable from customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and accounts receivables from customers (including loans and accounts receivable from customers and interbank loans) are measured at amortised cost using the effective interest method, less any impairment.

Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.

iii.

Classification of financial assets for presentation purposes

For presentation purposes, the financial assets are classified by their nature into the following line items in the Consolidated Financial Statements:

Cash and deposits in banks: this line includes cash balances, checking accounts and on-demand deposits with the Central Bank of Chile and other domestic and foreign financial institutions. Amounts invested as overnight deposits are included in this item.

Cash items 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 timing 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.

Investments under resale agreements: includes balances of financial instruments purchased under resale agreement.

Financial derivative contracts: financial derivative contracts with positive fair values are presented in this item. It includes both independent contracts as well as derivatives that should and can be separated from a host contract, whether they are for trading or accounted for as derivatives held for hedging, as shown in Note 7 to the Consolidated Financial Statements.

Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments.

Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments.

Interbank loans: this item includes the balances of transactions with domestic and foreign banks, including the Central Bank of Chile, other than those reflected in certain other financial asset classifications listed above.

Loans and accounts receivables from 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 rewards incidental to the leased asset, the transaction is presented in loans and accounts receivable from customers while the leased asset is derecognized in the Bank´s statement of financial position.

Investment instruments: are classified into two categories: held-to-maturity investments, and available-for-sale investments. The held-to-maturity investment classification includes only those instruments for which the Bank has the ability and intent to hold to maturity. The remaining investments are treated as available for sale.

iv.

Classification of financial liabilities for measurement purposes

Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities.

Financial liabilities at FVTPL

As of December 31, 2017 and 2016 the Bank does not maintain financial liabilities at FVTPL.

Other financial liabilities

Other financial liabilities (including interbank borrowings, issued debt instruments and other payables) are initially recorded at fair value and subsequently measured at amortised cost using the effective interest method.

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 on- demand liabilities: this includes all on-demand obligations except for term savings accounts, which are not considered on-demand instruments in view of their special characteristics. Obligations whose payment may be required during the period are deemed to be on-demand obligations. Operations which become callable the day after the closing date are not treated as on-demand obligations.

Cash items in process of being cleared: this represents domestic transactions in the process of transfer through a central domestic clearing house or international transactions which may be delayed in settlement due to timing differences, etc.

Obligations under repurchase agreements: this includes the balances of sales of financial instruments under securities repurchase and loan agreements. The Bank does not record in its own portfolio instruments acquired under repurchase agreements.

Time deposits and other time liabilities: this shows the balances of deposit transactions in which a term at the end of which they become callable has been stipulated.

Financial derivative contracts: this includes financial derivative contracts with negative fair values (i.e. a liability of the Bank), whether they are for trading or for hedge accounting, as set forth in Note 7.

Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments.

Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments.

Interbank borrowings: this includes obligations due to other domestic banks, foreign banks, or the Central Bank of Chile, other than those reflected in certain other financial liability classifications listed above.

Issued debt instruments: there are three types of instruments issued by the Bank: 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 instruments and recognition of fair value changes

In general, financial assets and liabilities are initially recognized at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments, other than those measured at fair value through profit or loss, are initially recognized at fair value plus transaction costs. Subsequently, and at the end of each reporting period, financial instruments are measured pursuant to the following criteria:

i.	Valuation of financial instruments

Financial assets are measured according to their fair value, gross of any transaction costs that may be incurred in the course of a sale, except for loans and accounts receivable from customers.

“Fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. When measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

The fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either: (a) in the principal market for the asset or liability, or (b) in the absence of a principal market, the most advantageous market for the asset or liability. Even when there is no observable market to provide pricing information in connection with the sale of an asset or the transfer of a liability at the measurement date, the fair value measurement shall assume that the transaction takes place, considered from the perspective of a potential market participant who intends to maximize value associated with the asset or liability.

When using valuation techniques, the Bank shall maximize the use of relevant observable inputs and minimize the use of unobservable inputs as available. If an asset or a liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fair value regardless of where the input is categorized within the fair value hierarchy (i.e. Level 1, 2 or 3). IFRS 13 establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

All derivatives are recorded in the Consolidated Statements of Financial Position at the fair value previously described. This value is compared to the valuation as at the trade date. If the fair value is subsequently measured positive, this is recorded as an asset. If the fair value is subsequently measured negative, this is recorded as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price. The changes in the fair value of derivatives from the trade date are recorded in “Net income (expense) from financial operations” in the Consolidated Statement of Income.

Specifically, the fair value of financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price. If, for exceptional reasons, the quoted price cannot be determined on a given date, the fair value is determined using similar methods to those used to measure over the counter (OTC) derivatives. The fair value of OTC derivatives is the sum of the future cash flows resulting from the instrument, discounted to present value at the date of valuation (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV) and option pricing models, among other methods. Also, within the fair value of derivatives are included Credit Valuation Adjustment (CVA) and Debit Valuation Adjustment (DVA), all with the objective that the fair value of each instrument includes the credit risk of its counterparty and Bank´s own risk. The Credit valuation adjustment (CVA) is a valuation adjustment to OTC derivatives as a result of the risk associated with the credit exposure assumed by each counterparty. The CVA is calculated taking into account potential exposure to each counterparty in each future period. The debit valuation adjustment (DVA) is a valuation adjustment similar to the CVA but, in this case, it arises as a result of the Bank’s own risk assumed by its counterparties in OTC derivatives. As of December 31, 2017, CVA and DVA amounts to MCh$8,142 and MCh$15,406, respectively.

“Loans and accounts receivable from customers” and Held-to-maturity instrument portfolio are measured at amortized cost using the effective interest method. Amortized cost is the acquisition cost of a financial asset or liability, plus or minus, as appropriate, prepayments of principal and the cumulative amortization (recorded in the consolidated income statement) of the difference between the initial cost and the maturity amount as calculated under the effective interest method. For financial assets, amortized cost also includes any reductions for impairment or 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 (expense) from financial operations”.

The “effective interest rate” is the discount rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows over its remaining life. For fixed-rate financial instruments, the effective interest rate incorporates the contractual interest rate established on the acquisition date plus, where applicable, the fees and transaction costs that are a part of the financial return are included. For floating-rate financial instruments, the effective interest rate matches the current rate of return until the date of the next review of interest rates.

ii.

Valuation techniques

Financial instruments at fair value, determined on the basis of price quotations in active markets, include government debt securities, private sector debt securities, equity shares, short positions, and fixed-income securities issued.

In cases where price quotations cannot be observed in available markets, the Bank’s management determines a best estimate of the price that the market would set using its own internal models. In most cases, these models use data based on observable market parameters as significant inputs however for some valuations of financial instruments, significant inputs are unobservable in the market. To determine a value for those instruments, various techniques are employed to make these estimates, including the extrapolation of observable market data.

The most reliable evidence of the fair value of a financial instrument on initial recognition usually is the transaction price, however due to lack of availability of market information, the value of the instrument may be derived from other market transactions performed with the same or similar instruments or may be measured by using a valuation technique in which the variables used include only observable market data, mainly interest rates.

The main techniques used as of December 31, 2017 and 2016 by the Bank’s internal models to determine the fair value of the financial instruments are as follows:

In the valuation of financial instruments permitting static hedging (mainly forwards and swaps), the present value method is used. Estimated future cash flows are discounted using the interest rate curves of the related currencies. The interest rate curves are generally observable market data.

ii. In the valuation of financial instruments requiring dynamic hedging (mainly structured options and other structured instruments), the Black-Scholes model is normally used. Where appropriate, observable market inputs are used to obtain factors such as the bid-offer spread, exchange rates, volatility, correlation indexes and market liquidity.

iii.

In the valuation of certain financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors, the present value method (futures) and the Black-Scholes model (plain vanilla options) are used. The main inputs used in these models are observable market data, including the related interest rate curves, volatilities, correlations and exchange rates.

The fair value of the financial instruments calculated by the aforementioned internal models considers contractual terms and observable market data, which include interest rates, credit risk, exchange rates, quoted market price of shares, volatility and prepayments, among others. The Bank’s management considers that its valuation models are not significantly subjective, since these methodologies can be adjusted and evaluated, as appropriate, through the internal calculation of fair value and the subsequent comparison with the related actively traded price.

iii.

Hedging transactions

The Bank uses financial derivatives for the following purposes:

to sell to customers who request these instruments in the management of their market and credit risks;

ii.

to use these derivatives in the management of the risks of the Bank entities’ own positions and assets and liabilities (“hedging derivatives”), and

iii.

to obtain profits from changes in the price of these derivatives (trading derivatives).

All financial derivatives that are not held for hedging purposes are accounted for as trading derivatives.

A derivative qualifies for hedge accounting if all the following conditions are met:

The derivative hedges one of the following three types of exposure:

a. Changes in the value of assets and liabilities due to fluctuations, among others, in 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, 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”).

It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that:

At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”).

There is sufficient evidence that the hedge was actually effective during the life of the hedged item or position (“retrospective effectiveness”).

There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks.

The changes in the value of financial instruments qualifying for hedge accounting are recorded as follows:

For fair value hedges, the gains or losses arising on both hedging instruments and the hedged items (attributable to the type of risk being hedged) are included as “Net income (expense) from financial operations” in the Consolidated Statement of Income.

For fair value hedges of interest rate risk on a portfolio of financial instruments, gains or losses that arise in measuring hedging instruments within “Interest income and expense”, and other gains or losses due to changes in fair value of the underlying hedged item (attributable to the hedged risk) are recorded in the Consolidated Statement of Income under “Net income (expense) from financial operations”.

For cash flow hedges, the change in fair value of the hedging instrument is included as “Cash flow hedge” in “Other comprehensive income”.

The differences in valuation of the hedging instrument corresponding to the ineffective portion of the cash flow hedging transactions are recorded directly in the Consolidated Statement of Income under “Net income (expense) from financial operations”.

If a derivative designated as a hedging instrument no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, hedge accounting treatment is discontinued. When “fair value hedging” is discontinued, the fair value adjustments to the carrying amount of the hedged item arising from the hedged risk are amortized to gain or loss from that date, where applicable.

When cash flow hedges are discontinued, any cumulative gain or loss of the hedging instrument recognized under “Other comprehensive income” (from the period when the hedge was effective) remains recorded in equity until the hedged transaction occurs, at which time it is recorded in the Consolidated Statement of Income, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recorded immediately in the Consolidated Statement of Income.

iv.

Offsetting of financial instruments

Financial asset and liability balances are offset, i.e., reported in the Consolidated Statements of Financial Position at their net amount, only if there is a legally enforceable right to offset the recorded amounts and the Bank intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously. As of December 31, 207 and 2016 the Bank does not have balance offsetting of financial instruments.

v.	Derecognition of financial assets and liabilities

The accounting treatment of transfers of financial assets is determined by the extent and the manner in which the risks and rewards associated with the transferred assets are transferred to third parties:

If the Bank transfers substantially all the risks and rewards of ownership to third parties, as in the case of unconditional sales of financial assets, sales under repurchase agreements at fair value at the date of repurchase, sales of financial assets with a purchased call option or written put option deeply out of the money, utilization of assets in which the transferor does not retain subordinated debt nor grants any credit enhancement to the new holders, and other similar cases, the transferred financial asset is derecognized from the Consolidated Statement of Financial Position and any rights or obligations retained or created in the transfer are simultaneously recorded.

ii. If the Bank retains substantially all the risks and rewards of ownership associated with the transferred financial asset, as in the case of sales of financial assets under repurchase agreements at a fixed price or at the sale price plus interest, securities lending agreements under which the borrower undertakes to return the same or similar assets, and other similar cases, the transferred financial asset is not derecognized from the Consolidated Statement of Financial Position and continues to be measured by the same criteria as those used before the transfer. However, the following items are recorded:

An associated financial liability for an amount equal to the consideration received; this liability is subsequently measured at amortized cost.

Both the income from the transferred (but not removed) financial asset as well as any expenses incurred due to the new financial liability.

iii.

If the Bank neither transfers nor substantially retains all the risks and rewards of ownership associated with the transferred financial asset—as in the case of sales of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases—the following distinction is made:

If the transferor does not retain control of the transferred financial asset: the asset is derecognized from the Consolidated Statement of Financial Position and any rights or obligations retained or created in the transfer are recognized.

If the transferor retains control of the transferred financial asset: it continues to be recognized in the Consolidated Statement of Financial Position for an amount equal to its exposure to changes in value and a financial liability associated with the transferred financial asset is recorded. The net carrying amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value.

Accordingly, financial assets are only derecognized from the Consolidated Statement of Financial Position when the rights over the cash flows they generate have terminated or when all the inherent risks and rewards of ownership have been substantially transferred to third parties. Similarly, financial liabilities are only derecognized from the Consolidated Statement 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.

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 on financial assets and liabilities are recognized when they are earned.

Those arising from transactions or services that are performed over a period of time are recognized over the life of these transactions or services.

Those relating to services provided in a single transaction are recognized when the single transaction is performed.

iii. Loan arrangement fees

Fees that arise as a result of the origination of a loan, mainly application and analysis-related fees, are deferred and charged to 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.

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 equity financial assets, in which case it is recorded in other comprehensive income.

ii. Non-financial assets:

The Bank’s non-financial assets, are reviewed at the reporting date to determine whether they show signs of impairment (i.e. its carrying amount exceeds its recoverable amount). If any such evidence exists, the recoverable amount of the asset is estimated, in order to determine the extent of the impairment loss.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

In connection with other assets, impairment losses recorded in prior periods are assessed at each reporting date to determine whether the loss has decreased and should be reversed. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years. Goodwill impairment is not reversed.

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 includes but is not limited to tangible assets received by the consolidated entities in full or partial satisfaction of financial assets representing accounts receivable from third parties which are intended to be held for continuing own use and tangible assets acquired under finance leases. These assets are presented at acquisition cost less the related accumulated depreciation and, if applicable, any impairment losses (when net carrying amount was 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 applies the following useful lives for the tangible assets that comprise its assets:

ITEM		Useful life (Months)

Land		-
Paintings and works of art		-
Carpets and curtains		36
Computers and hardware		36
Vehicles		36
IT systems and software		36
ATMs		60
Other machines and equipment		60
Office furniture		60
Telephone and communication systems		60
Security systems		60
Rights over telephone lines		60
Air conditioning systems		84
Other installations		120
Buildings		1,200

The consolidated entities assess at each reporting date whether there is any indication that the carrying amount of any tangible asset exceeds its recoverable amount. If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in accordance with the revised carrying amount and to the new remaining useful life.

The estimated useful lives of the items of property, plant and equipment held for own use are reviewed at the end of each reporting period to detect significant changes. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recorded in the Consolidated Statement of Income in future years on the basis of the new useful lives.

Maintenance expenses relating to tangible assets held for own use are recorded as an expense in the period in which they are incurred.

ii. Assets leased out under operating leases

The criteria used to record the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives, and to record 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.

The Bank recognized as lending to third parties under “Loans and accounts receivable from customers” in the Consolidated Statement of Financial Position, 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, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.

When consolidated entities acts as lessees, the leased assets are classified based on their nature in the Consolidated Statement of Financial Position, and recognizing an asset and liability at the same amount (the lower between the fair value of the leased property and the present value of the minimum lease payments, plus purchase option). These assets are depreciated in accordance with property, plant and equipment for own use criterion.

In both cases, the finance income and expenses arising from these contracts are recorded under “Interest income” and “Interest expense” respectively, in Consolidated Statement of Income to achieve constant return rate 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 lessor, the leased assets are classified at their acquisition cost under "Property, plant and equipment”. The depreciation criterion 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 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.

m) Intangible assets

Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of legal or contractual rights or it is separable. The Bank recognizes an intangible asset, whether purchased or self-created (at cost), when the cost of the asset can be measured reliably and it is probable that the future economic benefits that are attributable to the asset will flow to the Bank.

Intangible assets are recorded initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortization and any accumulated impairment losses.

Internally developed computer software is recorded as an intangible asset if, among other requirements (basically the Bank’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated.

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.

n) Cash and cash equivalents

For the preparation of the cash flow statement, the indirect method was used, starting with the Bank’s consolidated pre-tax income and incorporating non-cash transactions, as well as income and expenses associated with cash flows, which are classified as operating, investment or financing activities.

For the preparation of the cash flow statement, the following items are considered:

Cash flows: Inflows and outflows of cash and cash equivalents, such as deposits with the Central Bank of Chile, deposits in domestic banks, and deposits in foreign banks.

ii.

Operating activities: Principal revenue-producing activities performed by banks and other activities that cannot be classified as investing or financing activities.

The Bank's activity of granting loans encompasses not only the activities with its debtors but also the related activities that provide the funding to the loans granted. Since the funding for granting such loans is provided by, among other sources, senior bonds, mortgage bonds and subordinated bonds, the Bank presents the related cash flows as operating activities.

iii.

Investing activities: The acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.

iv.

Financing Activities: Activities that result in changes in the size and composition of the equity and liabilities that are not operating activities.

o)	Allowances for loan losses

The Bank has established allowances to cover incurred losses on loans and account receivables from customers in accordance with its internal models and risk assessment as approved by the Board of Directors.

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 cases 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 companies. The Bank groups debtors with similar credit risk characteristics giving to each group a default probability and recovery rate based on a historical analysis.

The Bank models 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:

Commercial loans,

ii.

Mortgage loans, and

iii.

Consumer loans.

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.

For the purposes of establishing its provisions, the Bank assigns a risk category to each debtor, their loans and contingent loans. The risk factors considered are: industry or economic sector of the borrower, owners or managers of the borrower, their financial situation and payment capacity, and payment behavior.

The Bank’s risk categories are as follows:

1. Debtors may be classified in risk categories A1, A2, A3 or B (if they are current on their payment obligations and show no sign of deterioration in their credit quality). B is different from the A categories by a certain history of late payments. The A and B categories are distinguished by different PNPs (as defined below).

2. Debtors classified as C1, C2, C3, C4, D1 or D2 include debtors whose loans with us have been charged off or administered by our Recovery Unit, or classified as Precontenciosos (PRECO or deteriorated).

For loans classified as A1, A2, A3 and B, we assign a specific provision level on an individual basis to each borrower and, therefore, the amount of loan loss allowance is determined on a case by case basis.

Estimated Incurred Loan Loss = Loan Loss Allowance.

The estimated incurred loss is obtained by multiplying all risk factors defined in the following equation:

EIL= EXP x PNP x SEV

EIL = Estimated Incurred Loan Loss. The estimated incurred loan loss is how much could be lost in the event a debtor does not perform the obligations under the loan.

EXP = Exposure. This corresponds to the value of commercial loans.

PNP = Probability of Non-Performance. This variable, expressed as a percentage, indicates the probability that a debtor will default. This percentage is associated with the internal rating that we give to each debtor, which is determined by analyzing such parameters as debt servicing capacity (including, usually, projected cash flows), the company’s financial history, the solvency and capacity of shareholders and management, and projections for the economic sector in which it operates.

SEV = Severity. This is the effective loss rate given default for debtors in the same segment, which is determined statistically based on the historical effective losses for each segment.

Every year, models together with PNP and SEV assumptions, are tested by the Bank’s Credit Risk Department, to ensure that they are appropriate at each reporting date so as to make sure any difference between the estimated incurred losses and actual losses is reduced.

These tests focus on the validation of the sufficiency of the Bank’s allowances, and consist of comparisons between actual write-offs to allowances established by the model, and the coverage of the total allowance to actual write-offs in the most current periods. Individual loan classification and improvements to any customer classification are also presented for approval to our Risk Committee.

For loans classified in the C and D categories, loan loss allowances are based mainly on the fair value of the collateral, adjusted for an estimated cost to sell, that each of these loans have. Allowance percentage for each category is then based on the fair value of the collateral, or the expected future cash flow from the loan for each individually evaluated non-performing loans.

II. Allowances for group assessments

The Bank uses the concept of estimation of incurred loss to quantify the allowances levels over the group-evaluated portfolios, considering the risk and the guarantees associated with each transaction.

SMEs (small and medium sized companies). Therefore, debtors and loans with similar features are grouped together and each group has a risk level assigned to it.

These models are meant to be used mainly to analyze loans granted to individuals (including consumer loans, credit lines, mortgage loans and commercial loans) and commercial loans to small to middle-sized entities (SMEs).

Allowances are established using these models, taking into account the historical Impairment and other known circumstances at the time of evaluation. After this, a historical loss rate is assigned to each portfolio profile constituting each evaluated group.

Allowances for group-evaluated loans are established based on the credit risk of the profile to which the loan belongs. The method for assigning a profile is established based on statistical building method, establishing a relation through logistic regression of various variables, such as payment behavior in the Bank, payment behavior outside the Bank, various sociodemographic data, among others, and a response variable that determines a client’s risk level, which in this case is 90 days of non-performance (the chosen features are relevant when calculating future cash flows per group of assets). Afterwards, common profiles are established and with differentiated default rates, applying the real historical loss the Bank has had with that portfolio.

The different risk categories are constructed and updated periodically based on the payment behavior of the client’s profile to which they belong, as well as his or her sociodemographic characteristics. Therefore, when a customer has past due balance or has missed some payments, the outcome is that the customer will move to a different segment with a higher loss rate, therefore capturing current trends for each risk profile.

Allowance quantification, once the customers have been classified, is the product of three factors: exposure (EXP), Probability of Non-Performance (PNP) and Severity (SEV), the same equation used for individual assessment mentioned above.

The estimated incurred loss rates for group-evaluated loans correspond to charge-offs net of recoveries. The methodology establishes the period in which the estimated incurred loss for each risk profile emerges. Once the loss has been considered to have been incurred, the estimated incurred loss rates are applied to the corresponding risk profile to obtain the net charge-off level associated with this period. The loss rates applied to each risk profile are based only on the historical net charge-off data for that specific profile within one of the four groups of loans (consumer loans, credit lines, mortgage loans and commercial loans). No other statistical or other information other than net charge-offs is used to determine the loss rates.

To determine the estimated incurred loss for commercial and mortgage loans collectively evaluated for impairment, we mainly analyze the payment behavior of clients, particularly the payment behavior of clients with payments that are more than 90 days overdue, clients with other weaknesses, such as early non performance (i.e., payments that are past-due, though by less than 90 days), clients with modified loans and clients with renegotiated loans, as well as success in recovery against these clients. We also take into account whether the loan is supported by collateral.

In connection with mortgage loans, historical net charge-offs are considered in the model to calculate loss rates for loans collectively evaluated for impairment. The risk categories are such that when a customer has a past-due balance or has missed some payments, the outcome is that the customer will move to a different risk category with a higher loss rate, therefore capturing current trends of the customer and, when aggregate, current trends in the market.

Our models for loans analyzed on a group basis (consumer loans, residential mortgage loans and small-and-mid- sized commercial loans) are monitored on a monthly basis with respect to predictability and stability, using indicators that seek to capture the underlying need to update the models for current loss trends. Therefore, the periods of historical net charge-offs used in the allowance model may be more than a year old as we only update the historical net charge-offs when our assessment of predictability and stability indicators determine it is necessary.

III. Charge-offs

As a general rule, charge-offs should be done when all collection efforts have been exhausted. These charge-offs consist of derecognition from the Consolidated Statement 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 exist).

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 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

IV. Recovery of loans previously charged off and accounts receivable from customers

Any payment agreement 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.

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.

In accordance with our charge-off policy described in iii) above, we may subsequently recover a portion of the amount charged-off (at 100%). The allowance for loan losses on our collectively evaluated loans incorporates an expected recovery rate based on historical information. At the time we charge-off the carrying amount of any loans which have been collectively evaluated for impairment, the allowance for loan losses on collectively evaluated loans is replenished to reflect incurred losses based on statistical models developed in compliance with IAS 39 on the remaining pool of loans. The amounts required for replenishment are recorded in the financial statements as provision established.

p) Provisions, contingent assets, and contingent liabilities

Provisions are liabilities of uncertain timing or amount. Provisions are recognized in the Consolidated Statements of Financial Position when the Bank:

i.	has a present obligation (legal or constructive) as a result of past events, and

ii.	it is probable that an outflow of resources will be required to settle these obligations and the amount of these resources can be reliably measured.

Contingent assets or contingent liabilities are any potential rights or obligations arising from past events whose existence will be confirmed only by the occurrence or non-occurrence if one or more uncertain future events that are not wholly within control of the Bank.

The Consolidated Statement of Financial Position and annual accounts reflect all significant provisions for which it is estimated that it is probable an outflow of resources will be required to meet the obligation where 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. Provisions must specify the liabilities for which they were originally recognized. Partial or total reversals are recognized when such liabilities cease to exist or are reduced.

Provisions are classified according to the obligation covered as follows:

-	Provision for employee salaries and expenses

-	Provision for mandatory dividends

-	Provision for contingent credit risks

-	Provisions for contingencies

q) 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, in accordance with 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 is enacted or substantially enacted.

r) Use of estimates

The preparation of the financial statements requires the Bank’s management to make estimates and assumptions that affect the application of the accounting policies and the reported balances of assets, liabilities, revenues and expenses. Actual results may differ from these estimates.

In certain cases, International Financial Reporting Standards (IFRS) require that assets or liabilities be recorded or disclosed at their fair values. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, quoted market prices in active markets have been used as the basis for measurement. When quoted market prices in active markets are not available, the Bank has estimated such values based on the best information available, including the use of modeling and other valuation techniques.

The Bank has established allowances to cover incurred losses to estimate allowances. These allowances must be regularly reviewed taking into consideration factors such as changes in the nature and volume of the loan portfolio, trends in forecasted portfolio quality, credit quality and economic conditions that may adversely affect the borrowers’ ability to pay. Increases in the allowances for loan losses are reflected as “Provision for loan losses” in the Consolidated Statement of Income. Loans are charged-off when the Bank’s management determines that a loan or a portion thereof is impaired. Charge-offs are recorded as a reduction of the allowance for loan losses.

The relevant estimates and assumptions made to calculate provisions are regularly reviewed by the Bank’s Management to quantify certain assets, liabilities, revenues, expenses, and commitments.

These estimates, made on the basis of the best available information, mainly refer to:

-	Impairment losses of certain assets (Notes 7, 8, 9, 10, and 32)

-	The useful lives of tangible and intangible assets (Notes 12, 13 and 32)

-	The fair value of assets and liabilities (Notes 5, 6, 7, 10 and 36)

-	Commitments and contingencies (Note 22)

-	Current and deferred taxes (Note 14)

s) Non-current assets held for sale (in “Other Assets”)

Non-current assets (or a group holding assets and liabilities for disposal) expected to be recovered mainly through the sale of these items rather than through the 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 and fair value less cost to sell.

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. The excess of the outstanding loan balance over the fair value is charged to net income for the period, under “Provision for loan losses”. Any excess of the fair value over the outstanding loan balance, less costs to sell of the collateral, is returned to the client. These assets are subsequently adjusted to their net realizable value less cost to sale (assuming a forced sale). The difference between the carrying value of the asset and the estimated fair value 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 with respect to the period covered by these financial statements considering the stability of the real estate market in Chile during past years and expected stability of the real estate market in the coming years.

At least once a year, the Bank performs the necessary analysis to update the “cost to sale” of assets received or awarded in lieu of payments. According to the Bank’s survey, as of December 31, 2017 the average cost to sale was estimated at 3.4% of the appraisal value (5.1% as of December 31, 2016).

t) Earnings per share

Basic earnings per share are determined by dividing the net income attributable to the equity holders of the Bank for the reported period by the weighted average number of shares outstanding during the reported period.

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 consideration the potential diluting effect of stock options, warrants, and convertible debt.

As of December 31, 2017 and 2016 the Bank did not have any instruments that generated dilution.

u) Temporary acquisition (assignment) of assets and liabilities

Purchases or sales of financial assets under non-optional repurchase agreements at a fixed price 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”), in Note 6.

Differences between the purchase and sale prices are recorded as financial interest over the term of the contract.

v) Provision for mandatory dividends

As of December 31, 2017 and 2016 the Bank recorded a 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 – provision for mandatory dividends” line of the Consolidated Statement of Changes in Equity with offset to Provisions.

w) Employee benefits

Post-employment benefits – Defined Benefit Plan:

According to current collective labor agreements and other agreements, the Bank has an additional benefit available to its principal executives, consisting of a pension plan whose purpose is to endow them with funds for a better supplementary pension upon their retirement.

Features of the Plan:

The main features of the Post-Employment Benefits Plan promoted by the Banco Santander Chile are:

Aimed at the Bank’s management.

The general requirement to apply for this benefit is that the employee must be carrying out his/her duties when turning 60 years old.

The Bank will create a pension fund, with life insurance, for each beneficiary in the plan. Periodic contributions into this fund are made by the manager and matched by the Bank.

The Bank will be responsible for granting the benefits directly.

The Bank uses the method of projected unit credit, to determine the present value of the defined benefit obligation and the current service cost.

Components of defined benefit cost include:

current service cost and any past service cost, which are recognized in profit or loss for the period;

net interest on the liability (asset) for net defined benefit, which is recognized in profit or loss for the period;

new liability (asset) remeasurements for net defined benefit include:

(a) actuarial gains and losses;

(b) the difference between the actual return on plan assets and the interest on plan assets included in the net interest component and;

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 less the fair value of plan assets.

Plan assets comprise the pension fund taken out by the Group with a third party that is not a related party. These assets are held by an entity legally separated from the Bank and exist solely to pay benefits to employees.

The Bank recognizes the present service cost and the net interest of the Personnel salaries and expenses on the Consolidated Statement of Income.

The post-employment benefits liability, recognized in the Consolidated Statement of Financial Position represents the deficit or surplus in the defined benefit plans of the Bank. Any surplus resulting from the calculation is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions.

When employees leave the plan before meeting the requirements to be eligible for the benefit, contributions made by the Bank are reduced.

ii. Cash-settled share based compensation

The Bank allocates cash-settled share based compensation to executives of the Bank and its Subsidiaries in accordance with IFRS 2. The Bank measures the services received and the obligation incurred at fair value. Until the obligation is settled, the Bank determines the fair value at the end of each reporting period, as well as at the date of settlement, recognizing any change in fair value in the income statement of the period.

x) Application of new and revised International Financial Reporting Standards

New and revised standards effective in current year

The following new and revised IFRS have been adopted in these financial statements:

Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12)- On January 19, 2016, the IASB published final amendments to IAS 12 “Income Taxes”. The amendments clarify the following aspects:

Unrealized losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument’s holder expects to recover the carrying amount of the debt instrument by sale or by use.

The carrying amount of an asset does not limit the estimation of probable future taxable profits.

Estimated for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences.

An entity assesses a deferred tax asset in combination with other deferred tax assets. Where tax law restricts the utilization of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the same type.

The amendments are effective for annual periods beginning on or after January 1, 2017. The implementation of this amendments did not have material impact on the consolidated financial statement of the Bank.

Disclosure Initiative (Amendments to IAS 7)- The amendments are part of the IASB’s Disclosure initiative project and introduce additional disclosure requirements intended to address investors’ concerns that financial statements do not currently enable them to understand the entity’s cash flows; particularly in respect of the management of financing activities. The amendments require disclosure of information enabling users of financial statements to evaluate changes in liabilities arising from financial activities. Although there is no specific format required to comply with the new requirements, the amendments include illustrative examples to show how an entity can meet the objective of these amendments.

The amendments are effective for annual periods beginning on or after January 1, 2017. Earlier application is permitted. The implementation of this amendments did not have material impact on the consolidated financial statement of the Bank.

Annual Improvement 2014-2016

This annual improvements issued in December 8, 2016, containing the following amendments:

IFRS 12 Disclosure of Interests in Other Entities - Clarification of the scope of the Standard.

The amendments to IFRS 12 for annual periods beginning on or after 1 January 2017. The implementation of IFRS 12 amendments did not have material impact on the consolidated financial statement of the Bank.

IFRS Practice statement 2 Making Materiality Judgement – This standard was issued in September 2017. The objective is to assist management in presenting financial information about the entity that is useful to existing and potential investors, lenders and other creditors making decisions about providing resources to the entity. This practice statement applies to the preparations of financial information in accordance with full IFRS. The Bank’s management has considered this practice statement in preparing current financial statements.

ii. New and revised IFRS issued but not effective

IFRS 9 Financial instruments (2014) - In July 2014, the International Accounting Standards Board (IASB) issued IFRS 9 as a complete standard, to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. This standard is effective for reporting periods beginning on or after 1 January 2018. IFRS 9 includes requirements for recognition and measurement of financial instruments. Changes in accounting policies resulting from the adoption of IFRS 9 will be applied retrospectively adjusting open balance as of 1 January 2018, applying the transition exemption that allow not to restate comparative information for prior periods.

Classification &measurement: IFRS 9 defined the financial asset and certain non-financial assets purchases agreements classification and measurement model changes requirements. The main aspects included in the new standard are:

a) Classification of financial instruments: The criterion for classifying financial assets will depend both on their business management model and the features of the contractual flows. Consequently, the asset will be measured at amortized cost, at fair value with changes in other comprehensive income (equity), or at fair value with changes in profit and loss for the period. IFRS 9 also establishes the option of designating an instrument at fair value with changes in Profit and loss under certain conditions. The main activity of the Bank is the concession of retail banking operations and does not concentrate its exposure on complex financial products. The main objective of the Bank is to achieve a homogeneous implementation of the classification of financial instruments of the portfolios established under IFRS 9 and, for this purpose, it has developed standardized guidelines to enable a homogeneous analysis in all of its units.

The Bank prepared an analysis of its portfolios under the mentioned guidelines in order to identify and classify the financial instruments into their corresponding portfolio under IFRS 9. Based on the analysis currently being carried out, the Group considers that:

· The Bank offers commercial and consumer banking services, which are consistent with a basic lending arrangement. In accordance with the above mentioned, most of the financial assets classified as “loans and account receivable from customers” will continue to be classified at amortised cost, except for 0.4% over the outstanding amount as of December 31, 2017 that is reclassified to be measured at fair value with changes in profit or loss. No other reclassification will be made to this portfolio.

· As of December 31, 2017, financial assets classified as “available for sale investments” will continue to be classified at fair value with changes reported in other comprehensive income, except for a small ownership in shares that will be classified at fair value, with changes reported in other comprehensive income (irrevocably), which represent a 0.01% of the “available for sale investments” as of December 31, 2017.

· The financial assets up to now classified as “trading investments” will remain classified at fair value, with changes reported in profit and loss for the year,

· IAS 39 financial liabilities classification and measurement criteria remains substantially under IFRS 9. The Bank considers that all the changes in classification mentioned above are not significant.

In October 12, 2017, the IASB issued “Prepayment features with negative compensation” to address particular prepaid options under assessment whether contractual clash flows are solely payments of principal and interest. The Bank concluded that this amendment does not have significant impact over its financial statements.

b) Credit risk Impairment model: The most important new development compared with the current model is that the new accounting standard introduces the concept of expected loss, whereas the current model (IAS 39) is based on incurred loss.

· Scope of application: The IFRS 9 asset impairment model is applicable to financial assets valued at amortized cost, to debt instruments valued at fair value through other comprehensive income, to leasing receivables, and to contingent risks and commitments not valued at fair value.

· Application of practical expedients under IFRS 9: IFRS 9 contains a set of practical expedients that might be used by the entities to facilitate its implementation. However, in order to achieve full and high quality implementation of the standard, considering industry best practices, these practical solutions will not be widely used.

· Rebuttable presumption that the credit risk has increased significantly when payments are more than 30 days past due: this threshold will be used as an additional – but not primary - indicator of significant risk increase.

· Financial instruments that have low credit risk at the reporting date.

· Impairment estimation methodology: The portfolio of financial instruments subject to impairment will be divided into three categories, based on the phase of each instrument with regard to its level of credit risk:

Phase 1: a financial instrument will be considered to be in this phase when there has been no significant increase in risk since its initial recognition. In this case, the value correction will reflect expected credit losses arising from defaults over the 12 months from the reporting date.

Phase 2: financial instruments are included in this phase when there has been a significant increase in risk since the date of initial recognition, but the impairment has not materialized. In this case, the value correction for losses will reflect the expected losses from defaults over the residual life of the financial instrument. The existence of a significant increase in credit risk will be determined by considering the quantitative indicators used in the ordinary management of credit risk, together with other qualitative variables, such as the indication of whether refinanced transactions are considered non-impaired and transactions included in special debt sustainability agreements.

Phase 3: financial instruments are catalogued in this phase when they show effective signs of impairment as a result of one or more events that have already occurred that will result in a loss. In this case, the amount of the value correction will reflect the expected losses for credit risk over the expected residual life of the financial instrument.

The methodology required for quantification of expected loss for credit events will be based on an unbiased and weighted consideration of the occurrence of a range of possible future scenarios that could impact the collection of contractual cash flows, taking into account the time-value of money, all available information relevant to past events, and current conditions and projections of macroeconomic factors deemed relevant to the estimation of this amount.

The assessment of whether a significant increase in credit risk has occurred since initial recognition involves the application of both quantitative measures and qualitative factors, requires management judgement and is a key aspect of the IFRS 9 methodology.

The key inputs into the measurement of the ECL (expected credit loss) are EAD (exposure at default), PD (probability of default) and LGD (loss given default). These parameters will be derived from internally developed statistical models and other historical data that leverage regulatory models. They will be adjusted to reflect forward-looking information. The Bank has focused in developing an “expected credit loss” model in accordance with all IFRS 9 requirements, including all essential definitions:

Significant increase in credit risk: when determining whether the credit risk on a financial instrument has increased significantly since initial recognition, the Bank will consider reasonable and supportable information that is relevant and available without undue cost or effort, including both quantitative and qualitative information, analysis based on the Bank historical experience, expert credit assessment and forward looking information.

Default: this definition is largely consistent with the current definition used by the Bank. In assessing whether a borrower is in default, the Bank considers indicator as: overdue status, non-payment of another obligation of the same issuer to the Bank, data developed internally and obtained from external sources, among others. Inputs into the assessment may vary over the time to reflect changes in circumstances.

Forward-looking information: the Bank has incorporated forward-looking information into both its assessment of whether the credit risk of an instrument has increased significantly since initial recognition and its measurement of ECLs. Following this, the Bank has developed macroeconomic scenarios and considers the relative probability of each outcome. External information include macroeconomic factor as PIB , among others.

Financial assets expected lives: the Bank considers contractual terms of the instruments (amortization, prepayments features, extension terms, etc.). The bank will measure ECLs considering the risk of default over the maximum contractual period. For certain revolving facilities (e.g. credit card and overdraft), the expected lives is the credit risk exposure period and credit risk management actions that the Bank expects to take and that serve to mitigate ECLs.

Impairment records: IFRS 9 bring a changes related to the FVOCI financial assets, where the amount of the change in the fair value that is attributable to changes in the credit risk of the financial asset will be presented in other comprehensive income, and the remaining amount of the change in the fair value will be presented in profit or loss.

c) Hedge accounting: The general hedge accounting requirements align more closely with risk management practices and establish a more principle-based approach thereby allowing hedge accounting to be applied to a wider variety of hedging instruments and risks. Macro hedge accounting is being dealt with as a separate project. Until such time as that project is complete, and to remove any potential conflict between any existing macro hedge accounting undertaken under IAS 39 and the new general hedge accounting requirements of IFRS 9, entities can choose to continue to apply the existing hedge accounting requirements in IAS 39.

After concluding the IFRS 9 implementation process, the most significant impact on the Bank´s financial statements arise from the new impairment requirements. Impairment losses for financial instruments will be increased under the scope of the IFRS 9 impairment model. At January 1, 2018, based on the assessment made, the total impact in equity (net of tax) derived from the adoption of IFRS 9 is Ch$82,454 million(net of tax).

IFRS 15, Revenue from Contracts with Customers - issued on May 28, 2014, the IASB has published its new standard, IFRS 15 Revenue from contracts with customers. The new standard provides a single, principles based five-step model to be applied to all contracts with customers, i) identify the contract with the customer, ii) identify the performance obligations in the contract, iii) determine the transaction price, iv) allocate the transaction price to the performance obligations in the contracts, v) recognize revenue when (or as) the entity satisfies a performance obligation.

IFRS 15 must be applied in an entity’s first annual IFRS financial statements for periods beginning on or after 1 January 2017. Application of the Standard is mandatory and early adoption is permitted. An entity that chooses to apply IFRS 15 earlier than 1 January 2018 must disclose this fact.

In April 12, 2016, the IASB published an amendments to clarify and provide alternatives for the transition. The amendment are applicable from January 1, 2018, with early application permitted.

The Bank completed its assessment regarding the application of this standard and concluded that it does not have a significant impact over its consolidated financial statements.

Sale or Contributions of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) - Issued on September 11, 2014, the IASB has published 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)'. The amendments address a conflict between the requirements of IAS 28 'Investments in Associates and Joint Ventures' and IFRS 10 'Consolidated Financial Statements' and clarifies the treatment of the sale or contribution of assets from an investor to its associate or joint venture, as follows:

requires full recognition in the investor's financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations);

requires the partial recognition of gains and losses where the assets do not constitute a business, i.e. a gain or loss is recognized only to the extent of the unrelated investors’ interests in that associate or joint venture.

On December 17, 2015 the IASB has published final amendments to “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”. The amendments defer the effective date of the September 2014 amendments to these standards indefinitely until the research project on the equity method has been concluded. The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.

IFRS 16 Leases – issued on January 13, 2016, the IASB has published its new standard for leases, which replaces IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC15 Operating leases and SIC27 Evaluating the substance of transactions involving the legal form of a lease. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payment. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained.

IFRS 16 is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15 “Revenue from Contracts with Customer” has also been applied.

The Bank has completed its operating lease contract inventory (as lessee) and it is currently determining the potential impact that the standard will have on the consolidated financial statements of the Bank.

Amendments to IFRS 2 Classification and measurement of share-based payment transactions – These amendments were published June 20, 2016, to address issues with:

· The accounting of share- based payment transactions paid in cash that include a performance condition

· The classification of share-based transactions

· Accounting for modifications of share-based payment transactions from cash-settled to equity-settled.

This standard is applicable from January 1, 2018, with early application permitted. Management is assessing the potential impact of applying this standard.

Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - The amendments are intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard (expected as IFRS 17 within the next six months). The amendments provide two options for entities that issue insurance contracts within the scope of IFRS 4:

-an option that permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets (the "overlay approach");

-an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4 (the "deferral approach").

An entity would apply the overlay approach retrospectively to qualifying financial assets when it first applies IFRS 9 while an entity would apply the deferral approach for annual periods beginning on or after January 1, 2018. Management has assessed that the implementation of these modifications will not have a material impact on the Unaudited Consolidated Interim Financial Statements of the Bank.

IFRIC 22 Foreign Currency Transactions and Advance Consideration – This interpretations issued on December 8, 2016, clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency.

The Interpretation covers foreign currency transactions when an entity recognises a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognises the related asset, expense or income. It does not apply when an entity measures the related asset, expense or income on initial recognition at fair value or at the fair value of the consideration received or payed at a date other than the date of initial recognition of the non-monetary asset or non-monetary liability. Also, the Interpretation need not be applied to income taxes, insurance contracts or reinsurance contracts.

Consensus

The date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability.

If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt.

IFRIC 22 is effective for annual reporting periods beginning on or after 1 January 2018. Earlier application is permitted. The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.

Annual Improvement 2014-2016

This annual improvements issued in December 8, 2016, containing the following amendments:

IFRS 1 First time adoption of IFRS - Deletion of short-term exemptions for first-time adopters.

IAS 28 Investments in Associates and Joint Ventures - Measuring an associate or joint venture at fair value.

The amendments to IFRS 1 and IAS 28 are effective for annual periods beginning on or after 1 January 2018. The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.

IFRS 17 Insurance contracts – This standard issued on May 18, 2017 replaces the current IFRS 4. IFRS 17 will mainly change accounting for all entities that issue insurance contracts and investment contracts with discretionary participation characteristics. The standard applies to annual periods beginning on or after January 1, 2021, with early application permitted provided IFRS 15, "Revenue from contracts with customers" and IFRS 9, "Financial instruments" is applied. The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.

IFRIC 23 Uncertainty over Income Tax Treatments – This standard issued on June 7, 2017, clarifies how the recognition and measurement requirements of IAS 12 apply when there is uncertainty about tax treatments. The standard applies to annual periods beginning on or after January 1, 2019, with early application permitted. The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.

Amendments to IAS 28 long-term interest in Associates and Joint Ventures - This standard was issued in October 12, 2017 to clarify that an entity applies IFRS 9 including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted.

The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.

Annual Improvements to IFRS Standards 2015–2017 Cycle

This annual improvements issued in December 12, 2017, containing the following amendments:

IFRS 3 Business Combination and IFRS 11 Joint Arrangements – The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interest in that business.

IAS 12 Income taxes – The amendments clarify that all income tax consequences of dividends should be recognized in profit or loss, regardless of how the tax arises.

IAS 23 Borrowing cost – The amendments clarify that if any specific borrowing remain outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings.

The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted. The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank.

SIGNIFICANT EVENTS

12 Months Ended

Dec. 31, 2017

Significant Events

SIGNIFICANT EVENTS

NOTE 02

SIGNIFICANT EVENTS

As of December 31, 2017, the following significant events have occurred and affected the Bank`s operations and Consolidated Financial Statements.

a) The Board

On April 5, 2017 an amendments to Banco Santander Chile bylaws was published, agreed at the Extraordinary Shareholders' Meeting held on January 9, 2017, whose minutes were included in a public deed on February 14, 2017 at the Notary of Nancy de la Fuente Hernández. Among others, a consolidated text of the bylaws was established and, after the reforms introduced, its essential clauses are as follows:

Name: Banco Santander-Chile

Object: The execution or celebration of all those acts, contracts, businesses or operations that the laws, especially the General Banking Law, allow banks to perform without prejudice to expand or restrict their sphere of action in harmony with the legal provisions in force or that in the future are established, without the need to amend these bylaws.

Capital: $891,302,881,691, divided into 188,446,126,794 nominative shares, without par value, of the same and only series.

Board: composed of 9 regular members and 2 alternates.

At the Ordinary Shareholders' Meeting held on April 26, 2017, the Board of Directors was elected for a period of three years, consisting of nine Regular Directors and two Alternate Directors, the persons elected were:

Directors: Vittorio Corbo Lioi, Oscar von Chrismar Carvajal, Roberto Méndez Torres, Juan Pedro Santa María Pérez, Ana Dorrego de Carlos, Andreu Plaza Lopez, Lucia Santa Cruz Sutil, Orlando Poblete Iturrate and Roberto Zahler Mayanz.

Alternate Directors: Blanca Bustamante Bravo and Raimundo Monge Zegers.

b) Use of Profits and Distribution of Dividends

The Shareholders’ Meeting of Banco Santander Chile held on April 26, 2017,

At the Ordinary General Shareholders' Meeting held on April 26, 2017, together with approving the Financial Statements corresponding to 2016, it was agreed to distribute 70% of the net profits for the year (which are denominated in the financial statements "Profit attributable to holders assets of the Bank "), which amounted to Ch$ 472,351 million. These profits correspond to a dividend of $ 1.75459102 for each share. Likewise, it is approved that the remaining 30% of the profits will be used to increase the Bank's reserves.

c) Appointment of External Auditors

In the Ordinary General Shareholders' Meeting indicated above, it was agreed to appoint PricewaterhouseCoopers Consultores, Auditores y Compañía Limitada, as external auditors of the Bank and its affiliates for the 2017 fiscal year.

d) Bods issued at December 31, 2017

d.1) Senior bonds

During the year ended December 31, 2017 the Bank has issued senior bonds in the amount of USD 770.000.000 and AUS 30.000.000. Debt issuance information are included in Note 18.

Series	Currency	Amount	Term (anual)	Issuance rate (anual)	Issuance date	Maturity date
DN	USD	100,000,000	3.0	Libor-USD 3M+0.80%	20-07-2017	27-07-2020
DN	USD	50,000,000	3.0	Libor-USD 3M+0.80%	21-07-2017	27-07-2020
DN	USD	50,000,000	3.0	Libor-USD 3M+0.80%	24-07-2017	27-07-2020
DN	USD	10,000,000	4.0	Libor-USD 3M+0.83%	23-08-2017	23-11-2021
DN	USD	10,000,000	4.0	Libor-USD 3M+0.83%	23-08-2017	23-11-2021
DN	USD	50,000,000	3.0	Libor-USD 3M+0.75%	14-09-2017	15-09-2020
DN	USD	500,000,000	3.0	2.50%	12-12-2017	15-12-2020
Total	USD	770,000,000
AUD	AUD	30,000,000	10.0	3.96%	05-12-2017	12-12-2027
Total	AUD	30,000,000

d.2) Subordinated bonds

As at December 31, 2017 the Bank had not issued subordinated bonds in this financial year.

d.3) Mortgage bonds

As at December 31, 2017 the Bank had not issued mortgage bonds in this financial year.

d.4) Repurchase of bonds

The Bank has conducted the following repurchase of bonds as of December 31, 2017:

Date	Series	Amount
06-03-2017	Senior bond	USD 6,900,000
12-05-2017	Senior bond	UF 1,000,000
16-05-2017	Senior bond	UF 690,000
17-05-2017	Senior bond	UF 15,000
26-05-2017	Senior bond	UF 340,000
01-06-2017	Senior bond	UF 590,000
02-06-2017	Senior bond	UF 300,000
05-06-2017	Senior bond	UF 130,000
19-06-2017	Senior bond	UF 265,000
10-07-2017	Senior bond	UF 770,000
21-07-2017	Senior bond	UF 10,000
28-08-2017	Senior bond	UF 400,000
29-08-2017	Senior bond	UF 272,000
03-11-2017	Senior bond	UF 14,000
29-11-2017	Senior bond	UF 400,000
06-12-2017	Senior bond	UF 20,000
12-12-2017	Senior bond	CLP 10,990,000,000

REPORTING SEGMENTS

12 Months Ended

Dec. 31, 2017

Reporting Segments

REPORTING SEGMENTS

NOTE 03

REPORTING SEGMENTS

The Bank manages and measures the performance of its operations by business segments. The information disclosed in this note is not necessarily comparable to that of other financial institutions, since it is based on management’s internal information system by segment.

Inter-segment transactions are conducted under normal arm’s length commercial terms and conditions. Each segment’s assets, liabilities, and income include items directly attributable to the segment to which they can be allocated on a reasonable basis.

Due to changes aimed at allocating customers to those segments best capable of servicing them, and streamlining processes, the Bank has modified its internal structure during 2015. This change in composition of the segments resulted in the following:

Commissions paid in “Net fee and commission income “were reassigned among segments to more appropriately reflect the distributions in accordance with the management of each segment;

The effects of changes in foreign exchange rates of provisions were reallocated to the line item “Other”, to more appropriately reflect the effects directly attributable to the respective segments;

The improvement of the allocation of interest costs at time of placement of the loan.

Under IFRS 8, the Bank has aggregated operating segments with similar economic characteristics according to the aggregation criteria specified in the standard. A reporting segment consists of clients that are offered differentiated but, considering how their performance is measured, are homogenous services based on IFRS 8 aggregation criteria, thus they form part of the same reporting segment. Overall, this aggregation has no significant impact on the understanding of the nature and effects of the Bank’s business activities and the economic environment.

The Bank has the reportable segments noted below:

Retail Banking

Consists of individuals and small to middle-sized entities (SMEs) with annual income less than Ch$1,200 million. This segment gives customers a variety of services, including consumer loans, credit cards, auto loans, commercial loans, foreign exchange, mortgage loans, debit cards, checking accounts, savings products, mutual funds, stockbrokerage, and insurance brokerage. Additionally the SME clients are offered government-guaranteed loans, leasing and factoring.

Middle-market

This segment is made up of companies and large corporations with annual sales exceeding Ch$1,200 million. It serves institutions such as universities, government entities, local and regional governments and companies engaged in the real estate industry who carry out projects to sell properties to third parties and annual sales exceeding Ch$800 million with no upper limit. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, savings products, mutual funds, and insurance brokerage. Also companies in the real estate industry are offered specialized services to finance projects, chiefly residential, with the aim of expanding sales of mortgage loans.

Global Corporate Banking

This segment consists of foreign and domestic multinational companies with sales over Ch$10,000 million. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, investments, savings products, mutual funds and insurance brokerage.

This segment also consists of a Treasury Division which provides sophisticated financial products, mainly to companies in the Middle-market and Global Corporate Banking segments. These include products such as short-term financing and fund raising, brokerage services, derivatives, securitization, and other tailor-made products. The Treasury area may act as brokers to transactions and also manages the Bank’s investment portfolio.

Corporate Activities (“Other”)

This segment mainly includes the results of our Financial Management Division, which develops global management functions, including managing inflation rate risk, foreign currency gaps, interest rate risk and liquidity risk. Liquidity risk is managed mainly through wholesale deposits, debt issuances and the Bank’s available for sale portfolio. This segment also manages capital allocation by unit. These activities usually result in a negative contribution to income.

In addition, this segment encompasses all the intra-segment income and all the activities not assigned to a given segment or product with customers.

The segments’ accounting policies are those described in the summary of accounting policies. The Bank earns most of its income in the form of interest income, fee and commission income and income from financial operations. To evaluate a segment’s financial performance and make decisions regarding the resources to be assigned to segments, the Chief Operating Decision Maker (CODM) bases his assessment on the segment's interest income, fee and commission income, and expenses.

Below are the tables showing the Bank’s results by reporting segment for the years ended December 31, 2017, 2016 and 2015 in addition to the corresponding balances of loans and accounts receivable from customers:

		As of December 31, 2017
	Loans and accounts receivable from customers (1)	Net interest income	Net fee and commission income	Financial transactions, net (2)	Provision for loan losses	Support expenses (3)	Segment`s net contribution
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Retail Banking	19,233,169	970,332	206,449	20,595	(293,956)	(534,970)	368,450
Middle-market	6,775,734	264,663	36,280	13,751	(19,235)	(91,882)	203,577
Commercial Banking	25,008,903	1,234,995	242,729	34,346	(313,191)	(626,852)	572,027

Global Corporate Banking	1,633,796	100,808	27,626	50,714	6,440	(62,685)	122,903
Other	83,215	(9,112)	8,708	44,692	4,496	(15,356)	33,428

Total	27,725,914	1,326,691	279,063	129,752	(302,255)	(704,893)	728,358

Other operating income							62,016
Other operating expenses and impairment							(74,057)
Income from investments in associates and other companies							3,963
Income tax expense							(145,031)
Net income for the year							575,249

(1) Corresponds to loans and accounts receivable from customers, without deducting their allowances for loan losses.

(2) Corresponds to the sum of the net income from financial operations and the foreign exchange profit or loss.

(3) Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.

		As of December 31, 2016
	Loans and accounts receivable from customers (1)	Net interest income	Net fee and commission income	Financial transactions, net (2)	Provision for loan losses	Support expenses (3)	Segment`s net contribution
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Retail Banking	18,604,936	931,105	196,845	21,141	(323,888)	(529,909)	295,294
Middle-market	6,396,376	244,960	30,851	19,577	(26,748)	(83,412)	185,228
Commercial Banking	25,001,312	1,176,065	227,696	40,718	(350,636)	(613,321)	480,522

Global Corporate Banking	2,121,513	95,105	25,077	55,927	7,579	(53,935)	129,753
Other	83,606	10,196	1,651	43,713	974	(19,649)	36,885

Total	27,206,431	1,281,366	254,424	140,358	(342,083)	(686,905)	647,160

Other operating income							6,427
Other operating expenses and impairment							(69,136)
Income from investments in associates and other companies							3,012
Income tax expense							(109,031)
Net income for the year							478,432

(1) Corresponds to loans and accounts receivable from customers, without deducting their allowances for loan losses.

(2) Corresponds to the sum of the net income from financial operations and the foreign exchange profit or loss.

(3) Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.

		As of December 31, 2015
	Loans and accounts receivable from customers (1)	Net interest income	Net fee and commission income	Financial transactions, net (2)	Provision for loan losses	Support expenses (3)	Segment`s net contribution
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Retail Banking	17,034,707	873,026	190,380	16,245	(332,657)	(533,086)	213,908
Middle-market	6,006,282	229,812	28,537	17,897	(26,147)	(77,261)	172,838
Commercial Banking	23,040,989	1,102,838	218,917	34,142	(358,804)	(610,347)	386,746

Global Corporate Banking	2,178,643	85,553	15,231	50,327	(28,426)	(49,533)	73,152
Other	81,125	66,815	3,479	61,030	(12,047)	(1,328)	117,949

Total	25,300,757	1,255,206	237,627	145,499	(399,277)	(661,208)	577,847

Other operating income							6,439
Other operating expenses and impairment							(58,750)
Income from investments in associates and other companies							2,588
Income tax expense							(76,395)
Net income for the year							451,729

(1) Corresponds to loans and accounts receivable from customers, without deducting their allowances for loan losses.

(2) Corresponds to the sum of the net income from financial operations and the foreign exchange profit or loss.

(3) Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.

CASH AND CASH EQUIVALENTS

12 Months Ended

Dec. 31, 2017

Cash and cash equivalents [abstract]

CASH AND CASH EQUIVALENTS

NOTE 04

CASH AND CASH EQUIVALENTS

a) The detail of the balances included under cash and cash equivalents is as follows:

		As of December 31,
		2017		2016
		MCh$		MCh$

Cash and deposits in banks
	Cash	613,361		570,317
	Deposits at the Central Bank of Chile	441,683		507,275
	Deposits in local banks	393		1,440
	Deposits in banks abroad	397,485		1,200,357
Subtotals – Cash and deposits in banks		1,452,922		2,279,389

	Net cash items in process of collection		181,419		206,810

Cash and cash equivalents		1,634,341		2,486,199

The balance of funds held in cash and at the Central Bank of Chile reflects the monthly average that the Bank must maintain in accordance with the regulations governing minimum reserves although the balance can be withdrawn on demand.

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 which have not been processed through the central domestic clearinghouse or international transactions which may be delayed in settlement due to timing differences. These transactions were as follows:

		As of December 31,
		2017	2016
		MCh$	MCh$

Assets
	Documents held by other banks (documents to be cleared)	199,619	200,109
	Funds receivable	468,526	295,174
Subtotal		668,145	495,283
Liabilities
	Funds payable	486,726	288,473
	Subtotal	486,726	288,473

Cash in process of collection, net		181,419	206,810

TRADING INVESTMENTS

12 Months Ended

Dec. 31, 2017

Trading Investments

TRADING INVESTMENTS

NOTE 05

TRADING INVESTMENTS

The detail of instruments deemed as financial trading investments is as follows:

		As of December 31,
		2017	2016
		MCh$	MCh$

Chilean Central Bank and Government securities
	Chilean Central Bank Bonds	272,272	158,686
	Chilean Central Bank Notes	-	-
	Other Chilean Central Bank and Government securities	209,370	237,325
Subtotal		481,642	396,011

Other Chilean securities
	Time deposits in Chilean financial institutions	-	-
	Mortgage finance bonds of Chilean financial institutions	-	-
	Chilean financial institution bonds	-	-
	Chilean corporate bonds	-	976
	Other Chilean securities	-	-
Subtotal		-	976

Foreign financial securities
	Foreign Central Banks and Government securities	-	-
	Other foreign financial instruments	-	-
Subtotal		-	-

Investments in mutual funds
	Funds managed by related entities	4,094	-
	Funds managed by others	-	-
Subtotal		4,094	-

Total		485,736	396,987

As of December 31, 2017 and 2016, there were no trading investments sold under contracts to resell to clients and financial institutions.

INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS

12 Months Ended

Dec. 31, 2017

Investments Under Resale Agreements And Obligations Under Repurchase Agreements

INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS

NOTE 06

INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS

Rights arising from resale agreements

The Bank purchases financial instruments agreeing to resell them at a future date. As of December 31, 2017 and 2016, rights associated with instruments acquired under contracts to resell are as follows:

	As of December 31,
	2017				2016
	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	-	-	-	-	3,260	-	-	3,260
Chilean Central Bank Notes	-	-	-	-	-	-	-	-
Other securities from the Government and the Chilean Central Bank	-	-	-	-	3,476	-	-	3,476
Subtotal	-	-	-	-	6,736	-	-	6,736

Total	-	-	-	-	6,736	-	-	6,736

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, 2017 and 2016, obligations related to instruments sold under repurchase agreements are as follows:

	As of December 31,
	2017				2016
	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	-	-	-	-	-	-	-	-
Chilean Central Bank Notes	-	-	-	-	155,044	-	-	155,044
Other securities from the Government and the Chilean Central Bank	241,995	-	-	241,995	-	-	-	-
Subtotal	241,995	-	-	241,995	155,044	-	-	155,044
Instruments from other domestic institutions:
Time deposits in Chilean financial institutions	1,118	38	-	1,156	56,898	495	-	57,393
Subtotal	1,118	38	-	1,156	56,898	495	-	57,393
Instruments from other foreign institutions:
Securities from Govemment or foreign Central Banks	24,910	-	-	24,910	-	-	-	-
Subtotal	24,910	-	-	24,910	-	-	-	-

Total	268,023	38	-	268,061	211,942	495	-	212,437

c) Below is the detail by portfolio of collateral associated with repurchase agreements as of December 31, 2017 and 2016, valued at fair value:

	As of December 31,
	2017			2016
	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	-	-	-	-	-	-
Chilean Central Bank Notes	-	-	-	155,044	-	155,044
Other securities from the Government and the Chilean Central Bank	241,995	-	241,995	-	-	-
Subtotal	241,995	-	241,995	155,044	-	155,044
Other Chilean securities:
Time deposits in Chilean financial institutions	1,156	-	1,156	57,393	-	57,393
Subtotal	1,156	-	1,156	57,393	-	57,393
Instruments from other foreign institutions:
Securities from Govemment or foreign Central Banks	24,910	-	24,910	-	-	-
Subtotal	24,910	-	24,910	-	-	-

Total	268,061	-	268,061	212,437	-	212,437

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

12 Months Ended

Dec. 31, 2017

Derivative Financial Instruments And Hedge Accounting

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

As of December 31, 2017 and 2016 the Bank holds the following portfolio of derivative instruments:

	As of December 31, 2017
	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
Interest rate swaps	-	162,985	1,554,171	1,717,156	23,003	1,424
Cross currency swaps	-	715,701	5,362,772	6,078,473	15,085	65,724
Subtotal	-	878,686	6,916,943	7,795,629	38,088	67,148

Cash flow hedge derivatives
Currency forwards	801,093	218,982	-	1,020,075	39,233	59
Cross currency swaps	421,428	1,637,604	6,672,566	8,731,598	36,403	128,355
Subtotal	1,222,521	1,856,586	6,672,566	9,751,673	75,636	128,414

Trading derivatives
Currency forwards	17,976,683	10,679,327	3,091,393	31,747,403	412,994	502,555
Interest rate swaps	9,069,964	14,389,389	46,342,779	69,802,132	467,188	392,366
Cross currency swaps	2,963,641	7,503,144	47,111,371	57,578,156	1,241,632	1,042,120
Call currency options	190,386	37,099	49,853	277,338	1,322	1,950
Call interest rate options	-	-	-	-	-	-
Put currency options	192,722	28,616	50,470	271,808	1,787	4,935
Other derivatives	-	-	-	-	-	-
Subtotal	30,393,396	32,637,575	96,645,866	159,676,837	2,124,923	1,943,926

Total	31,615,917	35,372,847	110,235,375	177,224,139	2,238,647	2,139,488

	As of December 31, 2016
	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
Interest rate swaps	74,086	514,454	1,402,870	1,991,410	38,977	211
Cross currency swaps	424,086	505,902	1,239,490	2,169,478	32,640	32,868
Subtotal	498,172	1,020,356	2,642,360	4,160,888	71,617	33,079

Cash flow hedge derivatives
Currency forwards	915,879	639,939	-	1,555,818	10,216	3,441
Cross currency swaps	897,480	2,613,706	4,260,194	7,771,380	43,591	68,894
Subtotal	1,813,359	3,253,645	4,260,194	9,327,198	53,807	72,335

Trading derivatives
Currency forwards	15,840,731	11,240,251	3,358,765	30,439,747	185,618	209,955
Interest rate swaps	6,889,665	12,512,285	49,747,459	69,149,409	627,047	526,695
Cross currency swaps	3,966,443	7,589,201	53,148,109	64,703,753	1,562,068	1,449,550
Call currency options	73,943	20,994	2,664	97,601	521	5
Call interest rate options	-	-	-	-	-	-
Put currency options	52,143	7,892	2,664	62,699	104	542
Other derivatives	-	-	-	-	-	-
Subtotal	26,822,925	31,370,623	106,259,661	164,453,209	2,375,358	2,186,747

Total	29,134,456	35,644,624	113,162,215	177,941,295	2,500,782	2,292,161

Hedge accounting

Fair value hedge:

The Bank uses cross-currency swaps and interest rate 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, 2017 and 2016, classified by term to maturity:

	As of December 31, 2017
	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 receivable from customers:
Endorsable mortgage mutual loans	587,412	801,230	106,910	-	1,495,552
Available for sale investments
Yankee bonds	-	-	6,169	64,769	70,938
Mortgage financing bonds	-	-	4,738	-	4,738
Treasury bonds (BTP)	-	-	-	129,539	129,539
Chiliean Treasury bonds	-	21,377	762,727	-	784,104
Chiliean Central Bank bonds	128,289	218,640	443,357	-	790,286
Time deposits and other time liabilities
Time deposits	137,985	-	-	-	137,985
Issued debt instruments
Senior bonds	25,000	1,399,686	670,488	2,287,313	4,382,487
Total	878,686	2,440,933	1,994,389	2,481,621	7,795,629
Hedging instrument
Cross currency swaps	715,701	1,512,238	1,813,221	2,037,313	6,078,473
Interest rate swaps	162,985	928,695	181,168	444,308	1,717,156
Total	878,686	2,440,933	1,994,389	2,481,621	7,795,629

	As of December 31, 2016
	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 receivable from customers:
Endorsable mortgage mutual loans	-	-	-	-	-
Available for sale investments
Yankee bonds	-	-	6,660	56,610	63,270
Mortgage financing bonds	-	-	5,651	-	5,651
Treasury bonds (BTP)	-	-	33,300	366,300	399,600
Chiliean Treasury bonds	-	-	-	-	-
Chileian Central Bank bonds (BCP)	-	-	-	-	-
Time deposits and other time liabilities
Time deposits	993,659	-	-	-	993,659
Issued debt instruments
Senior bonds	524,869	652,046	1,000,905	520,888	2,698,708
Total	1,518,528	652,046	1,046,516	943,798	4,160,888
Hedging instrument
Cross currency swaps	929,988	437,046	531,556	270,888	2,169,478
Interest rate swaps	588,540	215,000	514,960	672,910	1,991,410
Total	1,518,528	652,046	1,046,516	943,798	4,160,888

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 notional amount of the hedged items as of December 31, 2017 and 2016, and the period when the cash flows will be generated:

	As of December 31, 2017
	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	1,153,348	583,061	1,335,141	2,353,871	5,425,421
Commercial loans	644,608	-	-	-	644,608
Available for sale investments
Yankee bond	-	-	25,290	132,572	157,862
Chilean Central Bank bonds	-	-	242,819	-	242,819
Time deposits	-	-	-	-	-
Time deposits and other time liabilities
Time deposits	-	-	-	-	-
Issued debt instruments
Senior bonds (variable rate)	120,520	647,550	302,454	-	1,070,524
Senior bonds (fixed rate)	241,183	121,619	224,401	300,874	888,077
Interbank borrowings
Interbank loans	919,448	402,914	-	-	1,322,362
Total	3,079,107	1,755,144	2,130,105	2,787,317	9,751,673
Hedging instrument
Cross currency swaps	2,059,032	1,755,144	2,130,105	2,787,317	8,731,598
Currency forwards	1,020,075	-	-	-	1,020,075
Total	3,079,107	1,755,144	2,130,105	2,787,317	9,751,673

	As of December 31, 2016
	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	1,083,972	312,546	900,746	956,803	3,254,067
Commercial loans	972,360	-	-	-	972,360
Available for sale investments
Yankee bond	-	-	126,140	406,881	533,021
Chilean Central Bank bonds	20,754	-	-	-	20,754
Time deposits	26,196	-	-	-	26,196
Time deposits and other time liabilities
Time deposits	285,090	-	-	-	285,090
Issued debt instruments
Senior bonds (variable rate)	854,414	399,451	285,355	-	1,539,220
Senior bonds (fixed rate)	140,765	108,409	243,121	105,600	597,895
Interbank borrowings
Interbank loans	1,683,453	415,142	-	-	2,098,595
Total	5,067,004	1,235,548	1,555,362	1,469,284	9,327,198
Hedging instrument
Cross currency swaps	3,511,186	1,235,548	1,555,362	1,469,284	7,771,380
Currency forwards	1,555,818	-	-	-	1,555,818
Total	5,067,004	1,235,548	1,555,362	1,469,284	9,327,198

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, 2017
	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	308,737	60,515	13,780	2,594	385,626
Outflows	(60,733)	(43,507)	(7,757)	(878)	(112,875)
Net flows	248,004	17,008	6,023	1,716	272,751

Hedging instrument
Inflows	60,733	43,507	7,757	878	112,875
Outflows (*)	(308,737)	(60,515)	(13,780)	(2,594)	(385,626)
Net flows	(248,004)	(17,008)	(6,023)	(1,716)	(272,751)

(*)Only includes cash flow forecast portion of the hedge instruments used to cover interest rate risk.

	As of December 31, 2016
	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	159,439	83,193	32,647	3,748	279,027
Outflows	(72,631)	(45,857)	(18,040)	-	(136,528)
Net flows	86,808	37,336	14,607	3,748	142,499

Hedging instrument
Inflows	72,631	45,857	18,040	-	136,528
Outflows (*)	(159,439)	(83,193)	(32,647)	(3,748)	(279,027)
Net flows	(86,808)	(37,336)	(14,607)	(3,748)	(142,499)

(*)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, 2017
	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	20,300	29,008	103,544	286,471	439,323
Outflows	(1,645)	-	-	-	(1,645)
Net flows	18,655	29,008	103,544	286,471	437,678

Hedging instrument
Inflows	1,645	-	-	-	1,645
Outflows	(20,300)	(29,008)	(103,544)	(286,471)	(439,323)
Net flows	(18,655)	(29,008)	(103,544)	(286,471)	(437,678)

	As of December 31, 2016
	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	22,586	11,896	56,107	115,753	206,342
Outflows	(4,900)	-	-	-	(4,900)
Net flows	17,686	11,896	56,107	115,753	201,442

Hedging instrument
Inflows	4,900	-	-	-	4,900
Outflows	(22,586)	(11,896)	(56,107)	(115,753)	(206,342)
Net flows	(17,686)	(11,896)	(56,107)	(115,753)	(201,442)

b.3) Forecasted cash flows for exchange rate risk:

As of December 31, 2017 and 2016 the Bank has no forecasted cash flows for exchange rate risk.

The accumulated effect of the mark to market adjustment of cash flow hedges 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, 2017 and 2016, is as follows:

	As of December 31,
Hedged item	2017	2016
	MCh$	MCh$

Interbank loans	(4,779)	(6,019)
Time deposits and other time liabilities	-	(294)
Issued debt instruments	(8,683)	(8,169)
Available for sale investments	(364)	12,833
Loans and accounts receivable from customers	10,264	3,937
Net flows	(3,562)	2,288

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, 2017 and 2016 the Bank records inefficiencies for an amount of Ch$1,187 million and Ch$355 million, respectively.

During the year, the Bank did not have any cash flow hedges of forecast transactions.

Below is a presentation of income generated by cash flow hedges amount that were reclassified from other comprehensive income to income for the year:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Bond hedging derivatives	-	(77)	6
Interbank loans hedging derivatives	-	-	-

Cash flow hedge net income gain (loss)	-	(77)	6

See Note 23 - Equity, letter e)

Net investment hedges in foreign operations:

As of December 31, 2017 and 2016, the Bank does not have any foreign net investment hedges in its hedge accounting portfolio.

INTERBANK LOANS

12 Months Ended

Dec. 31, 2017

Interbank Loans

INTERBANK LOANS

NOTE 08

INTERBANK LOANS

As of December 31, 2017 and 2016, balances of “Interbank loans”are as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Domestic banks
Interbank loans	-	23
Other domestic bank loans	-	51

Foreign Interbank Loans
Interbank loans – Foreign	162,685	272,733
Provisions and impairment for foreign bank loans	(472)	(4,135)

Total	162,213	268,672

The amount in each period for provisions and impairment of interbank loans is shown below:

	As of December 31,
	2017			2016
	Domestic banks	Foreign banks	Total	Domestic banks	Foreign banks	Total
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Balance as of January 1	-	4,135	4,135	-	1,166	1,166
Provisions established	251	56	307	1	3,051	3,052
Provisions released	(251)	(3,719)	(3,970)	(1)	(82)	(83)
Total	-	472	472	-	4,135	4,135

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS

12 Months Ended

Dec. 31, 2017

Loans And Accounts Receivable From Customers

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS

NOTE 09

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS

Loans and accounts receivable from customers

As of December 31, 2017 and 2016, the composition of the loan portfolio is as follows:

As of December 31, 2017	Assets before allowances			Allowances established
	Normal portfolio	Impaired portfolio	Total	Individual allowances	Group allowances	Total	Assets net balance
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Commercial loans
Commercial loans	9,244,460	746,196	9,990,656	133,254	168,736	301,990	9,688,666
Foreign trade loans	1,506,359	68,154	1,574,513	49,026	1,444	50,470	1,524,043
Checking accounts debtors	179,982	15,714	195,696	2,726	11,740	14,466	181,230
Factoring transactions	444,644	5,246	449,890	4,788	1,207	5,995	443,895
Student loans	77,226	11,064	88,290	-	5,922	5,922	82,368
Leasing transactions	1,335,653	121,351	1,457,004	17,529	12,793	30,322	1,426,682
Other loans and account receivable	106,815	45,778	152,593	11,467	17,231	28,698	123,895
Subtotal	12,895,139	1,013,503	13,908,642	218,790	219,073	437,863	13,470,779

Mortgage loans
Loans with mortgage finance bonds	22,620	1,440	24,060	-	123	123	23,937
Endorsable mortgage mutual loans	110,659	4,419	115,078	-	594	594	114,484
Other mortgage mutual loans	8,501,072	456,685	8,957,757	-	68,349	68,349	8,889,408
Subtotal	8,634,351	462,544	9,096,895	-	69,066	69,066	9,027,829

Consumer loans
Installment consumer loans	2,613,041	297,701	2,910,742	-	240,962	240,962	2,669,780
Credit card balances	1,341,098	23,882	1,364,980	-	33,401	33,401	1,331,579
Leasing transactions	4,638	77	4,715	-	62	62	4,653
Other consumer loans	271,789	5,466	277,255	-	9,331	9,331	267,924
Subtotal	4,230,566	327,126	4,557,692	-	283,756	283,756	4,273,936

Total	25,760,056	1,803,173	27,563,229	218,790	571,895	790,685	26,772,544

As of December 31, 2016	Assets before allowances			Allowances established
	Normal portfolio	Impaired portfolio	Total	Individual allowances	Group allowances	Total	Assets net balance
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Commercial loans
Commercial loans	9,160,354	693,303	9,853,657	159,463	148,703	308,166	9,545,491
Foreign trade loans	1,750,196	79,708	1,829,904	56,919	901	57,820	1,772,084
Checking accounts debtors	166,073	13,395	179,468	2,794	6,854	9,648	169,820
Factoring transactions	291,112	5,639	296,751	4,787	620	5,407	291,344
Student loans	-	-	-	-	-	-	-
Leasing transactions	1,376,972	108,151	1,485,123	17,593	5,546	23,139	1,461,984
Other loans and account receivable	193,589	28,973	222,562	4,780	20,482	25,262	197,300
Subtotal	12,938,296	929,169	13,867,465	246,336	183,106	429,442	13,438,023

Mortgage loans
Loans with mortgage finance bonds	31,368	1,211	32,579	-	16	16	32,563
Endorsable mortgage mutual loans	115,400	4,534	119,934	-	190	190	119,744
Other mortgage mutual loans	8,074,900	391,943	8,466,843	-	56,803	56,803	8,410,040
Subtotal	8,221,668	397,688	8,619,356	-	57,009	57,009	8,562,347

Consumer loans
Installment consumer loans	2,468,692	253,673	2,722,365	-	249,545	249,545	2,472,820
Credit card balances	1,418,409	29,709	1,448,118	-	41,063	41,063	1,407,055
Leasing transactions	5,062	55	5,117	-	72	72	5,045
Other consumer loans	266,056	5,147	271,203	-	9,339	9,339	261,864
Subtotal	4,158,219	288,584	4,446,803	-	300,019	300,019	4,146,784

Total	25,318,183	1,615,441	26,933,624	246,336	540,134	786,470	26,147,154

Portfolio characteristics:

As of December 31, 2017 and 2016 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,
	2017	2016	2017		2016	2017	2016	2017	2016
	MCh$	MCh$	MCh$		MCh$	MCh$	MCh$	%	%
Commercial loans
Manufacturing	1,218,232	1,180,886				1,218,232	1,180,886	4.39	4.34
Mining	302,037	340,554	-		-	302,037	340,554	1.09	1.25
Electricity, gas, and water	336,048	442,936	-		-	336,048	442,936	1.21	1.63
Agriculture and livestock	1,114,597	1,096,659	-		-	1,114,597	1,096,659	4.02	4.03
Forest	98,941	96,806	-		-	98,941	96,806	0.36	0.36
Fishing	215,994	296,592	-		-	215,994	296,592	0.78	1.09
Transport	697,948	787,510	-		-	697,948	787,510	2.52	2.89
Communications	168,744	196,934	-		-	168,744	196,934	0.61	0.72
Construction	1,977,417	1,792,485	-		-	1,977,417	1,792,485	7.13	6.59
Commerce	3,131,870	3,120,400	-		-	3,294,555	3,393,133	11.88	12.47
Services	467,747	482,900	162,685		272,733	467,747	482,900	1.69	1.77
Other	4,179,067	4,032,877	-		-	4,179,067	4,032,877	15.07	14.84
			-		-
Subtotal	13,908,642	13,867,539	162,685		272,733	14,071,327	14,140,272	50.75	51.98

Mortgage loans	9,096,895	8,619,356				9,096,895	8,619,356	32.81	31.68
			-		-
Consumer loans	4,557,692	4,446,803				4,557,692	4,446,803	16.43	16.34
			-		-
Total	27,563,229	26,933,698	162,685		272,733	27,725,914	27,206,431	100.00	100.0

(*)

Includes domestic interbank loans for Ch$ 0 million as of December 31, 2017 (Ch$74 million as of December 31, 2016), see Note 8.

Impaired Portfolio

As of December 31, 2017 and 2016, the impaired portfolio is as follows:

As of December 31,

2017

2016

Commercial

Mortgage

Consumer

Total

Commercial

Mortgage

Consumer

Total

MCh$

Individual impaired portfolio

427,890

427,890

439,707

439,707

Non-performing loans (1) (collectively evaluated)

368,522

161,768

103,171

633,461

316,838

147,572

99,721

564,131

Other impaired portfolio

217,091

300,776

223,955

741,822

172,624

250,116

188,863

611,603

Total

1,013,503

462,544

327,126

1,803,173

929,169

397,688

288,584

1,615,441

(1) Non-performing loans include the aggregate unpaid principal and accrued but unpaid interest on all loans with at least one installment at least 90 days past-due.

ii)

The impaired portfolio with or without guarantee as of December 31, 2017 and 2016 is as follows:

As of December 31,

2017

2016

Commercial

Mortgage

Consumer

Total

Commercial

Mortgage

Consumer

Total

MCh$

Secured debt

582,557

413,716

34,260

1,030,533

519,821

357,320

35,134

912,275

Unsecured debt

430,946

48,828

292,866

772,640

409,348

40,368

253,450

703,166

Total

1,013,503

462,544

327,126

1,803,173

929,169

397,688

288,584

1,615,441

iii)

The portfolio of non-performing loans with or without guarantee, as of December 31, 2017 and 2016 is as follows:

As of December 31,

2017

2016

Commercial

Mortgage

Consumer

Total

Commercial

Mortgage

Consumer

Total

MCh$

Secured debt

167,909

141,413

8,896

318,218

159,965

129,632

8,940

298,537

Unsecured debt

200,613

20,355

94,275

315,243

156,873

17,940

90,781

265,594

Total

368,522

161,768

103,171

633,461

316,838

147,572

99,721

564,131

iv)

The portfiolio of non-performing portfolio as of December 31, 2017 and 2016 is as follows:

	As of December31,
	2017				2016
	Commercial	Mortgage	Consumer	Total	Commercial	Mortgage	Consumer	Total
	MM$	MM$	MM$	MM$	MM$	MM$	MM$	MM$
Non-performing >90 days	362,968	159,265	92,541	614,774	311,755	145,084	84,458	541,297
Non-performing <90 days	5,554	2,503	10,630	18,687	5,083	2,488	15,263	22,834
Total	368,522	161,768	103,171	633,461	316,838	147,572	99,721	564,131

Allowances

The changes in allowance balances during 2017 and 2016 are as follows:

Activity during 2017	Commercial loans		Mortgage loans	Consumer loans	Total
	Individual	Group	Group	Group	Total
	MCh$	MCh$	MCh$	MCh$	MCh$

Balance as of January 1, 2017	246,336	183,106	57,009	300,019	786,470
Allowances established (1)	64,658	148,681	43,621	252,038	508,998
Allowances released (2)	(55,925)	(20,491)	(11,427)	(46,089)	(133,932)
Allowances released due to charge-off (3)	(36,279)	(92,223)	(20,137)	(222,212)	(370,851)
Balances as of December 31, 2017	218,790	219,073	69,066	283,756	790,685

Activity during 2016	Commercial loans		Mortgage loans	Consumer loans	Total
	Individual	Group	Group	Group	Total
	MCh$	MCh$	MCh$	MCh$	MCh$

Balance as of January 1, 2016	256,505	174,696	62,427	267,507	761,135
Allowances established (1)	61,002	133,855	50,892	280,544	526,293
Allowances released (2)	(43,183)	(14,432)	(34,246)	(30,790)	(122,651)
Allowances released due to charge-off (3)	(27,988)	(111,013)	(22,064)	(217,242)	(378,307)
Balances as of December 31, 2016	246,336	183,106	57,009	300,019	786,470

(1)

Represents gross allowances made in respect of increased risk of loss during the period and loan growth.

(2)

Represents the gross amount of loan loss allowances released during the year as a consequence of reduction in the level of risk existing in the loan portfolio, including as a result of improvement in the credit risk classification of borrowers and loans paid.

(3)

Represents the gross amount of loan loss allowances removed due to charge-off.

Recoveries by type of loan

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Commercial loans	32,401	27,185	26,032
Consumer loans	39,972	41,072	35,565
Residential mortgage loans	10,942	10,041	6,543
Total	83,315	78,298	68,140

Recoveries of loans previously charged off are recognized as income in the line item “Provision for loans losses”. We only recognize as a recovery interest and/or principal paid in cash in connection with a loan that has already been charged-off in its entirety. Such recoveries do not have an impact on our allowance for loan losses as these recoveries are for loans that have been already charged-off and recognized as a loss in our income statement and are no longer on-balance sheet.

Allowances established on customer and interbank loans

The following chart shows the balance of allowances established, associated with credits granted to customers and banks:

	As of December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Customers loans	508,998	526,293	545,056
Interbank loans	307	3,052	1,357
Total	509,305	529,345	546,413

Portfolio by its impaired and non-impaired status.

	As of December 31, 2017
	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	12,737,508	8,357,733	4,012,489	25,107,730	449,895	158,770	110,184	718,849	13,187,403	8,516,503	4,122,673	25,826,579
Overdue for 1-29 days	103,908	180,294	132,136	416,338	110,834	74,072	46,283	231,189	214,742	254,366	178,419	647,527
Overdue for 30-89 days	53,723	96,324	85,941	235,988	89,806	70,437	78,118	238,361	143,529	166,761	164,059	474,349
Overdue for 90 days or more	-	-	-	-	362,968	159,265	92,541	614,774	362,968	159,265	92,541	614,774

Total portfolio before allowances	12,895,139	8,634,351	4,230,566	25,760,056	1,013,503	462,544	327,126	1,803,173	13,908,642	9,096,895	4,557,692	27,563,229

Overdue loans (less than 90 days) presented as portfolio percentage	1.22%	3.20%	5.15%	2.53%	19.80%	31.24%	38.03%	26.04%	2.58%	4.63%	7.51%	4.07%

Overdue loans (90 days or more) presented as portfolio percentage.	-	-	-	-	35.81%	34.43%	28.29%	34.09%	2.61%	1.75%	2.03%	2.23%

	As of December 31, 2016
	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	12,765,961	7,944,260	3,957,566	24,667,787	463,176	133,816	100,670	697,662	13,229,137	8,078,076	4,058,236	25,365,449
Overdue for 1-29 days	97,302	69,227	113,031	279,560	35,777	12,984	32,536	81,297	133,079	82,211	145,567	360,857
Overdue for 30-89 days	75,033	208,181	87,622	370,836	118,461	105,804	70,920	295,185	193,494	313,985	158,542	666,021
Overdue for 90 days or more	-	-	-	-	311,755	145,084	84,458	541,297	311,755	145,084	84,458	541,297

Total portfolio before allowances	12,938,296	8,221,668	4,158,219	25,318,183	929,169	397,688	288,584	1,615,441	13,867,465	8,619,356	4,446,803	26,933,624

Overdue loans (less than 90 days) presented as portfolio percentage	1.33%	3.37%	4.83%	2.57%	16.60%	29.87%	35.85%	23.31%	2.35%	4.60%	6.84%	3.81%

Overdue loans (90 days or more) presented as portfolio percentage.	-	-	-	-	33.55%	36.48%	29.27%	33.51%	2.25%	1.68%	1.90%	2.01%

Reconciliation of overdue loans with non-performing loans

	As of December 31, 2017
	Commercial	Mortgage	Consumer	Total
	MCh$	MCh$	MCh$

Overdue loans	362,968	159,265	92,541	614,774
Loans with not overdue but classified as non-performing loans	5,554	2,503	10,630	18,687
Total	368,522	161,768	103,171	633,461

	As of December 31, 2016
	Commercial	Mortgage	Consumer	Total
	MCh$	MCh$	MCh$

Overdue loans	311,755	145,084	84,458	541,297
Loans with not overdue but classified as non-performing loans	5,083	2,488	15,263	22,834
Total	316,838	147,572	99,721	564,131

AVAILABLE FOR SALE INVESTMENTS

12 Months Ended

Dec. 31, 2017

Available For Sale Investments

AVAILABLE FOR SALE INVESTMENTS

NOTE 10 AVAILABLE FOR SALE INVESTMENTS

As of December 31, 2017 and 2016,detail of instruments deemed as available for sale investments is as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Chilean central bank and government securities
Chilean central bank bonds	816,331	468,386
Chilean central bank notes	330,952	1,222,283
Other Chilean central bank and government securities	1,115,518	52,805
Subtotal	2,262,801	1,743,474
Other Chilean securities
Time deposits in Chilean financial institutions	2,361	891,320
Mortgage finance bonds of Chilean financial institutions	22,312	25,488
Other instruments issued in the country	3,000	1,680
Subtotal	27,673	918,488
Foreign financial securities
Foreign Central Banks and Government securities	132,822	387,146
Other foreign financial securities	151,250	339,798
Subtotal	284,072	726,944

Total	2,574,546	3,388,906

As of December 31, 2017 and 2016, the line item Chilean central bank and government securities item includes securities sold under repurchase agreements to clients and financial institutions for Ch$241,995 and Ch$155,044 million, respectively. Additionally, as of December 31, 2017 and 2016, this instruments guarantee derivatives transactions through Comder Contraparte Central S.A. for Ch$42,910 and Ch$18,627, respectively.

As of December 31, 2017 and 2016, the line item Other Chilean securities includes securities sold to customers and financial institutions under repurchase agreements totaling Ch$1,156 and Ch$57,393 million, respectively.

As of December 31, 2017 and 2016, the line item Foreign financial securities item includes securities sold under repurchase agreements to clients and financial institutions for Ch$24,910 and Ch$0 million, respectively. Additionally, this instruments guarantee derivatives transactions through London Clearing House (LCH) for Ch$48,106 and Ch$0 million respectively. In order to comply with the initial margin specified in the European EMIR standard, the Bank maintained securities in guaranteed with Euroclear for Ch$33,711 million and Ch$ 0 million respectively.

As of December 31, 2017 available for sale investments included a cumulative net unrealized income of Ch$1,855 million, recorded as a “Valuation adjustment” in Other comprehensive income, distributed between Ch$459 million attributable to the equity holders of the Bank and Ch$1,396 million attributable to non-controlling interest.

As of December 31, 2016 available for sale investments included a cumulative net unrealized loss of Ch$7,375 million, recorded as a “Valuation adjustment” in Other comprehensive income, distributed between Ch$6,449 million attributable to the equity holders of the Bank and Ch$926 million attributable to non-controlling interest.

Gross profits and losses realized on the sale of available for sale investments as of December 31, 2017, 2016 and 2015, are as follows:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Sale of available for sale investments generating realized profits	6,469,344	6,522,549	2,627,490
Realized profits	4,867	12,333	22,473
Sale of available for sale investments generating realized losses	466.732	346,906	346,450
Realized losses	3	132	72

The Bank evaluated those instruments with unrealized losses as of December 31, 2017 and 2016 and concluded they were not impaired. 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 significant or prolonged declines nor changes in credit risk which would cause impairment in its investment portfolio, since most of the decline in fair value of these instruments was caused by market conditions which the Bank considers to be temporary. All of the instruments that have unrealized losses as of December 31, 2017 and 2016, were not in a continuous unrealized loss position for more than one year.

The following charts show the available for sale investments cumulative unrealized profit and loss, as of December 31, 2017 and 2016:

As of December 31, 2017:

	Less than 12 months				More than 12 months				Total
	Acquisition cost	Fair value	Unrealized profit	Unrealized loss	Acquisition cost	Fair value	Unrealized profit	Unrealized loss	Acquisition 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	816,164	816,331	5,513	(5,346)	-	-	-	-	816,164	816,331	5,513	(5,346)
Chilean central bank Notes	330,923	330,952	30	(1)	-	-	-	-	330,923	330,952	30	(1)
Other Chilean central bank and government securities	1,117,447	1,115,518	2,960	(4,888)	-	-	-	-	1,117,447	1,115,518	2,960	(4,888)
Subtotal	2,264,534	2,262,801	8,503	(10,235)	-	-	-	-	2,264,534	2,262,801	8,503	(10,235)

Other Chilean securities
Time deposits in Chilean financial institutions	2,361	2,361	-	-	-	-	-	-	2,361	2,361	-	-
Mortgage finance bonds of Chilean financial institutions	21,867	22,312	445	-	-	-	-	-	21,867	22,312	445	-
Chilean financial institution bonds	-	-	-	-	-	-	-	-	-	-	-	-
Chilean corporate bonds	-	-	-	-	-	-	-	-	-	-	-	-
Other Chilean securities	220	3,000	2,780	-	-	-	-	-	220	3,000	2,780	-
Subtotal	24,448	27,673	3,225	-	-	-	-	-	24,448	27,673	3,225	-

Foreign financial securities
Foreign central banks and government securities	133,301	132,822	847	(1,326)	-	-	-	-	133,301	132,822	847	(1,326)
Other foreign financial securities	150,408	151,250	1,097	(256)	-	-	-	-	150,408	151,250	1,097	(256)
Subtotal	283,709	284,072	1,944	(1,582)	-	-	-	-	283,709	284,072	1,944	(1,582)

Total	2,572,691	2,574,546	13,672	(11,817)	-	-	-	-	2,572,691	2,574,546	13,672	(11,817)

As of December 31, 2016:

	Less than 12 months				More than 12 months				Total
	Acquisition cost	Fair value	Unrealized profit	Unrealized loss	Acquisition cost	Fair value	Unrealized profit	Unrealized loss	Acquisition 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	461,793	468,386	6,612	(19)	-	-	-	-	461,793	468,386	6,612	(19)
Chilean central bank notes	1,222,263	1,222,283	23	(3)	-	-	-	-	1,222,263	1,222,283	23	(3)
Other Chilean central bank and government securities	52,411	52,805	394	-	-	-	-	-	52,411	52,805	394	-
Subtotal	1,736,467	1,743,474	7,029	(22)	-	-	-	-	1,736,467	1,743,474	7,029	(22)

Other Chilean securities
Time deposits in Chilean financial institutions	891,276	891,320	108	(64)	-	-	-	-	891,276	891,320	108	(64)
Mortgage finance bonds of Chilean financial institutions	25,021	25,488	469	(2)	-	-	-	-	25,021	25,488	469	(2)
Chilean financial institution bonds	-	-	-	-	-	-	-	-	-	-	-	-
Chilean corporate bonds	-	-	-	-	-	-	-	-	-	-	-	-
Other Chilean securities	220	1,680	1,460	-	-	-	-	-	220	1,680	1,460	-
Subtotal	916,517	918,488	2,037	(66)	-	-	-	-	916,517	918,488	2,037	(66)

Foreign financial securities
Foreign central banks and government securities	387,077	387,146	69	-	-	-	-	-	387,077	387,146	69	-
Other foreign financial securities	341,470	339,798	655	(2,327)	-	-	-	-	341,470	339,798	655	(2,327)
Subtotal	728,547	726,944	724	(2,327)	-	-	-	-	728,547	726,944	724	(2,327)

Total	3,381,531	3,388,906	9,790	(2,415)	-	-	-	-	3,381,531	3,388,906	9,790	(2,415)

INVESTMENTS IN ASSOCIATES AND OTHER COMPANIES

12 Months Ended

Dec. 31, 2017

Investments In Associates And Other Companies

INVESTMENTS IN ASSOCIATES AND OTHER COMPANIES

NOTE 11

INVESTMENTS IN ASSOCIATES AND OTHER COMPANIES

Investments in associates and other, are 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,
	2017 MCh$		2016 MCh$	2015 MCh$	2017 MCh$	2016 MCh$	2017 MCh$	2016 MCh$	2015 MCh$
Company
Redbanc S.A.	33.43	33.43		33.43	2,537	2,184	353	373	215
Transbank S.A.	25.00	25.00		25.00	14,534	12,510	2,024	1,302	1,256
Centro de Compensación Automatizado	33.33	33.33		33.33	1,589	1,353	236	248	212
Sociedad Interbancaria de Depósito de Valores S.A.	29.29	29.29		29.29	1,087	938	235	195	213
Cámara de Compensación de Alto Valor S.A. (1,2&3)	15.00	14.93		14.23	909	866	66	98	127
Administrador Financiero del Transantiago S.A.	20.00	20.00		20.00	3,098	2,781	317	230	323
Sociedad Nexus S.A.	12.90	12.90		12.90	1,911	1,469	442	247	225
Servicios de Infraestructura de Mercado OTC S.A. (1&2)	12.07	12.07		11.11	1,489	1,378	115	132	(115)
Subtotal					27,154	23,479	3,788	2,825	2,456
*Shares or rights in other companies ()**
Bladex					136	136	25	26	25
Stock Exchanges					287	157	150	161	107
Others					8	8	-	-	-
Total					27,585	23,780	3,963	3,012	2,5

(*) Investments in associates and other companies do not have market prices.

(1)

During the third quarter of 2016, Banco Penta ceded to Banco Santander a portion of its interest in the companies "Sociedad Operadora de la Cámara de Compensación de pagos de Alto Valor SA" and "Servicios de Market Infrastructure OTC SA ", the Bank's share in those companies increased to 14.84% and 11.93% respectively.

(2)

During the last quarter of 2016, Banco Penta ceded to Banco Santander a portion of its interest in the companies "Sociedad Operadora de la Cámara de Compensación de pagos de Alto Valor SA" and "Servicios de Market Infrastructure OTC SA ", the Bank's share in those companies increased to 14.93% and 12.07% respectively.

(3)

In February 2017, Banco Paris sold to Banco Santander a portion of its interest in the companies "Sociedad Operadora de la Cámara de Compensación de pagos de Alto Valor SA", the Bank's share increased to 15.00%

(4)

In October 2015, HSBC Bank Chile sold its ownership share in Camara de Compensación de Pagos de Alto Valor S.A. to Banco Santander Chile, increasing our participation to 14.23%.

b) Summary of financial information of associates as of and for the years ended December 31, 2017, 2016 and 2015.

As of December 31,
	2017				2016				2015
				Net income				Net income				Net income
	Assets	Liabilities	Equity	Net income	Assets	Liabilities	Equity	Net income	Assets	Liabilities	Equity	Net income
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Centro de Compensación Automatizado	6,871	2,174	3,989	708	5,508	1,523	3,241	744	5,148	1,897	2,616	635
Redbanc S.A.	21,235	13,751	6,428	1,056	19,927	13,505	5,307	1,115	20,296	14,877	4,777	642
Transbank S.A.	822,487	765,683	48,709	8,095	710,475	660,957	44,309	5,209	601,627	561,325	35,278	5,024
Sociedad Interbancaria de Depósito de Valores S.A.	3,720	60	2,858	802	3,204	103	2,435	666	2,714	58	2,093	563
Sociedad Nexus S.A.	32,669	18,888	10,354	3,427	30,038	19,229	8,898	1,911	23,153	13,682	7,730	1,741
Servicios de Infraestructura de Mercado OTC S.A.	17,913	6,414	10,963	536	29,258	18,258	9,906	1,094	17,631	7,800	10,869	(1,038)
Administrador Financiero del Transantiago S.A.	51,304	35,814	13,907	1,583	54,253	40,345	12,758	1,150	42,518	29,760	11,145	1,613
Cámara de Compensación de Alto Valor S.A.	6,338	500	5,399	439	6,099	627	4,815	657	5,730	775	4,066	889
Total	962,537	843,284	102,607	16,646	858,762	754,547	91,669	12,546	718,817	630,174	78,574	10,069

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.

Activity with respect to investments in other companies during 2017, 2016 and 2015 is as follows:

	As of December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Opening balance as of January 1,	23,780	20,309	17,914
Acquisition of investments (*)	3	1,123	302
Sale of investments	-	-	-
Participation in income	3,962	3,012	2,588
Dividends received	(116)	(217)	(278)
Other equity adjustments	(44)	(447)	(217)

Total	27,585	23,780	20,309

(*) See reference, part a) of this note.

INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2017

Intangible Assets

INTANGIBLE ASSETS

NOTE 12

INTANGIBLE ASSETS

a) As of December 31, 2017 and 2016, the composition of intangible assets is as follows:

				As of December 31, 2017
	Years of useful life	Average remaining useful life	Net opening balance as of January 1, 2015	Gross balance	Accumulated amortization	Net balance
			MCh$	MCh$	MCh$	MCh$

Licenses	3	1	1,656	10,932	(9,732)	1,200
Software development	3	2	56,429	314,115	(252,096)	62,019

Total			58,085	325,047	(261,828)	63,219

				As of December 31, 2016
	Years of useful life	Average remaining useful life	Net opening balance as of January 1, 2014	Gross balance	Accumulated amortization	Net balance
			MCh$	MCh$	MCh$	MCh$

Licenses	3	2	2,060	10,932	(9,276)	1,656
Software development	3	2	49,077	286,781	(230,352)	56,429

Total			51,137	297,713	(239,628)	58,085

The changes in the value of intangible assets during the periods ended December 31, 2017 and December 31, 2016 is as follows:

b. 1) Gross balance

Gross balances	Licenses	Software development	Total
	MCh$	MCh$	MCh$

Balances as of January 1, 2017	10,932	286,781	297,713
Acquisitions	-	32,624	32,624
Disposals and impairment	-	(5,290)	(5,290)
Other	-	-	-
Balances as of December 31, 2017	10,932	314,115	325,047

Balances as of January 1, 2016	10,932	259,500	270,432
Acquisitions	-	27,281	27,281
Disposals and impairment	-	-	-
Other	-	-	-
Balances as of December 31, 2016	10,932	286,781	297,713

b. 2) Accumulated amortization

Accumulated amortization	Licenses	Software development	Total
	MCh$	MCh$	MCh$

Balances as of January 1, 2017	(9,276)	(230,352)	(239,628)
Year’s amortization	(456)	(21,744)	(22,200)
Other changes	-	-	-
Balances as of December 31, 2017	(9,732)	(252,096)	(261,828)

Balances as of January 1, 2016	(8,872)	(210,423)	(219,295)
Year’s amortization	(404)	(19,929)	(20,333)
Other changes	-	-	-
Balances as of December 31, 2016	(9,276)	(230,352)	(239,628)

The Bank has no restriction on intangible assets as of December 31, 2017 and 2016. Additionally, the intangibles assets have not been pledged as guarantee for fulfillment of financial liabilities. Also, the Bank has no debt related to Intangible assets as of those dates.

PROPERTY, PLANT, AND EQUIPMENT

12 Months Ended

Dec. 31, 2017

Property, plant and equipment [abstract]

PROPERTY, PLANT, AND EQUIPMENT

NOTE 13

PROPERTY, PLANT, AND EQUIPMENT

a) As of December 31, 2017 and 2016, the composition of property, plant, and equipment balances are composed as follows:

		As of December 31, 2017
	Net opening balance as of January 1, 2017	Gross balance	Accumulated depreciation	Net balance
	MCh$	MCh$	MCh$	MCh$

Land and buildings	169,809	274,079	(114,727)	159,352
Equipment	66,506	193,689	(130,173)	63,516
Ceded under operating leases	4,230	4,888	(667)	4,221
Other	16,834	60,822	(45,364)	15,458
Total	257,379	533,478	(290,931)	242,547

		As of December 31, 2016
	Net opening balance as of January 1, 2016	Gross balance	Accumulated depreciation	Net balance
	MCh$	MCh$	MCh$	MCh$

Land and buildings	158,434	264,016	(94,207)	169,809
Equipment	59,908	168,124	(101,618)	66,506
Ceded under operating leases	4,238	4,888	(658)	4,230
Other	18,079	55,973	(39,139)	16,834
Total	240,659	493,001	(235,622)	257,379

The changes in the value of property, plant, and equipment as of December 31, 2017 and 2016 is as follows:

b. 1) Gross balance

2017	Land and buildings	Equipment	Ceded under operating leases	Other	Total
	MCh$	MCh$	MCh$	MCh$	MCh$

Balances as of January 1, 2017	264,016	168,124	4,888	55,973	493,001
Additions	27,592	26,278	-	4,902	58,772
Disposals	(17,529)	(359)	-	(53)	(17,941)
Impairment due to damage	-	(354)	-	-	(354)
Other	-	-	-	-	0
Balances as of December 31, 2017	274,079	193,689	4,888	60,822	533,478

2016	Land and buildings	Equipment	Ceded under operating leases	Other	Total
	MCh$	MCh$	MCh$	MCh$	MCh$

Balances as of January 1, 2016	237,449	137,621	4,888	51,482	431,440
Additions	26,567	30,965	-	4,823	62,355
Disposals	-	(228)	-	(332)	(560)
Impairment due to damage	-	(234)	-	-	(234)
Other	-	-	-	-	-
Balances as of December 31, 2016	264,016	168,124	4,888	55,973	493,001

b. 2) Accumulated depreciation

2017	Land and buildings	Equipment	Ceded under operating leases	Other	Total
	MCh$	MCh$	MCh$	MCh$	MCh$

Balances as of January 1, 2017	(94,207)	(101,618)	(658)	(39,139)	(235,622)
Depreciation charges in the period	(20,744)	(28,592)	(9)	(6,277)	(55,622)
Sales and disposals in the period	224	37	-	52	313
Transfers	-	-	-	-	0
Other	-	-	-	-	0
Balances as of December 31, 2017	(114,727)	(130,173)	(667)	(45,364)	(290,931)

2016	Land and buildings	Equipment	Ceded under operating leases	Other	Total
	MCh$	MCh$	MCh$	MCh$	MCh$

Balances as of January 1, 2016	(79,015)	(77,713)	(650)	(33,403)	(190,781)
Depreciation charges in the period	(15,192)	(23,976)	(8)	(5,849)	(45,025)
Sales and disposals in the period	-	71	-	113	184
Transfers	-	-	-	-	-
Other	-	-	-	-	-
Balances as of December 31, 2016	(94,207)	(101,618)	(658)	(39,139)	(235,622)

c) Operational leases – lessor

As of December 31, 2017 and 2016, the future minimum lease cash inflows under non-cancellable operating leases are as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Due within 1 year	567	506
Due after 1 year but within 2 years	749	1,029
Due after 2 years but within 3 years	480	502
Due after 3 years but within 4 years	348	473
Due after 4 years but within 5 years	308	344
Due after 5 years	1,792	2,067

Total	4,244	4,921

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,
	2017	2016
	MCh$	MCh$

Due within 1 year	26,059	26,455
Due after 1 year but within 2 years	21,343	24,903
Due after 2 year but within 3 years	18,091	20,582
Due after 3 years but within 4 years	15,736	17,321
Due after 4 years but within 5 years	12,734	14,569
Due after 5 years	51,502	53,694

Total	145,465	157,524

As of December 31, 2017 and 2016, the Bank has no financial leases which cannot be unilaterally rescinded.

The Bank has no restriction on property, plant and equipment as of December 31, 2017 and 2016. Additionally, the property, plant and equipment have not been provided as guarantees of financial liabilities. The Bank has no debt in connection with property, plant and equipment.

CURRENT AND DEFERRED TAXES

12 Months Ended

Dec. 31, 2017

Current And Deferred Taxes Details 5

CURRENT AND DEFERRED TAXES

NOTE 14

CURRENT AND DEFERRED TAXES

a) Current taxes

As of December 31, 2017 and 2016, the Bank recognizes taxes payable (recoverable), which is determined based on the currently applicable tax legislation. This amount is recorded net of recoverable taxes, and is shown as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Summary of current tax liabilities (assets)
Current tax (assets)	-	-
Current tax liabilities	6,435	29,294

Total tax payable (recoverable)	6,435	29,294

(Assets) liabilities current taxes detail (net)
Income tax, tax rate(*)	145,112	145,963
Minus:
Provisional monthly payments	(136,562)	(113,700)
Credit for training expenses	(1,768)	(1,972)
Land taxes leasing	-	-
Grant credits	(968)	(1,079)
Other	621	82

Total tax payable (recoverable)	6,435	29,294

(*)The tax rate is 25.5% for 2017 and 24.0% for 2016.

b) Effect on income

The effect of tax expense on income for the years ended December 31, 2017 and 2016 is comprised of the following items:

	As of December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Income tax expense
Current tax	145,112	145,963	121,775

Credits (debits) for deferred taxes
Origination and reversal of temporary differences	(6,751)	(37,269)	(45,672)
Valuation provision	5,955
Subtotals	144,316	108,694	76,103
Tax for rejected expenses (Article No.21)	610	336	340
Other	105	1	(48)
Net charges for income tax expense	145,031	109,031	76,395

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, 2017, 2016 and 2015, is as follows:

		Fort he year ended December 31,
	2017			2016		2015
	Tax rate		Amount	Tax rate	Amount	Tax
	Tax rate		Amount	Tax rate	Amount	rate	Amount
	%		MCh$	%	MCh$	%	MCh$

Tax calculated over profit before tax	25.50		183,671	24.00	140,991	22.50	118,828
Price level restatement for tax purposes⁽¹⁾	(3.03)		(21,829)	(5.49)	(32,256)	(5.42)	(28,630)
Single penalty tax (rejected expenses)	0.08		610	0.06	336	0.06	340
Effect of tax reform changes on deferred tax⁽²⁾	(2.86)		(20,600)	0.01	86	(2.01)	(10,600)
Real estate taxes	0.00		-	0.00	-	(0.73)	(3,853)
Other	0.44		3,179	(0.02)	(126)	0.06	310
Effective rates and expenses for income tax	20.13		145,031	18.56	109,031	14.46	76,395

(1) Price level restatement on tax purpose capital

(2) In accordance with Chilean Law N°20.780 published in September 29, 2014 the income tax rate are 25,5% and 27% for 2017 and 2018 respectively.

d) Effect of deferred taxes on comprehensive income

Below is a summary of the separate effect of deferred tax on other comprehensive income, showing the asset and liability balances, for the years ended December 31, 2017 and 2016:

		As of December 31,
		2017	2016
		MCh$	MCh$

Deferred tax assets
	Available for sale investments	368	3,266
	Cash flow hedges	908	-
Total deferred tax assets recognized through other comprehensive income		1,276	3,266

Deferred tax liabilities
	Available for sale investments	(841)	(5,036)
	Cash flow hedges	-	(549)
Total deferred tax liabilities recognized through other comprehensive income		(841)	(5,585)

Net deferred tax balances in equity		435	(2,319)

Deferred taxes in equity attributable to equity holders of the Bank		791	(2,097)
Deferred tax in equity attributable to non-controlling interests		(356)	(222)

e) Effect of deferred taxes on income

As of December 31, 2017 and 2016, the Bank has recorded effects for deferred taxes in the financial statements.

	As of December 31,
	2017	2016
	MCh$	MCh$
Deferred tax assets
Interests and adjustments	8,645	9,473
Non-recurring charge-offs	11,651	9,891
Assets received in lieu of payment	1,582	2,999
Exchange rate adjustments	882	-
Property, plant and equipment valuation	4,410	4,570
Allowance for loan losses	160,359	163,456
Provision for expenses	73,518	67,073
Leased assets	98,090	71,834
Subsidiaries tax losses	5,277	9,467
Prepaid expenses	151	-
Other	5,249	17,571
Total deferred tax assets	369,814	356,334

Deferred tax liabilities
Valuation of investments	(1,911)	(1,802)
Depreciation	(532)	-
Valuation proviision	(5,955)	-
Other	(432)	(299)
Total deferred tax liabilities	(8,830)	(2,101)

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,
	2017	2016
	MCh$	MCh$

Deferred tax assets
Recognized through other comprehensive income	1,276	3,266
Recognized through profit or loss	369,815	356,334
Total deferred tax assets	371,091	359,600

Deferred tax liabilities
Recognized through other comprehensive income	(841)	(5,585)
Recognized through profit or loss	(8,822)	(2.101)
Total deferred tax liabilities	(9,663)	(7.686)

OTHER ASSETS

12 Months Ended

Dec. 31, 2017

Other Assets

OTHER ASSETS

NOTE 15

OTHER ASSETS

Other assets item includes the following:

		As of December 31,
		2017	2016
		MCh$	MCh$

Assets for leasing ⁽¹⁾		48,099	44,840

Assets received or awarded in lieu of payment
	Assets received in lieu of payment	20,904	26,598
	Assets awarded at judicial sale	24,800	26,895
	Provision on assets received in lieu of payment or awarded	(1,440)	(7,558)
	Subtotal	44,264	45,935

Other assets
	Guarantee deposits (margin accounts) ⁽²⁾	323,767	396,289
	Gold investments	478	446
	VAT credit	9,570	8,941
	Income tax recoverable	1,381	22,244
	Prepaid expenses	116,512	148,288
	Assets recovered from leasing for sale	4,235	6,040
	Pension plan assets	921	1,637
	Accounts and notes receivable	59,574	56,624
	Notes receivable through brokerage and simultaneous transactions	68,272	60,632
	Other receivable assets	53,500	15,082
	Other assets ⁽³⁾	33,837	40,274
	Subtotal	672,047	756,497

	Total	764,410	847,272

⁽¹⁾	Assets available to be granted under the financial leasing agreements.

⁽²⁾

Guarantee deposits (margin accounts) correspond collaterals associated with derivative financial contracts to mitigate the counterparty credit risk and are mainly established in cash. These guarantees operate when mark to market of derivative financial instruments exceed the levels of threshold agreed in the contracts, which could result the the Bank deliver or receive collateral.

⁽³⁾	Other assets mainly include settlement of derivatives and other financial transactions.

TIME DEPOSITS AND OTHER TIME LIABILITIES

12 Months Ended

Dec. 31, 2017

Time Deposits And Other Time Liabilities

TIME DEPOSITS AND OTHER TIME LIABILITIES

NOTE 16

TIME DEPOSITS AND OTHER TIME LIABILITIES

As of December 31, 2017 and 2016, the composition of the line item time deposits and other liabilities is as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Deposits and other demand liabilities
Checking accounts	6,272,656	6,144,688
Other deposits and demand accounts	590,221	564,966
Other demand liabilities	905,289	829,661

Total	7,768,166	7,539,315

Time deposits and other time liabilities
Time deposits	11,792,466	13,031,319
Time savings account	116,179	116,451
Other time liabilities	5,300	3,939

Total	11,913,945	13,151,709

INTERBANK BORROWINGS

12 Months Ended

Dec. 31, 2017

Interbank Borrowings

INTERBANK BORROWINGS

NOTE 17

INTERBANK BORROWINGS

As of December 31, 2017 and 2016 the line item Interbank borrowings is as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$
Loans from financial institutions and the Central Bank of Chile
Other obligations with Central Bank of Chile	5	7
Subtotal	5	7
Loans from domestic financial institutions	480	365,436
Loans from foreign financial institutions
Sumitomo Mitsui Banking Corporation	259,199	233,060
Wells Fargo Bank N.A.	235,058	113,631
Bank Of America N.A.	228,309	-
Standard Chartered Bank	225,966	101,874
Mizuho Bank Ltd. NY.	215,967	-
Citibank N.A.	191,471	183,193
The Bank of Nova Scotia	86,419	39,967
The Toronto-Dominion Bank	62,743	-
Corporación Andina De Fomento	31,075	-
Barclays Bank PLC London	30,886	33,279
HSBC Bank Plc NY	30,875	33,214
The Bank of New York Mellon	30,839	82,594
Hsbc Bank Plc	30,838	-
European Investment Bank	12,629	13,980
Banco Santander – Hong Kong	8,341	6,165
Banco Santander Brasil S.A.	5,225	5,175
Bank Austria A.G.	2,317	-
Bank of China	823	311
Shanghai Pudong Development	714	205
Bank of Tokyo Mitsubishi	453	430
Keb Hana Bank	396	301
Shinhan Bank	394	354
Thai Military Bank Public Comp	377	425
Hua Nan Commercial Bank Ltd.	349	83
Mizuho Corporate Bank	331	411,753
Banco Santander Central Hispano	312	-
Agricultural Bank of China	295	327
Banco de Occidente	282	-
Banco Do Brasil S.A.	268	120
Unicredito Italiano	264	-
Bank of East Asia, Limited	241	54
Canara Bank	224	91
Hong Kong and Shanghai Banking	222	889
International Commercial Bank	221	-
Banque Generale Du Luxembourg	207	138
Kookmin Bank	201	317
Zhejiang Commercial Bank Ltd.	175	-
Banca Monte dei Paschi di Siena	162	309
Taiwan Cooperative Bank	159	-
Deutsche Bank A.G.	157	-
Yapi Ve Kredi Bankasi A.S.	155	73
J.P. Morgan Chase Bank N.A.	154	49
Banco Commerzbank	145	47
Bank of Taiwan	136	183
Industrial And Commercial Bank	119	-
Bank Of Nova Scotia	112	-
State Bank of India	110	289
Woori Bank	105	153
Bancolombia S.A.	94	31
Bank of Communications	93	393
Cassa Di Risparmio Di Parma E	93	132
China Construcción Bank	90	1,044
Metropolitan Bank Limited	87	26
Banca Delle Marche Spa	76	31
Australia And New Zealand Bank	62	21
Abanca Corporacion Bancaria SA	60	-
Casa Di Risparmo De Padova E.R.	56	76
Societe Generale	56	-
Hanvit Bank	55	76
Banca Popolare Dell'Emilia Rom	53	26
Banco Bradesco S.A.	50	113
Punjab National Bank	47	-
Citic Industrial Bank	39	-
Hang Seng Bank Ltd.	39	-

Subtotal	1,697,470	1,265,002

	As of December 31,
	2017	2016
	MCh$	MCh$
Loans from foreign financial institutions, continuación
Hsbc Bank Usa	38	-
First Union National Bank	35	226
Habib Bank Limited	34	105
Banco Caixa Geral.	33	-
Banco Internacional S.A.	33	-
Banca Commerciale Italiana S.P.	31	-
Bank of Montreal	30	201
Kasikornbank Public Company Li.	25	-
Citibank N.A. Turkiye Merkez S.	23	158
Liu Chong Hing Bank Limited	21	-
Banco Popular Espanol S.A.	19	56
Taiwan Business Bank	19	-
Fortis Bank S.A./N.V. Brussels	15	12
Chang Hwa Commercial Bank Ltd.	14	17
Banco De Sabadell S.A.	10	-
Bank Of China Guangdong Branch	8	14
Icici Bank Limited	8	25
Banco Popolare Soc Coop	6	5
Bank of America	-	213,200
NTT Docomo Ibc	-	33,149
Zurcher Kantonal Bank	-	20,021
Banque Bruxelles Lambert S.A.	-	5,797
Banque Cantonale Vaudoise	-	5,714
Denizbank A.S.	-	347
Banco Santander – Madrid	-	322
Unicredito Italiano	-	302
Taipei Bank	-	260
ING Bank N.V. - Vienna	-	228
Westpac Banking Corporation	-	226
BNP Paribas S.A.	-	218
Oriental Bank of Commerce	-	132
Kotak Mahindra Bank Limited	-	129
Caixabank S.A.	-	93
Development Bank Of Singapore	-	80
Hsbc France (formerly Hsbc Ccf)	-	74
Banco General S.A.	-	62
Banco De Crédito Del Perú	-	58
Hsbc Bank Canada	-	47
Finans Bank A.S.	-	46
Bangkok Bank Public Company Li.	-	42
United Bank of India	-	39
Banco Bolivariano C.A.	-	38
Banco Bilbao Vizcaya Argentaria	-	34
Hsbc Bank Brasil S.A. - Banco	-	34
Banca Popolare Di Vicenza Scpa	-	31
Bayerische Hypo- Und Vereinsba	-	27
Banco Itau	-	25
China Merchants Bank	-	22
Hsbc Bank Middle East	-	21
Banca Lombarda E Piemontese S.	-	21
Export-Import Bank Of Thailand	-	20
Cassa Di Risparmio In Bologna	-	20
Fifth Third Bank	-	15
Hdfc Bank Limited	-	13
Union Bank of India	-	10
Intesa Sanpaolo Spa	-	7
Deutsche Bank Sociedad Anonima	-	6
Industrial Bank of Korea	-	5
Otros	-	4,169
Subtotal	1,697,872	1,550,925
Total	1,698,357	1,916,368

a) Obligations with Central Bank of Chile

Debts to the Central Bank of Chile include credit lines for renegotiation of loans and other borrowings. These credit lines were provided by the Central Bank of Chile for 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,
	2017	2016
	MCh$	MCh$

Totals Line of credit for renegotiation with Central Bank of Chile	5	7

b) Loans from domestic financial institutions

These obligations’ maturities are as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Due within 1 year	480	365,436
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	480	365,436

c) Foreign obligations

	As of December 31,
	2017	2016
	MCh$	MCh$

Due within 1 year	1,477,318	525,521
Due within 1 and 2 year	185,519	725,315
Due within 2 and 3 year	35,035	186,352
Due within 3 and 4 year	-	80,473
Due after 5 years	-	33,264
Total loans from foreign financial institutions	1,697,872	1,550,925

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES

12 Months Ended

Dec. 31, 2017

Issued Debt Instruments And Other Financial Liabilities

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES

NOTE 18

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES

As of December 31, 2017 and 2016, composition of this item is as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Other financial liabilities
Obligations to public sector	59,470	61,490
Other domestic obligations	175,389	175,028
Foreign obligations	7,171	3,498
Subtotals	242,030	240,016
Issued debt instruments
Mortgage finance bonds	34,479	46,251
Senior bonds	6,186,760	6,416,274
Mortgage bond	99,222	104,182
Subordinated bonds	773,192	759,665
Subtotals	7,093,653	7,326,372

Total	7,335,683	7,566,388

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, 2017
	Current	Non-current	Total
	MCh$	MCh$	MCh$

Mortgage finance bonds	8,691	25,788	34,479
Senior bonds	337,166	5,849,594	6,186,760
Mortgage bond	4,541	94,681	99,222
Subordinated bonds	3	773,189	773,192
Issued debt instruments	350,401	6,743,252	7,093,653

Other financial liabilities	212,825	29,205	242,030

Total	563,226	6,772,457	7,335,683

	As of December 31, 2016
	Current	Non-current	Total
	MCh$	MCh$	MCh$

Mortgage finance bonds	11,236	35,015	46,251
Senior bonds	1,135,713	5,280,561	6,416,274
Mortgage bond	4,318	99,864	104,182
Subordinated bonds	4	759,661	759,665
Issued debt instruments	1,151,271	6,175,101	7,326,372

Other financial liabilities	158,488	81,528	240,016

Total	1,309,759	6,256,629	7,566,388

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 yield of 5.41% as of December 31, 2017 (5.53% as of December 31, 2016).

	As of December 31,
	2017	2016
	MCh$	MCh$

Due within 1 year	8,691	11,236
Due after 1 year but within 2 years	6,744	8,673
Due after 2 year but within 3 years	6,096	6,928
Due after 3 year but within 4 years	5,155	6,246
Due after 4 year but within 5 years	4,101	5,278
Due after 5 years	3,692	7,890
Total mortgage bonds	34,479	46,251

b) Senior bonds

The following table shows senior bonds by currency:

	As of December 31,
	2017	2016
	MCh$	MCh$

Santander bonds in UF	3,542,006	3,588,373
Santander bonds in USD	1,045,465	909,354
Santander bonds in CHF	268,281	568,549
Santander bonds in Ch$	1,135,527	1,037,515
Santander bonds in AUD	14,534	60,890
Current bonds in JPY	126,059	179,426
Santander bonds in EUR	54,888	72,167
Total senior bonds	6,186,760	6,416,274

i. Placement of senior bonds:

In 2017, the Bank issued bonds for UF 10,000,000; CLP 160,000,000,000; USD 770,000,000; and AUD 30,000,000 detailed as follows:

Series	Currency	Amount	Term	Issuance rate	Series approval date	Series amount	Maturity date
T9	UF	5,000,000	7.0	2.60%	01-02-2016	5,000,000	01-02-2024
T13	UF	5,000,000	9.0	2.75%	01-02-2016	5,000,000	01-02-2026
Total	UF	10,000,000				10,000,000
SD	CLP	60,000,000,000	5.0	5.50%	01-06-2014	200,000,000,000	01-06-2019
T16	CLP	100,000,000,000	6.0	5.20%	01-02-2016	100,000,000,000	01-08-2021
Total	CLP	160,000,000,000				300,000,000,000
DN	USD	100,000,000	3.0	Libor-USD 3M+0.80%	20-07-2017	100,000,000	27-07-2020
DN	USD	50,000,000	3.0	Libor-USD 3M+0.80%	21-07-2017	50,000,000	27-07-2020
DN	USD	50,000,000	3.0	Libor-USD 3M+0.80%	24-07-2017	50,000,000	27-07-2020
DN	USD	10,000,000	4.0	Libor-USD 3M+0.83%	23-08-2017	10,000,000	23-11-2021
DN	USD	10,000,000	4.0	Libor-USD 3M+0.83%	23-08-2017	10,000,000	23-11-2021
DN	USD	50,000,000	3.0	Libor-USD 3M+0.75%	14-09-2017	50,000,000	15-09-2020
DN	USD	500,000,000	3.0	2.50%	12-12-2017	500,000,000	15-12-2020
Total	USD	770,000,000				770,000,000
AUD	AUD	30,000,000	10.0	3.96%	05-12-2017	30,000,000	12-12-2027
Total	AUD	30,000,000				30,000,000

During 2017, the Bank performed a partial repurchase of the following bonds:

Date	Type	Currency	Amount
06-03-2017	Senior	USD	6,900,000
12-05-2017	Senior	UF	1,000,000
16-05-2017	Senior	UF	690,000
17-05-2017	Senior	UF	15,000
26-05-2017	Senior	UF	340,000
01-06-2017	Senior	UF	590,000
02-06-2017	Senior	UF	300,000
05-06-2017	Senior	UF	130,000
19-06-2017	Senior	UF	265,000
10-07-2017	Senior	UF	770,000
21-07-2017	Senior	UF	10,000
28-08-2017	Senior	UF	200,000
28-08-2017	Senior	UF	200,000
29-08-2017	Senior	UF	2,000
29-08-2017	Senior	UF	270,000
03-11-2017	Senior	UF	14,000
29-11-2017	Senior	UF	400,000
06-12-2017	Senior	UF	20,000
12-12-2017	Senior	CLP	10,990,000,000

In 2016, the Bank issued bonds for UF 62,000,000; CLP 590,000,000,000; JPY 3,000,000,000; USD 215,000,000; EUR 104,000,000; and CHF 125,000,000 detailed as follows:

Series	Currency	Amount	Term	Issuance rate	Series approval date date	Series maximum amount	Maturity date
R1	UF	15,000,000	5.5	2.50%	01-09-2015	15,000,000	01-03-2021
R2	UF	10,000,000	7.5	2.60%	01-09-2015	10,000,000	01-03-2023
R3	UF	10,000,000	10.5	3.00%	01-09-2015	10,000,000	01-03-2026
R5	UF	7,000,000	7.0	2.55%	01-12-2015	7,000,000	01-12-2022
R6	UF	7,000,000	9.0	2.65%	01-12-2015	7,000,000	01-12-2024
P9	UF	3,000,000	10.5	2.60%	01-03-2015	5,000,000	01-09-2025
T2	UF	5,000,000	4.5	2.25%	01-02-2016	5,000,000	01-08-2020
T5	UF	5,000,000	6.0	2.40%	01-02-2016	5,000,000	01-02-2022
Total	UF	62,000,000
R4	CLP	100,000,000,000	5.5	5.50%	01-09-2015	100,000,000,000	01-03-2021
P4	CLP	50,000,000,000	5.0	4.80%	01-03-2015	150,000,000,000	01-03-2020
SD	CLP	140,000,000,000	5.0	5.50%	01-06-2014	200,000,000,000	01-06-2019
SC	CLP	200,000,000,000	10.0	5.95%	01-06-2014	200,000,000,000	01-06-2024
P3	CLP	50,000,000,000	7.0	5.50%	01-01-2015	50,000,000,000	01-01-2022
P1	CLP	50,000,000,000	10.0	5.80%	01-01-2015	50,000,000,000	01-01-2025
Total	CLP	590,000,000,000
JPY	JPY	3,000,000,000	5.0	0.115%	22-06-2016	3,000,000,000	29-06-2021
Total	JPY	3,000,000,000
DN	USD	10,000,000	5.0	Libor-USD 3M+1.05%	02-06-2016	10,000,000	09-06-2021
DN	USD	10,000,000	5.0	Libor-USD 3M+1.22%	08-06-2016	10,000,000	17-06-2021
DN	USD	10,000,000	5.0	Libor-USD 3M+1.20%	01-08-2016	10,000,000	16-08-2021
DN	USD	185,000,000	5.0	Libor-USD 3M+1.20%	10-11-2016	185,000,000	28-11-2021
Total	USD	215,000,000
EUR	EUR	54,000,000	12.0	1.307%	05-08-2016	54,000,000	17-08-2028
EUR	EUR	20,000,000	8.0	0.80%	04-08-2016	20,000,000	19-08-2024
EUR	EUR	30,000,000	3.0	0.25%	09-12-2016	30,000,000	20-12-2019
Total	EUR	104,000,000
CHF	CHF	125,000,000	8.5	0.35%	14-11-2016	125,000,000	30-05-2025
Total	CHF	125,000,000

During 2016, the Bank performed a partial repurchase of the following bond:

Date	Type	Currency	Amount
13-01-2016	Senior	USD	600,000
27-01-2016	Senior	USD	960,000
08-03-2016	Senior	USD	418,853,000
08-03-2016	Senior	USD	140,104,000
10-05-2016	Senior	USD	10,000,000
29-11-2016	Senior	USD	6,895,000

ii. The maturities of senior bonds are as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Due within 1 year	337,166	1,135,713
Due after 1 year but within 2 years	866,936	321,509
Due after 2 year but within 3 years	832,978	816,919
Due after 3 year but within 4 years	1,177,081	663,289
Due after 4 year but within 5 years	902,647	754,768
Due after 5 years	2,069,952	2,724,076
Total senior bonds	6,186,760	6,416,274

Mortgage bonds

Detail of mortgage bonds per currency is as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Mortgage bonds in UF	99,222	104,182
Total mortgage bonds	99,222	104,182

i. Allocation of mortgage bonds

During 2017 and 2016, the Bank has not placed any mortgage bonds.

ii.

The maturities of Mortgage bonds are as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Due within 1 year	4,541	4,318
Due after 1 year but within 2 years	7,291	6,932
Due after 2 year but within 3 years	7,526	7,156
Due after 3 year but within 4 years	7,769	7,386
Due after 4 year but within 5 years	8,019	7,626
Due after 5 years	64,076	70,764
Total Mortgage bonds	99,222	104,182

d) Subordinated bonds

Detail of the subordinated bonds per currency is as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Subordinated bonds denominated in CLP	3	4
Subordinated bonds denominated in UF	773,189	759,661
Total subordinated bonds	773,192	759,665

i. Allocation of subordinated bonds

During 2017 and 2016, the Bank has not placed any subordinated bonds.

The maturities of subordinated bonds, are as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Due within 1 year	3	4
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	773,189	759,661
Total subordinated bonds	773,192	759,665

e) Other financial liabilities

The composition of other financial obligations, by maturity, is detailed below:

	As of December 31,
	2017	2016
	MCh$	MCh$

Non-current portion:
Due after 1 year but within 2 years	23,401	33,777
Due after 2 year but within 3 years	4,181	24,863
Due after 3 year but within 4 years	194	5,794
Due after 4 year but within 5 years	210	1,973
Due after 5 years	1,219	15,121
Non-current portion subtotal	29,205	81,528

Current portion:
Amounts due to credit card operators	173,271	151,620
Acceptance of letters of credit	2,780	2,069
Other long-term financial obligations, short-term portion	36,774	4,799
Current portion subtotal	212,825	158,488

Total other financial liabilities	242,030	240,016

MATURITY OF FINANCIAL ASSETS AND LIABILITIES

12 Months Ended

Dec. 31, 2017

Maturity Of Financial Assets And Liabilities

MATURITY OF FINANCIAL ASSETS AND LIABILITIES

NOTE 19

MATURITY OF FINANCIAL ASSETS AND LIABILITIES

As of December 31, 2017 and 2016, the detail of the maturities of assets and liabilities is as follows:

As of December 31, 2017	Demand	Up to 1 month	Between 1 and 3 months	Between 3 and 12 months	Subtotal up to 1 year	Between 1 and 3 years	Between 3 and 5 years	More than 5 years	Subtotal More than 1 year	Total
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Financial assets
Cash and deposits in banks	1,452,922	-	-	-	1,452,922	-	-	-	-	1,452,922
Cash items in process of collection	668,145	-	-	-	668,145	-	-	-	-	668,145
Trading investments	-	72,983	4,024	68,277	145,284	110,824	90,507	139,121	340,452	485,736
Investments under resale agreements	-	-	-	-	-	-	-	-	-	-
Financial derivative contracts	-	135,780	198,876	410,415	745,071	385,428	371,090	737,058	1,493,576	2,238,647
Interbank loans (*)	-	6,064	152,911	3,710	162,685	-	-	-	-	162,685
Loans and accounts receivables from customers (**)	769,823	2,206,734	2,288,372	4,348,975	9,613,904	5,187,501	2,938,326	9,823,498	17,949,325	27,563,229
Available for sale investments	-	58,850	11,788	102,600	173,238	556,289	975,372	869,647	2,401,308	2,574,546
Guarantee deposits (margin accounts)	323,767	-	-	-	323,767	-	-	-	-	323,767
Total financial assets	3,214,657	2,480,411	2,655,971	4,933,977	13,285,016	6,240,042	4,375,295	11,569,324	22,184,661	35,469,677

Financial liabilities
Deposits and other demand liabilities	7,768,166	-	-	-	7,768,166	-	-	-	-	7,768,166
Cash items in process of being cleared	486,726	-	-	-	486,726	-	-	-	-	486,726
Obligations under repurchase agreements	-	268,061	-	-	268,061	-	-	-	-	268,061
Time deposits and other time liabilities	121,479	5,120,171	4,201,271	2,299,018	11,741,939	106,833	2,811	62,362	172,006	11,913,945
Financial derivative contracts	-	144,410	196,444	356,288	697,142	378,582	358,358	705,406	1,442,346	2,139,488
Interbank borrowings	4,130	46,013	397,419	1,030,241	1,477,803	220,554	-	-	220,554	1,698,357
Issued debt instruments	-	21,043	55,119	274,239	350,401	1,727,571	2,104,771	2,910,910	6,743,252	7,093,653
Other financial liabilities	177,663	701	2,583	31,879	212,826	27,581	404	1,219	29,204	242,030
Guarantees received (margin accounts)	408,313	-	-	-	408,313	-	-	-	-	408,313
Total financial liabilities	8,966,477	5,600,399	4,852,836	3,991,665	23,411,377	2,461,121	2,466,344	3,679,897	8,607,362	32,018,739

(*) Interbank loans are presented on a gross basis. The amount of allowance is Ch$472 million.

(**) 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$ 437,863 million, Mortgage loans Ch$ 69,066 million, and Consumer loans Ch$ 283,756 million.

As of December 31, 2016	Demand	Up to 1 month	Between 1 and 3 months	Between 3 and 12 months	Subtotal up to 1 year	Between 1 and 3 years	Between 3 and 5 years	More than 5 years	Subtotal More than 1 year	Total
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Financial assets
Cash and deposits in banks	2,279,389	-	-	-	2,279,389	-	-	-	-	2,279,389
Cash items in process of collection	495,283	-	-	-	495,283	-	-	-	-	495,283
Trading investments	-	52,443	13,252	118,845	184,540	75,378	106,808	30,261	212,447	396,987
Investments under resale agreements	-	6,736	-	-	6,736	-	-	-	-	6,736
Financial derivative contracts	-	82,243	120,653	292,801	495,697	531,094	357,833	1,116,158	2,005,085	2,500,782
Interbank loans (*)	-	12,859	135,756	124,143	272,758	44	-	5	49	272,807
Loans and accounts receivables from customers (**)	717,306	2,393,216	2,108,001	4,488,993	9,707,516	4,937,271	2,909,140	9,379,697	17,226,108	26,933,624
Available for sale investments	-	1,581,682	250,222	314,842	2,146,746	37,974	379,976	824,210	1,242,160	3,388,906
Guarantee deposits (margin accounts)	396,289	-	-	-	396,289	-	-	-	-	396,289
Total financial assets	3,888,267	4,129,179	2,627,884	5,339,624	15,984,954	5,581,761	3,753,757	11,350,331	20,685,849	36,670,803

Financial liabilities
Deposits and other demand liabilities	7,539,315	-	-	-	7,539,315	-	-	-	-	7,539,315
Cash items in process of being cleared	288,473	-	-	-	288,473	-	-	-	-	288,473
Obligations under repurchase agreements	-	212,437	-	-	212,437	-	-	-	-	212,437
Time deposits and other time liabilities	121,527	6,105,767	4,193,906	2,537,299	12,958,499	118,101	13,913	61,196	193,210	13,151,709
Financial derivative contracts	-	92,335	122,565	263,893	478,793	494,539	346,948	971,881	1,813,368	2,292,161
Interbank borrowings	4,557	373,423	115,769	1,154,063	1,647,812	233,542	35,014	-	268,556	1,916,368
Issued debt instruments	-	43,141	185,425	922,705	1,151,271	1,168,117	1,444,593	3,562,391	6,175,101	7,326,372
Other financial liabilities	153,049	1,461	1,161	2,817	158,488	58,641	7,766	15,121	81,528	240,016
Guarantees received (margin accounts)	480,926	-	-	-	480,926	-	-	-	-	480,926
Total financial liabilities	8,587,847	6,828,564	4,618,826	4,880,777	24,916,014	2,072,940	1,848,234	4,610,589	8,531,763	33,447,777

(*) Interbank loans are presented on a gross basis. The amount of allowance is Ch$4,135 million.

(**) 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$ 429,442 million, Mortgage loans Ch$ 57,009 million, and Consumer loans Ch$ 300,019 million.

PROVISIONS

12 Months Ended

Dec. 31, 2017

Provisions [abstract]

PROVISIONS

NOTE 20

PROVISIONS

As of December 31, 2017 and 2016, the composition is as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Provisions for personnel salaries and expenses	97,576	72,592
Provisions for mandatory dividends	168,840	142,815
Provisions for contingent loan risk	10,079	11,399
Provisions for contingencies associated with administrative claims and leasing contracts	27,303	65,404
Total	303,798	292,210

Below is the activity regarding provisions during the years ended December 31, 2017 and 2016.

	Personnel salaries and expenses	Mandatory Dividend	Contingent loan	Contingencies	Total
	MCh$	MCh$	MCh$	MCh$	MM$

Balances as of January 1, 2017	72,592	142,815	11,399	65,404	292,210
Provisions established	106,687	168,840	7,341	8,645	291,513
Application of provisions	(81,703)	(142,815)	-	(389)	(224,907)
Provisions released	-	-	(8,661)	(46,357)	(55,018)
Reclassifications	-	-	-	-	-
Other	-	-	-	-	-

Balances as of December 31, 2017	97,576	168,840	10,079	27,303	303,798

Balances as of January 1, 2016	64,861	134,539	10,750	64,848	274,998
Provisions established	80,298	142,815	9,789	85,492	318,394
Application of provisions	(72,567)	(134,539)	-	(135)	(207,241)
Provisions released	-	-	(9,140)	(84,801)	(93,941)
Reclassifications	-	-	-	-	-
Other	-	-	-	-	-

Balances as of December 31, 2016	72,592	142,815	11,399	65,404	292,210

Provisions for personnel salaries and expenses:

	As of December 31,
	2017	2016
	MCh$	MCh$

Provision for seniority compensation	17,874	10,376
Provision for stock-based personnel benefits	-	-
Provision for performance bonds	53,947	38,510
Provision for vacations	23,039	21,800
Provision for other personnel benefits	2,716	1,906
Total	97,576	72,592

OTHER LIABILITIES

12 Months Ended

Dec. 31, 2017

Other Liabilities

OTHER LIABILITIES

NOTE 21

OTHER LIABILITIES

The other liabilities line item is as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Accounts and notes payable	196,965	154,159
Unearned income	601	509
Guarantees received (margin accounts) ⁽¹⁾	408,313	480,926
Notes payable through brokerage and simultaneous transactions	17,799	27,745
Other payable obligations ⁽²⁾	58,921	80,100
Withheld VAT	1,887	1,964
Other liabilities ⁽³⁾	60,877	50,382

Total	745,363	795,785

(1)

Guarantee deposits (margin accounts) collaterals associated to derivative financial contracts to mitigate the counterparty credit risk and are mainly established in cash. These guarantees operate when mark to market of derivative financial instruments exceed the levels of threshold agreed in the contracts, which could result the the Bank deliver or receive collateral.

(2)	Other payable obligations mainly relates to settlement of derivatives and other financial transactions derived from the operation of the Bank.

(3)	Other liabilities: mainly include reimbursement of insurance commissions.

CONTINGENCIES AND COMMITMENTS

12 Months Ended

Dec. 31, 2017

Contingencies And Commitments

CONTINGENCIES AND COMMITMENTS

NOTE 22

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, 2017, the Banks and its subsidiaries have provisions for this item of Ch$1,214.2 million and Ch$0 million, respectively (Ch$1,194 million and Ch$48 million as of December 31, 2016) which is included in “Provisions” in the Consolidated Statement of Financial Position as provisions for contingencies.

b) Contingent loans

The following table shows the Bank’s contractual obligations to issue loans:

	As of December 31,
	2017	2016
	MCh$	MCh$

Letters of credit issued	201,699	158,800
Foreign letters of credit confirmed	75,499	57,686
Guarantees	1,823,793	1,752,610
Personal guarantees	81,577	125,050
Subtotal	2,182,568	2,094,146
Available on demand credit lines	8,135,489	7,548,820
Other irrevocable credit commitments	260,691	260,266
Total	10,578,748	9,903,232

c) Held
securities

The Bank holds securities in the normal course of its business as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$

Third party operations
Collections	175,200	163,303
Assets from third parties managed by the Bank and its affiliates	1,660,804	1,586,405
Subtotal	1,836,004	1,749,708
Custody of securities
Securities held in custody	383,002	390,155
Securities held in custody deposited in other entity	760,083	687,610
Issued securities held in custody	22,046,701	18,768,572
Subtotal	23,189,786	19,846,337
Total	25,025,790	21,596,045

During 2017, the Bank classified the portfolios managed by private banking in “Assets from third parties managed by the Bank and its affiliates” (memo account). At the end of December 2017, the balance for this was Ch$ 1,660,768 million (Ch$ 1,586,370 million at December 31, 2016).

d) Guarantees

Banco Santander Chile has comprehensive officer fidelity insurance policy, No. 4505199, with the Chilena Consolidada de Seguros insurance company, for USD 50,000,000 which jointly covers both the Bank and its affiliates for the period from July 1, 2017 to June 30, 2018.

Contingent loans and liabilities

To satisfy its clients’ needs, the Bank took on several contingent loans and liabilities that are not be recognized in the Consolidated Financial Statement of Financial Position; these contain loan risks and they are, therefore, part of the Bank`s global risk.

EQUITY

12 Months Ended

Dec. 31, 2017

EQUITY

EQUITY

NOTE 23

EQUITY

Capital

As of December 31, 2017 and 2016 the Bank had 188,446,126,794 shares outstanding, all of which are subscribed for and paid in full, amounting to Ch$891,303 million. All shares have the same rights, and have no preferences or restrictions.

The activity with respect to shares during 2017, 2016 and 2015 was as follows:

	SHARES As of December 31,
	2017	2016	2015

Issued as of January 1	188,446,126,794	188,446,126,794	188,446,126,794
Issuance of paid shares	-	-	-
Issuance of outstanding shares	-	-	-
Stock options exercised	-	-	-
Issued as of December 31,	188,446,126,794	188,446,126,794	188,446,126,794

As of December 31, 2017, 2016 and 2015 the Bank does not have any of its own shares in treasury, nor do any of the consolidated companies.

As of December 31, 2017 the shareholder composition was as follows:

Corporate Name or Shareholder's Name	Shares	*ADRs ()**	Total	% of equity holding

Santander Chile Holding S.A.	66,822,519,695	-	66,822,519,695	35.46
Teatinos Siglo XXI Inversiones Limitada	59,770,481,573	-	59,770,481,573	31.72
The Bank New York Mellon	-	31,238,866,071	31,238,866,071	16.58
Banks on behalf of third parties	13,892,691,988	-	13,892,691,988	7.37
Pension funds (AFP) on behalf of third parties	6,896,552,755	-	6,896,552,755	3.66
Stock brokers on behalf of third parties	3,762,310,365	-	3,762,310,365	2.00
Other minority holders	6,062,704,347	-	6,062,704,347	3.21
Total	157,207,260,723	31,238,866,071	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.

As of December 31, 2016 the shareholder composition was as follows:

Corporate Name or Shareholder's Name	Shares	*ADRs ()**	Total	% of equity holding

Santander Chile Holding S.A.	66,822,519,695	-	66,822,519,695	35.46
Teatinos Siglo XXI Inversiones Limitada	59,770,481,573	-	59,770,481,573	31.72
The Bank New York Mellon (1)	-	34,800,933,671	34,800,933,671	18.47
Banks on behalf of third parties	12,257,100,312	-	12,257,100,312	6.50
Pension funds (AFP) on behalf of third parties	6,990,857,997	-	6,990,857,997	3.71
Stock brokers on behalf of third parties	3,071,882,351	-	3,071,882,351	1.63
Other minority holders	4,732,351,195	-	4,732,351,195	2.51
Total	153,645,193,123	34,800,933,671	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.

As of December 31, 2015 the shareholder composition was as follows:

Corporate Name or Shareholder's Name	Shares	*ADRs ()**	Total	% of equity holding

Santander Chile Holding S.A.	66,822,519,695	-	66,822,519,695	35.46
Teatinos Siglo XXI Inversiones Limitada	59,770,481,573	-	59,770,481,573	31.72
The Bank New York Mellon (1)	-	32,516,063,671	32,516,063,671	17.25
Banks on behalf of third parties	11,878,070,560	-	11,878,070,560	6.30
Pension funds (AFP) on behalf of third parties	8,887,560,424	-	8,887,560,424	4.72
Stock brokers on behalf of third parties	3,460,285,074	-	3,460,285,074	1.84
Other minority holders	5,111,145,797	-	5,111,145,797	2.71
Total	155,930,063,123	32,516,063,671	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.

(1) As of August 4, 2015, Banco Santander Chile signed a contract which appoints The Bank of New York Mellon as the commercial bank authorized to trade ADRs, replacing J.P.Morgan Chase Bank NA.

Reserves

In April 2017, due to the Shareholders’ Meeting, the Bank agreed to capitalized 30% of retained earnings from 2016 as reserves; which equals Ch$ 141,706 million (Ch$ 112,219 million in 2016).

Dividends

The distribution of dividends is detailed in the Consolidated Statement of Changes in Equity.

As of December 31, 2017, 2016 and 2015 the basic and diluted earnings per share were as follows:

	As of December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

a) Basic earnings per share
Total attributable to the equity holders of the Bank	562,801	476,067	448,466
Weighted average number of outstanding shares	188,446,126,794	188,446,126,794	188,446,126,794
Basic earnings per share (in Ch$)	2,987	2,526	2,380

b) Diluted earnings per share
Total attributable to the equity holders of the Bank	562,801	476,067	448,466
Weighted average number of outstanding shares	188,446,126,794	188,446,126,794	188,446,126,794
Adjusted number of shares	188,446,126,794	188,446,126,794	188,446,126,794
Diluted earnings per share (in Ch$)	2,987	2,526	2,380

As of December 31, 2017, 2016 and 2015 the Bank does not own instruments with dilutive effects.

e) Other comprehensive income from available for sale investments and cash flow hedges:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Available for sale investments
As of January 1,	7,375	(7,093)	21,684
Gain (losses) on the re-measurement of available for sale investments, before tax	(10,384)	2,267	(51,178)
Recycling from other comprehensive income to income for the year	4,864	12,201	22,401
Subtotals	(5,520)	14,468	(28,777)
Total	1,855	7,375	(7,093)

Cash flow hedges
As of January 1,	2,288	8,626	10,725
Gains (losses) on the re-measurement of cash flow hedges, before tax	(5,850)	(6,261)	(2,105)
Recycling adjustments on cash flow hedges, before tax	-	(77)	6
Amounts removed from equity and included in carrying amount of non-financial asset (liability) which acquisition or incurrence was hedged as a highly probable transaction	-	-	-
Subtotals	(5,850)	(6,338)	(2,099)
Total	(3,562)	2,288	8,626

Other comprehensive income, before taxes	(1,707)	9,663	1,533

Income tax related to other comprehensive income components
Income tax relating to available for sale investments	(473)	(1,770)	1,596
Income tax relating to cash flow hedges	908	(549)	(1,940)
Total	435	(2,319)	(344)

Other comprehensive income, net of tax	(1,272)	7,344	1,189
Attributable to:
Equity holders of the Bank	(2,312)	6,640	1,288
Non-controlling interest	1,040	704	(99)

The Bank expects that the results included in "Other comprehensive income" will be reclassified to profit or loss when the specific conditions have been met.

NON-CONTROLLING INTEREST

12 Months Ended

Dec. 31, 2017

Non-controlling Interest

NON-CONTROLLING INTEREST

NOTE 24

NON-CONTROLLING INTEREST

The non-controlling interest included in the equity and the income from the subsidiaries is summarized as follows:

				Other comprehensive income
As of December 31, 2017	Non-controlling	Equity	Income	Available for sale investments	Deferred tax	Total other comprehensive income	Comprehensive income
	%	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Subsidiaries:
Santander Agente de Valores Limitada	0.97	389	132	-	-	-	132
Santander S.A. Sociedad Securitizadora	0.36	1	-	-	-	-	-
Santander Corredores de Bolsa Limitada	49.00	21,000	702	470	(134)	336	1,038
Santander Corredora de Seguros Limitada	0.25	167	4	-	-	-	4
Subtotal		21,557	838	470	(134)	336	1,174

Entities controlled through other considerations:
Bansa Santander S.A.⁽¹⁾	100.00	17,401	10,869	-	-	-	10,869
Santander Gestión de Recaudación y Cobranzas Limitada	100.00	2,925	741	-	-	-	741
Subtotal		20,326	11,610	-	-	-	11,610

Total		41,883	12,448	470	(134)	336	12,784

(1)

In September 2017, Bansa Santander S.A. celebrated a legal cession of rights,which generated an income of Ch$20,663 million before tax (Ch$15,197 million net of taxes)

					Other comprehensive income
As of December 31, 2016	Non-controlling		Equity	Income	Available for sale investments	Deferred tax	Total other comprehensive income	Comprehensive income
	%		MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Subsidiaries:
Santander Agente de Valores Limitada		0.97	492	116	-	-	-	116
Santander S.A. Sociedad Securitizadora		0.36	2	-	-	-	-	-
Santander Corredores de Bolsa Limitada ⁽¹⁾		49.41	19,966	1,130	1,054	(251)	803	1,933
Santander Corredora de Seguros Limitada		0.25	164	7	-	-	-	7
Subtotal			20,624	1,253	1,054	(251)	803	2.056
Entities controlled through other considerations:
Bansa Santander S.A.		100.00	6,533	529	-	-	-	529
Santander Gestión de Recaudación y Cobranzas Limitada		100.00	2,184	583	-	-	-	583
Subtotal			8,717	1,112	-	-	-	1,112

Total			29,341	2,365	1,054	(251)	803	3,168

(1) Ex Santander S.A. Corredores de Bolsa, See Note1.

				Other comprehensive income
As of December 31, 2015	Non-controlling	Equity	Income	Available for sale investments	Deferred tax	Total other comprehensive income	Comprehensive income
	%	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Subsidiaries:
Santander Agente de Valores Limitada	0.97	652	98	(4)	1	(3)	95
Santander S.A. Sociedad Securitizadora	0.36	2	-	-	-	-	-
Santander S.A. Corredores de Bolsa Ltda	49.41	21,765	816	(128)	29	(99)	717
Santander Corredora de Seguros Limitada	0.25	156	(5)	-	-	-	(5)
Subtotals		22,575	909	(132)	30	(102)	807

Entities controlled through other considerations:
Bansa Santander S.A.	100.00	6,004	334	-	-	-	334
Santander Gestión de Recaudación y Cobranzas Limitada ⁽¹⁾	100.00	1,602	564	-	-	-	564
Multinegocios S.A.	100.00	-	310	-	-	-	310
Servicios Administrativos y Financieros Limitada	100.00	-	550	-	-	-	550
Multiservicios de Negocios Limitada	100.00	-	596	-	-	-	596
Subtotals		7,606	2.354	-	-	-	2,354

Total		30,181	3.263	(132)	30	(102)	3,161

⁽¹⁾As of June 30, 2015, these entities have finished sales services to the Bank and therefore they have been excluded from the consolidation perimeter.

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 conforming accounting policy adjustments:

	As of December 31,
	2017				2016				2015
				Net income				Net income				Net
	Assets	Liabilities	Capital	Net income	Assets	Liabilities	Capital	Net income	Assets	Liabilities	Capital	income
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$
Santander Corredora de Seguros Limitada	76,177	9,803	64,937	1,437	75,000	10,065	62,276	2,659	72,860	10,588	60,765	1,507
Santander Corredores de Bolsa Limitada	88,711	45,855	41,424	1,432	86,473	45,724	38,356	2,393	71,118	26,763	42,618	1,737
Santander Agente de Valores Limitada	44,910	4,732	26,569	13,609	54,486	3,666	38,851	11,969	131,305	64,049	57,554	9,702
Santander S.A. Sociedad Securitizadora	400	50	432	(82)	509	77	512	(80)	566	53	561	(48)
Santander Gestión de Recaudación y Cobranzas Ltda.	10,826	7,901	2,184	741	8,547	6,363	1,602	582	6,194	4,592	1,038	564
Bansa Santander S.A.	25,535	8,134	6,533	10,868	31,301	24,768	6,004	529	31,631	25,627	5,670	334
Total	246,559	76,475	142,079	28,005	256,316	90,663	147,601	18,052	313,674	131,672	168,206	13,796

INTEREST INCOME

12 Months Ended

Dec. 31, 2017

Interest Income

INTEREST INCOME

NOTE 25

INTEREST INCOME

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 effect of hedge accounting (see c).

For the years ended December 31, 2017, 2016 and 2015 the income from interest, was attributable to the following items:

	For the years ended December 31,
	2017				2016				2015
	Interest	Inflation adjustments	Prepaid fees	Total	Interest	Inflation adjustments	Prepaid fees	Total	Interest	Inflation adjustments	Prepaid fees	Total
Items	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Resale agreements	939	-	-	939	1,488	-	-	1,488	1,075	-	-	1,075
Interbank loans	969	-	-	969	295	-	-	295	375	-	-	375
Commercial loans	752,013	85,389	10,525	847,927	742,432	130,904	7,659	880,995	687,464	168,752	8,494	864,710
Mortgage loans	320,041	149,303	414	469,758	304,116	228,081	7,012	539,209	259,941	286,437	23,191	569,569
Consumer loans	612,932	363	4,738	618,033	604,152	660	4,318	609,130	586,385	3,418	3,706	593,509
Investment instruments	74,000	5,797	-	79,797	75,808	2,916	-	78,724	60,004	7,616	-	67,620
Other interest income	12,172	1,538	-	13,710	11,136	2,445	-	13,581	10,111	5,831	-	15,942

Interest income not including income from hedge accounting	1,773,066	242,390	15,677	2,031,133	1,739,427	365,006	18,989	2,123,422	1,605,355	472,054	35,391	2,112,800

For the years ended December 31, 2017, 2016 and 2015, the expense from interest expense, excluding expense from hedge accounting, is as follows:

	For the years ended December 31,
	2017			2016			2015
	Interest	Inflation adjustments	Total	Interest	Inflation adjustments	Total	Interest	Inflation adjustments	Total
Items	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Demand deposits	(13,851)	(695)	(14,546)	(16,003)	(1,043)	(17,046)	(13,875)	(1,343)	(15,218)
Repurchase agreements	(6,514)	-	(6,514)	(2,822)	-	(2,822)	(6,893)	-	(6,893)
Time deposits and liabilities	(341,821)	(20,509)	(362,330)	(399,720)	(38,946)	(438,666)	(346,174)	(47,370)	(393,544)
Interbank loans	(26,805)	-	(26,805)	(19,803)	-	(19,803)	(14,998)	(2)	(15,000)
Issued debt instruments	(220,027)	(76,170)	(296,197)	(197,973)	(105,452)	(303,425)	(183,561)	(113,029)	(296,590)
Other financial liabilities	(2,946)	(303)	(3,249)	(3,008)	(781)	(3,789)	(3,070)	(1,180)	(4,250)
Other interest expense	(5,236)	(4,973)	(10,209)	(5,211)	(8,874)	(14,085)	(3,456)	(14,776)	(18,232)
Interest expense not including expenses from hedge accounting	(617,200)	(102,650)	(719,850)	(644,540)	(155,096)	(799,636)	(572,027)	(177,700)	(749,727)

c) For the years ended December 31, 2017, 2016 and 2015, the income and expense from interest is as follows:

	For the years ended December 31,
	2017	2016	2015
Items	MCh$	MCh$	MCh$

Interest income not including income from hedge accounting	2,031,133	2,123,422	2,112,800
Interest expense not including expense from hedge accounting	(719,850)	(799,636)	(749,727)

Net Interest income (expense) from hedge accounting	1,311,283	1,323,786	1,363,073

Hedge accounting (net)	15,408	(42,420)	(107,867)

Total net interest income	1,326,691	1,281,366	1,255,206

FEES AND COMMISSIONS

12 Months Ended

Dec. 31, 2017

Fees And Commissions

FEES AND COMMISSIONS

NOTE 26

FEES AND COMMISSIONS

This item includes the amount of fees earned and paid during the year, except for those which are an integral part of the financial instrument’s effective interest rate:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Fee and commission income
Fees and commissions for lines of credits and overdrafts	7,413	5,754	6,597
Fees and commissions for guarantees and letters of credit	33,882	35,911	35,276
Fees and commissions for card services	201,791	195,566	175,262
Fees and commissions for management of accounts	31,901	31,540	30,291
Fees and commissions for collections and payments	44,312	31,376	30,399
Fees and commissions for intermediation and management of securities	10,090	9,304	10,000
Insurance brokerage fees	36,430	40,882	39,252
Office banking	15,669	14,145	15,224
Fees for other services rendered	43,123	38,038	35,978
Other fees earned	30,947	28,668	24,621
Total	455,558	431,184	402,900

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Fee and commission expense
Compensation for card operation	(149,809)	(143,509)	(129,196)
Fees and commissions for securities transactions	(858)	(946)	(1,315)
Office banking	(15,283)	(14,671)	(15,320)
Other fees	(10,545)	(17,634)	(19,442)
Total	(176,495)	(176,760)	(165,273)

Net fees and commissions income	279,063	254,424	237,627

The fees earned in transactions with letters of credit are presented in the Consolidated Statement of Income in the line item “Interest income”.

NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS

12 Months Ended

Dec. 31, 2017

Net Income Expense From Financial Operations

NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS

NOTE 27

NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS

For the years ended December 31, 2017, 2016 and 2015, the detail of income (expense) from financial operations is as follows:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Income (expense) from financial operations
Trading derivatives	(18,974)	(395,209)	(503,981)
Trading investments	10,008	18,229	21,505
Sale of loans and accounts receivables from customers
Current portfolio	3,020	1,469	921
Charged-off portfolio	3,020	2,720	(58)
Available for sale investments	8,956	14,598	23,655
Repurchase of issued bonds	(742)	(8,630)	(14)
Other income (expense) from financial operations	(2,492)	(211)	75
Total income (expense)	2,796	(367,034)	(457,897)

NET FOREIGN EXCHANGE GAIN (LOSS)

12 Months Ended

Dec. 31, 2017

Net Foreign Exchange Gain Loss

NET FOREIGN EXCHANGE GAIN (LOSS)

NOTE 28

NET FOREIGN EXCHANGE GAIN (LOSS)

Net foreign exchange income 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.

For the years ended December 31, 2017, 2016 and 2015 net foreign exchange income is as follows:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Net foreign exchange gain (loss)
Net profit (loss) from currency exchange differences	113,115	116,117	(197,875)
Hedging derivatives	22,933	399,875	777,254
Income from assets indexed to foreign currency	(9,190)	(8,745)	25,421
Income from liabilities indexed to foreign currency	98	145	(1,404)
Total	126,956	507,392	603,396

PROVISIONS FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2017

Provisions For Loan Losses

PROVISIONS FOR LOAN LOSSES

NOTE 29

PROVISIONS FOR LOAN LOSSES

a)	For the years ended December 31, 2017, 2016 and 2015 activity for provisions for loan losses is as follows:

		Loans and accounts receivable from customers						Total
For the year ended December 31, 2017	Interbank loans Individual	Commercial loans		Mortgage loans	Consumer loans	Contingent loans
	Interbank loans Individual	Individual	Group	Group	Group	Individual	Group
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$
Charged-off individually significant loans	-	(15,699)	-	-	-	-	-	(15,699)
Provisions established	(307)	(64,658)	(148,681)	(43,621)	(252,038)	(3,117)	(4,224)	(516,646)
Total provisions and charge-offs	(307)	(80,357)	(148,681)	(43,621)	(252,038)	(3,117)	(4,224)	(532,345)
Provisions released	3,970	55,925	20,491	11,427	46,089	7,001	1,660	146,563
Recovery of loans previously charged off	-	11,114	21,499	10,942	39,972	-	-	83,527
Net charge to income	3,663	(13,318)	(106,691)	(21,252)	(165,977)	3,884	(2,564)	(302,255)

		Loans and accounts receivable from customers						Total
For the year ended December 31, 2016	Interbank loans Individual	Commercial loans		Mortgage loans	Consumer loans	Contingent loans
	Interbank loans Individual	Individual	Group	Group	Group	Individual	Group
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$
Charged-off individually significant loans	-	(11,222)	-	-	-	-	-	(11,222)
Provisions established	(3,052)	(61,002)	(133,855)	(50,892)	(280,544)	(11,986)	(2,909)	(544,240)
Total provisions and charge-offs	(3,052)	(72,224)	(133,855)	(50,892)	(280,544)	(11,986)	(2,909)	(555,462)
Provisions released	83	43,183	14,432	34,246	30,790	6,963	5,384	135,081
Recovery of loans previously charged off	-	11,142	16,043	10,041	41,072	-	-	78,298
Net charge to income	(2,969)	(17,899)	(103,380)	(6,605)	(208,682)	(5,023)	2,475	(342,083)

		Loans and accounts receivable from customers						Total
For the year ended December 31, 2015	Interbank loans Individual	Commercial loans		Mortgage loans	Consumer loans	Contingent loans
	Interbank loans Individual	Individual	Group	Group	Group	Individual	Group
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$
Charged-off individually significant loans	-	(12,955)	-	-	-	-	-	(12,955)
Provisions established	(1,357)	(124,968)	(136,778)	(34,373)	(248,937)	(2,808)	(2,601)	(551,822)
Total provisions and charge-offs	(1,357)	(137,923)	(136,778)	(34,373)	(248,937)	(2,808)	(2,601)	(564.777)
Provisions released	192	46,614	17,885	7,205	18,126	5,042	2,296	97,360
Recovery of loans previously charged off	-	8.978	17,054	6,543	35,565	-	-	68,140
Net charge to income	(1,165)	(82,331)	(101,839)	(20,625)	(195,246)	2,234	(305)	(399.277)

b) The detail of Charge-off of individually significant loans, is as follows:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Charge-off of loans	51,978	47,605	50,656
Provision applied	(36,279)	(36,383)	(37,701)
Net charge offs of individually significant loans	15,699	11,222	12,955

PERSONNEL SALARIES AND EXPENSES

12 Months Ended

Dec. 31, 2017

Personnel Salaries And Expenses

PERSONNEL SALARIES AND EXPENSES

NOTE 30

PERSONNEL SALARIES AND EXPENSES

For the years ended December 31, 2017, 2016 and 2015, the composition of personnel salaries and expenses is as follows:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Personnel compensation	250,962	249,703	233,707
Bonuses or gratifications	75,181	77,649	78,260
Stock-based benefits	2,752	331	66
Seniority compensation	26,120	26,263	34,012
Pension plans	2,039	(150)	431
Training expenses	2,867	2,835	3,186
Day care and kindergarten	2,505	3,072	2,992
Health funds	4,748	4,777	4,474
Welfare funds	896	806	754
Other personnel expenses	28,897	29,847	29,181
Total	396,967	395,133	387,063

ADMINISTRATIVE EXPENSES

12 Months Ended

Dec. 31, 2017

Administrative Expenses

ADMINISTRATIVE EXPENSES

NOTE 31

ADMINISTRATIVE EXPENSES

For the years ended December 31, 2017, 2016 and 2015, the composition of the item is as follows:

	For the years ended December 31,
	2017		2016	2015
	MCh$		MCh$	MCh$

General administrative expenses	139,418		138,974	127,826
Maintenance and repair of property, plant and equipment		21,359	19,901	20,002
Office lease		26,136	28,098	27,472
Equipment lease		96	280	134
Insurance payments		3,354	3,842	3,656
Office supplies		6,862	5,747	6,232
IT and communication expenses		39,103	37,351	28,420
Heating, and other utilities		5,468	4,863	4,764
Security and valuables transport services		12,181	14,793	15,393
Representation and personnel travel expenses		4,262	5,440	4,590
Judicial and notarial expenses		974	952	2,103
Fees for technical reports and auditing		9,379	7,631	7,301
Other general administrative expenses		10,244	10,076	7,759
Outsourced services	57,400		55,757	60,913
Data processing	34,880		36,068	39,286
Products sale	-		-	226
Archive services	3,324		4,427	1,047
Valuation services	2,419		3,489	2,969
Outsourcing	6,878		5,404	7,275
Other	9,899		6,369	10,110
Board expenses	1,290		1,371	1,465
Marketing expenses	18,877		17,844	18,483
Taxes, payroll taxes, and contributions	13,118		12,467	11,844
Real estate taxes	1,443		1,435	1,813
Patents	1,646		1,618	1,589
Other taxes	24		93	3
Contributions to SBIF	10,005		9,321	8,439
Total	230,103		226,413	220,531

DEPRECIATION, AMORTIZATION, AND IMPAIRMENT

12 Months Ended

Dec. 31, 2017

Depreciation Amortization And Impairment

DEPRECIATION, AMORTIZATION, AND IMPAIRMENT

NOTE 32

DEPRECIATION, AMORTIZATION, AND IMPAIRMENT

Depreciation, amortization and impairment charges for the years ended December 31, 2017, 2016 and 2015, are detailed below:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Depreciation and amortization
Depreciation of property, plant, and equipment	(55,623)	(45,025)	(36,195)
Amortization of Intangible assets	(22,200)	(20,334)	(17,419)
Total depreciation and amortization	(77,823)	(65,359)	(53,614)
Impairment of property, plant, and equipment	(354)	(234)	(21)
Impairment of intangibles	(5,290)	-	-
Total	(83,467)	(65,593)	(53,635)

As of December 31, 2017, the equipment impairment totaled Ch$354 million(Ch$234 million as of December 31, 2016 and Ch$21 million as of December 31, 2015), mainly due to damages to ATMs. The intangible impairment totaled Ch$5,290 due to obsolescence of computer projects.

OTHER OPERATING INCOME AND EXPENSES

12 Months Ended

Dec. 31, 2017

Other Operating Income And Expenses Details 1

OTHER OPERATING INCOME AND EXPENSES

NOTE 33

OTHER OPERATING INCOME AND EXPENSES

Other operating income is comprised of the following components:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Income from assets received in lieu of payment	3,330	1,663	2,455

Income from sale of investments in other companies	-	-	617

Release of contingencies provisions ⁽¹⁾	29,903	-	-

Other income
Leases	264	519	708
Income from sale of property, plant and equipment ⁽²⁾	23,229	2,017	381
Recovery of provisions for contingencies	-	-	-
Compensation from insurance companies due to damages	1,237	1,530	435
Other	4,053	698	1,843
Subtotal	28,783	4,764	3,367

Total	62,016	6,427	6,439

⁽¹⁾In accordance with IAS 37, the Bank recorded contingencies provisions, which during 2017 were favorable to the Bank.

⁽²⁾Corresponds to legal cession of rights made by Bansa Santander S.A. which result in an income of Ch$20.663 million, as stated in Note N°25.

b) Other operating expenses are detailed as follows:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$
Allowances and expenses for assets received in lieu of payment
Provision on assets received in lieu of payment	3,912	9,246	7,803
Expenses for maintenance of assets received in lieu of payment	1,679	2,170	2,397
Subtotal	5,591	11,416	10,200

Credit card expenses	3,070	3,636	4,624

Customer services	2,563	3,734	3,919

Other expenses
Operating charge-offs	1,607	6,146	5,359
Life insurance and general product insurance policies	23,475	18,393	11,225
Additional tax on expenses paid overseas	-	142	2,651
Provisions for contingencies	-	4,238	15,230
Retail association payment	912	-	-
Other	31,195	21,197	5,521
Subtotal	57,189	50,116	39,986

Total	68,413	68,902	58,729

TRANSACTIONS WITH RELATED PARTIES

12 Months Ended

Dec. 31, 2017

Transactions With Related Parties

TRANSACTIONS WITH RELATED PARTIES

NOTE 34

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).

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.

a) Loans to related parties:

Below are loans and accounts receivable as well as contingent loans that correspond to related entities:

	As of December 31,
	2017				2016				2015
	Companies of the Group	Associated companies	Key personnel	Other	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$	MCh$	MCh$	MCh$	MCh$

Loans and accounts receivable:
Commercial loans	80,076	771	3,947	7,793	81,687	533	4,595	7,100	77,388	565	5,841	1,963
Mortgage loans	-	-	18,796	-	-	-	18,046	-	-	-	20,559	-
Consumer loans	-	-	4,310	-	-	-	3,783	-	-	-	2,274	-
Loans and accounts receivable:	80,076	771	27,053	7,793	81,687	533	26,424	7,100	77,388	565	28,674	1,963

Allowance for loan losses	(209)	(9)	(177)	(18)	(209)	(35)	(87)	(34)	(213)	(190)	(62)	(20)
Net loans	79,867	762	26,876	7,775	81,478	498	26,337	7,066	77,175	375	28,612	1,943

Guarantees	361,452	-	23,868	7,164	434,141	-	23,636	5,486	499,803	-	25,493	1,632

Contingent loans:
Personal guarantees	-	-	-	-	-	-	-	-	-	-	-	-
Letters of credit	19,251	-	-	33	27,268	-	-	-	29,275	-	-	-
Guarantees	377,578	-	-	-	437,101	-	-	-	510,309	-	-	2
Contingent loans:	396,829	-	-	33	464,369	-	-	-	539,584	-	-	2

Allowance for contingent loans	(4)	-	-	1	(5)	-	-	-	(11)	-	-	-

Net contingent loans	396,825	-	-	34	464,364	-	-	-	539,573	-	-	2

Loan activity to related parties during 2017, 2016 and 2015 is shown below:

As of December 31,

2017

2016

2015

Companies of the Group

Associated companies

Key Personnel

Other

Companies of the Group

Associated companies

Key Personnel

Other

Companies of the Group

Associated companies

Key Personnel

Other

MCh$

Opening balances as of January 1,

546,058

532

26,423

7,100

616,968

565

28,675

1,966

500,449

9,614

27,087

9,516

Loans granted

78,214

318

7,777

1,050

122,729

203

8,580

6,808

276,383

8,991

4,113

Loans payments

(147,366)

(79)

(7,149)

(324)

(193,189)

(236)

(10,832)

(1,674)

(159,864)

(9,056)

(7,403)

(11,663)

Total

476,906

771

27,051

7,826

546,508

532

26,423

7,100

616,968

565

28,675

1,966

b) Assets and liabilities with related parties

	As of December 31,
	2017				2016				2015
	Companies of the Group	Associated companies	Key personnel	Other	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$	MCh$	MCh$	MCh$	MCh$

Assets
Cash and deposits in banks	74,949	-	-	-	187,701	-	-	-	23,578	-	-	-
Trading investments	-	-	-	-	-	-	-	-	-	-	-	-
Obligations under repurchase agreements Loans	-	-	-	-	-	-	-	-	-	-	-	-
Financial derivative contracts	545,028	86,011	-	-	742,851	33,433	-	-	771,774	24,773	-	-
Available for sale investments	-	-	-	-	-	-	-	-	-	-	-	-
Other assets	8,480	118,136	-	-	4,711	67,454	-	-	3,218	19,101	-	-

Liabilities
Deposits and other demand liabilities	24,776	25,805	2,470	221	6,988	7,141	2,883	630	9,987	8,535	2,454	1,373
Obligations under repurchase agreements Loans	50,945	-	-	-	56,167	-	-	-	12,006	-	-	-
Time deposits and other time liabilities	785,988	27,968	3,703	3,504	1,545,835	6,219	2,525	2,205	1,360,572	234	2,728	898
Financial derivative contracts	418,647	142,750	-	7,190	954,575	54,691	-	-	1,323,996	23,326	-	-
Interbank borrowing	-	-	-	-	6,165	-	-	-	-	-	-	-
Issued debt instruments	482,626	-	-	-	484,548	-	-	-	398,565	-	-	-
Other financial liabilities	4,919	-	-	-	8,970	-	-	-	2,409	-	-	-
Other liabilities	164,303	58,168	-	-	446	44,329	-	-	376	19,541	-	-

Income (expense) recorded due to transactions with related parties

	For the years ended December 31,
	2017				2016				2015
	Companies of the Group	Associated Companies	Key personnel	Other	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$	MCh$	MCh$	MCh$	MCh$

Income (expense) recorded
Interest income and inflation-indexation adjustments	(43,892)	-	1,051	-	(39,279)	40	1,164	115	(10,986)	-	1,664	116
Fee and commission income and expenses	72,273	15,404	224	1	56,952	22,322	204	20	35,955	77	208	39
Net income (expense) from financial operations and net foreign exchange gain (loss) (*)	363,108	(48,453)	(3)	19	(343,963)	(48,373)	(88)	2	(321,985)	(16,845)	15	6
Other operating income and expenses	21,670	(1,454)	-	-	931	(2,239)	-	-	955	(1,027)	-	-
Key personnel compensation and expenses	-	-	(43,037)	-	-	-	(37,328)	-	-	-	(39,323)	-
Administrative and other expenses	(48,246)	(47,220)	-	-	(35,554)	(43,115)	-	-	(30,591)	(41,691)	-	-

Total	364,913	(81,723)	(41,765)	20	(360,913)	(71,365)	(36,048)	137	(326,652)	(59,486)	(37,436)	161

(*) Primarily relates to derivative contracts used to financially cover exchange risk of assets and liabilities that cover positions of the Bank and its subsidiaries.

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 Statement of Income, corresponds to the following categories:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Personnel compensation	16,863	17,493	18,605
Board members’ salaries and expenses	1,199	1,269	1,374
Bonuses or gratifications	16,057	14,404	12,861
Compensation in stock	1,923	331	66
Training expenses	68	161	122
Seniority compensation	3,842	2,619	4,154
Health funds	273	285	314
Other personnel expenses	773	916	1,396
Pension plans (*)	2,039	(150)	431
Total	43,037	37,328	39,323

(*)Some of the executives that qualified for this benefit left the Group for different reasons, without complying with the requirements to receive the benefit, therefore the obligation amount decreased, which generated the reversal of provisions.

Composition of key personnel

As of December 31, 2017, 2016 and 2015, the composition of the Bank’s key personnel is as follows:

Position	No. of executives
Position	As of December 31,
	2017	2016	2015

Director	11	13	12
Division manager	13	17	16
Department manager	63	76	79
Manager	46	61	53

Total key personnel	133	167	160

PENSION PLANS

12 Months Ended

Dec. 31, 2017

Pension Plans

PENSION PLANS

NOTE 35

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:

a.	Aimed at the Bank’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 Bank will create a pension fund, with life insurance, for each beneficiary in the plan. Periodic contributions into this fund are made by the manager and matched by the Bank.

d.	The Bank 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.

Plan Assets owned by the Bank at the end of 2017 totaled Ch$7,919 million (Ch$6,612 million in 2016).

The amount of the defined benefit plans has been quantified by the Bank, based on the following criteria:

Calculation method:

Use of the projected unit credit 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.

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.

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 post - employment	Plans post- employment
	2017	2016

Mortality chart	RV-2014	RV-2014/CB-2014
Termination of contract rates	5.0%	5.0%
Impairment chart	PDT 1985	PDT 1985

Activity for post-employment benefits is as follows:

	As of December 31,
	2017	2016
	MCh$	MCh$
Plan assets	7,919	6,612
Commitments for defined-benefit plans
For active personnel	(6,998)	(4,975)
Incurred by inactive personnel	-	-
Minus:
Unrealized actuarial (gain) losses	-	-
Balances at year end	921	1,637

Year’s cash flow for post-employment benefits is as follows:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

a) Fair value of plan assets
Opening balance	6,612	6,945	6,495
Expected yield of insurance contracts	307	335	432
Employer contributions	1,931	886	18
Actuarial (gain) losses	-	-	-
Premiums paid	-	-	-
Benefits paid	(931)	(1,554)	-
Fair value of plan assets at year end	7,919	6,612	6,945
b) Present value of obligations
Present value of obligations opening balance	(4,975)	(5,070)	(4,639)
Net incorporation of Group companies	-	-	-
Service cost	(2,039)	150	(431)
Interest cost	-	-	-
Curtailment/settlement effect	-	-	-
Benefits paid	-	-	-
Past service cost	-	-	-
Actuarial (gain) losses	-	-	-
Other	16	(55)	-
Present value of obligations at year end	(6,998)	(4,975)	(5,070)
Net balance at year end	921	1,637	1,875

Plan expected profit:

	As of December 31,
	2017	2016	2015

Type of expected yield from the plan’s assets	UF + 2.50% annual	UF + 2.50% annual	UF + 2.50% annual
Type of yield expected from the reimbursement rights	UF + 2.50% annual	UF + 2.50% annual	UF + 2.50% annual

Plan associated expenses:

	For the years ended December 31,
	2017	2016	2015
	MCh$	MCh$	MCh$

Current period service expenses	2,039	(150)	431
Interest cost	-	-	-
Expected yield from plan’s assets	(307)	(335)	(432)
Expected yield of insurance contracts linked to the Plan:
Extraordinary allocations	-	-	-
Actuarial (gain)/ losses recorded in the period	-	-	-
Past service cost	-	-	-
Other	-	-	-
Total	1,732	(485)	(1)

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

12 Months Ended

Dec. 31, 2017

Fair Value Of Financial Assets And Liabilities

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

NOTE 36

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 sale transaction of an 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 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.

Except as detailed in the following table, management considers that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values.

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, 2017 and 2016:

	As of December 31,
	2017		2016
	Book value	Fair value	Book value	Fair value
	MCh$	MCh$	MCh$	MCh$

Assets
Trading investments	485,736	485,736	396,987	396,987
Financial derivative contracts	2,238,647	2,238,647	2,500,782	2,500,782
Loans and accounts receivable from customers and interbank loans, net	26,934,757	28,518,929	26,415,826	29,976,931
Available for sale investments	2,574,546	2,574,546	3,388,906	3,388,906
Guarantee deposits (margin accounts)	323,767	323,767	396,289	396,289

Liabilities
Deposits and interbank borrowings	21,380,468	20,887,959	22,607,392	22,833,009
Financial derivative contracts	2,139,488	2,139,488	2,292,161	2,292,161
Issued debt instruments and other financial liabilities	7,335,683	7,487,591	7,566,388	8,180,322
Guarantees received (margin accounts)	408,313	408,313	480,926	480,926

The fair value approximates the carrying amount of the following line items due to their short-term nature: cash and deposits-banks, cash items in process of collection and investments under resale or repurchase agreements.

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.

Trading investments and available for sale investment instruments

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 are evaluated at recorded value since 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.

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.

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.

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.

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 determines as exit price in accordance with IFRS 13.

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.

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.

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

U.S. 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 of unobservable inputs
• 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 mnemonic 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.
• 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 mnemonic, the reported rate is the weighted average amount of the observed rates. In the case there are no valid transactions for a given mnemonic on the valuation day, the reported rate is the IRR base from a reference structure, plus a spread model based on issuer curves.
• 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.
• FX Options	Black-Scholes	Formula adjusted by the volatility simile (implicit volatility). Prices (volatility) are provided by BGC Partners, according to this criterion: With published market prices, a volatility parameter 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.

The following financial instruments are classified under Level 3:

Type of financial instrument	Model used in valuation	Description of no observable inputs
• Caps/ Floors/ Swaptions	Black Normal Model for Cap/Floors and Swaptions	There is no observable input of implicit volatility.
• UF options	Black – Scholes	There is no observable input of implicit volatility.
• 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.
• CCS (special contracts)	Implicit Forward Rate Agreement (FRA)	Start Fwd unsupported by MUREX (platform) due to the UF forward estimate.
• 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 flow maturities, but TAB is not a directly observable variable and is not correlated to any market input.
• 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 Bank does not believe that any change in unobservable inputs with respect to level 3 instruments would result in a significantly different fair value measurement.

The following table presents the assets and liabilities that are measured at fair value on a recurrent basis, as of December 31, 2017 and 2016:

	Fair value measurement
As of December 31,	2017	Level 1	Level 2	Level 3
	MCh$	MCh$	MCh$	MCh$

Assets
Trading investments	485,736	481,642	4,094	-
Available for sale investments	2,574,546	2,549,226	24,674	646
Derivatives	2,238,647	-	2,216,306	22,341
Guarantee deposits (margin accounts)	323,767	323,767	-	-
Total	5,622,696	3,354,635	2,245,074	22,987


Liabilities
Derivatives	2,139,488	-	2,139,481	7
Guarantees received (margin accounts)	408,313	408,313	-	-
Total	2,547,801	408,313	2,139,481	7

	Fair value measurement
As of December 31,	2016	Level 1	Level 2	Level 3
	MCh$	MCh$	MCh$	MCh$

Assets
Trading investments	396,987	396,011	976	-
Available for sale investments	3,388,906	2,471,439	916,808	659
Derivatives	2,500,782	-	2,461,407	39,375
Guarantee deposits (margin accounts)	396,289	396,289	-	-
Total	6,682,964	3,263,739	3,379,191	40,034


Liabilities
Derivatives	2,292,161	-	2,292,118	43
Guarantees received (margin accounts)	480,926	480,926	-	-
Total	2,773,087	480,926	2,292,118	43

The following table presents assets or liabilities which are not measured at fair value in the statement of financial position but for which the fair value is disclosed, as of December 31, 2017 and 2016:

	Fair value measurement
As of December 31,	2017	Level 1	Level 2	Level 3
	MCh$	MCh$	MCh$	MCh$
Assets
Loans and accounts receivable from customers and interbank loans, net	28,518,929	-	-	28,518,929
Total	28,518,929	-	-	28,518,929
Liabilities
Deposits and interbank borrowings	20,887,959	-	20,887,959	-
Issued debt instruments and other financial liabilities	7,487,591	-	7,487,591	-
Total	28,375,550	-	28,375,550	-

	Fair value measurement
As of December 31,	2016	Level 1	Level 2	Level 3
	MCh$	MCh$	MCh$	MCh$

Assets
Loans and accounts receivable from customers and interbank loans, net	29,976,931	-	-	29,976,931
Total	29,976,931	-	-	29,976,931
Liabilities
Deposits and interbank borrowings	22,833,009	-	22,833,009	-
Issued debt instruments and other financial liabilities	8,180,322	-	8,180,322	-
Total	31,013,331	-	31,013,331	-

The fair values of others assets and other liabilities approximate their carrying values.

The methods and assumptions to estimate the fair value are defined below:

- Loans and amounts due from credit institutions and from customers – Fair value are estimated for groups of loans with similar characteristics. The fair value was measured by discounting estimated cash flow using the interest rate of new contracts. That is, the future cash flow of the current loan portfolio is estimated using the contractual rates, and then the new loans spread over the risk free interest rate are incorporated to the risk free yield curve in order to calculate the loan portfolio fair value. In terms of behavior assumptions, it is important to underline that a prepayment rate is applied to the loan portfolio, thus a more realistic future cash flow is achieved.

- Deposits and interbank borrowings – The fair value of deposits was calculated by discounting the difference between the cash flows on a contractual basis and current market rates for instruments with similar maturities. For variable-rate deposits, the carrying amount was considered to approximate fair value.

- Issued debt instruments and other financial liabilities – The fair value of long-term loans were estimated by cash flow discounted at the interest rate offered on the market with similar terms and maturities.

The valuation techniques used to estimate each level are defined in note 1.h.i)

There were no transfer between levels 1 and 2 for the year ended December 31, 2017 and 2016.

The table below shows the effect, at December 31, 2017 and 2016, on the fair value of the main financial instruments classified as Level 3 of a reasonable change in the assumptions used in the valuation. This effect was determined by a sensitivity analysis under a 1bp scenario, detailed in the following table:

As of December 31, 2017
Instrument Level 3	Valuation technique	Main unobservable inputs	Impacts (in MCh$) Sens. -1bp Unfavorable scenario	Impacts (in MCh$) Sens. +1bp Favorable scenario
Derivatives	Present Value method	Curves on TAB (1)	(1.3)	1.3
Available for sale investments	Internal rate of return method	BR UF (2)	-	-

As of December 31, 2016
Instrument Level 3	Valuation technique	Main unobservable inputs	Impacts (in MCh$) Sens. -1bp Unfavorable scenario	Impacts (in MCh$) Sens. +1bp Favorable scenario
Derivatives	Present Value method	Curves on TAB (1)	(12.30)	12.30
Available for sale investments	Internal rate of return method	BR UF (2)	-	-

(1)

TAB: “Tasa Activa Bancaria” (Active Bank Rate). Average interest rates on 30, 90, 180 and 360 day deposits published by the Chilean Association of Banks and Financial Institutions (ABIF) in nominal currency (Chilean peso) and in real terms, adjusted for inflation (in Chilean unit of account (Unidad de Fomento - UF)).

(2)

BR: “Bonos de Reconocimiento” (Recognition Bonds). The Recognition Bond is an instrument of money provided by the State of Chile to workers who joined the new pension system, which began operating since 1981.

The following table presents the Bank’s activity for assets and liabilities measured at fair value on a recurrent basis using unobserved significant inputs (Level 3) as of December 31, 2017 and 2016:

	Assets	Liabilities
	MCh$	MCh$

As of January 1, 2017	(79,181)	43

Total realized and unrealized profits (losses)
Included in statement of income	(17,035)	(36)
Included in other comprehensive income	(12)	-
Purchases, issuances, and loans (net)	-	-

As of December 31, 2017	62,134	7

Total profits or losses included in comprehensive income for 2017 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2016	(17,047)	(36)

	Assets	Liabilities
	MCh$	MCh$

As of January 1, 2016	39,913	-

Total realized and unrealized profits (losses)
Included in statement of income	39,376	43
Included in other comprehensive income	(108)	-
Purchases, issuances, and loans (net)	-	-

As of December 31, 2016	79,181	43

Total profits or losses included in comprehensive income for 2016 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2015	39,268	43

The realized and unrealized profits (losses) included in comprehensive income for 2017 and 2016, 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.

The potential effect as of December 31, 2017 and 2016 on the valuation of assets and liabilities valued at fair value on a recurrent basis through unobservable significant inputs (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 tables show the financial instruments subject to compensation in accordance with IAS 32, for 2017 and 2016:

As of December 2017

	Linked financial instruments, compensated in balance
Financial instruments	Gross amounts	Compensated in balance	Net amount presented in balance	Remains of unrelated and / or unencumbered financial instruments	Amount in Statements of Financial Position
Assets	Ch$ Million	Ch$ Million	Ch$ Million	Ch$ Million
Financial derivative contracts	2,029,657	-	2,029,657	208,990	2,238,647
Investments under resale agreements	-	-	-	-	-
Loans and accounts receivable from customers, and Interbank loans, net	-	-	-	26,934,757	26,934,757
Total	2,029,657	-	2,029,657	27,143,747	29,173,404
Liabilities
Financial derivative contracts	1,927,654	-	1,927,654	211,834	2,139,488
Investments under resale agreements	268,061	-	268,061	-	268,061
Deposits and interbank borrowings	-	-	-	21,380,467	21,380,467
Total	2,195,715	-	2,195,715	21,592,301	23,788,016
As of December 2016 Linked financial instruments, compensated in balance
Financial instruments	Gross amounts	Compensated in balance	Net amount presented in balance	Remains of unrelated and / or unencumbered financial instruments	Amount in Statements of Financial Position
Assets	Ch$ Million	Ch$ Million	Ch$ Million	Ch$ Million
Financial derivative contracts	2,237,731	-	2,237,731	263,051	2,500,782
Obligations under repurchase agreements	6,736	-	6,736	-	6,736
Loans and accounts receivable from customers, and Interbank loans, net	-	-	-	26,415,826	26,415,826
Total	2,244,467	-	2,244,467	26,678,877	28,923,344
Liabilities
Financial derivative contracts	2,100,955	-	2,100,955	191,206	2,292,161
Investments under resale agreements	212,437	-	212,437	-	212,437
Deposits and interbank borrowings	-	-	-	22,607,392	22,607,392
Total	2,313,392	-	2,313,392	22,798,598	25,111,990

The Bank, in order to reduce its credit exposure in its financial derivative operations, has entered into collateral contracts with its counterparties, in which it establishes the terms and conditions under which they operate. In terms collateral (received/delivered) operates when the net of the fair value of the financial instruments held exceed the thresholds defined in the respective contracts.

	As of December 31, 2017		As of December 31, 2016
Financial derivative contracts	Assets	Liability		Assets	Liability
	MM$	MM$		MM$	MM$

Financial derivative contracts with collateral agreement threshold equal to zero	1,898,220	1,773,471		2,134,917	1,986,345
Financial derivative contracts with non-zero threshold collateral agreement	221,030	316,840		233,945	238,450
Financial derivative contracts without collateral agreement	119,397	49,177		131,920	67,366
Total	2,238,647	2,139,488		2,500,782	2,292,161

RISK MANAGEMENT

12 Months Ended

Dec. 31, 2017

Risk Management

RISK MANAGEMENT

NOTE 37

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:

Foreign exchange risk: this arises as a consequence of exchange rate fluctuations among currencies.

Interest rate risk: this arises as a consequence of fluctuations in market interest rates.

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.

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.

Capital risk: this is the risk that the Bank may have an insufficient amount and/or quality of capital to meet the minimum regulatory requirement to operate as a bank, respond to market expectations regarding its creditworthiness, and support its business growth and any strategic possibilities that might arise, in accordance with its strategic plan.

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.

The effectiveness with which we are able to manage the balance between risk and reward is a significant factor in our ability to generate long term, stable earnings growth. Toward that end, our Board and senior management places great emphasis on risk management.

A. Integral Risk Committee

The Integral Risk Committee of the Board is responsible for reviewing and monitoring all risks that may affect us, including reputation risk, allowing for an integral risk management. This committee serves as the governing body through which the Board supervises risk in general. It also evaluates the reasonability of the systems for measurement and control of risks.

•

Credit risk

•

Market risk

•

Operational risk

•

Solvency risk (BIS)

•

Legal risks

•

Compliance risks

•

Reputational risks

This Committee includes the Vice Chairman of the Board and five Board members. This committee also includes the CEO, the Director of Risk and other senior level executives from the commercial side of our business.

B. Audit Committee

The Audit Committee (Comité de Directores y Auditoría) is comprised of three members of the Board of Directors. The Chief Executive Officer, General Auditor and other persons from the Bank can be invited to the meetings if necessary and are present on specific matters. This Committee’s primary responsibility is to support the Board of Directors in the continuous improvement of our system of internal controls, which includes reviewing the work of both the external auditors and the Internal Audit Department. The committee is also responsible for analyzing observations made by regulatory entities of the Chilean financial system about us and for recommending measures to be taken by our management in response. This committee also performs functions of a remuneration committee as established in Chilean Law, and reviews annually the salary and bonus programs for the executive officers of the Bank. The external auditors are recommended by this committee to our Board of Directors and appointed by our shareholders at the annual shareholders’ meeting.

C. Asset and Liability Committee

The ALCO includes the Chairman of the Board and five additional members of the Board, the Chief Executive Officer, the Corporate Financial Controller, the Manager of the Financial Management Division, the Manager of Market Risk, the Manager of the Treasury Division, and other senior members of management. The ALCO meets monthly. All limits reviewed by the ALCO are measured and prepared by the Market Risk Department. The non-Board members of the ALCO meet weekly to review liquidity, funding, capital and market risk related matters.

The main functions of the ALCO are:

•

Making the most important decisions regarding our exposure to inflation, interest rate risk, funding, capital and liquidity levels. The main limits set and monitored by the ALCO (and measured by the Market Risk Department) are:

•

Review of the Bank’s inflation gap.

•

Review of the evolution of the most relevant local and international markets and monetary policies.

D. Market Committee

The Market Committee includes the Vice-Chairman of the Board, three additional members of the Board, the Chief Executive Officer, the Manager of Global Banking and Markets, the Manager of the Treasury Division, the Manager of the Financial Management Division, the Manager of Market Risk, the Financial Controller and other senior members of management.

The Market Committee is responsible for:

•

Establishing a strategy for the Bank’s trading investment portfolio.

•

Establishing the Bank’s policies, procedures and limits with respect to its trading portfolio. The Bank’s Market Risk Department measures all risks and limits and reports these to the Market Committee.

•

Reviewing the net foreign exchange exposure and limit

•

Reviewing the evolution of the most relevant local and international markets and monetary policies.

E. Risk Department

All issues regarding risk in the Bank are the responsibility of the Bank’s Risk Department. The Risk Department reports to the CEO but has full independence, and no risk decisions can be made without its approval.

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. The Bank consolidates all elements and components of credit risk exposure to manage credit risk (e.g. individual delinquency risk, inherent risk of a business line or segment, and/or geographical risk).

In Note 9 h), we present our net exposure to credit risk at December 31, 2017 and 2016.

Credit Risk Governance

The Risk Division, our credit analysis and risk management group, is largely independent of our Commercial Division. Risk evaluation teams interact regularly with our clients. For larger transactions, risk teams in our headquarters work directly with clients when evaluating credit risks and preparing credit applications. Various credit approval committees, all of which include Risk Division and Commercial Division personnel, must verify that the appropriate qualitative and quantitative parameters are met by each applicant. Each committee’s powers are defined by our Board of Directors.

Santander-Chile’s governance rules have established the existence of the Integral Risk Committee. This committee is responsible for revising and following all risks that may affect us, including reputational risk, allowing for an integral risk management. This committee serves as the governing body through which the Board supervises all risk functions. It also evaluates the reasonability of the systems for measurement and control of risks. This Committee includes the Vice Chairman of the Board and five Board members.

The Board has delegated the duty of credit risk management to the Integral Risk Committee, 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 the Executive Risk Committee works directly with customers to assess credit risks and prepare risk requests.

•

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.

•

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. 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 reviews are subject to similar processes.

The following diagram illustrates the governance of our credit risk division including the committees with approval power:

Credit Approval: Loans approved on an individual basis

In preparing a credit proposal for a corporate client whose loans are approved on an individual basis, Santander-Chile’s personnel verifies such parameters as debt servicing capacity (typically including projected cash flows), the company’s financial history and projections for the economic sector in which it operates. The Risk Division is closely involved in this process, and prepares the credit application for the client. All proposals contain an analysis of the client’s strengths and weaknesses, a rating and a recommendation. Credit limits are determined not on the basis of outstanding balances of individual clients, but on the direct and indirect credit risk of entire financial groups. For example, a corporation will be evaluated together with its subsidiaries and affiliates.

Credit Approval: Loans approved on a group basis

The majority of loans to individuals and small and mid-sized companies are approved by the Standardized Risk Area through an automated credit scoring system. This system is decentralized, automated and based on multiple parameters, including demographic and information regarding credit behavior from external sources and the SBIF.

Loans analyzed on an individual basis

For loans that are greater than Ch$400 million (US$243,170), the Bank uses internal models to assign a risk category level to each borrower and its respective loans. We consider the following risk factors: industry or sector of the borrower, the borrower’s competitive position in its markets, owners or managers of the borrower, the borrower’s financial situation, the borrower’s payment capacity and the borrower’s payment behavior to calculate the estimated incurred loan loss. Through these categories, we differentiate the normal loan portfolio from the impaired one.

These are our categories:

Debtors may be classified in risk categories A1, A2, A3 or B (A is applicable if they are current on their payment obligations and show no sign of deterioration in their credit quality and B is different from the A categories by a certain history of late payments). The A categories are distinguished by different PNPs (as defined below).

Debtors classified as C1, C2, C3, C4, D1 or D2 include debtors whose loans with us have been charged off or administered by our Recovery Unit, or classified as Precontenciosos (PRECO or deteriorated).

Estimated Incurred Loan Loss = Loan Loss Allowance

The estimated incurred loss is obtained by multiplying all risk factors defined in the following equation:

EIL= EXP x PNP x SEV

•

EIL = Estimated Incurred Loan Loss. The estimated incurred loan loss is how much could be lost in the event a debtor does not perform the obligations under the loan.

•

EXP = Exposure. This corresponds to the value of commercial loans.

•

SEV = Severity. This is the effective loss rate given default for debtors in the same segment, which is determined statistically based on the historical effective losses for us for each segment.

In accordance with such policy, every year we update appraisals of fair value of collateral before the end of the 24 month period for certain customers and such updated appraisals are considered in the calculation of the allowance for loan losses. The number of updated appraisals performed in 2015 was 43, in 2016 was 142 and 2017 it was 140, and such updated appraisals were performed mainly because of changes in customer conditions (renegotiation deterioration of financial situation increase in credit line).

For loans classified in the C and D categories, loan loss allowances are based mainly on the fair value of the collateral, adjusted for an estimate cost to sell, that each of these loans have. Allowance percentage for each category is then based on the fair value of the collateral, or the expected future cash flow from the loan for each individually evaluated non-performing loans.

Loans analyzed on a group basis

The Bank uses the concept of estimated incurred loss to quantify the allowances levels over loan analyzed on a group basis. Incurred loss is the expected provision expense that will appear one year away from the balance date of the transaction’s credit risk, considering the counterpart risk and the collateral associated to each transaction.

Following the Bank’s definition, the Bank uses group evaluation to approach transactions that have similar credit risk features, which indicate the debtor’s payment capacity of the entire debt, capital and interests, pursuant to the contract’s terms. In addition, this allows us to assess a high number of transactions with low individual amounts, whether they belong to individuals or small sized companies. Therefore, debtors and loans with similar features are grouped together and each group has a risk level assigned to it. These models are meant to be used mainly to analyze loans granted to individuals (including consumer loans, credit lines, mortgage loans and commercial loans) and commercial loans to SMEs.

Allowances are established using these models, taking into account the historical impairment and other known circumstances at the time of evaluation. After this, a historical loss rate is assigned to each portfolio profile constituting each segment. The method for assigning a profile is established based on a statistical building method, establishing a relation through a logistic regression various variables, such as payment behavior in the Bank, payment behavior outside the Bank, various socio-demographic data, among others, and a response variable that determines a client’s risk level, which in this case is 90 days of non-performance. Afterwards, common profiles are established related to a logical order and with differentiate default rates, applying the real historical loss the Bank has had with that portfolio.

Our models for loans analyzed on a group basis (consumer loans, residential mortgage loans and small-and-mid-sized commercial loans) are monitored on a monthly basis with respect to predictability and stability, using indices that seek to capture the underlying need to update the models for current loss trends. Therefore, the periods of historical net charge-offs used in the allowance model may be more than a year old as we only update the historical net charge-offs only when our assessment of predictability and stability indicators determine it is necessary.

The different risk categories are constructed and updated periodically based on the payment behavior of the client’s profile to which they belong, as well as his or her socio-demographic characteristics. Therefore, when a customer has past due balance or has missed some payments, the outcome is that the customer will move to a different segment with a higher loss rate, therefore capturing current trends for each risk profile.

Once the customers have been classified, the loan loss allowance is the product of three factors: Exposure (EXP), Probability of Non-Performance (PNP) and Severity (SEV).

EXP = Exposure. This corresponds to the value of commercial loans.

PNP = Probability of Non-Performing. This variable, expressed as a percentage, indicates the probability that a debtor will default. This percentage is associated with the internal score that we give to each debtor, which is determined by analyzing such parameters as debt servicing capacity (including, usually, projected cash flows), the company’s financial history, the solvency and capacity of shareholders and management, and projections for the economic sector in which it operates. The internal rating can be different from ratings obtained from external third parties.

SEV = Severity. This is the effective loss rate given default for debtors in the same segment, which is determined statistically based on the historical effective losses for us for each segment.

Allowances for consumer loans

The estimated incurred loss rates for consumer loans correspond to charge-offs net of recoveries. The methodology establishes the period in which the estimated incurred loss for each risk profile emerges. Once the loss has been considered to have been incurred, the estimated incurred loss rates are applied to the corresponding risk profile to obtain the net charge-off level associated with this period. The loss rates applied to each risk profile are based only on the historical net charge-off data for that specific profile within one of the four groups of consumer loans. No other statistical or other information other than net charge-offs is used to determine the loss rates.

The following diagrams set forth the allowances required by our current models for consumer loans :

Santander:

Bank	Loan type		Allowance Level(1) (Loss rate)
	Performing	New clients	Existing clients	Banefe (3)
		0.53% -19.75%	0.05%-11.92%	0.13%-18.67%

Renegotiated consumer loans which were less than 90 days past due at the time of renegotiation (2)

3.66%-30.40%

10.19%-43.71%

Consumer

Renegotiated consumer loans which were more than 90 days past due at the time of renegotiation (2)

41.50%-100%

51,11%-100%

	Days Past Due	New Clients	Existing Clients	Previously Renegotiated Bank	Previously Renegotiated Banefe (3)
	90-120	31.78%	31.78%	41.50%	51.11%
Non-performing	120-150	51.17%	51.17%	60.15%	66.65%
	150-180	59.98%	59.98%	68.86%	78.50%
	>180			Charged-off

1.	Percentage of loans outstanding

2.	This category relates only to loans which were renegotiated and were less than 90 days past due at the time of renegotiation, migrating from such category as they reached 90 days past due since renegotiation.

There are two renegotiated categories in our consumer loan portfolio:

Renegotiated Consumer which were less than 90 days past due at the time of renegotiation. The allowance for loan loss percentages (or loss rates) are assigned based on eight different risk profiles which are determined based on demographic and payment behavior variables.

Renegotiated Consumer which were more than 90 days past due at the time of renegotiation The loss rates are assigned based on four different risk profiles which are determined based on the number of days overdue at the time of renegotiation:

Profile 1: 180 or more days past due

Profile 2: between 150 and 180 days past due

Profile 3: between 120 and 150 days past due

Profile 4: between 90 and 120 days past due

Small- and mid-sized commercial loans

To determine the estimated incurred loss for individuals (natural persons), small- and mid-sized commercial loans collectively evaluated for impairment, we mainly analyze the payment behavior of clients, particularly the payment behavior of clients with payments that are 90 days or more past-due, clients with other weaknesses, such as early non-performance (i.e., payments that are past-due, though by less than 90 days), clients with modified loans and clients with renegotiated loans, as well as success in recovery against these clients. We also consider whether the loan has underlying mortgage collateral.

The risk categories are such that when a customer has a past-due balance or has missed some payments, the outcome is that the customer will move to a different risk category with a higher loss rate, therefore capturing current trends of the customer and, in the aggregate, current trends in the market.

In order to calculate the estimated incurred loan loss for all commercial loans collectively evaluated for impairment, the Bank sub-divided the portfolio in the following way:

Loan type		Allowance Level(1) (Loss rate)
Commercial loans analyzed on a group basis	Performing	Commercial loan to individuals w/o mortgage collateral	Commercial loan to individuals with mortgage collateral	Small Enterprise	Mid-sized Enterprise
	Performing	0.87% -15.70%	0.03%-3.98%	0.21%-14.39%	0.14%-7.31

	Renegotiated commercial loans which were less than 90 days past due at the time of renegotiation (2)	loan w/o mortgage collateral 2.93%-20.65%			loan with mortgage collateral 1.17%-8.25%

	Renegotiated commercial loans which were more than 90 days past due at the time of renegotiation (2)	Days Past Due when renegotiated	Commercial loan to individuals w/o mortgage collateral	Commercial loan to individuals with mortgage collateral	Small Enterprise	Mid-sized Enterprise
		90-179	41.69%	12.15%	30.95%	18.93%
		180-359	67.31%	23.42%	64.47%	51.86%
		360-719	75.69%	34.65%	70.15%	63.12%
		>720	83.82%	46.25%	74.53%	72.87%

	Non-performing consumer	Days Past Due	Commercial loan to individuals w/o mortgage collateral	Commercial loan to individuals with mortgage collateral	Small Enterprise	Mid-sized Enterprise	Previously renegotiated
		90-179	41.69%	12.15%	30.95%	18.93%	18.93%
		180-359	67.31%	23.42%	64.47%	51.86%	51.86%
		360-719	75.69%	34.65%	70.15%	63.12%	63.12%
		>720	83.82%	46.25%	74.53%	72.87%	72.87%

Percentage of loans outstanding

This category relates only to loans which were renegotiated and were less than 90 days past due at the time of renegotiation, migrating from such category as they reached 90 days past due since renegotiation.

Allowances for residential mortgage loans

The provision methodology for residential mortgage loans takes into consideration different factors in order to group customers with less the 90 days past due into seven different risk profiles. Factors considered, in the first place, are whether the customer is a new customer or with prior history with the Bank. For each of these main categories additional factors are considered in order to develop risk profiles within each risk category, including payment behavior, non-performance less than 90 days, collateral levels, renegotiation history with the Bank, and historical amounts of net charge-offs, among others. The explanation for the initial segregation into three categories, existing, new customer, is as follows: an existing customer is a customer for which there is a broader level of information and history of payment behavior with the Bank, while for a new customer the Bank has no history of payment behavior and only information from the banking system and credit bureaus is available. The risk categories are such that when a customer’s payment behavior deteriorates, the outcome is that the customer will move to a different risk category with a higher loss rate, therefore capturing the current status of the customer.

Previous to 2016, mortgage loans with more than 90 days past due balances are assigned a loss rate of 11.01%. In 2016, mortgage loans more than 90 days past due balances are assigned a loss rate depending on the loan to value. We determined that 90 days is appropriate, since our historical analysis of customer’s behavior has shown that after 90 days, customers are likely to default on their obligations, and that, over succeeding periods, the loss incurred does not increase given the high fair value of collateral percentage to loan amount required under our credit policies for this type of loan. Also, we note that the Chilean economy’s stability over the last few years has not resulted in other than insignificant fluctuations in collateral fair values on residential mortgage loan properties.

The following table sets forth the required loan loss allowance for residential mortgage loans:

Bank	Loan type	Allowance Level(1) (Loss rate)

Residential mortgage	Performing	Bank (excl Select)		Santander Select
	Performing	0.00%-5.18%		0.00%-3.88%

	Renegotiated mortgage loans which were less than 90 days past due at the time of renegotiation (2)	0.16%-8.37%

	Renegotiated mortgage loans which were more than 90 days past due at the time of renegotiation (2)	5.58%-26.25%

	Non-performing mortgage	Loan to Value
		0-60	5.58%
		60-80	8.48%
		80-90	11.93%
		>90	16.25%

Percentage of loans outstanding

The following table shows quality assets and its related provision, based on our internal scoring policy as of December 31, 2017 and 2016:

	As of December 31,
Category	2017				2016
Commercial Portfolio	Individual	Percentage	Allowance	Percentage	Individual		Percentage	Allowance		Percentage
Commercial Portfolio	MCh$	%	MCh$	%	MCh$		%	MCh$		%

A1	1,051,072	3.79%	827	0.10%	1,599,311		5.88%	923		0.12%
A2	5,957,305	21.49%	18,514	2.34%	6,437,930		23.67%	23,757		3.00%
A3	2,176,779	7.85%	27,894	3.53%	2,030,867		7.46%	29,668		3.75%
B	539,074	1.94%	32,089	4.06%	538,909		1.98%	40,545		5.13%
C1	145,033	0.52%	2,604	0.33%	121,893		0.45%	2,176		0.28%
C2	56,871	0.21%	5,104	0.65%	51,034		0.19%	4,555		0.58%
C3	39,825	0.14%	8,935	1.13%	49,901		0.18%	11,136		1.41%
C4	53,261	0.19%	19,120	2.42%	64,118		0.24%	22,894		2.90%
D1	71,896	0.26%	41,941	5.30%	73,462		0.27%	42,625		5.39%
D2	77,048	0.28%	62,234	7.87%	89,857		0.33%	72,192		9.13%
Subtotal	10,168,164	36.67%	219,262	27.73%	11,057,282		40.65%	250,471		31.69%

	Group	Percentage	Allowance	Percentage	Group		Percentage	Allowance	Percentage
	MCh$	%	MCh$	%	MCh$		%	MCh$	%
Commercial
Normal portfolio	3,488,633	12.58%	58,728	7.42%	2,741,858		10.08%	58,453	7.39%
Impaired portfolio	414,530	1.50%	160,345	20.27%		341,132	1.25%	124,653	15.76%
Subtotal	3,903,163	14.08%	219,073	27.69%		3,082,990	11.33%	183,106	23.15%
Mortgage
Normal portfolio	8,634,351	31.14%	20,174	2.55%		8,221,666	30.22%	23,699	3.00%
Impaired portfolio	462,544	1.67%	48,892	6.17%		397,688	1.46%	33,310	4.21%
Subtotal	9,096,895	32.81%	69,066	8.72%		8,619,354	31.68%	57,009	7.21%
Consumer
Normal portfolio	4,230,567	15.26%	114,099	14.42%		4,158,221	15.28%	147,979	18.72%
Impaired portfolio	327,125	1.18%	169,657	21.44%		288,584	1.06%	152,040	19.23%
Subtotal	4,557,692	16.44%	283,756	35.86%		4,446,805	16.34%	300,019	37.95%
Total	27,725,914	100.00%	791,157	100.00%		27,206,431	100.00%	790,605	100.00%

See Note 29 for more detail of the Bank’s impaired loans and the associated allowances. Also, see Note 19 for a detail of the maturity of the Bank’s financial assets.

Credit quality

The Bank determines the credit quality of financial assets using internal credit ratings. The rating process is linked to the Bank’s approval and monitoring processes and is carried out in accordance with risk categories established by current standards. Credit quality is continuously updated based on any favorable or unfavorable developments to customers or their environments, considering aspects such as commercial and payment behavior as well as financial information.

See credit quality of loans above.

In relation to the credit quality of the investment portfolio, local regulations specify that banks are able to hold only local and foreign fixed–income securities except in certain cases. Additionally, Banco Santander Chile has internal policies to ensure that only securities approved by the Market Risk department, which are stated in the documents “APS” – Products and underlying Approval, are acquired. The Credit Risk Department sets the exposure limits to those approved APS’s . The APS is updated on daily basis.

As of December 31, 2017 and 2016, 99% and 76% respectively of our total investment portfolio correspond to securities issued by the Chilean Central Bank and US treasury notes.

Maximum exposure to credit risk

Financial assets and off-balance sheet commitments

For financial assets recognised in the Consolidated Statement of Financial Position, maximum credit risk exposure equals their carrying value. Below is the distribution by financial asset and off-balance sheet commitments of the Bank’s maximum exposure to credit risk as of December 31, 2017 and 2016, without deduction of collateral, security interests or credit improvements received:

		As of December 31,
		2017	2016
		Amount of exposure	Amount of exposure
	Note	MCh$	MCh$

Deposits in banks	4	839,561	1,709,071
Cash items in process of collection	4	668,145	495,283
Trading investments	5	485,736	396,987
Investments under resale agreements	6	-	6,736
Financial derivative contracts	7	2,238,647	2,500,782
Loans and accounts receivable from customers and interbank loans, net	8 and 9	26,934,757	26,415,826
Available for sale investments	10	2,574,546	3,388,906

Off-balance commitments:
Letters of credit issued		201,699	158,800
Foreign letters of credit confirmed		75,499	57,686
Guarantees		1,823,793	1,752,610
Available credit lines		8,135,489	7,548,820
Personal guarantees		81,577	125,050
Other irrevocable credit commitments		260,691	260,266
Total		44,320,140	44,816,823

Foreign derivative contracts

As of December 31, 2017, the Bank’s foreign exposure -including counterparty risk in the derivative instruments’ portfolio- was USD 2,090 million or 4.27% 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 for those countries classified above 1 and represents our majority of exposure to categories other than 1. Below we detail as of December 31, 2017, considering fair value of derivative instruments.

Country	Classification	Derivative Instruments (adjusted to market) USD MCh$	Deposits USD MCh$	Loans USD MCh$	Financial investments USD MCh$	Total Exposure USD MCh$
Bolivia	3	0.00	0.00	0.06	0.00	0.06
China	2	0.00	0.00	243.95	0.00	243.95
Italy	2	0.00	2.38	0.78	0.00	3.16
México	2	0.00	0.01	0.00	0.00	0.01
Panamá	2	0.63	0.00	0.00	0.00	0.63
Perú	2	3.38	0.00	0.00	0.00	3.38
Thailand	2	0.00	0.00	0.31	0.00	0.31
Turkey	3	0.00	0.00	9.49	0.00	9.49
Total		4.01	2.39	254.59	0.00	260.99

The total amount of this exposure to derivative instruments must be compensated daily with collateral and, therefore, the net credit exposure is USD 0.00.

Our exposure to Spain within the group is as follows:

Counterpart

Country

Classification

Derivative instruments (market adjusted)

MUSD

Deposits

MUSD

Loans

MUSD

Financial

Investments

MUSD

Exposure

MUSD

Banco Santander España (*)

Spain

9.74

118.26

128.00

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.

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.

The risk management model includes assessing the existence of adequate and sufficient guarantees that allow recovering the credit when the debtor’s circumstances prevent them from fulfilling their obligations.

The Bank has classification tools that allow it to group the credit quality of transactions or customers. Additionally, the Bank has historical databases that keep this internally generated information to study how this probability varies. 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, 2017 and 2016.

	As of December 31,
	2017	2016
	MCh$	MCh$
Non-impaired financial assets:
Properties/mortgages	19,508,151	17,560,550
Investments and others	2,108,962	2,326,396
Impaired financial assets:
Properties/ mortgages	152,252	186,297
Investments and others	1,087	2,064
Total	21,770,452	20,075,307

Credit risk mitigation techniques

The Bank applies various methods of reducing credit risk, depending on the type of customer and product. As we shall see, some of these methods are specific to a particular type of transaction (e.g. real estate guarantees) while others apply to groups of transactions (e.g. netting and collateral arrangements).

Collateral

Banco Santander controls the credit risk through the use of collateral in its operations. Each business unit is responsible for credit risk management and formalizes the use of collateral in its lending policies.

Banco Santander uses guarantees in order to increase their resilience in the subject to credit risk operations. The guarantees can be used fiduciary, real, legal structures with power mitigation and compensation agreements. The Bank periodically reviews its policy guarantees by technical parameters, normative and also its historical basis, to determine whether the guarantee is legally valid and enforceable.

Credit limits are continually monitored and changed in customer behavior function. Thus, the potential loss values represent a fraction of the amount available.

Collateral refers to the assets pledged by the customer or a third party to secure the performance of an obligation. Collateral may be:

•

Financial: cash, security deposits, gold, etc.

•

Non-financial: property (both residential and commercial), other movable property, etc.

One very important example of financial collateral is the collateral agreement. Collateral agreements comprise a set of highly liquid instruments with a certain economic value that are deposited or transferred by a counterparty in favor of another party in order to guarantee or reduce any counterparty credit risk that might arise from the portfolios of derivative transactions between the parties in which there is exposure to risk.

Collateral agreements vary in nature but, whichever the specific form of collateralisation may be, the ultimate aim, as with the netting technique, is to reduce counterparty risk.

Transactions subject to a collateral agreement are assessed periodically (normally on a daily basis). The agreed-upon parameters defined in the agreement are applied to the net balance arising from these assessments, from which the collateral amount (normally cash or securities) payable to or receivable from the counterparty is obtained.

For real estate collateral periodic re-appraisal processes are in place, based on the actual market values for the different types of real estate, which meet all the requirements established by the regulator.

Specifically, mortgage loans are secured by a real property mortgage, and threshold mitigate counterparty credit risk of derivative instruments. (See note 9 c) ii) and iii), for a detail of the impaired portfolio and non-performing loans with or without guarantee).

Personal guarantees and credit derivatives

Personal guarantees are guarantees that make a third party liable for another party’s obligations to the Bank. They include, for example, security deposits and standby letters of credit. Only guarantees provided by third parties that meet the minimum requirements established by the supervisor can be recognized for capital calculation purposes.

Credit derivatives are financial instruments whose main purpose is to hedge credit risk by buying protection from a third party, whereby the Bank transfers the risk of the issuer of the underlying instrument. Credit derivatives are OTC instruments, i.e. they are not traded in organized markets.

Credit derivative hedges, mainly credit default swaps, are entered into with leading financial institutions.

Assets Received 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). The excess of the outstanding loan balance over the fair value is charged to net income for the period, under “Provision for loan losses”. Any excess of the fair value over the outstanding loan balance, less costs to sell of the collateral, is returned to the client. These assets are subsequently adjusted to their net realizable value less cost to sale (assuming a forced sale).

At December 31, 2017, assets received or awarded in lieu of payment amounted to Ch$44,264 million (gross amount: Ch$45,704 million ; allowance: Ch$1,440 million).

At December 31, 2016, assets received or awarded in lieu of payment amounted to Ch$45,935 million (gross amount: Ch$53,493 million ; allowance: Ch$7,558 million).

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.

Liquidity management seeks to ensure that, even under adverse conditions, we have access to the funds necessary to cover client needs, maturing liabilities and capital requirements. Liquidity risk arises in the general funding for our financing, trading and investment activities. It includes the risk of unexpected increases in the cost of funding the portfolio of assets at appropriate maturities and rates, the risk of being unable to liquidate a position in a timely manner at a reasonable price and the risk that we will be required to repay liabilities earlier than anticipated.

The following table sets forth the balance of our liquidity portfolio managed by our Financial Management Division in the manner in which it is presented to the Asset and Liability Committee (ALCO) and the Board. The ALCO has determined that our liquidity portfolio must be comprised of cash plus assets that can be readily convertible into cash either through the Chilean Central Bank window, overnight deposits or instruments or the local secondary market. The management of the Bank’s liquidity portfolio is performed by the Financial Management Division under rules determined by the ALCO.

	As of December 31,
	2017	2016
	MCh$	MCh$
Financial investments for trading	485,736	396,987
Available for sale investments	2,574,546	3,388,906
Encumbered assets (net) (1)	(268,330)	(205,703)
Net cash (2)	(37,628)	16,259
Net Interbank deposits (3)	768,595	1,335,017
Total liquidity portfolio	3,522,919	4,931,466

(1) Assets encumbered through repurchase agreements are deducted from the liquidity portfolio.

(2) Cash minus reserve requirements. As is presented in Note 4 the reserve requirements are established by the monthly average reserves that the Bank must maintain in accordance with regulation governing minimum reserves.

(3) Includes overnight deposits in Central Bank, domestic banks and foreign banks.

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,
	2017 %	2016 %
30 days	(48.00)	(15.00)
30 days foreign currency	(22.00)	21.00
90 days	(51.00)	(37.00)

Below, is the breakdown by maturity, of the liability balances of the Bank as of December 31, 2017 and 2016:

	Demand	Up to 1 month	Between 1 and 3 months	Between 3 and 12 months	Subtotal up to 1 year	Between 1 and 3 years	Between 3 and 5 years	More than 5 years	Subtotal after 1 year	Total
As of December 31, 2017	MM$	MM$	MM$	MM$	MM$	MM$	MM$	MM$	MM$	MM$
Obligations under repurchase agreements	-	268,061	-	-	268,061	-	-	-	-	268,061
Checking accounts, time deposits and other time liabilities	8,376,371	5,120,171	4,201,271	2,299,018	19,996,831	106,833	2,811	62,362	172,006	20,168,837
Financial derivatives contracts	-	144,410	196,444	356,288	697,142	378,582	358,358	705.406	1,442,346	2,139,488
Interbank borrowings	4,130	46,013	397,419	1,030,241	1,477,803	220,554	-	-	220,554	1,698,357
Issue debt instruments	-	21,043	55,119	274,239	350,401	1,727,571	2,104,771	2,910,910	6,743,252	7,093,653
Other financial liabilities	177,663	701	2,583	31,879	212,826	27,581	404	1,219	29,204	242,030
Subtotal	8,558,164	5,600,399	4,852,836	3,991,665	23,003,064	2,461,121	2,466,344	3,679,897	8,607,362	31,610,426
Contractual interest payments	4,403	45,465	117,779	462,579	630,226	808,502	776,796	1,147,553	2,732,851	3,363,077
Total	8,562,567	5,645,864	4,970,615	4,454,244	23,633,290	3,269,623	3,243,140	4,827,450	11,340,213	34,973,503

As of December 31, 2017, the scheduled maturities of other commercial commitments, including accrued interest, were as follows:

Other Commercial Commitments		Up to 1 month	Between 1 and 3 months	Between 3 and 12 months	Between 1 and 5 years	More than 5 years	Total
(in millions of Ch$)
Guarantees	514,510		244,543	835,030	208,479	21,231	1,823,793
Confirmed foreign letters of credit	16,681		33,513	21,277	4,028	-	75,499
Letters of credit issued	12,367		115,720	43,029	30,554	29	201,699
Pledges and other commercial commitments	16,028		13,382	47,288	4,880	-	81,578
Total other commercial commitments	559,586		407,158	946,624	247,941	21,260	2,182,569

	Demand	Up to 1 month	Between 1 and 3 months	Between 3 and 12 months	Subtotal up to 1 year	Between 1 and 3 years	Between 3 and 5 years	More than 5 years	Subtotal after 1 year	Total
As of December 31, 2016	MM$	MM$	MM$	MM$	MM$	MM$	MM$	MM$	MM$	MM$
Obligations under repurchase agreements	-	212,437	-	-	212,437	-	-	-	-	212,437
Checking accounts, time deposits and other time liabilities	7,949,315	6,105,767	4,193,906	2,537,299	20,786,287	118,101	13,913	61,196	193,210	20,979,497
Financial derivatives contracts	-	92,335	122,565	263,893	478,793	494,539	346,948	971,881	1,813,368	2,292,161
Interbank borrowings	4,557	373,423	115,769	1,154,063	1,647,812	233,542	35,014	-	268,556	1,916,368
Issue debt instruments	-	43,141	185,425	922,705	1,151,271	1,168,117	1,444,593	3,562,391	6,175,101	7,326,372
Other financial liabilities	153,049	1,461	1,161	2,817	158,488	58,641	7,766	15,121	81,528	240,016
Subtotal	8,106,921	6,828,564	4,618,826	4,880,777	24,435,088	2,072,940	1,848,234	4,610,589	8,531,763	32,966,851
Contractual interest payments	2,273	56,121	170,861	537,941	767,196	1,762,884	-	987,370	2,750,254	3,517,450
Total	8,109,194	6,884,685	4,789,687	5,418,718	25,202,284	3,835,824	1,848,234	5,597,959	11,282,017	36,484,301

As of December 31, 2016, the scheduled maturities of other commercial commitments, including accrued interest, were as follows:

Other Commercial Commitments		Up to 1 month	Between 1 and 3 months	Between 3 and 12 months	Between 1 and 5 years	More than 5 years	Total
(in millions of Ch$)
Guarantees	79,457		175,437	739,170	592,017	151,435	1,737,516
Confirmed foreign letters of credit	12,247		8,125	8,505	28,809	-	57,686
Letters of credit issued	36,662		82,342	39,768	27	-	158,799
Pledges and other commercial commitments	9,916		11,591	39,811	63,731	-	125,049
Total other commercial commitments	138,282		277,495	827,254	684,584	151,435	2,079,050

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 Banco Santander Spain, which are in turn based on an analysis of 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:

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

furnish information on the trading activities to the ALCO, other members of the Bank’s management, and the Global Risk Department of Banco Santander Spain.

The department’s functions in connection with financial management portfolios include the following:

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 Banco 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.

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 relation to 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 2017 and 2016, we were still using the same VaR model and the methodology has not changed.sa

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.

At no time in 2017 and 2016 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 approximately one out of hundred business days. Also, a maximum VaR limit was established that can be applied over the trading portfolio. Both in 2017 and 2016, 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	2017 USDMM	2016 USDMM
Consolidated:
High	5.71	3.95
Low	1.56	1.08
Average	3.01	2.25

Fixed-income investments:
High	5.51	2.71
Low	1.15	0.55
Average	2.36	1.33

Variable-income investments
High	0.01	0.03
Low	0.00	0.00
Average	0.00	0.00

Foreign currency investments
High	4.21	3.83
Low	0.53	0.61
Average	1.71	1.91

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.

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, 2017 and 2016

	2017		2016
	Effect on financial income	Effect on capital	Effect on financial income	Effect on capital

Financial management portfolio – local currency (MCh$)
Loss limit	48,000	175,000	48,000	175,000
High	(37,148)	(141,287)	30,853	146,208
Low	(22,958)	(112,818)	21,978	108,249
Average	(29,110)	(128,506)	26,119	120,159
Financial management portfolio – foreign currency (Th$US)
Loss limit	30	75	30	75
High	16	42	14	35
Low	4	15	6	13
Average	10	23	10	26
Financial management portfolio – consolidated (in MCh$)
Loss limit	48,000	175,000	48,000	175,000
High	(38,249)	(142,442)	31,764	145,566
Low	(23,571)	(112,277)	23,088	107,959
Average	(29,948)	(128,360)	27,390	119,632

Capital risk

The Group defines capital risk as the risk that the Group or any of its companies may have an insufficient amount and/or quality of capital to: meet the minimum regulatory requirements in order to operate as a bank; respond to market expectations regarding its creditworthiness; and support its business growth and any strategic possibilities that might arise, in accordance with its strategic plan.

The objectives in this connection include most notably:

•

To meet the internal capital and capital adequacy targets

•

To meet the regulatory requirements

•

To align the Bank’s strategic plan with the capital expectations of external agents (rating agencies, shareholders and investors, customers, supervisors, etc.)

•

To support the growth of the businesses and any strategic opportunities that may arise

The Group has a capital adequacy position that surpasses the levels required by regulations.

Capital management seeks to optimize value creation at the Bank an at its different business segment. The Bank continuously evaluates it risk-return ratios through its basic capital, effective net equity, economic capital and return on equity. With regard to capital adequacy, the Banks conducts its internal process based on the SBIF standards which are based on Basel Capital Accord (Basel I). Economic capital is the capital required to support all the risk of the business activity with a given solvency level.

Capital is managed according to the risk environment, the economic performance of Chile and the business cycle. Board may modify our current equity policies to address changes in the mentioned risk environment.

Minimum Capital

Under the General Banking Law, a bank is required to have a minimum of UF800,000 (approximately Ch$21,438 million or U.S.$34.7 million as of December 31, 2017) of paid-in capital and reserves, calculated in accordance with Chilean GAAP.

Capital adequacy requirement

Chilean banks are required by the General Banking Law to maintain regulatory capital of at least 8% of risk-weighted assets, net of required loan loss allowance and deductions, and paid-in capital and reserves (“basic capital”) of at least 3% of total assets, net of required loan loss allowances. Regulatory capital and basic capital are calculated based on the consolidated financial statements prepared in accordance with the Compendium of Accounting Standards issued by the SBIF the Chilean regulatory agency. As we are the result of the merger between two predecessors with a relevant market share in the Chilean market, we are currently required to maintain a minimum regulatory capital to risk-weighted assets ratio of 11%. As of December 31, 2017, the ratio of our regulatory capital to risk-weighted assets, net of loan loss allowance and deductions, was 13.91% and our core capital ratio was 10.99%.

Regulatory capital is defined as the aggregate of:

• a bank’s paid-in capital and reserves, excluding capital attributable to subsidiaries and foreign branches or basic capital;

• its subordinated bonds, valued at their placement price (but decreasing by 20.0% for each year during the period commencing six years prior to maturity), for an amount up to 50.0% of its basic capital; and

• its voluntary allowances for loan losses for an amount of up to 1.25% of risk weighted-assets.

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,
	2017	2016	2017	2016
	MCh$	MCh$	%	%
Basic capital	3,066,180	2,868,706	7.92	7.22
Regulatory capital	3,881,252	3,657,707	13.91	13.43

Risk Concentration

The Bank operates mainly in Chile, thus most of its financial instruments are concentrated in that country. See Note 9 of the financial statements for a detail of the concentration of the Bank’s loans and accounts receivable by industry.

SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2017

Subsequent Events

SUBSEQUENT EVENTS

NOTE 38

SUBSEQUENT EVENTS

On February 1, 2018, the Bank placed a Senior Bond corresponding to its "T-15" line for 5,000,000 UF.

On February 6, 2018, the Bank placed a Senior Bond corresponding to its "T-11" line for 5,000,000 UF.

During the Ordinary Board Meeting of Banco Santander Chile, held on February 27, 2018, the following matters were agreed upon:

Due to the resignation of Mr. Vittorio Corbo Lioi from the Board, Mr. Claudio Melandri Hinojosa was assigned as Director and Chairman. In accordance with article 49, N° 8 of the General Law of Banks, Mr. Claudio Melandri Hinojosa will temporarily continue exercising the role of Chief Executive Officer until February 28, 2018 (inclusive).

Mr. Miguel Mata Huerta, who is currently Deputy General Manager, has been named as Banco Santander Chile’s Chief Executive Officer, assuming this role on March 1, 2018. The position of Deputy General Manager will no longer be used at Banco Santander Chile.

During the Ordinary Board Meeting of Banco Santander Chile, held on March 27, 2018, the following matters were agreed upon:

Due to the resignation of the directors Mr. Roberto Méndez Torres and Mr. Roberto Zahler Mayanz, as of this date, the Board has announced the appointment of Mr. Félix de Vicente Mingo and Mr. Alfonso Gómez Morales, who will be incorporated as independent directors.

Mr. Orlando Poblete Iturrate has been appointed as First Vice President and Mr. Oscar Von Chrismar Carvajal as the Second Vice President.

These consolidated financial statements were approved on March 27,2018 by Board of Directors.

There are no other subsequent events to be disclosed that occurred between January 1, 2018 and the date of issuance of these Financial Statements (March 27, 2018).

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2017

Summary Of Significant Accounting Policies

Basis of preparation

a) Basis of preparation

Basis of preparation for the Consolidated Financial Statements

b) Basis of preparation for the Consolidated Financial Statements

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.

· 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

When necessary, adjustments are made to the financial statements of the subsidiaries to ensure their accounting policies are consistent with the Bank’s accounting policies.

All intragroup assets, liabilities, equity, income, expenses and cash flows relating to transactions between consolidated entities are eliminated in full on consolidation.

The following companies are considered entities controlled by the Bank and are therefore within the scope of consolidation:

Entities controlled by the Bank through participation in equity

Name of the Subsidiary			Percent ownership share
			As of December 31,
		Place of Incorporation and operation	2017			2016			2015
			Direct	Indirect	Total	Direct	Indirect	Total	Direct	Indirect	Total
	Main Activity		%	%	%	%	%	%	%	%	%

Santander Corredora de Seguros Limitada	Insurance brokerage	Santiago, Chile	99.75	0.01	99.76	99.75	0.01	99.76	99.75	0.01	99.76
Santander Corredores de Bolsa Limitada(*)	Financial instruments brokerage	Santiago, Chile	50.59	0.41	51.00	50.59	0.41	51.00	50.59	0.41	51.00
Santander Agente de Valores Limitada	Securities brokerage	Santiago, Chile	99.03	-	99.03	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	99.64	-	99.64

The detail of non-controlling participation on all the remaining subsidiaries can be seen in Note 24– 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)

- Bansa Santander S.A. (management of repossessed assets and leasing of properties)

iii. Associates

The following companies are considered “Associates” in which the Bank accounts for its participation using the equity method:

				Percentage of ownership share
			As of December 31,
		Place of Incorporation and operation	2017		2016	2015
Associates	Main activity	Place of Incorporation and operation	%		%	%
Redbanc S.A.	ATM services	Santiago, Chile	33.43		33.43	33.43
Transbank S.A.	Debit and credit card services	Santiago, Chile	25.00		25.00	25.00
Centro de Compensación Automatizado	Electronic fund transfer and compensation services	Santiago, Chile	33.33		33.33	33.33
Sociedad Interbancaria de Depósito de Valores S.A.	Delivery of securities on public offer	Santiago, Chile	29.29		29.29	29.29
Cámara Compensación de Alto Valor S.A.	Payments clearing	Santiago, Chile	15.00		14.93	14.23
Administrador Financiero del Transantiago S.A.	Administration of boarding passes to public transportation	Santiago, Chile	20.00		20.00	20.00
Sociedad Nexus S.A.	Credit card processor	Santiago, Chile	12.90		12.90	12.90
Servicios de Infraestructura de Mercado OTC S.A.	Administration of the infrastructure for the financial market of derivative instruments	Santiago, Chile	12.07		12.07	11.11

In October 2015, HSBC Bank Chile sold its ownership share in Camara de Compensación de Pagos de Alto Valor S.A. to Banco Santander Chile, increasing its participation to 14.23%.

Non-controlling interest

c) Non-controlling interest

Reporting segments

d) Reporting segments

Operating segments are components of an entity:

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.

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

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:

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.

iii.

its assets represent 10% or more of the combined assets of all the operating segments.

Information about other business activities of the operating segments not separately reported is combined and disclosed in the “Other segments” category.

Functional and presentation currency

e) Functional and presentation currency

Accordingly, all balances and transactions denominated in currencies other than the Chilean Peso are treated as “foreign currency”.

Foreign currency transactions

f) Foreign currency transactions

Definitions and classification of financial instruments

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.

ii.

Classification of financial assets for measurement purposes

Regular way purchases or sales of financial assets require delivery of the asset within the time frame established by regulation or convention in the marketplace.

Effective interest method

Income is recognised on an effective interest basis for loans and accounts receivables other than those financial assets classified as at fair value through profit or loss.

Financial assets FVTPL - Trading investments

Financial assets are classified as FVTPL when the financial asset is either held for trading or it is designated as at fair value through profit or loss.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling it in the near term; or

on initial recognition it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent actual pattern of short-term profit-taking; or

it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as FVTPL.

Held to maturity investments

Available for sale investments (AFS investments)

Dividends on AFS equity instruments are recognised in profit or loss when the Bank's right to receive the dividends is established.

Loans and accounts receivable from customers

Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.

iii.

Classification of financial assets for presentation purposes

For presentation purposes, the financial assets are classified by their nature into the following line items in the Consolidated Financial Statements:

Investments under resale agreements: includes balances of financial instruments purchased under resale agreement.

Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments.

Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments.

iv.

Classification of financial liabilities for measurement purposes

Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities.

Financial liabilities at FVTPL

As of December 31, 2017 and 2016 the Bank does not maintain financial liabilities at FVTPL.

Other financial liabilities

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:

Time deposits and other time liabilities: this shows the balances of deposit transactions in which a term at the end of which they become callable has been stipulated.

Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments.

Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments.

Issued debt instruments: there are three types of instruments issued by the Bank: Obligations under letters of credit, Subordinated bonds and Senior bonds placed in the local and foreign market.

Valuation of financial instruments and recognition of fair value changes

h) Valuation of financial instruments and recognition of fair value changes

i.	Valuation of financial instruments