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Document and Entity Information	12 Months Ended
Document and Entity Information	Dec. 31, 2018 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, 2018
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 Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding	188,446,126,794
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2018

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - CLP ($) $ in Millions	Dec. 31, 2018	Dec. 31, 2017
ASSETS
Cash and deposits in banks	$ 2,065,441	$ 1,452,922
Cash items in process of collection	353,757	668,145
Investments under resale agreements
Financial derivative contracts	3,100,635	2,238,647
Trading investments		485,736
Interbank loans, net		162,213
Loans and accounts receivable from customers, net		26,772,544
Available for sale investments		2,574,546
Financial assets held for trading	77,041
Loans and account receivable at amortised cost	29,331,001
Loans and account receivable at fair value through other comprehensive income	68,588
Debt instrument at fair value through other comprehensive income	2,394,323
Equity instruments at fair value through other comprehensive income	483
Investments in associates and other companies	32,003	27,585
Intangible assets	66,923	63,219
Property, plant, and equipment	253,586	242,547
Deferred taxes	397,515	371,091
Other assets	991,216	764,410
TOTAL ASSETS	39,132,512	35,823,605
LIABILITIES
Deposits and other demand liabilities	8,741,417	7,768,166
Cash items in process of being cleared	163,043	486,726
Obligations under repurchase agreements	48,545	268,061
Time deposits and other time liabilities	13,067,819	11,913,945
Financial derivative contracts	2,517,728	2,139,488
Interbank borrowings	1,788,626	1,698,357
Issued debt instruments	8,115,233	7,093,653
Other financial liabilities	215,400	242,030
Current taxes	8,093	6,435
Deferred taxes	15,470	9,663
Provisions	305,271	303,798
Other liabilities	900,407	745,363
TOTAL LIABILITIES	35,887,052	32,675,685
Attributable to the shareholders of the Bank:
Capital	891,303	891,303
Reserves	1,923,022	1,781,818
Valuation adjustments	11,353	(2,312)
Retained earnings
Retained earnings from prior years	(43,114)	41,267
Income for the year	595,333	562,801
Minus: Provision for mandatory dividends	(178,600)	(168,840)
Retained earnings	373,619	435,228
Attributable to the shareholders of the Bank	3,199,297	3,106,037
Non-controlling interest	46,163	41,883
TOTAL EQUITY	3,245,460	3,147,920
TOTAL LIABILITIES AND EQUITY	$ 39,132,512	$ 35,823,605

CONSOLIDATED STATEMENTS OF INCOME - CLP ($) $ in Millions	12 Months Ended
CONSOLIDATED STATEMENTS OF INCOME - CLP ($) $ in Millions	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
OPERATING INCOME
Interest income	$ 2,244,317	$ 2,058,446	$ 2,137,044
Interest expense	(829,949)	(731,755)	(855,678)
Net interest income	1,414,368	1,326,691	1,281,366
Fee and commission income	484,463	455,558	431,184
Fee and commission expense	(193,578)	(176,495)	(176,760)
Net fee and commission income	290,885	279,063	254,424
Net income (expense) from financial operations	53,174	2,796	(367,034)
Net foreign exchange gain	51,908	126,956	507,392
Other operating income	23,129	62,016	6,427
Net operating profit before provision for loan losses	1,833,464	1,797,522	1,682,575
Provision for loan losses	(317,408)	(302,255)	(342,083)
NET OPERATING INCOME	1,516,056	1,495,267	1,340,492
Personnel salaries and expenses	(397,564)	(396,967)	(395,133)
Administrative expenses	(245,089)	(230,103)	(226,413)
Depreciation and amortization	(79,280)	(77,823)	(65,359)
Impairment of property, plant, and equipment	(39)	(5,644)	(234)
Other operating expenses	(32,342)	(68,413)	(68,902)
Total operating expenses	(754,314)	(778,950)	(756,041)
OPERATING INCOME	761,742	716,317	584,451
Income from investments in associates and other companies	5,095	3,963	3,012
Income before tax	766,837	720,280	587,463
Income tax expense	(167,144)	(145,031)	(109,031)
NET INCOME FOR THE YEAR	599,693	575,249	478,432
Attributable to:
Shareholders of the Bank	595,333	562,801	476,067
Non-controlling interest	$ 4,360	$ 12,448	$ 2,365
Earnings per share attributable to Shareholders of the Bank :
Basic earnings	$ 3.159	$ 2.987	$ 2.526
Diluted earnings	$ 3.159	$ 2.987	$ 2.526

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - CLP ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Consolidated Statements Of Comprehensive Income
NET INCOME FOR THE YEAR	$ 599,693	$ 575,249	$ 478,432
Equity instruments at fair value through other comprehensive income	(113)
Income tax related to the above	31
Total items that will not be reclassified to the income statements	(82)
Other comprehensive income that will be reclassified to profit or loss
Debt instruments at fair value through other comprehensive income	4,826
Avalilable for sale financial assets		(5,520)	14,468
Cash flow hedge	13,365	(5,850)	(6,338)
Income tax related to the above	(4,903)	2,754	(1,975)
Total items that will be reclassified to the income statements	13,288	(8,616)	6,155
Other comprehesive income for the year, net of tax	13,206	(8,616)	6,155
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	612,899	566,633	484,587
Attributable to:
Shareholders of the Bank	608,623	553,849	481,419
Non-controlling interests	$ 4,276	$ 12,784	$ 3,168

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]	Fair Value Reserve [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 Shareholders Of The Bank [Member]	Non-Controlling Interests [Member]	Total
Equity at beginning 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 beginning 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 ending 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 beginning 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 ending 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
Changes in equity [Roll Forward]
Distribution of income from previous period							562,801	(562,801)
Equity at beginning at Dec. 31, 2017	891,303	1,784,042	(2,224)	459	(3,562)	791	604,068		(168,840)	3,106,037	41,883	3,147,920
Changes in equity [Roll Forward]
Impact of adopting IFRS 9				394		(19)	(82,367)			(81,992)		(81,992)
Restated opening balance under IFRS 9	891,303	1,784,042	(2,224)	853	(3,562)	772	521,701		(168,840)	3,024,045	41,883	3,065,928
Dividends distributions/ withdrawals made							(423,611)		168,840	(254,771)	4	(254,767)
Transfer of retained earnings to reserves		141,204					(141,204)
Provision for mandatory dividends									(178,600)	(178,600)		(178,600)
Subtotal		141,204					(564,815)		(9,760)	(433,371)	4	(433,367)
Other comprehensive income				4,799	13,365	(4,874)				13,290	(84)	13,206
Income for the year								595,333		595,333	4,360	599,693
Subtotal				4,799	13,365	(4,874)		595,333		608,623	4,276	612,899
Equity at ending at Dec. 31, 2018	$ 891,303	$ 1,925,246	$ (2,224)	$ 5,652	$ 9,803	$ (4,102)	$ (43,114)	$ 595,333	$ (178,600)	$ 3,199,297	$ 46,163	$ 3,245,460

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) - CLP ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Statement of changes in equity [abstract]
Total attributable to shareholders of the Bank	$ 564,815	$ 472,351
Allocated to reserves	141,204	141,706
Allocated to dividends	$ 423,611	$ 330,645
Percentage distributed	75.00%	70.00%
Number of shares	188,446,126,794	188,446,126,794
Dividend per share (in pesos per share)	$ 2.248	$ 1.755

CONSOLIDATED STATEMENTS OF CASH FLOWS - CLP ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
A - CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME FOR THE YEAR	$ 599,693	$ 575,249	$ 478,432
Adjustments for non-cash items included in net income	(1,249,728)	(1,198,330)	(1,082,975)
Depreciation and amortization	79,280	77,823	65,359
Impairment of property, plant, and equipment	39	5,644	234
Provision for loan losses	405,889	385,782	420,381
Mark to market of trading investments	1,438	1,438	(2,682)
Income from investments in associates and other companies	(5,095)	(3,962)	(3,012)
Net gain on sale of assets received in lieu of payment	(7,106)	(3,330)	(1,663)
Provision on assets received in lieu of payment	816	3,912	9,246
Net gain on sale of property, plant and equipment	(2,490)	(23,229)	(2,017)
Net interest income	(1,414,368)	(1,326,691)	(1,281,366)
Net fee and commission income	(290,885)	(279,063)	(254,424)
Other non-cash items	(8,271)	(29,903)	4,238
Changes in deferred taxes	(25,517)	(6,751)	(37,269)
Increase/decrease in operating assets and liabilities	1,672,577	206,724	1,340,696
(Increase) of loans and accounts receivables from customers, net	(2,703,700)	(629,605)	(1,643,744)
Decrease (increase) of financial investments	588,918	725,611	(1,417,211)
Decrease (increase) due to resale agreements (assets)		6,736	(4,273)
Decrease (increase) of interbank loans	147,534	110,036	(261,744)
Decrease of assets received or awarded in lieu of payment	722	4,125	18,238
Increase of debits in customers checking accounts	521,476	127,968	268,695
(Decrease) increase of time deposits and other time liabilities	1,153,874	(1,237,764)	968,942
Increase (decrease) of obligations with domestic banks	(480)	(364,956)	365,436
Increase (decrease) of other demand liabilities or time obligations	451,775	100,883	(85,502)
Increase of obligations with foreign banks	90,754	146,947	243,355
(Decrease) increase of obligations with Central Bank of Chile	(5)	(2)	3
(Decrease) increase of obligations under repurchase agreements	(219,516)	55,624	68,748
Increase in other financial liabilities	(26,630)	2,014	19,489
(Decrease) increase of other assets and liabilities	(888,776)	(158,281)	259,899
Redemption of letters of credit	(8,989)	(11,772)	(16,606)
Senior bond issuances	1,156,057	911,581	3,537,855
Redemption of mortgage bonds and payments of interest	(5,911)	(5,736)	(5,492)
Redemption of senior bonds and payments of interest	(289,837)	(1,167,656)	(2,499,271)
Redemption of subordinated bonds and payments of interest		(14,899)	(12,128)
Interest received	2,244,317	2,058,446	2,137,044
Interest paid	(829,949)	(731,755)	(855,678)
Dividends received from investments in other companies	38	116	217
Fees and commissions received	484,463	455,558	431,184
Fees and commissions paid	(193,578)	(176,495)	(176,760)
Total cash flow (used in) provided by operating activities	1,022,522	(416,357)	736,153
B - CASH FLOWS FROM INVESTMENT ACTIVITIES:
Purchases of property, plant, and equipment	(68,329)	(58,771)	(62,355)
Sales of property, plant, and equipment	6,297	17,939	560
Purchases of investments in associates and other companies		(3)	(1,123)
Purchases of intangible assets	(29,563)	(32,624)	(27,281)
Total cash flow .used in investment activities	(91,565)	(73,459)	(90,199)
C - CASH FLOW FROM FINANCING ACTIVITIES:
From shareholders' financing activities	(423,611)	(330,645)	(336,659)
Dividends paid	(423,611)	(330,645)	(336,659)
Total cash flow used in financing activities	(423,611)	(330,645)	(336,659)
D - NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE YEAR	507,316	(820,460)	309,295
E - EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS	114,498	(31,398)	(150,266)
F - INITIAL BALANCE OF CASH AND CASH EQUIVALENTS	1,634,341	2,486,199	2,327,170
FINAL BALANCE OF CASH AND CASH EQUIVALENTS	2,256,155	1,634,341	2,486,199
Provision for loan losses for cash flow purposes	405,889	385,782	420,381
Recovery of loans previously charged off	(88,481)	(83,527)	(78,298)
Provision for loan losses - net	$ 317,408	$ 302,255	$ 342,083

CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) $ in Millions	12 Months Ended
	Dec. 31, 2018 CLP ($)
Reconciliation of liabilities that arise from financing activities [Roll Forward]
Balance as of beginning	$ 773,192
Cash flow	(423,611)
Changes not related to cash flows
Adquisition
Foreign currency exchange
Price level restatement	22,769
Fair value changes
Balance as of ending	372,346
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 ending
Subordinated Bonds [Member]
Reconciliation of liabilities that arise from financing activities [Roll Forward]
Balance as of beginning	773,192
Cash flow
Changes not related to cash flows
Adquisition
Foreign currency exchange
Price level restatement	22,769
Fair value changes
Balance as of ending	795,957
Paid Dividend [Member]
Reconciliation of liabilities that arise from financing activities [Roll Forward]
Balance as of beginning
Cash flow	(423,611)
Changes not related to cash flows
Adquisition
Foreign currency exchange
Price level restatement
Fair value changes
Balance as of ending	$ (423,611)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2018

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, 2018 Banco Santander Spain owns or controls directly and indirectly 99.5% of Santander-Chile Holding S.A. and 100% of Teatinos Siglo XXI Inversiones Ltda. Banco Santander Spain, through its subsidiaries, has 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$”, “U.S. dollars” and “dollars” are to United States dollars, references to “EUR” are to European Economic Community Euro, references to “CNY” are to Chinese Yuan, reference to “JPY” are to Japanese Yuan, references to “CHF” are to Swiss franc, references to “Chilean pesos”, “pesos” or “Ch$” 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$27,565.79 as of December 31, 2018 and Ch$26,798.14 as of December 31, 2017. In 2018, UF inflation was 2.6% compared to 2.3% in 2017. 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 Statements of Financial Position, Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows for the period.

b) Basis of preparation for the Consolidated Financial Statements

The Cnsolidated Financial Statements for the years ended December 31, 2018, 2017 and 2016, 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 Statements of Income and 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 recognised 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 Statements of Changes in Equity. Their share in the income for the year is presented as “Attributable to non-controlling interest” in the Consolidated Statements 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	2018			2017			2016
			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 25– Non-controlling interest.

(*) On July 25, 2018, the company has ceased conducting foreign currency purcharse and sale operations, hence forth this operation will be carried out directly by the Bank.

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	2018	2017	2016
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	15.00	14.93
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	12.48	12.48	12.07

(*) The Bank has given a mandate to third party to exercise its rights as shareholder in Transbank.

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.

In the case of Servicios de Infraestructura de Mercado OTC S.A.The Bank participates, through its executives, actively in the administration and in the process of organization, which is why the Administration has concluded that it exerts significant influence on it.

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 in 15%.

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.

At the end of 2016, D eutsche 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.

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 Statements of Income, and separately from shareholders’ equity in the Consolidated Statements 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.

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.

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, 2018 using the observed exchange rate of Ch$697.76 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.

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$697.76 per US$1 as of December 31, 2018 (Ch$616.85 per US$1 as of December, 2017).

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.

Classification and measurement of financial instrument – under IFRS 9 (first adoption)

Financial instruments must be classified and measured in accordance with IFRS 9 starting from January 1, 2018, which established guidance for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows.

I. Classification of financial instrument

i) Classification of financial assets

Financial assets are classified into a measurement category based on both the Bank’s business model for managing the financial asset and the contractual cash flow characteristics of the financial asset.

Contractual cash flow assessment determine if the cash flows from the financial asset meet the SPPI (solely payment of principal and interest) criterion, i.e. whether the contractual terms of the financial asset give rise, on specific dates, to cash flows that are solely payments of principal and interest. Principal is the fair value of the financial assets at initial recognition, and interest is the consideration for the time value of money, the credit risk associated with the principal outstanding, and also may include liquidity risk, administrative cost and profit margin.

For classification process the Bank perform the SPPI test, which assesses the contractual term to identify wheter they meet SPI criterion, ie, the contract is a basic lending arrangement. The Bank applies judgement and considers relevant factors such as currency in which the financial asset is denominated, and period for which the interest rate is set.

Business model refers to how the Bank manages its financial assets in order to generate cash flows. The Bank determined its business model on initial application of IFRS 9 at the level that best reflects how it manages groups of financial assets to achieve its business objective.

The Banks’s business model is not assessed on an instrument-by- instrument basis, but at a higher level of aggregated portfolio and is based on observable factors such as: performance of the financial assets, the risk that affect the performance, and the expected frequency, value and timing of sales.

In accordance with IFRS 9 the business models are:

●

Held to collect business model (HTC) - financial assets that are held within a business model whose objective is to hold assets in order to collect contractual cash flows are managed to realise cash flows by collecting contractual payments over the life of the instrument, under this business model sales made when there is an increase in the credit risk, or to manage credit concentration risk are not inconsistent with a business model whose objective is to hold financial assets to collect contractual cash flows.

●

Held to collect and sell (HTC&S) - financial assets under this business model achieve the objective by both collecting contractual cash flows and selling financial assets, then involve a greater frequency and value of sales than HTC business model.

●

Other business model - financial assets held in this business has the objective of realising cash flows through the sale of the assets. The Bank makes decisions based on the assets’ fair values and manages the assets to realise those fair values.

ii) Classification of financial liabilities

The Bank classified all financial liabilities as subsequently measured at amortised cost, except for derivatives that are liabilities, which are measured at fair value through profit or loss.

iii) Reclassification

Reclassification of financial assets is required if, and only if, the objective of the Bank’s business model for managing those financial assets changes. Financial liabilities cannot be reclassified.

II. Measurement of financial instruments

i) Initial measurement

On initial recognition, financial assets and financial liabilities are measured at the transaction price, i.e. the fair value of the consideration given or received (IFRS 13). In the case of financial instruments not at fair value through profit or loss, transaction costs are directly attributable to the acquisition or issue of the financial asset or financial liability.

ii) Subsequent measurement- financial assets

After initial recognition, the Bank shall measures a financial asset at:

(a)

Amortised cost

Financial assets that are held in a business model to collect the contractual cash flows and contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at amortised cost.

The effective interest method is used in the calculation of the amortised cost of a financial asset or a financial liability and in the allocation and recognition of the interest revenue or interest expense in profit or loss over the relevant period. The effective interest rate (EIR) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability.

(b)

Fair value through other comprehensive income (FVOCI)

Financial assets that are debt instruments held in a business model that is achieved by both collecting contractual cash flows and selling, and that contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at FVOCI. They are subsequently remeasured at fair value and changes therein (except for those relating to impairment, interest income and foreign currency exchange gains and losses) are recognised in other comprehensive income, until the assets are sold. Upon disposal, the cumulative gain and losses in OCI are recognised in the income statements.

(c)

Fair value through profit or loss (FVTPL)

Financial assets that do not contain contractual terms that give rise on specified dates to cash flows that are SPPI, or if the financial assets, or if the financial asset is not held in a business model that is either (i) a business model to collect the contractual cash flows or (ii) a business model that is achieved by both collecting contractual cash flows and selling.

Financial assets held for trading are recognised at fair value through profit or loss, likewise derivatives contracts for trading purposes.

(d)

Equity instruments

For certain equity instruments, the Bank may make an irrevocable election to present subsequent changes in the fair value of the instrument in other comprehensive income, except for dividend income which is recognised in profit or loss. Gains or losses on derecognition of these equity instruments are not transferred to profit or loss.

iii) Subsequent measurement- financial liabilities

After initial recognition, the Bank shall measure a financial liability at amortised cost.

IV. Derecognition of financial assets and liabilities

Financial assets are derecognised when, and only when:

●

the contractual rights to the cash flows from the financial asset expire , or

●

the Bank transfers substantially all the risks and rewards of ownership of the financial asset, and therefore the Bank derecognises the financial asset and recognise separately any rights and obligations created or retained in the transfer.

In some cases, the Bank enters into transactions for which it retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows in an arrangement that meets all the conditions required, i.e. the Bank only transfers collected amounts from original assets, selling or pledging original assets is prohibited, and the Bank has the obligation to remit cash flows collected without material delay.

When a financial asset is sold and the Bank simultaneously agrees to repurchase it (or an asset that is substantially the same) at a fixed price on a future date, the Bank continues to recognise the financial assets in their entirety in the statements of financial position because it retains substantially all of the risks and rewards of ownership. The cash consideration received is recognised as a financial asset and a financial liability is recognised for the obligation to pay the repurchase price.

Financial liabilities are derecognised when, and only when, they are extinguished, cancelled or expired.

VI. Contingent loan

The Bank issues contingent liabilities (including letters of credit, foreign letters of credit and performance guarantee) and loan commitments.

Contingent liabilities and undrawn loan commitments are commitments under which, over the duration of the commitment, the Bank is required to provide a loan with pre-specified term to the customer.

The nominal contractual loan value, when the loan agreed to be provided is on market terms, is not recorded in the statements of financial position. The related ECL allowances are disclosed in Note 22.

h) Definitions and classification of financial instruments – under IAS 39 (for 2017 balances)

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 recognised and derecognised 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.

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 investment

Financial assets are classified as FVTPL when the financial asset is either held for trading or they are 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.

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.

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 derecognised in the Bank´s statements 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

The Bank classifies all financial liabilities as subsequently measured at amortised cost, except for:

Financial liabilities at FVTPL

As of December 31, 2018 and 2017 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

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.

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.

vi.

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, 2018 and 2017 the Bank does not have balance offsetting of financial instruments.

vii.

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 derecognised from the Consolidated Statements 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 derecognised from the Consolidated Statements of Financial Position and continues to be measured by the same criteria as those used before the transfer. However, the following items are recorded:

An associated financial liability for an amount equal to the consideration received; this liability is subsequently measured at amortised 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 derecognised from the Consolidated Statements of Financial Position and any rights or obligations retained or created in the transfer are recognised.

If the transferor retains control of the transferred financial asset: it continues to be recognised in the Consolidated Statements of Financial Position for an amount equal to its exposure to changes in value and a financial liability associated with the transferred financial asset is recorded. The net carrying amount of the transferred asset and the associated liability is the amortised cost of the rights and obligations retained, if the transferred asset is measured at amortised 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 derecognised from the Consolidated Statements of Financial Position when the rights over the cash flows they generate have terminated or when all the inherent risks and rewards of ownership have been substantially transferred to third parties. Similarly, financial liabilities are only derecognised from the Consolidated Statements of Financial Position when the obligations specified in the contract are discharged or cancelled or the contract has matured.

i) Derivatives and hedging activities

The Bank has elected to continue apllying the hedge accounting requirements of IAS 39 on adoption of IFRS 9.

The Bank has not provided comparative information for prior periods on the date of initial application of IFRS 9 for the new disclosures introduces by IFRS 9 as a consequential amendment to IFRS 7, as permitted by IFRS 7 paragraph 44z.

For presentation purposes, derivatives are presented in accordance with its positive or negative fair value as assets or liabilities, respectively, and include trading and hedging instruments separately (see Note 8).

Hedging transactions

The bank has elected to continue applying the hedge accounting requirements in IAS 39 instead of the requirements of IFRS 9, thus 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 Statements 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 Statements 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 Statements 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 amortised to gain or loss from that date, where applicable.

When cash flow hedges are discontinued, any cumulative gain or loss of the hedging instrument recognised 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 Statements 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 Statements of Income.

j) Fair value measurement

In general, financial assets and liabilities are initially recognised 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 recognised at fair value plus transaction costs. Subsequently, and at the end of each reporting period, financial instruments are measured pursuant to the following criteria:

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 Statements 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, 2018, CVA and DVA amounts to MCh$8,142 and MCh$15,406, respectively.

ii.

Valuation techniques

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

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

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

The main techniques used as of December 31, 2018 and 2017 by the Bank’s internal models to determine the fair value of the financial instruments are as follows:

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.

k) Recognising income and expenses

The most significant criteria used by the Bank to recognise its revenues and expenses are summarized as follows:

Interest revenue, interest expense, and similar items

Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for financial assets that have subsequently become credit-impaired (or ‘stage 3’), for which interest revenue is calculated by applying the effective interest rate to their amortised cost (i.e. net of the ECL provision).

ii.

Commissions, fees, and similar items

Fee and commission income and expenses are recognised in the Consolidated Statements of Income using criteria established in IFRS 15 “Revenue from contracts with customers”. See disclosure in Note 2 relating adoption and impact of IFRS 15.

Under IFRS 15, the Bank recognises revenue when (or as) satisfied a performance obligations by transferring a service (ie an asset) to a customer; under this definition an asset is transferred when (or as) the customer obtains control of that asset. The Bank considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

The Bank transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, and/or the Bank satisfies the performance obligation at a point in time.

The main revenues arising from commissions, fees and similar items correspond to:

Fees and commissions for lines of credits and overdrafts: includes accrued fees related to granting lines of credit and overdrafts in checking accounts.

Fees and commissions for guarantees and letters of credit: includes accrued fees in the period relating to granting of guarantee payment for current and contingent third party obligations.

Fees and commissions for card services: includes accrued and earned commissions in the period related to use of credit cards, debit cards and other cards

Fees and commissions for management of accounts: includes accrued commissions for the maintenance of checking, savings and other accounts

Fees and commissions for collections and payments: includes income arising from collections and payments services provided by the Bank.

Fees and commissions for intermediation and management of securities: includes income from brokerage, placements, administration and securitie's custody services.

Fees and commissions for insurance brokerage fees: includes income arising for insurances distribution.

Other fees and commissions: includes income arising from currency changes,financial advisory, cashier check issuance, placement of financial products and onlilne banking services.

The main expenses arising from commissions, fees and similar items correspond to:

Compensation for card operation: includes commission expenses for credit and debit card operations related to income commissions card services.

Fees and commissions for securities transactions: includes commissions expense for deposits, securities custody service and securitie's brokerage.

Other fees and commissions: includes mainly expenses generayed from online services.

The Bank has incorporated disaggregated revenue and expense disclosures and reportable segment relationship in Note 28.

Additionaly, the Bank maintains certain loyalty programs associated to its credit cards services, for which it has deferred a percentage of the consideration received in the statements of financial position to comply with its related performance obligation, or has liquidated on a monthly basis as far they arise.

Revenue recognition accounting and discloures for the year 2017, is under IAS 18 “Revenue recognition”, fees and commission income and expense were recognised in according to their nature. The main criteria were:

Fee and commission income and expenses on financial assets and liabilities are recognised when they are earned.

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

Those relating to services provided in a single transaction are recognised 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 Statements of Income over the term of the loan.

l) Impairment of 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 recognised 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 recognised for the asset in prior years. Goodwill impairment is not reversed.

m) 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 Statements 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.

n) 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 recognised as lending to third parties under “Loans and accounts receivable from customers” in the Consolidated Statements 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 Statements of Financial Position, and recognising 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 Statements 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 Statements 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 Statements 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 amortised over the period of use of the asset. In the case of finance leasebacks, the profit or loss generated is amortised over the lease term.

o) 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 recognises 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 amortised 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.

p) Cash and cash equivalents

For the preparation of the cash flow statements, 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 statements, 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.

q) Expected credit losses allowance – under IFRS 9

Starting from January 1, 2018, the Bank replaced the “incurred loss” model of IAS 39 with an “expected credit loss (ECL)” model established by IFRS 9. The new single impairment model applies to all financial assets measured at amortised cost and fair value through other comprehensive income (FVOCI), including commitment and contingent loans. Investments in equity are outside of the scope of the new impairment requirements.

The Bank accounted ECL related to financial assets measured at amortised cost as a loss allowance in the statements of financial position, but the carrying amount of these assets is stated net of the loss allowance. ECL related to contingent loans is accounted as a provision in the statements of financial position. The Bank recognises in profit or loss, as an impairment gain or loss, the amount of ECL (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognised in accordance IFRS 9, for financial assets measured at amortised cost and contingent loans.

The new model uses a dual measurement approach, under which the loss allowance is measured as either:

12-month expected credit losses

Lifetime expected credit losses

The Bank has defined default on individual or collective basis:

●

Individual: when exposure is more than 89 days past due, it has been restructured, it is in judicial collection, it has been write-off, drag effect define as the entire outstanding amount on any loan which is 89 days or more past due.

●

Collective: when exposure is more than 89 days past due, it has been restructured, or has been identified as impaired by an interal risk committee.

The measurement basis depends on whether there has been a significant increase in credit risk since initial recognition. Based on changes in credit quality since initial recognition, IFRS 9 outlines a “three-stage” model impairment in accordance with the following diagram

Change in credit quality since initial recognition
Stage 1	Stage 2	Stage 3
Initial recognition	Significant increase in credit risk since initial recognition	Credit impaired assets
12-month expected credit losses	Lifetime expected credit losses	Lifetime expected credit losses

The Bank, at the end of each reporting period, evaluated whether financial instrument's credit risk has significantly increased since initial recognition or whether an asset is considered to be credit-impaired, and consequently classified financial instrument in the respective stage:

●

Stage 1: When loans are first recognised, the Bank recognises an allowance based on 12 months ECL. Stage 1 loans also include facilities where the credit risk has improved and the loan has been returned to Stage 1.

●

Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance for the lifetime ECL. Stage loans also include facilities, where the credit risk has improved and the loan has been returned to stage 2.

●

Stage 3: Loans considered credit-impaired. The Bank records an allowance for the lifetime ECL, setting the PD at 100%.

The Bank considers reasonable and supportable information that is available without undue cost or effort and that may affect the credit risk on a financial instrument, including forward looking information to determine a significant increase in credit risk since initial recognition. Forward looking information includes past events, current conditions and forecast or future economic conditions (macro-economic data).

Credit risk assessment and forward looking information (including macro-economic factors), includes quantitative and qualitative information based on the Bank’s historical experience, some examples are:

Financial or economic conditions that are expected to cause a significant change in the borrower’s ability to meet its debt obligations

An actual or expected internal credit rating downgrade for the borrower or decrease in behavioral scoring

An actual or expected significant change in the operating results of the borrower.

Significant increases in credit risk on other financial instruments of the same borrower.

Significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements.

Reductions in financial support from a parent entity or other affiliate.

Expected changes in the loan documentation including an expected breach of contract that may lead to covenant waivers or amendments, interest payment holidays, interest rate step-ups, requiring additional collateral or guarantees, or other changes to the contractual framework of the instrument.

The Bank has considered that if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial credit recognition, but is not an absolute indicator. The bank di not rebut the backstop presumption of IFRS 9 relating to SICR or default.

i.	*Expected credit loss measurement*

The ECL are the probability-weighted estimate of credit losses, i.e. the present value of all cash shortfalls. A cash shortfalls is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The three main components to measure the ECL are:

PD: The Probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio.

LGD: The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral.

EAD: The Exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdown on committed facilities, and accrued interest from missed payments.

For measuring 12-month and lifetime ECL, cash shortfalls are identified as follow:

12-month expected credit losses: the portion of lifetime expected credit losses that represents the expected credit losses that result from default events on the financial instruments that are possible within the 12 months after the reporting date.

Lifetime expected credit losses: the expected credit losses that result from all possible default events over the expected life of the financial instrument.

The Bank considered a multi-factor analysis to perform credit risk analysis. The type of portfolio or transactions, and individual or collective evaluated.

The Bank divides its portfolio as:

Commercial loans,

ii.

Mortgage loans, and

iii.

Consumer loans.

iv.

Contingent loans

The Bank evaluates individually whether objective evidence of impairment exists for loans that are individually significant, then collectively assesses loans that are not individually significant and loans which are significant but for which there is no objective evidence of impairment available under individually assessment.

ii.

Contingent loans

The Bank enters into various irrevocable loan commitments and contingent liabilities. Even though these obligations may not be recognised on the statements of financial position, they contain credit risk and, therefore, form part of the overall risk of the Bank.

When the Bank estimates the ECL for contingent loans, it estimates the expected portion of the loan commitment that will be drawn down over its expected life.

iii.

Forward looking information

The ECL model includes a broad range of forward looking information as economic inputs, such as:

●

GDO growth

●

Unemployment rates

●

Central Banks interest rates

●

Real state prices

iv.

Modifications of financial assets

When loan measured at amortised cost has been renegotiated or modified but not derecognised, the Bank recognises the resulting gains or losses as the difference between the carrying amount of the original loans, and modified contractual cash flows discounted using the EIR before modification.

For ECL estimation purposes on financial assets that have been modified, is required to distinguish between modification that result in derecognition from those that does not result in derecognition. If the modification does not result in derecognition, then the subsequent assessment of whether there is a significant increase in credit risk is made comparing the risk at the reporting date based on the modified contractual term and the risk at initial recognition based on the original, unmodified contractual term.

If the modification results in derecognition, then the modified asset is considered to be a new asset. Accordingly, the date of modification is treated as the date of initial recognition for the purposes of the impairment requerments.

Collateral

The Banks seeks to use collateral to mitigate its credit risks on financial assets, where possible. Types of collateral are:cash, securities, letters of credit, real state and inventories. The Bank’s accounting policy for collateral assigned to it through its lending arrangements under IFRS 9 is the same is it was under IAS 39. Collateral, unless repossessed, is not recorded on the Bank’s statements of financial position. However, the fair value of collateral affects the calculation of ECLs. The main collateral associated to mortgage loans are real state, which are valued based on data provided by specialized third parties.

The estimation of ECL reflects the cash flows expected from collateral and other credit enhancement that are part of the contractual terms of the financial instruments.

According to the Bank’s policy when an asset (real state) is repossessed are transferred to aseets held for sale at their fair value less cost to sell as non-financial assets at the repossession date.

vi.

Write-offs

The gross carrying amount of a financial asset is reduced when there is no reasonable expectation of recovery. A write-off constitutes a derecognition event of the corresponding loan transaction in its entirety, and therefore, include portions not past-due for installments loans or leasing operation (no partial write-off).

Subsequent recoveries of amounts previously writen-off are credited to the income statements, as recovery of loans previously write-off, as a deduction from provisions for loan losses.

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

r) Allowance for loan losses – under IAS 39

The Bank 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 performed 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 - represented cases where the Bank assesses a debtor as individually significant, or when he/she could not 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 was relevant for analyzing a large number of transactions with small individual balances from individuals or small companies. The Bank grouped debtors with similar credit risk characteristics giving to each group a default probability and recovery rate based on a historical analysis.

The Bank models determined allowances and provisions for loan losses according to the type of portfolio or transactions. Loans and accounts receivables from customers were 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:

Allowances for individual assessment

An individual assessment of commercial debtors was 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 assigned a risk category to each debtor, their loans and contingent loans. The risk factors considered were: 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 were 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 impairment in their credit quality). B is different from the A categories by a certain history of late payments. The A and B categories were distinguished by different PNPs (as defined below).

2. Debtors classified as C1, C2, C3, C4, D1 or D2 included debtors whose loans with us have been charged off or administered by our Recovery Unit, or identified as impaired by an internal risk committee.

For loans classified as A1, A2, A3 and B, we assigned 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 was 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, were 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 focused on the validation of the sufficiency of the Bank's allowances, and consisted 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 were also presented for approval to our Risk Committee.

For loans classified in the C and D categories, loan loss allowances were 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 was 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 used 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.

Following the Bank's definition, the Bank used group evaluation to approach transactions that have similar credit risk features, which indicated the debtor's payment capacity over the entire debt, principal and interests, pursuant to the contract's terms. In addition, this allowed us to assess a high number of transactions with low individual amounts, whether they belong to individuals or SMEs (small and medium sized companies). Therefore, debtors and loans with similar features were grouped together and each group has a risk level assigned to it.

These models were 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 were 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 was assigned to each portfolio profile constituting each evaluated group.

Allowances for group-evaluated loans were established based on the credit risk of the profile to which the loan belongs. The method for assigning a profile was 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 determined a client's risk level, which in this case was 90 days of non-performance (the chosen features are relevant when calculating future cash flows per group of assets). Afterwards, common profiles were established and with differentiated default rates, applying the real historical loss the Bank had with that portfolio.

The different risk categories were 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 had past due balance or has missed some payments, the outcome was 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, was 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 established 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 were 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 was used to determine the loss rates.

To determine the estimated incurred loss for commercial and mortgage loans collectively evaluated for impairment, we mainly analyzed 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 took into account whether the loan is supported by collateral.

In connection with mortgage loans, historical net charge-offs were considered in the model to calculate loss rates for loans collectively evaluated for impairment. The risk categories were such that when a customer has a past-due balance or has missed some payments, the outcome was 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) were 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 were more than a year old as we only updated the historical net charge-offs when our assessment of predictability and stability indicators determine it was necessary.

III. Charge-offs

As a general rule, charge-offs should be done when all collection efforts have been exhausted. These charge-offs consisted of derecognition from the Consolidated Statements of Financial Position of the corresponding loans transactions in its entirety, and, therefore, included portions not past-due of a loan in the case of installments loans or leasing transactions (no partial charge-offs exist).

Subsequent payments obtained from charged-off loans were recognised in the Consolidated Statements of Income as a recovery of loans previously charged-off.

Loan and accounts receivable charge-offs were 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 did not give rise to income—as long as the operation was in an impaired status—and the effective payments received were accounted for as a recovery from loans previously charged-off.

Recovery of previously charged-off loans and accounts receivable from customers, were recorded in the Consolidated Statements of Income as a deduction from provisions for loan losses.

In accordance with our charge-off policy described in iii) above, we may subsequently recovered 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 charged-off the carrying amount of any loans which have been collectively evaluated for impairment, the allowance for loan losses on collectively evaluated loans was 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 were recorded in the financial statements as provision established.

s) Provisions, contingent assets, and contingent liabilities

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

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 Statements 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 recognised. Partial or total reversals are recognised 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

t) 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.

u) 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 Statements 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:

- Allowances for loan losses

- Impairment losses of certain assets

- The useful lives of tangible and intangible assets

- The fair value of assets and liabilities

- Commitments and contingencies

- Current and deferred taxes

v) 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 recognised 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, 2018 the average cost to sale was estimated at 2.2% of the appraisal value (3.4% as of December 31, 2017).

w) Earnings per share

Basic earnings per share are determined by dividing the net income attributable to the shareholders 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, 2018 and 2017 the Bank did not have any instruments that generated dilution.

x) 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 7.

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

y) Provision for mandatory dividends

As of December 31, 2018 and 2017 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 Statements of Changes in Equity with offset to Provisions.

z) 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 recognised in profit or loss for the period;

net interest on the liability (asset) for net defined benefit, which is recognised 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 recognises the present service cost and the net interest of the Personnel salaries and expenses on the Consolidated Statements of Income.

The post-employment benefits liability, recognised in the Consolidated Statements 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, recognising any change in fair value in the income statements of the period.

aa) Application of new and revised International Financial Reporting Standards

1. New and revised standards effective in current year

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

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:

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 amortised 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 transactions 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 carried out, the Group considered 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” continued to be classified at amortised cost, except for 0.4% over the outstanding amount as of December 31, 2017 that was reclassified to be measured at fair value with changes in profit or loss. No other reclassification was made to this portfolio.

●

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

●

The financial assets classified as “trading investments” remained classified at fair value, with changes reported in profit and loss for the year,

●

IAS 39 financial liabilities classification and measurement criteria remained substantially under IFRS 9. The Bank considered that all the changes in classification mentioned above were 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 did not have significant impact over its financial statements.

Credit risk Impairment model: The most important difference of the current model compared with the prior one was that the new accounting standard introduced the concept of expected loss, whereas IAS 39 was based on incurred loss.

●

Scope of application: The IFRS 9 asset impairment model is applicable to financial assets valued at amortised 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.

●

" Rebuttable presumption that the credit risk has increased significantly when payments are more than 30 days past due: this threshold is 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 is divided into three categories, based on the phase of each instrument with regard to its level of credit risk:

–

Phase 1: a financial instrument is 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 reflects 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 l reflects the expected losses from defaults over the residual life of the financial instrument. The existence of a significant increase in credit risk is 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 reflects 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 is 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 are derived from internally developed statistical models and other historical data that leverage regulatory models. They are 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 considers 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 includes 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 measures 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 established 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 is presented in other comprehensive income, and the remaining amount of the change in the fair value is presented in profit or loss.

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.

The Bank has applied IFRS 9 and IFRS 7R, effective for annual periods beginning on January 1, 2018, for the first time. Changes include updated accounting policies, classification and measurement of financial assets and liabilities and impairment of financial assets, as well as transition disclosure (Note 2), detailed qualitative and quantitative information about ECL calculations, reconciliations from opening to closing ECL allowance and gross carrying amount of Account and receivable measured at amortised cost and FVOCI. As permitted by the transitional provisions of IFRS 9, the Bank has elected not to restate comparative figures. Any adjustments to the carrying amounts of financial assets and liabilities at the transition date were recognised in the opening retained earnings and other reserves of the current period. The comparative period notes to the financial statements present the same disclosures made in prior year.

IFRS 15, Income from contracts with clients - On May 28, 2014, the IASB published IFRS 15, which aims to establish principles for reporting useful information to users of financial information about the nature, amount, timing and uncertainty of The income and cash flows generated from an entity’s contracts with its customers. IFRS 15 eliminates IAS 11 Construction Contracts, IAS 18 Income, IFRIC 13 Loyalty Programs with Customers, IFRIC 15 Real Estate Construction Agreements, IFRIC 18 Transfer of Assets from Customers and SIC 31 Revenue - Exchange of Advertising Services.

On April 12, 2016, the IASB issued “Clarifications to IFRS 15 Revenue from contracts with customers”, this amendments do not change the underlying principles of the standard, just clarify and offer some additional transition relief. The main topics addressed by this amendment comprise: Indentifying performance obligations, Principal versus agent cosniderations and licensing in addition to transition relief.

This standard was applicable from January 1, 2018, with early application permitted. Management performed a detailed review of the new five-step model of revenue recognition, and concluded that this standard did not have a material impact on the Bank's financial statements. See Note 2 for additional information regarding the adoption of this standard.

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

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

• The classification of share-based transactions

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

This standard was applicable from January 1, 2018, with early application permitted. Management evaluation concluded that this amendment did not have a material impact on the Bank’s financial statements.

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

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

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

An entity would apply the overlay approach retrospectively to qualifying financial assets when it first applies IFRS 9 while an entity would apply the deferral approach for annual periods beginning on or after January 1, 2018. Management evaluation conclude that this amendment did not have a material impact on the Bank's financial statements.

IFRIC 22 Foreign Currency Transactions and Advance Consideration – This interpretation 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.

The date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt.

IFRIC 22 was effective for annual reporting periods beginning on or after 1 January 2018. Earlier application was permitted. Management evaluation concluded that this amendment did not have a material impact on the Bank’s financial statements.

Annual Improvement 2014-2016

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

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

The amendments to IFRS 1 and IAS 28 were effective for annual periods beginning on or after 1 January 2018. Management concluded that this amendment did not have a material impact on the Bank’s financial statements.

2. New and revised IFRS issued but not effective

As of the closing date of these financial statements, new International Financial Reporting Standards had been published as well as interpretations of them, which were not mandatory as of December 31, 2018. Although in some cases the application is permitted by the IASB, the Bank has not made its application on that date.

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 recognised 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 a 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.

The bank has established a team that has reviewed the Bank’s lease agreements, under the new lease accounting guidelines in IFRS 16. The standard mainly affects the accounting of the Bank’s operating leases. To date, the Bank has non-cancelable operating lease commitments and short-term leases, which will be recognised directly as lease expenses in results.

For lease commitments that are in scope of the standard, the Bank will recognise, as of January 1, 2019, assets for the right to use of approximately MM $ 154,284 and lease liabilities for the same amount, since it has been elected to apply the simplified transition approach in which no comparative information is restated, instead, the cumulative effect of the application of the standard (if any) is recognised as an adjustment to the initial balance of retained earnings to the date of the initial application.

The Bank will apply the standard from its mandatory adoption date on January 1, 2019. The Bank has elected to apply the simplified transition approach and will not re-state the comparative amounts for the year prior to adoption. The right-of-use assets for property leases will be measured in the transition as if the new rules had always been applied. All other assets for right of use will be measured at the amount of the lease liability in the adoption (adjusted for any lease expense paid in advance or accrued).

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 a 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 recognised 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 a material impact on the consolidated financial statements of the Bank.

ACCOUNTING CHANGES

12 Months Ended

Dec. 31, 2018

Accounting Changes

ACCOUNTING CHANGES

NOTE 02

ACCOUNTING CHANGES

IFRS 15 ADOPTION

On January 1, 2018, IFRS 15 revenues from contracts with customers has become effective. In accordance with the Bank’s activities, income and expenses arising from fees and commission are under the scope of this new standard. The following table reconcilies the prior period’s closing impairment allowance measured in accordance with the IAS 39 incurred loss model to the new impairment model:

The Bank has elected to adopt IFRS 15 using a modified retrospective approach where the cumulative effect of initially applying it is recognised as an adjustment to the opening balance of retained earnings and comparatives are not restated.

The Bank concluded that there is no impact as of January 1, 2018, however new disclosure requirements must be adopted. See Note 1 and Note 28.

IFRS 9 ADOPTION – Transition disclosure

The following disclosure provides the impact of adopting IFRS 9 on the statements of financial position and retained earnings including the effect of replacing IAS 39’s incurred credit loss provision with IFRS 9’s ECLs.

		IAS 39 carrying amount				IFRS 9 carrying amount
	Ref	Category	Amount	Reclassification	Remeasurement	Amount	Category
	Ref	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$
AMORTISED COST
Cash and deposit in banks
Opening balance under IAS 39 and closing under IFRS 9		AC	1,452,922	-	-	1,452,922	AC

Interbank loans, net
Opening balance under IAS 39		AC	162,213	-	-	-	-
Remeasurement: ECL Allowance	A	-	-	(162,213)	-	-	-
Closing balance under IFRS9		-	-	-	-	-	-

Loans and accounts receivable from customers, net
Opening balance under IAS 39		AC	26,772,544	-	-	-	-
Addition: from interbank loans	A	-	-	162,213	-	-	-
Subtraction to FVOCI (net of allowance)	B	-	-	(107,846)
Remeasurement: ECL Allowance		-	-	-	(97,322)	-
Closing balance under IFRS 9		-	-	-	-	26,729,589	AC
Total financial assets measured at amortised cost			28,387,679	(107,846)	(97,322)	28,182,511

FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (FVOCI)
Available for sale investment (debt securities)
Opening balance under IAS 39		FVOCI	2,574,546	-	-	-
Remeasurement: ECL Allowance			-	-		-
Closing balance under IFRS 9			-	-	-	2,574,546	FVOCI

Loans and accounts receivable from customers , net
Opening balance under IAS 39		AC	-	-	-	-
Addition: from amortised cost (net of allowance)	B		-	107,846	-	-
Remeasurement: from cost to FV	B		-	-	(236)	-
Remeasurement: ECL Allowance	B		-	-	291	-
Closing balance under IFRS 9			-	107,846	55	107,901	FVOCI

Investment in associate and other companies – Bladex (equity instuments)
Opening balance under IAS 39		Cost	136	-	-	-
Remeasurement: from cost to FV	C		-	-	306	-
Closing balance under IFRS 9			-	-	306	442	FVOCI

Investment in associate and other companies- Stock exchange (equity instruments)
Opening balance under IAS 39		FV	287	-	-	-
Remeasurement: from cost to FV			-	-	-	-
Closing balance under IFRS 9	C		-	-	-	287	FVOCI
Total financial assets measured at FVOCI			2,574,969	107,846	361	2,683,176

	Ref	IAS 39 carrying amount				IFRS 9 carrying amount
		Category	Amount	Reclassification	Remeasurement	Amount	Category
		MCh$	MCh$	MCh$	MCh$	MCh$	MCh$
FAIR VALUE THROUGH PROFIR OR LOSS (FVPL)
Trading investment
Opening balance under IAS 39 and closing under IFRS 9		FVPL	485,736			485,736	FVPL

Derivatives contracts (hedging + trading
Opening balance under IAS 39 and closing under IFRS 9		FVPL	2,238,647			2,238,647	FVPL
Total financial assets measured at FVTPL			2,724,383			2,274,383

The following explains how applying the new requirements of IFRS 9 led to changes in classification of certain financial assets held by the Bank as shown in the table above:

(A)

Interbank loans

According to the new balance presentation, the Bank has grouped interbank loans with the loans and account receivable since both are measured at amortised cost, and evaluated together for impairment purposes.

(B)

Loans and account receivable measured at fair value through other comprehensive income

The Bank enters into arrangements with its major customers for project finance and syndicated loans and, sometimes the amount requested exceeds the Bank’s limit for a single client exposure under the established credit risk policy, accordingly, the transaction is approved under the condition to sell a portion of the facility in the near term, which is classified under this category. Also, the Bank has decided to include loans that the Bank are expecting to sell if the market conditions are favourable to the Bank in this category. These loans are measured at fair value through other comprehensive income, and subject to impairment requirements.

(C)

Investment in equity instrument

The Bank has elected to irrevocably designate non-trading equity securities required to operates in Chile and outside at FVOCI as permited under IFRS 9. Bladex and stock exchange securities were previously measured at cost as permited by IAS 39. The changes in fair value will no longer be reclassified to profit or loss when they are disposed of.

The following table reconcilies the prior period’s closing impairment allowance measured in accordance with the IAS 39 incurred loss model to the new impairment model:

	Loans loss allowance under IAS 39	Reclassification	Remeasurement	Loans loss allowance under IFRS 9
	MCh$	MCh$	MCh$	MCh$
Loans and receivable (IAS 39)/ Financial assets at amortised cost (IFRS 9)
Interbank loans	472	(472)	-	-
Loans and account receivable from customers	790,685	84	97,322	888,091
Total loans and account receivable at amortised cost	791,157	(388)	97,322	888,091

Available for sale investment (IAS39)/Financial assets at FVOCI (IFRS 9)
Loans and account receivable from customer – at FVOCI	-	388	(291)	97
Total financial assets at FVOCI	-	388	(291)	97

Other credit- related commitments
Contingent liabilities	8,404	-	(3,767)	4,637
Loan commitments	-	-	19,124	19,124
Total contingents	8,404	-	15,357	23,761

Total provision for loan losses	799,561	-	112,388	911,949

The composition of the loan portfolio as of January 1, 2018 is as follows:

As of January 1, 2018	Assets before allowances				ECL allowance				Net Assets
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Commercial loans
Interbank loans	162,685	-	-	162,685	13	-	-	13	162,672
Commercial loans	8,743,179	595,436	543,807	9,882,422	56,546	36,541	246,870	339,957	9,542,465
Foreign trade loans	1,464,059	56,110	54,344	1,574,513	4,883	849	33,480	39,212	1,535,301
Checking accounts debtors	173,738	8,005	13,953	195,696	2,302	411	9,385	12,098	183,598
Factoring transactions	441,014	4,035	4,841	449,890	837	91	3,366	4,294	445,596
Student loans	70,984	7,402	9,904	88,290	3,644	2,329	6,092	12,065	76,225
Leasing transactions	1,235,103	161,882	60,019	1,457,004	8,946	9,553	27,835	46,334	1,410,670
Other loans and account receivable	110,307	5,663	36,623	152,593	2,640	1,549	24,551	28,740	123,853
Subtotal	12,401,069	838,533	723,491	13,963,093	79,811	51,323	351,579	482,713	13,317,708

Mortgage loans
Loans with mortgage finance bonds	21,529	1,230	1,301	24,060	25	51	172	248	23,812
Endorsable mortgage mutual loans	107,900	2,973	4,205	115,078	100	143	628	871	114,207
Other mortgage mutual loans	8,061,800	465,146	430,811	8,957,757	14,477	20,033	72,390	106,900	8,850,857
Subtotal	8,191,229	469,349	436,317	9,096,895	14,602	20,227	73,190	108,019	8,988,876

Consumer loans
Installment consumer loans	2,378,614	234,044	298,084	2,910,742	51,172	46,866	157,811	255,849	2,654,893
Credit card balances	1,324,742	20,916	19,322	1,364,980	20,443	7,633	11,982	40,058	1,324,922
Leasing transactions	4,627	47	41	4,715	1,013	23	74	1,110	3,605
Other consumer loans	270,410	2,573	4,272	277,255	84	35	223	342	276,913
Subtotal	3,978,393	257,580	321,719	4,557,692	72,712	54,557	170,090	297,359	4,260,333

Total	24,570,691	1,565,462	1,481,527	27,617,680	167,125	126,107	594,859	888,091	26,566,917

SIGNIFICANT EVENTS

12 Months Ended

Dec. 31, 2018

Significant Events

SIGNIFICANT EVENTS

NOTE 03

SIGNIFICANT EVENTS

As of December 31, 2018, the following significant events have occurred and affected the Bank`s operations and Consolidated Financial Statements.

a) The Board

During the ordinary session of the Board of Directors of Banco Santander-Chile, held on February 27, 2018, the following matters were agreed:

- On the occasion of the resignation of Mr. Vittorio Corbo Lioi from his position as Director, it was effective during the said session, who was also exercised as Chairman of the Board of Directors, Mr. Claudio Melandri Hinojosa was appointed in his place as Director and Chairman of the Board of Banco Santander-Chile, who will temporarily hold the position of General Manager until February 28, 2018 inclusive, in accordance with the provisions of Article 49 No. 8 of the General Banking Law.

- Mr. Miguel Mata Huerta, has been appointed as Bank's General Manager, as of March 1, 2018, who served as Deputy General Manager, this position was eliminated.

During the ordinary session of the Board of Directors of Banco Santander-Chile, held on March 27, 2018, the following matters were agreed:

- On the occasion of the resignation of the Regular Directors, Mr. Roberto Méndez Torres and Mr. Roberto Zahler Mayanz, made on this date, the Board of Directors has appointed Mrs. Félix de Vicente Mingo and Alfonso Gómez Morales as their principal independent Directors.

- Mr. Orlando Poblete Iturrate has been appointed First Vice President and Oscar Von Chrismar Carvajal as Second Vice President.

- It was agreed to call an Ordinary Meeting of Shareholders for April 24, 2018.

At the Ordinary Shareholders' Meeting of Banco Santander-Chile, held on April 24, 2018, Claudio Melandri Hinojosa was appointed Chairman and the independent directors Alfonso Gómez Morales and José Félix de Vicente Mingo, were appointed as principal directors, previously designated by the Board.

During the ordinary session of the Board of Directors of Banco Santander-Chile, held on July 12, 2018, the following agreements were adopted:

- On the occasion of the resignation of the substitute director Mr. Raimundo Monge Zegers, the board of directors has appointed Mr. Oscar Von Chrismar Carvajal, who was a principal Director.

- Mr. Rodrigo Vergara Montes has been appointed independent director.

- Mr. Rodrigo Vergara Montes have been appointed First Vice President and Second Vice President, Mr. Orlando Poblete Iturrate.

b) Use of Profits and Distribution of Dividends

At the Ordinary Shareholders’ Meeting of Banco Santander-Chile held on April 24, 2018, together with approving the Consolidated Financial Statements corresponding to the year 2017, it was agreed to distribute 75% of the net profits for the year (which are denominated in the financial statements). consolidated “Profit attributable to shareholders of the Bank”), which amounted to $ 564,815 million. These profits correspond to a dividend of $ 2.24791611 for each share. Likewise, it is approved that the remaining 25% of the profits will be used to increase the Bank’s reserves.

c) Appointment of External Auditors

In the Board indicated above, it was agreed to appoint the firm PricewaterhouseCoopers Consultores, Auditores SpA, as external auditors of the Bank and its subsidiaries for the 2018 fiscal year.

d.1 Senior bonds

During the year ended December 31, 2018 the Bank has issued senior bonds int the amount of AUD 20,000,000, EUR 66,000,000, CHF 115,000,000, JPY 7,000,000,000 and USD 70,000,000 Debt issuance information is included in Note 19.

Series	Currency	Amount	Term (annual)	Issuance rate (annual)	Issuance date	Maturity date
AUD	AUD	20,000,000	5	3.56	05-11-2018	13-11-2023
Total	AUD	20,000,000
CHF	CHF	115,000,000	5	0.44	04-09-2018	21-12-2023
Total	CHF	115,000,000
EUR	EUR	26,000,000	7	1.00	04-05-2018	28-05-2025
EUR	EUR	40,000,000	12	1.78	08-06-2018	15-06-2030
Total	EUR	66,000,000
JPY	JPY	4,000,000,000	10.5	0.65	05-07-2018	13-01-2029
JPY	JPY	3,000,000,000	5	0.56	23-10-2018	23-10-2023
Total	JPY	7,000,000,000
USD	USD	50,000,000	10	3.69	02-10-2018	10-10-2028
USD	USD	20,000,000	2	4.17	05-11-2018	16-11-2020
Total	USD	70,000,000

d.2 Subordinated bonds

As at December 31, 2018 the Bank had not issued subordinated bonds in this financial year.

d.3 Mortgage bonds

As at December 31, 2018 the Bank had not issued mortage bonds in this financial year.

d.4 Repurchase of bonds

The Bank has conducted the following repurchase of bonds as of December 31, 2018:

Date	Series	Amount
04-01-2018	Senior bond	CLP 12,890,000,000
04-01-2018	Senior bond	CLP 4,600,000,000
22-01-2018	Senior bond	UF 24,000
05-04-2018	Senior bond	UF 484,000
06-04-2018	Senior bond	UF 184,000
23-04-2018	Senior bond	UF 216,000
24-04-2018	Senior bond	UF 4,000
25-04-2018	Senior bond	UF 262,000
10-05-2018	Senior bond	UF 800,000
07-06-2018	Senior bond	USD 3,090,000
11-12-2018	Senior bond	USD 250,000,000

REPORTING SEGMENTS

12 Months Ended

Dec. 31, 2018

Reporting Segments

REPORTING SEGMENTS

NOTE 04

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.

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, 2018, 2017 and 2016 in addition to the corresponding balances of loans and accounts receivable from customers:

		For the year ended December 31, 2018
	Loans and accounts receivable at amortised cost (1)	Net interest income	Net fee and commission income	Financial transactions, net (2)	Expected credit losses	Support expenses (3)	Segment`s net contribution
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Retail Banking	20,786,637	949,764	220,532	19,694	(287,739)	(553,157)	349,094
Middle-market	7,690,380	272,912	36,746	16,848	(26,314)	(92,377)	207,815
Commercial Banking	28,477,017	1,222,676	257,278	36,542	(314,053)	(645,534)	556,909

Global Corporate Banking	1,613,088	96,722	35,064	57,340	2,339	(64,913)	126,552
Other	123,309	94,970	(1,457)	11,200	(5.694)	(11,486)	87,533

Total	30,213,414	1,414,368	290,885	105,082	(317,408)	(721,933)	770,994

Other operating income							23,129
Other operating expenses and impairment							(32,381)
Income from investments in associates and other companies							5,095
Income tax expense							(167,144)
Net income for the year							599,693

(1) Corresponds to loans and accounts receivable at amortised cost under IFRS 9, 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.

		For the year ended 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	26,008,903	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.

		For the year ended 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.

CASH AND CASH EQUIVALENTS

12 Months Ended

Dec. 31, 2018

Cash and cash equivalents [abstract]

CASH AND CASH EQUIVALENTS

NOTE 05

CASH AND CASH EQUIVALENTS

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

		As of December 31,
		2018		2017
		MCh$		MCh$

Cash and deposits in banks
	Cash	824,863		613,361
	Deposits at the Central Bank of Chile	953,016		441,683
	Deposits in local banks	664		393
	Deposits in banks abroad	286,898		397,485
Subtotals – Cash and deposits in banks		2,065,411		1,452,922

	Net cash items in process of collection		190,714		181,419

Cash and cash equivalents		2,256,155		1,634,341

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,
		2018	2017
		MCh$	MCh$

Assets
	Documents held by other banks (documents to be cleared)	210,546	199,619
	Funds receivable	143,211	468,526
Subtotal		353,757	668,145
Liabilities
	Funds payable	163,043	486,726
	Subtotal	163,043	486,726

Cash in process of collection, net		190,714	181,419

FINANCIAL ASSETS HELD FOR TRADING / TRADING INVESTMENTS

12 Months Ended

Dec. 31, 2018

Financial Assets Held For Trading Trading Investments

FINANCIAL ASSETS HELD FOR TRADING / TRADING INVESTMENTS

NOTE 06

FINANCIAL ASSETS HELD FOR TRADING / TRADING INVESTMENTS

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

		As of December 31,
		2018	2017
		MCh$	MCh$

Chilean Central Bank and Government securities
	Chilean Central Bank Bonds	22,947	272,272
	Chilean Central Bank Notes	-	-
	Other Chilean Central Bank and Government securities	48,211	209,370
Subtotal		71,158	481,642

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

Foreign financial securities
	Foreign Central Banks and Government securities	-	-
	Other foreign financial instruments	5,883	-
Subtotal		5,883	-

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

Total		77,041	485,736

As of December 31, 2018 and 2017, there were no trading investments sold under contracts to resell to clients or financial institutions.

INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS

12 Months Ended

Dec. 31, 2018

Investments Under Resale Agreements And Obligations Under Repurchase Agreements

INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS

NOTE 07

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, 2018 and 2017, rights associated with instruments acquired under contracts to resell are as follows:

	As of December 31,
	2018				2017
	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	-	-	-	-	-	-	-	-
Chilean Central Bank Notes	-	-	-	-	-	-	-	-
Other securities from the Government and the Chilean Central Bank	-	-	-	-	-	-	-	-
Subtotal	-	-	-	-	-	-	-	-

Total	-	-	-	-	-	-	-	-

b) Obligations arising from repurchase agreements

The Bank raises funds by selling financial instruments and committing itself to buy them back at future dates, plus interest at a predetermined rate. As of December 31, 2018 and 2017, obligations related to instruments sold under repurchase agreements are as follows:

	As of December 31,
	2018				2017
	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	48,307	-	-	48,307	-	-	-	-
Chilean Central Bank Notes	-	-	-	-	-	-	-	-
Other securities from the Government and the Chilean Central Bank	110	-	-	110	241,995	-	-	241,995
Subtotal	48,417	-	-	48,417	241,995	-	-	241,995
Instruments from other domestic institutions:	128	-	-	128
Time deposits in Chilean financial institutions					1,118	38	-	1,156
Subtotal	128	-	-	128	1,118	38	-	1,156
Instruments from other foreign institutions:
Securities from Government or foreign Central Banks	-	-	-	-	24,910	-	-	24,910
Subtotal	-	-	-	-	24,910	-	-	24,910

Total	48,545	-	-	48,545	268,023	38	-	268,061

Below is the detail by portfolio of collateral associated with repurchase agreements as of December 31, 2018 and 2017, valued at fair value:

	As of December 31,
	2018			2017
	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	49,040	-	49,040	-	-	-
Chilean Central Bank Notes	-	-	-	-	-	-
Other securities from the Government and the Chilean Central Bank	109	-	109	241,995	-	241,995
Subtotal	49,149	-	49,149	241,995	-	241,995
Other Chilean securities:
Time deposits in Chilean financial institutions	132	-	132	1,156	-	1,156
Subtotal	132	-	132	1,156	-	1,156
Instruments from other foreign institutions:
Securities from Government or foreign Central Banks	-	-	-	24,910	-	24,910
Subtotal	-	-	-	24,910	-	24,910

Total	49,281	-	49,281	268,061	-	268,061

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

12 Months Ended

Dec. 31, 2018

Derivative Financial Instruments And Hedge Accounting

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

NOTE 08

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

As of December 31, 2018 and 2017 the Bank holds the following portfolio of derivative instruments:

	As of December 31, 2018
	Notional amount				Fair value
	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	80,000	491,600	1,191,012	1,762,612	14,789	9,188
Cross currency swaps	-	1,276,909	6,706,197	7,983,106	96,357	36,708
Subtotal	80,000	1,768,509	7,897,209	9,745,718	111,146	45,896

Cash flow hedge derivatives
Currency forwards	205,750	168,151	-	373,901	-	8,013
Cross currency swaps	1,920,900	1,970,412	9,191,209	13,082,521	79,859	32,712
Subtotal	2,126,650	2,138,563	9,191,209	13,456,422	79,859	40,725

Trading derivatives
Currency forwards	15,301,943	13,080,875	6,062,183	34,445,001	613,063	466,741
Interest rate swaps	12,024,095	22,064,681	69,453,618	103,542,394	723,870	577,835
Cross currency swaps	2,173,111	8,853,306	68,976,339	80,002,756	1,568,365	1,385,314
Call currency options	26,731	60,235	57,579	144,545	4,332	854
Call interest rate options	-	-	-	-	-	-
Put currency options	23,411	50,445	56,392	130,248	-	363
Other derivatives	-	-	-	-	-	-
Subtotal	29,549,291	44,109,542	144,606,111	218,264,944	2.909.630	2.431.107

Total	31,755,941	48,016,614	161,694,529	241,467,084	3,100,635	2,517,728

	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

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, 2018 and 2017, classified by term to maturity:

	As of December 31, 2018
	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 at amortised cost
Endorsable mortgage mutual loans	653,872	1,272,382	276,590	603,818	2,806,662
Debt instruments at FVOCI
Yankee bonds	-	-	-	172,072	172,072
Mortgage financing bonds	-	-	3,779	-	3,779
Treasury bonds (BTP)	-	-	-	174,440	174,440
Chilean Treasury bonds	-	304,818	-	220,041	524,859
Chilean Central Bank bonds	-	449,730	-	-	449,730
Time deposits and other time liabilities
Time deposits	321,600	-	-	164,413	486,013
Issued debt instruments
Senior bonds	708,624	1,117,779	1,298,470	2,003,289	5,128,162
Total	1,684,096	3,144,709	1,578,839	3,338,073	9,745,717
Hedging instrument
Cross currency swaps	1,112,496	2,794,709	1,228,839	2,847,061	7,983,105
Interest rate swaps	571,600	350,000	350,000	491,012	1,762,612
Total	1,684,096	3,144,709	1,578,839	3,338,073	9,745,717

	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
Chilean Treasury bonds	-	21,377	762,727	-	784,104
Chilean Central Bank bonds (BCP)	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

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, 2018 and 2017, and the period when the cash flows will be generated:

	As of December 31, 2018
	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 at amortised cost
Mortgage loans	1,890,696	3,026,824	1,459,389	2,467,090	8,843,999
Commercial loans	39,809	69,776	-	-	109,585
Debt instruments at FVOCI
Yankee bond	-	-	-	-	-
Chilean Central Bank bonds	-	-	246,306		246,306
Time deposits	-	-	166,628	-	166,628
Time deposits and other time liabilities
Time deposits	-	-	-	-	-
Issued debt instruments
Senior bonds (variable rate)	-	666,823	-	-	666,823
Senior bonds (fixed rate)	456,478	203,594	450,835	503,721	1,614,628
Interbank borrowings
Interbank loans	1,764,348	-	-	-	1,764,348
Total	4,151,331	3,967,017	2,323,158	2,970,811	13,412,317
Hedging instrument
Cross currency swaps	3,891,311	3,853,136	2,323,158	2,970,811	13,038,416
Currency forwards	260,020	113,881	-	-	373,901
Total	4,151,331	3,967,017	2,323,158	2,970,811	13,412,317

	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

Below is an estimate of the periods in which cash flows are expected to be produced:

b.1 Forecasted cash flows for interest rate risk:

	As of December 31, 2018
	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	76,736	35,994	3,062	2,401	118,193
Outflows	(125,747)	(46,372)	(13,311)	(4,701)	(190,131)
Net flows	(49,011)	(10,378)	(10,249)	(2,300)	(71,938)

Hedging instrument
Inflows	125,747	46,372	13,311	4,701	190,131
Outflows (*)	(76,736)	(35,994)	(3,062)	(2,401)	(118,193)
Net flows	49,011	10,378	10,249	2,300	71,938

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

	As of December 31, 2017
	Within 1 year	Between 1 and 3 years	etween 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.

b.2 Forecasted cash flows for inflation risk:

	As of December 31, 2018
	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	37,086	73,576	166,516	310,293	587,471
Outflows	(14,036)	-	-	-	(14,036)
Net flows	23,050	73,576	166,516	310,293	573,435

Hedging instrument
Inflows	14,036	-	-	-	14,036
Outflows	(37,086)	(73,576)	(166,516)	(310,293)	(587,471)
Net flows	(23,050)	(73,576)	(166,516)	(310,293)	(573,435)

	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)

b.3 Forecasted cash flows for exchange rate risk:

As of December 31, 2018 and 2017 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 Statements of Changes in Equity, specifically within Other comprehensive income, as of December 31, 2018 and 2017, is as follows:

	As of December 31,
Hedged item	2018	2017
	MCh$	MCh$

Interbank loans	309	(4,779)
Time deposits and other time liabilities	-	-
Issued debt instruments	(10,893)	(8,683)
Available for sale investments	-	(364)
Loans and accounts receivable from customers	-	10,264
Debt instruments at FVOCI	(1,392)	-
Loans and accounts receivable at amortised cost	21,779	-
Net flows	9,803	(3,562)

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, 2018 and 2017 the Bank recorded ineffectiveness for an amount of Ch$2,912 million and Ch$1,187 million, respectively

During the year, the Bank did not enter into any cash flow hedges relating to forecasted 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,
	2018	2017	2016
	MCh$	MCh$	MCh$

Bond hedging derivatives	-	-	(77)
Interbank loans hedging derivatives	(683)	-	-

Cash flow hedge net gain (loss)	(683)	-	(77)
See Note 25 - Equity, letter e)

Net investment hedges in foreign operations:

As of December 31, 2018 and 2017, the Bank does not have any foreign net investment hedges in its hedge accounting portfolio.

LOANS AND ACCOUNT RECEIVABLE AT AMORTISED COST - under IFRS 9

12 Months Ended

Dec. 31, 2018

Loans And Account Receivable At Amortised Cost - Under Ifrs 9

LOANS AND ACCOUNT RECEIVABLE AT AMORTISED COST - under IFRS 9

NOTE 09

LOANS AND ACCOUNT RECEIVABLE AT AMORTISED COST – under IFRS 9

As of December 31, 2018 the composition of the loan portfolio is as follows:

As of December 31, 2018	Assets before allowances				ECL allowance				Net Assets
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Commercial loans
Interbank loans	15,093	-	-	15,093	10	-	-	10	15,083
Commercial loans	9,684,451	841,123	608,192	11,133,766	52,782	41,954	274,050	368,786	10,764,980
Foreign trade loans	1,646,337	56,295	49,805	1,752,437	5,466	735	33,716	39,917	1,712,520
Checking accounts debtors	183,290	16,452	15,420	215,162	2,108	467	11,209	13,784	201,378
Factoring transactions	370,391	6,005	4,587	380,983	829	91	3,433	4,353	376,630
Student loans	64,381	6,049	9,486	79,916	2,705	2,170	6,315	11,190	68,726
Leasing transactions	1,225,755	169,196	48,773	1,443,724	7,236	9,033	22,531	38,800	1,404,924
Other loans and account receivable	123,108	5,135	36,820	165,063	2,594	1,190	26,178	29,962	135,101
Subtotal	13,312,806	1,100,255	773,083	15,186,144	73,730	55,640	377,432	506,802	14,679,342

Mortgage loans
Loans with mortgage finance bonds	15,261	1,241	924	17,426	20	40	117	177	17,249
Endorsable mortgage mutual loans	101,074	3,454	4,008	108,536	87	126	592	805	107,731
Other mortgage mutual loans	9,142,627	442,801	439,591	10,025,019	8,899	14,936	66,453	90,288	9,934,731
Subtotal	9,258,962	447,496	444,523	10,150,981	9,006	15,102	67,162	91,270	10,059,711

Consumer loans
Installment consumer loans	2,693,260	231,107	265,303	3,189,670	50,748	48,622	148,017	247,387	2,942,283
Credit card balances	1,385,783	14,977	16,392	1,417,152	15,087	4,961	8,740	28,788	1,388,364
Leasing transactions	3,974	133	50	4,157	83	22	22	127	4,030
Other consumer loans	258,723	2,822	3,765	265,310	4,986	767	2,287	8,040	257,720
Subtotal	4,341,740	249,039	285,510	4,876,289	70,904	54,372	159,066	284,342	4,591,947

Total	26,913,508	1,796,790	1,503,116	30,213,414	153,640	125,114	603,660	882,414	29,331,001

a.	Commercial loans

An analysis of changes in the gross carrying amount and the corresponding ECL allowance is, as follows:

	Stage1		Stage2		Stage3		TOTAL
	Individual	Collective	Individual	Collective	Individual	Collective	TOTAL
Gross carrying amount at January 1, 2018	8,899,468	3,338,916	630,515	208,018	372,744	350,747	13,800,408
Transfers
Transfers to stage 2	(225,062)	(53,020)	225,062	53,020	-	-	-
Transfers to stage 3	(16,654)	(67,886)	-	-	16,654	67,886	-
Transfers to stage 3	-	-	(59,688)	(40,853)	59,688	40,853	-
Transfers to stage 1	13,199	52,755	(13,199)	(52,755)	-		-
Transfers to stage 2	-	-	4,451	36,247	(4,451)	(36,247)	-
Transfers to stage 1	-	718	-	-		(718)	-
Net changes on financial assets	1,497,618	708,531	138,436	48,323	4,240	70,848	2,467,996
Writte-off	-	-	-	-	(53,921)	(74,430)	(128,351)
Foreign Exchange adjustments	(472,732)	(363,045)	(57,794)	(19,528)	(8,025)	(32,785)	(953,909)
At 31 December 2018	9,695,837	3,616,969	867,783	232,472	386,929	386,154	15,186,144

	Stage 1		Stage 2		Stage 3		TOTAL
	Individual	Collective	Individual	Collective	Individual	Collective	TOTAL
ECL allowance at January 1, 2018	29,797	50,014	28,282	23,041	191,397	160,182	482,713
Transfers
Transfers to stage 2	(2,719)	(1,525)	8,005	8,169	-	-	11,930
Transfers to stage 3	(241)	(2,697)	-	-	6,612	29,839	33,513
Transfers to stage 3	-	-	(5,541)	(6,776)	22,705	17,475	27,863
Transfers to stage 1	167	553	(411)	(3,402)	-		(3,093)
Transfers to stage 2	-		330	1,854	(1,704)	(6,776)	(6,296)
Transfers to stage 1	-	22	-	-	-	(72)	(50)
Net changes of the exposure and modifications in the credit risk	4,105	3,770	2,740	2,855	1,251	29,253	43,974
Writte-off	-	-	-		(37,439)	(58,510)	(95,949)
Foreign Exchange adjustments	(920)	(6,696)	(2,339)	(1,167)	15,293	7,926	12,197
At 31 December 2018	30,189	43,541	31,066	24,574	198,115	179,317	506,802

b.	Mortgage loans

An analysis of changes in the gross carrying amount and the corresponding ECL allowance is, as follows:

	Stage1	Stage2	Stage3	TOTAL
	Collective	Collective	Collective	TOTAL
Gross carrying amount at January 1, 2018	8,191,229	469,349	436,317	9,096,895
Transfers
Transfers to stage 2	(87,473)	87,473	-	-
Transfers to stage 3	(64,949)	-	64,949	-
Transfers to stage 3	-	(54,488)	54,488	-
Transfers to stage 1	162,432	(162,432)	-	-
Transfers to stage 2	-	79,159	(79,159)	-
Transfers to stage 1	2,612	-	(2,612)	-
Net changes on financial assets	1,226,259	34,653	10,215	1,271,127
Writte-off	-	-	(31,664)	(31,664)
Foreign Exchange adjustments	(171,148)	(6,218)	(8,011)	(185,377)
At 31 December 2018	9,258,962	447,496	444,523	10,150,981

	Stage 1		Stage 2	Stage 3	TOTAL
	Collective	Collective		Collective
ECL allowance at January 1, 2018	14,602	20,227		73,190	108,019
Transfers
Transfers to stage 2	(516)	3,846		-	3,330
Transfers to stage 3	(383)	-		9,060	8,677
Transfers to stage 3	-	(2,518)		8,056	5,538
Transfers to stage 1	263	(6,255)		-	(5,992)
Transfers to stage 2	-	2,296		(10,185)	(7,889)
Transfers to stage 1	91	-		(232)	(141)
Net changes of the exposure and modifications in the credit risk	1,601	575		(1,784)	392
Writte-off	-	-		(13,548)	(13,548)
Foreign Exchange adjustments	(6,652)	(3,069)		2,605	(7,116)
At 31 December 2018	9,006	15,102		67,162	91,270

c.	Consumer loans

An analysis of changes in the gross carrying amount and the corresponding ECL allowance is, as follows:

	Stage1	Stage2	Stage3	TOTAL
	Collective	Collective	Collective	TOTAL
Gross carrying amount at January 1, 2018	3,978,393	257,580	321,719	4,557,692
Transfers
Transfers to stage 2	(46,936)	46,936		-
Transfers to stage 3	(33,161)		33,161	-
Transfers to stage 3	-	(19,327)	19,327	-
Transfers to stage 1	29,777	(29,777)	-	-
Transfers to stage 2	-	17,988	(17,988)	-
Transfers to stage 1	37	-	(37)	-
Net changes on financial assets	766,069	1,063	76,398	843,530
Writte-off	-	-	(115,933)	(115,933)
Foreign Exchange adjustments	(352,439)	(25,424)	(31,137)	(409,000)
At 31 December 2018	4,341,740	249,039	285,510	4,876,289

	Stage 1		Stage 2	Stage 3	TOTAL
	Collective	Collective		Collective
ECL allowance at January 1, 2018	72,712	54,557		170,090	297,359
Transfers
Transfers to stage 2	(2,117)	14,655		-	12,538
Transfers to stage 3	(1,431)	-		16,311	14,880
Transfers to stage 3	-	(3,913)		10,721	6,808
Transfers to stage 1	1,320	(4,890)		-	(3,570)
Transfers to stage 2	-	2,943		(9,107)	(6,164)
Transfers to stage 1	6	-		(18)	(12)
Net changes of the exposure and modifications in the credit risk	3,782	(8,572)		42,194	37,404
Writte-off	-	-		(64,506)	(64,506)
Foreign Exchange adjustments	(3,368)	(408)		(6,619)	(10,395)
At 31 December 2018	70,904	54,372		159,066	284,342

LOANS AND ACCOUNT RECEIVABLE AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - under IFRS 9

12 Months Ended

Dec. 31, 2018

Loans And Account Receivable At Fair Value Through Other Comprehensive Income - Under Ifrs 9

LOANS AND ACCOUNT RECEIVABLE AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - under IFRS 9

NOTE 10

LOANS AND ACCOUNT RECEIVABLE AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - under IFRS 9

The Bank has decided to classify a portfolio at fair value through other comprehensive income (FVOCI) related to loans and account receivable with its major customer, when they request a credit operation which exceeds single client exposure under the Bank’s credit risk policy. The risk committe approved the operation with the condition to sold a portion of the loan in the medium term, and meanwhile the Bank is looking for a buyer the portion is classified into this category.

Additionally, the Bank includes operations which are expecting to sell or maintain, depending if market conditions are favourable, these loans are classified into this category acording to management business model.

These portfolio is initially measured at amortised cost and afterward is adjusted at fair value, recognising the adjustment in other comprehensive income, while the Bank do not sell the loan. The portfolio is assessed for impairment loss under the new ECL model, same as loans at amortised cost.

An analysis of changes in the gross carrying amount and the corresponding ECL allowance is, as follows:

	Stage1	Stage2	Stage3	TOTAL
	Individual	Individual	Individual	TOTAL
Gross carrying amount at January 1, 2018	107,998	-	-	107,998
Transfers
Transfers to stage 2	(6,697)	6,697	-	-
Transfers to stage 3	-	-	-	-
Transfers to stage 3	-	-	-	-
Transfers to stage 1	-	-	-	-
Transfers to stage 2	-	-	-	-
Transfers to stage 1	-	-	-	-
Net changes on financial assets	(40,754)	(1,821)	-	(42,575)
Writte-off	-	-	-	-
Foreign Exchange adjustments	3,198	73	-	3,271
At 31 December 2018	63,745	4,949	-	68, 694

	Stage 1		Stage 2	Stage 3	TOTAL
	Individual	Individual		Individual	TOTAL
ECL allowance at January 1, 2018	97	-		-	97
Transfers
Transfers to stage 2	(17)	26		-	9
Transfers to stage 3	-	-		-	-
Transfers to stage 3	-	-		-	-
Transfers to stage 1	-	-		-	-
Transfers to stage 2	-	-		-	-
Transfers to stage 1	-	-		-	-
Net changes of the exposure and modifications in the credit risk	8	(8)		-	-
Writte-off	-	-		-	-
Foreign Exchange adjustments	-	-		-	-
At 31 December 2018	88	18		-	106

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS and INTERBANK LOANS (under IAS 39)

12 Months Ended

Dec. 31, 2018

Loans And Accounts Receivable From Customers And Interbank Loans

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS and INTERBANK LOANS (under IAS 39)

NOTE 11

LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS and INTERBANK LOANS (under IAS 39)

Loans and account receivable from customers

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

Interbank loans

As of December 31, 2017 balances of Interbank loans is as follows:

	MCh$
Domestic banks
Interbank loans	-
Other domestic bank loans	-

Foreign interbank loans
Interbank loans- foreign	162,685
Provisions and impairment for foreign bank loans	(472)

Total	162,213

The provisions and impairment as od December 31, 2017 is shown below:

	Domestic banks	Foreign banks	Total
	MCh$	MCh$	MCh$
Balance as of January 1, 2017	-	4,135	4,135
Provisions established	251	56	307
Provisions released	(251)	(3,719)	(3,970)

Total	-	472	472

Portfolio characteristics

As of December 31, 2017, the portfolio before allowance by customer’s economic activity is as follows:

	Domestic loans	Foreign interbank loans	Total loans	Distribution percentage
	MCh$	MCh$	MCh$	%
Commercial loans
Manufacturing	1,218,232		1,218,232	4.39
Mining	302,037	-	302,037	1.09
Electricity, gas, and water	336,048	-	336,048	1.21
Agriculture and livestock	1,114,597	-	1,114,597	4.02
Forest	98,941	-	98,941	0.36
Fishing	215,994	-	215,994	0.78
Transport	697,948	-	697,948	2.52
Communications	168,744	-	168,744	0.61
Construction	1,977,417	-	1,977,417	7.13
Commerce	3,131,870	162,685	3,294,555	11.88
Services	467,747	-	467,747	1.69
Other	4,179,067	-	4,179,067	15.07
		-
Subtotal	13,908,642	162,685	14,071,327	50.75

Mortgage loans	9,096,895		9,096,895	32.81
		-
Consumer loans	4,557,692		4,557,692	16.43
		-
Total	27,563,229	162,685	27,725,914	100.00

Impaired Portfolio

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

	As of December 31,
	2017
	Commercial	Mortgage	Consumer	Total
	MCh$	MCh$	MCh$	MCh$
Individual impaired portfolio	427,890	-	-	427,890
Non-performing loans (1) (collectively evaluated)	368,522	161,768	103,171	633,461
Other impaired portfolio	217,091	300,776	223,955	741,822
Total	1,013,503	462,544	327,126	1,803,173

(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 is as follows:

	As of December 31,
	2017
	Commercial	Mortgage	Consumer	Total
	MCh$	MCh$	MCh$	MCh$
Secured debt	582,557	413,716	34,260	1,030,533
Unsecured debt	430,946	48,828	292,866	772,640
Total	1,013,503	462,544	327,126	1,803,173

iii)

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

	As of December 31,
	2017
	Commercial	Mortgage	Consumer	Total
	MCh$	MCh$	MCh$	MCh$
Secured debt	167,909	141,413	8,896	318,218
Unsecured debt	200,613	20,355	94,275	315,243
Total	368,522	161,768	103,171	633,461

iv)

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

	As of December31,
		2017
		Commercial	Mortgage	Consumer	Total
		MM$	MM$	MM$	MM$
Non-performing >90 days		362,968	159,265	92,541	614,774
Non-performing <90 days		5,554	2,503	10,630	18,687
Total		368,522	161,768	103,171	633,461

Allowances

The changes in allowance balances during 2018 and 2017 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

(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
		MCh$	MCh$

Commercial loans		32,401	27,185
Consumer loans		39,972	41,072
Residential mortgage loans		10,942	10,041
Total		83,315	78,298

Recoveries of loans previously charged off are recognised as income in the line item “Provision for loans losses”. We only recognise 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 recognised as a loss in our income statements 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
		MCh$	MCh$

Customers loans		508,998	526,293
Interbank loans		307	3,052
Total		509,305	529,345

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%

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

DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

12 Months Ended

Dec. 31, 2018

Debt Instruments At Fair Value Through Other Comprehensive Income

DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

NOTE 12

DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

I.	Debt instruments at fair value through other comprehensive income (FVOCI) - under IFRS 9

As of December 31, 2018 detail of debt instruments is as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$
Chilean central bank and government securities
Chilean central bank bonds	657,096	-
Chilean central bank notes	56,719	-
Other Chilean central bank and government securities	1,207,221	-
Subtotal	1,921,036	-
of which sold under repurchase agreement	16,109	-
Other Chilean securities
Time deposits in Chilean financial institutions	2,693	-
Mortgage finance bonds of Chilean financial institutions	19,227	-
Other instruments issued in the country	2,907	-
Subtotal	24,827	-
of which sold under repurchase agreement	32,436	-
Foreign financial securities
Foreign Central Banks and Government securities	280,622	-
Other foreign financial securities	167,838	-
Subtotal	448,460	-
of which sold under repurchase agreement	-	-
Total	2,394,323	-

As of December 31, 2018 “Chilean central bank and government securities” guarantee derivatives transactions through Comder Contraparte Central S.A. in the local market for Ch$48,081, while “Foreign financial securities” guarantee derivatives transactions through London Clearing House (LCH) for Ch$58,892. Additionally, the Bank maintains guarantees with Euroclear for Ch$98,832 to comply with the initial margin required by European EMIR standard.

As of December 31, 2018 fair value throgh OCI included a cumulative net unrealised income of Ch$6,424 million, recoded as “valuation adjustment” in OCI, of which Ch$5,114 million are attributable to shareholders and Ch$1,310 million to non-controlling interest.

An analysis of changes in the fair value and the corresponding ECL is as follows:

	Stage1	Stage2	Stage3	TOTAL
	Collective	Collective	Collective	TOTAL
Gross carrying amount at January 1, 2018	2,574,546	-	-	2,574,546
New assets purchased	5,037,857	-	-	5,037,857
Transfers to stage 1	-	-	-	-
Transfers to stage 2	-	-	-	-
Transfers to stage 3	-	-	-	-
Assets derecognised or matured (excluding write offs)	(5,604,114)	-	-	(5,604,114)
Changes due to modifications not derecognised	-	-	-	-
Writte-off	-	-	-	-
Foreign Exchange adjustments	386,034	-	-	386,034
At 31 December 2018	2,394,323	-	-	2,394,323

	Stage1	Stage2	Stage3	TOTAL
	Collective	Collective	Collective	TOTAL
ECL at January 1, 2018	324	-	-	324
New assets purchased	634	-	-	634
Transfers to stage 1	-	-	-	-
Transfers to stage 2	-	-	-	-
Transfers to stage 3	-	-	-	-
Assets derecognised or matured (excluding write offs)	(705)	-	-	(705)
Changes due to modifications not derecognised	-	-	-	-
Writte-off	-	-	-	-
Foreign Exchange adjustments	5	-	-	5
At 31 December 2018	258	-	-	258

Gross profits and losses realized on the sale of available for sale investments as of December 31, 2018 is as follows:

		MCh$
Sale of available for sale investments generating realized profits		3,505,266
Realized profits		5,286
Sale of available for sale investments generating realized losses		709,371
Realized losses		6,788

II.

Available for sale investments - under IAS 39

	As of December 31,
	2018	2017
	MCh$	MCh$
Chilean central bank and government securities
Chilean central bank bonds	-	816,331
Chilean central bank notes	-	330,952
Other Chilean central bank and government securities	-	1,115,518
Subtotal	-	2,262,801
Other Chilean securities
Time deposits in Chilean financial institutions	-	2,361
Mortgage finance bonds of Chilean financial institutions	-	22,312
Other instruments issued in the country	-	3,000
Subtotal	-	27,673
Foreign financial securities
Foreign Central Banks and Government securities	-	132,822
Other foreign financial securities	-	151,250
Subtotal	-	284,072
Total	-	2,574,546

As of December 31, 2017, 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 million. Additionally, as of December 31, 2017 these instruments guarantee derivatives transactions through Comder Contraparte Central S,A, for Ch$42,910.

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

As of December 31, 2017, the line item Foreign financial securities item includes securities sold under repurchase agreements to clients and financial institutions for Ch$24,910 million. Additionally, this instruments guarantee derivatives transactions through London Clearing House (LCH) for Ch$48,106 million. 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.

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 comprenhensive income, distributed between Ch$459 million attributable to the shareholders of the Bank and Ch$1,396 million attributable to non-controlling interest.

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

	For the years ended December 31,
		2017	2016
		MCh$	MCh$
Sale of available for sale investments generating realized profits		6,469,344	6,522,549
Realized profits		4,867	12,333
Sale of available for sale investments generating realized losses		466,732	346,906
Realized losses		3	132

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:

	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)

INVESTMENTS IN ASSOCIATES AND OTHER COMPANIES

12 Months Ended

Dec. 31, 2018

Investments In Associates And Other Companies

INVESTMENTS IN ASSOCIATES AND OTHER COMPANIES

NOTE 13

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,
	2018 %	2017 %	2016 %	2018 MCh$	2017 MCh$	2018 MCh$	2017 MCh$	2016 MCh$
Company
Redbanc S.A.	33.43	33.43	33.43	2,822	2,537	285	353	373
Transbank S.A.	25.00	25.00	25.00	17,651	14,534	3,118	2,024	1,302
Centro de Compensación Automatizado	33.33	33.33	33.33	1,894	1,589	305	236	248
Sociedad Interbancaria de Depósito de Valores S.A.	29.29	29.29	29.29	1,233	1,087	223	235	195
Cámara de Compensación de Alto Valor S.A. (1,2,3)	15.00	15.00	14.93	945	909	58	66	98
Administrador Financiero del Transantiago S.A.	20.00	20.00	20.00	3,680	3,098	582	317	230
Sociedad Nexus S.A.	12.90	12.90	12.90	2,279	1,911	368	442	247
Servicios de Infraestructura de Mercado OTC S.A.(1&2)	12.48	12.48	12.07	1,491	1,489	57	115	132
Subtotal				31,995	27,154	4,996	3,788	2,825
*Shares or rights in other companies ()**
Bladex				-	136	19	25	26
Stock Exchanges				-	287	148	150	161
Others				8	8	(68)	-	-
Total				32,003	27,585	5,095	3,963	3,012

(1)

During 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 Infraestructura de Mercado OTC S.A”, the Bank’s share in those companies increased to 14.84% and 11.93% respectively.

(2)

During 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 “ Market infrastructure services OTC S,A”, 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%.

As described in Note 1 g), the Bank has irrevocably designated its shares in Bladex and Stock exchange at fair value through other comprehensive income (FVOCI) Related dividends are recognised in the income statements under "Income from investments in associates and other companies". The fair value of these equity investments is as follows:

	December 31, 2018
	MCh$
Bladex	329
Stock exchange	154
Total	483

b) Summary of financial information of associates as of and for the years ended December 31, 2018, 2017 and 2016:

As of December 31,
	2018				2017				2016
				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 S,A,	7,073	1,480	4,677	916	6,871	2,174	3,989	708	5,508	1,523	3,241	744
Redbanc S,A,	20,825	12,469	7,505	851	21,235	13,751	6,428	1,056	19,927	13,505	5,307	1,115
Transbank S,A,	904,558	835,200	56,888	12,470	822,487	765,683	48,709	8,095	710,475	660,957	44,309	5,209
Sociedad Interbancaria de Depósito de Valores S,A,	4,392	230	3,400	762	3,720	60	2,858	802	3,204	103	2,435	666
Sociedad Nexus S,A,	35	18	14	3	32,669	18,888	10,354	3,427	30,038	19,229	8,898	1,911
Servicios de Infraestructura de Mercado OTC S,A,	25,273	13,313	11,506	454	17,913	6,414	10,963	536	29,258	18,258	9,906	1,094
Administrador Financiero del Transantiago S,A,	55,818	37,419	15,490	2,909	51,304	35,814	13,907	1,583	54,253	40,345	12,758	1,150
Cámara de Compensación de Alto Valor S,A,	6,728	622	5,722	384	6,338	500	5,399	439	6,099	627	4,815	657
Total	1,024,702	900,751	105,202	18,749	962,537	843,284	102,607	16,646	858,762	754,547	91,669	12,546

c) 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.

d) Activity with respect to investments in other companies during 2018, 2017 and 2016 is as follows:

	As of December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$

Opening balance as of January 1,	27,585	23,780	20,309
Acquisition of investments (*)	-	3	1,123
Sale of investments	-	-	-
Participation in income	5,095	3,963	3,012
Dividends received	(38)	(116)	(217)
Other equity adjustments	(639)	(45)	(447)

Total	32,003	27,585	23,780

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

INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2018

Intangible Assets

INTANGIBLE ASSETS

NOTE 14

INTANGIBLE ASSETS

As of December 31, 2018 and 2017, the composition of intangible assets is as follows:

				As of December 31, 2018
	Years of useful life	Average remaining useful life	Net opening balance as of January 1, 2018	Gross balance	Accumulated amortization	Net balance
			MCh$	MCh$	MCh$	MCh$

Licenses	3	1	1,200	10,932	(9,956)	976
Software development	3	2	62,019	342,112	(276,165)	65,947

Total			63,219	353,044	(286,121)	66,923

				As of December 31, 2017
	Years of useful life	Average remaining useful life	Net opening balance as of January 1, 2017	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

The changes in the value of intangible assets during the periods ended December 31, 2018 and December 31, 2017 is as follows:

b.1 Gross balance

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

Balances as of January 1, 2018	10,932	314,115	325,047
Acquisitions	-	29,563	29,563
Disposals and impairment	-	-	-
Other	-	(1,566)	(1,566)
Balances as of December 31, 2018	10,932	342,112	353,044

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

b.2 Accumulated amortization

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

Balances as of January 1, 2018	(9,732)	(252,096)	(261,828)
Year’s amortization	(224)	(24,069)	(24,293)
Other changes	-	-	-
Balances as of December 31, 2018	(9,956)	(276,165)	(286,121)

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)

The Bank has no restriction on intangible assets as of December 31, 2018 and 2017. 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, 2018

Property, plant and equipment [abstract]

PROPERTY, PLANT, AND EQUIPMENT

NOTE 15

PROPERTY, PLANT, AND EQUIPMENT

As of December 31, 2018 and 2017, the composition of property, plant, and equipment balances are composed as follows:

		As of December 31, 2018
	Net opening balance as of January 1, 2018	Gross balance	Accumulated depreciation	Net balance
	MCh$	MCh$	MCh$	MCh$

Land and buildings	159,352	309,385	(132,428)	176,957
Equipment	63,516	217,958	(159,756)	58,202
Ceded under operating leases	4,221	4,888	(667)	4,221
Other	15,458	67,197	(52,991)	14,206
Total	242,547	599,428	(345,842)	253,586

			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

The changes in the value of property, plant, and equipment as of December 31, 2018 and 2017 is as follows:

b.1 Gross balance

2018	Land and buildings	Equipment	Ceded under operating leases	Other	Total
	MCh$	MCh$	MCh$	MCh$	MCh$

Balances as of January 1, 2018	274,079	193,689	4,888	60,823	533,479
Additions	35,369	28,438	-	4,522	68,329
Disposals	(63)	(4,130)	-	(2,104)	(6,297)
Impairment due to damage	-	(39)	-	-	(39)
Other	-	-	-	3,956	3,956
Balances as of December 31, 2018	309,385	217,958	4,888	67,197	599,428

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	-	-	-	-	-
Balances as of December 31, 2017	274,079	193,689	4,888	60,823	533,478

b.2 Accumulated depreciation

2018	Land and buildings	Equipment	Ceded under operating leases	Other	Total
	MCh$	MCh$	MCh$	MCh$	MCh$

Balances as of January 1, 2018	(114,727)	(130,173)	(667)	(45,365)	(290,932)
Depreciation charges in the period	(17,704)	(29,623)	-	(7,660)	(54,987)
Sales and disposals in the period	3	40	-	34	77
Transfers	-	-	-	-
Other	-	-	-	-
Balances as of December 31, 2018	(132,428)	(159,756)	(667)	(52,991)	(345,842)

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)	(28,593)	(9)	(6,277)	(55,623)
Sales and disposals in the period	224	38	-	51	313
Transfers	-	-	-	-	-
Other	-	-	-	-	-
Balances as of December 31, 2017	(114,727)	(130,173)	(667)	(45,365)	(290,932)

Operational leases – lessor

As of December 31, 2018 and 2017, the future minimum lease cash inflows under non-cancellable operating leases are as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$

Due within 1 year	469	567
Due after 1 year but within 2 years	882	749
Due after 2 years but within 3 years	469	480
Due after 3 years but within 4 years	460	348
Due after 4 years but within 5 years	428	308
Due after 5 years	2,242	1,792

Total	4,950	4,244

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,
	2018	2017
	MCh$	MCh$

Due within 1 year	25,702	26,059
Due after 1 year but within 2 years	24,692	21,343
Due after 2 year but within 3 years	22,439	18,091
Due after 3 years but within 4 years	19,574	15,736
Due after 4 years but within 5 years	17,250	12,734
Due after 5 years	63,945	51,502

Total	173,602	145,465

As of December 31, 2018 and 2017, 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, 2018 and 2017. 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, 2018

Current And Deferred Taxes

CURRENT AND DEFERRED TAXES

NOTE 16

CURRENT AND DEFERRED TAXES

a) Current taxes

As of December 31, 2018 and 2017, the Bank recognises 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,
	2018	2017
	MCh$	MCh$

Summary of current tax liabilities (assets)
Current tax (assets)	-	-
Current tax liabilities	8,093	6,435

Total tax payable (recoverable)	8,093	6,435

(Assets) liabilities current taxes detail (net)
Income tax, tax rate(*)	196,527	145,112
Minus:
Provisional monthly payments	(186,060)	(136,562)
Credit for training expenses	(1,937)	(1,768)
Land taxes leasing	-	-
Grant credits	(1,320)	(968)
Other	883	621

Total tax payable	8,093	6,435

(*)The tax rate is 27,0% for 2018 and 25,5% for 2017,

b) Effect on income

The effect of tax expense on income for the years ended December 31, 2018, 2017 and 2016 is comprised of the following items:

	As of December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$

Income tax expense
Current tax	196,527	145,112	145,963

Credits (debits) for deferred taxes
Origination and reversal of temporary differences	(25,517)	(6,751)	(37,269)
Valuation provision	(56)	5,955	-
Subtotals	170,954	144,316	108,694
Tax for rejected expenses (Article No,21)	1,110	610	336
Other	(4,920)	105	1
Net charges for income tax expense	167,144	145,031	109,031

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, 2018, 2017 and 2016, is as follows:

		For the year ended December 31,
	2018			2017		2016
	Tax rate		Amount	Tax rate	Amount	Tax
	Tax rate		Amount	Tax rate	Amount	rate	Amount
	%		MCh$	%	MCh$	%	MCh$

Tax calculated over profit before tax	27.00		207,046	25.50	183,671	24.00	140,991
Price level restatement for tax purposes⁽¹⁾	(5.15)		(39,494)	(3.03)	(21,829)	(5.49)	(32,256)
Single penalty tax (rejected expenses)	0.14		1,110	0.08	610	0.06	336
Effect of tax reform changes on deferred tax⁽²⁾	0.00		-	(2.86)	(20,600)	0.01	86
Real estate taxes	0.00		-	0.00	-	0.00	-
Other	(0.20)		(1,518)	0.44	3,179	(0.02)	(126)
Effective rates and expenses for income tax	21.80		167,144	20.13	145,031	18.56	109,031

(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, 2018 and 2017:

		As of December 31,
		2018	2017
		MCh$	MCh$

Deferred tax assets
	Available for sale investments	-	368
	Debt instruments at FVOCI	1,166	-
	Cash flow hedges	65	908
Total deferred tax assets recognised through other comprehensive income		1,231	1,276

Deferred tax liabilities
	Available for sale investments	-	(841)
	Debt instruments at FVOCI	(2,976)	-
	Cash flow hedges	(2,711)	-
Total deferred tax liabilities recognised through other comprehensive income		(5,687)	(841)

Net deferred tax balances in equity		(4,456)	(435)

Deferred taxes in equity attributable to shareholders of the Bank		(4,102)	791
Deferred tax in equity attributable to non-controlling interests		(354)	(356)

e) Effect of deferred taxes on income

As of December 31, 2018 and 2017, the Bank has recorded effects for deferred taxes in the financial statements:

	As of December 31,
	2018	2017
	MCh$	MCh$
Deferred tax assets
Interests and adjustments	9,384	8,645
Non-recurring charge-offs	13,389	11,651
Assets received in lieu of payment	785	1,582
Exchange rate adjustments	1,675	882
Property, plant and equipment valuation	6,138	4,410
Allowance for loan losses	184,488	160,359
Provision for expenses	63,134	73,518
Derivatives	3,924	5,249
Leased assets	107,897	98,090
Subsidiaries tax losses	5,314	5,277
Prepaid expenses	156	151
Total deferred tax assets	396,284	369,814

Deferred tax liabilities
Valuation of investments	(42)	(1,911)
Prepaid expenses	(349)	-
Depreciation	-	(532)
Valuation provision	(5,989)	(5,955)
Exchange rate adjustments	(3,383)	-
Other	(20)	(432)
Total deferred tax liabilities	(9,783)	(8,830)

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,
	2018	2017
	MCh$	MCh$

Deferred tax assets
Recognised through other comprehensive income	1,231	1,276
Recognised through profit or loss	396,284	369,815
Total deferred tax assets	397,515	371,091

Deferred tax liabilities
Recognised through other comprehensive income	(5,687)	(841)
Recognised through profit or loss	(9,783)	(8,822)
Total deferred tax liabilities	(15,470)	(9,663)

OTHER ASSETS

12 Months Ended

Dec. 31, 2018

Other Assets

OTHER ASSETS

NOTE 17

OTHER ASSETS

Other assets item includes the following:

		As of December 31,
		2018	2017
		MCh$	MCh$

Assets for leasing ⁽¹⁾		47,486	48,099

Assets received or awarded in lieu of payment
	Assets received in lieu of payment	17,525	20,904
	Assets awarded at judicial sale	21,524	24,800
	Provision on assets received in lieu of payment or awarded	(723)	(1,440)
	Subtotal	38,326	44,264

Other assets
	Guarantee deposits (margin accounts) ⁽²⁾	170,232	323,767
	Gold investments	522	478
	VAT credit	9,097	9,570
	Income tax recoverable	1,756	1,381
	Prepaid expenses	477,819	116,512
	Assets recovered from leasing for sale	6,848	4,235
	Valuation adjustments by macrohedge	9,414	160
	Pension plan assets	846	921
	Accounts and notes receivable	59,511	59,574
	Notes receivable through brokerage and simultaneous transactions	71,382	68,272
	Other receivable assets	48,612	53,500
	Other assets ⁽³⁾	49,365	33,677
	Subtotal	905,404	672,047

	Total	991,216	764,410

⁽¹⁾

Assets available to be granted under the financial leasing agreements.

⁽²⁾

Guarantee deposits (margin accounts) correspond to collateral 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 in the Bank delivering or receiving collateral.

⁽³⁾

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

TIME DEPOSITS AND OTHER TIME LIABILITIES

12 Months Ended

Dec. 31, 2018

Time Deposits And Other Time Liabilities

TIME DEPOSITS AND OTHER TIME LIABILITIES

NOTE 18

TIME DEPOSITS AND OTHER TIME LIABILITIES

As of December 31, 2018 and 2017, the composition of the line item time deposits and other liabilities is as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$

Deposits and other demand liabilities
Checking accounts	6,794,132	6,272,656
Other deposits and demand accounts	709,711	590,221
Other demand liabilities	1,237,574	905,289

Total	8,741,417	7,768,166

Time deposits and other time liabilities
Time deposits	12,944,846	11,792,466
Time savings account	118,587	116,179
Other time liabilities	4,386	5,300

Total	13,067,819	11,913,945

INTERBANK BORROWINGS

12 Months Ended

Dec. 31, 2018

Interbank Borrowings

INTERBANK BORROWINGS

NOTE 19

INTERBANK BORROWINGS

As of December 31, 2018 and 2017 the line item Interbank borrowings is as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$
Loans from financial institutions and the Central Bank of Chile
Other obligations with Central Bank of Chile	-	5
Subtotal	-	5
Loans from domestic financial institutions	-	480
Loans from foreign financial institutions
Bank of America N,A, Us Foreig	338,906	228,309
Sumitomo Mitsui Banking Corporation	278,761	259,199
Citibank N,A,	241,041	191,494
Mizuho Bank Ltd Ny	223,829	215,967
Wells Fargo Bank N,A,	216,749	235,058
The Bank of Nova Scotia	163,927	86,419
The Bank of New York Mellon	69,921	30,839
Corporacion Andina De Fomento	52,371	-
Standard Chartered Bank	50,960	225,966
Barclays Bank PLC London	34,965	30,886
Hsbc Bank Plc Ny	34,936	30,875
Wachovia Bank, NA	33,499	-
Banco Santander Brasil S,A,	8,040	5,225
Bank of China	7,777	831
Banco Santander Hong Kong	6,047	8,341
Deutsche Bank A,G,	5,558	157
Bnp Paribas, Hong Kong Branch	3,554	-
Keb Hana Bank	2,318	396
Rabobank, Hong Kong Branch	1,548	-
Hong Kong and Shanghai Banking	1,300	222
Banco Santander Central Hispano	1,295	312
Unicredito Italiano SPA	1,117	264
Bank of Tokio Mitsubishi	1,032	453
Banco Bilbao Vizcaya Argentaria	888	-
Standard Chartered Bank Malays	843	-
Dexia Bank SA	789	-
Banque Bruxelles Lambert S,A,	509	-
Hsbc Bank USA	394	38
Shinhan Bank	380	394
United Bank of India	378	-
Woori Bank	356	105
State Bank of India	331	110
Banca Commerciale Italiana S,P,	288	31
Canara Bank	237	224
Shanghai Pudong Development Ba	237	-
Banco de Galicia Y Buenos Aires	231	-
Bank of East Asia, Limited	205	241
First Union National Bank	201	35
Industrial Bank of Korea	195	-
Banca Monte dei Paschi di Siena	179	162
Metropolitan Bank Limited	170	87
Hua Nan Commercial Bank Ltd,	164	349
Credit Lyonnais	139	-
Bank of Shanghai	134	-
Bank of Taiwan	127	136
Agricultural Bank of China	106	295
Akbank T,A,S,	106	-
Credit Agricole	106	-
Banco Bradesco S,A,	89	-
Oriental Bank of Commerce	87	-
Kookmin Bank	78	201
Banca Nazionale Del Lavoro S,P	77	-
Hsbc Bank Middle East	77	-
International Commercial Bank	70	221
Taiwan Cooperative Bank	66	159
Banca Lombarda E Piemontese S,	60	-
Hanvit Bank	58	55
Bank of India	51	-
Caixabank S,A,	44	-
Fortis Bank S,A,/N,V, Brussels	42	15
Subtotal	1,787,943	1,554,071

	As of December 31,
	2018	2017
	MCh$	MCh$
Loans from foreign financial institutions, continuación
Banco de la Republica Oriental	41	-
Bank of Baroda	37	-
China Construcción Bank	35	90
Banco Internacional S,A,	33	-
Joint Stock Commercial Bank Fo,	33	-
Shanghai Commercial and Saving	33	-
Banistmo S,A,	32	-
Banca Popolare Dell’Emilia Rom	31	53
Bank of Montreal	31	30
Raiffeisen Bank Polska S,A,	31	-
Casa Di Risparmo De Padova E,R,	30	56
Industrial and Commercial Bank	30	119
Hdfc Bank Limited	28	-
Bankinter S,A,	24	-
Kbc Bank Nv	23	-
Banco Bpm SPA	21	-
Cassa Di Risparmio In Bologna	21	-
Banco De Sabadell S,A,	20	-
Banco Commerzbank	19	-
Taiwan Business Bank	19	19
Cajas Rurales Unidas	18	-
Chang Hwa Commercial Bank Ltd,	18	14
U,S, Bank (Formerly First Bank	18	-
United World Chinese Commercia	15	-
Banco Itau S,A,	14	-
Mega International Commercial	9	-
Banca Popolare Di Milano S,C,A	6	-
Hang Seng Bank (China) Limited	6	-
Sumitono Mitsui	4	-
Development Bank of Singapore	3	-
Abanca Corporacion Bancaria SA	-	60
Australia And New Zealand Bank	-	62
Banca Delle Marche SPA	-	76
Banco Bradesco S,A,	-	50
Banco Caixa Geral,	-	33
Banco Commerzbank	-	145
Banco de Occidente	-	282
Banco De Sabadell S,A,	-	10
Banco Do Brasil S,A,	-	268
Banco Internacional S,A,	-	33
Banco Popolare Soc Coop,	-	6
Banco Popular Espanol S,A,	-	19
Bancolombia S,A,	-	94
Bank Austria A,G,	-	2,317
Bank of Communications	-	93
Bank of Nova Scotia	-	112
Banque Generale Du Luxembourg	-	207
Cassa Di Risparmio Di Parma E	-	93
Citic Industrial Bank	-	39
Corporación Andina De Fomento	-	31,075
European Investment Bank	-	12,629
Habib Bank Limited	-	34
Hang Seng Bank Ltd,	-	39
Hsbc Bank PLC	-	30,838
Icici Bank Limited	-	8
J,P, Morgan Chase Bank N,A,	-	154
Kasikornbank Public Company Li,	-	25
Liu Chong Hing Bank Limited	-	21
Mizuho Corporate Bank	-	331
Punjab National Bank	-	47
Shanghai Pudong Development	-	714
Societe Generale	-	56
Thai Military Bank Public Comp,	-	377
The Toronto-Dominion Bank	-	62,743
Yapi Ve Kredi Bankasi A,S,	-	155
Zhejiang Commercial Bank Ltd,	-	175
Subtotal	683	143,801
Total	1,788,626	1,698,357

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,
	2018	2017
	MCh$	MCh$

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

b) Loans from domestic financial institutions

These obligations’ maturities are as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$

Due within 1 year	-	480
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

c) Foreign obligations

	As of December 31,
	2018	2017
	MCh$	MCh$

Due within 1 year	1,648,955	1,477,318
Due within 1 and 2 year	139,671	185,519
Due within 2 and 3 year	-	35,035
Due within 3 and 4 year	-	-
Due after 5 years	-	-
Total loans from foreign financial institutions	1,788,626	1,697,872

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES

12 Months Ended

Dec. 31, 2018

Issued Debt Instruments And Other Financial Liabilities

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES

NOTE 20

ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES

As of December 31, 2018 and 2017, composition of this item is as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$

Other financial liabilities
Obligations to public sector	32,449	59,470
Other domestic obligations	175,210	175,389
Foreign obligations	7,741	7,171
Subtotals	215,400	242,030
Issued debt instruments
Mortgage finance bonds	25,490	34,479
Senior bonds	7,198,865	6,186,760
Mortgage bond	94,921	99,222
Subordinated bonds	795,957	773,192
Subtotals	8,115,233	7,093,653

Total	8,330,633	7,335,683

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, 2018
	Current	Non-current	Total
	MCh$	MCh$	MCh$

Mortgage finance bonds	6,830	18,660	25,490
Senior bonds	844,898	6,353,967	7,198,865
Mortgage bond	4,833	90,088	94,921
Subordinated bonds	1	795,956	795,957
Issued debt instruments	856,562	7,258,671	8,115,233

Other financial liabilities	205,871	9,529	215,400

Total	1,062,433	7,268,200	8,330,633

	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

a) Mortgage finance bonds

These bonds are used to finance mortgage loans, Their principal amounts are amortised 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 5.43% as of December 31, 2018 (5.39% as of December 31, 2017).

	As of December 31,
	2018	2017
	MCh$	MCh$

Due within 1 year	6,830	8,691
Due after 1 year but within 2 years	5,946	6,744
Due after 2 year but within 3 years	5,034	6,096
Due after 3 year but within 4 years	3,997	5,155
Due after 4 year but within 5 years	2,480	4,101
Due after 5 years	1,203	3,692
Total mortgage bonds	25,490	34,479

b) Senior bonds

The following table shows senior bonds by currency:

	As of December 31,
	2018	2017
	MCh$	MCh$

Santander bonds in UF	4,095,741	3,542,006
Santander bonds in USD	1,094,267	1,045,465
Santander bonds in CHF	386,979	268,281
Santander bonds in Ch$	1,291,900	1,135,527
Santander bonds in AUD	24,954	14,534
Current bonds in JPY	191,598	126,059
Santander bonds in EUR	113,426	54,888
Total senior bonds	7,198,865	6,186,760

i, Placement of senior bonds:

In 2018, the Bank issued bonds for UF 23,000,000; CLP 225,000,000,000; USD 70,000,000; EUR 66,000,000; AUD 20,000,000; CHF 115,000,000 and JPY 7,000,000,000 detailed as follows:

Series	Currency	Amount	Term	Issuance rate	Series approval date	Series maximum amount	Maturity date
T1	UF	4,000,000	2,0	2.20%	01-02-2016	7,000,000	01-02-2020
T4	UF	4,000,000	3,0	2.35%	01-02-2016	8,000,000	01-08-2021
T11	UF	5,000,000	7,0	2.65%	01-02-2016	5,000,000	01-02-2025
T12	UF	5,000,000	7,0	2.70%	01-02-2016	5,000,000	01-08-2025
T15	UF	5,000,000	11,0	3.00%	01-02-2016	5,000,000	01-08-2028
Total	UF	23,000,000				30,000,000
P5	CLP	75,000,000,000	4,0	5.30%	05-03-2015	150,000,000,000	01-03-2022
U4	CLP	75,000,000,000	3,4	ICP + 1.00% yearly	10-01-2017	75,000,000,000	10-01-2022
U3	CLP	75,000,000,000	2,7	ICP + 1.00% yearly	11-06-2018	75,000,000,000	11-06-2021
Total	CLP	225,000,000,000				300,000,000,000
DN	USD	50,000,000	10,0	4.17%	10-10-2018	50,000,000	10-10-2028
DN	USD	20,000,000	2,0	0.0369	16-11-2018	20,000,000	16-11-2020
Total	USD	70,000,000				70,000,000
EUR	EUR	26,000,000	7,0	1.00% yearly	04-05-2018	26,000,000	28-05-2025
EUR	EUR	40,000,000	12,0	1.78% yearly	08-06-2018	40,000,000	15-06-2030
Total	EUR	66,000,000				66,000,000
AUD	AUD	20,000,000	5,0	3.56%	13-11-2018	20,000,000	13-11-2023
Total	AUD	20,000,000				20,000,000
CHF	CHF	115,000,000	5,3	0.441%	21-09-2018	115,000,000	21-12-2023
Total	CHF	115,000,000				115,000,000
JPY	JPY	4,000,000,000	10,6	0.65% anual	13-07-2018	4,000,000,000	13-01-2029
JPY	JPY	3,000,000,000	5 años	56%	30-10-2018	3,000,000,000	30-10-2023
Total	JPY	7,000,000,000				7,000,000,000

During 2018, the Bank performed a partial repurchase of the following bonds:

Date	Type	Currency	Amount
04-01-2018	Senior	CLP	12,890,000,000
04-01-2018	Senior	CLP	4,600,000,000
22-01-2018	Senior	UF	24,000
05-04-2018	Senior	UF	484,000
06-04-2018	Senior	UF	184,000
23-04-2018	Senior	UF	216,000
24-04-2018	Senior	UF	4,000
25-04-2018	Senior	UF	262,000
10-05-2018	Senior	UF	800,000
07-06-2018	Senior	USD	3,090,000
11-12-2018	Senior	USD	250,000,000

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 maximum amount	Maturity date
T9	UF	5,000,000	7	2.60%	01-02-2016	5,000,000	01-03-2024
T13	UF	5,000,000	9	2.75%	01-02-2016	5,000,000	01-03-2026
Total UF		10,000,000				10,000,000
SD	CLP	60,000,000,000	5	5.50%	01-06-2014	200,000,000,000	01-12-2019
T16	CLP	100,000,000,000	6	5.20%	01-02-2016	100,000,000,000	01-12-2021
Total CLP		160,000,000,000				300,000,000,000
DN	USD	100,000,000	3	Libor-USD 3M+0.80%	20-07-2017	100,000,000	27-07-2020
DN	USD	50,000,000	3	Libor-USD 3M+0.80%	21-07-2017	50,000,000	27-07-2020
DN	USD	50,000,000	3	Libor-USD 3M+0.80%	24-07-2017	50,000,000	27-07-2020
DN	USD	10,000,000	4	Libor-USD 3M+0.80%	23-08-2017	10,000,000	23-11-2021
DN	USD	10,000,000	4	Libor-USD 3M+0.83&	23-08-2017	10,000,000	23-11-2021
DN	USD	50,000,000	3	Libor-USD 3M+0.83%	14-09-2017	50,000,000	15-09-2020
DN	USD	500,000,000	3	Libor-USD 3M+0.75%	12-12-2017	500,000,000	15-12-2020
Total DN		770,000,000				770,000,000
AUD	AUD	30,000,000	10	3.96%	05-12-2017	30,000,000	12-12-2027
Total		30,000,000				30,000,000

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

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
26-06-2017	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

ii. The maturities of senior bonds are as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$

Due within 1 year	844,898	337,166
Due after 1 year but within 2 years	1,331,255	866,936
Due after 2 year but within 3 years	1,073,847	832,978
Due after 3 year but within 4 years	1,104,547	1,177,081
Due after 4 year but within 5 years	421,918	902,647
Due after 5 years	2,422,400	2,069,952
Total senior bonds	7,198,865	6,186,760

Mortgage bonds

Detail of mortgage bonds per currency is as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$

Mortgage bonds in UF	94,921	99,222
Total mortgage bonds	94,921	99,222

i. Allocation of mortgage bonds

During 2018 and 2017, the Bank has not placed any mortgage bonds.

ii.

The maturities of Mortgage bonds are as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$

Due within 1 year	4,833	4,541
Due after 1 year but within 2 years	7,758	7,291
Due after 2 year but within 3 years	8,008	7,526
Due after 3 year but within 4 years	8,267	7,769
Due after 4 year but within 5 years	8,534	8,019
Due after 5 years	57,521	64,076
Total Mortgage bonds	94,921	99,222

d) Subordinated bonds

Detail of the subordinated bonds per currency is as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$

Subordinated bonds denominated in CLP	1	3
Subordinated bonds denominated in UF	795,956	773,189
Total subordinated bonds	795,957	773,192

i. Allocation of subordinated bonds

During 2018 and 2017, the Bank has not placed any subordinated bonds. The maturities of subordinated bonds, are as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$

Due within 1 year	1	3
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	795,956	773,189
Total subordinated bonds	795,957	773,192

e) Other financial liabilities

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

	As of December 31,
	2018	2017
	MCh$	MCh$

Non-current portion:
Due after 1 year but within 2 years	9,221	23,401
Due after 2 year but within 3 years	40	4,181
Due after 3 year but within 4 years	44	194
Due after 4 year but within 5 years	48	210
Due after 5 years	176	1,219
Non-current portion subtotal	9,529	29,205

Current portion:
Amounts due to credit card operators	172,425	173,271
Acceptance of letters of credit	2,894	2,780
Other long-term financial obligations, short-term portion	30,552	36,774
Current portion subtotal	205,871	212,825

Total other financial liabilities	215,400	242,030

MATURITY OF FINANCIAL ASSETS AND LIABILITIES

12 Months Ended

Dec. 31, 2018

Maturity Of Financial Assets And Liabilities

MATURITY OF FINANCIAL ASSETS AND LIABILITIES

NOTE 21

MATURITY OF FINANCIAL ASSETS AND LIABILITIES

As of December 31, 2018 and 2017, the detail of the maturities of assets and liabilities is as follows:

As of December 31, 2018	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	2,065,411	-	-	-	2,065,411	-	-	-	-	2,065,411
Cash items in process of collection	353,757	-	-	-	353,757	-	-	-	-	353,757
Financial assets held for trading	-	1,064	-	11,642	12,706	16,331	20,080	27,924	64,335	77,041
Investments under resale agreements	-	-	-	-	-	-	-	-	-	-
Financial derivative contracts	-	111,268	128,024	543,722	783,014	723,622	552,133	1,041,866	2,317,621	3,100,635
Loans and accounts receivables at amortised cost (*)	238,212	3,295,003	2,323,442	4,880,726	10,737,383	5,474,289	3,236,349	10,765,393	19,476,031	30,213,414
Loans and account receivable at fvoci (**)	-	-	-	25,294	25,294	4,949	-	38,451	43,400	68,694
Debt instruments at fvoci	-	2,391,329	-	1	2,391,330	86	-	2,907	2,993	2,394,323
Equity instruments at fvoci	-	-	-	-	-	-	-	483	483	483
Guarantee deposits (margin accounts)	170,232	-	-	-	170,232	-	-	-	-	170,232
Total financial assets	2,827,612	5,798,664	2,451,466	5,461,385	16,539,127	6,219,277	3,808,562	11,877,024	21,904,863	38,443,990

Financial liabilities
Deposits and other demand liabilities	8,741,417	-	-	-	8,741,417	-	-	-	-	8,741,417
Cash items in process of being cleared	163,043	-	-	-	163,043	-	-	-	-	163,043
Obligations under repurchase agreements	-	48,545	-	-	48,545	-	-	-	-	48,545
Time deposits and other time liabilities	122,974	5,248,418	4,108,556	3,326,199	12,806,147	191,547	6,137	63,988	261,672	13,067,819
Financial derivative contracts	-	131,378	120,361	349,551	601,290	495,789	471,185	949,464	1,916,438	2,517,728
Interbank borrowings	39,378	16,310	404,575	1,188,692	1,648,955	139,671	-	-	139,671	1,788,626
Issued debt instruments	-	71,465	39,267	745,830	856,562	2,431,849	1,549,743	3,277,079	7,258,670	8,115,233
Other financial liabilities	179,681	934	2,412	22,844	205,871	9,261	92	176	9,529	215,400
Guarantees received (margin accounts)	540,091	-	-	-	540,091	-	-	-	-	540,091
Total financial liabilities	9,786,584	5,517,050	4,675,171	5,633,116	25,611,921	3,268,117	2,027,157	4,290,707	9,585,981	35,197,902

(*)

Loans and accounts receivables at amortised cost are presented on a gross basis. The amount of allowance is Ch$882,414 million.

(**)

Loans and accounts receivables at fvoci are presented on a gross basis. The amount of allowance is Ch$106 milion

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,

PROVISIONS AND CONTINGENT PROVISIONS

12 Months Ended

Dec. 31, 2018

Provisions [abstract]

PROVISIONS AND CONTINGENT PROVISIONS

NOTE 22

PROVISIONS AND CONTINGENT PROVISIONS

As of December 31, 2018 and 2017, the composition is as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$

Provisions for personnel salaries and expenses	93,379	97,576
Provisions for mandatory dividends	178,600	168,840
Provisions for contingent loan risk*	23,709	9,480
Other	620	599
Total	305,271	303,798

* Under IFRS 9 disclosure requeriments

Below is the activity regarding provisions during the years ended December 31, 2018 and 2017

	Personnel salaries and expenses	Mandatory Dividend	Contingencies
	MCh$	MCh$	MCh$

Balances as of January 1, 2018	97,576	168,840	27,303
Provisions established	80,912	178,600	19,447
Application of provisions	(72,975)	-	(4,431)
Provisions released	(3,195)	(168,840)	(33,356)
Reclassifications	-	-	-
Other	(8,939)	-	-

Balances as of December 31, 2018	93,379	178,600	8,963

Balances as of January 1, 2017	72,592	142,815	65,404
Provisions established	106,687	168,840	8,645
Application of provisions	(81,703)	(142,815)	(389)
Provisions released	-	-	(46,357)
Reclassifications	-	-	-
Other	-	-	-

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

Provisions for personnel salaries and expenses includes:

	As of December 31,
	2018	2017
	MCh$	MCh$

Provision for seniority compensation	9,531	17,874
Provision for stock-based personnel benefits	-	-
Provision for performance bonds	59,633	53,947
Provision for vacations	22,792	23,039
Provision for other personnel benefits	1,423	2,716
Total	93,379	97,576

Provisions for contingent loan risk

Provision for contingent loan arise from contingent liabilities and loan commitments. Provisions for ECL risks in respect of contingent loan are included in ECL allowance in the income statements for the year.

The Bank has apply the new model for ECL under IFRS to contingent loans.

An analysis of changes in the corresponding ECL allowance is, as follows:

	Stage 1		Stage 2		Stage 3		TOTAL
	Individual	Collective	Individual	Collective	Individual	Collective	TOTAL
ECL allowance at January 1, 2018	1,028	16,261	219	187	2,884	3,182	23,761
Transfer
Transfers to stage 2	(30)	-	65	-	-	-	35
Transfers to stage 3	(1)	-	-	-	328	-	327
Transfers to stage 3	-	-	(11)	-	567	-	556
Transfers to stage 1	1	-	(7)	-	-	-	(6)
Transfers to stage 2	-	-	-	-	-	-	-
Transfers to stage 1	-	-	-	-	(1)	-	(1)
Net changes on financial assets	115	683	3	(37)	54	(77)	741
Writte-off	-	-	-	-	-	-	-
Foreign Exchange adjustments	(32)	(1,874)	(10)	22	24	166	(1,704)
At 31 December 2018	1,081	15,070	259	172	3,856	3,271	23,709

OTHER LIABILITIES

12 Months Ended

Dec. 31, 2018

Other Liabilities

OTHER LIABILITIES

NOTE 23

OTHER LIABILITIES

The other liabilities line item is as follows:

	As of December 31,
	2018	2017
	MCh$	MCh$

Accounts and notes payable	163,216	196,965
Unearned income	673	601
Valuation adjustments by macrohedges	7,039	-
Guarantees received (margin accounts) ⁽¹⁾	540,091	408,313
Notes payable through brokerage and simultaneous transactions	50,807	17,799
Other payable obligations ⁽²⁾	94,779	58,921
Withheld VAT	1,990	1,887
Other liabilities ⁽³⁾	41,812	60,877

Total	900,407	745,363

(1)

Guarantee deposits (margin accounts) correspond to collateral 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 in the Bank delivering or receiving 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, 2018

Contingencies And Commitments

CONTINGENCIES AND COMMITMENTS

NOTE 24

CONTINGENCIES AND COMMITMENTS

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, 2018, the Bank and its subsidiaries have provisions for this item of Ch$923 million and Ch$0 million, respectively (Ch$1,214 million and Ch$0 million as of December 31, 2017) which is included in “Provisions” in the Consolidated Statements of Financial Position as provisions for contingencies.

Contingent loans

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

	As of December 31,
	2018	2017
	MCh$	MCh$

Letters of credit issued	223,420	201,699
Foreign letters of credit confirmed	57,038	75,499
Performance guarantee	1,954,205	1,823,793
Personal guarantees	133,623	81,577
Total contingent liabilities	2,368,286	2,182,568
Available on demand credit lines	8,997,650	8,135,489
Other irrevocable credit commitments	327,297	260,691
Total loan commit ment	9,324,947	8,396,180
Total	11,693,233	10,578,748

Held securities

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

	As of December 31,
	2018	2017
	MCh$	MCh$

Third party operations
Collections	99,784	175,200
Assets from third parties managed by the Bank and its affiliates	1,630,431	1,660,804
Subtotal	1,730,215	1,836,004
Custody of securities
Securities held in custody	11,160,488	383,002
Securities held in custody deposited in other entity	861,405	760,083
Issued securities held in custody	12,335,871	22,046,701
Subtotal	24,357,764	23,189,786
Total	26,087,979	25,025,790

During 2018, 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 2018, the balance for this was Ch$ 1,630,396 million (Ch$ 1,660,768 million at December 31, 2017).

Guarantees

Banco Santander Chile has comprehensive officer fidelity insurance policy, No. 4668409, 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, 2018 to June 30, 2019.

Contingent loans and liabilities

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

EQUITY

12 Months Ended

Dec. 31, 2018

EQUITY

EQUITY

NOTE 25

EQUITY

Capital

As of December 31, 2018 and 2017 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 2018, 2017 and 2016 was as follows:

	SHARES As of December 31,
	2018	2017	2016

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, 2018, 2017 and 2016 the Bank does not have any of its own shares in treasury, nor do any of the consolidated companies.

As of December 31, 2018 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	-	26,486,000,071	26,486,000,071	14.05
Banks on behalf of third parties	15,451,106,985	-	15,451,106,985	8.20
Pension funds (AFP) on behalf of third parties	9,033,172,896	-	9,033,172,896	4.79
Stock brokers on behalf of third parties	4,773,558,507	-	4,773,558,507	2.53
Other minority holders	6,109,287,067	-	6,109,287,067	3.25
Total	161,960,126,723	26,486,000,071	188,446,126,974	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, 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	-	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.

Reserves

In April 2018, due to the Shareholders’ Meeting, the Bank agreed to capitalized 25% of retained earnings from 2017 as reserves; which equals Ch$ 141,204 million (Ch$ 141,706 million in 2017).

Dividends

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

As of December 31, 2018, 2017 and 2016 the basic and diluted earnings per share were as follows:

	As of December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$

a) Basic earnings per share
Total attributable to the shareholders of the Bank	595,333	562,801	476,067
Weighted average number of outstanding shares	188,446,126,794	188,446,126,794	188,446,126,794
Basic earnings per share (in Ch$)	3.159	2.987	2.526

b) Diluted earnings per share
Total attributable to the shareholders of the Bank	595,333	562,801	476,067
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$)	3.159	2.987	2.526

As of December 31, 2018, 2017 and 2016 the Bank does not own instruments with dilutive effects.

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

	For the years ended December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$

Debt instruments at FVOCI
As of January 1,	1,855	-	-
Gain (losses) on the re-measurement of debt instruments at FVOCI, before tax	6,328	-	-
Recycling from other comprehensive income to income for the year	(1,502)	-	-
Available for sale investments
As of January 1,	-	7,375	(7,093)
Gain (losses) on the re-measurement of available for sale investments, before tax	-	(10,384)	2,267
Recycling from other comprehensive income to income for the year	-	4,864	12,201
Subtotals	4,826	(5,520)	14,468
Total	6,681	1,855	7,375

Cash flow hedges
As of January 1,	(3,562)	2,288	8,626
Gains (losses) on the re-measurement of cash flow hedges, before tax	14,048	(5,850)	(6,261)
Recycling adjustments on cash flow hedges, before tax	(683)	-	(77)
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	13,365	(5,850)	(6,338)
Total	9,803	(3,562)	2,288

Other comprehensive income, before taxes	16,484	(1,707)	9,663

Income tax related to other comprehensive income components
Income tax relating to debt instruments at FVOCI	(1,810)	-	-
Income tax relating to available for sale investments	-	(473)	(1,770)
Income tax relating to cash flow hedges	(2,646)	908	(549)
Total	(4,456)	435	(2,319)

Other comprehensive income, net of tax	12,028	(1,272)	7,344
Attributable to:
Shareholders of the Bank	11,072	(2,312)	6,640
Non-controlling interest	956	1,040	704

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, 2018

Non-controlling Interest

NON-CONTROLLING INTEREST

NOTE 26

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, 2018	Non-controlling	Equity	Income	Debt instruments at FVOCI	Deferred tax	Total other comprehensive income	Comprehensive income
	%	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Subsidiaries:
Santander Agente de Valores Limitada	0.97	488	99	-	-	-	99
Santander S.A. Sociedad Securitizadora	0.36	2	-	-	-	-	-
Santander Corredores de Bolsa Limitada	49.00	21,673	755	(84)	2	(82)	673
Santander Corredora de Seguros Limitada	0.24	172	4	(2)	-	(2)	2
Subtotal		22,335	858	(86)	2	(84)	774

Entities controlled through other considerations:
Bansa Santander S.A.⁽¹⁾	100.00	20,051	2,650	-	-	-	2,650
Santander Gestión de Recaudación y Cobranzas Limitada	100.00	3,777	852	-	-	-	852
Subtotal		23,828	3,502	-	-	-	3,502

Total		46,163	4,360	(86)	2	(84)	4,276

				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 ⁽¹⁾	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.	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	49.41	19,966	1,130	1,054	(251)	803	1,933
Santander Corredora de Seguros Limitada	0.25	164	7	-	-	-	7
Subtotals		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 ⁽¹⁾	100.00	2,184	583	-	-	-	583
Multinegocios S.A.	100.00	-	-	-	-	-	-
Servicios Administrativos y Financieros Limitada	100.00	-	-	-	-	-	-
Multiservicios de Negocios Limitada	100.00	-	-	-	-	-	-
Subtotals		8,717	1,112	-	-	-	1,112

Total		24,341	2,365	1,054	(251)	803	3,168

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

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,
	2018				2017				2016
				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	77,764	9,595	66,374	1,795	76,177	9,803	64,937	1,437	75,000	10,065	62,276	2,659
Santander Corredores de Bolsa Limitada	102,228	57,999	42,691	1,538	88,711	45,855	41,424	1,432	86,473	45,724	38,356	2,393
Santander Agente de Valores Limitada	50,552	71	40,177	10,304	44,910	4,732	26,569	13,609	54,486	3,666	38,851	11,969
Santander S.A. Sociedad Securitizadora	704	66	728	(90)	400	50	432	(82)	509	77	512	(80)
Santander Gestión de Recaudación y Cobranzas Ltda.	6,932	3,155	2,925	852	10,826	7,901	2,184	741	8,547	6,363	1,602	582
Bansa Santander S.A.	20,437	386	17,401	2,650	25,535	8,134	6,533	10,868	31,301	24,768	6,004	529
Total	258,617	71,272	170,296	17,049	246,559	76,475	142,079	28,005	256,316	90,663	147,601	18,052

INTEREST INCOME

12 Months Ended

Dec. 31, 2018

Interest Income

INTEREST INCOME

NOTE 27

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, 2018, 2017 and 2016 the income from interest, was attributable to the following items:

	For the years ended December 31,
	2018				2017				2016
	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	903	-	-	903	939	-	-	939	1,488	-	-	1,488
Interbank loans	897	-	-	897	969	-	-	969	295	-	-	295
Commercial loans	771,405	153,851	11,008	936,264	752,013	85,389	10,525	847,927	742,432	130,904	7,659	880,995
Mortgage loans	330,055	266,691	909	597,655	320,041	149,303	414	469,758	304,116	228,081	7,012	539,209
Consumer loans	579,929	439	6,166	586,534	612,932	363	4,738	618,033	604,152	660	4,318	609,130
Investment instruments	75,423	24,790	-	100,213	74,000	5,797	-	79,797	75,808	2,916	-	78,724
Other interest income	16,644	4,013	-	20,657	12,172	1,538	-	13,710	11,136	2,445	-	13,581

Interest income not including income from hedge accounting	1,775,256	449,784	18,083	2,243,123	1,773,066	242,390	15,677	2,031,133	1,739,427	365,006	18,989	2,123,422

For the years ended December 31, 2018, 2017 and 2016, the expense from interest expense, excluding expense from hedge accounting, is as follows:

	For the years ended December 31,
	2018			2017			2016
	Interest	Inflation adjustments	Total	Interest	Inflation adjustments	Total	Interest	Inflation adjustments	Total
Items	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Demand deposits	(14,914)	(1,371)	(16,285)	(13,851)	(695)	(14,546)	(16,003)	(1,043)	(17,046)
Repurchase agreements	(6,439)	-	(6,439)	(6,514)	-	(6,514)	(2,822)	-	(2,822)
Time deposits and liabilities	(317,061)	(35,284)	(352,345)	(341,821)	(20,509)	(362,330)	(399,720)	(38,946)	(438,666)
Interbank loans	(39,971)	-	(39,971)	(26,805)	-	(26,805)	(19,803)	-	(19,803)
Issued debt instruments	(241,455)	(133,227)	(374,682)	(220,027)	(76,170)	(296,197)	(197,973)	(105,452)	(303,425)
Other financial liabilities	(2,698)	(110)	(2,808)	(2,946)	(303)	(3,249)	(3,008)	(781)	(3,789)
Other interest expense	(6,929)	(10,497)	(17,426)	(5,236)	(4,973)	(10,209)	(5,211)	(8,874)	(14,085)
Interest expense not including expenses from hedge accounting	(629,467)	(180,489)	(809,956)	(617,200)	(102,650)	(719,850)	(644,540)	(155,096)	(799,636)

c) For the years ended December 31, 2018, 2017 and 2016, the income and expense from interest is as follows:

	For the years ended December 31,
	2018	2017	2016
Items	MCh$	MCh$	MCh$

Interest income not including income from hedge accounting	2,243,123	2,031,133	2,123,422
Interest expense not including expense from hedge accounting	(809,956)	(719,850)	(799,636)

Net Interest income (expense) from hedge accounting	1,433,167	1,311,283	1,323,786

Hedge accounting (net)	(18,799)	15,408	(42,420)

Total net interest income	1,414,368	1,326,691	1,281,366

FEES AND COMMISSIONS

12 Months Ended

Dec. 31, 2018

Fees And Commissions

FEES AND COMMISSIONS

NOTE 28

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,
	2018	2017	2016
	MCh$	MCh$	MCh$

Fee and commission income
Fees and commissions for lines of credits and overdrafts	6,624	7,413	5,754
Fees and commissions for guarantees and letters of credit	33,654	33,882	35,911
Fees and commissions for card services	218,903	201,791	195,566
Fees and commissions for management of accounts	33,865	31,901	31,540
Fees and commissions for collections and payments	40,077	44,312	31,376
Fees and commissions for intermediation and management of securities	10,147	10,090	9,304
Insurance brokerage fees	39,949	36,430	40,882
Office banking	15,921	15,669	14,145
Fees for other services rendered	45,633	43,123	38,038
Other fees earned	39,690	30,947	28,668
Total	484,463	455,558	431,184

	For the years ended December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$

Fee and commission expense
Compensation for card operation	(163,794)	(149,809)	(143,509)
Fees and commissions for securities transactions	(936)	(858)	(946)
Office banking	(4,096)	(15,283)	(14,671)
Other fees	(24,752)	(10,545)	(17,634)
Total	(193,578)	(176,495)	(176,760)

Net fees and commissions income	290,885	279,063	254,424

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

The income and expenses for the commissions of the business segments are presented below and the calendar for the recognition of income from ordinary activities is opened.

	Segments					Revenue recognition calendar for ordinary activities
As of December 31, 2018	Individuals and PYMEs	Companies and Institutions	Global Corporate Banking	Others	Total	Transferred over time	Transferred at a point in time	Accrual model
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$

Commission income
Commissions for lines of credit and overdrafts	5,901	271	453	(1)	6,624	6,624	-	-
Commissions for guarantees and letters of credit	11,099	16,258	6,239	58	33,654	33,654	-	-
Commissions for card services	211,615	6,193	1,036	59	218,903	34,856	184,047	-
Commissions for account management	30,386	2,678	799	2	33,865	33,865	-	-
Commissions for collections, collections and payments	66,780	1,693	458	(28,854)	40,077	-	15,719	24,358
Commissions for intermediation and management of values	4,050	134	7,221	(1,258)	10,147	-	10,147	-
Remuneration for insurance commercialization	-	-	-	39,949	39,949	-	-	39,949
Office banking	11,420	3,893	608	-	15,921	-	15,921	-
Other remuneration for services rendered	40,901	3,833	819	80	45,633	-	45,633	-
Other commissions earned	6,908	9,743	23,320	(281)	39,690	-	39,690	-
Total	389,060	44,696	40,953	9,754	484,463	108,999	311,157	64,307

Commission expenses
Remuneration for card operation	(159,817)	(3,186)	(134)	(657)	(163,794)	-	(163,794)	-
Commissions per transaction with securities	(169)	(3)	(419)	(345)	(936)	-	(936)	-
Office banking	(2,374)	(985)	(722)	(15)	(4,096)	-	(4,096)	-
Other commissions	(6,168)	(3,776)	(4,614)	(10,194)	(24,752)	-	(24,752)	-
Total	(168,528)	(7,950)	(5,889)	(11,211)	(193,578)	-	(193,578)	-
Total Net commission income and expenses	220,532	36,746	35,064	(1,457)	290,885	108,999	117,579	64,307

NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS

12 Months Ended

Dec. 31, 2018

Net Income Expense From Financial Operations

NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS

NOTE 29

NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS

In accordance with the IFRS 9 and IFRS 7 disclosure , the detail of income (expense) from financial operations is as follows:

	For the years ended December 31,
	2018
	MCh$

Net gains on trading derivatives	38,217
Net gains on financial assets at fair value through profit or loss	9,393
Net gains on derecognition of financial assets measured at amortised cost	8,479
Sale of loans and accounts receivables from customers
Current portfolio	(309)
Charged-off portfolio	709
Repurchase of issued bonds (*)	(840)
Other income (expense) from financial operations	(2,475)
Total income (expense)	53,174
*()** The Bank repurchased its own bonds, see Note 5 for details.

The disclosure for the years December 31, 2017 and 2016, the detail of income (expense) from financial operations is as follows:

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

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

NET FOREIGN EXCHANGE GAIN (LOSS)

12 Months Ended

Dec. 31, 2018

Net Foreign Exchange Gain

NET FOREIGN EXCHANGE GAIN (LOSS)

NOTE 30

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, 2018, 2017 and 2016 net foreign exchange income is as follows:

	For the years ended December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$

Net foreign exchange gain (loss)
Net profit (loss) from currency exchange differences	(212,618)	113,115	116,117
Hedging derivatives	252,275	22,933	399,875
Income from assets indexed to foreign currency	12,251	(9,190)	(8,745)
Income from liabilities indexed to foreign currency	-	98	145
Total	51,908	126,956	507,392

EXPECTED CREDIT LOSSESS ALLOWANCE

12 Months Ended

Dec. 31, 2018

Expected Credit Lossess Allowance

EXPECTED CREDIT LOSSESS ALLOWANCE

NOTE 31

EXPECTED CREDIT LOSSESS ALLOWANCE

Expected credit losses (ECL) allowance – under IFRS 9

As of December 31, 2018, under the new credit risk model established by IFRS 9 the ECL allowance by stage recorded at income statements is as follows:

For the year ended December 31, 2018	Stage1		Stage2		Stage3		TOTAL
	Individual	Collective	Individual	Collective	Individual	Collective	TOTAL
	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$
Commercial loans	79	5,652	(2,891)	(1,533)	(96,131)	(47,959)	(142,782)
Mortgage loans	-	5,583	-	5,161	-	3,375	14,119
Consumer loans	-	1,861	-	192	-	(191,304)	(189,251)
Contingent loans	(90)	1,214	11	(68)	(225)	(834)	9
Loans and account receivable at FVOCI	363	-	68	-	-	-	431
Debt at FVOCI	-	66	-	-	-	-	66
Total	353	14,376	(2,811)	3,752	(96,356)	(236,722)	(317,408)

II.

Provision for loan losses – under IAS 39

		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)

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

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

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

PERSONNEL SALARIES AND EXPENSES

12 Months Ended

Dec. 31, 2018

Personnel Salaries And Expenses

PERSONNEL SALARIES AND EXPENSES

NOTE 32

PERSONNEL SALARIES AND EXPENSES

For the years ended December 31, 2018, 2017 and 2016, the composition of personnel salaries and expenses is as follows:

	For the years ended December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$

Personnel compensation	259,354	250,962	249,703
Bonuses or gratifications	72,728	75,181	77,649
Stock-based benefits	(337)	2,752	331
Seniority compensation	21,869	26,120	26,263
Pension plans	1,069	2,039	(150)
Training expenses	3,782	2,867	2,835
Day care and kindergarten	2,778	2,505	3,072
Health funds	-	4,748	4,777
Welfare funds	6,040	896	806
Other personnel expenses	30,281	28,897	29,847
Total	397,564	396,967	395,133

ADMINISTRATIVE EXPENSES

12 Months Ended

Dec. 31, 2018

Administrative Expenses

ADMINISTRATIVE EXPENSES

NOTE 33

ADMINISTRATIVE EXPENSES

For the years ended December 31, 2018, 2017 and 2016, the composition of the item is as follows:

	For the years ended December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$

General administrative expenses	145,241	139,418	138,974
Maintenance and repair of property, plant and equipment	20,962	21,359	19,901
Office lease	29,761	26,136	28,098
Equipment lease	55	96	280
Insurance payments	3,439	3,354	3,842
Office supplies	5,070	6,862	5,747
IT and communication expenses	44,209	39,103	37,351
Heating, and other utilities	4,849	5,468	4,863
Security and valuables transport services	12,168	12,181	14,793
Representation and personnel travel expenses	3,444	4,262	5,440
Judicial and notarial expenses	1,148	974	952
Fees for technical reports and auditing	10,020	9,379	7,631
Other general administrative expenses	10,116	10,244	10,076
Outsourced services	65,358	57,400	55,757
Data processing	32,360	34,880	36,068
Products sale		-	-
Archive services	3,401	3,324	4,427
Valuation services	3,167	2,419	3,489
Outsourcing	9,936	6,878	5,404
Other	16,494	9,899	6,369
Board expenses	1,297	1,290	1,371
Marketing expenses	19,286	18,877	17,844
Taxes, payroll taxes, and contributions	13,907	13,118	12,467
Real estate taxes	1,730	1,443	1,435
Patents	1,896	1,646	1,618
Other taxes	7	24	93
Contributions to SBIF	10,274	10,005	9,321
Total	245,089	230,103	226,413

DEPRECIATION, AMORTIZATION, AND IMPAIRMENT

12 Months Ended

Dec. 31, 2018

Depreciation Amortization And Impairment

DEPRECIATION, AMORTIZATION, AND IMPAIRMENT

NOTE 34

DEPRECIATION, AMORTIZATION, AND IMPAIRMENT

Depreciation, amortization and impairment charges for the years ended December 31, 2018, 2017 and 2016, are detailed below:

	For the years ended December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$

Depreciation and amortization
Depreciation of property, plant, and equipment	(54,987)	(55,623)	(45,025)
Amortization of Intangible assets	(24,293)	(22,200)	(20,334)
Total depreciation and amortization	(79,280)	(77,823)	(65,359)
Impairment of property, plant, and equipment	(39)	(354)	(234)
Impairment of intangibles	-	(5,290)	-
Total	(79,319)	(83,467)	(65,593)

As of December 31, 2018, the equipment impairment totaled Ch$39 million(Ch$354 million as of December 31, 2017 and Ch$234 million as of December 31, 2016), mainly due to damages to ATMs.

OTHER OPERATING INCOME AND EXPENSES

12 Months Ended

Dec. 31, 2018

Other Operating Income And Expenses

OTHER OPERATING INCOME AND EXPENSES

NOTE 35

OTHER OPERATING INCOME AND EXPENSES

Other operating income is comprised of the following components:

	For the years ended December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$

Income from assets received in lieu of payment	7,106	3,330	1,663
Income from sale of investments in other companies	-	-	-
Release of contingencies provisions ⁽¹⁾	12,020	29,903	-
Other income	4,003	28,783	4,764
Leases	222	264	519
Income from sale of property, plant and equipment ⁽²⁾	2,490	23,229	2,017
Recovery of provisions for contingencies	-	-	-
Compensation from insurance companies due to damages	144	1,237	1,530
Other	1,147	4,053	698

Total	23,129	62,016	6,427

⁽¹⁾In accordance with IAS 37, the Bank recorded contingencies provisions, which during 2018 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$2,122 million, as

stated in Note N°26.

Other operating expenses are detailed as follows:

	For the years ended December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$
Allowances and expenses for assets received in lieu of payment	2,537	5,591	11,416
Provision on assets received in lieu of payment	816	3,912	9,246
Expenses for maintenance of assets received in lieu of payment	1,721	1,679	2,170
Credit card expenses	3,151	3,070	3,636
Customer services	3,635	2,563	3,734
Other expenses	23,019	57,189	50,116
Operating charge-offs	798	1,607	6,146
Life insurance and general product insurance policies	9,964	23,475	18,393
Additional tax on expenses paid overseas	-	-	142
Provisions for contingencies	21	-	4,238
Retail association payment	898	912	-
Other	11,338	31,195	21,197

Total	32,342	68,413	68,902

TRANSACTIONS WITH RELATED PARTIES

12 Months Ended

Dec. 31, 2018

Transactions With Related Parties

TRANSACTIONS WITH RELATED PARTIES

NOTE 36

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,
	2018				2017				2016
	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	122,289	459	4,299	233	80,076	771	3,947	7,793	81,687	533	4,595	7,100
Mortgage loans	-	-	18,814	-	-	-	18,796	-	-	-	18,046	-
Consumer loans	-	-	5,335	-	-	-	4,310	-	-	-	3,783	-
Loans and accounts receivable:	122,289	459	28,448	233	80,076	771	27,053	7,793	81,687	533	26,424	7,100

Allowance for loan losses	(308)	(9)	(116)	(5)	(209)	(9)	(177)	(18)	(209)	(35)	(87)	(34)
Net loans	121,981	450	28,332	228	79,867	762	26,876	7,775	81,478	498	26,337	7,066

Guarantees	442,854	-	22,893	7,171	361,452	-	23,868	7,164	434,141	-	23,636	5,486

Contingent loans:
Personal guarantees	-	-	-	-	-	-	-	-	-	-	-	-
Letters of credit	5,392	-	2,060	44	19,251	-	-	33	27,268	-	-	-
Guarantees	445,064	-	3,364	-	377,578	-	-	-	437,101	-	-	-
Contingent loans:	450,456	-	5,424	44	396,829	-	-	33	464,369	-	-	-

Allowance for contingent loans	(1)	-	(18)	-	(4)	-	-	1	(5)	-	-	-

Net contingent loans	450,455	-	5,406	44	396,825	-	-	34	464,364	-	-	-

Loan activity to related parties during 2018, 2017 and 2016 is shown below:

As of December 31,

2018

2017

2016

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,

476,906

771

27,051

7,826

546,058

532

26,423

7,100

616,968

565

28,675

1,966

Loans granted

200,657

16,574

773

78,214

318

7,777

1,050

122,729

203

8,580

6,808

Loans payments

(104,818)

(351)

(9,754)

(700)

(147,366)

(79)

(7,149)

(324)

(193,189)

(236)

(10,832)

(1,674)

Total

572,745

459

33,871

7,899

476,906

771

27,051

7,826

546,508

532

26,423

7,100

b) Assets and liabilities with related parties

	As of December 31,
	2018				2017				2016
	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	189,803	-	-	-	74,949	-	-	-	187,701	-	-	-
Trading investments	-	-	-	-	-	-	-	-	-	-	-	-
Obligations under repurchase agreements Loans	-	-	-	-	-	-	-	-	-	-	-	-
Financial derivative contracts	748,632	105,358	-	9	545,028	86,011	-	-	742,851	33,433	-	-
Available for sale investments	-	-	-	-	-	-	-	-	-	-	-	-
Other assets	38,960	51,842	-	-	8,480	118,136	-	-	4,711	67,454	-	-

Liabilities
Deposits and other demand liabilities	27,515	(21,577)	2,493	(480)	24,776	25,805	2,470	221	6,988	7,141	2,883	630
Obligations under repurchase agreements Loans	6,501	-	329	68	50,945	-	-	-	56,167	-	-	-
Time deposits and other time liabilities	2,585,337	-	3,189	(838)	785,988	27,968	3,703	3,504	1,545,835	6,219	2,525	2,205
Financial derivative contracts	770,624	112,523	-	-	418,647	142,750	-	7,190	954,575	54,691	-	-
Interbank borrowing	-	-	-	-	-	-	-	-	6,165	-	-	-
Issued debt instruments	335,443	-	-	-	482,626	-	-	-	484,548	-	-	-
Other financial liabilities	6,807	-	-	-	4,919	-	-	-	8,970	-	-	-
Other liabilities	60,884	89,817	-	-	164,303	58,168	-	-	446	44,329	-	-

Income (expense) recorded due to transactions with related parties

	For the years ended December 31,
	2018				2017				2016
	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	(53,256)	(156)	1,252	508	(43,892)	-	1,051	-	(39,279)	40	1,164	115
Fee and commission income and expenses	91,178	7,826	305	22	72,273	15,404	224	1	56,952	22,322	204	20
Net income (expense) from financial operations and net foreign exchange gain (loss) (*)	(566,677)	65,727	27	(12)	363,108	(48,453)	(3)	19	(343,963)	(48,373)	(88)	2
Other operating income and expenses	42	1,388	-	-	21,670	(1,454)	-	-	931	(2,239)	-	-
Key personnel compensation and expenses	-	-	(11,761)	-	-	-	(43,037)	-	-	-	(37,328)	-
Administrative and other expenses	(43,035)	(50,764)	-	-	(48,246)	(47,220)	-	-	(35,554)	(43,115)	-	-

Total	(571,748)	24,021	(10,177)	518	364,913	(81,723)	(41,765)	20	(360,913)	(71,365)	(36,048)	137

(*) 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,
	2018	2017	2016
	MCh$	MCh$	MCh$

Personnel compensation	12,878	16,863	17,493
Board members’ salaries and expenses	913	1,199	1,269
Bonuses or gratifications	11,920	16,057	14,404
Compensation in stock	146	1,923	331
Training expenses	163	68	161
Seniority compensation	1,133	3,842	2,619
Health funds	215	273	285
Other personnel expenses	681	773	916
Pension plans (*)	872	2,039	(150)
Total	28,921	43,037	37,328

(*)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, 2018, 2017 and 2016, the composition of theBank’s key personnel is as follows:

Position	No, of executives
Position	As of December 31,
	2018	2017	2016

Director	11	11	13
Division manager	12	13	17
Manager	108	109	137
Total key personnel	131	133	167

PENSION PLANS

12 Months Ended

Dec. 31, 2018

Pension Plans

PENSION PLANS

NOTE 37

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:

Aimed at the Bank’s management

The general requisite 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

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 2018 totaled Ch$6,804 million (Ch$7,919 million in 2017).

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
	2018	2017

Mortality chart	RV-2014	RV-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,
	2018	2017
	MCh$	MCh$
Plan assets	6,804	7,919
Commitments for defined-benefit plans
For active personnel	(5,958)	(6,998)
Incurred by inactive personnel	-	-
Minus:
Unrealized actuarial (gain) losses	-	-
Balances at year end	846	921

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

	For the years ended December 31,
	2018	2017	2016
	MCh$	MCh$	MCh$

a) Fair value of plan assets
Opening balance	7,919	6,612	6,945
Expected yield of insurance contracts	353	307	335
Employer contributions	836	1,931	886
Actuarial (gain) losses	-	-	-
Premiums paid	-	-	-
Benefits paid	(2,304)	(931)	(1,554)
Fair value of plan assets at year end	6,804	7,919	6,612
b) Present value of obligations
Present value of obligations opening balance	(6,998)	(4,975)	(5,070)
Net incorporation of Group companies	-	-	-
Service cost	(1,069)	(2,039)	150
Interest cost	-	-	-
Curtailment/settlement effect	-	-	-
Benefits paid	-	-	-
Past service cost	-	-	-
Actuarial (gain) losses	-	-	-
Other	2,109	16	(55)
Present value of obligations at year end	(5,958)	(6,998)	(4,975)
Net balance at year end	846	921	1,637

Plan expected profit:

	As of December 31,
	2018	2017	2016

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,
	2018	2017	2016
	MCh$	MCh$	MCh$

Current period service expenses	1,069	2,039	(150)
Interest cost	-	-	-
Expected yield from plan’s assets	(353)	(307)	(335)
Expected yield of insurance contracts linked to the Plan:	-
Extraordinary allocations	-	-	-
Actuarial (gain)/ losses recorded in the period	-	-	-
Past service cost	-	-	-
Other	-	-	-
Total	716	1,732	(485)

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

12 Months Ended

Dec. 31, 2018

Fair Value Of Financial Assets And Liabilities

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

NOTE 38

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, 2018 and 2017:

	As of December 31,
	2018		2017
	Book value	Fair value	Book value	Fair value
	MCh$	MCh$	MCh$	MCh$

Assets
Trading investment	-	-	485,736	485,736
Loans and account receivable from customers and interbank loans, net	-	-	26,934,757	28,518,929
Available for sale investment	-	-	2,574,546	2,574,546
Financial derivative contracts	3,100,635	3,100,635	2,238,647	2,238,647
Financial assets held for trading	77,041	77,041	-	-
Loans and accounts receivable at amortised cost, net	29,331,001	30,575,611	-	-
Loans and accounts receivable at fvoci, net	68,588	68,588	-	-
Debt instrument at FVOCI	2,394,323	2,394,323	-	-
Guarantee deposits (margin accounts)	170,232	170,232	323,767	323,767

Liabilities
Deposits and interbank borrowings	23,597,863	23,770,106	21,380,468	20,887,959
Financial derivative contracts	2,517,728	2,517,728	2,139,488	2,139,488
Issued debt instruments and other financial liabilities	8,330,633	8,605,135	7,335,683	7,487,591
Guarantees received (margin accounts)	371,512	371,512	408,313	408,313

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.

Financial assets held for trading and Debt instruments at FVOCI / Trading investment and available for sale 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 at amortised cost / Loans and account 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:

	Fair value measurement
As of December 31,	2018	Level 1	Level 2	Level 3
	MCh$	MCh$	MCh$	MCh$

Assets
Financial assets held for trading	77,041	71,158	5,883	-
Debt instruments at FVOCI	2,394,323	2,368,768	24,920	635
Derivatives	3,100,635	-	3,089,077	11,558
Guarantee deposits (margin accounts)	170,232	-	170,232	-
Total	5,742,231	2,439,926	3,290,112	12,193


Liabilities
Derivatives	2,517,728	-	2,516,933	795
Guarantees received (margin accounts)	371,512	-	371,512	-
Total	2,889,240	-	2,888,445	795

	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

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:

	Fair value measurement
As of December 31,	2018	Level 1	Level 2	Level 3
	MCh$	MCh$	MCh$	MCh$
Assets
Loans and accounts receivable at amortised cost, net	30,575,611	-	-	30,575,611
Total	30,575,611	-	-	30,575,611
Liabilities
Deposits and interbank borrowings	23,770,106	-	23,770,106	-
Issued debt instruments and other financial liabilities	8,605,135	-	8,605,135	-
Total	32,375,241	-	32,375,241	-

	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	-

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.j)

There were no transfer between levels 1 and 2 for the year ended December 31, 2018 and 2017.

The table below shows the effect, at December 31, 2018 and 2017, 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, 2018
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)	(2.3)	2.3
Debt instruments at FVOCI	Internal rate of return method	BR UF (2)	-	-

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)	-	-

(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, 2018 and 2017:

	Assets	Liabilities
	MCh$	MCh$

As of January 1, 2018	22,987	7

Total realized and unrealized profits (losses)
Included in statement of income	(10,769)	(802)
Included in other comprehensive income	25	-
Purchases, issuances, and loans (net)	-	-

As of December 31, 2018	12,193	-

Total profits or losses included in comprehensive income for 2018 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2017	(10,794)	(802)

	Assets	Liabilities
	MCh$	MCh$

As of January 1, 2017	40,034	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	22,987	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)

The realized and unrealized profits (losses) included in comprehensive income for 2018 and 2017, 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, 2018 and 2017 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 2018 and 2017:

	As of December 2018
	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	1,947,726	-	1,947,726	1,152,909	3,100,635
Investments under resale agreements	-	-	-	-	-
Loans and accounts receivable at amortised cost, net	-	-	-	29,331,539	29,331,539
Total	1,947,726	-	1,947,726	30,484,448	32,432,174
Liabilities
Financial derivative contracts	1,735,555	-	1,735,555	782,173	2,517,728
Investments under resale agreements	48,545	-	48,545	-	48,545
Deposits and interbank borrowings	-	-	-	23,597,862	23,597,862
Total	1,784,100	-	1,784,100	24,380,035	26,164,135
	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
Obligations under repurchase 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

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, 2018		As of December 31, 2017
Financial derivative contracts	Assets	Liability		Assets	Liability
	MM$	MM$		MM$	MM$

Financial derivative contracts with collateral agreement threshold equal to zero	2,639,835	2,133,149		1,898,220	1,773,471

Financial derivative contracts with non-zero threshold collateral agreement	344,520	262,683		221,030	316,840

Financial derivative contracts without collateral agreement	116,280	121,896		119,397	49,177
Total	3,100,635	2,517,728		2,238,647	2,139,488

RISK MANAGEMENT

12 Months Ended

Dec. 31, 2018

Risk Management

RISK MANAGEMENT

NOTE 39

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 and Note 11, we present our net exposure to credit risk at December 31, 2018 and 2017.

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:

●

Verify compliance with the strategic objectives of the group, depending on both assumed and potential risk, and alerting management to such risks.

●

Propose the primary metrics for risk appetite framework.

●

Review the level of compliance with regulatory provisions and recommendations issued by the Local and External Supervisors, ensuring their implementation on the stipulated dates.

●

Analyze with a comprehensive vision, the map of recommendations and incidents formulated by the different control instances (SBIF, DAI and External Audit) in order to identify the main risks involved.

●

Review the risk benchmark analysis, and from its results, identify and propose “best practices” or corrective / preventive actions, ensuring their proper implementation.

●

Review the adequate management of risks by the management areas, formulating where appropriate, the mitigation actions in accordance with the policies approved by the Board.

●

Monitoring, analysis and control of the limits defined in the Risk Framework (basic and complementary metrics) and the key credit risk indicators of each zone, segment or product, identifying possible sources of concern.

●

Analyze the relevant aspects of the risk (exogenous variables), which could eventually materialize in possible losses for the business (emerging risks).

●

Analyze and propose eventual changes in the policies and procedures used by the Bank for the administration, control and management of risks, when inconsistencies or vulnerabilities are verified.

●

Encourage compliance by the Bank with the best corporate governance practices in risk management. Pre-review the documents of type 0 and 1 (Frames and Models) that were defined in the Approval Hierarchy model, which must then be approved in the Directory.

●

Perform, according to the calendar proposed by the Risk Department or on request, the sectoral analyzes considered relevant.

●

Review of risks in terms of Risk Compliance and Reputational Risk

●

Any other task that the Board deems necessary.

The following diagram illustrates the governance of our credit risk division including the committees with approval power:

Role of Santander Spain’s Global Risk Department: Credit Risk

In matters regarding Credit Risk, Santander Spain’s Global Risk Department has the following role:

●

All credit risks greater than U.S.$40 million (U.S.$60 million for financial institutions), after being approved locally, are reviewed by Santander Spain. This additional review ensures that no global exposure limit is being breached.

●

In standardized risks, the consumer and mortgage scoring models are developed locally but are reviewed and approved by Santander Spain’s Global Risk Department.

●

For each scoring model, a monthly Risk Report is prepared, which is reviewed locally and is also sent to Santander Spain’s Global Risk Department. This report includes the evolution of basic credit risk parameters such as loan amounts, non-performance, charge-offs and provisions.

●

Monthly, the Controller of the Risk Department sends a report to Santander Spain’s Global Risk Department covering all the main indicators regarding credit risk and the evolution of credit risk as compared to the budgeted levels.

Impaiment assessment (policy applicable from January 1, 2018)

In accordance with the requirements of IFRS 9 the Bank has developed a new credit risk model, applicable from January 1, 2018.

Definition of default and cure

The Bank considers a financial instrument defaulted and therefore Stage 3 for ECL calculations in all cases when the borrower becomes 90 days past due on its contractual payments.

As a part of a qualitative assessment of whether a customer is in default, the Bank also considers a variety of instances that may indicate unlikeliness to pay. Such events include:

●

Internal rating of the borrower indicating default or near-default

●

The borrower requesting emergency funding from the Bank

●

The borrower having past due liabilities to public creditors or employees

●

The borrower is deceased

●

A material decrease in the underlying collateral value where the recovery of the loan is expected from the sale of the collateral

●

A material decrease in the borrower’s turnover or the loss of a major customer

●

A covenant breach not waived by the Bank

●

The debtor (or any legal entity within the debtor’s group) filing for bankruptcy application/protection

●

Debtor’s listed debt or equity suspended at the primary exchange because of rumours or facts about financial difficulties

It is the Bank’s policy to consider a financial instrument as ‘cured’ and therefore re-classified out of Stage 3 when none of the default criteria have been present for at least twelve consecutive months (and 24 months for special vigilance operations). The decision whether to classify an asset as Stage 2 or Stage 1 once cured depends on the updated credit grade, at the time of the cure, and whether this indicates there has been a significant increase in credit risk compared to initial recognition.

Internal rating and PD estimation

The Bank’s Credit Risk Department operates its internal rating models. The models incorporate both qualitative and quantitative information and, in addition to information specific to the borrower utilise supplemental external information that could affect the borrower’s behaviour. The internal credit grades are assigned based on the internal scoring policy. PDs are then adjusted for IFRS 9 ECL calculations to incorporate forward looking information and the IFRS 9 Stage classification of the exposure.

The following table shows quality assets and its related provision, based on our internal scoring policy as of December 31, 2018:

	Individually assessed
Commercial Portfolio	Stage 1	Stage 2	Stage 3	Total Individual	Percentage	Stage 1	Stage 2	Stage 3	Total ECL Allowance	Percentage
Commercial Portfolio	MCh$	MCh$	MCh$	MCh$	%	MCh$	MCh$	MCh$	MCh$	%

A1	29,998	-	-	29,998	0.10%	2	-	-	2	0.00%
A2	1,074,789	-	-	1,074,789	3.56%	525	-	-	525	0.06%
A3	2,699,684	309	-	2,699,993	8.94%	2,526	-	-	2,574	0.29%
A4	3,200,608	16,546	-	3,217,154	10.65%	8,865	323	-	9,206	1.04%
A5	1,755,259	26,141	-	1,781,400	5.90%	11,296	453	-	11,192	1.33%
A6	935,499	45,671	-	981,170	3.25%	6,975	2,213	-	9,188	1.04%
B1	-	494,915	187	495,102	1.64%	-	14,107	79	14,232	1.61%
B2	-	81,955	156	82,111	0.27%	-	2,786	66	2,852	0.32%
B3	-	67,089	614	67,703	0.22%	-	3,841	233	4,074	0.46%
B4	-	47,653	45,480	93,133	0.31%	-	2,488	19,688	22,176	2.51%
C1	-	46,383	108,325	154,708	0.51%	-	2,548	48,147	50,695	5.75%
C2	-	15,678	39,246	54,924	0.18%	-	1,261	18,171	19,672	2.20%
C3	-	19,655	26,204	45,859	0.15%	-	733	10,803	11,297	1.31%
C4	-	3,560	32,445	36,005	0.12%	-	246	17,077	17,323	1.96%
C5	-	703	64,762	65,465	0.22%	-	32	40,541	40,573	4.60%
C6	-	1,525	69,510	71,035	0.22%	-	35	43,310	43,789	4.91%
Subtotal	9,695,837	867,783	386,929	10,950,549	36.24%	30,189	31,066	198,115	259,370	29.39%

	Collectively assessed
	Stage 1	Stage 2	Stage 3	Total Group	Percentage	Stage 1	Stage 2	Stage 3	Total ECL Allowance	Percentage
	MCh$	MCh$	MCh$	MCh$	%	MCh$	MCh$	MCh$	MCh$	%
Commercial	3,616,969	232,472	386,154	4,235,595	14.02%	43,541	24,754	179,317	247,432	28.04%
Mortgage	4,341,470	249,039	285,510	4,876,289	16.14%	70,904	54,372	159,066	284,342	32.23%
Consumer	9,258,962	447,496	444,523	10,150,981	33.60%	9,006	15,102	67,162	91,270	10.34%
Subtotal	17,217,671	929,007	1,116,187	19,262,865	63.76%	123,451	94,048	405,545	623,044	70.61%
Total	26,913,508	1,796,790	1,503,116	30,213,414	100.00%	153,640	124,114	603,660	882,414	100.00%

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, 2018, 99% our total investment portfolio correspond to securities issued by the Chilean Central Bank and US treasury notes.

Exposure at default

The exposure at default (EAD) represents the gross carrying amount of the financial instruments subject to the impairment calculation, addressing both the client’s ability to increase its exposure while approaching default and potential early repayments too.

To calculate the EAD for a Stage 1 loan, the Bank assesses the possible default events within 12 months for the calculation of the 12mECL. However, if a Stage 1 loan that is expected to default in the 12 months from the balance sheet date and is also expected to cure and subsequently default again, then all linked default events are taken into account. For Stage 2, Stage 3 the exposure at default is considered for events over the lifetime of the instruments.

Loss given default

The credit risk assessment is based on a standardised LGD assessment framework that results in a certain LGD rate. These LGD rates take into account the expected EAD in comparison to the amount expected to be recovered or realised from any collateral held.

The Bank segments its retail lending products into smaller homogeneous portfolios (evaluated collective), based on key characteristics that are relevant to the estimation of future cash flows. The applied data is based on historically collected loss data and involves a wider set of transaction characteristics (e.g., product type, wider range of collateral types) as well as borrower characteristics.

Further recent data and forward-looking economic scenarios are used in order to determine the IFRS 9 LGD rate for each group of financial instruments. Under IFRS 9, LGD rates are estimated for the Stage 1, Stage 2, Stage 3 IFRS 9 segment of each asset class. The inputs for these LGD rates are estimated and, where possible, calibrated through back testing against recent recoveries. These are repeated for each economic scenario as appropriate.

Significant increase in credit risk (SICR)

The Bank continuously monitors all assets subject to ECLs. In order to determine whether an instrument or a portfolio of instruments is subject to 12 month ECL or Lifetime ECL, the Bank assesses whether there has been a significant increase in credit risk since initial recognition.

The Bank also applies a secondary qualitative method for triggering a significant increase in credit risk for an asset, such as moving a customer/facility to the watch list (Special vigilance). The Bank may also consider that events explained in letter a) above are a significant increase in credit risk as opposed to a default. Regardless of the change in credit grades, if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial recognition.

When estimating ECLs on a collective basis for a group of similar assets, the Bank applies the same principles for assessing whether there has been a significant increase in credit risk since initial recognition.

Quantitative criteria for SICR Stage 2:

The quantitative criteria is used to identify where an exposure has increased in credit risk and it is applied based on whether an increase in the lifetime PD since the recognition date exceeds the threshold set in absolute terms. The following formula is used to determine such threshold:

Threshold = Lifetime PD (at reporting date) – Lifetime PD (at origination)

Collectively assessed

Individually assessed

Mortgages

Other loans

Revolving

(Credit cards)

Collectively assessed SME

Individually assessed SME

Middle market

Corporate and Investment Banking

45%

42%

60%

50%

Santander Group criteria

There is also a relative threshold of 100% of all portfolios with the exception of the Corporate and Investment Banking Portfolio.

Qualitative criteria for SICR Stage 2:

The qualitative criteria is based on the existence of evidence that leads to an automatic classification of financial instruments in stage 2, mainly 30 days overdue and restructured. Thresholds of SICR are calibrated based on the average ECL of exposures that are 30 days overdue or with a level of credit risk considered to be “significant”.

Collectively assessed				Individually assessed
Mortgages	Other loans	Revolving (Credit cards)	Collectively assessed SME	Individually assessed SME	Middle market	Corporate and Investment Banking
Irregular portfolio > 30 days	Irregular portfolio > 30 days	Irregular portfolio > 30 days	Irregular portfolio > 30 days	Irregular portfolio > 30 days	Irregular portfolio > 30 days	Irregular portfolio > 30 days
Restructured marked for monitoring	Restructured marked for monitoring	Restructured marked for monitoring	Restructured marked for monitoring	Restructured marked for monitoring	Restructured marked for monitoring	Restructured marked for monitoring
				Clients that are considered to be substandard or in incompliance (pre-legal action)	Clients that are considered to be substandard or in incompliance (pre-legal action)	Clients that are considered to be substandard or in incompliance (pre-legal action)

These thresholds are defined by the Model Committee and the Integral Risk Committee, and are evaluated annually with updates made depending on impacts and definitions of the risk models associated to each portfolio.

Grouping financial assets measured on a collective basis

The Bank calculates ECLs either on a collective or an individual basis.

The evaluates on individual basis commercial loans that are greater than Ch$400 million (US$240,000), while smaller commercial loans, mortgage loans and consumer loans are grouped into homogeneous portfolios, based on a combination of internal and external characteristics.

Modified loans

When loan measured at amortised cost has been renegotiated or modified but not derecognised, the Bank must recognise the resulting gains or losses as the difference between the carrying amount of the original loans, and modified contractual cash flows discounted using the EIR before modification.

If the modification does not result in derecognition, then the subsequent assessment of whether there is a significant increase in credit risk is made comparing the risk at the reporting date based on the modified contractual term and the risk at initial recognition based on the original, unmodified contractual term.

If the modification results in dereconition, then the modified asset is considered to be a new asset. Accordingly, the date of modification is treated as the date of initial recogition for the purposes of the impairment requerments.

	As of December 31, 2018
	Stage 1		Stage 2			Stage 3			Total
	MCh$		MCh$			MCh$			MCh$
Gross carrying amount		26,913,508		1,796,790			1,503,116			30,213,414
Modified loans		-		582,513			815,094			1,397,607
%		-		32.42	%		54.23	%		4.63	%


ECL allowance		153,640		125,114			603,660			882,414
Modified loans		-		44,099			323,802			367,901
%		-		35.25	%		53.64	%		41.69	%

Analysis of risk concentration

The following table shows the risk concentration by industry, and by stage before ECL allowance:

As of December 31, 2018	Loans and account receivable at amortised cost
	Stage 1	Stage 2	Stage 3	Total
	MCh$	MCh$	MCh$	MCh$
Commercial loans
Manufacturing	992,786	92,931	54,048	1,139,765
Mining	182,342	21,821	4,585	208,748
Electricity, gas, and water	384,288	22,365	2,279	408,932
Agriculture and livestock	934,199	166,271	100,781	1,201,251
Forest	120,371	9,402	14,115	143,888
Fishing	238,348	11,104	3,569	253,021
Transport	716,493	55,011	37,802	809,306
Communications	178,215	30,407	7,222	215,844
Construction(a)	723,600	88,691	93,747	906,038
Commerce	2,950,517	189,623	199,924	3,340,064
Services	1,771,595	81,159	12,915	1,865,669
Other	4,120,052	331,470	242,096	4,693,618

Subtotal	13,312,806	1,100,255	773,083	15,186,144

Mortgage loans	9,258,962	447,496	444,523	10,150,981

Consumer loans	4,341,740	249,039	285,510	4,876,289

Total	26,913,508	1,796,790	1,503,116	30,213,414

(a)

In 2018 we improved the classification of our construction loans, reassigning loans for real state rental investment companies to services.

Macro economical forward looking information and scenarios

The annual growth forecasts for the most relevant macroeconomic variables for each of our scenarios are as follows:

	Average estimates 2019 - 2020
	Unfavorable scenario 2	Unfavorable scenario 1	Base scenario	Favorable scenario 1	Favorable scenario 2
Official interest rate	1.78%	2.82%	3.91%	4.99%	6.03%
Unemployment rate	8.47%	7.53%	6.55%	6.10%	5.57%
Housing Price growth	0.89%	1.06%	1.50%	2.68%	4.49%
GDP growth	1.40%	2.22%	2.99%	3.87%	4.68%
Consumer Price Index	1.14%	1.98%	2.83%	3.75%	4.59%

The highest probability of occurrence is associated to the base scenario, while the extreme scenarios have a lower probability than the more moderate scenarios.

The methodology used for the generation of the local scenarios is based on the Methodology Framework of the Corporate Research Service and is applied to the loan portfolio with the exception of loans from the Corporate and Investment Banking segment which uses global scenarios as defined by the Santander Group. The probabilities for the scenarios must total 100% and be symmetrical.

Local scenario		Global scenario
	Probability weighting		Probability weighting
Favorable scenario 2	5%	Favorable scenario 1	20%
Favorable scenario 1	20%	Base scenario	60%
Base scenario	50%	Unfavorable scenario 1	20%
Unfavorable scenario 1	20%
Unfavorable scenario 2	5%

The ECL allowance sensibility to future macro economic conditions is as follows:

December 31, 2018	Ch$
Reported ECL allowance	882,414
Gross carrying amount	30,282,022

Reported ECL Coverage	2.91%

*ECL amount by scenarios*
Favorable scenarios 2	745,089
Favorable scenarios 1	815,113
Base scenarios	879,358
Unfavorable scenarios 2	949,329
Unfavorable scenarios 2	970,563

*Coverage ratio by scenarios*
Favorable scenarios 2	2.46%
Favorable scenarios 1	2.69%
Base scenarios	2.90%
Unfavorable scenarios 2	3.13%
Unfavorable scenarios 2	3.21%

Collateral and other credit enhancement

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral.

The main types of collateral obtained are, as follows:

●

For securities lending and reverse repurchase transactions, cash or securities

●

For corporate and small business lending, charges over real estate properties, inventory and trade receivables and, in special circumstances, government guarantees

●

For retail lending, mortgages over residential properties

The following table show the maximum exposure to credit risk by class of financial asset, associated collateral and the net exposure to credit risk:

December 31, 2018	Maximum exposure to credit risk	Collateral *()**	Net exposure	Associated ECL
	MCh$	MCh$	MCh$	MCh$
Commercial loans	15,254,752	7,369,291	7,885,461	506,802
Mortgage loans	10,150,981	9,699,324	451,657	91,270
Consumer Loans	4,876,289	754,920	4,121,369	284,342
Total	30,282,022	17,823,535	12,458,487	882,414

Impaiment assessment (under IAS 39)

Loans analyzed on an individual basis

For loans that are greater than Ch$400 million (US$570,000), 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 identified as impaired by an internal risk committee.,

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.

●

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.

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 real 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.

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)
Consumer	Performing		New clients				Existing clients		Banefe
			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%

	Renegotiated consumer loans which were more than 90 days past due at the time of renegotiation (2)				41.50%-100%				51.11%-100%

	Non-performing	Days Past Due		New Clients		Existing Clients		Previously Renegotiated Bank		Previously Renegotiated Banefe
		90-120		31.78%		31.78%		41.50%		51.11%
		120-150		51.17%		51.17%		60.15%		66.65%
		150-180		59.98%		59.98%		68.86%		78.50%
		>180					Charged-off

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.

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%

(1)

Percentage of loans outstanding

(2)

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

Portfolio characteristics:

	As of December 31,
Category	2017
Commercial Portfolio	Individual	Percentage	Allowance	Percentage
Commercial Portfolio	MCh$	%	MCh$	%

A1	1,051,072	3.79%	827	0.10%
A2	5,957,305	21.49%	18,514	2.34%
A3	2,176,779	7.85%	27,894	3.53%
B	539,074	1.94%	32,089	4.06%
C1	145,033	0.52%	2,604	0.33%
C2	56,871	0.21%	5,104	0.65%
C3	39,825	0.14%	8,935	1.13%
C4	53,261	0.19%	19,120	2.42%
D1	71,896	0.26%	41,941	5.30%
D2	77,048	0.28%	62,234	7.87%
Subtotal	10,168,164	36.67%	219,262	27.73%

	Group	Percentage	Allowance	Percentage
	MCh$	%	MCh$	%
Commercial
Normal portfolio	3,488,633	12.58%	58,728	7.42%
Impaired portfolio	414,530	1.50%	160,345	20.27%
Subtotal	3,903,163	14.08%	219,073	27.69%
Mortgage
Normal portfolio	8,634,351	31.14%	20,174	2.55%
Impaired portfolio	462,544	1.67%	48,892	6.17%
Subtotal	9,096,895	32.81%	69,066	8.72%
Consumer
Normal portfolio	4,230,567	15.26%	114,099	14.42%
Impaired portfolio	327,125	1.18%	169,657	21.44%
Subtotal	4,557,692	16.44%	283,756	35.86%
Total	27,725,914	100.00%	791,157	100.00%

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, 76% 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 Statements 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, 2018 and 2017, without deduction of collateral, security interests or credit improvements received:

		As of December 31,
		2018	2017
		Amount of exposure	Amount of exposure
	Note	MCh$	MCh$

Deposits in banks	5	1,240,578	839,561
Cash items in process of collection	5	353,757	668,145
Investments under resale agreements	7	-	-
Financial derivative contracts	8	3,100,635	2,238,647
Trading investment		-	485,736
Loans and account receivable from customers and interbank loans, net		-	26,934,757
Available for sale investment		-	2,574,546
Financial assets held for trading	6	77,041	-
Loans and account receivable at amortised cost / Loans and account receivable at FVOCI	9 and 10	29,399,589	-
Debt instrument at fair value through other comprehensive income	12	2,394,323	-

Off-balance commitments:
Letters of credit issued		223,420	201,699
Foreign letters of credit confirmed		57,038	75,499
Performance guarantees		1,954,205	1,823,793
Available credit lines		8,997,650	8,135,489
Personal guarantees		133,623	81,577
Other irrevocable credit commitments		327,297	260,691
Total		48,345,002	44,320,140

Foreign derivative contracts

As of December 31, 2018, the Bank’s foreign exposure -including counterparty risk in the derivative instruments’ portfolio- was USD 2,090 million or 40.27% 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, 2018, 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.

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, 2018 and 2017,

	As of December 31,
	2018	2017
	MCh$	MCh$
Non-impaired financial assets:
Properties/mortgages	22,047,354	19,508,151
Investments and others	2,200,776	2,108,962
Impaired financial assets:
Properties/ mortgages	119,181	152,252
Investments and others	865	1,087
Total	24,368,176	21,770,452

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 recognised 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 recognised 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, 2018, assets received or awarded in lieu of payment amounted to Ch$38,326 million (gross amount: Ch$39,049 million ; allowance: Ch$723 million).

At December 31, 2017, assets received or awarded in lieu of payment amounted to Ch$44,624 million (gross amount: Ch$45,704 million ; allowance: Ch$1,440 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:

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

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,
	2018	2017
	MCh$	MCh$
Financial investments for trading	77,041	485,736
Available for sale investments	2,394,323	2,574,546
Encumbered assets (net) (1)	(48,843)	(268,330)
Net cash (2)	149,321	(37,628)
Net Interbank deposits (3)	967,095	768,595
Total liquidity portfolio	3,585,937	3,522,919

	(1) Assets encumbered through repurchase agreements are deduced from liquidity portfolio
	(2) Cash minus reserve requeriments. As is presented in Note 4 the reserve requeriments 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,
	2018 %	2017 %
30 days	(20)	(48)
30 days foreign currency	-	(22)
90 days	(37)	(51)

Below, is the breakdown by maturity, of the liability balances of the Ba as of December 31, 2018 and 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 after 1 year	Total
As of December 31, 2018	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$	MCh$
Obligations under repurchase agreements	-	48,545	-	-	48,545	-	-	-	-	48,545
Checking accounts, time deposits and other time liabilities	9,027,434	5,248,418	4,108,556	3,326,199	21,710,607	191,547	6,137	63,988	261,672	21,972,279
Financial derivatives contracts	-	131,378	120,361	349,551	601,290	495,789	471,185	949,464	1,916,438	2,517,728
Interbank borrowings	39,378	16,310	404,575	1,188,692	1,648,955	139,671	-	-	139,671	1,788,626
Issue debt instruments	-	71,465	39,267	745,830	856,562	2,431,849	1,549,743	3,277,079	7,258,671	8,115,233
Other financial liabilities	179,681	934	2,412	22,844	205,871	9,261	92	176	9,529	215,400
Subtotal	9,246,493	5,517,050	4,675,171	5,633,116	25,071,830	3,268,117	2,027,157	4,290,707	9,585,981	34,657,811
Contractual interest payments	4,918	82,292	158,760	812,920	1,058,890	1,156,262	1,110,918	1,537,385	3,804,565	4,863,456
Total	9,251,411	5,599,342	4,833,931	6,446,036	26,130,720	4,424,379	3,138,075	5,828,092	13,390,546	39,521,267

As of December 31, 2018, the scheduled maturities of other commercial commitments, including accrued interest, were as follows:

Other Commercial Commitments	Up to 1 month MCh$	Between 1 and 3 months MCh$	Between 3 and 12 months MCh$	Between 1 and 5 years MCh$	More than 5 years MCh$	Total MCh$

Performance guarantee	663,642	188,147	905,554	163,506	33,356	1.954,205
Confirmed foreign letters of credit	3,842	9,128	33,177	10,891	-	57,038
Letters of credit issued	12,469	110,970	54,015	45,937	29	223,420
Pledges and other commercial commitments	22,128	63,230	41,637	6,628	-	133,623
Total other commercial commitments	702,081	371,475	1,034,383	226,962	33,385	2,638,286

	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$)
Performance guarantee	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

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

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

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 Statements 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.

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, 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 2018 and 2017 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 2018 and 2017, 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	2018 USDMM	2017 USDMM
Consolidated:
High	5.23	5.71
Low	1.21	1.56
Average	2.01	3.01

Fixed-income investments:
High	2.54	5.51
Low	1.19	1.15
Average	1.71	2.36

Variable-income investments
High	0.01	0.01
Low	0.00	0.00
Average	0.00	0.00

Foreign urrency investments
High	4.29	4.21
Low	0.09	0.53
Average	1.14	1.71

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, 2018 and 2017

	2018		2017
	Effect on financial income	Effect on capital	Effect on financial income	Effect on capital
Financial management portfolio – local currency (MCh$)
Loss limit	48,000	192,001	48,000	175,000
High	43,742	189,725	(37,148)	(141,287)
Low	27,854	170,450	(22,958)	(112,818)
Average	37,569	180,972	(29,110)	(128,506)
Financial management portfolio – foreign currency (Th$US)
Loss limit	30	75	30	75
High	12	38	16	42
Low	4	(10)	4	15
Average	9	22	10	23
Financial management portfolio – consolidated (in MCh$)
Loss limit	48,000	192,002	48,000	175,000
High	45,492	192,848	(38,249)	(142,442)
Low	29,167	168,766	(23,571)	(112,277)
Average	38,908	182,557	(29,948)	(128,360)

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, 2018) 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,
	2018	2017	2018	2017
	MCh$	MCh$	%	%
Basic capital	3,239,546	3,066,180	7.72	7.92
Regulatory capital	4,101,664	3,881,252	13.40	13.91

Risk Concentration

The Bank operates mainly in Chile, thus most of its financial instruments are concentrated in that country. See Note 39, credit risk to see concentration of the Bank’s loans and accounts receivable by industry above.

SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2018

Subsequent Events

SUBSEQUENT EVENTS

NOTE 40

SUBSEQUENT EVENTS

On January 12, 2019, the law that modernizes banking legislation was published in the official gazette, a regulation that was approved by Congress on October 3, 2018. The new law adopts the highest international standards in banking regulation and supervision, strengthening international competitiveness and contributing to Chile’s financial stability.

On January 24, 2019, the Bank placed a Senior Bond corresponding to its “T-14” line for 3,000,000 UF.

On January 30, 2019, the Bank placed a Senior Bond corresponding to its “T-18” line for 2,000,000 UF.

On February 1, 2019, the Bank placed a Senior Bond for an amount 30,000,000 EUR.

On February 1, 2019, the Bank placed a Senior Bond corresponding to its “T-7” line for 2,000,000 UF.

On March 03, 2019, the Bank have received a letter of resignation from Mr Andreu Plaza López from the Board of Directors of Banco Santander-Chile.

On March 7, 2019, the Bank placed a Senior Bond corresponding to its ”U-9” line for 75,000,000 CLP.

On March 12, 2019, the Bank placed a Senior Bond for an amount of 150,000,000 CHF.

There are no other subsequent events to be disclosed that occurred between January 1, 2019 and the date of authorization of these Financial Statements (March 22, 2019).

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2018

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	2018			2017			2016
			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 25– Non-controlling interest.

(*) On July 25, 2018, the company has ceased conducting foreign currency purcharse and sale operations, hence forth this operation will be carried out directly by the Bank.

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	2018	2017	2016
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	15.00	14.93
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	12.48	12.48	12.07

(*) The Bank has given a mandate to third party to exercise its rights as shareholder in Transbank.

Non-controlling interest

c)	Non-controlling interest

Reporting segments

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

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

Foreign currency transactions

Classification and measurement of financial instrument - under IFRS 9 (first adoption)

Classification and measurement of financial instrument – under IFRS 9 (first adoption)

I. Classification of financial instrument

i) Classification of financial assets

In accordance with IFRS 9 the business models are:

●

ii) Classification of financial liabilities

The Bank classified all financial liabilities as subsequently measured at amortised cost, except for derivatives that are liabilities, which are measured at fair value through profit or loss.

iii) Reclassification

II. Measurement of financial instruments

i) Initial measurement

ii) Subsequent measurement- financial assets

After initial recognition, the Bank shall measures a financial asset at:

(a)

Amortised cost

(b)

Fair value through other comprehensive income (FVOCI)

(c)

Fair value through profit or loss (FVTPL)

Financial assets held for trading are recognised at fair value through profit or loss, likewise derivatives contracts for trading purposes.

(d)

Equity instruments

iii) Subsequent measurement- financial liabilities

After initial recognition, the Bank shall measure a financial liability at amortised cost.

IV. Derecognition of financial assets and liabilities

Financial assets are derecognised when, and only when:

●

the contractual rights to the cash flows from the financial asset expire , or

●

Financial liabilities are derecognised when, and only when, they are extinguished, cancelled or expired.

VI. Contingent loan

The Bank issues contingent liabilities (including letters of credit, foreign letters of credit and performance guarantee) and loan commitments.

Contingent liabilities and undrawn loan commitments are commitments under which, over the duration of the commitment, the Bank is required to provide a loan with pre-specified term to the customer.

Definitions and classification of financial instruments - under IAS 39 (for 2017 balances)

h) Definitions and classification of financial instruments – under IAS 39 (for 2017 balances)

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 investment

Financial assets are classified as FVTPL when the financial asset is either held for trading or they are 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.

iv.

Classification of financial liabilities for measurement purposes

The Bank classifies all financial liabilities as subsequently measured at amortised cost, except for:

Financial liabilities at FVTPL

As of December 31, 2018 and 2017 the Bank does not maintain financial liabilities at FVTPL.

Other financial liabilities

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.

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.

vi.

Offsetting of financial instruments

vii.

Derecognition of financial assets and liabilities

ii.

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

Derivatives and hedging activities