Business Context and Reporting Period
Company: Banco de Chile (Foreign Private Issuer)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2018
Filing Date: April 27, 2018
Currency: Millions of Chilean Pesos (MCh$)
Banco de Chile is a Chilean commercial bank offering a broad range of services including corporate, retail, and treasury banking, as well as securities brokerage and insurance through subsidiaries. The bank is regulated by the Superintendency of Banks and Financial Institutions (SBIF) and listed on the New York Stock Exchange (NYSE).
Key Financial Metrics
| Metric | Q1 2018 | Q1 2017 | Dec 31, 2017 |
|---|---|---|---|
| Total Assets | 33,243,741 | — | 32,824,188 |
| Total Liabilities | 30,140,726 | — | 29,718,473 |
| Total Equity | 3,103,015 | — | 3,105,715 |
| Net Interest Income | 316,517 | 303,540 | — |
| Net Fee & Commission Income | 89,161 | 87,221 | — |
| Total Operating Revenues | 444,919 | 422,719 | — |
| Provisions for Loan Losses | (70,945) | (63,115) | — |
| Net Operating Income | 169,727 | 167,411 | — |
| Net Income for the Period | 142,651 | 139,993 | — |
| Net Income Per Share (Basic/Diluted) | 1.43 | 1.41 | — |
| Cash & Cash Equivalents | 2,108,535 | 2,155,595 | 2,079,398 |
| Loans to Customers (Net) | 25,295,029 | — | 24,881,353 |
| Debt Issued | 6,911,859 | — | 6,488,975 |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by 5.3% to MCh$444,919 million, driven by a 4.3% rise in net interest income and a 2.2% increase in net fee and commission income.
- Profitability: Net income rose 1.9% to MCh$142,651 million compared to MCh$139,993 million in Q1 2017.
- Provisions: Provisions for loan losses increased by 12.4% to MCh$70,945 million, primarily due to higher group provisions for consumer and mortgage loans.
- Balance Sheet: Total assets grew 1.3% quarter-over-quarter to MCh$33.24 trillion. Loans to customers increased by MCh$413.7 billion, while debt issued rose by MCh$422.9 billion.
- Dividends: The bank paid dividends totaling MCh$374,079 million in Q1 2018, compared to MCh$342,034 million in Q1 2017.
Guidance, Outlook, and Risks
Management Commentary & Events:
- Dividend Policy: Shareholders approved a dividend of Ch$3.14655951692 per share and the capitalization of 40% of 2017 distributable net income via a stock dividend.
- Board Changes: Jane Fraser resigned as Principal and Vice-Chairman; Álvaro Jaramillo Escallon was appointed as Regular Director and Vice Chairman.
- Accounting Standards: The bank adopted IFRS 15 (Revenue from Contracts with Customers) effective January 1, 2018, with no material equity effects. The bank is preparing for the mandatory adoption of IFRS 9 (Financial Instruments) and IFRS 16 (Leases) in future periods.
Risks and Contingencies:
- Legal Proceedings: The bank maintains provisions of MCh$21,471 million for judicial contingencies, including a collective lawsuit by the National Consumer Service regarding overdraft fees and contract clauses.
- Credit Risk: The impaired portfolio (Substandard and Non-Complying) totaled MCh$770.9 billion as of March 31, 2018. Provisions for credit risk cover all possible losses according to management.
- Regulatory: The bank is subject to new SBIF regulations regarding provisions for credit risk and weighted assets for derivative instruments cleared by Central Counterparty Entities.
Investor Verification Checklist
- Dividend Execution: Verify the issuance of the stock dividend (capitalization of 40% of 2017 income) and the cash payment of Dividend No. 206.
- Loan Quality: Review the increase in provisions for loan losses (up 12.4% YoY) and the composition of the impaired portfolio (MCh$770.9 billion).
- IFRS 9 Transition: Monitor the bank's progress in implementing the Expected Credit Loss (ECL) model, which is mandatory starting January 1, 2018, though local regulatory approval was pending at the time of filing.
- Legal Exposure: Track the status of the collective lawsuit filed by the National Consumer Service regarding consumer contract clauses.
- Debt Maturity: Assess the maturity profile of the MCh$6.91 trillion in debt issued, noting the significant issuance of bonds in Q1 2018.