Business Context and Reporting Period
Company: Banco de Chile (Foreign Private Issuer)
Filing Type: Form 6-K (Interim Consolidated Financial Statements)
Reporting Period: Nine months ended September 30, 2017
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 financial statements are prepared in accordance with IFRS and Chilean Superintendency of Banks standards.
Key Financial Metrics
| Metric | Sept 30, 2017 | Sept 30, 2016 | Dec 31, 2016 (Balance Sheet) |
|---|---|---|---|
| Total Assets | 31,943,143 | - | 31,558,000 |
| Total Liabilities | 28,905,747 | - | 28,670,589 |
| Total Equity | 3,037,396 | - | 2,887,411 |
| Total Operating Revenues | 1,274,974 | 1,314,584 | - |
| Net Interest Income | 910,564 | 915,258 | - |
| Net Fees and Commission Income | 261,200 | 240,147 | - |
| Provisions for Loan Losses | (175,663) | (222,454) | - |
| Net Operating Income | 512,553 | 494,710 | - |
| Net Income for the Period | 433,661 | 428,215 | - |
| Net Income Per Share (Basic) | 4.36 | 4.31 | - |
| Cash and Cash Equivalents | 1,679,816 | 1,854,630 | 2,096,980 |
Material Changes vs. Prior Period
- Profitability: Net income increased by 1.3% to MCh$433,661 million compared to MCh$428,215 million in the prior year period. Net operating income rose 3.6% to MCh$512,553 million.
- Revenue Mix: While total operating revenues decreased slightly (3.0%), Net fees and commission income grew significantly by 8.8% (MCh$261,200 million vs. MCh$240,147 million), offsetting a slight decline in Net interest income.
- Provisions: Provisions for loan losses decreased substantially by 21.0% to MCh$175,663 million, contributing positively to net income.
- Balance Sheet: Total assets grew 1.2% from year-end 2016. Loans to customers increased slightly to MCh$24,883,557 million. Financial assets available-for-sale saw a significant increase to MCh$1,309,061 million from MCh$367,985 million at year-end 2016.
- Capitalization: In July 2017, the Bank capitalized 40% of 2016 net distributable income, issuing 1.82 billion fully paid-in shares, increasing total shares to 99.44 billion.
Guidance, Outlook, Risks, and Unusual Items
- Accounting Standards: The Bank is in the process of implementing IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from Contracts with Customers), with mandatory adoption dates of January 1, 2018. The impact of IFRS 9 has not yet been quantified.
- Legal and Regulatory:
- In February 2017, the Financial Analysis Unit imposed a fine of UF 500 on the Bank for erroneous reporting between 2011 and 2012.
- A collective lawsuit filed by the National Consumer Service regarding overdraft fees and contract clauses is ongoing; the probationary period has concluded.
- A subsidiary, Banchile Corredores de Bolsa S.A., is contesting a fine of UF 50,000 imposed by the Superintendency of Securities and Insurance regarding 2011 transactions.
- Dividends: The Board established a provision for minimum dividends of 60% of net distributable income, amounting to MCh$236,047 million as of September 30, 2017.
- Subsequent Events: Management reported no significant subsequent events between September 30, 2017, and the filing date.
Key Facts for Investor Verification
- Loan Portfolio Quality: Verify the composition of the impaired portfolio (Substandard and Non-Complying) which totaled MCh$792,070 million as of September 30, 2017, and the adequacy of the MCh$566,211 million in allowances.
- IFRS 9 Implementation: Monitor the Bank's progress in quantifying the impact of the new expected credit loss model (IFRS 9) ahead of the January 1, 2018 adoption.
- Legal Contingencies: Track the status of the collective lawsuit regarding consumer contract clauses and the administrative fine appeal by the brokerage subsidiary.
- Capital Structure: Note the recent capitalization of earnings which increased the share count by approximately 1.86% in July 2017.
- Derivative Exposure: Review the significant notional amounts of trading derivatives (MCh$8.06 trillion) and hedging instruments (MCh$10.37 trillion) detailed in Note 10.