Banco de Chile — 2019 Form 20-F Summary
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2019; it is not a standalone fourth-quarter filing. Banco de Chile is a Chile-focused commercial bank with retail, wholesale, treasury and subsidiary businesses. Audited consolidated statements are prepared in Chilean pesos under IFRS as issued by the IASB. Unless noted, amounts below are Ch$ millions.
Key financial metrics
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Operating revenue | 2,005,218 | 1,846,070 | Up 8.6% |
| Net interest income | 1,371,278 | 1,320,977 | Up 3.8% |
| Net fees and commissions | 457,302 | 359,955 | Up 27.0% |
| Other income, net | 176,638 | 165,138 | Up 7.0% |
| Loan-loss provisions | (331,601) | (249,771) | Expense up 32.8% |
| Operating expenses | (902,250) | (839,708) | Up 7.4% |
| Income before tax | 777,406 | 763,402 | Up 1.8% |
| Net income | 603,745 | 603,634 | Essentially flat |
| Net interest margin | 4.13% | 4.35% | Down 22 basis points |
| Return on average assets / equity | 1.59% / 15.71% | 1.76% / 16.78% | Both declined |
Net income attributable to parent equity holders was Ch$603,744 million. Basic earnings per share were Ch$5.98. The report’s selected data show a 45.0% operating expenses-to-operating revenue ratio, versus 45.49% in 2018.
Balance sheet, liquidity, capital and cash flow
- Assets and lending: Total assets were Ch$41,013,874 million, up from Ch$35,601,430 million. Gross customer loans were Ch$30,033,272 million, up 7.5%; net customer loans were Ch$29,384,039 million. Residential mortgage loans led growth, increasing 14.8%.
- Deposits and funding: Deposits totaled Ch$22,182,751 million, up from Ch$20,240,662 million. Current accounts and other demand deposits rose to Ch$11,326,133 million. Debt issued increased to Ch$8,813,414 million from Ch$7,475,552 million; borrowings from financial institutions were Ch$1,563,277 million.
- Equity and capital: Total equity was Ch$3,905,761 million, versus Ch$3,673,716 million. The bank reported a 14.1% regulatory capital ratio against risk-weighted assets, above its 10% requirement, and a 7.9% leverage ratio. Regulatory capital was 268.37% of minimum regulatory capital, down from 287.45%.
- Liquidity: Cash and cash equivalents were Ch$3,110,246 million, versus Ch$1,281,278 million. The bank reported compliance with liquidity requirements; its 2019 LCR averaged 99% (88% minimum, 117% maximum) against a 60% regulatory floor. NSFR averaged 99%; no regulatory NSFR limit was then in force.
- Cash flow: Operating activities provided Ch$1,388,971 million, compared with a Ch$1,334,745 million outflow in 2018. Investing activities used Ch$396,741 million, versus providing Ch$416,534 million. Financing activities provided Ch$802,439 million, versus Ch$644,970 million.
Material changes versus 2018
- Fee income benefited from insurance brokerage, payment and card activity, ATMs and mutual fund management. The bank reported an approximately Ch$29,900 million contribution in 2019 associated with its new insurance alliance.
- Higher loan-loss provisions reflected both loan growth and deterioration in credit quality following Chile’s October 2019 social unrest. Allowances rose 10.9% to Ch$649,233 million; allowances-to-gross-loans increased to 2.16% from 2.10%.
- Loans 90 days or more past due increased 37.1% to Ch$418,768 million; the ratio rose to 1.39% from 1.09%. Management attributed much of the rise to retail borrowers and SMEs, with deterioration also reported among some wholesale borrowers.
- Operating expenses rose 7.4%, including higher staff costs, severance, branch and ATM repairs, technology spending and IFRS 16 lease depreciation. The bank reported that IFRS 16 adoption had no material impact on 2019 results or financial condition.
- Net interest income grew, but margin narrowed as average asset yields fell and funding volumes increased. Average customer loans rose 9.0%, while lending spreads faced competitive pressure.
- SAOS fully repaid its Central Bank subordinated debt in April 2019; this was an affiliate obligation, not reported as a Banco de Chile liability. The repayment led to SAOS’s dissolution, SM-Chile’s liquidation process and an increase in public float.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no specific earnings or revenue guidance. Management expected COVID-19 to negatively affect 2020 results, potentially significantly, but said the impact could not yet be predicted. It cited weaker activity, unemployment, credit deterioration and higher provisions, lower rates and margin pressure, market volatility, and temporary contingency costs.
- Economic and social risks: Chile’s GDP grew 1.1% in 2019; the report describes a sharp fourth-quarter contraction after unrest began on October 18. The filing gives inconsistent fourth-quarter GDP figures—2.1% in one discussion and 1.8% in another—which investors should verify.
- Regulatory and funding risks: Basel III implementation was delayed by one year in response to COVID-19, with risk-weighted-asset requirements scheduled to begin in December 2021. Final rules were pending as of the filing, and management said future capital requirements could affect profitability. Credit-rating outlooks for Chile and the bank were revised to negative in early 2020.
- Unusual contract and accounting judgment: Under a 15-year exclusive insurance alliance with Chubb, the bank received an initial Ch$149,061 million payment in June 2019. Revenue recognition depends on performance obligations; this was identified as a critical audit matter. The auditor also identified the estimation of loan-loss allowances as a critical audit matter.
- Other contingencies and events: A Chilean regulator imposed a UF 800 fine in February 2020 for late reporting of suspicious transactions. A separate securities-law fine against subsidiary Banchile Corredores was reduced to UF 7,500 and remained under appeal. The bank also reported ongoing litigation over minimum services and emergency staffing in the event of strikes. It recorded Ch$237 million of provisions for ordinary-course legal contingencies and said there were no significant lawsuits affecting the financial statements.
- Audit and controls: The auditor gave an unqualified opinion on the IFRS financial statements and on internal control over financial reporting as of year-end. Management reported effective disclosure controls and no material change in internal controls during 2019.
Most important facts for investors to verify
- Reconcile the cash-flow financing figures: the audited cash-flow statement reports Ch$802,439 million provided in 2019, while the narrative discussion gives a different 2019 amount.
- Confirm the correct fourth-quarter 2019 Chile GDP contraction figure; the filing cites both 2.1% and 1.8%.
- Assess subsequent credit quality, past-due loans and provisioning, particularly for retail, consumer and SME exposures following social unrest and COVID-19.
- Review the Chubb alliance’s remaining performance obligations, timing of revenue recognition and ongoing contribution to fee income.
- Track final Basel III rules, capital buffers, liquidity measures and rating developments, as well as the outcome of the cited fine, appeal and labor proceedings.