Business context and reporting period
Banco de Chile filed this annual report on Form 20-F for the fiscal year ended December 31, 2021. The bank is a Chile-focused, full-service financial institution with retail banking, wholesale banking, treasury and subsidiary operations. Financial statements are prepared in Chilean pesos under IFRS; amounts below are in Ch$ unless stated otherwise. This is an annual filing, not a standalone fourth-quarter report.
Key financial metrics
| Metric | 2021 | Prior comparable period |
|---|---|---|
| Total operating revenues | Ch$2,234,085 million | Ch$1,934,810 million in 2020 |
| Net interest income | Ch$1,574,022 million | Ch$1,316,788 million in 2020 |
| Net interest margin | 3.89% | 3.54% in 2020 |
| Net fees and commissions income | Ch$455,028 million | Ch$445,968 million in 2020 |
| Other income, net | Ch$205,035 million | Ch$172,054 million in 2020 |
| Provisions for expected credit losses | Ch$19,172 million expense | Ch$547,106 million expense in 2020 |
| Operating expenses | Ch$884,420 million | Ch$877,752 million in 2020 |
| Income before tax | Ch$1,332,286 million | Ch$504,853 million in 2020 |
| Net income attributable to equity holders | Ch$1,056,316 million | Ch$401,629 million in 2020 |
| Total assets | Ch$51,425,948 million | Ch$45,550,960 million in 2020 |
| Total loans, before allowances | Ch$34,265,873 million | Ch$30,937,690 million in 2020 |
| Total deposits | Ch$27,682,797 million | Ch$24,066,770 million in 2020 |
| Total equity | Ch$4,818,972 million | Ch$3,997,081 million in 2020 |
Cash flow from operating activities was Ch$3,005,640 million in 2021, versus an outflow of Ch$2,472,360 million in 2020. Investing activities used Ch$2,987,305 million; financing activities provided Ch$1,376,414 million. Cash and cash equivalents at year-end were Ch$3,995,124 million, compared with Ch$2,275,410 million a year earlier.
At December 31, 2021, the bank reported an LCR of 228.3% and an NSFR of 113.2%. Under Basel III, its CET1, Tier 1, total capital and leverage ratios were 12.97%, 13.97%, 17.30% and 7.96%, respectively. Debt issued totaled Ch$9,478,905 million; borrowings from financial institutions totaled Ch$4,861,865 million, including Ch$4,348,460 million from the Central Bank.
Material changes versus 2020
- Net income attributable to equity holders rose about 163%, with income before tax up 164%. The primary drivers were sharply lower credit-loss provisions and higher net interest income.
- Net interest income increased 19.5%; management attributed the gain chiefly to higher inflation on the bank’s net UF-indexed asset position. The net interest margin improved from 3.54% to 3.89%.
- Provisions for expected credit losses fell 96.5%, while the allowance-to-loans ratio declined from 2.70% to 1.97%. Past-due loans of 90 days or more decreased to Ch$289,507 million, or 0.85% of loans, from Ch$299,408 million, or 0.97%.
- Loans grew 10.8%, led by commercial lending and mortgages; deposits increased to Ch$27.7 trillion. Average demand deposits benefited from government support and pension withdrawals.
- Operating expenses increased 0.8%. Management cited IT, cybersecurity and marketing costs, partly offset by lower personnel expenses. The bank’s internal-reporting cost-to-income ratio improved to 39.6% from 45.4%, largely on higher revenues.
- Cash flow from operating activities reversed from a significant outflow in 2020 to a substantial inflow in 2021. Investing cash outflows increased as the bank added fixed-income securities.
Outlook, commentary, risks and unusual items
Management described the 2021 recovery as supported by Chilean GDP growth of 11.7%, household spending, fiscal support and pension withdrawals. It cautioned that these were exceptional liquidity drivers and said past-due loan performance could normalize as that support fades. The filing cites the Central Bank’s expectation of 1.5%–2.5% Chilean GDP growth for 2022; this is not company earnings guidance. Chilean inflation was 7.2% in 2021, and the policy rate reached 4.0% at year-end and 7.0% by March 2022. Management warned that further rate rises, inflation, and liabilities repricing faster than assets could pressure margins and borrowers.
- Credit and macroeconomic risk: Retail and SME growth may raise future credit losses. Political and constitutional changes, social instability, recession, unemployment and the lingering effects of COVID-19 could weaken loan demand, repayment capacity and asset quality.
- Regulatory and liquidity changes: The bank is designated systemically important; a 1.25% systemic capital buffer was announced in March 2022, with a phased introduction beginning December 2022. New LCR and NSFR requirements and future supervisory demands could affect liquidity, funding costs or profitability.
- Market risk: The fixed-income portfolio was Ch$7,777,613 million at year-end and heavily weighted to Chilean government and Central Bank securities. Rising rates had already affected fair values; further movements could cause losses.
- Consumer protection and legal exposure: Fraud rules require payment providers to refund certain disputed transactions, increasing potential customer liabilities. A SERNAC lawsuit notified in March 2022 alleges excessive collection charges and abusive clauses; the filing says the claim’s monetary amount and potential impact are not determinable.
- Other risks and unusual items: The 2021 provision release reflects an exceptional improvement in credit conditions and model updates, rather than a guaranteed recurring trend. A 2018 cyberattack caused an operational write-off of approximately Ch$6,900 million; the bank reported no material cybersecurity losses in 2021. The bank also reported LIBOR-linked on-balance assets of about US$1,039 million, liabilities of about US$707 million and off-balance net liability exposure of about US$942 million at year-end.
- Capital spending and dividends: The 2022 capital expenditure budget is approximately Ch$79,466 million, mainly for technology and infrastructure. Shareholders approved a Ch$5.34393608948-per-share dividend in March 2022, charged to 2021 distributable income.
Most important facts for investors to verify
- Confirm the IFRS consolidated figures against the audited financial statements; the filing also presents Chilean GAAP and internal-reporting measures that are not directly comparable.
- Assess the sustainability of the unusually low 2021 credit-loss expense and whether credit quality holds as temporary fiscal and pension-withdrawal support recedes.
- Verify current capital-buffer phase-in requirements, LCR/NSFR compliance and the maturity and cost of Central Bank and other funding.
- Review sensitivity of net interest income and the investment portfolio to inflation, UF movements, interest rates and Chilean peso depreciation.
- Track the SERNAC case, digital-fraud liabilities, pending consumer and tax rules, and the impact of political and constitutional developments.
- Check the dividend payment and payout against distributable income, capital needs and regulatory restrictions.