Bank of Chile — FY2022 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022; this is an annual report, not a standalone fourth-quarter filing. Financial statements are consolidated, audited, prepared in Chilean pesos under IFRS as issued by the IASB. Amounts below are generally in Chilean pesos (Ch$).
Business context and key financial metrics
Banco de Chile is a Chile-focused commercial bank with retail, wholesale, treasury and subsidiary operations. It reported assets of Ch$55.11 trillion, customer loans of Ch$36.73 trillion before allowances, deposits of Ch$27.95 trillion and equity of Ch$5.43 trillion at year-end.
| Metric | FY2022 | Prior comparable period |
|---|---|---|
| Net interest and UF indexation income | Ch$2.266 trillion | Ch$1.574 trillion in 2021; up 44.0% |
| Net fees and commissions | Ch$522.1 billion | Ch$455.0 billion in 2021; up 14.7% |
| Operating income before expected credit losses | Ch$3.143 trillion | Ch$2.225 trillion in 2021 |
| Expected credit losses | Ch$412.1 billion expense | Ch$19.2 billion expense in 2021 |
| Operating expenses | Ch$995.5 billion | Ch$873.4 billion in 2021; up 14.0% |
| Net income | Ch$1.446 trillion | Ch$1.056 trillion in 2021; up 36.9% |
| Net interest margin | 5.40% | 3.79% in 2021 |
| Operating cash flow | Ch$128.6 billion inflow | Ch$3.006 trillion inflow in 2021 |
| Investing / financing cash flow | Ch$(847.8) billion / Ch$(161.8) billion | Ch$(2.987) trillion / Ch$1.376 trillion in 2021 |
Cash and cash equivalents were Ch$3.152 trillion at year-end, down from Ch$3.995 trillion in 2021. The cash flow statement reports an overall decrease in cash and cash equivalents of Ch$881.0 billion in 2022, including exchange-rate effects.
Credit allowances were Ch$821.6 billion, or 2.24% of loans, versus Ch$673.5 billion and 1.97% in 2021. Loans 90 days or more past due rose to Ch$432.7 billion, or 1.18% of loans, from Ch$307.7 billion and 0.90%. The filing also reports a 197.3% coverage ratio under its internal/CMF comparison presentation.
Capital ratios at December 31, 2022 were 13.6% CET1, 14.1% Tier 1, 17.9% total capital and 8.6% leverage. Liquidity ratios were 338% LCR and 133% NSFR, above the then-applicable requirements. Interest-bearing debt included Ch$9.268 trillion of issued debt and Ch$5.398 trillion of borrowings from financial institutions; the latter included approximately Ch$4.349 trillion of Central Bank FCIC funding.
Material changes versus 2021
- Net income increased 36.9%, principally as higher inflation and interest rates boosted net interest and UF indexation income. Net interest margin rose to 5.40% from 3.79%.
- Income benefited from a net asset position indexed to inflation and from the contribution of non-interest-bearing demand deposits. The monetary policy rate rose from 4.00% at year-end 2021 to 11.25% at year-end 2022; Chilean CPI inflation reached 12.8%.
- Credit costs normalized after unusually favorable customer payment behavior in 2021, when government support and pension withdrawals bolstered liquidity. Expected credit losses rose sharply, and past-due loans increased, particularly in retail and SME lending.
- Demand deposits declined as customers shifted toward interest-bearing time deposits: year-end current accounts and demand deposits fell 26.7% by the company’s reported measure, while time deposits rose 57.1%. The bank issued long-term debt to diversify funding ahead of the scheduled 2024 expiry of FCIC funding.
- Fees and commissions increased with normalized transaction activity and growth in mutual-fund, card and trade-finance-related fees. Operating expenses rose 14.0%, mainly reflecting inflation-linked personnel and technology costs.
- Cash flow from operating activities fell substantially, from Ch$3.006 trillion in 2021 to Ch$128.6 billion in 2022, amid a shift in deposit funding composition and lower demand-deposit cash inflows.
Outlook, management commentary, risks and unusual items
Management described 2022 as a successful year but emphasized that earnings benefited from temporary effects of high inflation, higher interest rates, liquidity conditions and treasury activity. The filing provides no specific Banco de Chile earnings or revenue guidance. It cites the Central Bank’s expectation of a Chilean GDP contraction of 0.75%–1.75% in 2023 and inflation of about 3.6% at year-end 2023.
- Credit and macroeconomic risk: Slower activity, high rates and inflation may weigh on borrowers’ disposable income, loan demand and asset quality. Retail and SME exposures are identified as more cycle-sensitive; consumer loans grew 17.6% nominally in 2022.
- Interest-rate, inflation and market risk: The bank relies heavily on net interest income and holds significant UF-linked positions. Rate and inflation movements can affect margins, funding costs and fair values of securities. Its stress test estimated a Ch$118.4 billion adverse impact on the FVOCI portfolio in the most adverse scenario described.
- Funding and regulation: FCIC borrowings of about Ch$4.349 trillion were due to mature in March and July 2024. Basel III buffers are phasing in, including a 1.25% systemic buffer scheduled to reach its full level in December 2025. Proposed changes to bank resolution, deposit insurance, liquidity and consumer-credit rules could add costs or capital needs.
- Consumer protection and competition: New rules on fraud, fees, interchange and fintech services may affect costs and fee income. The filing says the impact of some measures remains uncertain.
- Legal and contingent matters: A SERNAC consumer-protection lawsuit seeks reimbursement and fines; the bank says the potential monetary amount is not estimable from the filing. A securities-law fine against Banchile Corredores remains under appeal. Spanish proceedings involving the bank, subsidiaries and its chairman were reopened; a dismissal in the bank’s favor was appealed. The bank also reported cooperating with a Chilean Public Prosecutor investigation concerning transactions involving a former Army commander and spouse.
- Other notable items: The bank sold its stake in card processor Nexus in September 2022. It reported no significant subsequent events affecting the financial statements through their issuance date. Shareholders approved a Ch$8.58200773490 per-share dividend in March 2023, charged to 2022 distributable income; the proposed payout was 61.5% of that income.
The auditor issued an unqualified opinion on the IFRS financial statements and an unqualified opinion on internal control over financial reporting. The audit identified the allowance for loan losses as a critical audit matter because of model, forecast and judgment complexity.
Important facts for investors to verify
- Reconcile IFRS results with Chilean GAAP and internal segment measures; the filing notes material differences in expected-credit-loss and other accounting treatments.
- Track 2023 credit quality, especially retail and SME past-due loans, consumer-loan growth, allowance coverage and any further provisioning.
- Assess whether earnings and the 5.40% net interest margin are sustainable as inflation and policy rates normalize and deposits reprice.
- Review deposit migration, time-deposit costs, FCIC repayment plans, long-term funding issuance and liquidity ratios.
- Monitor capital-buffer phase-ins and any new CMF requirements, and confirm the dividend payout against distributable earnings and capital needs.
- Follow the status and potential financial consequences of the SERNAC, Banchile securities and Spanish legal matters, as well as implementation of consumer and payment regulations.