Banco de Chile — FY2020 Form 20-F
Reporting period and basis: This is an audited annual report for the year ended December 31, 2020, not a standalone fourth-quarter filing. Financial statements are consolidated, in Chilean pesos (Ch$), and prepared under IFRS as issued by the IASB. Amounts below are generally Ch$ billions unless noted.
Business context and key financial metrics
Banco de Chile is a full-service bank focused primarily on Chile, serving individuals, SMEs and corporate customers through retail banking, wholesale banking, treasury and subsidiaries. It reported total assets of Ch$45,551 billion and ranked second in Chilean loan market share at 16.6% at year-end.
| Metric | FY2020 / Dec. 31, 2020 | Prior comparable period |
|---|---|---|
| Operating revenue | Ch$1,934.8 billion | Ch$2,005.2 billion in 2019; down 3.5% |
| Net interest income | Ch$1,316.8 billion | Ch$1,371.3 billion; down 4.0% |
| Net fees and commissions | Ch$446.0 billion | Ch$457.3 billion; down 2.5% |
| Net income | Ch$401.6 billion | Ch$603.7 billion; down 33.5% |
| Net interest margin | 3.55% in the operating-results discussion | 4.25% in 2019 |
| Return on average assets / equity | 0.90% / 10.10% | 1.59% / 15.15% in 2019 |
| Total assets / total equity | Ch$45,551 billion / Ch$3,997 billion | Ch$41,014 billion / Ch$3,906 billion in 2019 |
| Gross loans / net loans | Ch$30,938 billion / Ch$30,102 billion | Gross loans grew 3.0% from 2019 |
| Total deposits | Ch$24,067 billion | Ch$22,183 billion in 2019 |
| Debt issued / borrowings from financial institutions | Ch$8,594 billion / Ch$3,670 billion | Ch$8,813 billion / Ch$1,563 billion in 2019 |
| Cash and cash equivalents | Ch$2,275 billion | Ch$3,110 billion in 2019 |
| Cash flow from operating / investing / financing activities | (Ch$2,472) billion / Ch$210 billion / Ch$1,462 billion | Ch$1,389 billion / (Ch$397) billion / Ch$802 billion in 2019 |
Material changes and credit quality
- Net income fell 33.5%, primarily as net provisions for expected credit losses rose 65.0% to Ch$547.1 billion. The year-end allowance balance increased 28.8% to Ch$836.1 billion, or 2.70% of gross loans.
- Net interest margin declined as lower rates reduced asset yields and lending growth skewed toward lower-margin commercial loans. Consumer loan balances fell 12.9%; commercial loans grew 8.0% and residential mortgage loans 2.0% at year-end.
- Loans 90 days or more past due decreased to Ch$299.4 billion from Ch$418.8 billion; the ratio fell to 0.97% from 1.39%. Management attributed the improvement partly to loan rescheduling, fiscal support and pension withdrawals, while wholesale delinquency increased.
- Demand and current-account deposits rose 33.9% year over year. The bank also borrowed approximately Ch$3.11 trillion from the Central Bank at 0.5%, helping replace more expensive funding.
- Treasury results benefited from market movements, including foreign-exchange transaction income of Ch$156.7 billion versus Ch$30.9 billion in 2019. Net financial operating income was a loss of Ch$11.3 billion, including a Ch$96.4 billion derivatives loss.
Liquidity, capital, outlook and risks
- Liquidity: The bank said it maintained a significant liquidity surplus and complied with regulatory liquidity limits. Its 2020 LCR averaged 189% and was at least 107%; the regulatory minimum was 70%. NSFR averaged 106%, with no regulatory minimum reported.
- Capital: The reported Basel III ratios at year-end were 12.32% CET1, 13.82% Tier 1, 16.16% total capital and 7.80% leverage. Basel III implementation and potential systemic-bank buffers may increase future capital requirements; the applicable buffer for Banco de Chile was not yet specified in the filing.
- Outlook: The filing gives no numerical earnings or revenue guidance. Management noted that renewed COVID-19 restrictions could slow performance in coming quarters; the pace of Chile’s recovery, loan demand and credit losses remained uncertain.
- COVID-19 actions and unusual items: The bank granted approximately Ch$1.89 trillion of government-guaranteed FOGAPE-COVID loans and rescheduled approximately Ch$414.2 billion of loan installments. Changes to expected-credit-loss models and assumptions added about Ch$151.7 billion to provisions before tax. Management said 97% of balances in the installment-rescheduling program had been paid when due at the relevant expiration dates.
- Key risks: Further borrower deterioration, interest-rate and inflation volatility, market-value losses, Chilean economic and political uncertainty, regulatory changes, competition, cybersecurity and operational disruption. The report also identifies possible added collection constraints and costs from recently enacted consumer-protection rules.
- Other disclosures: The auditor issued unqualified opinions on the IFRS financial statements and internal control over financial reporting; management also concluded disclosure controls were effective. A materiality review of estimates remains important, particularly for expected credit losses and fair values.
Important facts for investors to verify
- Reconcile the filing’s net interest margin disclosures: 3.55% in the operating-results section versus 3.50% in the selected-ratios table.
- Review audited statements and notes for the Ch$547.1 billion annual provision expense, the Ch$836.1 billion allowance balance and the COVID-related model overlay.
- Assess the sustainability of lower reported delinquency given rescheduling, public support measures and the increase in wholesale past-due ratios.
- Confirm the cost, maturity and repayment terms of Central Bank funding, and the impact of Basel III and any systemic buffer on capital and dividends.
- Check the cash-flow statement and liquidity disclosures alongside the year-end balance-sheet movements, including the operating cash outflow and increased demand deposits.