FORM 6-K

 

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Report of Foreign Issuer

 

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

 

Commission File Number: 001-14554

 

Banco Santander Chile

Santander Chile Bank

(Translation of Registrant’s Name into English)

 

Bandera 140

Santiago, Chile

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

  Form 20-F   Form 40-F  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

  Yes   No  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

  Yes   No  

 

Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

 

  Yes   No  

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A

 

 

 

 

 

EXHIBIT INDEX

 

EXHIBIT NO.   DESCRIPTION  
     
99.1   Consolidated Interim Financial Statements as of September 30, 2021 and 2020 and December 31, 2020

 

1

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  BANCO SANTANDER-CHILE
   
  By: /s/ Cristian Florence
  Name: Cristian Florence
  Title: General Counsel

 

Date: December 10, 2021

 

 

2

 

Exhibit 99.1

 

These financial statements as of September 30, 2021 are under IFRS.

  

 

 

 

 

 

CONTENT

 

Consolidated Interim Financial Statements  
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION 3
CONSOLIDATED INTERIM STATEMENTS OF INCOME 4
CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME 5
CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY 6
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS 7
   
Notes to the Consolidated Financial Statements  
NOTE 01  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 9
NOTE 02  ACCOUNTING CHANGES 39
NOTE 03  SIGNIFICANT EVENTS 40
NOTE 04  REPORTING SEGMENTS 43
NOTE 05  CASH AND CASH EQUIVALENTS 48
NOTE 06  FINANCIAL ASSETS HELD FOR TRADING 49
NOTE 07  DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING 50
NOTE 08  LOANS AND ACCOUNT RECEIVABLE AT AMORTIZED COST 57
NOTE 09  LOANS AND ACCOUNTS RECEIVABLE AT FVOCI 65
NOTE 10  DEBT INSTRUMENTS AT FVOCI AND FINANCIAL ASSETS HELD TO COLLECT 67
NOTE 11  INTANGIBLE ASSETS 70
NOTE 12  FIXED ASSETS AND RIGHT OF USE ASSETS AND OBLIGATION FOR LEASE CONTRACT 72
NOTE 13  CURRENT AND DEFERRED TAXES 78
NOTE 14  OTHER ASSETS 81
NOTE 15  TIME DEPOSITS AND OTHER TIME LIABILITIES 82
NOTE 16  ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES 83
NOTE 17  MATURITY OF ASSETS AND LIABILITIES 93
NOTE 18  PROVISIONS 95
NOTE 19  OTHER LIABILITIES 97
NOTE 20  CONTINGENCIES AND COMMITMENTS 98
NOTE 21  EQUITY 100
NOTE 22  NON-CONTROLLING INTEREST 103
NOTE 23  INTEREST INCOME 105
NOTE 24  FEES AND COMMISSIONS 107
NOTE 25  NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS 112
NOTE 26  NET FOREIGN EXCHANGE GAIN (LOSS) 113
NOTE 27  PROVISION FOR LOAN LOSSES 114
NOTE 28  PERSONNEL SALARIES AND EXPENSES 115
NOTE 29  ADMINISTRATIVE EXPENSES 116
NOTE 30  DEPRECIATION, AMORTIZATION, AND IMPAIRMENT 117
NOTE 31  OTHER OPERATING INCOME AND EXPENSES 118
NOTE 32  TRANSACTIONS WITH RELATED PARTIES 119
NOTE 33  FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES 125
NOTE 34  RISK MANAGEMENT 132
NOTE 35  NON-CURRENT ASSETS HELD FOR SALE 160
NOTE 36  SUBSEQUENT EVENTS 161

 

2

 

  

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

 

      As of
September 30,
  As of
December 31,
        2021   2020
  Note     MCh$   MCh$
ASSETS            
  Cash and deposits in banks 5     5,526,197   2,803,288
  Cash items in process of collection 5     458,328   452,963
  Financial derivative contracts 7     9,673,439   9,032,085
  Financial assets held for trading       51,216   133,718
  Loans and account receivable at amortized cost 8     34,613,811   33,303,100
  Loans and account receivable at fair value through other comprehensive income 9     114,525   69,331
  Debt instrument at fair value through other comprehensive income 10     8,872,749   7,162,542
  Equity instruments at fair value through other comprehensive income       -   548
  Financial assets held to collect 10     82,549   -
  Investments in associates and other companies       10,692   10,396
  Intangible assets 11     85,548   82,537
  Property, plant, and equipment 12     226,284   240,854
  Right of use assets 12     138,263   147,997
  Current taxes

13

 

    121,823   -
  Deferred taxes 13     743,184   516,490
  Other assets 14     2,789,063   1,747,374
TOTAL ASSETS       63,507,671   55,703,223
LIABILITIES            
  Deposits and other demand liabilities 15     17,367,090   14,560,893
  Cash items in process of being cleared 5     362,129   361,631
  Obligations under repurchase agreements       49,644   969,808
  Time deposits and other time liabilities 15     12,489,856   10,581,791
  Financial derivative contracts 7     10,396,886   9,018,660
  Interbank borrowings       9,139,050   6,328,599
  Issued debt instruments 16     8,034,421   8,204,177
  Other financial liabilities 16     201,345   184,318
  Lease liabilities 12     140,011   149,585
  Current taxes 13     -                            -      12,977
  Deferred taxes 13     313,583   129,493
  Provisions 18     371,003   330,664
  Other liabilities 19     1,267,199   1,165,853
TOTAL LIABILITIES       60,132,217   51,998,449
EQUITY            
  Attributable to the shareholders of the Bank:       3,284,039   3,620,091
  Capital 21     891,303   891,303
  Reserves 21     2,550,559   2,343,580
  Valuation adjustments 21     (621,046)   (25,293)
  Retained earnings       463,223   410,501
    Retained earnings from prior years       57,338   27,171
    Income for the year       579,835   547,614
    Minus: Provision for mandatory dividends 18     (173,950)   (164,284)
  Non-controlling interest 22     91,415   84,683
TOTAL EQUITY       3,375,454   3,704,774
TOTAL LIABILITIES AND EQUITY       63,507,671   55,703,223

The accompanying notes form integral part of these consolidated financial statements.

 

3

 

 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF INCOME

For the periods ended,

 

 
    For the period of nine months to September 30,   For the quarter to
September 30,
    2021   2020   2021   2020
  Note MCh$   MCh$   MCh$  

MCh$

OPERATING INCOME      
                 
Interest income 23 1,872,128   1,587,609   654,632   434,457
Interest expense 23 (561,735)   (437,399)   (213,064)   (52,889)
                 
Net interest income   1,310,393   1,150,210   441,298   381,568
                 
Fee and commission income 24 409,694   332,013   152,533   105,046
Fee and commission expense 24 (171,906)   (133,759)   (66,737)   (43,457)
                 
Net fee and commission income   237,788   198,254   85,796   61,589
                 
Net income (expense) from financial operations 25 (2,885)   167,530   (12,146)   (48,541)
Net foreign exchange gain 26 93,434   (33,180)   32,971   90,981
Other operating income 31 7,540   6,379   1,759   2,208
                 
Net operating profit before provision for loan losses   1,646,270   1,489,193   549,678   487,805
                 
Provision for loan losses 27 (213,905)   (406,327)   (56,501)   (124,313)
NET OPERATING INCOME   1,432,365   1,082,866   493,177   363,492
                 
Personnel salaries and expenses 28 (298,972)   (306,323)   (98,313)   (103,741)
Administrative expenses 29 (203,043)   (189,845)   (67,357)   (62,041)
Depreciation and amortization 30 (90,465)   (81,913)   (32,141)   (26,643)
Impairment of property, plant, and equipment 30 -   (638)   -   -
Other operating expenses 31 (88,157)   (55,982)   (42,314)   (18,873)
                 
Total operating expenses   (680,637)   (634,701)   (240,125)   (211,298)
                 
OPERATING INCOME   751,728   448,165   253,052   152,194
                 
Income from investments in associates and other companies   1,252   930   365   334
                 
Income from continuing operations before tax   752,980   449,095   253,417   152,528
                 
Income tax expense 13 (166,147)   (99,131)   (56,625)   (36,409)
                 
Result of continuing operations   586,833   349,964   196,792   116,119
Result of discontinued operations 35 -   -        
NET INCOME FOR THE YEAR   586,833   349,964   196,792   116.119
                 
Attributable to:                
Shareholders of the Bank   579,835   347,232   193,575   114,916
Non-controlling interest 22 6,998   2,732   3,217   1,203
                 
Earnings per share attributable to shareholders of the Bank:                
Basic earnings 21 3.081   1.843   1.027   0.610
Diluted earnings 21 3.081   1.843   1.027   0.610

  The accompanying notes form integral part of these consolidated financial statements.

 

4

 

 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

For the periods ended,

 

  For the periodo of 9 months to September 30,   For the quarter to September 30,
    2021   2020   2021   2020
  Note MCh$   MCh$   MCh$   MCh$
NET INCOME FOR THE YEAR   587,529   349,964   216,557   119,562
                 
Other comprehensive income that will not be reclassified to profit oross                
Equity instruments at fair value through other comprehensive income   -   -   -   -
Income tax related to the above   -   -   -   -
                 
Total items that will not be reclassified to the income statements   -   -   -   -
                 

Other comprehensive income that will be reclassified to profit or loss

               
Debt instruments at fair value through other comprehensive income 23 (638,922)   24,997   (231,042)   (25,664)
Cash flow hedge 23 (177,571)   5,533   (119,822)   (29,823)
Income tax related to the above   220,463   (8,245)   94,743   14,980
                 
Total items that will be reclassified to the income statements   (596,030)   22,285   (256,121)   (40,507)
Other comprehensive income for the year, net of tax   (596,030)   22,285   (256,121)   79,055
TOTAL COMPREHENSIVE INCOME FOR THE YEAR   (8,501)   372,249   22,652   79,055
                 
    Attributable to:                
      Shareholders of the Bank   (15,222)   369,510   19,404   77,849
      Non-controlling interests 24 6.721   2,739   3,158   1,206

The accompanying notes form integral part of these consolidated financial statements

 

5

 

 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

For the periods ended, 

 

    RESERVES VALUATION ADJUSTMENTS RETAINED EARNINGS      
  Capital Reserves and other retained earnings Effects of merger of companies under common control Fair value reserve Cash flow hedge

Income

tax effects

Retained earnings of prior years Income for the year Provision for mandatory dividends Total attributable to shareholders of the Bank Non-controlling interest Total Equity
  MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$
Equity as of December 31, 2019 891,303 2,124,966 (2,224) 28,135 (40,435) 3,444 (39,863) 619,091 (185,727) 3,398,870 79,633 3,478,503
Distribution of income from previous period - - - - - - 619,091 (619,091) - - - -
Equity as of January 1, 2020 891,303 2,124,966 (2,224) 28,135 (40,435) 3,444 579,408 - (185,727) 3,398,870 79,633 3,478,503
Dividends distributions / withdrawals made - 220,838 - - - - (220,838) - - - - -
Transfer of retained earnings to reserves - - - - - - (165,627) - - (165,627) - (165,627)
Provision for mandatory dividends - - - - - - - - 65,424 65,424 - 65,424
Subtotal - 220,838 - - - - (386,465) - 65,424 (100,203) (7) (100,210)
Other comprehensive income - - - 24,986 5,533 (8,241) - - - 22,278 7 (22,285)
Result of continuous operations - - - - - - - 334,012 - 334,012 2,732 336,744
Result of discontinuous operations - - - - - - - - - - - -
Subtotal - - - 24,986 5,533 (8,241) - 334,012 - 356,290 2,739 359,029
Equity as of September 30, 2020 891,303 2,344,210 (2,224) 54,335 (34,902) (5,248) 165,628 334,012 (100,204) 3,646,910 82,226 3,729,136
Equity as of December 31, 2020 891,303 2,345,804 (2,224) 101,696 (136,765) 9,776 27,171 547,614 (164,284) 3,620,091 84,683 3,704,774
Distribution of income from previous period - - - - - - 547,214 (547,614) - - - -
Equity as of January 1, 2021 891,303 2,345,804 (2,224) 101,696 (136,765) 9,776 574,785 - (164,284) 3,620,091 84,683 3,704,774
Dividends distributions / withdrawals made - - - - - - (310,468) - 164,284 (146,184) 11 11
Transfer of retained earnings to reserves - 206,979 - - - - (206,979) - - - - -
Provision for mandatory dividends - - - - - - - - (173,950) (173,950) - (173,950)
Subtotal - 206,979 - - - - (517,447) - (9,666) (320,134) 11 (320,332)
Other comprehensive income - - - (638,543) (177,571) 220,361 - - - (595,753) (277) (596,030)
Result of continuous operations - - - - - - - 579,835 - 579,835 6,998 586,833
Result of discontinuous operations - - - - - - - - - - - -
Subtotal - - - (638,543) (177,571) 220,361 - 579,835 - (15,918) 6,721 (9,197)
Equity as of September 30, 2021 891,303 2,552,783 (2,224) (536,847) (314,336) 230,137 57,338 579,835 (173,950) 3,284,039 91,415 3,375,454
 
                         
Period Total attributable to shareholders of the Bank  

Allocated to

reserves

 

Allocated to

dividends

 

Percentage

distributed

 

Number of

shares

 

Dividend per share

(in pesos)

  MCh$   MCh$   MCh$   %    
Year 2020 (Shareholders meeting April 2021) 517,447   206,979   310,468   60   188,446,126,794   1.647
Year 2019 (Extraordinary Shareholders meeting November 2020 552,093   220,838   165,628   30   188,446,126,794   0.879
Year 2019 (Shareholders meeting April 2020) 552,093   220,838   165,627   30   188,446,126,794   0.879

 

The accompanying notes form integral part of these consolidated financial statements.

 

6

 

 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

For the periods ended,

 

 

    For the period of nine months to
September 30,
  For the quearte to
September 30,
    2021   2020   2021   2020
  NOTE MCh$   MCh$   MCh$   MCh$
A - CASH FLOWS FROM OPERATING ACTIVITIES                
NET INCOME FOR THE YEAR   587,529   349,964   216,557   119,562
Adjustments for non-cash items included in net income   (963,082)   (881,669)   (327,066)   (268,335)
Depreciation and amortization 30 90,465   81,913   32,141   26,643
Impairment of property, plant, and equipment 30 -   638   -   -
Provision for loan losses 27 334,228   482,605   114,512   152,795
Mark to market of trading investments   (15,998)   (32,099)   (16,151)   52
Income from investments in associates and other companies   (1,279)   (959)   (382)   (353)
Net gain on sale of assets received in lieu of payment 31 (10,756)   (13,828)   (2,983)   (3,584)
Provision on assets received in lieu of payment 31 299   1,383   55   327
Loss on sale of associate   (571)   (773)   (395)   (364)
Net gain on sale of property, plant and equipment 31 9,473   11,817   3,219   2,891
Net interest income 23 (1,310,393)   (1,150,210)   (441,298)   (381,568)
Net fee and commission income 24 (237,788)   (198,254)   (85,796)   (61,589)
Changes in deferred taxes 13 164,131   (70,467)   155,766   (79,847)
Other non-cash items   15,107   6,565   (85,754)   76,262
Increase/decrease in operating assets and liabilities   3,243,420   (218,868)   (2,119,951)   (276,943)
(Increase) of loans and accounts receivables from customers   (1,366,413)   (2,152,402)   (1,086,406)   409,951
Decrease (increase) of financial investments   (1,818,265)   (1,841,281)   (1,999,397)   (619,328)
Decrease (increase) por contrato de retrocompra (activos)   -   (79,795)   -   (79,795)
Decrease (increase) of interbank loans   18,105   4,039   6,818   (2,086)
Decrease of assets received or awarded in lieu of payment   4,400   4,337   1,829   1,135
Increase of debits in customers checking accounts   2,228,484   3,102,058   (429,079)   1,045,401
(Decrease) increase of time deposits and other time liabilities   1,908,065   (1,414,420)   734,049   (2,366,984)
Increase (decrease) of obligations with domestic banks   (217,101)   (271,620)   (100,000)   -
Increase (decrease) of other demand liabilities or time obligations   284,924   568,085   (37,954)   543,312
Increase of obligations with foreign banks   2,301,405   (825,341)   1,446,541   (699,281)
(Decrease) increase of obligations with Central Bank of Chile   726,147   4,974,125   (221,409)   1,642,779
(Decrease) increase of obligations under repurchase agreements   (920,164)   (126,473)   (9,217)   52,732
Increase (decrease) in other financial liabilities   17,027   (66,034)   (13,089)   28,260
(Decrease) increase of other assets and liabilities   (1,848,249)   (2,342,448)   (1,127,500)   100,250
Redemption of letters of credit   (3,796)   (4,733)   (1,159)   (1,540)
Senior bond issuances   851,402   989,611   241,971   35,320
Redemption of mortgage bonds and payments of interest   (5,944)   (6,104)   (2,716)   (2,972)
Redemption of senior bonds and payments of interest   (502,627)   (2,092,588)   (50,327)   (807,254)
Interest received   1,872,128   1,587,609   654,362   434,457
Interest paid   (561,735)   (437,399)   (213,064)   (52,889)
Dividends received from investments in other companies   506   432   -   -
Fees and commissions received 24 409,694   332,013   152,533   105,046
Fees and commissions paid 24 (171,906)   (133,759)   (66,737)   (43,457)
Total cash flow (used in) provided by operating activities   2,830,534   (763,793)   (2,230,460)   (425,716)

 

7

 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

For the periods ended,

 

    For the period of nine months to September 30,   For  the quarter to September 30,
    2021   2020   2021   2020
  NOTE MCh$   MCh$   MCh$   MCh$
B - CASH FLOWS FROM INVESTMENT ACTIVITIES:                
Purchases of property, plant, and equipment 12 (26,777)   (21,513)   (18,124)   (12,856)
Sales of property, plant, and equipment   -   -   -   -
Sales of investments in associates   1,913   6,907   1,601   2,498
Purchases of investments in associates and other companies   -   -              -               337
Purchases of intangible assets 11 (28,774)   (20,219)   (18,437)   (11,369)
Total cash flow used in investment activities   (53,638)   (34,825)   (34,960)   (21,390)
C - CASH FLOW FROM FINANCING ACTIVITIES:                
Originados por actividades de financiamiento de tenedores patrimoniales   (351,924)   300,166   (333,159)   312,892
Colocación bonos subordinados   -   472,174              -   479,941
Placement of subordinated bond   (7,010)   (4,349)               -   (39)
Dividends paid   (310,468)   (165,627)   (310,468)   (165,627)
Lease obligation paid   (34,446)   (2,028)   (22,691)   (1,383)
Total cash flow used in financing activities   (351,924)   300,166   (333,159)   312,892
D – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE YEAR   2,424,972   (498,452)   4,692,875   (46,575)
E – EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS   302,804   108,455   12,576   201,737
F - INITIAL BALANCE OF CASH AND CASH EQUIVALENTS   2,894,620   3,711,334   2,894,620   3,711,334
                 
FINAL BALANCE OF CASH AND CASH EQUIVALENTS 5 5,622,396   3,321,337   7,600,071   3,866,496

 

 

      Changes not related to cash flows  
Reconciliation of liabilities that arise from financing activities

 

31.12.2020

 

Cash Flow

 

Acquisition

Foreign currency exchange UF Inflation effect Fair value changes

 

30.09.2021

 

  MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$

Subordinated bond

1,357,539 (7,010) - - 62,604 - 1,413,133
Paid dividens - (310,468) - - - - (310,468)
Other liabilities (149,585) (34,446) - - 24,872 - 140,011
Total liabilities related to financing activities 1,507,124 (351,924) - - 87,476 - 1,242,676

The accompanying notes form integral part of these consolidated financial statements.

 

8

 

 

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

  

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

CORPORATE INFORMATION

 

Banco Santander-Chile is a banking corporation (limited company) operating under the laws of the Republic of Chile, headquartered at Bandera N°140, Santiago. The corporation provides a broad range of general banking services to its customers, ranging from individuals to major corporations. Banco Santander-Chile and its subsidiaries (collectively referred to herein as the “Bank” or “Banco Santander-Chile”) offers commercial and consumer banking services, including (but not limited to) factoring, collection, leasing, securities and insurance brokering, mutual and investment fund management brokering, and investment banking. Banco Santander Spain controls Banco Santander-Chile through its holdings in Teatinos Siglo XXI Inversiones Ltda. and Santander Chile Holding S.A., which are controlled subsidiaries of Banco Santander Spain. As of September 30, 2021 Banco Santander Spain owns or controls directly and indirectly 99.5% of Santander Chile Holding S.A. and 100% of Teatinos Siglo XXI Inversiones Ltda. Banco Santander Spain, through its subsidiaries, has control over 67.18% of the Bank’s shares.

 

a)Basis of preparation

 

These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) (hereinafter referred to as IFRS).

 

For purposes of these financial statements we use certain terms and conventions. References to “US$”, “U.S. dollars” and “dollars” are to United States dollars, references to “EUR” are to European Economic Community Euro, references to “CNY” are to Chinese Yuan, reference to “JPY” are to Japanese Yuan, references to “CHF” are to Swiss franc, references to “Chilean pesos”, “pesos” or “Ch$” are to Chilean pesos, and references to “UF” are to Unidades de Fomento. The UF is an inflation-indexed Chilean monetary unit with a value in Chilean pesos that changes daily to reflect changes in the official Consumer Price Index (“CPI”) of the Instituto Nacional de Estadísticas (the Chilean National Institute of Statistics) for the previous month.

 

The UF is revalued in monthly cycles. Each day in the period beginning on the tenth day of the current month through the ninth day of the succeeding month, the nominal peso value of the UF is indexed up (or down in the event of deflation) in order to reflect a proportionate amount of the change in the Chilean Consumer Price Index during the prior calendar month. One UF is equaled to Ch$30,088.37 as of September 30, 2021 and Ch$29,070.33 as of December 31, 2020. In 2021, UF inflation was 2.7% compared to 5.8% in 2020. The effect of any changes in the nominal peso value of our UF-denominated interest earning assets and interest bearing liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest income and expense, respectively.

 

The Notes to the Consolidated Financial Statements contain additional information to support the figures submitted in the Consolidated Statements of Financial Position, Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows for the period.

 

b)Basis of preparation for the Consolidated Financial Statements

 

The Consolidated Financial Statements for the periods as of September 30, 2021 and 2020 and december 31, 2020, incorporate the financial statements of the entities over which the Bank has control (including structured entities); and includes the adjustments, reclassifications and eliminations needed to comply with the accounting and valuation criteria established by IFRS. Control is achieved when the Bank:

 

I.has power over the investee;
II.is exposed, or has rights, to variable returns from its involvement with the investee; and
III.has the ability to use its power to affect its returns.

 

9

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

  

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Bank has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities over the investee unilaterally. The Bank considers all relevant facts and circumstances in assessing whether or not the Bank’s voting rights in an investee are sufficient to give it power, including:

 

the size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
potential voting rights held by the Bank, other vote holders or other parties;
rights arising from other agreements; and
any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

 

Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control over the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Statements of Income and Comprehensive Income from the date the Bank gains control until the date when the Bank ceases to control the subsidiary.

 

Profit or loss and each component of other comprehensive income are attributed to the owners of the Bank and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit in certain circumstances.

 

When necessary, adjustments are made to the financial statements of the subsidiaries to ensure their accounting policies are consistent with the Bank’s accounting policies. All intragroup assets, liabilities, equity, income, expenses and cash flows relating to transactions between consolidated entities are eliminated in full on consolidation.

 

Changes in the consolidated entities ownership interests in subsidiaries that do not result in a loss of control over the subsidiaries are accounted for as equity transactions. The carrying values of the Bank’s equity and the non-controlling interests’ equity are adjusted to reflect the changes to their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Bank.

 

In addition, third parties’ shares in the Bank’s consolidated equity are presented as “Non-controlling interests” in the Consolidated Statements of Changes in Equity. Their share in the income for the year is presented as “Attributable to non-controlling interest” in the Consolidated Statements of Income.

 

10

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The following companies are considered entities controlled by the Bank and are therefore within the scope of consolidation:

 

i.Entities controlled by the Bank through participation in equity

 

Name of the Subsidiary     Percent ownership share
    As of September 30,   As of December 31,   As of September 30,
  Place of Incorporation and
operation
2021   2020   2020
  Direct Indirect Total   Direct

Indirect

 

Total   Direct Indirect Total
Main Activity % % %   % %   % % %
Santander Corredora de Seguros Limitada Insurance brokerage Santiago, Chile 99.75 0.01 99.76   99.75 0.01 99.76   99.75 0.01 99.76
Santander Corredores de Bolsa Limitada Financial instruments brokerage Santiago, Chile 50.59 0.41 51.00   50.59 0.41 51.00   50.59 0.41 51.00
Santander Asesorias Financieras Limitada Securities brokerage Santiago, Chile 99.03 - 99.03   99.03 - 99.03   99.03 - 99.03
Santander S.A. Sociedad Securitizadora Purchase of credits and issuance of debt instruments Santiago, Chile 99.64 - 99.64   99.64 - 99.64   99.64 - 99.64
Klare Corredora de Seguros S.A. Insurance brokerage Santiago, Chile 50.10 - 50.10   50.10 - 50.10   50.10 - 50.10
Santander Consumer Chile S.A. Financing Santiago, Chile 51.00 - 51.00   51.00 - 51.00   51.00 - 51.00
Sociedad operadora de Tarjetas de Pago Santander Getnet Chile S.A. (1) Card operator Santiago, Chile 99.99 0.01 100.00   99.99 0.01 100.00   99.99 0.01 100.00

 

The detail of non-controlling participation on all the remaining subsidiaries can be seen in Note 22 Non-controlling interest.

 

(1)On July 6, 2020, Banco Santander registered as a new subsidiary and business support company named “Sociedad Operadora de Tarjeta de Pago Santander Getnet Chile S.A”.

 

ii.Entities controlled by the Bank through other considerations

 

The following companies have been consolidated based on the determination that the Bank has control as previously defined above and in accordance with IFRS 10, Consolidated Financial Statements:

 

-Santander Gestión de Recaudación y Cobranza Limitada (collection services)

-Bansa Santander S.A. (financing revolving inventory lines to automotive dealers)

-Multiplica SpA (Development card incentive programs)

 

11

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

iii.Associates

 

An associate is an entity over which the Bank has significant influence. Significant influence, in this case, is defined as the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate.

 

The following companies are considered “Associates” in which the Bank accounts for its participation using the equity method:

      Percentage of ownership share
    Place of Incorporation and
operation
As of September 30,   As of December 31,   As of September 30,
    2021   2020   2020
Associates Main activity %   %    
Centro de Compensación Automatizado Electronic fund transfer and compensation services Santiago, Chile 33.33   33.33   33.33
Sociedad Interbancaria de Depósito de Valores S.A. Delivery of securities on public offer Santiago, Chile 29.29   29.29   29.29
Cámara Compensación de Alto Valor S.A. Payments clearing Santiago, Chile 15.00   15.00   15.00
Administrador Financiero del Transantiago S.A. Administration of boarding passes to public transportation Santiago, Chile 20.00   20.00   20.00
Servicios de Infraestructura de Mercado OTC S.A. Administration of the infrastructure for the financial market of derivative instruments Santiago, Chile 12.48   12.48   12.48

 

In the case of Cámara Compensación de Pagos Alto Valor S.A., Banco Santander-Chile has a representative on the Board of Directors. As per the definition of associates, the Bank has concluded that it exerts significant influence over those entities.

 

In the case of Servicios de Infraestructura de Mercado OTC S.A.The Bank participates, through its executives, actively in the administration and in the process of organization, which is why the Administration has concluded that it exerts significant influence on it.

 

c)Non-controlling interest

 

Non-controlling interest represents the portion of net income and net assets which the Bank does not own, either directly or indirectly. It is presented as “Attributable to non-controlling interest” separately in the Consolidated Statements of Income, and separately from shareholders’ equity in the Consolidated Statements of Financial Position.

 

In the case of entities controlled by the Bank through other considerations, income and equity are presented in full as non-controlling interest, since the Bank controls them, but does not have any ownership expressed as a percentage.

 

12

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

d)Reporting segments

 

Operating segments are components of an entity:

 

i.that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses from transactions with other components of the same entity);
ii.whose operating results are regularly reviewed by the entity’s chief executive officer, who makes decisions about resources allocated to the segment and assess its performance; and
iii.for which discrete financial information is available.

 

Two or more segments can be combined only if aggregation is consistent with International Financial Reporting Standard 8 “Operating Segments” (IFRS 8) and the segments have similar economic characteristics and are similar in each of the following respects:

 

i.the nature of the products and services;
ii.the nature of the production processes;
iii.the type or class of customers that use their products and services;
iv.the methods used to distribute their products or services; and
v.if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

 

The Bank reports separately on each operating segment that exceeds any of the following quantitative thresholds:

 

i.its reported revenue, from both external customers and intersegment sales or transfers, is 10% or more of the combined internal and external revenue of all the operating segments.
ii.the absolute amount of its reported profit or loss is 10% or more of the greater in absolute amount of: (i) the combined reported profit of all the operating segments that did not report a loss; (ii) the combined reported loss of all the operating segments that reported a loss.
iii.its assets represent 10% or more of the combined assets of all the operating segments.

 

Operating segments that do not meet any of the quantitative threshold may be treated as segments to be reported, in which case the information must be disclosed separately if management believes it could be useful for the users of the Consolidated Financial Statements.

 

Information about other business activities of the operating segments not separately reported is combined and disclosed in the “Other segments” category.

 

e)Functional and presentation currency

 

According to International Accounting Standard (IAS) 21 “The Effects of Changes in Foreign Exchange Rates”, the Chilean peso, which is the currency of the primary economic environment in which the Bank operates and the currency which influences its costs and revenue structure, has been defined as the Bank’s functional and presentation currency.

 

Accordingly, all balances and transactions denominated in currencies other than the Chilean Peso are treated as “foreign currency”.

 

The Bank maintains its accounting records and prepares its financial statements in Chilean pesos.

 

13

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

f)Foreign currency transactions

 

The Bank performs transactions in foreign currencies, mainly in U.S. dollar. Assets and liabilities denominated in foreign currencies, held by the Bank and its subsidiaries are translated to Chilean pesos at the representative market exchange rate of the month for the reported period; the rate used was Ch$811.46 as of september 30, 2021 (Ch$784.33 per US$1 as of September 30, 2020 and Ch$712.47 December 31, 2020).

 

The amounts of net foreign exchange gains and losses includes recognition of the effects that exchange rate variations have on assets and liabilities denominated in foreign currencies and the profits and losses on foreign exchange spot and forward transactions undertaken by the Bank.

 

g)Classification and measurement of financial instrument – under IFRS 9 (from January 1, 2018)

 

Financial instruments must be classified and measured in accordance with IFRS 9 starting from January 1, 2018, which established guidance for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows.

 

I.Classification of financial instrument

 

i)Classification of financial assets

 

Financial assets are classified into a measurement category based on both the Bank’s business model for managing the financial asset and the contractual cash flow characteristics of the financial asset.

 

Contractual cash flow assessment determines if the cash flows from the financial asset meet the SPPI (solely payment of principal and interest) criterion, i.e., whether the contractual terms of the financial asset give rise, on specific dates, to cash flows that are solely payments of principal and interest. Principal is the fair value of the financial assets at initial recognition, and interest is the consideration for the time value of money, the credit risk associated with the principal outstanding, and also may include liquidity risk, administrative cost and profit margin.

 

For classification process the Bank perform the SPPI test, which assesses the contractual term to identify whether they meet SPI criterion, i.e., the contract is a basic lending arrangement. The Bank applies judgement and considers relevant factors such as currency in which the financial asset is denominated, and period for which the interest rate is set.

 

Business model refers to how the Bank manages its financial assets in order to generate cash flows. The Bank determined its business model on initial application of IFRS 9 at the level that best reflects how it manages groups of financial assets to achieve its business objective.

 

The Banks’s business model is not assessed on an instrument-by- instrument basis, but at a higher level of aggregated portfolio and is based on observable factors such as: performance of the financial assets, the risk that affect the performance, and the expected frequency, value and timing of sales.

 

14

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

In accordance with IFRS 9 the business models are:

 

Held to collect business model (HTC) - financial assets that are held within a business model whose objective is to hold assets in order to collect contractual cash flows are managed to realize cash flows by collecting contractual payments over the life of the instrument, under this business model sales made when there is an increase in the credit risk, or to manage credit concentration risk are not inconsistent with a business model whose objective is to hold financial assets to collect contractual cash flows.
Held to collect and sell (HTC&S) - financial assets under this business model achieve the objective by both collecting contractual cash flows and selling financial assets, then involve a greater frequency and value of sales than HTC business model.
Other business model - financial assets held in this business has the objective of realizing cash flows through the sale of the assets. The Bank makes decisions based on the assets’ fair values and manages the assets to realize those fair values.

 

ii)Classification of financial liabilities

 

The Bank classified all financial liabilities as subsequently measured at amortized cost, except for derivatives that are liabilities, which are measured at fair value through profit or loss.

 

iii)Reclassification

 

Reclassification of financial assets is required if, and only if, the objective of the Bank's business model for managing those financial assets changes. Financial liabilities cannot be reclassified.

 

II.Measurement of financial instruments

 

i)Initial measurement

 

On initial recognition, financial assets and financial liabilities are measured at the transaction price, i.e. the fair value of the consideration given or received (IFRS 13). In the case of financial instruments not at fair value through profit or loss, transaction costs are directly attributable to the acquisition or issue of the financial asset or financial liability.

 

ii)Subsequent measurement- financial assets

 

After initial recognition, the Bank shall measure a financial asset at:

 

(a)Amortized cost

 

Financial assets that are held in a business model to collect the contractual cash flows and contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at amortized cost.

 

The effective interest method is used in the calculation of the amortized cost of a financial asset or a financial liability and in the allocation and recognition of the interest revenue or interest expense in profit or loss over the relevant period. The effective interest rate (EIR) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortized cost of a financial liability.

 

(b)Fair value through other comprehensive income (FVOCI)

 

Financial assets that are debt instruments held in a business model that is achieved by both collecting contractual cash flows and selling, and that contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at FVOCI. They are subsequently remeasured at fair value and changes therein (except for those relating to impairment, interest income and foreign currency exchange gains and losses) are recognized in other comprehensive income, until the assets are sold. Upon disposal, the cumulative gain and losses in OCI are recognized in the income statements.

 

(c)Fair value through profit or loss (FVTPL)

 

Financial assets that do not contain contractual terms that give rise on specified dates to cash flows that are SPPI, or if the financial assets, or if the financial asset is not held in a business model that is either (i) a business model to collect the contractual cash flows or (ii) a business model that is achieved by both collecting contractual cash flows and selling.

 

Financial assets held for trading are recognized at fair value through profit or loss, likewise derivatives contracts for trading purposes.

 

15

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

(d)Equity instruments

 

For certain equity instruments, the Bank may make an irrevocable election to present subsequent changes in the fair value of the instrument in other comprehensive income, except for dividend income which is recognized in profit or loss. Gains or losses on derecognition of these equity instruments are not transferred to profit or loss.

 

iii)Subsequent measurement- financial liabilities

 

After initial recognition, the Bank shall measure a financial liability at amortized cost.

 

III.Derecognition of financial assets and liabilities

 

Financial assets are derecognized when, and only when:

 

the contractual rights to the cash flows from the financial asset expire, or
the Bank transfers substantially all the risks and rewards of ownership of the financial asset, and therefore the Bank derecognizes the financial asset and recognize separately any rights and obligations created or retained in the transfer.

 

In some cases, the Bank enters into transactions for which it retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows in an arrangement that meets all the conditions required, i.e. the Bank only transfers collected amounts from original assets, selling or pledging original assets is prohibited, and the Bank has the obligation to remit cash flows collected without material delay.

 

When a financial asset is sold and the Bank simultaneously agrees to repurchase it (or an asset that is substantially the same) at a fixed price on a future date, the Bank continues to recognize the financial assets in their entirety in the statements of financial position because it retains substantially all of the risks and rewards of ownership. The cash consideration received is recognized as a financial asset and a financial liability is recognized for the obligation to pay the repurchase price.

 

Financial liabilities are derecognized when, and only when, they are extinguished, cancelled or expired.

 

IV.Contingent loan

 

The Bank issues contingent liabilities (including letters of credit, foreign letters of credit and performance guarantee) and loan commitments.

 

Contingent liabilities and undrawn loan commitments are commitments under which, over the duration of the commitment, the Bank is required to provide a loan with pre-specified term to the customer.

 

The nominal contractual loan value, when the loan agreed to be provided is on market terms, is not recorded in the statements of financial position. The related ECL allowances are disclosed in Note 22.

 

V.Offsetting of financial instruments

 

Financial asset and liability balances are offset, i.e., reported in the Consolidated Statements of Financial Position at their net amount, only if there is a legally enforceable right to offset the recorded amounts and the Bank intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously. As of December 31, 2020 and 2019 the Bank does not have balance offsetting of financial instruments.

 

16

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

h)Derivatives and hedging activities

 

The Bank has elected to continue applying the hedge accounting requirements of IAS 39 on adoption of IFRS 9.

 

The Bank has not provided comparative information for prior periods on the date of initial application of IFRS 9 for the new disclosures introduces by IFRS 9 as a consequential amendment to IFRS 7, as permitted by IFRS 7 paragraph 44z.

 

A “financial derivative” is a financial instrument whose value changes in response to the changes in an underlying observable market variable (such as an interest rate, a foreign exchange rate, a financial instrument’s price, or a market index, including credit ratings), whose initial investment is very small compared with other financial instruments having a similar response to changes in market factors, and which is generally settled at a future date.

 

For presentation purposes, derivatives are presented in accordance with its positive or negative fair value as assets or liabilities, respectively, and include trading and hedging instruments separately (see Note 6).

 

Hedging transactions

 

The bank has elected to continue applying the hedge accounting requirements in IAS 39 instead of the requirements of IFRS 9, thus the Bank uses financial derivatives for the following purposes:

 

i.to sell to customers who request these instruments in the management of their market and credit risks;
ii.to use these derivatives in the management of the risks of the Bank entities’ own positions and assets and liabilities (“hedging derivatives”), and
iii.to obtain profits from changes in the price of these derivatives (trading derivatives).

 

All financial derivatives that are not held for hedging purposes are accounted for as trading derivatives.

 

17

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

A derivative qualifies for hedge accounting if all the following conditions are met:

 

1.The derivative hedges one of the following three types of exposure:

 

a.Changes in the value of assets and liabilities due to fluctuations, among others, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”);

b.Changes in the estimated cash flows arising from financial assets and liabilities, and highly probable forecasted transactions (“cash flow hedge”);

c.The net investment in a foreign operation (“hedge of a net investment in a foreign operation”).

 

2.It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that:

 

a.At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”).

b.There is sufficient evidence that the hedge was actually effective during the life of the hedged item or position (“retrospective effectiveness”).

 

3.There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks.

 

The changes in the value of financial instruments qualifying for hedge accounting are recorded as follows:

 

a.For fair value hedges, the gains or losses arising on both hedging instruments and the hedged items (attributable to the type of risk being hedged) are included as “Net income (expense) from financial operations” in the Consolidated Statements of Income.

b.For fair value hedges of interest rate risk on a portfolio of financial instruments (macrohedges), gains or losses that arise in measuring hedging instruments within “Interest income and expense”, and other gains or losses due to changes in fair value of the underlying hedged item (attributable to the hedged risk) are recorded in the Consolidated Statements of Income under “Net income (expense) from financial operations”.

c.For cash flow hedges, the change in fair value of the hedging instrument is included as “Cash flow hedge” in “Other comprehensive income”.

d.The differences in valuation of the hedging instrument corresponding to the ineffective portion of the cash flow hedging transactions are recorded directly in the Consolidated Statements of Income under “Net income (expense) from financial operations”.

 

If a derivative designated as a hedging instrument no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, hedge accounting treatment is discontinued. When “fair value hedging” is discontinued, the fair value adjustments to the carrying amount of the hedged item arising from the hedged risk are amortized to gain or loss from that date, where applicable.

 

When cash flow hedges are discontinued, any cumulative gain or loss of the hedging instrument recognized under “Other comprehensive income” (from the period when the hedge was effective) remains recorded in equity until the hedged transaction occurs, at which time it is recorded in the Consolidated Statements of Income, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recorded immediately in the Consolidated Statements of Income.

 

18

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

i)Fair value measurement

 

In general, financial assets and liabilities are initially recognized at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments, other than those measured at fair value through profit or loss, are initially recognized at fair value plus transaction costs. Subsequently, and at the end of each reporting period, financial instruments are measured pursuant to the following criteria:

 

i.Valuation of financial instruments

 

Financial assets are measured according to their fair value, gross of any transaction costs that may be incurred in the course of a sale, except for loans and accounts receivable from customers.

 

“Fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. When measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

 

The fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either: (a) in the principal market for the asset or liability, or (b) in the absence of a principal market, the most advantageous market for the asset or liability. Even when there is no observable market to provide pricing information in connection with the sale of an asset or the transfer of a liability at the measurement date, the fair value measurement shall assume that the transaction takes place, considered from the perspective of a potential market participant who intends to maximize value associated with the asset or liability.

 

When using valuation techniques, the Bank shall maximize the use of relevant observable inputs and minimize the use of unobservable inputs as available. If an asset or a liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fair value regardless of where the input is categorized within the fair value hierarchy (i.e. Level 1, 2 or 3). IFRS 13 establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

 

Although the use of average prices is allowed as a practical resource to determine the fair value of an asset or a liability, the Bank makes an adjustment (FVA or fair value adjustment) when there is a gap between the purchase and sale price (close out cost).

 

All derivatives are recorded in the Consolidated Statements of Financial Position at the fair value previously described. This value is compared to the valuation as at the trade date. If the fair value is subsequently measured positive, this is recorded as an asset. If the fair value is subsequently measured negative, this is recorded as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price. The changes in the fair value of derivatives from the trade date are recorded in “Net income (expense) from financial operations” in the Consolidated Statements of Income.

 

19

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Specifically, the fair value of financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price. If, for exceptional reasons, the quoted price cannot be determined on a given date, the fair value is determined using similar methods to those used to measure over the counter (OTC) derivatives. The fair value of OTC derivatives is the sum of the future cash flows resulting from the instrument, discounted to present value at the date of valuation (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV) and option pricing models, among other methods. Also, within the fair value of derivatives are included Credit Valuation Adjustment (CVA) and Debit Valuation Adjustment (DVA), all with the objective that the fair value of each instrument includes the credit risk of its counterparty and Bank´s own risk. The Credit valuation adjustment (CVA) is a valuation adjustment to OTC derivatives as a result of the risk associated with the credit exposure assumed by each counterparty. The CVA is calculated taking into account potential exposure to each counterparty in each future period. The debit valuation adjustment (DVA) is a valuation adjustment similar to the CVA but, in this case, it arises as a result of the Bank’s own risk assumed by its counterparties in OTC derivatives. In the case of derivative instruments contracted with Central Clearing Houses, in which the variation margin is contractually defined as a firm and irrevocable payment, this payment is considered as part of the fair value of the derivative.

 

ii.Valuation techniques

 

Financial instruments at fair value, determined on the basis of price quotations in active markets, include government debt securities, private sector debt securities, equity shares, short positions, and fixed-income securities issued.

 

In cases where price quotations cannot be observed in available markets, the Bank’s management determines a best estimate of the price that the market would set using its own internal models. In most cases, these models use data based on observable market parameters as significant inputs however for some valuations of financial instruments, significant inputs are unobservable in the market. To determine a value for those instruments, various techniques are employed to make these estimates, including the extrapolation of observable market data.

 

The most reliable evidence of the fair value of a financial instrument on initial recognition usually is the transaction price, however due to lack of availability of market information, the value of the instrument may be derived from other market transactions performed with the same or similar instruments or may be measured by using a valuation technique in which the variables used include only observable market data, mainly interest rates.

 

The main techniques used as September 30, 2021 and 2020 and for the year ended December 31, 2020 by the Bank’s internal models to determine the fair value of the financial instruments are as follows:

 

i.In the valuation of financial instruments permitting static hedging (mainly forwards and swaps), the present value method is used. Estimated future cash flows are discounted using the interest rate curves of the related currencies. The interest rate curves are generally observable market data.
   

ii.In the valuation of financial instruments requiring dynamic hedging (mainly structured options and other structured instruments), the Black-Scholes model is normally used. Where appropriate, observable market inputs are used to obtain factors such as the bid-offer spread, exchange rates, volatility, correlation indexes and market liquidity.
   

iii.In the valuation of certain financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors, the present value method (futures) and the Black-Scholes model (plain vanilla options) are used. The main inputs used in these models are observable market data, including the related interest rate curves, volatilities, correlations and exchange rates.

 

20

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The fair value of the financial instruments calculated by the aforementioned internal models considers contractual terms and observable market data, which include interest rates, credit risk, exchange rates, quoted market price of shares, volatility and prepayments, among others. The Bank’s management considers that its valuation models are not significantly subjective, since these methodologies can be adjusted and evaluated, as appropriate, through the internal calculation of fair value and the subsequent comparison with the related actively traded price.

 

j)Recognizing income and expenses

 

The most significant criteria used by the Bank to recognize its revenues and expenses are summarized as follows:

 

i.Interest revenue, interest expense, and similar items

 

Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for financial assets that have subsequently become credit-impaired (or ‘stage 3’), for which interest revenue is calculated by applying the effective interest rate to their amortized cost (i.e. net of the ECL provision).

 

ii.Commissions, fees, and similar items

 

Fee and commission income and expenses are recognized in the Consolidated Statements of Income using criteria established in IFRS 15 “Revenue from contracts with customers”. See disclosure in Note 2 relating adoption and impact of IFRS 15.

 

Under IFRS 15, the Bank recognises revenue when (or as) satisfied a performance obligations by transferring a service (i.e. an asset) to a customer; under this definition an asset is transferred when (or as) the customer obtains control of that asset. The Bank considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third-parties.

 

The Bank transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, and/or the Bank satisfies the performance obligation at a point in time.

 

The main revenues arising from commissions, fees and similar items correspond to:

 

-Fees and commissions for lines of credits and overdrafts: includes accrued fees related to granting lines of credit and overdrafts in checking accounts.
-Fees and commissions for guarantees and letters of credit: includes accrued fees in the period relating to granting of guarantee payment for current and contingent third party obligations.
-Fees and commissions for card services: includes accrued and earned commissions in the period related to use of credit cards, debit cards and other cards
-Fees and commissions for management of accounts: includes accrued commissions for the maintenance of checking, savings and other accounts
-Fees and commissions for collections and payments: includes income arising from collections and payments services provided by the Bank.
-Fees and commissions for intermediation and management of securities: includes income from brokerage, placements, administration and securities' custody services.
-Fees and commissions for insurance brokerage fees: includes income arising for insurances distribution.
-Other fees and commissions: includes income arising from currency changes, financial advisory, cashier check issuance, placement of financial products and online banking services.

 

21

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The main expenses arising from commissions, fees and similar items correspond to:

-Compensation for card operation: includes commission expenses for credit and debit card operations related to income commissions card services.
-Fees and commissions for securities transactions: includes commissions expense for deposits, securities custody service and securities' brokerage.
-Other fees and commissions: include mainly expenses generated from online services.

 

The Bank has incorporated disaggregated revenue and expense disclosures and reportable segment relationship in Note 27.

 

Additionally, the Bank maintains certain loyalty programs associated to its credit cards services, for which it has deferred a percentage of the consideration received in the statements of financial position to comply with its related performance obligation or has liquidated on a monthly basis as far they arise.

 

iii.Loan arrangement fees

 

Fees that arise as a result of the origination of a loan, mainly application and analysis-related fees, are deferred and charged to the Consolidated Statements of Income over the term of the loan.

 

k)Impairment of non-financial assets

 

The Bank’s non-financial assets, are reviewed at the reporting date to determine whether they show signs of impairment (i.e. its carrying amount exceeds its recoverable amount). If any such evidence exists, the recoverable amount of the asset is estimated, in order to determine the extent of the impairment loss.

 

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

 

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

 

In connection with other assets, impairment losses recorded in prior periods are assessed at each reporting date to determine whether the loss has decreased and should be reversed. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years. Goodwill impairment is not reversed.

 

22

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

l)Property, plant, and equipment

 

This category includes the amount of buildings, land, furniture, vehicles, computer hardware and other fixtures owned by the consolidated entities or acquired under finance leases. Assets are classified according to their use as follows:

 

i.Property, plant and equipment for own use

 

Property, plant and equipment for own use includes but is not limited to tangible assets received by the consolidated entities in full or partial satisfaction of financial assets representing accounts receivable from third parties which are intended to be held for continuing own use and tangible assets acquired under finance leases. These assets are presented at acquisition cost less the related accumulated depreciation and, if applicable, any impairment losses (when net carrying amount was higher than recoverable amount).

 

Depreciation is calculated using the straight-line method over the acquisition cost of assets less their residual value, assuming that the land on which buildings and other structures stand has an indefinite life and, therefore, is not subject to depreciation.

 

The Bank applies the following useful lives for the tangible assets that comprise its assets:

 

ITEM  

Useful life

(Months)

Land   -
Paintings and works of art   -
Carpets and curtains   36
Computers and hardware   36
Vehicles   36
IT systems and software   36
ATMs   60
Other machines and equipment   60
Office furniture   60
Telephone and communication systems   60
Security systems     60
Rights over telephone lines   60
Air conditioning systems   84
Other installations   120
Buildings   1,200

 

The consolidated entities assess at each reporting date whether there is any indication that the carrying amount of any tangible asset exceeds its recoverable amount. If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in accordance with the revised carrying amount and to the new remaining useful life.

 

The estimated useful lives of the items of property, plant and equipment held for own use are reviewed at the end of each reporting period to detect significant changes. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recorded in the Consolidated Statements of Income in future years on the basis of the new useful lives.

 

Maintenance expenses relating to tangible assets held for own use are recorded as an expense in the period in which they are incurred.

 

ii.Assets leased out under operating leases

 

The criteria used to record the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives, and to record the impairment losses thereof, are consistent with those described in relation to property, plant and equipment held for own use.

 

23

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

m)Leasing

 

As of January 1, 2019, the Bank has started to apply IFRS 16 “Leases”, using the modified retrospective method and therefore, no comparative information is required, and 2018 balances continue to be reported under IAS 17 “Leases”.

 

Policy applicable from January 1, 2019

 

At inception of a contract the Bank assesses whether a contract contains a lease. A contract contains a lease if the contracts conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Bank assesses whether:

 

the contract involves the use of an identified asset – this may be specified explicitly or implicitly and should be physically distinct. If the supplier has a substantive substitution right, then the asset is not identified.
the Bank has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use, and
the Bank has the right to direct the use of the asset – this is decision-making purpose for which asset is use.

 

a.As a Lessee

 

The Bank recognizes a right-of-use asset and a lease liability at the lease commencement date in accordance within IFRS 16 “Leases”. The main contracts that the Bank has are offices and branches related, which are necessary to carry out its activities.

 

At the beginning, the right-of-use asset is equal to the lease liability and is calculated as the present value of the lease payments discounted using the incremental interest rate at the commencement date, considering the lease term of each contract. The average incremental interest rate as of December 31, 2020 is 1.45%. After initial recognition, the right-of-use is subsequently depreciated using the straight-line method in accordance with the lease term of the contract, and the lease liability is amortized in accordance with the effective interest method. Financial interest is accounted as interest expense, and depreciation as depreciation expense in each period.

 

The term of the lease comprises non-cancelable periods established within each contract, while for lease contracts with an indefinite useful life, the Bank has determined to assign a useful life equal to the longer non-cancelable period of its lease agreements. The Bank has elected not to recognize right-of-use assets and lease liabilities for short term leases that have a lease term of 12 months or less and leases of low-value assets. The Bank recognizes lease payments associated with these leases as an expense on a straight-line basis over the lease term. Any modification in the terms or lease should be treated as a new measurement.

 

Initially, the Bank measures the right-of-use asset at cost. The rent of the lease agreements is agreed in UF and paid in pesos. According to that, monthly variation in UF should be treated as a new measurement, and therefore, readjustments should be recognized as a modification to the obligation and the right-of-use asset.

 

The Bank has not entered into lease agreements with residual value guarantee or variable lease payments.

 

In applying IFRS 16, the Bank has used the following practical expedients permitted by the standard:

 

accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019 as short-term leases.
excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application.

 

The Bank has also elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Bank relied on its assessment made applying IAS 17 and Interpretation 4 Determining whether an Arrangement contains a Lease.

 

24

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

b. As a lessor

 

When the Bank acts as a lessor, it determines at the beginning if it corresponds to a financial or operating lease. To do this, it evaluates whether it has substantially transferred all the risks and benefits of the asset. In the affirmative case, it corresponds to a financial lease, otherwise it is a financial lease.

 

The Bank recognizes the lease income on a straight-line basis over the lease term.

 

c. Third party financing

 

The Bank recognizes the loans with third parties within “Loans and accounts receivable from customers” in the Consolidated Statements of Financial Position, the sum of the present value of the lease payments receivable from the lessee, including the exercise price of the lessee’s purchase option at the end of the lease term, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.

 

The finance income and expenses arising from these contracts are recorded under “Interest income” and “Interest expense” respectively, in Consolidated Statements of Income to achieve constant return rate over the lease term.

 

25

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

n)Intangible assets

 

Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of legal or contractual rights. The Bank recognizes an intangible asset, whether purchased or self-created (at cost), when the cost of the asset can be measured reliably, and it is probable that the future economic benefits that are attributable to the asset will flow to the Bank.

 

Intangible assets are recorded initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortization and any accumulated impairment losses.

 

Internally developed computer software is recorded as an intangible asset if, among other requirements (basically the Bank’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated.

 

Intangible assets are amortized on a straight-line basis using the estimated useful life, which has been defined by default in 36 months, and can be modified to the extent that it is demonstrated that the Bank will benefit from the use of the intangible for a different period mentioned above.

 

Expenditure on research activities is recorded as an expense in the year in which it is incurred and cannot be subsequently capitalized.

 

o)Cash and cash equivalents

 

For the preparation of the cash flow statements, the indirect method was used, starting with the Bank’s consolidated pre-tax income and incorporating non-cash transactions, as well as income and expenses associated with cash flows, which are classified as operating, investment or financing activities.

 

For the preparation of the cash flow statements, the following items are considered:

 

i.Cash flows: Inflows and outflows of cash and cash equivalents, such as deposits with the Central Bank of Chile, deposits in domestic banks, and deposits in foreign banks.

 

ii.Operating activities: Principal revenue-producing activities performed by banks and other activities that cannot be classified as investing or financing activities.

 

iii.The Bank's activity of granting loans encompasses not only the activities with its debtors but also the related activities that provide the funding to the loans granted. Since the funding for granting such loans is provided by, among other sources, senior bonds, mortgage bonds and subordinated bonds, the Bank presents the related cash flows as operating activities.

 

iv.Investing activities: The acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.Financing Activities: Activities that result in changes in the size and composition of the equity and liabilities that are not operating activities.

 

26

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

p)Expected credit losses allowance – under IFRS 9

 

Starting from January 1, 2018, the Bank replaced the “incurred loss” model of IAS 39 with an “expected credit loss (ECL)” model established by IFRS 9. The new single impairment model applies to all financial assets measured at amortized cost and fair value through other comprehensive income (FVOCI), including commitment and contingent loans. Investments in equity are outside of the scope of the new impairment requirements.

 

The Bank accounted ECL related to financial assets measured at amortized cost as a loss allowance in the statements of financial position, but the carrying amount of these assets is stated net of the loss allowance. ECL related to contingent loans is accounted as a provision in the statements of financial position. The Bank recognizes in profit or loss, as an impairment gain or loss, the amount of ECL (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized in accordance IFRS 9, for financial assets measured at amortized cost and contingent loans.

 

The new model uses a dual measurement approach, under which the loss allowance is measured as either:

 

-12-month expected credit losses
-Lifetime expected credit losses

 

The Bank has defined default on individual or collective basis:

 

Individual: when exposure is more than 89 days past due, it has been restructured, it is in judicial collection, it has been write-off, drag effect define as the entire outstanding amount on any loan which is 89 days or more past due.

 

Collective: when exposure is more than 89 days past due, it has been restructured, or has been identified as impaired by an internal risk committee).

 

The measurement basis depends on whether there has been a significant increase in credit risk since initial recognition. Based on changes in credit quality since initial recognition, IFRS 9 outlines a "three-stage" model impairment in accordance with the following diagram:

 

Change in credit quality since initial recognition
Stage 1 Stage 2 Stage 3
Initial recognition Significant increase in credit risk since initial recognition Credit impaired assets
12-month expected credit losses Lifetime expected credit losses Lifetime expected credit losses

 

The Bank, at the end of each reporting period, evaluated whether financial instrument's credit risk has significantly increased since initial recognition or whether an asset is considered to be credit-impaired, and consequently classified financial instrument in the respective stage:

 

Stage 1: When loans are first recognized, the Bank recognizes an allowance based on 12 months ECL. Stage 1 loans also include facilities where the credit risk has improved and the loan has been returned to Stage 1.
   
Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance for the lifetime ECL. Stage loans also include facilities, where the credit risk has improved and the loan has been returned to stage 2.
   
Stage 3: Loans considered credit impaired. The Bank records an allowance for the lifetime ECL, setting the PD at 100%.

27

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The Bank considers reasonable and supportable information that is available without undue cost or effort and that may affect the credit risk on a financial instrument, including forward looking information to determine a significant increase in credit risk since initial recognition. Forward looking information includes past events, current conditions and forecast or future economic conditions (macro-economic data).

 

Credit risk assessment and forward-looking information (including macro-economic factors), includes quantitative and qualitative information based on the Bank's historical experience, some examples are:

 

a.Financial or economic conditions that are expected to cause a significant change in the borrower’s ability to meet its debt obligations

 

b.An actual or expected internal credit rating downgrade for the borrower or decrease in behavioral scoring

 

c.An actual or expected significant change in the operating results of the borrower.

 

d.Significant increases in credit risk on other financial instruments of the same borrower.

 

e.Significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements.

 

f.Reductions in financial support from a parent entity or other affiliate.

 

g.Expected changes in the loan documentation including an expected breach of contract that may lead to covenant waivers or amendments, interest payment holidays, interest rate step-ups, requiring additional collateral or guarantees, or other changes to the contractual framework of the instrument.

 

The Bank has considered that if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial credit recognition but is not an absolute indicator. The bank did not rebut the backstop presumption of IFRS 9 relating to SICR or default.

 

i.Expected credit loss measurement

 

The ECL are the probability-weighted estimate of credit losses, i.e. the present value of all cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The three main components to measure the ECL are:

 

PD: The Probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognized and is still in the portfolio.

 

LGD: The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral.

 

EAD: The Exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdown on committed facilities, and accrued interest from missed payments.

 

For measuring 12-month and lifetime ECL, cash shortfalls are identified as follow:

 

-12-month expected credit losses: the portion of lifetime expected credit losses that represents the expected credit losses that result from default events on the financial instruments that are possible within the 12 months after the reporting date.

 

-Lifetime expected credit losses: the expected credit losses that result from all possible default events over the expected life of the financial instrument.

 

28

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The Bank considered a multi-factor analysis to perform credit risk analysis. The type of portfolio or transactions, and individual or collective evaluated.

 

The Bank divides its portfolio as:

 

i.Commercial loans,
ii.Mortgage loans, and
iii.Consumer loans.
iv.Contingent loans

 

The Bank evaluates individually whether objective evidence of impairment exists for loans that are individually significant, then collectively assesses loans that are not individually significant and loans which are significant but for which there is no objective evidence of impairment available under individually assessment.

 

ii.Contingent loans

 

The Bank enters into various irrevocable loan commitments and contingent liabilities. Even though these obligations may not be recognized on the statements of financial position, they contain credit risk and, therefore, form part of the overall risk of the Bank.

 

When the Bank estimates the ECL for contingent loans, it estimates the expected portion of the loan commitment that will be drawn down over its expected life.

 

iii.Forward looking information

 

The ECL model includes a broad range of forward-looking information as economic inputs, such as:

 

GDO growth
Unemployment rates
Central Banks interest rates
Real estate prices

 

iv.Modifications of financial assets

When loan measured at amortized cost has been renegotiated or modified but not derecognized, the Bank recognizes the resulting gains or losses as the difference between the carrying amount of the original loans and modified contractual cash flows discounted using the EIR before modification.

 

For ECL estimation purposes on financial assets that have been modified, is required to distinguish between modification that result in derecognition from those that does not result in derecognition. If the modification does not result in derecognition, then the subsequent assessment of whether there is a significant increase in credit risk is made comparing the risk at the reporting date based on the modified contractual term and the risk at initial recognition based on the original, unmodified contractual term.

 

If the modification results in derecognition, then the modified asset is considered to be a new asset. Accordingly, the date of modification is treated as the date of initial recognition for the purposes of the impairment requirements.

 

v.Collateral

 

The Banks seeks to use collateral to mitigate its credit risks on financial assets, where possible. Types of collateral are: cash, securities, letters of credit, real state and inventories. The Bank’s accounting policy for collateral assigned to it through its lending arrangements under IFRS 9 is the same is it was under IAS 39. Collateral, unless repossessed, is not recorded on the Bank’s statements of financial position. However, the fair value of collateral affects the calculation of ECLs. The main collateral associated to mortgage loans are real estate, which are valued based on data provided by specialized third parties.

 

29

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

  

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The estimation of ECL reflects the cash flows expected from collateral and other credit enhancement that are part of the contractual terms of the financial instruments.

 

According to the Bank’s policy when an asset (real estate) is repossessed are transferred to assets held for sale at their fair value less cost to sell as non-financial assets at the repossession date.

 

vi.Write-offs

 

The gross carrying amount of a financial asset is reduced when there is no reasonable expectation of recovery. A write-off constitutes a derecognition event of the corresponding loan transaction in its entirety, and therefore, include portions not past-due for installments loans or leasing operation (no partial write-off).

 

Subsequent recoveries of amounts previously written-off are credited to the income statements, as recovery of loans previously write-off, as a deduction from provisions for loan losses.

 

Loan and accounts receivable write-offs are recorded for overdue and current installments based on the time periods expired since reaching overdue status, as described below:

 

Type of loan   Term
Consumer loans with or without collateral   6 months
Other transactions without collateral   24 months
Commercial loans with collateral   36 months
Mortgage loans   48 months
Consumer leasing   6 months
Other non-mortgage leasing transactions   12 months
Mortgage leasing (household and business)   36 months

 

 

vii.COVID-19 support measures

 

The COVID-19 pandemic has had a major impact on Chile and global economies in 2020. As a result, the Chilean government has announced a series of measures to support lending. The largest measure was to provide additional funds to the Guarantee Fund for Small Companies (Fogape), a state fund that guarantees loans, leases and other credits provided to small businesses, extend Fogape’s coverage to companies with annual sales of up to UF 1 million and further amend the rules and regulations governing Fogape to encourage banks to provide lending to small businesses. Under Fogape’s new regulations, domestic banks, including us, may provide loans with preferential interest rates equal to the MPR plus 3% and terms of up to 48 months to eligible companies in an aggregate amount equal to up to 3 months of a company’s sales and receive a guarantee from Fogape for between 60% and 85% of each loan (“Fogape loans”). Such loans must have a 6-month grace period before a company must begin paying the loan. In addition, companies that receive loans guaranteed by Fogape pursuant to these new regulations, will also have payment holiday for all other outstanding loans until a period of 6 months.

 

Additionally, the Bank – in accordance with CMF’s instruction to facilitate access to credit for companies and household - has provided payment holiday terms of up to three months to mortgage customers with no more 30 days past due. This was extended by a further three months for customers in need. For consumer loans, the Bank has granted benefits such as a 3-month grace period to start paying, increases in terms, decreases in installments, and has even opted for current lower market rates.

 

30

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Customers who sought COVID-19 related support, including payment holidays, were not the subject of any wider SICR triggers, and do not have to be moved to Stage 2 for a lifetime ECL assessment unless they had triggered other SICR criteria, and payment holidays also did not cause accounts to become past due and therefore did not automatically trigger a Stage 2 or Stage 3 lifetime ECL assessment.

 

The assessment of SICRs and the measurement of ECLs are required to be based on reasonable and supportable information that is available to an entity without undue cost or effort. The Bank has developed estimates based on the best available information about past events, current conditions and forecasts of economic conditions. In assessing forecast conditions, the Bank has considered the effects of COVID-19 and the support measures being undertaken. Despite of the above, with current COVID-19 infection rates having increased and continued high levels of uncertainty in the macro-economic outlook and to address a potential lag in defaults, the Bank has decided not to make changes over IFRS9 models regarding COVID-19, but rather has established management overlay or post-model adjustments for 2020 expected credit losses allowance.

 

See Note N°34, Risk management.

 

q)Provisions, contingent assets and contingent liabilities

 

Provisions are liabilities of uncertain timing or amount. Provisions are recognized in the Consolidated Statements of Financial Position when the Bank:

 

i.has a present obligation (legal or constructive) as a result of past events, and
ii.it is probable that an outflow of resources will be required to settle these obligations and the amount of these resources can be reliably measured.

 

Contingent assets or contingent liabilities are any potential rights or obligations arising from past events whose existence will be confirmed only by the occurrence or non-occurrence if one or more uncertain future events that are not wholly within control of the Bank.

 

The Consolidated Statements of Financial Position and annual accounts reflect all significant provisions for which it is estimated that it is probable an outflow of resources will be required to meet the obligation where the probability of having to meet the obligation is more likely than not. Provisions are quantified using the best available information on the consequences of the event giving rise to them and are reviewed and adjusted at the end of each year. Provisions must specify the liabilities for which they were originally recognized. Partial or total reversals are recognized when such liabilities cease to exist or are reduced.

 

Provisions are classified according to the obligation covered as follows:

 

-Provision for employee salaries and expenses
-Provision for mandatory dividends
-Provision for contingent credit risks
-Provisions for contingencies

 

r)Deferred income taxes and other deferred taxes

 

The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to differences between the carrying amount of assets and liabilities and their tax bases. The measurement of deferred tax assets and liabilities is based on the tax rate, in accordance with the applicable tax laws, using the tax rate that applies to the period when the deferred asset and liability will be settled. The future effects of changes in tax legislation or tax rates are recorded in deferred taxes beginning on the date on which the law is enacted or substantially enacted.

 

s)Use of estimates

 

The preparation of the financial statements requires the Bank’s management to make estimates and assumptions that affect the application of the accounting policies and the reported balances of assets, liabilities, revenues and expenses. Actual results may differ from these estimates.

 

31

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

In certain cases, International Financial Reporting Standards (IFRS) require that assets or liabilities be recorded or disclosed at their fair values. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, quoted market prices in active markets have been used as the basis for measurement. When quoted market prices in active markets are not available, the Bank has estimated such values based on the best information available, including the use of modeling and other valuation techniques.

 

The Bank has established allowances to cover credit losses. These allowances must be regularly reviewed taking into consideration factors such as changes in the nature and volume of the loan portfolio, trends in forecasted portfolio quality, credit quality and economic conditions that may adversely affect the borrowers’ ability to pay. Increases in the allowances for loan losses are reflected as “Provision for loan losses” in the Consolidated Statements of Income. Loans are charged-off when the Bank’s management determines that a loan or a portion thereof is impaired. Charge-offs are recorded as a reduction of the allowance for loan losses.

 

The relevant estimates and assumptions made to calculate provisions are regularly reviewed by the Bank’s Management to quantify certain assets, liabilities, revenues, expenses, and commitments.

 

These estimates, made on the basis of the best available information, mainly refer to:

 

-Allowances for loan losses
-Impairment losses of certain assets
-The useful lives of tangible and intangible assets
-The fair value of assets and liabilities
-Commitments and contingencies
-Current and deferred taxes

 

t)Non-current assets held for sale (in “Other Assets”)

 

The Bank classified its investment held on Redbanc, Transbank and Nexus, previously classified as associated, as assets held for sale in Other Assets, in accordance with IFRS 5 “Non-current Assets held for sale and discontinued operations”, since its carrying amount will be recovered principally through a sale transaction rather through continuing use.

The Bank has ensured to comply with related requirement established in IFRS 5, which include:

 

the assets are available for immediate sale in its present conditions and its sale must be highly probable.
for the sale to be highly probable, the appropriate level of management is committed to a plan to sell the asset, and an active program to locate a buyer and complete the plan.
additionally, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.

 

The Bank has measured their investment on the mentioned associated investment at their carrying amount since it represents the lower between carrying amount and fair value less cost to sell. Additionally, the Bank will recognize an impairment loss for any initial or subsequent write-down of the asset to fair value less costs to sell, to the extent that it has not been recognized.

 

Events or circumstances may extend the period to complete the sale beyond one year. An extension of the period required to complete a sale does not preclude an asset from being classified as held for sale if the delay is caused by events or circumstances beyond the entity’s control and there is sufficient evidence that the entity remains committed to its plan to sell the asset.

 

32

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

As of December 31, 2020, the Bank has sold its investment in Nexus, while held its investment on Transbank and Redbanc (classified as held for sale), mainly to circumstances raised that were previously considered unlikely, such as social unrest and pandemic, and the consequent health and economic crisis. However, the Bank continues committed to its selling plan and its acquiring network development plan, as evidenced by the recent creation of a payment card operating company and the active search for potential buyers

 

Assets received or awarded in lieu of payment

 

Assets received or awarded in lieu of payment of loans and accounts receivable from clients are recognized at their fair value (as determined by an independent appraisal). A price is agreed upon by the parties through negotiation or, when the parties do not reach an agreement, at the amount at which the Bank is awarded those assets at a judicial auction. In the both cases, an independent appraisal is performed. The excess of the outstanding loan balance over the fair value is charged to net income for the period, under “Provision for loan losses”. Any excess of the fair value over the outstanding loan balance, less costs to sell of the collateral, is returned to the client. These assets are subsequently adjusted to their net realizable value less cost to sale (assuming a forced sale). The difference between the carrying value of the asset and the estimated fair value less costs to sell is charged to net income for the period, under “Other operating expenses”. The result obtained in the sale of the asset is subsequently recorded under “Other operating income”.

Independent appraisals are obtained at least every 18 months and fair values are adjusted accordingly. No adjustments have been made between appraisals with respect to the period covered by these financial statements considering the stability of the real estate market in Chile during past years and expected stability of the real estate market in the coming years.

 

At least once a year, the Bank performs the necessary analysis to update the “cost to sale” of assets received or awarded in lieu of payments. According to the Bank’s survey, as of December 31, 2020 the average cost to sale was estimated at 3.2% of the appraisal value (3.1% as of December 31, 2019).

 

u)Earnings per share

 

Basic earnings per share are determined by dividing the net income attributable to the shareholders of the Bank for the reported period by the weighted average number of shares outstanding during the reported period.

 

Diluted earnings per share are determined in the same way as basic earnings, but the weighted average number of outstanding shares is adjusted to take into consideration the potential diluting effect of stock options, warrants, and convertible debt.

 

As of December 31, 2020, and 2019 the Bank did not have any instruments that generated dilution.

 

v)Temporary acquisition (assignment) of assets and liabilities

 

Purchases or sales of financial assets under non-optional repurchase agreements at a fixed price are recorded in the Consolidated Statements of Financial Position based on the nature of the debtor (creditor) under “Deposits in the Central Bank of Chile,” “Deposits in financial institutions” or “Loans and accounts receivable from customers” (“Central Bank of Chile deposits,” “Deposits from financial institutions” or “Customer deposits”).

 

Differences between the purchase and sale prices are recorded as financial interest over the term of the contract.

 

33

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

w)Provision for mandatory dividends

As of September 30, 2021 and 2020 an for the year ended December 31, 2020 the Bank recorded a provision for mandatory dividends. This provision is made pursuant to Article 79 of the Corporations Act, which is in accordance with the Bank’s internal policy, pursuant to which at least 30% of net income for the period is distributed, except in the case of a contrary resolution adopted at the respective shareholders’ meeting by unanimous vote of the outstanding shares. This provision is recorded, as a deducting item, under the “Retained earnings – provision for mandatory dividends” line of the Consolidated Statements of Changes in Equity with offset to Provisions.

x)Employee benefits

 

i.Post-employment benefits – Defined Benefit Plan:

 

According to current collective labor agreements and other agreements, the Bank has an additional benefit available to its principal executives, consisting of a pension plan whose purpose is to endow them with funds for a better supplementary pension upon their retirement.

 

Features of the Plan:

 

The main features of the Post-Employment Benefits Plan promoted by the Banco Santander-Chile are:

 

a.Aimed at the Bank’s management.
b.The general requirement to apply for this benefit is that the employee must be carrying out his/her duties when turning 60 years old.
c.The Bank will create a pension fund, with life insurance, for each beneficiary in the plan. Periodic contributions into this fund are made by the manager and matched by the Bank.
d.The Bank will be responsible for granting the benefits directly.

 

The Bank uses the method of projected unit credit, to determine the present value of the defined benefit obligation and the current service cost.

 

Components of defined benefit cost include:

 

-current service cost and any past service cost, which are recognized in profit or loss for the period;
-net interest on the liability (asset) for net defined benefit, which is recognized in profit or loss for the period;
-new liability (asset) remeasurements for net defined benefit include:

 

(a)actuarial gains and losses;
(b)the difference between the actual return on plan assets and the interest on plan assets included in the net interest component and;
(c)changes in the effect of the asset ceiling.

 

The liability (asset) for net defined benefit is the deficit or surplus, determined as the difference between the present value of the defined benefit obligation less the fair value of plan assets.

 

Plan assets comprise the pension fund taken out by the Group with a third party that is not a related party. These assets are held by an entity legally separated from the Bank and exist solely to pay benefits to employees.

 

The Bank recognizes the present service cost and the net interest of the Personnel salaries and expenses on the Consolidated Statements of Income.

 

34

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The post-employment benefits liability, recognized in the Consolidated Statements of Financial Position represents the deficit or surplus in the defined benefit plans of the Bank. Any surplus resulting from the calculation is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions.

 

When employees leave the plan before meeting the requirements to be eligible for the benefit, contributions made by the Bank are reduced.

 

ii.Cash-settled share-based compensation

 

The Bank allocates cash-settled share-based compensation to executives of the Bank and its Subsidiaries in accordance with IFRS 2. The Bank measures the services received and the obligation incurred at fair value. Until the obligation is settled, the Bank determines the fair value at the end of each reporting period, as well as at the date of settlement, recognizing any change in fair value in the income statements of the period.

 

y)Application of new and revised International Financial Reporting Standards

 

1.New and revised standards effective in current year

 

The following new and revised IFRS have been adopted in these financial statements:

 

Reform of the benchmark interest rate. Phase 2 - On August 27, 2020 the IASB has finalized its response to the ongoing rate reform of interbank offer (IBOR) and other reference interest rates by issuing a package of amendments to IFRS Standards. The amendments are intended to help companies provide investors with useful information on the effects of the reform on the state’s financial institutions of those companies. The amendments complement those issued in 2019 and focus on the effects on the financial statements when a company replaces the rate of reference interest for an alternative reference rate as a result of the reform.

 

The modifications of this final phase refer to:

 

changes in contractual cash flows: a company will not have to derecognise or adjust the carrying amount of instruments due to the changes required by the reform, but will update the effective interest rate to reflect the change to the reference rate alternative;
hedge accounting - a business will not have to discontinue its hedge accounting just because it makes the changes required by the reform, if the hedge meets the other hedge accounting criteria; and
disclosures: a company will be required to disclose information about new risks arising from the reform and how it manages the transition at alternative reference rates.

These amendments are effective for annual reporting periods beginning on or after January 1, 2021, and early adoption is permitted. The Bank has been working since 2019 on the transition of different risk-free reference rates (hereinafter also “RFR”), including the LIBOR rate. In this context, the Bank's work plan includes the identification of the impacted customers, the impacted areas, the various risks to which the Bank is exposed, the determination of work teams regarding each risk, the involvement of the high administration in a robust project governance plan and an action plan for each of the impacted identified risk/areas, which we allowed to face this challenge successfully.

 

Amendment to IFRS 16 - Rental concessions related to Covid-19. This modification issued on March 10, 2021, has extended the term of the initial amendment by one year on May 29, 2020, the IASB issued this amendment to provide an exception to tenants from not accounting for a lease concession as a lease amendment if it is related to Covid-19. But you must disclose the application of this exception. The modification is effective as of June 1, 2020, with early application allowed even for financial institutions that have not yet been authorized as of May 28, 2020. The Bank has decided not to take any concession in relation to its lease contracts, therefore that this modification has not had an impact on the Bank's Consolidated Financial Statements.

35

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

2.New and revised IFRS issued but not effective

 

IFRS 9, Financial Instruments - On July 24, 2014, the IASB published the final version of IFRS 9 - Financial Instruments, including the regulations already issued together with a new expected loss model and minor modifications to the classification and measurement requirements for financial assets, adding a new category of financial instruments: assets at fair value with changes in other comprehensive result for certain debt instruments. It also includes an additional guide on how to apply the business model and testing of contractual cash flow characteristics.

 

On October 12, 2017, "Amendment to IFRS 9: Characteristics of Anticipated Cancellation with Negative Compensation" was published, which clarifies that according to the current requirements of IFRS 9, the conditions established in Test SPPI are not met if the Bank should make a settlement payment when the client decides to terminate the credit. With the introduction of this modification, in relation to termination rights, it is allowed to measure at amortized cost (or FVOCI) in the case of negative compensation.

 

Amendments to IFRS 10 and IAS 28 - Sale and Contribution of Assets between an Investor and its Associate or Joint Venture - On September 11, 2014, the IASB published this amendment, which clarifies the scope of the gains and losses recognized in a transaction that involves to an associate or joint venture, and that this depends on whether the asset sold or contribution constitutes a business. Therefore, the IASB concluded that all of the gains or losses should be recognized against the loss of control of a business. Likewise, profits or losses resulting from the sale or contribution of a non-business subsidiary (IFRS 3 definition) to an associate or joint venture must be recognized only to the extent of unrelated interests in the associate or business set.

 

Modification to IAS 1 - Classification of liabilities as current and non-current - On January 23, 2020 the IASB issued this modification that affects only the presentation of liabilities in the statement of financial position. The classification as current or non-current should be based on the rights existing at the end of the reporting period and align the wording in all the affected paragraphs by referring to the right to defer settlement for at least 12 months and specify that only the rights in force at the end The reporting period affects the classification of a liability. Along the same lines, it clarifies that the classification is not affected by the expectations of whether an entity will exercise its right to defer the settlement of a liability and makes it clear that the settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. This modification is effective as of January 1, 2022 with retroactive effect, and early application allowed. The Bank's administration will evaluate the impact that this rule will have on the presentation of the statement of situation.

 

Annual Improvements to IFRS 2018-2020. On May 15, 2020, the IASB issued the following improvements:

 

-IFRS 1 First Adoption of IFRS's - Subsidiary as first-time adopter: the amendment allows a subsidiary that applies paragraph D16 (a) of IFRS 1 measure the accumulated differences using the amounts reported by its parent, based on the date.
-IFRS 9 Financial Instruments - Fees in the "10% test" for derecognition of financial liabilities: The amendment clarifies that Fees should include an entity when it applies the "10% test" in paragraph B3.3.6 of IFRS 9 when assessing derecognition of a financial liability. An entity will include only commissions paid and received between the entity (the debtor) and the lender, including commissions paid and received by the entity or the lender on behalf of others.
-IFRS 16 Leases - Lease Incentives: The amendment to Illustrative Example 13 that accompanies IFRS 16 removes from the example the illustration of reimbursement of improvements to the landlord to resolve any possible confusion regarding the treatment of leasing that may arise because of how lease incentives are illustrated in that example.
-IAS 41 Agriculture - Taxes on fair value measurement: the amendment eliminates the requirement of paragraph 22 of IAS 41 for entities exclude cash flows from taxes when measuring the fair value of a biological asset using the present value technique. This will guarantee consistency with the requirements of IFRS 13.

 

The improvements to IFRS 1, IFRS 9 and IAS 41 are effective as of January 1, 2022, with earlier application permitted. The amendment to IFRS 16 only refers to an illustrative example, so it does not set an effective date. The Bank's management will evaluate the impact that this standard will have on the presentation of the situation.

 

36

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Improvements to IAS 16 Property, plant and equipment - Income before intended use. On May 15, 2020, the IASB published this improvement, which prohibits deducting from the cost of an item of property, plant and equipment any income from the sale of items produced while they are located and placed in the necessary conditions for it to operate. in the manner intended by management. Instead, an entity recognizes the income from the sale of those items and the cost of producing them, in profit or loss. This amendment is effective as of January 1, 2022, with early application permitted. The Bank's administration will evaluate the impact that this regulation will have on the presentation of the statement of situation.

 

Modification IAS 37 - Onerous contracts, costs of fulfilling a contract. On May 15, 2020, the IASB published this amendment, which establishes that the cost of fulfilling a contract comprises the costs that are directly related to the contract. The costs that are directly related to a contract can be incremental costs of fulfilling that contract (examples would be direct labor, materials) or an allocation of other costs that are directly related to the fulfillment of contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used to fulfill the contract). This amendment is effective as of January 1, 2022, with early application allowed. The Bank's management will evaluate the impact that this standard will have on the presentation of the statement situation.

 

Modification to IFRS 3 - Reference to the conceptual framework. On May 15, 2020 the IASB published this amendment which updates IFRS 3 to refer to the 2018 Conceptual Framework instead of the 1989 Framework. Additionally, it adds to IFRS 3 a requirement for transactions and other events within the scope of IAS. 37 or IFRIC 21, for an acquirer to apply IAS 37 or IFRIC 21 (instead of the Conceptual Framework) in identifying liabilities assumed in a business combination, and adds an explicit statement stating that an acquirer should not recognize assets contingents acquired in a business combination. This amendment is effective as of January 1, 2022, with early application permitted. The Bank's management will evaluate the impact that this standard will have on the presentation of the balance sheet.

 

Amendment to IAS 8 - Definition of accounting estimates. On February 12, 2021, the IASB published this amendment to help entities distinguish between accounting policy and accounting estimate. The definition of change in accounting estimates is replaced with a definition of accounting estimates. Under the new definition, accounting estimates are "monetary amounts in financials statements that are subject to measurement uncertainty." The amendments are effective for annual periods beginning on or after January 1, 2023 and changes in accounting policies and changes in accounting estimates that occur on or after the beginning of that period. The above application is allowed. The Bank's management will evaluate the impact that this standard will have on the presentation of the balance sheet.

 

Amendment to IAS 1 and IFRS 2 Practice Statements - Accounting Policy Disclosures. On February 12, 2021, the IASB published this amendment that is intended to assist in identifying which accounting policies should be disclosed in financial statements. Modifications include:

 

-an entity is required to disclose its material accounting policy information rather than its significant accounting policies
-explains how an entity can identify material accounting policies and gives examples of when accounting policies are likely to be material
-the amendments clarify that the information on accounting policies may be material due to its nature, even if the related amounts are immaterial; the amendments clarify that information on accounting policies is material if users of an entity's financial statements will need it to understand other material information in the financial statements; and
-the amendments clarify that, if an entity discloses immaterial accounting policy information, such information will not hide the material accounting policy information.

 

In addition, the IFRS 2 Practice Statement has been amended by adding guidance and examples to explain and demonstrate the application of the "four-step materiality process" to accounting policy information to support amendments to IAS 1.

 

The modifications are applied prospectively. The amendments to IAS 1 are effective for annual periods beginning on or after January 1, 2023. Early application is permitted. Once the entity applies the amendments to IAS 1, it is also allowed to apply the amendments to the IFRS 2 Practice Statement. The Bank's management will evaluate the impact that this standard will have on the presentation of the balance sheet.

 

37

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Modification IAS 12 - Deferred taxes on assets and liabilities generated from a single transaction. This Modification issued on May 7, 2021, on the treatment of deferred taxes on operations such as leases and decommissioning obligations. In these situations, entities must recognize deferred assets and liabilities in the event that both deductible and taxable temporary differences occur for the same amount. The modifications are effective for fiscal years beginning on January 1, 2023, with early application permitted. The Bank's management will evaluate the impact that this standard will have on the presentation of the balance sheet.

 

38

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 02

ACCOUNTING CHANGES

 

As of the date of these Consolidated Financial Statements, there are no accounting changes to disclose.

 

39

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 03

SIGNIFICANT EVENTS

 

As of September 30, 2021, the following significant events have occurred and affected the Bank’s operation and Consolidated Financial Statements.

 

a)The Board

 

On March 30, 2021, in an extraordinary session of the Board of Directors, it was agreed to summon an Ordinary Shareholders Meeting scheduled for April 29, 2021 with the intention to propose a new distribution of profits and payment of dividends equivalent to 60% of the retained earnings as of December 31, 2020 equivalent to $ 1.64751729 per share and to propose that the remaining 40% of the profits for the fiscal year to be destined to increase the Bank's reserves.

 

b)Shareholders’ meeting

 

At the Ordinary Shareholders' Meeting of Banco Santander-Chile held on April 29, 2021, together with approving the Consolidated Financial Statements for the year 2020, it was agreed to distribute 60% of the net profits for the year (which are named in the financial statements “Profit attributable to equity holders of the Bank”), which amounted to $ 517,447 million. Said profits correspond to a dividend of $ 1.64751729 for each share. Likewise, it was approved that the remaining 40% of the profits be used to increase the Bank's reserves.

 

Board election: the members approved the election of Messrs. Alfonso Gómez, Claudio Melandri, Rodrigo Vergara, Félix de Vicente, Orlando Poblete, Juan Pedro Santa María, Ana Dorrego, Rodrigo Echenique and Lucía Santa Cruz, as Directors, and Blanca Bustamante and Oscar von Chrismar, as Alternate Directors, elected for a period of three years until the next renewal of the entire Board of Directors.

 

Appointment of external auditors: the members approved PricewaterhouseCoopers Consultores Auditores SpA as external auditors for the 2021 financial year.

 

c)COVID-19

 

The aid measures that the Bank has granted in the current pandemic context are classified into new operations granted under Fogape guarantees and rescheduled operations:

 

Covid-19 As of September 30, 2021
MCh$
Operations with Fogape guarantee 2,383,561
Rescheduling 8,004,282
Reactivate Fogape 892,249

 

40

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 03

SIGNIFICANT EVENTS, continued

 

d)Laws and Standards

 

Chilean Central Bank

 

Due to the importance of the FCIC for the implementation of monetary policy and financial stability and considering the evolution of the financing needs of companies and the adjustments in the Government's guarantee programs, the Central Bank of Chile announced on 27 January 2021, the start of a third stage of this instrument (FCIC3). In particular, this new stage is aimed at: (i) completing the committed execution of this monetary policy instrument, and (ii) deepening and extending commercial credit due to the prolongation of the sanitary emergency and the need to support the country’s reactivation process, responding to the current financial needs of companies, complementing the recently enacted Fogape-Reactiva program, especially in its refinancing line. FCIC 3 came into effect on March 1, 2021 and there will be a limit of US $ 2 billion per bank. Additionally, the Fogape-Reactiva program is a new economic support measure that includes financing for working capital, investment and refinancing for SMEs until December 31, 2021.

 

Others

 

On April 13, 2021, Law No. 21,314 was published in the Official Gazette, which, among other matters, establishes new transparency requirements and reinforces the responsibilities of market agents. One of the requirements is that companies issuing public offering securities must publish, at least 30 days in advance, the date on which the next financial statements will be disclosed, be they annual or quarterly. The Bank complied with this requirement on its website.

 

e)Subsidiaries

 

On January 7, 2021, the Extraordinary Shareholders' Meeting of Sociedad Operadora de Tarjetas de Pago Santander Getnet Chile SA agreed to pay the total subscribed and unpaid equity by its shareholders, for a total amount of Ch$ 3,727 million. Shareholder Santander Asesorias Financieras made its payment in cash for Ch$ 800 thousand. The shareholder Banco Santander-Chile made its payment in part with cash for Ch$ 38 million and also contributing assets valued by the extraordinary Shareholders' Meeting at Ch$ 3,689 million.

 

On January 29, 2021, in exempt resolution N°704, the Council of the Financial Market Commission adopted in the Ordinary Session N°. 220 dated January 28, 2021, to approve the application for authorization of operation for Sociedad Operadora de Tarjetas de Pago Santander Getnet Chile S.A. as a bank support company and its registration in the single register of Payment Card Operators of this Institution.

 

On March 22, 2021, Getnet, through an Extraordinary Shareholders' Meeting, agreed to modify the company’s bylaws with regard to the number of Directors, from 3 to 5.

 

41

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 03

SIGNIFICANT EVENTS, continued

 

f)Bods issued at September 30, 2021

 

f.1Senior bonds

 

As of September 30, 2021 the Bank has issued senior bonds for an amount of USD 193,000,000, JPY 22,000,000,000 and CHF 150,000,000. The debt issuance information is included in Note 16.

 

Series Currency Term (annual) Issuance rate (annual)

Issuance

date

Amount

Maturity

date

Bonos USD USD 2 years and 10 months 0.71% 02-25-2021 50,000,000 12-28-2023
Bonos USD USD 2 years and 11 months 0.72% 02-26-2021 100,000,000 01-26-2024
Bonos USD USD 7 years 2.05% 06-09-2020 27,000,000 06-09-2028
Bonos USD USD 5 years 1.64% 07-15-2021 16,000,000 07-15-2026
Total USD       193,000,000  
Bonos JPY 5 years 0.35% 05-13-2021 10,000,000,000 05-13-2026
Bonos JPY 4 years 0.40% 07-12-2021 2,000,000,000 07-22-2025
Bonos JPY 4 years 0.42% 07-13-2021 10,000,000,000 07-28-2025
Total JPY       22,000,000,000  
Bono CHF CHF 6 years 0.33% 06-22-2021 150,000,000 06-27-2027

 

g.Otros

 

On the following dates, the Bank's Board of Directors approved the constitution of additional voluntary provisions in order to mitigate any future effects of the current health crisis on the Bank's loan portfolio.

 

February 3, 2021, MCh$ 24,000

 

May 25, 2021, MCh$ 18,000

 

July 27, 2021, MCh$ 15,000

 

August 24, 2021, MCh$ 15,000

 

In Ordinary Session dated June 22, 2021, the Board of Directors agreed to participate in the capital increase of the company Transbank S.A.

 

On July 15, 2021, the sale of the shares held in the Banco Latinoaméricano de Comercio Exterior (Bladex), whose book value was $ 136 million, was carried out, which generated a profit of $ 148 million.

 

During July 2021 and September 2021, the Bank made disbursed Ch$2,500 million and Ch$4,999 million, respectively for the capital increases of Transbank S.A.

 

42

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 04

REPORTING SEGMENTS

 

The Bank manages and measures the performance of its operations by business segments. The information disclosed in this note is not necessarily comparable to that of other financial institutions, since it is based on management’s internal information system by segment.

 

Inter-segment transactions are conducted under normal arm’s length commercial terms and conditions. Each segment’s assets, liabilities, and income include items directly attributable to the segment to which they can be allocated on a reasonable basis.

 

Under IFRS 8, the Bank has aggregated operating segments with similar economic characteristics according to the aggregation criteria specified in the standard. A reporting segment consists of clients that are offered differentiated but, considering how their performance is measured, are homogenous services based on IFRS 8 aggregation criteria, thus they form part of the same reporting segment. Overall, this aggregation has no significant impact on the understanding of the nature and effects of the Bank’s business activities and the economic environment.

 

The Bank has the reportable segments noted below:

 

Retail Banking

 

Consists of individuals and small to middle-sized entities (SMEs) with annual income less than Ch$2,000 million. This segment gives customers a variety of services, including consumer loans, credit cards, automobile loans, commercial loans, foreign exchange, mortgage loans, debit cards, checking accounts, savings products, mutual funds, stockbrokerage, and insurance brokerage. Additionally, the SME clients are offered government-guaranteed loans, leasing and factoring.

 

Middle-market

 

This segment is made up of companies and large corporations with annual sales exceeding Ch$2,000 million. It serves institutions such as universities, government entities, local and regional governments and companies engaged in the real estate industry who carry out projects to sell properties to third parties and annual sales exceeding Ch$800 million with no upper limit. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, savings products, mutual funds, and insurance brokerage. Also companies in the real estate industry are offered specialized services to finance projects, chiefly residential, with the aim of expanding sales of mortgage loans.

 

Corporate & Investment Banking (CIB)

 

This segment consists of foreign and domestic multinational companies with sales over Ch$10,000 million. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, investments, savings products, mutual funds and insurance brokerage.

 

This segment also consists of a Treasury Division which provides sophisticated financial products, mainly to companies in the Middle-market and Global Investment Banking segments. These include products such as short-term financing and fund raising, brokerage services, derivatives, securitization, and other tailor-made products, The Treasury area may act as brokers to transactions and also manages the Bank’s investment portfolio.

 

Corporate Activities (“Other”)

 

This segment mainly includes the results of our Financial Management Division, which develops global management functions, including managing inflation rate risk, foreign currency gaps, interest rate risk and liquidity risk. Liquidity risk is managed mainly through wholesale deposits, debt issuances and the Bank’s available for sale portfolio. This segment also manages capital allocation by unit. These activities usually result in a negative contribution to income.

 

43

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 04

REPORTING SEGMENTS, CONTINUED

 

In addition, this segment encompasses all the intra-segment income and all the activities not assigned to a given segment or product with customers.

 

The segments’ accounting policies are those described in the summary of accounting policies, The Bank earns most of its income in the form of interest income, fee and commission income and income from financial operations. To evaluate a segment’s financial performance and make decisions regarding the resources to be assigned to segments, the Chief Operating Decision Maker (CODM) bases his assessment on the segment's interest income, fee and commission income, and expenses.

 

Below are the tables showing the Bank’s results by reporting segment for the years ended September 30, 2021 and December 31, 2020, in addition to the corresponding balances of loans and accounts receivable from customers:

 

  For the period of 9 months to September 30, 2021
 

Loans and accounts receivable at amortized cost

(1)

Demand and time deposits Net interest income
Net fee and commission income

 

Financial transactions, net

(2)

Expected credit losses

Support expenses

(3)

Segment`s
net contribution
  MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$
Retail Banking 25,101,154 14,206,980 787,543 188,666 22,522 (148,345) (460,701) 389,685
Middle-market 8,460,111 6,185,189 251,552 31,063 9,939 (51,111) (67,179) 174,264
CIB 2,007,504 8,178,496 72,101 22,406 82,626 (828) (55,959) 120,346
Other 66,720 1,286,281 199,197 (4,347) (24,538) (13,621) (8,641) 148,050
Total 35,635,489 29,856,946 1,310,393 237,788 90,549 (213,905) (592,480) 832,345
                 

Other operating income           7,540
Other operating expenses and impairment           (88,157)
Income from investments in associates and other companies           1,252
Income tax expense           (166,147)
Result of continuing operations           586,833
Result of discontinued operations           -
Net income for the year           586,833
             

(1)Corresponds to loans and accounts receivable at amortized cost under IFRS 9, without deducting their allowances for loan losses.
(2)Corresponds to the sum of the net income from financial operations and the foreign exchange profit or loss.
(3)Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.

44

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 04

REPORTING SEGMENTS, CONTINUED

 

    For the period of 9 months to September 30, 2020
 

Loans and accounts receivable at amortized cost

(1)

Demand and time deposits Net interest income
Net fee and commission income

 

Financial transactions, net

(2)

Expected credit losses

Support expenses

(3)

Segment`s
net contribution
  MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$
Retail Banking 23,822,682 11,680,632 783,541 156,324 16,533 (237,239) (448,249) 270,910
Middle-market 8,793,190 5,399,458 255,308 29,198 14,158 (11,139) (69,164) 119,361
CIB 1,896,722 5,958,945 84,605 17,759 64,251 (29,404) (53,187) 84,024
Other 280,139 2,647,238 26,756 (5,027) 39,408 (29,545) (7,481) 24,111
Total 34,792,733 25,686,273 1,150,210 198,254 134,350 (406,327) (578,081) 498,406
                 

Other operating income           6,379
Other operating expenses and impairment           (56,620)
Income from investments in associates and other companies           930
Income tax expense           (99,131)
Result of continuing operations           349,964
Result of discontinued operations           -
Net income for the year           349,964

 

 

45

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 04

REPORTING SEGMENTS, CONTINUED

 

  For the quarter to September 30, 2021
 

Loans and accounts receivable at amortized cost

(1)

Demand and time deposits Net interest income
Net fee and commission income

 

Financial transactions, net

(2)

 

 

ROF

Support expenses

(3)

Segment`s
net contribution
  MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$
Retail Banking 395,096 679,751 263,949 65,448 9,619 (27,515) (151,721) 159,780
Middle-market 222,033 223,290 83,234 12,195 4,708 (24,728) (23,258) 52,151
CIB 474,431 (191,095) 25,674 10,321 31,316 (3,253) (19,538) 44,520
Other (11,972) (333,059) 68,441 (2,168) (10,869) (39,002) (3,294) 13,108
Total 1,079,588 378,887 441,298 85,796 34,774 (94,498) (197,811) 269,559
                 

Other operating income           3,870
Other operating expenses and impairment           (44,586)
Income from investments in associates and other companies           365
Income tax expense           (49,852)
Result of continuing operations           179,356
Result of discontinued operations           -
Net income for the year           179,356

 

(1)Corresponds to loans and accounts receivable at amortized cost under IFRS 9, without deducting their allowances for loan losses.
(2)Corresponds to the sum of the net income from financial operations and the foreign exchange profit or loss.
(3)Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.

 

46

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 04

REPORTING SEGMENTS, CONTINUED

 

    For the quarter to September 30, 2020
 

Loans and accounts receivable at amortized cost

(1)

Demand and time deposits Net interest income

Net fee and commission income

 

Financial transactions, net

(2)

Expected credit losses

Support expenses

(3)

Segment`s
net contribution
  MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$
Retail Banking

273,107

679,751 263,949 65,448 4,489 (38,849) (151,721) 143,316
Middle-market 22,033 223,290 83,234 12,195 (422) (36,062) (23,258) 35,687
CIB

474,431

(1,91,095) 25,674 10,321 27,759 (5,390) (19,538) 38,826
Other (119,72) (333,059) 68,441 (2,168) (110,01) 23,800 (3,294) 75,778
Total 957,599 378,887 441,298 85,796 20,825 (56,501) (197,811) 293,607
                 

Other operating income           1,759
Other operating expenses and impairment           (42,314)
Income from investments in associates and other companies           365
Income tax expense           (56,625)
Result of continuing operations           196,792
Result of discontinued operations           -
Net income for the year           196,792

 

47

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 05

CASH AND CASH EQUIVALENTS

 

a)The detail of the balances included under cash and cash equivalents is as follows:

 

    As of September 30,   As of
December 31,
    2021   2020
    MCh$   MCh$
Cash and deposits in banks        
Cash   867,604   665,397
Deposits at the Central Bank of Chile   2,805,748   1,313,394
Deposits in local banks   4,338   1,571
Deposits in banks abroad   1,848,507   822,926
Subtotals – Cash and deposits in banks   5,526,197   2,803,288
         
Net cash items in process of collection   96,199   91,332
         
Cash and cash equivalents   5,622,396   2,894,620

 

The balance of funds held in cash and at the Central Bank of Chile reflects the monthly average that the Bank must maintain in accordance with the regulations governing minimum reserves although the balance can be withdrawn on demand.

 

b)Cash in process of collection and in process of being cleared:

 

Cash items in process of collection and in process of being cleared represent domestic transactions which have not been processed through the central domestic clearinghouse or international transactions which may be delayed in settlement due to timing differences. These transactions were as follows:

 

    As of
September 30,
As of
December 31,
    2021
MCh$
  2020
MCh$
Assets        
Documents held by other banks (documents to be cleared)   116,512   137,396
Funds receivable   341,816   315,567
Subtotal   458,328   452,963
Liabilities        
Funds payable 362,129   361,631
Subtotal 362,129   361,631
       
Cash in process of collection, net   96,199   91,332

 

 

48

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 06

FINANCIAL ASSETS HELD FOR TRADING

 

The detail of instruments deemed as financial trading investments is as follows:

 

    As of
September 30,
  As of
December 31,
    2021   2020
    MCh$   MCh$
         
Chilean Central Bank and Government securities        
Chilean Central Bank Bonds   701   419
Chilean Central Bank Notes   -   -
Other Chilean Central Bank and Government securities   39,766   131,827
Subtotal   40,467   132,246
         
Other Chilean securities        
Time deposits in Chilean financial institutions   -   -
Mortgage finance bonds of Chilean financial institutions   -   -
Chilean financial institution bonds   -   -
Chilean corporate bonds   10,749   1,472
Other Chilean securities   -   -
Subtotal   10,749   1,472
         
Foreign financial securities        
Foreign Central Banks and Government securities   -   -
Other foreign financial instruments   -   -
Subtotal   -   -
         
Investments in mutual funds        
Funds managed by related entities   -   -
Funds managed by others   -   -
Subtotal   -   -
         
Total   51,216   133,718

 

As of Septiembre 30, 2021 and december 31, 2020, there were no trading investments sold under contracts to resell to clients or financial institutions. 

49

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

 

a)As of September 30, 2021 and December 31, 2020 the Bank holds the following portfolio of derivative instruments:

 

  As of September 30, 2021
  Notional amount   Fair value
 

Up to 3

Months

More than 3

months to

1 year

More than

1 year

Total   Assets Liabilities
  MCh$ MCh$ MCh$ MCh$   MCh$ MCh$
               
Fair value hedge derivatives              
Interest rate swaps 142,096 210,000 7,811,953 8,164,049   7,973 499,404
Cross currency swaps 481,414 1,799,929 4,666,749 6,948,092   305,769 167,335
Subtotal 623,510 2,009,929 12,478,702 15,112,141   313,742 666,739
               
Cash flow hedge derivatives              
Currency forwards 269,776 1,191,182 - 1,460,958   100 1,796
Cross currency swaps 206,922 1,123,359 11,199,393 12,529,674   99,594 400,134
Subtotal 476,698 2,314,541 11,199,393 13,990,632   99,694 401,930
               
Trading derivatives              
Currency forwards 23,605,595 12,212,190 11,372,550 48,190,335   1,197,793 1,210,663
Interest rate swaps 9,192,725 25,775,602 100,017,616 134,985,943   2,941,884 3,001,820
Cross currency swaps 3,125,536 7,750,277 80,916,887 91,792,700   5,117,793 5,110,843
Call currency options 163,713 40,677 - 204,390   2,375 4,572
Put currency options 195740 33,122 364 229,226   158 319
Subtotal 36,283,309 46,811,868 192,307,417 275,402,594   9,260,003 9,328,217
               
Total 37,383,517 51,136,338 215,985,512 304,505,367   9,673,439 10,396,886

 

  As of December 31, 2020
  Notional amount   Fair value
 

Up to 3

months

More than 3

months to

1 year

More than

1 year

Total   Assets Liabilities
  MCh$ MCh$ MCh$ MCh$   MCh$ MCh$
               
Fair value hedge derivatives                
Interest rate swaps 50,000 410,687 5,064,113 5,524,800   33,816 83,666
Cross currency swaps 317,400 601,987 5,634,700 6,554,087   294,562 178,529
Subtotal 367,400 1,012,674 10,698,813 12,078,887   328,378 262,195
               
Cash flow hedge derivatives              
Currency forwards  2,121,326  503,280  601,582  3,226,188    2,985  3,556
Cross currency swaps  424,358  498,373  9,777,491  10,700,222    35,902  183,386
Subtotal 2,545,684 1,001,653 10,379,073 13,926,410   38,887 186,942
               
Trading derivatives              
Currency forwards  22,729,787 12,175,074   8,215,576  43,120,437    1,085,327   1,158,904
Interest rate swaps  14,006,503   22,118,742  97,803,009  133,928,254    3,651,651  3,588,912
Cross currency swaps   6,719,065  15,138,056   138,352,345  160,209,466    3,921,440  3,819,446
Call currency options  129,339  31,641  57,581  218,561     1,527  909
Put currency options   112,145   16,173   58,276  186,594     4,875  1,352
Subtotal 43,696,839 49,479,686 244,486,787 337,663,312   8,664,820 8,569,523
               
Total 46,609,923 51,494,013 265,564,673 363,668,609   9,032,085 9,018,660

 

50

 

Banco Santander-Chile and Subsidiaries

Notes to the Consolidated Financial Statements

AS OF SEPTEMBER 30, 2021 AND 2020 AND FOR THE YEARS ENDED DECEMBER 31, 2020

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

b)Micro-hedge accounting

 

Fair value micro-hedge

 

The Bank uses cross-currency swaps and interest rate swaps to hedge its exposure to changes in fair value of hedged items attributable to interest rates. Those hedging instruments change the effective cost of long-term issuances from a fixed interest rate to a variable interest rate.

 

Below is a detail of the hedged elements and hedge instruments under fair value hedges as of September 30, 2021 and December 31, 2020, classified by term to maturity:

 

  As of September 30, 2021
  Within 1 year Between 1 and 3 years Between 3 and 6 years Over 6 years Total
  MCh$ MCh$ MCh$ MCh$ MCh$
Hedged item            
Debt instruments at FVOCI          
Chilean sovereign bonds - 12.172 67.513 114.822 194.507
Mortgage financing bonds 389 - - - 389
US Treasury bonds - - - - -
Time deposits and other time liabilities          
Time deposits 222.096 - - - 222.096
Issued debt instruments          
Senior bonds 383.445 1.242.628 2.393.700 609.362 4.629.135
Subordinated bonds - 81.146 81.146 162.292 324.584
Interbank Borrowing        
Chilean Central Bank loans - - - - -
Total 1.486.364 7.554.519 2.745.225 1.523.472 13.309.580
Hedging instrument          
Cross currency swaps 1.234.268 1.158.201 2.393.700 609.362 5.395.531
Interest rate swaps 252.096 6.396.318 351.525 914.110 7.914.049
Total 1.486.364 7.554.519 2.745.225 1.523.472 13.309.580

 

  As of December 31, 2020
  Within 1 year Between 1 and 3 years Between 3 and 6 years Over 6 years Total
  MCh$ MCh$ MCh$ MCh$ MCh$
Hedged item            
Debt instruments at FVOCI          
Chilean sovereign bonds 10,687 10,687 138,044 249,440 408,858
Mortgage financing bonds - 918 - - 918
US Treasury bonds - - 178,118 - 178,118
Time deposits and other time liabilities          
Time deposits 58,238 58,217 - - 116,455
Issued debt instruments          
Senior bonds 88,023 801,349 2,112,831 1,220,521 4,222,724
Subordinated bonds - - 249,363 142,494 391,857
Interbank borrowing        
Chilean Central Bank loans - - 3,865,000 - 3,865,000
Total 156,948 871,171 6,543,356 1,612,455 9,183,930
Hedging instrument          
   Cross currency swaps 96,261 835,484 2,056,864 1,220,521 4,209,130
   Interest rate swaps 60,687 35,687 4,486,492 391,934 4,974,800