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Form 6-K BANCO SANTANDER CHILE For: Dec 28

December 29, 2021 7:38 AM EST

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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 28, 2021

 

 

2

 

Exhibit 99.1

 

 

1

 

CONTENT

 
   
Consolidated Interim Financial Statements  
   
CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION 3
CONSOLIDATED INTERIM STATEMENT OF INCOME 4
CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME 5
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY 6
CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS 7
   
Notes to the Consolidated Interim Financial Statements  
   
NOTE 01   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 9
NOTE 02   CHANGES IN ACCOUNTING 40
NOTE 03   SIGNIFICANT EVENTS 40
NOTE 04   REPORTING SEGMENTS 42
NOTE 05   CASH AND CASH EQUIVALENTS 45
NOTE 06   TRADING INVESTMENTS 46
NOTE 07 

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

47
NOTE 08   INTERBANK LOANS 54
NOTE 09   LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS 55
NOTE 10   INVESTMENTS 61
NOTE 11  INTANGIBLE ASSETS 63
NOTE 12   FIXED ASSETS AND RIGHT OF USE ASSETS AND OBLIGATION FOR LEASE CONTRACT 65
NOTE 13   CURRENT AND DEFERRED TAXES 69
NOTE 14   OTHER ASSETS 72
NOTE 15   TIME DEPOSITS AND OTHER TIME LIABILITIES 73
NOTE 16  ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES 74
NOTE 17   MATURITY OF FINANCIAL ASSETS AND LIABILITIES 82
NOTE 18   PROVISIONS 84
NOTE 19   OTHER LIABILITIES 85
NOTE 20   CONTINGENCIES AND COMMITMENTS 86
NOTE 21   EQUITY 89
NOTE 22   CAPITAL REQUIREMENTS (BASEL) 92
NOTE 23   NON-CONTROLLING INTEREST 95
NOTE 24   INTEREST INCOME 97
NOTE 25   FEES AND COMMISSIONS 99
NOTE 26   NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS 102
NOTE 27   NET FOREIGN EXCHANGE INCOME 103
NOTE 28   PROVISIONS FOR LOAN LOSSES 104
NOTE 29   PERSONNEL SALARIES AND EXPENSES 105
NOTE 30   ADMINISTRATIVE EXPENSES 106
NOTE 31   DEPRECIATION, AMORTIZATION, AND IMPAIRMENT 107
NOTE 32   OTHER OPERATING INCOME AND EXPENSES 108
NOTE 33   TRANSACTIONS WITH RELATED PARTIES 109
NOTE 34   FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES 113
NOTE 35   RISK MANAGEMENT 120
NOTE 36   NON-CURRENT ASSETS HELD FOR SALE 136
NOTE 37   SUBSEQUENT EVENTS 137

 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENT 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
  Trading investments 6 51,216   133,718
  Investments under resale agreements                                   - 
  Financial derivative contracts 7 9,673,439   9,032,085
  Interbank loans, net 8 823   18,920
  Loans and accounts receivables from customers, net 9 34,818,047   33,413,429
  Available for sale investments 10 6,370,314   7,162,542
  Held to maturity investments   2,692,995   -
  Investments in associates and other companies   10,692   10,770
  Intangible assets 11 85,548   82,537
  Property, plant, and equipment 12 180,813   187,240
  Right of use assets 12 183,734   201,611
  Current taxes 13 121,823                               - 
  Deferred taxes 13 749,543   538,118
  Other assets 14 2.779.377   1,738,856
TOTAL ASSETS   63.702.889   55,776,077
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 borrowing   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 liabiilties 12 140,011   149,585
  Current taxes 13                             -    12,977
  Deferred taxes 13 315,183   129,066
  Provisions 18 567.649   456,120
  Other liabilities 19 1.267.199   1,165,853
TOTAL LIABILITIES   60,330,463   52,123,478
EQUITY        
  Attributable to the equity holders of the Bank        
  Capital 21 3,281,011   3,567,916
  Reserves 21 891.303   891,303
  Valuation adjustments 21 2.548.965   2,341,986
  Retained earnings   380,239   362,213
    Retained earnings from prior years       -
    Income for the period   543.198   517,447
    Minus:  Provision for mandatory dividends 21 (162,959)   (155,234)
  Non-controlling interest 23 91,415   84,683
TOTAL EQUITY   3,372,426   3,652,599
         
TOTAL LIABILITIES AND EQUITY   63,702,889   55,776,077
               

 

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

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile    3

 

 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENT OF INCOME

For the periods ended

 

    As of September 30,
    2021   2020
  NOTE MCh$   MCh$
OPERATING INCOME        
         
Interest income 24 1,872,128   1,587,609
Interest expense 24 (561,735)   (437.399)
         
Net interest income   1,310,393   1.150.210
         
Fee and commission income 25 409,694   332.013
Fee and commission expense 25 (171,906)   (133.759)
         
Net fee and commission income   237,788   198.254
         
Net income (expense) from financial operations 26 (2,885)   167.530
Net foreign exchange gain (loss) 27 108.826   (29.999)
Other operating income 32 14,186   15.903
         
Net operating profit before provision for loan losses   1,668,308   1.501.898
         
Provision for loan losses 28 (278,541)   (426.185)
         
NET OPERATING INCOME   1,389,767   1.075.713
         
Personnel salaries and expenses 29 (298,972)   (306,323)
Administrative expenses 30 (203,043)   (189,845)
Depreciation and amortization 31 (90,465)   (81,913)
Impairment of property, plant and equipment 31 -   (638)
Other operating expenses 32 (95,971)   (67,104)
         
Total operating expenses   (688,451)   (645,823)
         
OPERATING INCOME   701,316   429,890
         
Income from investments in associates and other companies   1,252   930
         
Income before tax   702,568   430,820
         
Income tax expense 13 (152,372)   (94,076)
         
     Result of continuous operations   550,196   336,744
     Result of discontinued operations   36 -   -
NET INCOME FOR THE PERIOD   550.196   336,744
         
Attributable to:        
Equity holders of the Bank   543,198   334,012
   Non-controlling interest 23 6,998   2,732
Earnings per share of continuous operations attributable to Equity holders of the Bank (expressed in Chilean pesos):        
Basic earnings 21 2,883   1,772
Diluted earnings 21 2,883   1,772
         

 

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

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile    4

 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENT OF OTHER COMPREHENSIVE INCOME

For the periods ended

 

    As of September 30,
    2021   2020
  NOTE MCh$   MCh$
         
NET INCOME FOR THE PERIOD   550,196   336,744 
OTHER COMPREHENSIVE INCOME - ITEMS WHICH WILL BE RECLASSIFIED TO PROFIT OR LOSS      
         
Available for sale investments 21               (524,055)   24,997 
Cash flow hedge 21               (177,571)   5,533 
Other comprehensive income which may be reclassified subsequently to profit or loss, before tax   (701,626)   30,530 
Income tax related to items which may be reclassified subsequently to profit or loss   189,439   (8,245) 
         
Other comprehensive income for the period which may be reclassified subsequently to profit or loss, net of tax   (512,187)   22,285 
OTHER COMPREHENSIVE INCOME THAT WILL NOT BE RECLASSIFIED TO PROFIT OR LOSS   -  
TOTAL OTHER COMPREHENSIVE INCOME FOR THE PERIOD   38,009   359,029 
         
Attributable to:        
Equity holders of the Bank   31,288   356,290 
Non-controlling interest 23 6,721   2,739 
         

 

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

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile    5

 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

For the periods ended September 30, 2021 and 2020 and December 2020

 

    RESERVES VALUATION ADJUSTMENTS RETAINED EARNINGS      
  Capital Reserves
and other
retained
earnings
Effects of
merger of
companies
under
common
control
Available for
sale
investments
Cash flow
hedge
Income
tax effects
Prior years
retained
earnings
Income
for the
period
Provision
for
mandatory
dividends
Total
attributable
 to equity
holders 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 2,123,372 (2,224) 29,349 (40,435) 2,993 - 552,093 (165,628) 3,390,823 79,494 3,470,317
Distribution of income from previous period - - - - - - 552,093 (552,093) - - - -
Equity as of January 1, 2020 891,303 2,123,372 (2,224) 29,349 (40,435) 2,993 552,093 - (165,628) 3,390,823 79,494 3,470,317
Increase or decrease of capital and reserves - 220,838 - - - - (220,838) - - - - -
Transactions with own shares - - - - - - - - - - - -
Dividend distributions/ withdrawals made - - - - - - (165,627) - - (165,627) - (165,627)
Other equity movements -   - - - -   - - - (32) (32)
Provision for mandatory dividends - - - - - - - - 96,966 96,966 - 96,966
Subtotal - 220,838 - - - - (386,465) - 96,966 (68,661) (32) (68,693)
Other comprehensive income - - - 50,656 35,356 (23,224) - - - 62,788 4 62,792
Result of continuous operations - - - - - - - 228,873 - 228,873 1,529 230,402
Result of discontinued operations - - - - - - - - - - - -
Subtotal - - - 50,656 35,356 (23,224) - 228,873 - 291,661 1,533 293,194
Equity As of September 30, 2020    891,303     2,344,210                (2,224)                80,005          (5,079)          (20,231)           165,628          228,873         (68,662)              3,613,823 80,995 3,694,818
Equity as of December 31, 2020 891,303     2,344,210 (2,224) 98,976 (136,765) 10,203 - 517,447 (155,234) 3,567,916 84,683 3,652,599
Distribution of income from previous period - - - - - - 517,447 (517,447) - - - -
Equity as of January 1, 2021 891,303 2,344,210 (2,224) 98,976 (136,765) 10,203 517,447 - (155,234) 3,567,916 84,683 3,652,599
Increase or decrease of capital and reserves - 206,979 - - - - (206,979) - - - - -
Transactions with own shares - - - - - - - - - - - -
Dividend distributions/ withdrawals made - - - - - - (310,468) - 155,234 (155,234) - (155,234)
Other equity movements - - - - - - - - - - 11 11
Provision for mandatory dividends - - - - - - - - (162,959) (162,959) - (162,959)
Subtotals - 206,979 - - - - (517,447) - (7,725) (318,193) 11 (318,182)
Other comprehensive income - - - (523,676) (177,571) 189,337 - - - (511,910) (277) (512,187)
Result of continuing operations - - - - - - - 543,198 - 543,198 6,998 550,196
Result of discontinued operations - - - - - - - - - - - -
Subtotal - - - (523,676) (177,571) 189,337 - 543,198 - 31,288 6,721 38,009
Equity As of September 30, 2021 891,303 2,551,189 (2,224) (424,700) (314,336) (199,540) - 543,198 (162,959) 3,281,011 91,415 3,372,426

(*) See note 1 b) for non-controlling interest.

Period Total attributable to equity
holders of the Bank
 

Allocated to

reserves

  Allocated to
dividends
   Distributed
Percentage
 

Number of

shares

 

Dividend per share

(in chilean pesos)

  MCh$   MCh$   MCh$   %        
Year 2019 (Extraordinary Shareholders Meeting November 2020) 517,447   206,979   310,468   60   188,446,126,794   1,647
Year 2019 (Shareholders Meeting April 2020) 552,093   220,838   165,628   30   188,446,126,794   0,879
Year 2018 (Shareholders Meeting April 2019) 552,093   220,838   165,627   30   188,446,126,794   0,879

 

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

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile    6

 

 

 

Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

For the periods ended

 

      As of September 30,
      2021   2020
  NOTE   MCh$   MCh$
           
A – CASH FLOWS FROM OPERATING ACTIVITIES:          
NET INCOME FOR THE PERIOD     550,196   336,744
Debits (credits) to income that do not represent cash flows     (963,082)   (881,669)
Depreciation and amortization 31   90,465   81,913
Impairments of property, plant and equipment and intangibles 31   -   638
Provision for loan losses 28   334,228   482,605
Provision from trading investments mark to market     (15,998)   (32,099)
Income from investments in associates and other companies 32   (1,279)   (959)
Net gain on sale of assets received in lieu of payment 32   (10,756)   (13,828)
Provision on assets received in lieu of payment 32   299   1,383
Net gain on sale of property, plant and equipment 32   (571)   (773)
Charge off of assets received in lieu of payment 32   9,473   11,817
Net interest income 24   (1,310,393)   (1,150,210)
Net fee and commission income 25   (237,788)   (198,254)
Changes in deferred taxes 13   164,131   (70,467)
Other (credits) debits  to income that do not represent cash flows     15,107   6,565
Increase/decrease in operating assets and liabilities     3,243,420   (218,868)
(Increase) decrease of loans and accounts receivables from customers, net     (1,366,413)   (2,152,402)
(Increase) decrease of financial investments     (1,818,265)   (1,841,281)
Decrease (increase) of interbank loans     18,105   4,039
(Increase) decrease of assets received or awarded in lieu of payment     4,400   4,337
Increase (decrease) of debits in customers checking accounts     2,228,484   3,102,058
Increase (decrease) of time deposits and other time liabilities     1,908,065   (1,414,420)
Increase (decrease) of obligations with domestic banks     (217,101)   (271,620)
Increase (decrease) of other demand liabilities or time obligations     284,924   568,085
Increase (decrease) of obligations with foreign banks     2,301,405   (825,341)
Increase (decrease) of obligations with Central Bank of Chile     726,147   4,974,125
Increase (decrease) of obligations under repurchase agreements     (920,164)   (126,473)
Increase (decrease) in other financial liabilities     17,027   (66,034)
Net increase of other assets and liabilities     (1,810,916)   (2,329,228)
Redemption of letters of credit     (3,796)   (4,733)
Senior bond issuances     851,402   989,611
Redemption mortgage bonds and payments of interest     (5,944)   (6,104)
Redemption and maturity of senior bonds and payments of interest     (502,627)   (2,092,588)
Interest received     1,872,128   1,587,609
Interest paid     (561,735)   (437,399)
Dividends received from investments in other companies     506   432
Fees and commissions received 25   409,694   332,013
Fees and commissions paid 25   (171,906)   (133,759)
Total cash flow provided by (used in) operating activities     2,830,534   (763,793)

 

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

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile    7

 

 

 


Banco Santander-Chile and Subsidiaries

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

For the periods ended

 

      September 30,
      2021   2020
  NOTE   MCh$   MCh$
           
B – CASH FLOWS FROM INVESTMENT ACTIVITIES:          
Purchases of property, plant and equipment 12   (26,777)   (21,513)
Sales of property, plant and equipment     1,913   6,907
Enajenaciones de inversions en sociedades                        -      -
Purchase of intangible assets 11   (28,774)   (20,219)
Total cash flow provided by (used in) investment activities     (53,638)   (34,825)
           
C – CASH FLOW FROM FINANCING ACTIVITIES:          
From shareholder´s financing activities     (351,924)   300,166
Increase in other obligations     -   -
Subordinated bonds emisions     -   472,174
Redemption of subordinated bonds and payments of interest     (7,010)   (4,349)
Dividends paid     (310,468)   (165,627)
Lease paid     (34,446)   (2,028)
From non-controlling interest financing activities     -   -
Dividends and/or withdrawals paid     -   -
Total cash flow (used in) financing activities     (351,924)   300,166
           
D – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE PERIOD     2,424,972   (498,452)
           
E – EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS     302,804   108,455
           
F – INITIAL BALANCE OF CASH AND CASH EQUIVALENTS     2,894,620   3,711,334
           
FINAL BALANCE OF CASH AND CASH EQUIVALENTS 5   5,622,396   3,321,337

 

 

      As of September, 31,
Reconciliation of provisions for the Consolidated Interim Statements
of Cash Flows for the periods
    2021   2020
      MCh$   MCh$
           
Provision for loan losses for cash flow purposes     334,228   482,605
Recovery of loans previously charged off     (55,687)   (56,420)
Provision for loan losses - net 28   (278,541)   426,185

 

 

      Changes other than cash  
Reconciliation of liabilities arising from financing activities

December, 31

2020

MCh$

Cash Flow

MCh$

 

Acquisition MCh$

Foreign
Currency
Movement

MCh$

 

UF Movement

MCh$

Fair Value
Changes

MCh$

September, 3

2021

MCh$

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

 

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

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile    8

 

 

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and 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 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, 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 December 31 2020, 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. This makes Banco Santander Spain have control over 67.18% of the Bank’s shares.

 

a)Basis of preparation

 

The present Consolidated Financial Statements have been prepared in accordance with the Compendium of Accounting Standards (CNC) and instructions issued by the Commission for the Financial Market (CMF) (former Superintendency of Banks and Financial Institutions “SBIF”), an entity auditor that according to Law No. 21,000 that “Creates the Commission for the Financial Market”, provides in paragraph 6 of its article 5 that the Commission for the Financial Market (CMF) may “set the rules for the preparation and presentation of the reports, balance sheets, statements of situation and other financial statements of the audited entities and determine the principles according to which they must keep their accounting and in all that that is not treated by it if it does not contradict its instructions, must adhere to the generally accepted accounting criteria, which correspond to the technical standards issued by the Colegio de Contadores de Chile A.G., coinciding with the International Financial Reporting Standards (IFRS or IFRS, for its acronym in English) agreed by the International Accounting Standards Board (IASB). In case of discrepancies between the accounting principles and accounting criteria issued by the CMF (ex SBIF) in its Compendium of Accounting Standards and instructions, these will prevail last.

 

For purposes of these consolidated financial statements the Bank uses certain terms and conventions. References to “USD”, “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, references to “JPY” are to Japanese yen, references to “CHF” are to Swiss franc, references to “AUD” references are to Australian dollar, references “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 Notes to the Consolidated Financial Statements contain additional information to support the figures submitted in the Consolidated Statement of Financial Position, Consolidated Statement of Income, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows for the period. These contain narrative descriptions and details of these statements in a clear, relevant, reliable and comparable manner.

 

b)Basis of preparation for the Consolidated Financial Statements

 

The Consolidated Financial Statements as of September 30, 2021 and 2020 and December 2020, include 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 (i.e., it has rights that grant the current capacity of managing the relevant activities of 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.

 

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 the majority of the voting rights of an investee, but it will be considered to have the 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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  9

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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, these include:

 

the size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders.
the potential voting rights held by the Bank, other vote holders or other parties.
the rights arising from other contractual agreements.
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 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 balances and transactions between consolidated entities are eliminated.

 

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 Statement of Changes in Equity. Their share in the income for the year is presented as “Attributable to non-controlling interest” in the Consolidated Statement of Income.

 

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 2021   2020   2020
 

Incorporation

and

Direct Indirect Total   Direct Indirect Total   Direct Indirect Total
Main Activity operation % % %   % % %   % % %
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 Finance Limitada Financial automovite 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 details of non-controlling interest in all the subsidiaries can be seen in Note 23 – Non-controlling interest.

(1)On July 6, 2020, “Sociedad operadora de Tarjetas de Pago Santander Getnet Chile S.A” was enrolled as a subsidiary.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  10

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

ii.Entities controlled by the Bank through other considerations

 

The following companies have been consolidated based on the fact that the relevant activities of them are determined by the Bank (companies complementary to the banking sector) and therefore the Bank exercises control:

 

-Santander Gestión de Recaudación y Cobranza Limitada (collection services).
-Bansa Santander S.A. (management of repossessed assets and leasing of properties).
-Multiplica SpA (Development card incentive programs).

 

iii.Associates

 

An associate is an entity over which the Bank has the ability to exercise significant influence, but not control or joint control. This ability is usually represented by a share equal to or higher than 20% of the voting rights of the Company and is accounted for using the equity method.

 

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 S.A. Electronic fund transfer and compensation services Santiago, Chile 33.33   33.33   33.33
Sociedad Interbancaria de Depósito de Valores S.A. Repository of publically offered securities 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 Alto Valor S.A., Banco Santander-Chile has a representative in the Board of Directors, which is why Management has concluded that it exercises significant influence over the same.

 

In the case of Servicios de Infraestructura de Mercado OTC S.A., the Bank participates, through its executives, actively in the administration, which is why Management has concluded that it exercises significant influence over it.

 

iv.Share or rights in other companies

 

Entities over which the Bank has no control or significant influence are presented in this category. These holdings are shown at acquisition value (historical cost) less impairment, if any.

 

c)Non-controlling interest

 

Non-controlling interest represents the portion of gains or losses and net assets which the Bank does not own, either directly or indirectly. It is presented separately in the Consolidated Statement of Income, and separately from shareholders’ equity in the Consolidated Statement 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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  11

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

d)Reporting segments

 

The Bank’s operating segments correspond to the units whose operating results are regularly reviewed by the highest decision-making authority. Two or more operating segments can be added into one, only when the aggregation is consistent with the basic principle of International Financial Reporting Standard 8 “Operating Segments” (IFRS 8) and the segments have similar economic characteristics and are similar in each one of the following aspects:

 

i.the nature of the products and services;
ii.the nature of the production processes;
iii.the type or category of customers to whom your products and services are destined;
iv.the methods used to distribute your products or provide services; and
v.if applicable, the nature of the regulatory framework, for example, banking, insurance, or public services.

 

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 equal to or greater than 10%: (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 segments not separately reported is combined and disclosed in the “Other segments” category.

 

According to the information presented, the Bank’s segments were selected based on an operating segment being a component of an entity that:

 

i.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;
iii.for which discrete financial information is available.

 

e)Functional and presentation currency

 

The Bank, in accordance with IAS 21 “Effects of Variations in Exchange Rates of the Foreign Currency”, has defined as functional and presentation currency the Chilean Peso, which is the currency of the primary economic environment in which the Bank operates, it also obeys the currency that influences the structure of costs and revenues. Therefore, all balances and transactions denominated in currencies other than the Chilean Peso are considered as “Foreign currency”.

 

f)Foreign currency transactions

 

The Bank performs transactions in foreign currencies, mainly in U.S. dollar. Assets and liabilities denominated in foreign currencies and held by the Bank are translated to Chilean pesos based on the representative market rate (discounted spot) on the month end date. The rate used was Ch$811.46 per USD1 for September 2021 (Ch$784.33 per USD1 for September 2021 and Ch$712.47 for December 2020).

 

The amount of net foreign exchange gains and losses include 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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  12

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

g)Definitions and classification of financial instruments

 

i.Definitions

 

A “financial instrument” is any contract that gives rise to a financial asset of an entity, and a financial liability or equity instrument of another entity.

 

An “equity instrument” is a legal transaction that evidences a residual interest on the assets of an entity deducting all of its liabilities.

 

A “financial derivative” is a financial instrument whose value changes in response to changes with regard to an observed 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.

 

“Hybrid financial instruments” are contracts that simultaneously include a non-derivative host contract together with a financial derivative, known as an embedded derivative, which is not separately transferable and has the effect that some of the cash flows of the hybrid contract vary in a way similar to a stand-alone derivative. As of September 30, 2021 and 2020 and December 31, 2020, Banco Santander-Chile did not keep implicit derivatives in its portfolio.

 

ii.Classification of financial assets for measurement purposes

 

Financial assets are classified into the following specified categories: financial assets trading investments at fair value through profit or loss (FVTPL), ‘held to maturity investments’, ‘available for sale investments’ (AFS) financial assets and ‘loans and accounts receivable from customers’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

 

A conventional purchase or sale of financial assets is the purchase or sale of a financial asset that requires the delivery of the asset during a period that is generally regulated or arises from a convention established in the market. A conventional purchase or sale of financial assets will be recognized and written off, as appropriate, by applying the accounting of the date of contracting or that of the settlement date.


Financial assets are initially recognized at fair value plus, in the case of financial assets that aren’t accounted for at fair value with changes in profit or loss, transaction costs that are directly attributable to the acquisition or issue.

 

Effective interest method

 

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

 

Income is recognised on an effective interest basis for loans and accounts receivables other than those financial assets classified at fair value through profit or loss.

 

Trading investments

 

Financial assets are classified as FVTPL when the financial asset is either held for trading or it is designated as fair value through profit or loss.

 

A financial asset is classified as held for trading if:

 

-It has been acquired with the purpose of selling it in the short term; or
-on initial recognition it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent actual pattern of short-term profit-taking; or
-it is a derivative that is not designated and effective as a hedging instrument.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  13

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

A financial asset other than a financial asset held for trading may be designated as FVTPL upon initial recognition if:

 

-Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
-the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Bank’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
-it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as FVTPL.

 

Financial assets FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised incorporates any dividend or interest earned on the financial asset and is included in the ‘net income (expense) from financial operations’ line item.

 

Held to maturity investments

 

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Bank has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method less impairment.

 

Available for sale investments

 

AFS investments are non-derivatives that are either designated as AFS or are not classified as (a) loans and accounts receivable from customers, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss (trading investments).

 

Financial instruments held by the Bank that are traded in an active market are classified as AFS and are stated at fair value at the end of each reporting period. The Bank also has investments in financial instruments that are not traded in an active market but that are also classified as AFS investments and stated at fair value at the end of each reporting period (because the directors consider that fair value can be reliably measured). Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency rates, interest income calculated using the effective interest method and dividends on AFS equity investments are recognised in profit or loss. Other changes in the carrying amount of available for sale investments are recognised in other comprehensive income and accumulated under the heading of “Valuation Adjustment”. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.

 

Dividends on AFS equity instruments are recognised in profit or loss when the Bank’s right to receive the dividends is established.

 

The fair value of AFS monetary financial assets denominated in a foreign currency is determined in that foreign currency and translated as the described in f) above. The foreign exchange gains and losses that are recognised in profit or loss are determined based on the amortised cost of the monetary asset.

 

Loans and accounts receivables from customers

 

Loans and accounts receivable from customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and accounts receivables from customers (including loans and accounts receivable from customers and interbank loans) are measured at amortised cost using the effective interest method, less any impairment.

 

Interest income is recognised by applying the effective interest rate, except for short-term receivables where discounting effects are immaterial.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  14

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

iii.Classification of financial assets for presentation purposes

 

For presentation purposes, the financial assets are classified by their nature into the following line items in the Consolidated Financial Statements:

 

Cash and deposits in banks: this line includes cash balances, checking accounts and on-demand deposits with the Central Bank of Chile and other domestic and foreign financial institutions. Amounts invested as overnight deposits are included in this item and in the corresponding items. If a special item for these operations is not mentioned, they will be included along with the accounts being reported.

 

Trading investments: this item includes financial instruments held-for-trading and investments in mutual funds which must be adjusted to their fair value.

 

Investments under resale agreements: This item presents the balances corresponding to the transactions for the purchase of instruments with an agreement and the securities loans. In accordance with current regulations, the Bank does not register as its own portfolio those papers purchased with retro-purchase agreements.

 

Financial derivative contracts: financial derivative contracts with positive fair values are presented in this item. It includes both independent contracts as well as derivatives that should and can be separated from a host contract, whether they are for trading or accounted for as derivatives held for hedging, as shown in Note 7.

 

Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments.

 

Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments.

 

Interbank loans: this item includes the balances of transactions with domestic and foreign banks, including the Central Bank of Chile, other than those reflected in certain other financial asset classifications listed above.

 

Loans and accounts receivables from customers: these loans are non-derivative financial assets for which fixed or determined amounts are charged, that are not listed on an active market and which the Bank does not intend to sell immediately or in the short term. When the Bank is the lessor in a lease, and it substantially transfers the risks and rewards incidental to the leased asset, the transaction is presented in loans and accounts receivable from customers while the leased asset is removed from the Bank´s financial statements.

 

Investment instruments: are classified into two categories: held-to-maturity investments, and available-for-sale investments. The held-to-maturity investment classification includes only those instruments for which the Bank has the ability and intent to hold to maturity. The remaining investments are treated as available for sale.

 

iv.Classification of financial liabilities for measurement purposes

 

Financial liabilities are classified as either financial liabilities FVTPL or other financial liabilities.

 

Financial liabilities FVTPL

 

As of September 30, 2021 and, 2020 and December 21, 2020, the bank does not possess any financial liabilities FVTPL.

 

Other financial liabilities

 

Other financial liabilities (including interbank borrowings, issued debt instruments and other payables) are initially recorded at fair value and subsequently measured at amortized cost using the effective interest method.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  15

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

v.Classification of financial liabilities for presentation purposes

 

Financial liabilities are classified by their nature into the following items in the Consolidated Statement of Financial Position:

 

Deposits and other on-demand liabilities: this includes all on-demand obligations except for term savings accounts, which are not considered on-demand instruments in view of their special characteristics. Obligations whose payment may be required during the period are deemed to be on-demand obligations. Operations which become callable the day after the closing date are not treated as on-demand obligations.

 

Cash items in process of collection: this item includes balances from asset purchase operations that are not settled the same day, and sale of currencies not yet delivered.

 

Obligations under repurchase agreements: this includes the balances of sales of financial instruments under securities repurchase and loan agreements. The Bank does not record as own portfolio instruments acquired under repurchase agreements.

 

Time deposits and other time liabilities: this shows the balances of deposit transactions in which a term at the end of which they become callable has been stipulated.

 

Financial derivative contracts: this includes financial derivative contracts with negative fair values (i.e. a liability of the Bank), whether they are for trading or for hedge accounting, as set forth in Note 7.

 

Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments.

 

Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments.

 

Obligations with banks: Includes obligations with other banks in the country, with foreign banks or with the Central Bank of Chile and which were not classified in any previous definition.

 

Issued debt instruments: there are three types of instruments issued by the Bank: Obligations under letters of credit, Subordinated bonds and Senior bonds placed in the local and foreign market.

 

Other financial liabilities: this item includes credit obligations to persons other than domestic banks, foreign banks, or the Central Bank of Chile, for financing purposes or operations in the normal course of business.

 

vi.Modified of financial assets

 

When the contractual modification of the cash flows has its origin in financial difficulties of the counterparty and said flows have been adapted so that it can comply with its payment obligations, this modification will not be considered as substantial and therefore will not imply the cancellation of the current financial instrument.

 

On the other hand, when the modification of the contractual flows originate for eminently commercial reasons, said modification will be considered as substantial and therefore will imply the cancellation of the original financial instrument and the recognition of a new one. Any difference that is generated between the book value of the derecognized financial instrument and the fair value of the new financial instrument will be recognized in the Consolidated Statement of Income.

 

h)Valuation of financial instruments and recognition of fair value changes

 

Generally, financial assets and liabilities are initially recognized at fair value, which, in the absence of evidence against it, 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 with the following criteria:

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  16

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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 credit investments and held to maturity investments.

 

According to IFRS 13 Fair Value Measurement, “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).

 

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 a adjustment (FVA or fair value adjustment) when there is a gap between the purchase and sale price (close out cost).

 

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).

 

Every derivative is recorded in the Consolidated Statements of Financial Position at fair value as previously described. This value is compared to the valuation 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 Statement of Income.

 

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. Counterparty Credit Risk (CVA) is a valuation adjustment to derivatives contracted in non-organized markets as a result of exposure to counterparty credit risk. The CVA is calculated considering the potential exposure to each counterparty in future periods. Own-credit risk (DVA) is a valuation adjustment similar to the CVA, but generated by the Bank’s credit risk assumed by our counterparties. 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.

 

“Loans and accounts receivable from customers” and Held-to-maturity instrument portfolio are measured at amortized cost using the effective interest method. Amortized cost is the acquisition cost of a financial asset or liability, plus or minus, as appropriate, prepayments of principal and the cumulative amortization (recorded in the consolidated income statement) of the difference between the initial cost and the maturity amount as calculated under the effective interest method. For financial assets, amortized cost also includes any reductions for impairment or uncollectibility. For loans and accounts receivable designated as hedged items in fair value hedges, the changes in their fair value related to the risk or risks being hedged are recorded in “Net income (expense) from financial operations”.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  17

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The “effective interest rate” is the discount rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows over its remaining life. For fixed-rate financial instruments, the effective interest rate incorporates the contractual interest rate established on the acquisition date. Where applicable, the fees and transaction costs that are a part of the financial return are included. For floating-rate financial instruments, the effective interest rate matches the current rate of return until the date of the next review of interest rates.

 

The amounts at which the financial assets are recorded represent the Bank’s maximum exposure to credit risk as at the reporting date. The Bank has also received collateral and other credit enhancements to mitigate its exposure to credit risk, which consist mainly of mortgage guarantees, equity instruments and personal securities, assets under leasing agreements, assets acquired under repurchase agreements, securities loans and derivatives.

 

Capital instruments whose fair value cannot be determined sufficiently objectively and financial derivatives that have these instruments as underlying assets and are settled by delivery thereof are maintained at their acquisition cost, corrected, where appropriate, by losses for deterioration they have experienced.

 

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 is usually 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 of September 30, 2021 and 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.

 

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 and market rates of raw materials, volatility, prepayments and liquidity. 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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  18

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

iii.Hedging transactions and macrohedge

 

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.

 

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 inflation (UF), 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, commitments 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 Statement of Income.

 

b.For fair value hedges of interest rate risk on a portfolio of financial instruments, gains or losses that arise in measuring hedging instruments 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 Financial Statement 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 Statement 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, when 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 Statement 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 Statement of Income.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  19

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

iv.Embedded Derivatives in hybrid financial instruments

 

Embedded Derivatives in other financial instruments or in other host contracts are accounted for separately as derivatives if 1) their risks and characteristics are not closely related to the host contracts, 2) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and 3) provided that the host contracts are not classified as “Trading investments” or as other financial assets (liabilities) at fair value through profit or loss.

 

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 September 30, 2021 and December 31, 2020, there is not offsetting of financial asset and liability balances.

 

vi.Derecognition of financial assets and liabilities

 

The accounting treatment of transfers of financial assets is determined by the extent and the manner in which the risks and rewards associated with the transferred assets are transferred to third parties:

 

i.If the Bank transfers substantially all the risks and rewards of ownership to third parties, as in the case of unconditional sales of financial assets, sales under repurchase agreements at fair value at the date of repurchase, sales of financial assets with a purchased call option or written put option deeply out of the money, utilization of assets in which the transferor does not retain subordinated debt nor grants any credit enhancement to the new holders, and other similar cases, the transferred financial asset is derecognized from the Consolidated Statement of Financial Position and any rights or obligations retained or created in the transfer are simultaneously recorded.

 

ii.If the Bank retains substantially all the risks and rewards of ownership associated with the transferred financial asset, as in the case of sales of financial assets under repurchase agreements at a fixed price or at the sale price plus interest, securities lending agreements under which the borrower undertakes to return the same or similar assets, and other similar cases, the transferred financial asset is not derecognized from the Consolidated Financial Statement of Financial Position and continues to be measured by the same criteria as those used before the transfer. However, the following items are recorded:

 

-An associated financial liability for an amount equal to the consideration received; this liability is subsequently measured at amortized cost.
-Both the income from the transferred (but not removed) financial asset as well as any expenses incurred due to the new financial liability.

 

iii.If the Bank neither transfers nor substantially retains all the risks and rewards of ownership associated with the transferred financial asset—as in the case of sales of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases, the following distinction is made:

 

a.If the transferor does not retain control of the transferred financial asset: the asset is derecognized from the Consolidated Statement of Financial Position and any rights or obligations retained or created in the transfer are recognized.

 

b.If the transferor retains control of the transferred financial asset: it continues to be recognized in the Consolidated Statement of Financial Position for an amount equal to its exposure to changes in value and a financial liability associated with the transferred financial asset is recorded. The net carrying amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value.

 

Accordingly, financial assets are only derecognized from the Consolidated Statement of Financial Position when the rights over the cash flows they generate have terminated or when all the inherent risks and rewards of ownership have been substantially transferred to third parties. Similarly, financial liabilities are only derecognized from the Consolidated Financial Statement Financial Position when the obligations specified in the contract are discharged or cancelled or the contract has matured.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  20

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

i)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 revenue, expense and similar items are recorded on an accrual basis using the effective interest method.

 

However, when a given operation or transaction is past due by 90 days or more, originated from a refinancing or renegotiation, or when the Bank believes that the debtor poses a high risk of default, the interest and adjustments pertaining to these transactions are not recorded directly in the Consolidated Statement of Income unless they have been actually received.

 

This interest and adjustments are generally referred to as “suspended” and are recorded as memorandum accounts in they are reported as part of the complementary information thereto and as memorandum accounts (Note 24). This interest is recognized as income, when collected.

 

The resumption of interest income recognition of previously impaired loans only occurs when such loans become current (i.e. payments were received such that the loans are contractually past-due for less than 90 days) or they are no longer classified under the C3, C4, C5, or C6 risk categories (for loans individually evaluated for impairment).

 

ii.Commissions, fees, and similar items

 

Fee and commission income and expenses are recognized in the Consolidated Statement of Income using criteria stablished in IFRS 15 “Revenue from contracts with customers”.

 

Under IFRS 15, the Bank recognize revenue when (or as) satisfied a performance obligations by transferring a service (ie 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 income 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 securitie’s 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 onlilne banking services.
-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 securitie’s brokerage.
-Other fees and commissions: includes mainly expenses generayed from online services.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  21

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

The Bank has incorporated disaggregated revenue disclosure and reportable segment relationship in Note 25.

 

Additionaly, the Bank maintains certain loyalty programme associated to its credit cards services, for which has deferred a percentage of the consideration received in the statement of financial position to comply with its related performance obligation according IFRS 15, or has liquidated on a monthly basis as far they arise.

 

iii.Non-financial income and expenses

 

They are recognized in accordance with the criteria established in IFRS 15, identifying the performance obligation and when they are satisfied (accrued).

 

iv.Commissions in the formalization of loans

 

The financial commissions that arise in the formalization of loans, mainly the opening or study and information commissions, are periodized and recorded in the Statement of the Consolidated Income throughout the life of the loan.

 

j)Impairment of Non-financial assets:

 

The Bank’s non-financial assets, excluding investment properties, 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. Losses for goodwill impairment recognized through capital gains are not reversed.

 

k)Property, plant, and equipment

 

This category includes the amount of buildings, land, furniture, vehicles, computer hardware and other fixed assets 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 resulting from comparing the net value of each item to the respective 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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  22

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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

 

ITEM  

Useful life
(in 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 period whether there is any indicator 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 Statement 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 their impairment losses, are the same as those for property, plant and equipment held for own use.

 

l)Leases

 

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 recognises 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 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 amortised in accordance with the effective interest method. Financial interest is accounted as interest expense, and depreciation as depreciation expense in each period.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  23

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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 recognise 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 recognises 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.

 

At initial measurement, the Bank measures the right-of-use asset at cost. The rent of these leases are according in UF, and payable in Chilean pesos. According to the provisions of Circular No. 3,649 of the CMF (ex SBIF), the monthly variation in UF that affects the contracts established in said monetary unit should be treated as a new measurement, and therefore, readjustments should be recognized as a modification to the obligation and in parallel the amount of the asset must be adjusted for the right to use leased assets.

 

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

 

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 recognises 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.

 

m)Factoring transactions

 

Factored receivables are valued at the amount disbursed by the Bank in exchange of invoices or other commercial instruments representing the credit which the transferor assigns to the Bank. The price difference between the amounts disbursed and the actual face value of the credits is recorded as interest income in the Consolidated Statement of Income using the effective interest method over the financing period.

 

When the assignment of these instruments involves no liability on the part of the assignee, the Bank assumes the risks of insolvency of the parties responsible for payment.

 

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 linearly based on 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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  24

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

o)Cash and cash equivalents

 

The indirect method is used to prepare the cash flow statement, 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 investing or financing activities.

 

The cash flow statement was prepared considering the following definitions:

 

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.Investing activities: The acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.

 

iv.Financing Activities: Activities that result in changes in the size and composition of equity and liabilities that are not operating or investing activities.

 

p)Allowances for loan losses

 

The Bank continuously evaluates the entire loan portfolio and contingent loans, as it is established by the CMF, to timely provide the necessary and sufficient provisions to cover expected losses associated with the characteristics of the debtors and their loans, which determine payment behavior and recovery.

 

The Bank has established provisions for probable losses in credits and accounts receivable from customers in accordance with the instructions issued by the CMF (ex SBIF) and the credit risk rating and evaluation model approved by the Board of Directors, including the modifications introduced by Circulars N° 3,573 and N° 3,584 and their subsequent amendments which establish the standard method for residential mortgage loans and Circulars N° 3,638 and N° 3,647 related to commercial loans for group portfolio, complement and specify instructions on provisions and credits that make up the impaired portfolio.

 

The Bank uses the following models established by the CMF, to evaluate its loan portfolio and credit risk:

 

-Individual assessment - where the Bank assesses a debtor as individually significant when their loans are significant, or when the debtor cannot be classified within a group of financial assets with similar credit risk characteristics, due to its size, complexity or level of exposure.

 

-Group assessment - a group assessment is relevant for analyzing a large number of transactions with small individual balances due from individuals or small companies. The Bank groups debtors with similar credit risk characteristics giving to each group a default probability and recovery rate based on a historical analysis. The Bank has implemented standard models for mortgage loans (Circular N°3,573 and N°3,584), and commercial loan (Circular N° 3,638 and N°3,647) and internal models for consumer loans.

 

For the company Santander Consumer Finance Limitada the determination of the provision for credit risk is made using internal models under IFRS 9 to determine the expected losses for this default. These internal models are reviewed monthly and the modifications to said models are approved by the Board of Directors on a quarterly basis, after review and approval by the Company’s General Management. These models collectively evaluate the receivables, for which said loans are grouped based on similar credit risk characteristics, which indicate the debtor’s ability to pay on the entire debt, principal and interest, in accordance with the terms of the contract. In addition, this allows evaluating a large number of transactions with low individual amounts, regardless of whether they belong to individuals or small companies. Therefore, debtors and loans with similar characteristics are grouped together and each group has a risk level assigned to it. During the first half of 2020, Santander Consumer Finance Limitada carried out a calibration of its credit risk provision models, with the aim of improving the prediction parameters of customer behavior and maintaining the statistical monitoring standards, which resulted in a higher provision with an effect on results of Ch$ 1,900 million.

 

I.Allowances for individual assessment

 

An individual assessment of commercial debtors is necessary according to the CMF, in the case of companies which, due to their size, complexity or level of exposure, must be known and analyzed in detail.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  25

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The analysis of the debtor is primarily focused on their credit quality and their risk category classification of the debtor and of their respective contingent loans and loans These are assigned to one of the following portfolio categories: Normal, Substandard and Impaired. The risk factors considered are: industry or economic sector, owners or managers, financial situation and payment ability, and payment behavior.

 

The portfolio categories and their definitions are as follows:

 

i.Normal Portfolio includes debtors with a payment ability that allows them to meet their obligations and commitments. Evaluations of the current economic and financial environment do not indicate that this will change. The classifications assigned to this portfolio are categories from A1 to A6.

 

ii.Substandard Portfolio includes debtors with financial difficulties or a significant deterioration of their payment ability. There is reasonable doubt concerning the future reimbursement of the capital and interest within the contractual terms, with limited ability to meet short-term financial obligations. The classifications assigned to this portfolio are categories from B1 to B4.

 

iii.Impaired Portfolio includes debtors and their loans where repayment is considered remote, with a reduced or no likelihood of repayment. This portfolio includes debtors who have stopped paying their loans or that indicate that they will stop paying, as well as those who require forced debt restructuration, reducing the obligation or delaying the term of the capital or interest, and any other debtor who is over 90 days overdue in his payment of interest or capital. The classifications assigned to this portfolio are categories from C1 to C6.

 

Normal and Substandard Compliance Portfolio

 

As part of individual assessment, the Bank classifies debtors into the following categories, assigning them a probability of non-performance (PNP) and severity (SEV), which result in the expected loss percentages:

 

Portfolio Debtor’s Category

Probability of

Non-Performance (%)

Severity (%) Expected Loss (%)
Normal Portfolio A1 0.04 90.0 0.03600
A2 0.10 82.5 0.08250
A3 0.25 87.5 0.21875
A4 2.00 87.5 1.75000
A5 4.75 90.0 4.27500
A6 10.00 90.0 9.00000
Substandard Portfolio B1 15.00 92.5 13.87500
B2 22.00 92.5 20.35000
B3 33.00 97.5 32.17500
B4 45.00 97.5 43.87500

 

The Bank first determines all credit exposures, which includes the accounting balances of loans and accounts receivable from customers plus contingent loans, less any amount recovered through executing the financial guarantees or collateral covering the operations. The percentages of expected loss are applied to this exposure. In the case of collateral, the Bank must demonstrate that the value assigned reasonably reflects the value obtainable on disposal of the assets or equity instruments. When the credit risk of the debtor is substituted for the credit quality of the collateral or guarantor, this methodology is applicable only when the guarantor or surety is an entity qualified in a assimilable investment grade by a local or international company rating agency recognized by the CMF. Guaranteed securities cannot be deducted from the exposure amount, only financial guarantees and collateral can be considered.

 

Notwithstanding the foregoing, the Bank must maintain a minimum provision of 0.5% over loans and contingent loans in the normal portfolio.

 

Impaired Portfolio

 

The impaired portfolio includes all loans and the entire value of contingent loans of the debtors that are over 90 days overdue on the payment of interest or principal of any loan at the end of the month. It also includes debtors who have been granted a loan to refinance loans over 60 days overdue, as well as debtors who have undergone forced restructuration or partial debt condonation.

 

The impaired portfolio excludes: a) residential mortgage loans, with payments less than 90 days overdue; and, b) loans to finance higher education according to Law 20,027, provided the breach conditions outlined in Circular N°3,454 of December 10, 2008 are not fulfilled.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  26

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The provision for an impaired portfolio is calculated by determining the expected loss rate for the exposure, adjusting for amounts recoverable through available financial guarantees and deducting the present value of recoveries made through collection services after the related expenses.

 

Once the expected loss range is determined, the related provision percentage is applied over the exposure amount, which includes loans and contingent loans related to the debtor.

 

The allowance rates applied over the calculated exposure are as follows:

 

Classification   Estimated range of loss   Allowance
C1   Up to 3%   2%
C2   Greater than 3% and less than 20%   10%
C3   Greater than 20% and less than 30%   25%
C4   Greater than 30% and less than 50%   40%
C5   Greater than 50% and less than 80%   65%
C6   Greater than 80%   90%

 

Loans are maintained in the impaired portfolio until their payment ability is normal, notwithstanding the write off of each particular credit that meets conditions of Title II of Chapter B-2. Once the circumstances that led to classification in the Impaired Portfolio have been overcome, the debtor can be removed from this portfolio once all the following conditions are met:

 

i.The debtor has no obligations of the debtor with the Bank more than 30 days overdue;
ii.the debtor has not been granted loans to pay its obligations;
iii.at least one of the payments include the amortization of capital;
iv.if the debtor has made partial loan payments in the last six months, two payments have already been made;
v.if the debtor must pay monthly installments for one or more loans, four consecutive installments have been made;
vi.the debtor does not appear to have bad debts in the information provided by the CMF ( ex SBIF), except for insignificant amounts.

 

II.Allowances for group assessments

 

Group assessments are used to estimate allowances required for loans with low balances related to individuals or small companies.

 

Group assessments require the formation of groups of loans with similar characteristics by type of debtor and loan conditions, in order to establish both the group payment behavior and the recoveries of their defaulted loans, using technically substantiated estimates and prudential criteria. The model used is based on the characteristics of the debtor, payment history, outstanding loans and default among other relevant factors.

 

The Bank uses methodologies to establish credit risk, based on internal models to estimate the allowances for the group-evaluated portfolio. This portfolio includes commercial loans with debtors that are not assessed individually, mortgage and consumer loans (including installment loans, credit cards and overdraft lines). These methods allow the Bank to independently identify the portfolio behavior and establish the provision required to cover losses arising during the year.

 

The customers are classified according to their internal and external characteristics into profiles, using a customer-portfolio model to differentiate each portfolio’s risk in an appropriate manner. This is known as the profile allocation method.

 

The profile allocation method is based on a statistical construction model that establishes a relationship through logistic regression between variables (for example default, payment behavior outside the Bank, socio-demographic data) and a response variable which determines the client’s risk, which in this case is over 90 days overdue. Hence, common profiles are established and assigned a Probability of Non-Performance (PNP) and a recovery rate based on a historical analysis known as Severity (SEV).

 

Therefore, once the customers have been profiled, and the loan’s profile assigned a PNP and a SEV, the exposure at default (EXP) is calculated. This exposure includes the book value of the loans and accounts receivable from the customer, plus contingent loans, less any amount that can be recovered by executing guarantees (for credits other than consumer loans).

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  27

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

  

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Notwithstanding the above, on establishing provisions associated with mortgage and commercial loans, the Bank must recognize minimum provisions according to standard methods established by the CMF (ex SBIF) for those types of loans. While this is considered to be a prudent minimum base, it does not relieve the Bank of its responsibility to have its own methodologies of determining adequate provisions to protect the credit risk of the portfolio.

 

Standard method of residential mortgage loan provisions

 

In accordance with Circular N° 3,573 issued by the CMF, the Bank began applying the standard method of provisions for residential mortgage loans. According to this method, the expected loss factor applicable to residential mortgage loans will depend on the default of each loan and the relationship between the outstanding principal of each loan and the value of the associated mortgage guarantee (Loans to Value, LTV) at the end of each month.

 

The allowance rates applied according to default and LTV are the following:

 

LTV Range Default days at month
closing
0 1-29 30-59 60-89 Impaired portfolio

 

LTV≤40%

PNP(%) 1,0916 21,3407 46,0536 75,1614 100
Severity (%) 0,0225 0,0441 0,0482 0,0482 0,0537
Expected Loss (%) 0,0002 0,0094 0,0222 0,0362 0,0537

 

40%< LTV ≤80%

PNP(%) 1,9158 27,4332 52,0824 78,9511 100
Severity (%) 2,1955 2,8233 2,9192 2,9192 3,0413
Expected Loss (%) 0,0421 0,7745 1,5204 2,3047 3,0413

 

80%< LTV ≤90%

PNP(%) 2,5150 27,9300 52,5800 79,6952 100
Severity (%) 21,5527 21,6600 21,9200 22,1331 22,2310
Expected Loss (%) 0,5421 6,0496 11,5255 17,6390 22,2310

 

LTV >90%

PNP(%) 2,7400 28,4300 53,0800 80,3677 100
Severity (%) 27,2000 29,0300 29,5900 30,1558 30,2436
Expected Loss (%) 0,7453 8,2532 15,7064 24,2355 30,2436

LTV = Loan capital/Value of guarantee

 

If the same debtor has more than one residential mortgage loan with the Bank and one of them over 90 days overdue, all their loans shall be allocated to the impaired portfolio, calculating provisions for each of them in accordance with their respective LTV.

 

For residential mortgage loans related to housing programs and grants from the Chilean government, the allowance rate may be weighted by a factor of loss mitigation (LM), which depends on the LTV percentage and the price of the property in the deed of sale (S), as long as the debtor has contracted auction insurance provided by the Chilean government.

 

Standard method of commercial loan provisions

 

In accordance with the Circular N°. 3,638 and N°. 3,647 issued by the CMF, as of July 1, 2019, the Bank began applying the standard model of provisions for student loans or other types of commercial loans.

 

Prior to the implementation of the standard method, the Bank used its internal models for the determination of group business provisions.

 

a.Commercial leasing operations

 

For these operations, the provision factor must be applied to the current value of commercial leasing operations (including the purchase option) and will depend on the delinquency of each operation, the type of leased asset and the relationship, at closing of each month, between the current value of each operation and the value of the leased asset (PVB), as indicated in the following tables:

 

Probability  Non-Performance (PNP) by default and type of asset (%)
Default days at month closing Type of asset
Real Estate Non real Estate
0 0.79 1.61
1-29 7.94 12.02
30-59 28.76 40.88
60-89 58.76 69.38
Impaired portfolio 100.00 100.00

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  28

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Severity (SEV) by stage and type of asset (%)
 PVB Stage Real Estate Non real Estate
PVB ≤ 40% 0.05 18.2
40% < PVB ≤ 50% 0.05 57.00
50% < PVB ≤ 80% 5.10 68.40
80% < PVB ≤ 90% 23.20 75.10
PVB > 90% 36.20 78.90

PVB= Current valiue of operation/leased asset value

 

The determination of the PVB relationship will be made considering the appraisal value, expressed in UF for real estate and pesos for non-real estate, recorded at the time of granting the respective credit, taking into account any situations that may be causing pricing rises of the asset at that time.

 

b.Student loans

 

For these operations, the provision factor should be applied to the student loan and the exposure of the contingent credit, when applicable. The determination of this factor depends on the type of student loan and the enforceability of the payment of capital or interest, at the end of each month. When payment is due, the factor will also depend on its default.

 

For the purposes of the classification of the loan, a distinction is made between those granted for the financing of higher studies granted in accordance with Law No. 20.027 (CAE) and, on the other hand, the CORFO guarantee credits or other student loans.

 

Probability  Non-Performance (PNP) according enforceability, default and type of loan (%)
Is the principal and insterest enforceable Default days at
month closing
Student loans
CAE CORFO and
other
Yes 0 5.20 2.90
1-29 37.20 15.00
30-59 59.00 43.40
60-89 72.80 71.90
Impaired portfolio 100.00 100.00
No N/A 41.60 16.50

 

Severity (SEV) by stage PVB and type of asset (%)
Is the principal and insterest enforceable Student loans
CAE CORFO and other
Yes 70.90
No 50.30 45.80

 

c.Generic comercial loans and factoring

 

For factoring operations and other commercial loans, the provision factor, applicable to the amount of the loans and the exposure of the contingent credit will depend on the default of each operation and the relationship that exists, at the end of each month, between the obligations that the debtor has with the bank and the value of the real guarantees that protect them (PTVG), as indicated in the following tables:

 

Probability  Non-Performance (PNP) by default and PTVG stage (%)
Default days at month closing Guarantee

 

No guarantee

PTVG ≤ 100% PTVG > 100%
0 1.86 2.68 4.91
1-29 11.60 13.45 22.93
30-59 25.33 26.92 45.30
60-89 41.31 41.31 61.63
Impaired portfolio 100.00 100.00 100.00

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  29

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Severity (SEV) by PTVG stage (%)
Guarantee PTVG stage Factoring and other comercial
loans without responsibility
Factoring with responsibility
Guarantee PTVG ≤ 60% 5.00 3,20
60% < PTVG ≤ 75% 20.30 12,80
75% < PTVG ≤ 90% 32.20 20,30
90% < PTVG 43.00 27,10
No guarantee 56,90 35.90

 

The guarantees used for the purposes of calculating the PTVG relationship of this method may be specific or general, including those that are simultaneously specific and general. A guarantee can only be considered if, according to the respective coverage clauses, it was constituted in the first degree of preference in favor of the bank and only guarantees the debtor’s credits with respect to which it is imputed (not shared with other debtors).

 

The invoices assigned in the factoring operations, nor the guarantees associated with the mortgage loans, regardless of their coverage clause, will not be considered in the calculation.

 

For the calculation of the PTVG ratio, the following considerations must be taken:

 

i.Transactions with specific guarantees: when the debtor granted specific guarantees, for generic commercial loans and factoring, the PTVG ratio is calculated independently for each secured transaction, such as the division between the amount of the loans and the contingent credit exposure and the value of the real guarantee that protects it.

 

ii.Transactions with general guarantees: when the debtor granted general or general and specific guarantees, the Bank calculates the respective PTVG, jointly for all generic commercial loan and factoring and not contemplated in the preceding paragraph i), as the division between the sum of the amounts of the loans and exposures of contingent credits and the general, or general and specific guarantees that, according to the scope of the remaining coverage clauses, safeguard the credits considered in the numerator of the mentioned ratio.

 

The amounts of the guarantees used in the PTVG ratio of numbers i) and ii) must be determined according to:

 

-The last valuation of the guarantee, be its appraisal or fair value, according to the type of real guarantee in question. For the determination of fair value, the criteria indicated in Chapter 7-12 of the Updated Collection of Standards should be considered.
-Possible situations that could be causing temporary increases in the values of the guarantees.
-Limitations on the amount of coverage established in their respective clauses.

 

d.Provisions related to financing with a FOGAPE Covid-19 guarantee

 

On July 17, 2020, the CMF requested to determine specific provisions of the credits guaranteed by the FOGAPE Covid-19 guarantee, for which the expected losses must be determined estimating the risk of each operation, without considering the substitution of credit quality of the guarantee, according to the corresponding individual or group analysis method, in accordance with the provisions of Chapter B-1 of the Compendium of Accounting Standards. This calculation must be carried out in an aggregate manner, grouping all those operations to which the same deductible percentage is applicable. Therefore, the total amount of the expected losses resulting from the aggregate calculation of each group of operations must be contrasted with the respective total deductible amount that corresponds to them and proceed as follows, when the expected losses of the operations of a group to which the same percentage of deductible corresponds, determined according to the procedure indicated are less than or equal to the aggregate amount of the deductible, the provisions will be determined without considering the coverage of FOGAPE Covid-19, that is, without substituting the credit quality of the direct debtor for the guarantee and when they are greater than the aggregate amount of the deductible, the provisions will be determined using the substitution method provided in section 4.1 letter a) of Chapter B-1 of the Compendium of Accounting Standards and will be recognized in separate accounts at that of commercial, consumption and housing provisions. As of September 30, 2021, the Bank has established provisions for this concept of Ch$ 39,506 million (Note 9 and 28).

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  30

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

III.Additional provisions

 

According to CMF regulation, banks are allowed to establish provisions over the limits already described, to protect themselves from the risk of non-predictable economical fluctuations that could affect the macro-economic environment or a specific economic sector. According to N°09 B-1 Chapter from the CMF Compendium of Accounting Standards, these provisions will be recorded in liabilities, similar to provisions for contingent loans, see note 3 and 28.

 

IV.Charge-offs

 

As a general rule, charge-offs should be done when the contract rights over cash flow expire. In the case of loans, even if the above does not happen, the Bank will charge-off these amounts in accordance with Title II of Chapter B-2 of the Compendium of Accounting Standards (CMF).

 

These charge-offs refer to the derecognition from the Consolidated Statements of Financial Position of the respective loan, including any not yet due future payments in the case of installment loans or leasing transactions (for which partial charge-offs do not exist).

Charge-offs are always recorded as a charge to loan risk allowances according to Chapter B-1 of the Compendium of Accounting Regulations, no matter the reason for the charge-off. Any payment received related to a loan previously charged-off will be recognized as recovery of loan previously charged-off at the Consolidated Statement of Income.

 

Loan and accounts receivable charge-offs are recorded for overdue, past due, and current installments when they exceed the time periods described below since reaching overdue status:

 

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

 

V.Recovery of loans previously charged off and accounts receivable from customers

 

Any recovery on “Loans and accounts receivable from customers” previously charged-off will be recognized as a reduction in the credit risk provisons in the Consolidated Statement of Income.

 

Any renegotiation of a loan previously charged-off will not give rise to income, as long as the operation continues being considered as impaired. The cash payments received must be treated as recoveries of charged-off loans.

 

The renegotiated loan can only be included again in assets if it is no longer considered as impaired, also recognizing the capitalization income as recovery of charged-off loans.

 

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
iii.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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  31

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

The Consolidated Financial Statements reflect all significant provisions for which it is estimated that the probability of having to meet the obligation is more than likely than not. Provisions are quantified using the best available information regarding the consequences of the event giving rise to them and are reviewed and adjusted at the end of accounting period. Provisions are used when the liabilities for which they were originally recognized are settled. 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:

 

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

 

r)Income taxes and 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 recovered or settled. The future effects of changes in tax legislation or tax rates are recorded in deferred taxes from the date on which the law is enacted or substantially enacted. Current taxes for the asset correspond to the provisional payments that exceed the provision for income tax or other loans at income tax, such as training expenses or donations to universities. Additionally, the monthly tax payment (P.P.M.) for recovering by profits absorbed by tax losses. In the

 

case of liabilities they correspond to the provision for income tax calculated according to the results tax for the period, deducted the mandatory or voluntary provisional payments and other credits that apply to this obligation.

 

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 values of assets, liabilities, revenues and expenses. Actual results may differ from these estimates.

 

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 informed 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 internal modeling and other valuation techniques.

 

The Bank has established allowances to cover cover probable losses, to estimate allowances. 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 Statement of Income.

 

Loans are charged-off when the contractual rights for the cash flows expire, however, for loans and accounts receivable from customers the bank will charge-off in accordance with Title II of Chapter B-2 of the Compendium of Accounting Standards issued by the CMF (ex SBIF). 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. Revised accounting estimates are recorded in the period in which the estimate is revised and in any affected future period.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  32

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

These estimates are based on the best available information and mainly refer to:

 

-Allowances for loan losses (Notes 8, 9, and 28)
-Impairment losses of certain assets (Notes 7, 8, 9, 10, and 31)
-The useful lives of tangible and intangible assets (Notes 11, 12 and 31)
-The fair value of assets and liabilities (Notes 6, 7, 10 and 34)
-Commitments and contingencies (Note 20)
-Current and deferred taxes (Note 13)

 

t)Non-current assets held for sale

 

Non-current assets held for sale and discontinued operations

 

As of September 30, 2021 and 2020 and December 31, 2020, the Bank classified the investments in associates held up to now in Redbanc and Transbank as held for sale, in accordance with the provisions of IFRS 5 “Non-current assets held for sale and discontinued operations”, because expects to recover the book value primarily through the sale of these investments. In order to carry out this reclassification, the Bank has ensured that it complies with the requirements established for this:

 

It must be available in its current conditions for immediate sale and its sale must be highly probable.
For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or group of assets for its disposal), and a program to find a buyer and complete said purchase must have been actively initiated.
I must also expect the sale to meet the conditions for recognition as a sale ended within the year following the date of classification.

 

For this, the Bank will measure investments at book value, given that it represents the lowest value in relation to fair value less costs to sell. Additionally, the Bank will recognize any impairment loss on non-current assets held for sale, such as a reduction in the value of those assets to fair value less costs to sell.

 

As of September 30, 2021, the Bank has classified as “non-current assets held for sale” the investments in Transbank and Redbanc, while Nexus was sold in January 2020. For more information see Note 36.

 

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. 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.

 

Any excess of the outstanding loan balance over the fair value is recognized in the Consolidated Statement of Income under “Provision for loan losses”.

 

These assets are subsequently valued at the lower of the amount initially recorded and the net realizable value, which corresponds to its fair value (liquidity value determined through an independent appraisal) less their respective costs of sale. The difference between both are recognized in the Consolidated Statement under “Other operating expenses”.

 

At the end of each year the Bank performs an analysis to review the “selling costs” of assets received or awarded in lieu of payments which will be applied at this date and during the following year. On December 2020 the average selling cost has been estimated at 3.2% of the appraisal value (3.1% for December 31, 2019). Additionally, every 18 months a review of the appraisals (independent) is carried out to adjust the fair value of the assets.

 

In general, it is estimated that these assets will be disposed of within a period of one year from their award date. In compliance with the provisions of article 84 of the General Banking Law, those goods that are not sold within said period are charged off in a single installment. On March 25, 2020, the CMF the CMF issued circular No. 2247 where it has resolved to grant an additional period of eighteen months for the sale of all assets that financial institutions have received in payment or are awarded between 1 March 2019 until September 30, 2020, also allowing the charge-off of said assets to be carried out in installments, proportional to the number of months between the date of receipt and the date set by the bank for disposal.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  33

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

u)Earnings per share

 

Basic earnings per share are calculated by dividing the net income attributable to the equity holders of the Bank by the weighted average number of shares outstanding during the reported period. Diluted earnings per share are calculated in a similar manner to 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 September 2021 and 2020 and December 31, 2020, the Bank did not have any instruments that generated equity dilution.

 

v)Temporary acquisition (assignment) of assets and liabilities

 

Purchases or sales of financial assets under non-optional repurchase agreements at a fixed price (repos) are recorded in the Consolidated Statements of Financial Position as an financial assignment 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.

 

w)Assets under management and investment funds managed by the Bank

 

Assets owned by third parties and managed by certain companies that are within the Bank’s scope of consolidation (Santander S.A. Sociedad Securitizadora), are not included in the Consolidated Statement of Financial Position. Management fees are included in “Fee and commission income” in the Consolidated Statement of Income.

 

x)Provision for mandatory dividends

 

As of September 30, 2021 and 2020 and December 31, 2020, the Bank recorded a provision for minimum mandatory dividends. This provision is made pursuant to Article 79 of the Corporations Act, which is in accordance with the Bank’s internal policy, which requires 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 deduction from “Retained earnings” – “Provision for mandatory dividends” in the Consolidated Statement of Changes in Equity with offset to Provisions.

 

y)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:

 

I.Aimed at the Bank’s management.
II.The general requirement is that the beneficiary must still be employed by the Bank when reaching 60 years old.
III.The Bank will mixed collective life and savings insurance policy for each beneficiary in the plan. Regular voluntary installments will be paid into this fund by the beneficiary and matched by the Bank.
IV.The Bank will be responsible for granting the benefits directly.

 

The projected unit credit method is used to calculate the present value of the defined benefit obligation and the current service cost.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  34

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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 performance of plan assets, and; (c) changes in the effect of the asset ceiling which are recognized in other comprehensive income.

 

The liability (asset) for net defined benefit is the deficit or surplus, calculated 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 Bank 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 wages and expenses on the Consolidated Statement of Income. Given the plan’s structure, it does not generate actuarial gains or losses. The plan’s performance is established and fices during the period; consequently, there are no changes in the asset’s cap. Accordingly, there are no amounts recognized in other comprehensive income.

 

The post-employment benefits liability, recognized in the Consolidated Statement 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.Severance provision:

 

Severance provision for years of employment are recorded only when they actually occur or upon the availability of a formal and detailed plan in which the fundamental modifications to be made are identified, provided that such plan has already started to be implemented or its principal features have been publicly announced, or objective facts about its execution are known.

 

iii.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 calculates 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 statement for the period.

 

z)New accounting pronouncements

 

I.Adoption of new accounting standards and instructions issued by both the current Commission for the Financial Market (CMF) and by The International Accounting Standards Board:

 

At the date of issuance of these Consolidated Financial Statements, the new accounting pronouncements issued by both the current CMF (ex SBIF) and the International Accounting Standards Board, which have been fully adopted by the Bank, are detailed below.

 

1.Accounting Standards issued by the current Financial Market Commission (CMF), exSuperintendency of Banks and Financial Institutions.

 

As of September 30, 2021 the bank has no relevant standards in relation to Covid-19, nonetheless it has the following pronouncement in relation to Basel III:

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  35

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Circular N° 2,285 – Fianncial report R11 on Systemic Bank Clasification. Instructions are supplemented and first report deadline is extended.

This circular released January 26, 2021, supplements the instructions to prepare the new report R11, it also extends its first deadline until March 1, 2021. The first report will contain information related to each month of the 2020 year. The bank immediately implemented this circular and is currently reporting the report in the right time and manner.

 

Circular N ° 2,288 - Incorporates new files R01, R02, R06, R07 and R08 related to the measurement of solvency levels, equity cash and assets weighted by credit, market and operational risk. This circular issued on April 27, 2021, in order to obtain the information that is required for the application of the new Chapters 21-1 to 21-30 of the Updated Compilation of Standards for Banks, on the implementation of the capital framework of the Basel III standards, the files R01 “Limits of solvency and effective equity” are created, R02 “Regulatory capital instruments”, R06 “Assets weighted by credit risk”, R07 “Assets weighted by market risk” and R08 “Assets weighted by operational risk “, together with the new tables that complement them.

 

2. Accounting Standards issued by the International Accounting Standards Board

 

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 The amendments are intended to help companies provide investors with useful information on the effects of the reform on the states 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; Y

 

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, see note N° 35.

 

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 September 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.

 

II.New accounting standards and instructions issued by both the Commission for the Financial Market (CMF) and by the International Accounting Standards Board that have not come into effect as of September 30, 2021.

 

As of the closing date of these financial statements, new International Financial Reporting Standards had been published as well as interpretations of them, which were not mandatory as of September 30, 2021. Although in some cases the early application is permitted by the IASB, the Bank has not taken that option.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  36

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

1.Accounting Standards issued by the current Financial Market Commission (CMF), exSuperintendency of Banks and Financial Institutions.

 

Circular N ° 2243 - Compendium of Accounting Standards for Banks. On December 20, 2019, the CMF issued the updated version of the compendium of accounting standards for banks (CNCB), which mainly incorporates the new modifications introduced by the International Accounting Standards to the international financial reporting standards (IFRS) in recent years, particularly IFRS 9, 15 and 16, also establishes new limitations or precisions due to the need to follow more prudential criteria (ie. Chapter 5 of impairment of IFRS 9) that are detailed in chapter A-2. The amendments seek greater convergence with IFRS, improve financial information disclosures and contribute to the transparency of the banking system. On April 20, 2020, the CMF issued Circular No. 2249 that postpones the entry into force of the new CNCB from January 1, 2011 with a transition date of January 1, 2021 for purposes of comparative financial statements in March 2022. Additionally, the change of criteria for the suspension of the recognition of income for interest and readjustments (chapter B-2), must be adopted no later than January 1, 2022, with the transition date the beginning of any previous month as of such date, recording the impact against equity and revealing the date on which this criterion was adopted.

 

During 2020, the Bank has conducted an implementation plan for the new compendium based on a diagnosis where, through an exhaustive analysis, it allowed us to determine the impacts generated at the systems level, availability of information, chart of accounts, financial statements and disclosures. , among others and to be able to elaborate an implementation plan and governance of the project that allows us to dimension the tasks to be executed, deadlines and necessary efforts, and to be able to control this process in an optimal way, communicating the advances and situations identified to the senior administration, which it is strongly involved in this process. At the end of 2020, we observed significant progress in the defined implementation plan, where we do not see major inconveniences to face its culmination during 2021.

 

Circular N ° 2283 - Promotion of market discipline and transparency through the disclosure of information requirements from banking entities (Pillar 3). Incorporates Chapter 21-20 to the Updated Compilation of Standards. Issued on December 1, 2020, this regulation introduces the requirements for banking institutions to disclose information regarding their position and capital structure in a single format, in order to reduce information asymmetries. To do this, banking entities must publish the Pillar 3 document independently or together with their financial statements, reporting each of the tables and forms established in the standard, this will allow the market and users of the information a better evaluation of the situation of each entity when knowing the risk profile of local banking institutions. This regulation becomes effective as of December 1, 2022, and must be published for the first time in 2023 (1st quarter). The Bank is evaluating the impact of this regulation and will include it in the work table on the subject.

 

2.Accounting Standards issued by the International Accounting Standards Board

 

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.

 

At the local level, the CMF of Banks has established that this standard is part of the new CNCB applicable as of January 1, 2021, except in relation to the impairment of financial instruments (chapter 5.5) and paragraphs 5.4.1 (a) and (b), 5.4.3. and 5.4.4. regarding placements (“Debt from Banks” and “Credits and accounts receivable from customers”, or contingent credits), since the criteria for these topics are defined in chapters B-1 and B-3 of the aforementioned Compendium.

 

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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  37

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

This standard was initially effective as of January 1, 2016, however, on December 17, 2015 the IASB issued “Effective Date of Amendment to IFRS 10 and IAS 28” indefinitely postponing the entry into force of this standard.

 

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 IFRSs 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. A 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.

 

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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  38

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 01

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

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 identiying 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.

 

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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  39

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 02

ACCOUNTING CHANGES

 

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

 

NOTE 03

SIGNIFICANT EVENTS

 

As of September 30, 2021, the following significant events have occurred and affected the Bank’s operations 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, 2020 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 2020 financial year..

 

c)COVID-19 or SARS CoV-2

 

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

 

In view of the persistence of the Covid-19 pandemic, with the consequent effects on the normal development of economic activities, on April 23, 2021, the CMF instructed to extend until July 31, 2021, the exceptional treatment of provisions group and individual credit risk.

 

d)Laws and Regulation

 

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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  40

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 03

SIGNIFICANT EVENTS, continued

 

Commission for the Financial Market

 

On August 23, 2021, the CMF publishes a standard under consultation to update the 2022 version of the Compendium of Accounting Standards for Banks with concordance adjustments in the Bank Information System Manual: Accounting System, Product System and Tables. See Note No. 37.

 

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)Companies

 

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.

 

f)Issuance of bank bonds

 

f.1)Senior bonds

 

During 2021, the Bank has issued current bonds for USD 193,000,000, JPY 22,000,000,000 y CHF 150,000,000. The detail of the placements made during the current year is included in Note 16.

 

Series Currency Term
(years)
Issuance rate
(Annual) %
Issue date Amount Maturity date
USD Bond USD 2 years and 10 months 0.71 02-25-2021 50,000,000 12-28-2023
USD Bond USD 2 years and 11 months 0.72 02-26-2021 100,000,000 01-26-2024
USD Bond USD 7 years 2.05 06-09-2021 27,000,000 06-09-2028
USD Bond USD 5 years 1.64 07-15-2021 16,000,000 07-15-2026
Total USD       193,000,000  
JPY Bond JPY 5 years 0.35 05-13-2021 10,000,000,000 05-12-2026
JPY Bond JPY 4 years 0.40 07-12-2021 2,000,000,000 07-22-2025
JPY Bond JPY 4 years 0.42 07-13-2021 10,000,000,000 07-28-2025
Total JPY       22,000,000,000  
CHF Bond CHF 6 years 0.33 06-22-2021 150,000,000 06-27-2027

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  41

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 03

SIGNIFICANT EVENTS, continued

 

g)Others

 

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.

 

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 a re 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. A business segment comprises clients to whom a differentiated product offering is directed but which are homogeneous in terms of their performance and which is measured in a similar way.

 

In order to achieve compliance with the strategic objectives established by senior management and adapt to changing market conditions, from time to time, the Bank makes adjustments in its organization, modifications that in turn impact to a greater or lesser extent, in the way in which it is managed. As such, current disclosure provides information for all periods presented on how the Bank is managed as of September 30, 2021.

 

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, auto 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 residential projects, with the aim of expanding sales of mortgage loans.

 

Global Corporate Banking

 

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 Corporate 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.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  42

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 04

REPORTING SEGMENTS, continued

 

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.

 

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 amounts by business segment, for the periods ending as of September 30, 2021 and 2020:

 

      September 30, 2021
 

Loans and accounts receivable from customers

(1)

Demand and time deposits (2)

Net interest

income

 

Net fee and commission income

 

Financial transactions, net

(3)

 

Provision for loan losses

Support expenses

(4)

Segment’s
net contribution
  MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$
                 
Retail Banking 25,223,143 14,206,980

787,543

188,666 27,652 (145,255) (460,701) 397,905
Middle-market 8,460,111 6,185,189 251,552 31,063 15,069 (48,974) (67,179) 181,531
Global Corporate Banking 2,007,504 8,178,496 72,101 22,406 87,758 1,309 (55,959) 127,615
Other 66,720 1,286,281 199,197 (4,347) (24,406) (85,621) (8,641) 76,050
                 
Total 35,757,478 29,856,946 1,310,393 237,788 105,941 (287,541) (592,480) 783,101
           
Other operating income         14,186
Other operating expenses         (95,971)
Income from investments in associates and other companies         1,252
Income tax expense         (152,372)
Result of continuous operations         550,196
Result of discontinued operations         -
Net income for the period         550,196

 

(1)Loans receivable from customers plus the balance indebted by banks, without deducting their allowances for loan losses.
(2)Corresponds to demand and time deposits.
(3)The sum of net income (expense) from financial operations and foreign exchange gains or losses.
(4)The sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  43

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 04

REPORTING SEGMENTS, continued

 

      September 30, 2020
 

Loans and accounts receivable from customers

(1)

Demand and time deposits (2)

Net interest

income

 

Net fee and commission income

 

Financial transactions, net

(3)

 

Provision for loan losses

Support expenses

(4)

Segment’s
net contribution
  MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$
                 
Retail Banking 23,910,047 11,680,632 783,541 156,324 19,714 (207,835) (448,249) 303,495
Middle-market 8,793,190 5,399,458 255,308 29,198 14,158 (80,735) (69,164) 148,765
Global Corporate Banking 1,896,722 5,958,945 84,605 17,759 64,251 (48,070) (53,187) 65,358
Other 280,139 2,647,238 26,756 (5,027) 39,408 (89,545) (7,481) (35,889)
                 
Total 34,880,098 25,686,273 1,150,210 198,254 137,531 (426,185) (578,081) 481,729
           
Other operating income         15,903
Other operating expenses         (67,742)
Income from investments in associates and other companies         930
Income tax expense         (94,076)
Result of continuous operations         336,744
Result of discontinued operations         -
Net income for the period         336,744

 

(1)Loans receivable from customers plus the balance indebted by banks, without deducting their allowances for loan losses.
(2)Corresponds to demand and time deposits.
(3)The sum of net income (expense) from financial operations and foreign exchange gains or losses.
(4)The sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  44

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and 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 deposit in banks        
  Cash   867,604   665,397
  Deposit in the Central Bank of Chile   2,805,748   1,313,394
  Deposit in domestic banks   4,338   1,571
  Deposit in foreign banks   1,848,507   822,926
Subtotal   5,526,197   2,803,288
         
  Cash items in process of collection, net   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 reserves that the Bank must maintain on average each month.

 

b)Operations in process of settlement:

 

Operations in process of settlement are transactions with only settlement pending, which will increase or decrease the funds of the Central Bank of Chile or of banks abread, usually within the next 24 or 48 working hours to each end of operation. These operations are as follows:

 

    As of
September 30,
As of
December 31,
    2021   2020
    MCh$   MCh$
Assets        
  Documents held by other banks (document 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 items in process of collection, net   96,199   91,332
             

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  45

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

  

NOTE 06

TRADING INVESTMENTS

 

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 institutions 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 third parties   - -
Subtotal   - -
       
Total   51,216 133,718

 

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

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  46

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

 

a)As of September 30, 2021 and 2020 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                
Currency forwards - - - -   - -
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
Call currency options - - - -   - -
Call interest rate options - - - -   - -
Put currency options - - - -   - -
Put interest rate options - - - -   - -
Interest rate futures - - - -   - -
Other derivatives - - - -   - -
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
Interest rate swaps - - - -   - -
Cross currency swaps 206,922 1,123,359 11,199,393 12,529,674   99,594 400,134
Call currency options - - - -   - -
Call interest rate options - - - -   - -
Put currency options - - - -   - -
Put interest rate options - - - -   - -
Interest rate futures - - - -   - -
Other derivatives - - - -   - -
Subtotal 476,698 2,314,541 11,199,393 13,990,632   99,694 401,930
               
Trading derivatives              
Currency forwards 23,605,595 13,212,190 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
Call interest rate options - - - -   - -
Put currency options 195,740 33,122 364 229,226   158 319
Put interest rate options - - - -   - -
Interest rate futures - - - -   - -
Other derivatives - - - -   - -
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

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  47

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

  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                
Currency forwards - - - -   - -
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
Call currency options - - - -   - -
Call interest rate options - - - -   - -
Put currency options - - - -   - -
Put interest rate options - - - -   - -
Interest rate futures - - - -   - -
Other derivatives - - - -   - -
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
Interest rate swaps - - - -   - -
Cross currency swaps 424,358 498,373 9,777,491 10,700,222   35,902 183,386
Call currency options - - - -   - -
Call interest rate options - - - -   - -
Put currency options - - - -   - -
Put interest rate options - - - -   - -
Interest rate futures - - - -   - -
Other derivatives - - - -   - -
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
Call interest rate options - - - -   - -
Put currency options 112,145 16,173 58,276 186,594   4,875 1,352
Put interest rate options - - - -   - -
Interest rate futures - - - -   - -
Other derivatives - - - -   - -
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

 

Consolidated Interim Financial Statements September 2021 / Banco Santander-Chile  48

Banco Santander-Chile and Subsidiaries
Notes to the Consolidated Interim Financial Statements
AS OF SEPTEMBER 30, 2021 and 2020 and DECEMBER 31, 2020

 

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued

 

b)Microhedge accounting

 

Fair value microhedge

 

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

 

The hedged items and hedge instruments under fair value hedges as of September 30, 2021 and 2020 and December 31, 2020, classified by term to maturity are as follows:

 

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            
Available for sale investments          
Chilean Sovereign bonds - 12,172 67,513 114,822 194,507
Mortgage finance bonds 389 - - - 389
American treasury bonds - - 202,866 636,996 839,862
Chilean General treasury bonds - - - - -
Central bank bonds (BCP) - - - - -
Time deposits and other demand 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
Obligations with Banks:          
Interbank loans 880,434 40,573 - - 921,007
Central bank loans - 6,178,000 - - 6,178,000
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            
Available for sale investments          
Chilean Sovereign bonds 10,687 10,687 138,044 249,440 408,858
Mortgage financing bonds - 918 - - 918
American treasury bonds - - 178,118 - 178,118
Chilean General treasury bonds - - - - -
Central bank bonds - - - - -
Time deposits and other demand 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
Obligations with Banks:          
Interbank loans - - - - -
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