Final Prospectus Supplement
Table of Contents

Filed Pursuant to Rule 424(b)(5)

Registration File No. 333-172727

CALCULATION OF REGISTRATION FEE

 

 
Title of Securities to be Registered       Maximum Aggregate    
Offering Price
  Amount of
Registration Fee(1)

Shares of Common Stock, without nominal (par) value

 

U.S.$19,300,612.00

  U.S.$2,240.80
 
(1) Calculated in accordance wit Rule 457(a) of the Securities Act of 1933, as amended.


Table of Contents

PROSPECTUS SUPPLEMENT

(To prospectus dated March 10, 2011)

1,398,023,524 Shares

(of which 150,000,000 were offered in the United States)

LOGO

Banco de Chile

Common Stock Series-S

 

 

We are offering 1,398,023,524 shares of our common stock “Banco de Chile-S” series (“shares of our common stock”) in Chile by means of a special auction (subasta de libro de órdenes) conducted on the Santiago Stock Exchange (the “Offering”).

All orders of shares of our common stock made by prospective purchasers must be placed through an authorized Chilean broker under Chilean law. See “Plan of Distribution.” The shares of our common stock offered in the Offering will be eligible for deposit in our American depositary receipt (“ADR”) facility, subject to the terms of our amended deposit agreement.

The offer and sale of the shares of our common stock in the Offering may be restricted and subject to limitations in jurisdictions other than Chile and the United States. Potential investors are advised to consult with their own legal advisors in this regard.

Our American depositary shares (“ADSs”) are listed on the New York Stock Exchange under the symbol “BCH” and the shares of our common stock are listed on the Santiago Stock Exchange, the Bolsa Electrónica de Chile and the Valparaiso Stock Exchange. On March 28, 2011, the last reported sale price of the ADSs on the New York Stock Exchange was U.S.$81.36 per ADS, and the last reported sale prices of the shares of our common stock on the Santiago Stock Exchange, the Bolsa Electrónica de Chile and the Valparaiso Stock Exchange were Ch$65.23, Ch$66.25 and Ch$66.00 per share, respectively.

Investing in shares of our common stock involves risks that are described in the “Risk Factors” sections beginning on page S-18 of this prospectus supplement and beginning on page 7 of our annual report on Form 20-F for the year ended December  31, 2009, incorporated by reference into the accompanying prospectus.

 

 

 

     Per Share      Total Gross Proceeds  

Offering Price

   Ch$ 62.00       Ch$ 86,677,458,488   

The Offering is part of a capital increase of 3,385,049,365 shares of our common stock approved by our shareholders on January 20, 2011. All of the shares of our common stock issued in connection with the capital increase are subject to a preemptive rights offering under Chilean law. The preemptive rights offering is expected to commence on or about March 31, 2011 and must remain open for at least 30 days. Our controlling shareholder has waived its rights with respect to all of its shares of our common stock subject to such preemptive rights offering (which will represent after the completion of the capital increase approximately 1.6% of our total common stock) and these are the shares of our common stock being offered in the Offering.

Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of the shares of our common stock or passed upon the accuracy or adequacy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

The shares of our common stock are expected to be ready for delivery through the book-entry system of the Depósito Central de Valores on or about April 4, 2011, which is T+2.

 

 

The date of this prospectus supplement is March 31, 2011.


Table of Contents

TABLE OF CONTENTS

Prospectus Supplement

 

     Page  

Presentation of Information

     ii   

Enforceability of Civil Liabilities

     iii   

Prospectus Supplement Summary

     S-1   

Selected Consolidated Financial Information

     S-11   

The Offering

     S-14   

Risk Factors

     S-18   

Use of Proceeds

     S-19   

Exchange Rates and Exchange Rate Controls

     S-20   

Capitalization and Indebtedness

     S-22   

Shares of Common Stock, Trading Unit and ADS Price Information

     S-23   

Selected Statistical Information

     S-25   

Recent Results of Operations

     S-36   

Recent Developments

     S-60   

Dividends and Dividend Policy

     S-62   

Principal Shareholders

     S-64   

Taxation

     S-65   

Plan of Distribution

     S-75   

Validity of Securities

     S-81   

Notices

     S-81   

Prospectus

 

     Page  

About this Prospectus

     1   

Where You Can Find More Information

     1   

Incorporation of Certain Documents by Reference

     2   

Forward-Looking Statements

     2   

The Company

     2   

Use of Proceeds

     4   

Description of Shares of our Common Stock

     4   

Description of American Depositary Shares

     12   

Description of the Preferred Shares

     18   

Description of the Debt Securities

     18   

Description of Guaranteed Debt Securities

     18   

Plan of Distribution

     18   

Expenses

     20   

Validity of the Securities

     20   

Experts

     21   

Notices

     21   

Service of Process and Enforcement of Civil Liabilities

     21   

 

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PRESENTATION OF INFORMATION

As used in this prospectus supplement, unless the context otherwise requires, the references to “we,” “us” or the “Company” are to Banco de Chile and its consolidated subsidiaries. References to Chilean placement agents are to “Banchile Corredores Bolsa S.A.” and “LarrainVial S.A. Corredora de Bolsa” collectively, each a Chilean placement agent. All references to “Chile” are references to the Republic of Chile.

We prepare our audited consolidated financial statements in Chilean pesos and in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). References in this prospectus supplement to IFRS mean IFRS as issued by the IASB.

Until and including our consolidated financial statements included in our annual report on Form 20-F for the year ended December 31, 2008, we prepared our audited consolidated financial statements in accordance with generally accepted accounting principles in Chile as supplemented by the applicable rules of the Superintendencia de Bancos e Instituciones Financieras de Chile (the “Superintendency of Banks”) (“Chilean GAAP”), with reconciliations to generally accepted accounting principles in the United States (“U.S. GAAP”). As required by IFRS 1—First Time Adoption of International Financial Reporting Standards, our financial position as of January 1, 2008 and December 31, 2008 and our results of operations for the year ended December 31, 2008 have been restated in accordance with IFRS 1 for comparative purposes. Reconciliations and description of the transition to IFRS, and the effects on assets, liabilities, equity, net income and cash flows are presented in Note 5 to our audited consolidated financial statements included in our annual report on Form 20-F for the year ended December 31, 2009 incorporated by reference into the prospectus of which this prospectus supplement is part. Unless otherwise indicated, the financial information included in this prospectus supplement or incorporated by reference into the prospectus with respect to 2008, 2009 and 2010 has been derived from financial statements that have been prepared in accordance with IFRS. See Note 2(a) to our audited consolidated financial statements as of and for the year ended December 31, 2010 incorporated by reference into the prospectus of which this prospectus supplement is part. IFRS differs in certain significant respects from Chilean GAAP. As a result, our financial information presented under IFRS is not directly comparable to our financial information presented under Chilean GAAP. Accordingly, readers should avoid such comparison.

Following our adoption of IFRS, we are no longer required to reconcile our financial statements to U.S. GAAP.

In this prospectus supplement, references to “$,” “U.S.$,” “U.S. dollars” and “dollars” are to United States dollars, references to “pesos” or “Ch$” are to Chilean pesos (see Note 2(f) to our audited consolidated financial statements as of and for the year ended December 31, 2010 incorporated by reference to the prospectus of which this prospectus supplement is part), and references to “UF” are to “Unidades de Fomento.” The UF is an inflation-indexed Chilean monetary unit of account with a value in Chilean pesos that is linked to and adjusted daily to reflect changes in the Consumer Price Index of the Instituto Nacional de Estadísticas (the “Chilean National Statistics Institute”). As of December 31, 2010, one UF equaled Ch$21,455.55.

This prospectus supplement contains translations of certain Chilean peso amounts into U.S. dollars at specified rates solely for your convenience. These translations should not be construed as representations that the Chilean peso amounts actually represent such U.S. dollar amounts, were converted from U.S. dollars at the rate indicated in preparing our audited consolidated financial statements as of and for the year ended December 31, 2010 or could be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, such U.S. dollar amounts have been translated from Chilean pesos based on the observed exchange rate reported by the Banco Central de Chile, or the Central Bank of Chile (the “Central Bank”), for December 30, 2010 (the latest practicable date, as December 31, 2010 was a banking holiday in Chile). The observed exchange rate on March 28, 2011 was Ch$479.67 = U.S.$1.00. The rate reported by the Central Bank is based on the rate for the prior business day in Chile and is the exchange rate specified by the Superintendency of Banks to be used by Chilean banks in the preparation of their financial statements. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.

 

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Unless otherwise specified, all references in this prospectus supplement to total loans are to loans to customers before deduction of allowances for loan losses, and they do not include loans to banks or contingent loans. In addition, all market share data and financial indicators for the Chilean banking system when compared to Banco de Chile’s financial information, presented in this prospectus supplement or incorporated by reference into the prospectus are based on information published periodically by the Superintendency of Banks, which is published under Chilean GAAP and prepared on a consolidated basis. Past-due loans include, with respect to any loan, the portion of principal or interest that is 90 or more days overdue, and do not include the installments of such loan that are not overdue or that are overdue for less than 90 days, unless legal proceedings have been commenced for the entire outstanding balance according to the terms of the loan, in which case the entire loan is considered past due within 90 days of the beginning of such proceedings. See “Item 4. Information on the Company—Selected Statistical Information—Classification of Loan Portfolio Based on the Borrower’s Payment Performance” in our annual report on Form 20-F for the year ended December 31, 2009 incorporated by reference into the prospectus of which this prospectus supplement is part.

According to Chilean regulations, regulatory capital (“Regulatory Capital”) consists of:

 

 

basic capital, which is composed of our paid-in capital, reserves and retained earnings, excluding capital attributable to subsidiaries and foreign branches (“Basic Capital”); and

 

 

supplementary capital, which is composed of the following: (i) our subordinated bonds, considered at issue price (reduced by 20.0% for each year during the period commencing six years prior to maturity), but not exceeding 50.0% of our Basic Capital; plus (ii) our voluntary allowances for loan losses (up to 1.25% of risk-weighted assets to the extent voluntary allowances exceed those that banks are required to maintain by law or regulation); minus (iii) our goodwill and unconsolidated investments in companies.

Certain figures included in this prospectus supplement and in our audited consolidated financial statements as of and for the year ended December 31, 2010 have been rounded for ease of presentation. Percentage figures included in this prospectus supplement have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this prospectus supplement may vary slightly from those obtained by performing the same calculations using the figures in our audited consolidated financial statements as of and for the year ended December 31, 2010. Certain other amounts that appear in this prospectus supplement may similarly not sum due to rounding.

Inflation figures are those reported by the Chilean National Statistics Institute, unless otherwise stated herein or required by the context.

ENFORCEABILITY OF CIVIL LIABILITIES

We are a bank organized under the laws of Chile. Most of our directors and executive officers reside outside the United States (principally in Chile) and substantially all of our assets and the assets of these individuals are located outside the United States. As a result, it may be difficult for you to:

 

 

effect service of process outside Chile upon us or such persons; or

 

 

bring an original action against us or our directors and executive officers in the United States or Chile to enforce liabilities based upon the federal securities laws of the United States.

It may also be difficult for you to enforce in Chilean courts judgments obtained in U.S. court against us or our directors and executive officers or other persons named in the registration statement, of which this prospectus supplement is part, based on civil liability provisions of the federal securities laws of the United States. If a U.S. court grants a final judgment in an action based on the civil liability provisions of the federal securities laws of the United States, enforceability of this judgment in Chile will be subject to the obtaining of the relevant

 

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“exequatur” (i.e., recognition and enforcement of the foreign judgment) according to Chilean civil procedure law currently in force, and consequently, subject to the satisfaction of certain factors. The most important of these factors are the existence of reciprocity, the absence of a conflicting judgment by a Chilean court relating to the same parties and arising from the same facts and circumstances, the Chilean courts’ determination that the U.S. courts had jurisdiction, that process was appropriately served on the defendant, that the defendant was afforded a real opportunity to appear before the court, that enforcement would not violate Chilean public policy and the judgment being final under the laws of the country in which it was rendered.

In general, the enforceability in Chile of final judgments of U.S. courts does not require retrial in Chile. However, there is doubt as to the enforceability, in original actions in Chilean courts, of liabilities predicated solely on the federal securities laws of the United States and as to the enforceability in Chilean courts of judgments of U.S. courts obtained in actions predicated upon the civil liability provisions of the federal securities laws of the United States. In addition, foreign judgments cannot be enforced in any way against properties located in Chile, which, as a matter of Chilean law, are subject exclusively to Chilean law and to the jurisdiction of Chilean courts.

 

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PROSPECTUS SUPPLEMENT SUMMARY

This summary highlights key information described in greater detail elsewhere in this prospectus supplement or the accompanying prospectus, including the documents incorporated by reference. You should read carefully the entire prospectus supplement, the accompanying prospectus and the documents incorporated by reference before making an investment decision.

Our Company

We were founded in 1893, and we have been, for much of our recent history, among the largest and most profitable Chilean banks in terms of return on assets and equity in Chile. We are engaged primarily in commercial banking in Chile, providing traditional banking services to our diversified customer base that includes corporations and individuals.

We are a full-service financial institution that provides, directly and indirectly through our subsidiaries and affiliates, a wide variety of credit and non-credit products and services to all segments of the Chilean financial market, providing a powerful value proposition to our customers.

According to the Superintendency of Banks, as of December 31, 2010, we were the second largest privately-owned bank in Chile in terms of total loans with a market share of 19.2%, the largest provider of commercial loans with a market share of 20.4%, the second largest provider of consumer loans with a market share of 22.1%, the second largest privately-owned bank in terms of residential mortgage loans with a market share of 14.9% and the largest privately-owned bank in terms of current accounts and demand deposits balances with a market share of 22.8%.

As of December 31, 2010 we had:

 

 

total assets of Ch$18,276,464 million (approximately U.S.$39,021 million);

 

 

total loans of Ch$14,377,995 million (approximately U.S.$30,698 million);

 

 

total deposits of Ch$12,144,149 million (approximately U.S.$25,929 million) of which Ch$4,446,181 million (approximately U.S.$9,493 million) correspond to current account and demand deposits; and

 

 

equity (including net income, non-controlling interest and provisions for minimum dividends) of Ch$1,694,325 million (approximately U.S.$3,617 million).

 

 

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We deliver our services to our customers through the following four principal business segments:

LOGO

We provide our retail customers with credit cards, residential mortgage loans, consumer loans and automobile financing loans, as well as traditional deposit services, such as current accounts, savings accounts and time deposits. Our banking services for wholesale customers include commercial loans (including working capital lines and trade finance), foreign exchange, capital markets services, cash management and non-credit services, such as payroll and payment services, as well as a wide range of treasury, financial advisory and risk management products.

More recently, we have complemented our products and services by entering into a strategic partnership with Citigroup Inc., as a result of our merger with Citibank Chile. This strategic alliance allowed us to nearly double our customer base in consumer finance (as our Consumer Finance Division absorbed the operations of Corporación Financiera Atlas S.A., Citibank Chile’s consumer division) and enhance our relationship with multinational companies that operate in Chile. In addition, our partnership with Citigroup Inc., an internationally well-known brand name, enabled us to broaden the scope of financial services that we offer to our customers through the addition of global financial services and other benefits. As a result of this partnership, we entered into a global connectivity agreement (the “Global Connectivity Agreement”), which has supported the creation of (i) an international personal banking area, responsible for optimizing the access to financial services outside of Chile to our local retail customers, (ii) a global transactional services area, responsible for executing local and international cash management services, as well as custody and foreign trade assistance for our wholesale business segment, and (iii) an enhanced investment banking area, responsible for providing financial advisory services and access to global capital markets to our Chilean corporate customers.

In addition to our traditional banking operations, through our subsidiaries and affiliates we offer a variety of non-banking financial services including securities brokerage, mutual fund management, investment banking services, factoring, insurance brokerage, securitization, collection and sales services.

We are headquartered in Santiago, Chile, and as of December 31, 2010 had approximately 14,000 employees and delivered financial products and services through a nationwide distribution network of 422 branches, and 1,976 ATMs, that are part of a larger ATM network operated by Redbanc S.A. (a company owned by us and 12 other private sector financial institutions) that comprises more than 6,141 ATMs.

 

 

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Our Competitive Strengths

Building on our knowledge of the Chilean financial market, we have historically been able to develop significant competitive advantages, based on our strong brand recognition, our widespread branch network, the diversity and relative size of our customer base, our highly competitive funding structure, the superior asset quality of our loan portfolio as compared to our main peers in the Chilean financial system, an attractive risk-return relationship and our market leadership in a diverse range of financial products and services.

Our main competitive strengths are:

Brand Recognition and Strong Corporate Image

We have been operating in Chile for over a hundred years under the “Banco de Chile” brand name and over time we have also developed the “Banco Edwards Citi,” “Banco CrediChile” and “Banchile” brand names. We believe our long-standing history in the Chilean market is recognized by our customers and the general public, who have associated us with quality and reliability within the Chilean financial system as demonstrated in various polls conducted by well-known market research companies. According to market research conducted by Adimark GFK (part of the GFK Group) during the fourth quarter of 2010, we were the most recognized brand among financial institutions operating in Chile. Also, a poll conducted by Merco (a corporate reputation monitor from Spain) in August 2010 placed Banco de Chile as the seventh most admired company in Chile and the most admired company among all local financial institutions. Similarly, a study conducted by Price Waterhouse Coopers Chile and Diario Financiero in 2010, ranked Banco de Chile among the ten most admired companies in Chile. We believe that our long history in the Chilean banking industry is a key element that differentiates us from our competitors.

Additionally, we believe that our merger with Citibank Chile reinforced our corporate image as a leading and sound financial institution within Chile, and allowed us to gain international recognition among customers and investors.

We also believe that our strong corporate image is further strengthened by our commitment to social responsibility, which includes supporting the Teleton Foundation (a non-governmental organization dedicated to assisting and treating Chilean disabled children), our partnership with institutions dedicated to improving the quality of Chilean education, our commitment to support the development of sports in Chile, as well as different initiatives intended to strengthen our role in, and contribution to, the Chilean society.

Nationwide Branch Network and Business-Oriented Service Models

We are present in all regions of Chile and strive to be accessible to every single Chilean customer through our broad branch network. As of December 31, 2010, we had a nationwide branch network of 422 branches that comprise 221 branches under our “Banco de Chile” brand name, 36 branches under our “Banco Edwards Citi” brand name and 165 branches under our “Banco CrediChile” brand name. We believe that our broad branch network is a suitable means of reinforcing our proximity to the customers and, therefore, we are constantly seeking profitable new locations to open new branches throughout Chile. During 2010, we carried out the “Bicentennial Plan” to open new branches and, by December 31, 2010, we had opened 22 new locations. During 2011, we expect to open 30 additional branches throughout Chile with a key focus of strengthening our presence in cities outside of Santiago.

To improve the ways we serve our customers, we are constantly reviewing the appearance and layout of our branches. Our aim is to turn each of our branches into a business generating unit. As a result, we have redesigned our service models in most of our commercial divisions in order to maximize branch profitability and enable our in-site account executives to focus on serving customers and developing new businesses rather than administrative tasks, which have been mostly transferred to back-office staff.

 

 

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We believe that our nationwide branch network and our business-oriented models will enable us to offer more services and products in every region of Chile, enhance our cross-selling capacity and improve our service quality.

Robust Customer Base and Diversified Products and Services Portfolio

We believe that we have one of the largest customer bases among the financial institutions operating in Chile and we provide one of the most diversified offerings of products and services to our customers. As of December 31, 2010, we had approximately 1,600,000 customers, which include: 941,000 borrowers, 580,000 current accounts, nearly 130,000 time deposits and approximately 1,150,000 issued credit cards. In response to the diverse needs of our customers, we have become a full-service financial group that operates under a multi-brand approach, offering a wide range of traditional banking products and services to our customers that are complemented by the specialized financial services provided by our subsidiaries, including securities brokerage, mutual funds, securitization, factoring, financial advisory, insurance brokerage and other financial services. In addition, our recent strategic alliance with Citigroup Inc. and the Global Connectivity Agreement have allowed us to broaden our service offerings by adding a comprehensive portfolio of international financial services that previously we could only partially provide.

We believe that our robust customer base is both an essential driver of our business that leads us to develop new products and services demanded by our customers, and a valuable asset that enables us to improve the cross-selling of our products and services.

Highly Competitive Funding Structure

We believe that we have a cost-effective and highly competitive funding structure based on our leading market position in current accounts and demand deposits that has not been replicated by other financial institutions operating in Chile. According to the Superintendency of Banks, as of December 31, 2010, we held 22.8% of the balances of demand deposits and current accounts in the Chilean financial system. As of the same date, current accounts and demand deposits accounted for 26.0% of our total funding structure as compared to the 18.3% reported by the Chilean financial system as a whole (excluding Banco de Chile).

Accordingly, we believe that our funding structure provides us with a cost advantage over our competitors (which use a higher proportion of interest bearing liabilities), as current accounts and demand deposits are the cheapest funding source available in Chile, since they are non-interest bearing liabilities. This is particularly true to the extent that expected economic growth for the upcoming years results in higher nominal interest rates over the next few years.

We are also constantly trying to diversify our funding structure. In fact, during 2010 we successfully accessed international markets by obtaining a loan of U.S.$100 million from a leading Chinese bank, while we entered into a syndicated credit of U.S.$200 million from a group of Asian financial institutions in the first months of 2011.

Superior Asset Quality

We believe we are the Chilean financial institution with the highest credit quality in the Chilean financial system, which we believe is the result of our well-known prudent risk management approach and our accurate credit risk models that have enabled us to maintain relatively low levels of past-due loans and high coverage indicators over the last few years.

According to the Superintendency of Banks, as of December 31, 2010, we had a delinquency ratio (past-due loans as a percentage of total loans) of 0.51%, which is well below the delinquency ratio of 1.45% reported by the Chilean financial system (excluding Banco de Chile) as of the same date. Additionally, we maintain the

 

 

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highest coverage ratio (allowances for loan losses to total past-due loans) in the Chilean financial system, which as of December 31, 2010 was equal to 4.9x compared to 1.7x for the Chilean financial system (excluding Banco de Chile).

Attractive Risk-Return Relationship

We believe we have become one of the financial institutions with the highest risk-return relationship within the Chilean financial system.

According to information published by the Superintendency of Banks, as of December 31, 2010, we recorded a return-on-equity (calculated as net income divided by the year-end equity balance) of 27.0%, the highest in the Chilean financial system. Similarly, as of the same date we ranked second in the Chilean banking industry in terms of return-on-average-equity (calculated as net income divided by the average equity) with a ratio of 24.7% and second in terms of return-on-average-assets with a ratio of 2.2%, above the 1.4% for the Chilean financial system (excluding Banco de Chile).

In terms of credit risk, as published by the Superintendency of Banks, as of December 31, 2010 our ratio of provisions for loan losses to average loans was 1.23%, which is below the 1.28% recorded by the Chilean financial system (excluding Banco de Chile) as of the same date.

Leading Market Position

We are one of the largest financial institutions in Chile and have become market leaders in a broad range of financial products and services within the Chilean financial system, as depicted in the following table:

 

     As of December 31, 2010  
     Market Share     Market Position  

Commercial Loans

     20.4     1 st 

Consumer Finance Loans(1)

     26.6     1 st 

Current Accounts and Demand Deposits Balances

     22.8     1 st 

Mutual Funds (Assets under management)

     23.5     1 st 

Stock Brokerage Fees(2)

     21.3     1 st 

Consolidated Fees and Commissions Income

     25.5     1 st 

 

Source: Superintendency of Banks, Chilean Mutual Funds Association and the Chilean Securities Commission.

 

(1) Only loans granted by consumer divisions of banks (CrediChile, Banefe, Banco Nova and Banco Condell) and banks specialized in these segments (Banco Falabella, Banco Paris and Banco Ripley). Does not include Banco Estado.
(2) As of September 30, 2010, the latest available information as published by the Chilean Securities Commission.

We have been traditionally recognized as a financial institution with strong presence in the corporate segment and have long-term relationships with the major local and multinational companies that operate in Chile. We have been able to maintain this leading position by continuously improving our products and services that we have complemented over time with the development and implementation of comprehensive service models that allow us to successfully serve our customers’ needs.

In the retail banking segment, our Consumer Finance Division (Banco CrediChile) has become the largest provider of consumer loans among the Chilean banks’ consumer divisions, based on the broad portfolio of services that we have designed for low- and middle-income individuals, as well as our recent merger with

 

 

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Citibank Chile that allowed us to nearly double our market share in this segment. Similarly, through our Commercial Division, we lead the market in services offered to high-income individuals for whom we have developed an attractive portfolio of financial services, including a full range of wealth management services through some of our subsidiaries. This broad variety of services has also allowed us to lead the Chilean market in terms of income from fees and commissions.

We believe our financial soundness, prestige and brand recognition among Chilean customers have allowed us to become the market leader in terms of current accounts and demand deposits balances within the Chilean financial system. Our position in current accounts and demand deposits was further consolidated in the financial downturn in 2009, when we benefited from a “flight-to-quality” effect as investors were seeking for a reliable institution to keep their funds.

We believe that our leadership position and our level of knowledge of the Chilean customer’s needs reinforce our competitive strengths.

Our Long-Term Business Strategy

Our long-term strategy is to maintain and enhance our position as a leading financial institution in Chile by providing a broad range of financial products and services to corporations and individuals nationwide. As part of this strategy, we have developed a multi-brand approach to target different market segments identified by us. We intend to leverage our strongly positioned brand names “Banco de Chile,” “Banco Edwards Citi,” and “Banco CrediChile” in traditional banking, which are complemented by specialized financial services (such as securities brokerage services, mutual fund services, securitization services, factoring services, financial advisory services and insurance brokerage services) provided by our subsidiaries operating under the “Banchile” brand name.

Our long-term strategy is based on the following key components:

Maintain Profitable Growth

Our business model is focused on those lines of business that add significant economic value to our shareholders, have appropriate levels of risk and allow us to strengthen long-term relationships with our customers. We seek sustained growth, particularly in higher-margin segments and business areas that show strong growth potential. Accordingly, during recent years we have reoriented our business focus towards the retail, large companies and treasury segments, in which we aim to achieve the same prominent position that we have obtained in the corporate segment.

In our retail banking segment, we expect to grow our business based on a comprehensive value offering that comprises the development of tailor-made service models as a result of a precise segmentation. As a consequence, we expect to expand our customer base and branch network, enhance our Small and Medium Enterprises Division’s loan portfolio, reinforce certain lending products that enable us to consolidate long-term relationships with our customers, especially those associated with payment channels (such as credit cards) and residential mortgage loans. During 2010, we created a new Credit and Debit Card Division, which is responsible for supporting our commercial divisions in defining marketing plans and strategies intended to increase the use of our credit cards and promote customer loyalty through those products. Also, our aim is to continue being an innovative bank within the Chilean financial system and therefore we expect to increase the use of information technologies in our commercial efforts, as part of our value offering. Similarly, in our Consumer Finance Division we aim to consolidate our presence in products such as payroll loans.

This strategy intends to take advantage of the retail banking segment’s growth potential. Despite the fact that Chile’s per capita GDP has tripled over the last 20 years, the level of access of population to banking credit

 

 

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in the Chilean economy is still below comparable countries, particularly within the low- and middle-income population segments and with respect to certain banking products such as residential mortgage loans. Additionally, we believe we can further grow this segment as, according to the Superintendency of Banks, as of December 31, 2010 we had a 22.1% market share in consumer loans (5.6% behind the market leader) and a 14.9% market share in residential mortgage loans (8.8% behind the market leader).

In our wholesale banking segment (large companies and corporations), we aim to maintain our leading market position in terms of loans and focus on achieving higher profitability by: improving our offering of cash management services, increasing the penetration of products designed by our Treasury, enhancing our presence in certain lending products such as leasing and factoring, and promoting international businesses by taking advantage of the commercial synergies related to both our merger with Citibank Chile (such as the Global Connectivity Agreement with Citigroup) and the specialized financial services offered by our subsidiaries, such as securities brokerage, mutual funds management and financial advisory.

We believe that we have already achieved significant improvements in these matters. According to our management information system, we have increased our cross-sell indicator of non-lending revenues to lending revenues from 1.2 times in 2007 to 1.4 times in 2010. As a result of the above-mentioned initiatives, we expect to continue enhancing our cross-selling strategy and the wholesale segment’s profitability.

In addition to our traditional lending activities, we have developed other financial activities in order to diversify our sources of revenues and continue to grow profitably, such as foreign exchange derivative transactions and fee-based products and services. As a result, our consolidated income from fees and other services has become an important source of revenue in recent years, reaching Ch$251,855 million (or 24.3% of our total operating revenues) in 2009 and Ch$292,262 million (or 25.1% of our total operating revenues) in 2010. We aim to continue increasing our net fees and commissions income by developing new products and services and by reinforcing the cross-selling of these products and services in the retail and wholesale segments that we currently serve.

We also constantly look for profitable business opportunities with potential partners, such as our merger with Citibank Chile.

Improve Operating Efficiency

We believe that a controlled operating cost structure will become increasingly important in order to compete profitably within the Chilean financial market and, as a result, we strive to increase our efficiency levels by increasing productivity and reducing costs. To achieve this goal, we have invested in information technology and development of simpler, more manageable, secure and modern business processes and platforms to achieve faster response times and higher productivity.

During 2009 and 2010, we invested approximately Ch$14,690 million and Ch$28,372 million, respectively, in technology (software and computer equipment), which we believe is one of the best means to improve customer service and operating efficiency. Similarly, we are developing internal processes intended to reduce our costs and expenses in order to increase our operating efficiency. During 2010, we prioritized the start-up of our data processing center and the upgrade of our contingency site, which should allow us to increase our operational productivity while reducing the operational risks.

As a result, we have significantly improved our efficiency ratio since 2008. During 2008, 2009 and 2010, our consolidated operating expenses represented respectively 52.6%, 47.5% and 46.7% of our consolidated operating revenues. We believe this improvement is partially attributable to our success in integrating Citibank Chile’s operations into our business, as the merger has generated synergies in various of our business segments,

 

 

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and we expect to continue improving our efficiency ratio in the coming years by expanding the volume of our business (generating economies of scale), developing economies of scope by incorporating new financially related businesses, enhancing our internal processes and reinforcing our cost controls and monitoring procedures.

We expect to continue enhancing our operating efficiency over the next several years by: (i) reinforcing the productivity of our branch network, (ii) enhancing our remote transactional channels, (iii) improving our credit processes, and (iv) developing operating processes with a higher level of automation.

Achieve High Standards of Service Quality

We are committed to providing high quality service to all of our customers in order to increase customer loyalty. Consistent with this view, in 2009 we created a new division responsible for developing our customer excellence strategies and measuring the quality of our services.

Additionally, in order to achieve our strategic goals in 2009 and 2010, we have developed and implemented different initiatives, such as: (i) identifying new customer segments and sub-segments in the retail and wholesale segments, (ii) implementing new value propositions with an emphasis on service excellence that include new service models, (iii) enhancing our service quality through an ongoing plan that identifies the key behaviors of our customers and developing a service protocol for different kinds of clients, (iv) significantly improving our time for delivery of products, (v) reinforcing our Internet channel and business units in order to increase information processing capacity, allowing us to manage larger volumes of business with improved response time, (vi) developing internal quality measurements for functional and support units and (vii) developing a full scale productivity improvement in all retail branches.

As a complement to the above-mentioned, we have implemented different metrics to evaluate our performance in relation to service quality. During 2011, we expect to continue benchmarking our competitors’ service performance and incorporate best practices from other markets, industries and countries.

Maintain Excellence in Human Resources Management

In order to ensure our long-term profitability, efficiency and service quality, we believe that it is necessary to have a highly-qualified and motivated workforce. In this regard, we strive to remain as one of the most respected employers in Chile by developing a team committed to excellence and our corporate goals and values. We recently carried out a comprehensive talent inventory review in order to suitably identify our staff’s skills while defining the correct policies in order to optimize the management of our human resources.

We seek to establish a distinctive culture among our employees by promoting (i) a clear focus on the customer, (ii) confidence and leadership, (iii) meritocracy and high performance, (iv) collaboration and teamwork, (v) accountability and empowerment and (vi) innovation and continuous improvement.

Our Business Structure

For management purposes, we organize our business operations in four business segments through which we provide a full range of financial services to different customers. These business segments consist of: (i) retail banking, (ii) wholesale banking, (iii) treasury and money market operations and (iv) operations through subsidiaries.

 

 

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Retail Banking

Our retail banking segment serves the financial needs of individuals and small and medium-sized companies through our branch network. As of December 31, 2010, we had 257 branches that operate under our “Banco de Chile” and “Banco Edwards Citi” brand names and 165 branches that operate within the “Banco CrediChile” network. Our retail segment represented 47.9% of our total loans as of December 31, 2010.

We serve the retail segment through two different and specialized divisions:

 

 

The Commercial Division provides financial services to individuals with monthly incomes over Ch$400,000 and to small and medium-sized companies with annual sales of up to approximately Ch$1,500 million under the brand names “Banco de Chile” and “Banco Edwards Citi.” The division offers a variety of financial services to individuals and small and medium-sized companies, such as current accounts, automatic bill payment, debit and credit cards, credit lines, housing loans, consumer loans, commercial loans, mortgage loans, leasing, factoring, support in foreign trade, payments and collections services, insurance brokerage (including life, home and vehicle insurance), savings instruments, mutual funds, stock brokerage and foreign currency services. As of December 31, 2010, this division served 721,829 individual customers and 63,015 small and medium-sized Chilean companies while the loans originated by the division represented 43.5% of our total loans.

 

 

The Consumer Finance Division provides loans and other financial services to micro businesses and the lower and middle-income segments of the Chilean population whose monthly incomes fluctuate between Ch$170,000 and Ch$400,000 under the “Banco CrediChile” brand name. Banco CrediChile represents an alternative delivery channel for our products and services to these segments, maintaining a separate brand supported by a network of 165 branches as of December 31, 2010. This division focuses on developing and marketing innovative and customized products targeted to satisfy the needs of its customers while introducing them to the banking system. As of December 31, 2010, Banco CrediChile had approximately 766,362 customers and total loans that amounted to Ch$630,701 million which represented 4.4% of our total loans.

Wholesale Banking

Our wholesale banking segment serves the needs of large companies and corporations. This business segment offers its customers a wide range of products that include current accounts, lines of credit, foreign trade and currency transactions, credit cards, short- and long-term financing, working capital loans, mortgage loans, leasing, syndicated loans, factoring, investment banking services through our subsidiary Banchile Asesoría Financiera S.A. (such as underwriting of public and private securities, debt restructuring and advisory in mergers and acquisitions), cash and investment management, forward contracts to hedge currency risk, insurance brokerage, payment and collection services and access to international funds transfer networks. As of December 31, 2010, loans granted by this business segment amounted to Ch$7,135,093 million and represented 49.7% of our total loan portfolio.

In conjunction with our strategy of identifying and differentiating market segments in order to provide improved value offerings for specific customers, we have defined two divisions within the wholesale segment:

 

 

The Corporate Division provides services to corporations whose annual sales exceed approximately Ch$70,000 million. The division’s customers consist of a large proportion of Chile’s publicly-traded companies, subsidiaries of multinational corporations operating in Chile and conglomerates (including those that operate in the financial, commercial, manufacturing and infrastructure sectors) as well as projects and concessions. As of December 31, 2010, out of a total of 3,766 customers in our Corporate Division, we had 742 large corporations with loans of Ch$3,264,596 million, which represented 22.7% of our total loan portfolio.

 

 

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The Large Companies and Real Estate Division provides a broad range of financial products and services to companies with annual sales that range from approximately Ch$1,500 million to approximately Ch$70,000 million. Customers served by this division are those related to the commercial, manufacturing, agricultural, forestry, fishing, infrastructure and real estate sectors. As of December 31, 2010, out of a total of 19,458 customers in our Large Companies and Real Estate Division, we had 8,654 large companies with loans of Ch$3,870,497 million, which represented 26.9% of our total loans.

Treasury and Money Market Operations

Our treasury and money market operations segment provides a wide range of financial services to our customers, including currency intermediation, forward contracts, interest rate swaps, repurchase agreements and investment products based on bonds, mortgage finance bonds and deposits. In addition, this business segment is focused on managing our currency, interest rate and maturity gaps, ensuring adequate liquidity levels, managing our investment portfolio and brokering fixed-income instruments, currencies and derivatives.

This segment is also responsible for the issuance of short- and long-term bonds and the issuance of long-term subordinated bonds, as well as for monitoring the compliance with regulatory deposit limits, technical reserves and security margins defined by Chilean regulations, as well as risk limits for interest rate, currency and investment gaps.

During 2010, our treasury and money market operations segment conducted important funding transactions, such as the issuance of approximately U.S.$558 million in subordinated bonds and the placement of approximately U.S.$706 million in senior bonds. For additional information regarding interest rates and maturity on these issuances, please see Note 21 to our audited consolidated financial statements as of and for the year ended December 31, 2010 incorporated by reference into the prospectus of which this prospectus supplement is part.

Operations through Subsidiaries

We have made several strategic long-term investments in financial services companies which complement our banking activities. As a result, we have become a comprehensive financial group capable of meeting the diverse financial needs of our customers. Through our subsidiaries Banchile Administradora General de Fondos S.A., Banchile Asesoría Financiera S.A., Banchile Corredores de Seguros Ltda., Banchile Corredores de Bolsa S.A., Banchile Factoring S.A., Banchile Securitizadora S.A., Socofin S.A., Promarket S.A. and Banchile Trade Services Limited (Hong Kong), we offer, among others, the following services: mutual and investment fund management services, factoring services, financial advisory services, insurance brokerage services, securities brokerage services, securitization services, credits pre-evaluation services, collection services and trade services.

 

 

Our legal name is Banco de Chile. We are organized as a banking corporation under the laws of Chile and were licensed by the Superintendency of Banks to operate as a commercial bank on September 17, 1996. Our principal executive offices are located at Paseo Ahumada 251, Santiago, Chile. Our telephone number is +56 (2) 637-1111 and our website is www.bancochile.cl.

 

 

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SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following tables present historical financial information about us as of the dates and for each of the periods indicated. The following tables should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements included in our annual report on Form 20-F for the year ended December 31, 2009 and our audited consolidated financial statements as of and for the year ended December 31, 2010, each incorporated by reference into the prospectus of which this prospectus supplement is part. The financial information as of and for the years ended December 31, 2008, 2009 and 2010 is presented under IFRS and expressed in Chilean pesos.

 

     For the Year Ended December 31,  
     2008     2009     2010     2010  
     (in millions of Ch$, except share and per share data)     (in thousands of
U.S.$)(1)
 

IFRS:

        

CONSOLIDATED STATEMENT OF INCOME DATA

        

Interest revenue

   Ch$ 1,659,350      Ch$ 900,407      Ch$ 1,092,003      U.S.$ 2,331,496   

Interest expense

     (885,263     (222,883     (324,506     (692,841
                                

Net interest income

     774,087        677,524        767,497        1,638,655   

Net fees and commissions income

     234,361        251,855        292,262        623,999   

Net financial operating income

     384,836        (138,179     17,292        36,920   

Foreign exchange transactions, net

     (353,012     220,999        63,762        136,136   

Other operating income

     30,937        22,190        23,584        50,353   

Provisions for loan losses

     (149,374     (241,345     (157,651     (336,595

Total operating expenses

     (563,491     (491,749     (544,227     (1,161,959

Income attributable to associates

     3,564        840        1,609        3,435   
                                

Income before income taxes

     361,908        302,135        464,128        990,944   

Income taxes

     (35,313     (40,389     (46,513     (99,309
                                

Net income from continued operations, net of taxes

     326,595        261,746        417,615        891,635   

Net income from discontinued operations, net of taxes

     38,459        —          —          —     
                                

Net income for the year

   Ch$ 365,054      Ch$ 261,746      Ch$ 417,615      U.S.$ 891,635   

Attributable to:

        

Equity holders of the parent

     365,052        261,744        417,614        891,633   

Non-controlling interest

     2        2        1        2   

Earnings per share(2)

     4.52        3.18        5.06        0.011   

Earnings per ADS

     2,708.12        1,902.42        3,035.30        6.48   

Dividends per share(3)

     3.37        2.72        3.50        0.007   

Weighted average number of shares (in millions)

     80,746.98        82,185.28        82,551.70        —     

 

(See footnotes below)

 

 

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     As of December 31,  
     2008      2009      2010      2010  
     (in millions of Ch$, except share and per share data)      (in thousands of
U.S.$)(1)
 

IFRS:

           

CONSOLIDATED STATEMENT OF FINANCIAL POSITION DATA

           

Cash and due from banks

   Ch$ 751,223       Ch$ 727,553       Ch$ 772,329       U.S.$ 1,648,972   

Transactions in the course of collection

     807,625         526,051         429,756         917,557   

Financial assets held-for-trading

     626,864         351,590         279,765         597,316   

Receivables from repurchase agreements and security borrowing

     75,519         79,401         82,787         176,756   

Derivative instruments

     902,351         565,986         488,354         1,042,667   

Loans and advances to banks

     321,992         448,981         349,588         746,393   

Loans to customers, net

     13,460,464         12,879,155         14,029,968         29,954,882   

Financial assets available-for-sale

     1,073,552         1,267,774         1,157,105         2,470,493   

Investments in other companies

     11,293         10,494         11,072         23,639   

Intangible assets

     94,324         88,182         87,276         186,340   

Property and equipment

     211,379         205,847         205,539         438,839   

Investment properties

     18,397         17,840         17,459         37,276   

Current tax assets

     —           —           3,363         7,180   

Deferred tax assets, net

     21,868         49,733         57,678         123,151   

Other assets

     251,487         282,872         304,425         649,967   
                                   

Total assets

   Ch$ 18,628,338       Ch$ 17,501,459       Ch$ 18,276,464       U.S.$ 39,021,428   
                                   

Current accounts and other demand deposits

     3,007,261         3,718,076         4,446,181         9,492,882   

Transactions in the course of payment

     479,789         325,056         208,750         445,695   

Payables from repurchase agreements and security Lending

     420,658         308,028         81,755         174,552   

Saving accounts and time deposits

     8,472,590         7,427,481         7,697,968         16,435,656   

Derivative instruments

     863,514         538,240         528,445         1,128,264   

Borrowings from financial institutions

     1,498,549         1,368,226         1,281,372         2,735,811   

Debt issued

     1,900,087         1,587,998         1,764,165         3,766,605   

Other financial obligations

     93,708         176,150         179,160         382,518   

Currents tax liabilities

     9,053         39,018         —           —     

Deferred tax liabilities, net

     —           —           —           —     

Provisions

     121,215         88,607         114,685         244,860   

Employee benefits

     45,912         43,202         55,433         118,353   

Other liabilities

     210,684         280,392         224,225         478,735   
                                   

Total liabilities

   Ch$ 17,123,020       Ch$ 15,900,474       Ch$ 16,582,139       U.S.$ 35,403,931   
                                   

Total equity

     1,505,318         1,600,985         1,694,325         3,617,497   
                                   

Total liability and equity

   Ch$ 18,628,338       Ch$ 17,501,459       Ch$ 18,276,464       U.S.$ 39,021,428   
                                   

 

(See footnotes below)

 

 

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     As of or for the Year Ended
December 31,
 
     2008     2009     2010  

IFRS:

      

CONSOLIDATED RATIOS

      

Profitability and Performance

      

Net interest margin(4)

     5.16     4.38     4.70

Return on average total assets(5)

     2.18        1.51        2.38   

Return on average equity(6)

     24.45        16.85        25.01   

Capital

      

Average equity as a percentage of average total assets

     8.93        8.99        9.50   

Bank regulatory capital as a percentage of minimum regulatory capital

     204.04        234.93        232.85   

Ratio of liabilities to regulatory capital(7)

     15.02        11.87        12.99   

Credit Quality

      

Substandard loans as a percentage of total loans(8)

     4.96        5.80        3.27   

Allowances for loan losses as a percentage of substandard loans(8)

     33.14        40.76        74.05   

Allowances for loan losses as a percentage of total loans

     1.64        2.37        2.42   

Consolidated risk index

     1.64        2.37        2.42   

Operating Ratios

      

Operating expenses/operating revenue

     52.60        47.54        46.74   

Operating expenses/average total assets

     3.37     2.85     3.10

 

(1) Translations of Chilean peso amounts into U.S. dollars are based on the observed exchange rate as reported by the Central Bank. Thus, amounts stated in U.S. dollars as of and for the fiscal year ended December 31, 2010 have been translated from Chilean pesos based on an observed exchange rate of Ch$468.37 to U.S.$1.00 as reported by the Central Bank on December 30, 2010 (the latest practicable date, as December 31, 2010 was a banking holiday in Chile).
(2) Earnings per share data have been calculated by dividing net income by the weighted average number of shares outstanding during the year.
(3) Dividends per share data are calculated by dividing the amount of the dividend paid during each year by the previous year’s number of shares outstanding.
(4) Annualized net interest income divided by average interest earning assets. The average balances for interest earning assets, including interest and readjustments, have been calculated on the basis of our daily balances and on the basis of monthly balances for our subsidiaries.
(5) Annualized net income (loss) divided by average total assets. The average balances for total assets have been calculated on the basis of our daily balances and on the basis of monthly balances for our subsidiaries.
(6) Annualized net income (loss) divided by average equity. The average balances for equity have been calculated on the basis of our daily balances.
(7) Total liabilities divided by bank regulatory capital.
(8) For additional information for the years ended 2008 and 2009, see “Item 4. Information on the Company—Selected Statistical Information—Analysis of Substandard Loans and Amounts Past Due” on our annual report on Form 20-F for the year ended December 31, 2009. Similar information has not been prepared and is not available for the year ended December 31, 2010.

 

 

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THE OFFERING

 

Issuer

Banco de Chile

 

Offering price per Share of our Common Stock

Ch$62.00

 

Shares of our Common Stock offered

We are offering 1,398,023,524 (of which 150,000,000 will be offered in the United States) shares of our common stock “Banco de Chile-S” series, that for all legal purposes are identical to and fully fungible with our shares of our common stock series, and are part of a total capital increase of 3,385,049,365 shares of our common stock approved by our shareholders on January 20, 2011. See “Description of Shares of our Common Stock” in the accompanying prospectus for more information.

 

Offering

We are offering 1,398,023,524 shares of our common stock in Chile by means of a special auction (subasta de libro de órdenes) conducted on the Santiago Stock Exchange under the provisions of the Section 2.4A of the Santiago Stock Exchange’s Manual of Share Offerings (Manual de Operaciones en Acciones), which will sort the purchase orders by price and will award the shares of our common stock in accordance with the conditions set forth in the offer.

 

  All orders of shares of our common stock made by prospective purchasers must be placed through an authorized Chilean broker under Chilean law. We encourage international investors to place their orders through the Chilean placement agents, otherwise their orders will be classified as retail and international investors will likely receive a lower allocation. Each prospective purchaser may use only one such broker. In order to be eligible to purchase shares of our common stock in the Offering, each prospective purchaser of the shares of our common stock must (i) establish a foreign investment capital funds account with a Chilean broker and (ii) provide the Chilean broker with a fully executed broker letter of instruction, which will include the maximum number of shares of our common stock to be purchased and maximum purchase price. See “Plan of Distribution.”

 

ADR Facility Eligibility

The shares of our common stock offered in the Offering are eligible for deposit in our ADR facility, subject to the terms of our amended deposit agreement. It is anticipated that the depositary for our ADR facility may not accept deposits of shares of our common stock during the period from March 25, 2011 through the record date set with the New York Stock Exchange and announced by the depositary with respect to any sale of the rights issued in the preemptive rights offering with respect to the shares of our common stock underlying ADRs.

 

Preemptive rights offering

On January 20, 2011, our shareholders adopted a resolution to increase our capital by 3,385,049,365 shares of our common stock. In connection with the capital increase, we are required by Chilean law

 

 

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to make a preemptive rights offering to our existing shareholders. In the preemptive rights offering, our shareholders registered on the fifth Chilean business day (including Saturday for this purpose) prior to the commencement of the preemptive rights offering will have the right to subscribe for newly issued shares of our common stock in proportion to their ownership interest in our common stock. The preemptive rights offering is currently expected to commence on or about March 31, 2011 and must remain open for at least 30 days. Pursuant to the terms of our amended deposit agreement, we are not making the preemptive rights available to ADR holders.

 

  The price at which shares of our common stock will be offered in the preemptive rights offering will be (i) the same as the price at which shares of our common stock are being offered in the Offering, if successful, or (ii) set by our board of directors in accordance with a formula duly approved by our shareholders, if the Offering is not successful.

 

  We are entitled to and may sell any shares of our common stock subject to the preemptive rights offering with respect to which preemptive rights are not exercised by our existing shareholders.

 

Trading market for shares of our Common Stock

The shares of our common stock are currently listed on the Santiago Stock Exchange, the Bolsa Electrónica de Chile and the Valparaiso Stock Exchange.

 

Trading market for ADSs

The ADSs are currently listed and traded on the New York Stock Exchange under the symbol “BCH.”

 

Use of proceeds

The net proceeds from the Offering, after payment of certain fees and transaction expenses, will be approximately Ch$85,763,777,669. We intend to use the net proceeds from the Offering hereunder for general corporate purposes, mainly to fund expected growth in our lending activities.

 

Expected offering timetable

Marketing commences: March 15, 2011.

 

  Pricing date: March 30, 2011.

 

  Special auction (subasta de libro de órdenes): March 31, 2011.

 

  Expected closing date: April 4, 2011.

 

Settlement

Pursuant to requirements under Chilean law, we will deliver the shares of our common stock against payment therefor on the second business day following the formal award of the shares to prospective purchasers pursuant to the special auction procedure. Settlement of the shares of our common stock will be made through the book-entry system of the Depósito Central de Valores on or about April 4, 2011, which is T+2.

 

Controlling shareholder

The following table summarizes the percentage of our shares of our common stock that will be held by our controlling shareholder after giving effect to the Offering and the exercise of preemptive rights to purchase newly issued shares, not including the effects of the stock dividend described under “Dividends and Dividend Policy—Dividend

 

 

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  Policy” and assuming that our controlling shareholder does not acquire any preemptive rights in the preemptive rights offering:

 

Current ownership

     61.71

After completion of the Offering and assuming no exercise of preemptive rights

     60.68

 

  As long as our controlling shareholder beneficially owns a majority of the outstanding shares of our common stock, it will be able to elect a majority of our directors and to determine the outcome of the voting on substantially all actions that require shareholder approval. See “Major Shareholders and Related Party Transactions—Major Shareholders” under Item 7 of our annual report on Form 20-F for the year ended December 31, 2009, which has been incorporated by reference into the prospectus of which this prospectus supplement is part and “Description of Shares of our Common Stock—Meetings and Voting Rights” in the accompanying prospectus.

 

Dividend policy

Dividends on the shares of our common stock are proposed by our board of directors and are approved by our shareholders at the annual ordinary shareholders’ meeting following the year with respect to which the dividends are proposed. Our annual ordinary shareholders’ meeting is held in the first four months of each year. Following shareholder approval, the dividends are declared and paid. Dividends are paid to shareholders of record on the fifth business day preceding the date set for payment of the dividend (including Saturday for this purpose). Under the Chilean Corporations Law and regulations issued thereunder, Chilean public corporations are generally required to distribute at least 30% of their earnings as dividends. Under the General Banking Law, a Chilean bank may pay dividends upon approval of their shareholders from (i) net earnings of previous fiscal years, (i.e., interim dividends are not permitted), (ii) the reserve kept for that purpose, or (iii) other funds permitted under Chilean law. See “Dividends” in our annual report on Form 20-F for the year ended December 31, 2009 incorporated by reference into the prospectus of which this prospectus supplement is part and “Dividends and Dividend Policy” in this prospectus supplement.

 

Cash Dividend

At the ordinary annual shareholders’ meeting held on March 17, 2011, the shareholders agreed to the distribution and payment of dividend No. 199, in the amount of Ch$2.937587 per common share, with a charge to our 2010 income.

 

Stock Dividend

At the extraordinary shareholders’ meeting held on March 17, 2011, the shareholders agreed to a stock dividend in connection with the capitalization of 30% of our distributable net income obtained during the fiscal year 2010 by means of the issuance of fully paid-in shares of our common stock, without par value, with a value of Ch$66.83

 

 

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per share of our common stock that will be distributed among the shareholders in the proportion of 0.018838 fully paid-in shares of our common stock for each share of our common stock held, subject to the exercise of the options established in article 31 of Law 19,396.

 

Taxation

See “Taxation” in this prospectus supplement.

 

Risk Factors

See “Risk Factors” beginning on page S-18 as well as Item 3 in our annual report on Form 20-F for the year ended December 31, 2009 incorporated by reference into the accompanying prospectus for a discussion of certain risk factors relating to us, our business and an investment in shares of our common stock.

 

 

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RISK FACTORS

We refer you to the risk factors in our annual report on Form 20-F for the year ended December 31, 2009 which has been incorporated by reference into this prospectus supplement. We may include further risk factors in subsequent reports on Form 6-K incorporated in the prospectus of which this prospectus supplement forms part by reference. You should carefully consider all these risk factors in addition to the other information presented or incorporated by reference into the prospectus.

Risks Relating to this Offering

Substantial sales of shares of our common stock after this offering in connection with the preemptive rights offering and any shares of our common stock that we decide to sell in the event all of the preemptive rights are not exercised could result in a decline in the market price of the shares of our common stock.

On or about March 31, 2011, we expect to commence a preemptive rights offer to our existing shareholders in connection with a capital increase of 3,385,049,365 shares of our common stock approved by our shareholders on January 20, 2011. Our controlling shareholder has waived its rights to subscribe for 1,398,023,524 newly issued shares of our common stock subject to such preemptive rights offering (which will represent after the completion of the capital increase approximately 1.6% of our total common stock). Considering the waiver of our controlling shareholder described above, the additional 1,987,025,841 newly issued shares of our common stock (which will represent after the completion of the capital increase approximately 2.3% of our total common stock) is expected to be subject to the preemptive rights offer mentioned above.

We are entitled to and may sell to third parties any newly issued shares of our common stock in respect of which our shareholders have waived or not exercised within the required time period their preemptive rights. During a 30-day period following the expiration of the preemptive rights offering, we would not be permitted to sell these newly issued shares of our common stock to third parties at a lower price or on more favorable terms than those offered in the preemptive rights offering. After this 30-day period, these newly issued shares of our common stock may be offered to third parties at a higher price and more favorable conditions than those offered in the preemptive rights offering, provided such offering is made in a stock exchange.

As a result, sales of these preemptive rights or the underlying shares of our common stock, or sales by us of newly issued shares of our common stock not acquired by our shareholders in the preemptive rights offering may negatively affect the market price of the shares of our common stock.

 

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USE OF PROCEEDS

The net proceeds from the Offering, after payment of certain fees and transaction expenses, will be approximately Ch$85,763,777,669 (assuming fees and expenses of Ch$913,680,819 in connection with the Offering). We intend to use the net proceeds from the Offering for general corporate purposes, mainly to fund expected growth in our lending activities.

 

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EXCHANGE RATES AND EXCHANGE RATE CONTROLS

Exchange Rates

The Ley Orgánica Constitucional del Banco Central de Chile 18,840, or the Central Bank Act, sets forth the rules that govern the purchase and sale of foreign currency. The Central Bank Act empowers the Central Bank to determine that certain purchases and sales of foreign currency specified by law must be carried out in the Mercado Cambiario Formal, or the Formal Exchange Market. The Formal Exchange Market is formed by the banks and other entities so authorized by the Central Bank.

Purchases and sales of foreign exchange not required to be conducted in the Formal Exchange Market may be carried out in the Mercado Cambiario Informal, or the Informal Exchange Market. There are no price limits imposed on transactions executed in the Informal Exchange Market. On December 30, 2010 (the latest practicable date, as December 31 was a banking holiday in Chile), the average exchange rate in the Informal Exchange Market was Ch$468.20 per U.S.$1.00, or 0.04% lower than the observed exchange rate of Ch$468.37 per U.S.$1.00 reported by the Central Bank on the same date. The observed exchange rate for any given day equals the average exchange rate of the transactions conducted in the Formal Exchange Market on the immediately preceding banking day, as certified by the Central Bank.

The following table sets forth the annual low, high, average and period-end observed exchange rate for U.S. dollars for each year beginning in 2006, as reported by the Central Bank:

 

     Daily Observed Exchange Rate Ch$ per U.S.$(1)  

Year

   Low(2)      High(2)      Average(3)      Period  End(4)  
     (in Ch$)  

2006

     511.44         549.63         530.28         534.43   

2007

     493.14         548.67         522.47         495.82   

2008

     431.22         676.75         522.46         629.11   

2009

     491.09         643.87         559.61         506.43   

2010

     468.37         549.17         510.25         468.37   

October 2010

     475.93         494.44         484.04         491.76   

November 2010

     477.05         488.72         482.32         486.39   

December 2010

     468.37         487.87         474.78         468.37   

2011 (through March 28)

     466.05         499.03         481.52         479.67   

January 2011

     466.05         499.03         489.44         483.32   

February 2011

     468.94         484.14         475.69         475.63   

March 2011 (through March 28)

     472.74         485.37         479.43         479.67   

 

Source: Central Bank.
(1) Nominal amounts.
(2) Exchange rates are the actual low and high, on a day-by-day basis for each period.
(3) For full years, the average of monthly average rates during the year. For full months, the daily average during the month.
(4) As reported by the Central Bank on the first business day of the following period.

The observed exchange rate on March 28, 2011 was Ch$479.67 to U.S.$1.00 as reported by the Central Bank. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.

Exchange Controls

Investments made in shares of our common stock are subject to the following requirements:

 

 

any foreign investor acquiring shares of our common stock who brought funds into Chile for that purpose must bring those funds through an entity participating in the Formal Exchange Market;

 

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any foreign investor acquiring shares of our common stock to be converted into ADSs or deposited into an ADR facility who brought funds into Chile for that purpose must bring those funds through an entity participating in the Formal Exchange Market;

 

 

in both cases, the entity of the Formal Exchange Market through which the funds are brought into Chile must report such investment to the Central Bank;

 

 

all remittances of funds from Chile to the foreign investor upon the sale of the acquired shares of our common stock or from dividends or other distributions made in connection therewith must be made through the Formal Exchange Market;

 

 

all remittances of funds from Chile to the foreign investor upon the sale of shares underlying ADSs or from dividends or other distributions made in connection therewith must be made through the Formal Exchange Market; and

 

 

all remittances of funds made to the foreign investor must be reported to the Central Bank by the intervening entity of the Formal Exchange Market.

When funds are brought into Chile for a purpose other than to acquire shares to convert them into ADSs or deposit them into an ADR facility and subsequently such funds are used to acquire shares to be converted into ADS’s or deposited into an ADR facility, such investment must be reported to the Central Bank by the custodian within ten days following the end of each month within which the custodian is obligated to deliver periodic reports to the Central Bank.

When funds to acquire shares of our common stock or to acquire shares to convert them into ADSs or deposit them into an ADR facility are received by us abroad (i.e. outside of Chile), such investment must be reported to the Central Bank directly by the foreign investor or by an entity participating in the Formal Exchange Market within ten days following the end of the month in which the investment was made.

All payments in foreign currency in connection with our shares of common stock or ADSs made from Chile through the Formal Exchange Market must be reported to the Central Bank by the entity participating in the transaction. In the event there are payments made outside of Chile, the foreign investor must provide the relevant information to the Central Bank directly or through an entity of the Formal Exchange Market within the first ten calendar days of the month following the date on which the payment was made.

We cannot assure you that additional Chilean restrictions applicable to the holders of ADSs, the disposition of shares of our common shares underlying ADSs or the conversion or repatriation of the proceeds from such disposition will not be imposed in the future, nor can we assess the duration or impact of such restriction if imposed.

This summary does not purport to be complete and is qualified by reference to Chapter XIV of the Central Bank Foreign Exchange Regulations, a copy of which is available in the original Spanish version at the Central Bank’s website at www.bcentral.cl.

 

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CAPITALIZATION AND INDEBTEDNESS

The following table sets forth our capitalization and indebtedness under IFRS as of December 31, 2010 and as adjusted to give effect to the Offering. Based on an offering price of Ch$62.00 per share of our common stock in the Offering, the net proceeds (after deducting estimated fees and expenses with the transaction) of the Offering will be Ch$85,763,777,669. The “as adjusted” columns do not give effect to the preemptive rights offering to be conducted after the Offering. This table should be read together with our audited consolidated financial statements as of and for the year ended December 31, 2010 incorporated by reference into the prospectus of which this prospectus supplement is part, and the other financial information in this prospectus supplement and in our annual report on Form 20-F for the year ended December 31, 2009, incorporated by reference into this prospectus of which this prospectus supplement is part.

 

     As of December 31, 2010(1)  
     Actual      As adjusted      Actual      As adjusted  
     (in millions of Ch$)      (in thousands of U.S.$)  

IFRS:

           

Indebtedness

           

Deposits

   Ch$ 4,446,181       Ch$ 4,446,181       U.S.$ 9,492,882       U.S.$ 9,492,882   

Investments under agreements to repurchase

     81,755         81,755         174,552         174,552   

Interbank borrowings

     1,281,372         1,281,372         2,735,811         2,735,811   

Bonds:

           

Mortgage finance bonds

     198,868         198,868         424,596         424,596   

Subordinated bonds

     744,966         744,966         1,590,550         1,590,550   

Other bonds

     820,331         820,331         1,751,459         1,751,459   

Other obligations

     179,160         179,160         382,518         382,518   

Derivatives

     528,445         528,445         1,128,264         1,128,264   

Sub-total

     8,281,078         8,281,078         17,680,632         17,680,632   

Capitalization

           

Shareholders’ equity and other funds

           

Paid-in share capital and reserves

     1,317,034         1,402,798         2,811,952         2,995,063   

Other equity accounts

     73,233         73,233         156,362         156,362   

Net income for the period

     417,615         417,615         891,635         891,635   

Total capitalization and indebtedness

   Ch$ 10,088,960       Ch$ 10,174,724       U.S.$ 21,540,581       U.S.$ 21,723,692   

 

(1) Chilean pesos amounts shown in the “Actual” column above are derived from our audited balance sheet as of December 31, 2010. Amounts in Chilean pesos have been translated for convenience only to U.S. dollars at an observed exchange rate of Ch$468.37 to U.S.$1.00 as reported by the Central Bank on December 30, 2010 (the latest practicable date, as December 31, 2010 was a banking holiday in Chile).

 

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SHARES OF COMMON STOCK, TRADING UNIT AND ADS PRICE INFORMATION

The following table sets forth, for the periods indicated, the reported high and low market prices for the shares of our common stock in Chilean pesos on each of the Santiago Stock Exchange, the Bolsa Electrónica de Chile and the Valparaiso Stock Exchange.

 

     Santiago Stock
Exchange
     Bolsa Electrónica
de Chile
     Valparaiso Stock
Exchange
 

Period

     Low          High          Low          High          Low          High    
      (Ch$ per share of our common stock)(1)  

Annual Price History

                 

2006

     32.0         45.9         31.4         46.0         31.7         46.0   

2007

     38.1         48.2         37.5         49.0         37.5         48.0   

2008

     26.1         43.6         25.5         43.4         27.0         42.8   

2009

     33.4         45.0         33.5         44.8         33.4         72.8   

2010

     45.1         72.6         44.7         73.2         44.7         72.7   

2011 (through March 28)

     63.1         74.0         63.0         74.7         63.1         74.4   

Quarterly Price History

                 

1st Quarter 2008

     36.0         43.6         35.6         43.4         36.1         42.8   

2nd Quarter 2008

     38.2         40.5         38.2         41.4         38.1         40.0   

3rd Quarter 2008

     35.4         38.4         35.4         39.1         35.6         38.5   

4th Quarter 2008

     26.1         36.5         25.5         36.7         27.0         36.2   

1st Quarter 2009

     34.0         37.4         33.5         37.5         34.0         37.5   

2nd Quarter 2009

     33.4         39.0         33.5         39.0         33.4         38.9   

3rd Quarter 2009

     37.0         43.7         37.0         43.6         37.2         42.5   

4th Quarter 2009

     40.8         45.0         39.5         44.8         41.5         72.8   

1st Quarter 2010

     45.1         55.9         44.7         56.4         44.7         55.5   

2nd Quarter 2010

     51.3         57.8         51.2         57.8         51.4         57.0   

3rd Quarter 2010

     54.9         72.6         54.9         73.2         54.9         72.7   

4th Quarter 2010

     68.6         72.6         68.0         72.8         68.5         72.6   

1st Quarter 2011 (through March 28)

     63.1         74.0         63.0         74.7         63.1         74.4   

Monthly Price History

                 

October 2010

     70.1         72.6         70.0         72.8         69.5         72.6   

November 2010

     68.7         70.5         68.0         71.0         68.5         70.3   

December 2010

     68.6         71.3         68.0         71.8         68.6         71.0   

January 2011

     68.2         74.0         68.3         74.7         68.1         74.4   

February 2011

     63.8         67.5         63.0         68.7         63.1         68.7   

March 2011(through March 28)

     63.1         70.4         63.2         70.3         63.2         69.5   

 

Source: Santiago Stock Exchange, Bolsa Electrónica de Chile and Valparaiso Stock Exchange—Official Quotation Bulletin and Bloomberg.

 

(1) Ch$ per share of our common stock reflect nominal price at trade date.

 

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The following table sets forth, for the periods indicated, the reported high and low market prices for the ADSs on the New York Stock Exchange in U.S. dollars and our units on the Latibex in Euros.

 

     New York Stock Exchange      Latibex  

Period

         Low                  High                  Low                  High        
     (U.S.$ per ADS)(1)      (Euros per Trading  Unit)(2)  

Annual Price History

           

2009

     30.85         53.90         22.10         37.45   

2010

     53.72         92.50         37.33         68.65   

2011 (through March 28)

     78.37         90.35         55.85         68.90   

Quarterly Price History

           

1st Quarter 2009

     30.85         36.86         22.10         29.04   

2nd Quarter 2009

     33.06         43.50         25.23         30.38   

3rd Quarter 2009

     40.51         48.39         28.90         32.93   

4th Quarter 2009

     46.07         53.90         31.32         37.45   

1st Quarter 2010

     53.72         64.41         37.33         46.93   

2nd Quarter 2010

     56.25         65.63         42.50         51.60   

3rd Quarter 2010

     61.00         90.20         48.29         66.30   

4th Quarter 2010

     85.16         92.50         61.00         68.65   

1st Quarter 2011 (through March 28)

     78.37         90.35         55.85         68.90   

Monthly Price History

           

October 2010

     85.80         92.32         61.40         64.75   

November 2010

     85.16         89.15         61.00         65.00   

December 2010

     86.73         92.50         65.20         68.65   

January 2011

     84.41         90.35         62.05         68.90   

February 2011

     80.96         85.68         58.80         63.40   

March 2011(through March 28)

     78.37         88.09         55.85         63.20   

 

Source: Bloomberg.

(1) One ADS represents 600 shares of our common stock.
(2) One Trading Unit represents 600 shares of our common stock.

 

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SELECTED STATISTICAL INFORMATION

The following information is included for analytical purposes and should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2010 incorporated by reference into the prospectus of which this prospectus supplement is part, and our audited consolidated financial statements and “Item 5. Operating and Financial Review and Prospects” of our annual report on Form 20-F for the year ended December 31, 2009 incorporated by reference into the prospectus of which this prospectus supplement is part.

Average Balance Sheets, Interest Earned on Interest Earning Assets and Interest Paid on Interest Bearing Liabilities

The average balances for interest earning assets and interest bearing liabilities, including interest and readjustments received and paid, have been calculated on the basis of our daily balances and on the basis of monthly balances for our subsidiaries. These average balances are presented in Chilean pesos (Ch$), in UF and in foreign currencies (principally the U.S. dollar). The UF is an inflation-indexed Chilean monetary unit of account with a value in Chilean pesos which is linked to, and which is adjusted daily to reflect changes in, the consumer price index of the Chilean National Institute of Statistics.

The nominal interest rate has been calculated by dividing the amount of interest and principal readjustment gain or loss during the period by the related average balance, both amounts expressed in constant pesos. The nominal rates calculated for each period have been converted into real rates using the following formulas:

 

Rp =

 

 

1 + Np

  – 1

 

  1 + I  

and

 

Rd =

 

 

(1 + Nd)(1 + D)

   

 

– 1

 

  

 

  1 + I  

Where:

Rp = real average rate for peso-denominated assets and liabilities (in Ch$ and UF) for the period;

Rd = real average rate for foreign currency denominated assets and liabilities for the period;

Np = nominal average rate for peso-denominated assets and liabilities for the period;

Nd = nominal average rate for foreign currency denominated assets and liabilities for the period;

D = devaluation rate of the Chilean peso to the dollar for the period; and

I = inflation rate in Chile for the period (based on the variation of the Consumer Price Index).

The real interest rate can be negative for a portfolio of peso-denominated loans when the inflation rate for the period is higher than the average nominal rate of the loan portfolio for the same period. A similar effect could occur for a portfolio of foreign currency denominated loans when the inflation rate for the period is higher than the combined effect of the devaluation rate for the period and the corresponding average nominal rate of the portfolio.

The formula for the average real rate for foreign currency denominated assets and liabilities (Rd) reflects a gain or loss in purchasing power caused by the difference between the devaluation rate of the Chilean peso and the inflation rate in Chile during the period.

 

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The following example illustrates the calculation of the real interest rate for a U.S. dollar asset bearing a nominal annual interest rate of 10% (Nd = 0.10), assuming a 5% annual devaluation rate (D = 0.05) and a 12% annual inflation rate (I = 0.12):

 

Rd =

 

 

(1 + 0.10)(1 + 0.05)

 

– 1 = 3.125% per year

 

  1 + 0.12  

In the example, since the inflation rate was higher than the devaluation rate, the real rate is lower than the nominal rate in U.S. dollars. If, for example, the annual devaluation rate were 15%, using the same numbers, the real rate in Chilean pesos would be 12.9%, which is higher than the nominal rate in U.S. dollars. Using the same numbers, if the annual inflation rate were greater than 15.5%, the real rate would be negative.

The foreign exchange gains or losses on foreign currency-denominated assets and liabilities have not been included in interest revenue or expense. Similarly, interest accrued on the trading portfolio are not included in interest revenues. Interest is not recognized during periods in which loans are past due except for certain loans where 80% or more of our exposure under the loan is secured. However, interest received on past due loans includes interest on such loans from the original maturity date. For our impaired portfolio and high risk loans, we apply a conservative approach of discontinuing accrual-basis recognition of interest revenue in the income statement and they are only recorded once received.

Included in cash and due from banks are current accounts maintained in the Central Bank and overseas banks. Such assets have a distorting effect on the average interest rate earned on total interest earning assets because of balances maintained in:

 

 

the Central Bank, only the portion that is legally required to be held for liquidity purposes earns interest; and

 

 

overseas banks earn interest on certain accounts in certain countries.

Consequently, the average interest earned on such assets is comparatively low. These deposits are maintained by us in these accounts to comply with statutory requirements and to facilitate international business, rather than to earn income.

The monetary gain or loss on interest earning assets and interest bearing liabilities is not included as a component of interest revenue or interest expense because inflation effects are taken into account in the calculation of real interest rates.

 

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The following tables show under IFRS, by currency of denomination, average balances and, where applicable, interest amounts, and nominal and real rates for our assets and liabilities for the years ended December 31, 2009 and 2010:

 

    For the Year Ended December 31,  
    2009     2010  
IFRS:   Average
balance
    Interest
earned(1)
    Average
nominal rate
    Average
real rate
    Average
balance
    Interest
earned(1)
    Average
nominal rate
    Average
real rate
 
    (in millions of Ch$, except percentages)  

Assets

               

Interest earning assets

               

Cash and due from banks

               

Ch$

  Ch$ 462,300      Ch$ 17        —          1.40   Ch$ 559,039      Ch$ 274        0.05     (3.71 )% 

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    352,163        173        0.05        (18.33     289,374        93        0.03        (10.96
                                       

Total

    814,463        190        0.02        (7.13     848,413        367        0.04        (6.18
                                       

Financial investments

               

Ch$

    816,111        28,762        3.52        4.97        608,266        19,777        3.25        (0.62

UF

    619,451        6,086        0.98        2.40        725,734        32,351        4.46        0.54   

Foreign currency

    192,708        7,408        3.84        (15.24     185,808        2,609        1.40        (9.74
                                       

Total

    1,628,270        42,256        2.60        1.60        1,519,808        54,737        3.60        (1.18
                                       

Loans in advance to banks

               

Ch$

    204,703        5,479        2.68        4.11        339,844        7,205        2.12        (1.71

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    —          —          —          —          —          —          —          —     
                                       

Total

    204,703        5,479        2.68        4.11        339,844        7,205        2.12        (1.71
                                       

Commercial loans

               

Ch$

    3,758,821        275,631        7.33        8.83        4,076,224        226,117        5.55        1.59   

UF

    3,239,648        76,109        2.35        3.78        3,231,121        218,776        6.77        2.76   

Foreign currency

    1,540,276        64,139        4.16        (14.97     1,555,737        41,379        2.66        (8.62
                                       

Total

    8,538,745        415,879        4.87        2.62        8,863,082        486,272        5.49        0.22   
                                       

Consumer loans

               

Ch$

    1,831,744        378,004        20.64        22.32        1,950,497        373,264        19.14        14.66   

UF

    40,354        1,627        4.03        5.49        46,903        3,685        7.86        3.81   

Foreign currency

    —          —          —          —          —          —          —          —     
                                       

Total

    1,872,098        379,631        20.28        21.96        1,997,400        376,949        18.87        14.41   
                                       

Residential mortgage loans

               

Ch$

    —          —          —          —          —          —          —          —     

UF

    2,359,746        57,351        2.43        3.86        2,698,384        187,363        6.94        2.93   

Foreign currency

    —          —          —          —          —          —          —          —     
                                       

Total

    2,359,746        57,351        2.43        3.86        2,698,384        187,363        6.94        2.93   
                                       

Repurchase agreement

               

Ch$

    13,799        1,193        8.65        10.17        74,471        5,387        7.23        3.21   

UF

    28,331        —          —          —          —          —          —          —     

Foreign currency

    625        —          —          —          —          —          —          —     
                                       

Total

    42,755        1,193        2.79        3.28        74,471        5,387        7.23        3.21   
                                       

Total interest earnings assets

               

Ch$

    7,087,478        689,086        9.72        11.26        7,608,341        632,024        8.31        4.24   

UF

    6,287,530        141,173        2.25        3.68        6,702,142        442,175        6.60        2.60   

Foreign currency

    2,085,772        71,720        3.44        (15.57     2,030,919        44,081        2.17        (9.06
                                       

Total

  Ch$ 15,460,780      Ch$ 901,979        5.83     4.56   Ch$ 16,341,402      Ch$ 1,118,280        6.84     1.91
                                       

 

(1) Interest earned includes interest accrued on trading securities.

 

S-27


Table of Contents
    For the Year Ended December 31,  
    2009     2010  
IFRS:   Average
balance
    Interest
earned(1)
    Average
nominal rate
    Average
real rate
    Average
balance
    Interest
earned(1)
    Average
nominal rate
    Average
real rate
 
    (in millions of Ch$, except percentages)  

Assets

               

Non-interest earning assets

               

Transaction in the course of collection

               

Ch$

  Ch$ 234,486      Ch$ —          —          —        Ch$ 263,263      Ch$ —          —          —     

UF

    9        —          —          —          —          —          —          —     

Foreign currency

    149,347        —          —          —          152,592        —          —          —     
                                       

Total

    383,842        —          —          —          415,855        —          —          —     
                                       

Allowances for loan losses

               

Ch$

    (260,879     —          —          —          (341,313     —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    —          —          —          —          —          —          —          —     
                                       

Total

    (260,879     —          —          —          (341,313     —          —          —     
                                       

Derivatives

               

Ch$

    604,845        —          —          —          481,674        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    43,429        —          —          —          44,635        —          —          —     
                                       

Total

    648,274        —          —          —          526,309        —          —          —     
                                       

Investment in other companies

               

Ch$

    9,024        —          —          —          11,057        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    2        —          —          —          2        —          —          —     
                                       

Total

    9,026        —          —          —          11,059        —          —          —     
                                       

Intangible assets

               

Ch$

    89,144        —          —          —          82,151        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    —          —          —          —          —          —          —          —     
                                       

Total

    89,144        —          —          —          82,151        —          —          —     
                                       

Fixed assets

               

Ch$

    210,711        —          —          —          207,267        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    —          —          —          —          —          —          —          —     
                                       

Total

    210,711        —          —          —          207,267        —          —          —     
                                       

Current tax assets

               

Ch$

    1,185        —          —          —          2,520        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    —          —          —          —          —          —          —          —     
                                       

Total

    1,185        —          —          —          2,520        —          —          —     
                                       

Deferred tax assets

               

Ch$

    62,627        —          —          —          63,935        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    —          —          —          —          —          —          —          —     
                                       

Total

    62,627        —          —          —          63,935        —          —          —     
                                       

Other assets

               

Ch$

    84,941        —          —          —          216,432        —          —          —     

UF

    579,991        —          —          —          40,135        —          —          —     

Foreign currency

    12,650        —          —          —          12,502        —          —          —     
                                       

Total

    677,582        —          —          —          269,069        —          —          —     
                                       

Total non-interest earning assets

               

Ch$

    1,036,084        —          —          —          986,986        —          —          —     

UF

    580,000        —          —          —          40,135        —          —          —     

Foreign currency

    205,428        —          —          —          209,731        —          —          —     
                                       

Total

    1,821,512        —          —          —          1,236,852        —          —          —     
                                       

Total assets

               

Ch$

    8,123,562        689,086        —          —          8,595,327        632,024        —          —     

UF

    6,867,530        141,173        —          —          6,742,277        442,175        —          —     

Foreign currency

    2,291,200        71,720        —          —          2,240,650        44,081        —          —     
                                       

Total

  Ch$ 17,282,292      Ch$ 901,979        —          —        Ch$ 17,578,254      Ch$ 1,118,280        —          —     
                                       

 

(1) Interest earned includes interest accrued on trading securities.

 

S-28


Table of Contents
    For the Year Ended December 31,  
    2009     2010  
IFRS:   Average
balance
    Interest
paid
    Average
nominal rate
    Average
real rate
    Average
balance
    Interest
paid
    Average
nominal rate
    Average
real rate
 
    (in millions of Ch$, except percentages)  

Liabilities

               

Interest bearing liabilities

               

Savings accounts

               

Ch$

  Ch$ 3,919,286      Ch$ 131,470        3.35     4.80   Ch$ 4,172,738      Ch$ 86,691        2.08     (1.75 )% 

UF

    2,434,064        7,475        0.31        1.71        2,087,299        89,517        4.29        0.37   

Foreign currency

    1,214,967        20,711        1.70        (16.98     1,122,089        14,441        1.29        (9.85
                                       

Total

    7,568,317        159,656        2.11        0.31        7,382,126        190,649        2.58        (2.38
                                       

Repurchase agreements

               

Ch$

    239,295        5,535        2.31        3.74        167,032        1,640        0.98        (2.81

UF

    31,354        725        2.31        3.74        14,665        367        2.50        (1.34

Foreign currency

    4,409        99        2.25        (16.54     1,259        1        0.08        (10.92
                                       

Total

    275,058        6,359        2.31        3.42        182,956        2,008        1.10        (2.75
                                       

Borrowings from financial institutions

               

Ch$

    67,314        2,479        3.68        5.13        82,313        2,138        2.60        (1.25

UF

    2,972        1        0.03        1.43        8,255        21        0.25        (3.51

Foreign currency

    1,126,865        23        —          (18.37     1,275,267        16,663        1.31        (9.83
                                       

Total

    1,197,151        2,503        0.21        (17.00     1,365,835        18,822        1.38        (9.27
                                       

Debt issued

               

Ch$

    17,885        1,264        7.07        8.57        78,957        805        1.02        (2.77

UF

    1,565,522        26,032        1.66        3.09        1,463,769        104,641        7.15        3.13   

Foreign currency

    130,222        4,942        3.80        (15.28     117,714        4,306        3.66        (7.74
                                       

Total

    1,713,629        32,238        1.88        1.75        1,660,440        109,752        6.61        2.08   
                                       

Other financial obligations

               

Ch$

    41,019        848        2.07        3.50        60,144        1,146        1.91        (1.92

UF

    12,242        —          —          —          29,200        1,767        6.05        2.07   

Foreign currency

    48,738        21,279        43.66        17.26        42,856        362        0.84        (10.24
                                       

Total

    101,999        22,127        21.69        9.66        132,200        3,275        2.48        (3.74
                                       

Total interest bearing liabilities

               

Ch$

    4,284,799        141,596        3.30        4.75        4,561,184        92,420        2.03        (1.80

UF

    4,046,154        34,233        0.85        2.26        3,603,188        196,313        5.45        1.49   

Foreign currency

    2,525,201        47,054        1.86        (16.85     2,559,185        35,773        1.40        (9.75
                                       

Total

  Ch$ 10,856,154      Ch$ 222,883        2.05     (1.20 )%    Ch$ 10,723,557      Ch$ 324,506        3.03     (2.59 )% 
                                       

 

S-29


Table of Contents
    For the Year Ended December 31,  
    2009     2010  
IFRS:   Average
balance
    Interest
paid
    Average
nominal rate
    Average
real rate
    Average
balance
    Interest
paid
    Average
nominal rate
    Average
real rate
 
      (in millions of Ch$, except percentages)  

Liabilities

               

Non-interest bearing liabilities

               

Current account and demand deposits

               

Ch$

  Ch$ 2,665,304      Ch$ —          —          —        Ch$ 3,452,445      Ch$ —          —          —     

UF

    13,117        —          —          —          107,937        —          —          —     

Foreign currency

    454,883        —          —          —          525,418        —          —          —     
                                       

Total

    3,133,304        —          —          —          4,085,800        —          —          —     
                                       

Transaction in the course of payment

               

Ch$

    132,821        —          —          —          139,131        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    133,966        —          —          —          142,429        —          —          —     
                                       

Total

    266,787        —          —          —          281,560        —          —          —     
                                       

Derivatives

               

Ch$

    610,155        —          —          —          434,521        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    61,940        —          —          —          77,072        —          —          —     
                                       

Total

    672,095        —          —          —          511,593        —          —          —     
                                       

Current liabilities

               

Ch$

    15,401        —          —          —          14,143        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    —          —          —          —          —          —          —          —     
                                       

Total

    15,401        —          —          —          14,143        —          —          —     
                                       

Deferred tax liabilities

               

Ch$

    37,291        —          —          —          19,052        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    —          —          —          —          —          —          —          —     
                                       

Total

    37,291        —          —          —          19,052        —          —          —     
                                       

Provisions

               

Ch$

    64,697        —          —          —          49,109        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    —          —          —          —          —          —          —          —     
                                       

Total

    64,697        —          —          —          49,109        —          —          —     
                                       

Other liabilities

               

Ch$

    108,883        —          —          —          206,557        —          —          —     

UF

    568,572        —          —          —          10,247        —          —          —     

Foreign currency

    5,367        —          —          —          6,223        —          —          —     
                                       

Total

    682,822        —          —          —          223,027        —          —          —     
                                       

Equity

               

Ch$

    1,553,104        —          —          —          1,670,413        —          —          —     

UF

    —          —          —          —          —          —          —          —     

Foreign currency

    637        —          —          —          —          —          —          —     
                                       

Total

    1,553,741        —          —          —          1,670,413        —          —          —     
                                       

Total non-interest bearing liabilities and equity

               

Ch$

    5,187,656        —          —          —          5,985,371        —          —          —     

UF

    581,689        —          —          —          118,184        —          —          —     

Foreign currency

    656,793        —          —          —          751,142        —          —          —     
                                       

Total

    6,426,138        —          —          —          6,854,697        —          —          —     
                                       

Total liabilities and equity

               

Ch$

    9,472,455        141,596        —          —          10,546,555        92,420        —          —     

UF

    4,627,843        34,233        —          —          3,721,372        196,313        —          —     

Foreign currency

    3,181,994        47,054        —          —          3,310,327        35,773        —          —     
                                       

Total

  Ch$ 17,282,292      Ch$ 222,883        —          —        Ch$ 17,578,254      Ch$ 324,506        —          —