ITAÚ CORPBANCA and subsidiaries
Interim Consolidated Financial Statements
$ | = | Amounts expressed in Chilean pesos |
MCh$ | = | Amounts expressed in millions of Chilean pesos |
US$ | = | Amounts expressed in US dollars |
ThUS$ | = | Amounts expressed in thousands of US dollars |
MUS$ | = | Amounts expressed in millions of US dollars |
COP$ | = | Amounts expressed in Colombian pesos |
MCOP$ | = | Amounts expressed in millions of Colombian pesos |
UF | = | Amounts expressed in Unidades de Fomento (a Chilean inflation-indexed, peso-denominated monetary unit that is set daily based on changes in the Chilean Consumer Price Index) |
Itaú Corpbanca and subsidiaries- Interim Consolidated Financial Statements- September 30, 2020 | 1 |
ITAÚ CORPBANCA and subsidiaries
Interim Consolidated Statements of Financial Position
(In millions of Chilean pesos - MCh$)
As of September 30, | As of December 31, | |||||
Notes | 2020 | 2019 | ||||
MCh$ | MCh$ | |||||
ASSETS | ||||||
Cash and deposits in banks | 5 | 3,943,080 | 1,009,681 | |||
Cash items in process of collection | 5 | 406,308 | 231,305 | |||
Trading investments | 6 | 422,535 | 181,402 | |||
Investments under resale agreements | 7 | 172,087 | 75,975 | |||
Financial derivative contracts | 8 | 4,466,884 | 3,154,957 | |||
Interbank loans, net | 9 | 86,840 | 56,205 | |||
Loans and accounts receivable from customers, net | 10 | 22,624,495 | 22,373,638 | |||
Available for sale investments | 11 | 2,514,133 | 3,593,204 | |||
Held to maturity investments | 11 | 90,768 | 115,682 | |||
Investments in companies | 12 | 14,228 | 14,938 | |||
Intangibles | 13 | 771,338 | 1,617,745 | |||
Fixed assets | 14 | 52,339 | 57,962 | |||
Right of use asset under lease agreements | 15 | 185,511 | 204,559 | |||
Current taxes | 16 | 18,279 | 85,516 | |||
Deferred taxes | 16 | 251,282 | 184,167 | |||
Other assets | 17 | 711,808 | 783,447 | |||
TOTAL ASSETS | 36,731,915 | 33,740,383 | ||||
LIABILITIES | ||||||
Deposits and other demand liabilities | 18 | 5,661,945 | 4,873,448 | |||
Cash in process of being cleared | 5 | 381,006 | 164,573 | |||
Obligations under repurchase agreements | 7 | 437,330 | 559,457 | |||
Time deposits and other time liabilities | 18 | 12,092,389 | 11,620,187 | |||
Financial derivative contracts | 8 | 4,118,822 | 2,938,034 | |||
Interbank borrowings | 19 | 4,292,982 | 2,646,756 | |||
Debt instruments issued | 20 | 6,179,471 | 6,408,356 | |||
Other financial liabilities | 20 | 8,401 | 12,966 | |||
Lease contracts liabilities | 15 | 156,513 | 172,924 | |||
Current taxes | 16 | 2,687 | 13 | |||
Deferred taxes | 16 | 268 | 263 | |||
Provisions | 21 | 211,744 | 194,107 | |||
Other liabilities | 22 | 614,586 | 708,914 | |||
TOTAL LIABILITIES | 34,158,144 | 30,299,998 | ||||
EQUITY | ||||||
Attributable to equity holders of the Bank | ||||||
Capital | 24 | 1,862,826 | 1,862,826 | |||
Reserves | 24 | 1,195,849 | 1,195,849 | |||
Valuation accounts | 24 | 17,535 | 42,140 | |||
Retained earnings: | (580,080) | 245,287 | ||||
Retained earnings from prior years | 24 | 156,342 | 156,342 | |||
Loss for the period/ income for the year | 24 | (736,422) | 127,065 | |||
Less: Provision for mandatory dividends | 24 | - | (38,120) | |||
Total equity attributable to equity holders of the Bank | 2,496,130 | 3,346,102 | ||||
Non-controlling interest | 24 | 77,641 | 94,283 | |||
TOTAL EQUITY | 2,573,771 | 3,440,385 | ||||
TOTAL LIABILITIES AND EQUITY | 36,731,915 | 33,740,383 |
The explanatory notes are an integral part of these Interim Consolidated Financial Statements.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 2 |
ITAÚ CORPBANCA and subsidiaries
Interim Consolidated Statements of Income for the period
(In millions of Chilean pesos - MCh$)
For the three-month |
For the nine-month | ||||
Notes | ended September 30, | ended September 30, | |||
2020 | 2019 | 2020 | 2019 | ||
| MCh$ | MCh$ | MCh$ | MCh$ | |
Interest income | 25 | 320,385 | 418,482 | 1,135,517 | 1,275,802 |
Interest expense | 25 | (125,502) | (213,632) | (527,312) | (645,964) |
Net interest income | 194,883 | 204,850 | 608,205 | 629,838 | |
Fee and commission income | 26 | 47,545 | 58,921 | 151,843 | 182,864 |
Fee and commission expense | 26 | (14,520) | (16,674) | (45,236) | (53,524) |
Net fee and commission income | 33,025 | 42,247 | 106,607 | 129,340 | |
Net income (expense) from financial operations | 27 | (20,119) | 58,923 | 182,852 | 91,035 |
Net foreign exchange income (loss) | 28 | 11,111 | 19,534 | (76,485) | 14,904 |
Other operating income | 31,162 | 10,787 | 58,054 | 34,019 | |
Net operating profit before provision for loan losses | 250,062 | 336,341 | 879,233 | 899,136 | |
Provision for loan losses | 29 | (93,425) | (82,024) | (284,032) | (185,103) |
NET OPERATING PROFIT | 156,637 | 254,317 | 595,201 | 714,033 | |
Personnel salaries and expenses | 30 | (77,075) | (72,597) | (227,812) | (220,337) |
Administrative expenses | 31 | (60,345) | (60,339) | (182,742) | (179,647) |
Depreciation and amortization | 32 | (27,195) | (32,623) | (90,764) | (94,004) |
Impairment | 32 | (5) | - | (808,862) | (1) |
Other operating expenses | (25,648) | (14,982) | (40,018) | (48,919) | |
TOTAL OPERATING EXPENSES | (190,268) | (180,541) | (1,350,198) | (542,908) | |
OPERATING INCOME (LOSS) | (33,631) | 73,776 | (754,997) | 171,125 | |
Income (loss) from investments in companies | 12 | (597) | 26 | 958 | 2,170 |
Operating income (loss) before income taxes | (34,228) | 73,802 | (754,039) | 173,295 | |
Income taxes | 16 | 21,700 | (35,927) | 9,612 | (48,681) |
CONSOLIDATED INCOME (LOSS) FOR THE PERIOD | (12,528) | 37,875 | (744,427) | 124,614 | |
Attributable to: | - | ||||
Equity holders of the Bank | 24 | (14,006) | 36,449 | (736,422) | 117,306 |
Non-controlling interest | 24 | 1,478 | 1,426 | (8,005) | 7,308 |
Earnings (losses) per share attributable to equity holders of the Bank (in Chilean pesos) | |||||
Basic earnings (losses) per share | 24 | (0.027) | 0.071 | (1.437) | 0.229 |
Diluted earnings (losses) per share | 24 | (0.027) | 0.071 | (1.437) | 0.229 |
The explanatory notes are an integral part of these Interim Consolidated Financial Statements.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 3 |
ITAÚ CORPBANCA and subsidiaries
Interim Consolidated Statements of Other Comprehensive Income for the period
(In millions of Chilean pesos - MCh$)
For the three-month periods | For the nine-month periods | |||||||||
Notes | ended September 30, | ended September 30, | ||||||||
2020 | 2019 | 2020 | 2019 | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||
CONSOLIDATED INCOME (LOSS) FOR THE PERIOD | 24 | (12,528) | 37,875 | (744,427) | 124,614 | |||||
OTHER COMPREHENSIVE INCOME (LOSS) WHICH MAY BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS | ||||||||||
Available for sale investments | 24 | (14,115) | 13,081 | (17,521) | 26,749 | |||||
Exchange differences on investment in Colombia and New York branch | 24 | (42,508) | 4,662 | (54,138) | (8,008) | |||||
Gain from net investments in foreign operations hedge | 24 | 53,092 | 6,263 | 76,271 | 16,019 | |||||
Gain (loss) from cash flows hedge | 24 | (17,023) | 5,692 | (28,324) | (6,440) | |||||
Other comprehensive income (loss) before income taxes | (20,554) | 29,698 | (23,712) | 28,320 | ||||||
Income taxes related to available for sale investments | 24 | 4,216 | (3,217) | 3,880 | (6,981) | |||||
Income taxes related to net investment in foreign operations hedge | 24 | (14,335) | 240 | (20,593) | (1,698) | |||||
Income taxes related to cash flows hedge | 24 | 4,791 | (3,872) | 5,727 | (1,246) | |||||
Income taxes on other comprehensive income | (5,328) | (6,849) | (10,986) | (9,925) | ||||||
Other comprehensive income (loss) which may be reclassified subsequently to profit or loss, net of income taxes | (25,882) | 22,849 | (34,698) | 18,395 | ||||||
OTHER COMPREHENSIVE INCOME (LOSS) WHICH MAY NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS | ||||||||||
Defined benefits obligations | 24 | 484 | 71 | 2,091 | (2,115) | |||||
Income taxes related to defined benefits obligations | 24 | (143) | (19) | (635) | 890 | |||||
Other comprehensive income (loss) which may not be reclassified subsequently to profit or loss, net of income taxes | 341 | 52 | 1,456 | (1,225) | ||||||
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD | 24 | (25,541) | 22,901 | (33,242) | 17,170 | |||||
CONSOLIDATED COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD | 24 | (38,069) | 60,776 | (777,669) | 141,784 | |||||
Attributable to: | ||||||||||
Equity holders of the Bank | 24 | (34,672) | 60,977 | (761,027) | 137,775 | |||||
Non-controlling interest | 24 | (3,397) | (201) | (16,642) | 4,009 | |||||
The explanatory notes are an integral part of these Interim Consolidated Financial Statements.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 4 |
ITAÚ CORPBANCA and subsidiaries
Interim Consolidated Statements of Changes in Equity for the period
(In millions of Chilean pesos - MCh$)
Reserves | Retained earning | |||||||||||||||||||||||
Retained | Income for | Provision | Total attributable | |||||||||||||||||||||
Reserves | Other non- | earnings | the year/ | for | to equity | Non- | ||||||||||||||||||
Number of | from | earnings | Valuation | from | loss for | mandatory | holders of | controlling | Total | |||||||||||||||
Note | shares | Capital | earnings | reserves | accounts | prior years | the period | dividends | the Bank | interest | equity | |||||||||||||
| Millions | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||||
Equity as of December 31, 2018 | 512,407 | 1,862,826 | 451,011 | 839,120 | 15,232 | 35,909 | 172,047 | (51,614) | 3,324,531 | 223,081 | 3,547,612 | |||||||||||||
Distribution of income from previous year | 24.b | - | - | - | - | - | 172,047 | (172,047) | - | - | - | - | ||||||||||||
Equity as of January 1, 2019 | 512,407 | 1,862,826 | 451,011 | 839,120 | 15,232 | 207,956 | - | (51,614) | 3,324,531 | 223,081 | 3,547,612 | |||||||||||||
Dividends paid | - | - | - | - | - | (51,614) | - | 51,614 | - | - | - | |||||||||||||
Provision for mandatory dividends | - | - | - | - | - | - | - | (35,192) | (35,192) | - | (35,192) | |||||||||||||
Comprehensive income for the period | - | - | - | - | 20,469 | - | 117,306 | - | 137,775 | 4,009 | 141,784 | |||||||||||||
Equity as of September 30, 2019 | 512,407 | 1,862,826 | 451,011 | 839,120 | 35,701 | 156,342 | 117,306 | (35,192) | 3,427,114 | 227,090 | 3,654,204 | |||||||||||||
Equity as of December 31, 2019 | 512,407 | 1,862,826 | 451,011 | 744,838 | 42,140 | 156,342 | 127,065 | (38,120) | 3,346,102 | 94,283 | 3,440,385 | |||||||||||||
Distribution of income from previous year | 24.b | - | - | - | - | - | 127,065 | (127,065) | - | - | - | - | ||||||||||||
Equity as of January 1, 2020 | 512,407 | 1,862,826 | 451,011 | 744,838 | 42,140 | 283,407 | - | (38,120) | 3,346,102 | 94,283 | 3,440,385 | |||||||||||||
Dividends paid | - | - | - | - | - | (127,065) | - | 38,120 | (88,945) | - | (88,945) | |||||||||||||
Provision for mandatory dividends | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||
Comprehensive income for the period | - | - | - | - | (24,605) | - | (736,422) | - | (761,027) | (16,642) | (777,669) | |||||||||||||
Equity as of September 30, 2020 | 512,407 | 1,862,826 | 451,011 | 744,838 | 17,535 | 156,342 | (736,422) | - | 2,496,130 | 77,641 | 2,573,771 |
The explanatory notes are an integral part of these Interim Consolidated Financial Statements.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements -September 30, 2020 | 5 |
ITAÚ CORPBANCAand subsidiaries
Interim Consolidated Statements of Cash Flows for the period
(In millions of Chilean pesos - MCh$)
For the nine-month periods | ||||||
ended September 30, | ||||||
Notes | 2020 | 2019 | ||||
MCh$ | MCh$ | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Operating income (loss) before income taxes | (754,039) | 173,295 | ||||
Debits (credits) to income that do not represent cash flows: | ||||||
Depreciation and amortization | 32 | 90,764 | 94,004 | |||
Impairment | 32 | 808,862 | 1 | |||
Provisions for loans and accounts receivable from customers and interbank loans | 29 | 327,429 | 228,309 | |||
Provisions and write-offs of assets received in lieu of payment | 4,605 | 21,285 | ||||
Provisions for contingencies | 571 | 504 | ||||
Mark to market of trading instruments | (188,765) | (62,487) | ||||
Adjustment (profit) loss for instruments available for sale | 27 | (57,250) | (30,707) | |||
Adjustment (profit) loss on sale of loan portfolio | 27 | 458 | (1,093) | |||
Net interest income | 25 | (608,205) | (629,838) | |||
Fee and commission income | 26 | (151,843) | (182,864) | |||
Fee and commission expense | 26 | 45,236 | 53,524 | |||
Net foreign exchange (gain) loss | 28 | 76,485 | (14,904) | |||
Net loss on sale of fixed assets | 108 | 1,352 | ||||
Net gain on sale of assets received in payment | (2,391) | - | ||||
Net gain on sale of assets held for sale | (970) | - | ||||
Net gain on sale of participation in companies | 12 | (447) | (1,028) | |||
Increase on deferred net tax asset and liability | (67,110) | - | ||||
Other debits (credits) that do not represent cash flows | 96,231 | (51,798) | ||||
Subtotals | (380,271) | (402,445) | ||||
Loans and accounts receivable from customers and interbank loans | (281,492) | (760,311) | ||||
Investments under resale agreements | 5c)i) | (62,139) | (59,478) | |||
Obligations under repurchase agreements | 5c)i) | (122,127) | (625,126) | |||
Trading investments | 5c)ii) | 6,259 | (214,943) | |||
Available for sale investments | 5c)ii) | 431,829 | 58,694 | |||
Held to maturity investments | 5c)ii) | 24,914 | 48,184 | |||
Other assets and liabilities | (106,066) | (173,362) | ||||
Time deposits and other time liabilities | 472,202 | 909,304 | ||||
Deposits and other demand liabilities | 788,497 | 78,610 | ||||
Dividends received from investments in companies | 12 | 1,008 | 1,142 | |||
Foreign borrowings obtained | 5c)iii) | 2,069,325 | 2,073,547 | |||
Repayment of foreign borrowings | 5c)iii) | (2,430,758) | (2,038,872) | |||
Interest paid | (434,364) | (1,142,046) | ||||
Interest received | 1,092,278 | 1,922,115 | ||||
Net fee and commission income | 84,809 | 129,340 | ||||
Taxes paid | (162,814) | (92,308) | ||||
Repayment of other borrowings | (4,565) | (1,657) | ||||
Proceeds from sale of assets received in lieu of payment | 21,873 | 281 | ||||
Net cash flows provided by (used in) operating activities | 1,008,398 | (289,331) | ||||
CASH FLOWS FROM INVESTMENT ACTIVITIES: | ||||||
Purchase of fixed assets and intangible assets | 13-14 | (43,423) | (41,525) | |||
Sales of fixed assets | 114 | 2,182 | ||||
Proceeds from sale of assets held for sale | 1,550 | 11,200 | ||||
Proceeds from sale of investments in companies | 12 | 265 | 1,818 | |||
Net cash flows used in investing activities | (41,494) | (26,325) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Borrowing obtained from Chilean Central Bank | 2,257,200 | - | ||||
Debt instruments issued | 403,710 | 631,299 | ||||
Redemption of debt issued | (863,301) | (555,921) | ||||
Dividends paid | 24 | (127,089) | (50,916) | |||
Payments of lease liabilities | 15 | (25,288) | (24,656) | |||
Net cash flows (used in) provided by financing activities | 1,645,232 | (10,194) | ||||
Effect of changes in exchange rates | 70,914 | 47,511 | ||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 2,683,050 | (278,339) | ||||
Cash and cash equivalents at the beginning of the period | 1,447,939 | 1,363,052 | ||||
Cash and cash equivalents at end of the period | 5 | 4,130,989 | 1,094,713 | |||
Net increase (decrease) in cash and cash equivalents | 2,683,050 | (268,339) |
Cash flows | Changes other than cash flows | |||||||||||||||
As of | As of | |||||||||||||||
January 1, | Changes other | Currency | September 30, | |||||||||||||
2020 | Received | Paid | than cash | Acquisition | Interest | exchange effects | 2020 | |||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Debt instruments issued | ||||||||||||||||
Borrowing obtained from Chilean Central Bank | - | 2,257,200 | - | - | - | 154 | - | 2,257,354 | ||||||||
Mortgage finance bonds | 40,933 | - | (8,803) | - | - | 836 | - | 32,966 | ||||||||
Bonds (senior and subordinated) | 6,367,423 | 403,710 | (854,498) | 64,396 | - | 220,424 | (54,950) | 6,146,505 | ||||||||
Lease contracts liabilities | 172,924 | - | (25,288) | 4,004 | 4,484 | 3,844 | (3,455) | 156,513 | ||||||||
Totals | 6,581,280 | 2,660,910 | (888,589) | 68,400 | 4,484 | 225,258 | (58,405) | 8,593,338 | ||||||||
Dividends approved and paid in 2020 | - | - | (127,065) | - | - | - | - | - | ||||||||
Dividends approved in prior years and paid in 2020 | - | - | (24) | - | - | - | - | - | ||||||||
Total Dividends paid | - | - | (127,089) | - | - | - | - | - | ||||||||
Subtotal cash flows from (used in) financing activities | - | 2,660,910 | (1,015,678) | - | - | - | - | - | ||||||||
Total cash flows from financing activities, net | - | 1,645,232 | - | - | - | - | - | - |
The explanatory notes are an integral part of these Interim Consolidated Financial Statements.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 6 |
ITAÚ CORPBANCA and subsidiaries
Notes to the Consolidated Financial Statements | Page | |
GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 8 | |
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Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 7 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies
General Information - Background of Itaú Corpbanca and subsidiaries
Itaú Corpbanca (the 'Bank') is a corporation incorporated under the laws of the Republic of Chile and regulated by the Commission for the Financial Market (onwards 'CMF') which, as of June 1, 2019, assumed the functions of the Superintendency of Banks and Financial Institutions ('SBIF'), in accordance with the Decree with Force of Law (DFL) No. 3 dated January 12, 2019, which sets a new consolidated, systematized and agreed text for the General Bank Law. The entity is the merger result between Banco Itaú Chile and Corpbanca (the latter is the legal successor) which was consummated on April 1, 2016, the date on which the Bank was renamed 'Itaú Corpbanca'1.
The current ownership structure is 39.22% owned by Itaú Unibanco, 27.49% owned by the Saieh Family and 33.29% owned by minority shareholders. Itaú Unibanco is the sole controlling shareholder of the merged bank. Within this context and without limiting the above, Itaú Unibanco and CorpGroup have signed a shareholders' agreement relating to corporate governance, dividend policy (based on performance and capital metrics), and transfer of shares, liquidity, and other matters.
Itaú Corpbanca is headquartered in Chile and has operations in Colombia and Panama. In addition, Itaú Corpbanca has a branch in New York and a representative office in Lima2. The Bank has total consolidated assets for MCh$36,731,915 (MUS$46,676) and equity for MCh$2,573,771 (MUS$3,271). Focused on large and medium size companies and people, Itaú Corpbanca offers universal banking services.
The legal address of Itaú Corpbanca is Rosario Norte No 660, Las Condes, Santiago, Chile, and its web site is www.itau.cl
The Interim Consolidated Financial Statements as of September 30, 2020, were approved by the Board of Directors on October 28, 2020.
Significant Accounting Policies and Others
The Interim Consolidated Financial Statements are referred as of September 30, 2020 and December 31, 2019 and comprise the three and nine-month periods ended September 30, 2020 and 2019.
These Interim Consolidated Financial Statements have been prepared in accordance with the Compendium of Accounting Standards (onwards 'CAS') issued by the SBIF, currently integrated with the CMF. Banks must use the accounting criteria set forth in the CAS and in everything that is not dealt with by it and does not contradict its instructions, they must adhere to International Financial Reporting Standards (IFRS) issued by the
1 The business combination was a 'reverse acquisition' as established in IFRS 3, 'Business Combinations', in which Banco Itaú Chile is the successor for accounting purposes and Corpbanca is the legal successor.
2 None of the markets in which Itaú Corpbanca and subsidiaries operates is facing an economy with a hyperinflationary currency.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 8 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
International Accounting Standards Board (IASB). If there are discrepancies between IFRS and the accounting criteria set forth in the CAS, the latter will prevail.
Additionally, these Interim Consolidated Financial Statements in relation to the application of IAS 34 'Interim Financial Information', are prepared mainly with the intention of updating the content of the latest Annual Consolidated Financial Statements, emphasizing new activities, events and circumstances occurred during the nine-month periods ended September 30, after the end of the year, and not duplicating the information previously published in the last Consolidated Financial Statements.
As a result, these Interim Consolidated Financial Statements do not include all the information that a complete set of Financial Statements prepared in accordance with the international accounting and financial information standards agreed by the IASB would require, so for an adequate understanding of the information included in these Interim Consolidated Financial Statements, these must be read in conjunction with the Annual Consolidated Financial Statements, corresponding to the immediately preceding annual period (information available at www.itau.cl).
Notes to these Interim Consolidated Financial Statements contain information additional to that disclosed in the Interim Consolidated Statements of Financial Position, Interim Consolidated Statements of Income, Interim Consolidated Statements of Other Comprehensive Income, Interim Consolidated Statements of Changes in Equity, and Interim Consolidated Statements of Cash Flows. On them descriptive information and disaggregated information is presented.
These Interim Consolidated Financial Statements comprise the preparation of the separate (individual) Financial Statements of the Bank and the controlled entities which participate in consolidation as of September 30, 2020 and December 31, 2019 and for the three and nine month periods ended September 30, 2020 and 2019 included in the Interim Consolidated Financial Statements, and include necessary adjustments and reclassifications to standardize the accounting policies and valuation criteria applied by the Bank, in accordance with standards established in the Compendium of Accounting Standards issued by the CMF.
Intercompany balances and any unrealized income or loss arising from intercompany transactions are eliminated upon consolidation during the preparation of the Interim Consolidated Financial Statements.
For consolidation purposes, the financial statements of the branch in New York have been converted into Chilean pesos at the exchange rate of $786.96 for US$1 as of September 30, 2020 ($728.58 as of September 30, 2019 and $748.77 as of December 31, 2019), same situation for Colombian subsidiaries using an exchange rate of $0.2045 for COP $1 as of September 30, 2020 ($0.2092 as of September 30, 2019 and $0.2284 as of December 31, 2019), in accordance with IAS 21 'Effects of variations in foreign currency exchange rates', relations with the valuation of investments abroad in countries with economic stability.
Assets, liabilities, income, and results of operations of subsidiaries, net of consolidation adjustments, represent 18%,19%,37%, and 7%, respectively, of total consolidated assets, liabilities, income, and operating results as of September 30, 2020 (20% and 22% as of December 31, 2019 of total assets and liabilities; 39% and 50% as of September 30,2019, of income, and results of operations, net of consolidation adjustments).
(i) | Controlled entities |
The Bank, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 9 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
The Bank controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Thus, the Bank controls an investee if and only if has all the following:
1) | Power over the investee, which is related to the existing rights that give the Bank the current ability to direct the relevant activities, these being those that significantly affect the investee's returns; |
2) | Exposure, or rights, to variable returns from its involvement with the investee; |
3) | Ability to use its power over the investee to affect the amount of the Bank's returns; |
When the Bank has less than a majority of the voting rights over an investee, but such voting rights are sufficient to have the actual ability to direct the relevant activities, then it will be concluded that the Bank has control over the investee.
The Bank considers all relevant factors and circumstances when assessing if the voting rights are sufficient to obtain control, these include:
● | The amount of voting rights held by the Bank in relation to the amount and dispersion of those held by other vote holders. |
● | Potential voting rights held by the Bank, other voting holders or other parties. |
● | Rights that arise from other contractual agreements. |
● | Any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time those decisions need to be made, including the patterns of voting behavior in previous shareholders meetings. |
The Bank reassesses whether or not it has control over an investee when facts and circumstances indicate that there are changes in one or more of the control elements listed above.
The interim financial statements of the controlled companies are consolidated with those of the bank through the global integration method (line by line). In accordance with this method, all balances and transactions between consolidated companies are eliminated through the consolidation process. Therefore, the Interim Consolidated Financial Statements refer to assets, liabilities, equity, income, expenses, and cash flows of the parent and its subsidiaries presented as if they were a single economic entity. The Bank prepares Consolidated Financial Statements using uniform accounting policies for transactions and other events that, being similar, have occurred in similar circumstances.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 10 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
The following table details the entities controlled by Itaú Corpbanca, therefore, they are part of the consolidation perimeter:
Ownership percentage | ||||||||||||||||||||||||
Functional | As of September 30, 2020 | As of December 31, 2019 | As of September 30, 2019 | |||||||||||||||||||||
Market | Country | currency | Direct | Indirect | Total | Direct | Indirect | Total | Direct | Indirect | Total | |||||||||||||
% | % | % | % | % | % | % | % | % | % | |||||||||||||||
Itaú Corredores de Bolsa Ltda. (1) (7) | Domestic | Chile | $ | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | ||||||||||||
Itaú Administradora General de Fondos S.A. (1) | Chile | $ | 99.994 | 0.006 | 100.000 | 99.994 | 0.006 | 100.000 | 99.994 | 0.006 | 100.000 | |||||||||||||
Itaú Corredores de Seguros S.A. (1) | Chile | $ | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | 99.900 | 0.100 | 100.000 | |||||||||||||
Itaú Asesorías Financieras Ltda. (1) (8) | Chile | $ | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | |||||||||||||
Recaudaciones y Cobranzas Ltda. (1) (6) | Chile | $ | 99.990 | 0.010 | 100.000 | 99.990 | 0.010 | 100.000 | 99.999 | 0.001 | 100.000 | |||||||||||||
Itaú Corpbanca New York Branch (1) (5) | Foreign | USA | US$ | 100.000 | - | 100.000 | 100.000 | - | 100.000 | 100.000 | - | 100.000 | ||||||||||||
Itaú Corpbanca Colombia S.A. (2) (9) | Colombia | COP$ | 87.100 | - | 87.100 | 87.100 | - | 87.100 | 66.279 | - | 66.279 | |||||||||||||
Itaú Corredor de Seguros Colombia S.A. (2) | Colombia | COP$ | 79.985 | - | 79.985 | 79.985 | - | 79.985 | 79.985 | - | 79.985 | |||||||||||||
Itaú Securities Services Colombia S.A. (2) (11) (12) | Colombia | COP$ | 5.499 | 82.310 | 87.809 | 5.499 | 82.310 | 87.809 | 5.499 | 62.634 | 68.133 | |||||||||||||
Itaú Comisionista de Bolsa Colombia S.A. (2) (13) | Colombia | COP$ | 2.219 | 85.166 | 87.385 | 2.219 | 85.166 | 87.385 | 2.219 | 64.807 | 67.026 | |||||||||||||
Itaú Asset Management Colombia S.A. Sociedad Fiduciaria (2) | Colombia | COP$ | - | 87.083 | 87.083 | - | 87.083 | 87.083 | - | 66.266 | 66.266 | |||||||||||||
Itaú (Panama) S.A. (3) | Panama | US$ | - | 87.100 | 87.100 | - | 87.100 | 87.100 | - | 66.279 | 66.279 | |||||||||||||
Itaú Casa de Valores S.A (4) (10) | Panama | US$ | - | - | - | - | 87.100 | 87.100 | - | 66.279 | 66.279 |
(1) | Companies regulated by the Financial Market Commission (CMF) of Chile. |
(2) | Companies regulated by the Colombian Financial Superintendency (SFC), which has a supervision agreement with the CMF. |
(3) | Company regulated by the Superintendency of Banks of Panama. |
(4) | Company regulated by the Superintendency of the Securities Market of Panama. |
(5) | Company regulated by Office of the Comptroller of the Currency (OCC) and Federal Reserve (FED). |
(6) | On May 2, 2019, Recaudaciones y Cobranzas Ltda. acquired from Itaú Corredores de Bolsa its participation in Itaú Asesoría Financieras. |
(7) | On May 2, 2019, Itaú Corredores de Bolsa acquired from Itaú Asesoría Financieras its participation in Instacob (Itaú Corpbanca Recaudaciones y Cobranzas S.A). |
(8) | On May 2, 2019 Itaú Asesorías Financieras modifies its legal statute turning from a public company (S.A.) to a private limited company. |
(9) | On December 3, 2019, Itaú Corpbanca acquired from Helm LLC and Kresge Stock Holding Company Inc its participation held in Itaú Corpbanca Colombia. |
(10) | On January 23, 2020, Itaú Comisionista de Bolsa Colombia S.A., a subsidiary of Itaú Corpbanca Colombia S.A., completed the process of selling its participation (100%) held in Itaú Casa de Valores S.A., domiciled in Panama. |
(11) | On July 8, 2020, Recaudaciones y Cobranza Ltda. acquired 1 share of Itaú Securities Services Colombia S.A. for the price of US$2.29. |
(12) | On July 8, 2020, Itaú Asesorías Financieras Ltda. acquired 1 share of Itaú Securities Services Colombia S.A. for the price of US$2.29. |
(13) | On July 8, 2020, Itaú Asesorías Financieras Ltda. acquired 6 shares of Itaú Comisionista de Bolsa S.A. for the price of US$7.19. |
(ii) | Associated entities and/or business support |
Associated entities are those over which the Bank has significant influence, although not control or joint control. If the Bank holds, directly or indirectly (e.g. through subsidiaries), 20% or more of the voting power of the investee, it is presumed that the Bank has significant influence, unless it can be clearly demonstrated that this is not the case, and subsequently increased or decreased to recognize either the Bank's proportional share in the net profit or loss of the associate and other movements recognized in its equity. The lower value arising from the acquisition of an associate is included in the book value of the investment net of any accumulated impairment loss.
Other factors considered to determine the significant influence on an entity are the representations in the Board of Directors and the existence of material transactions. The existence of these factors could determine the existence of significant influence on an entity, despite having a participation of less than 20% of the shares with the right to vote.
The following entities are considered 'Associated entities', in which the Bank has participation and are accounted for by applying the equity method, according to IAS 28:
Associates | As of September 30, 2020 | As of December 31, 2019 | |||||||
name | Principal activity | Place of incorporation | % participation | % participation | |||||
Nexus S.A. | Credit and debit card operator | Santiago, Chile | 14.8148 | % | 12.9000 | % | |||
Transbank S.A. | Credit card operator | Santiago, Chile | 8.7188 | % | 8.7188 | % |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 11 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
Itaú Corpbanca exercises significant influence by virtue of its voting right to appoint a representative in the Board of Directors. This, among other business considerations, led the Administration to conclude that Itaú Corpbanca has significant influence over the aforementioned entities.
(iii) | Investments in other companies |
Investments in other companies, represented by shares or rights in other companies, are those in which the Bank has neither control nor significant influence. These investments are recorded at cost, and adjustments for impairment losses are recorded when appropriate.
(iv) | Funds management, trust business and other related businesses |
The Bank and its subsidiaries manage assets held in publicly offered investment funds and other investment vehicles on behalf of investors and receive market-rate compensation for providing this type of services. Managed funds belong to third parties and, therefore, are not included in the Interim Consolidated Statement of Financial Position.
The Bank provides trust commissions and other fiduciary services that result in the participation or investment of assets by clients. Assets held in a fiduciary activity are not reported in the Interim Consolidated Financial Statements, since they are not Bank assets and there is no control over them. Contingencies and commitments arising from this activity are disclosed in Note 23 'Contingencies, Commitments, and Responsibilities', letter c), related to Responsibilities recorded in off-balance sheet accounts.
In accordance with IFRS 10 'Consolidated Financial Statements,' for consolidation purposes, the role of the Bank and its subsidiaries with respect to the managed funds must be evaluated to determine whether it is acting as Agent or Principal. According to this standard, an Agent is a party primarily engaged in acting on behalf and for the benefit of another party or parties (the Principal or Principals) and, therefore, it does not control the investee when it exercises decision-making authority. This evaluation must consider the following aspects:
● | Decision-maker's exposure to variability of returns from other interests that it holds in the investee. |
The Bank does not control or consolidate any trusts or other entities related to this type of business.
The Bank manages the funds on behalf and for the benefit of investors, acting solely as an Agent. The assets managed by the Bank and its subsidiaries are owned by third parties. Under this category, and in accordance with the aforementioned standard, they do not control the assets when they exercise their decision-making authority. Therefore, as of September 30, 2020 and December 31, 2019 they act as Agent and none of these investment vehicles is consolidated.
Non-controlling interest represents the portion of net income and net assets which the Bank does not own, either directly or indirectly. It is presented as 'Attributable to non-controlling interest' separately in the Interim Consolidated Statement of Income, and separately from shareholders' equity in the Interim Consolidated Statement of Financial Position.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
Additionally, the non-controlling interests in the Interim Consolidated Statements of Financial Position will be presented, within the equity under item 'Non-controlling interest', separately from the equity attributable to owners of the Bank. Changes in the ownership interest of a parent in a subsidiary that do not result in a loss of control are equity transactions (i.e., transactions with owners in their capacity as owners).
The Bank attributes the result of the period and each component of other comprehensive income to the owners of the Bank and to the non-controlling interests. The Bank also attributes the total integral result to the owners of the Bank and to the non-controlling interests even if the results of the non-controlling interests give rise to a debit balance.
The preparation of the Interim Consolidated Financial Statements requires Bank's management to make estimates, judgments and assumptions that affect the application of the accounting policies and the reported balances of assets and liabilities, disclosures of contingencies with respect to assets and liabilities as of the date of the Interim Consolidated Financial Statements, as well as income and expenses during the year. Actual results may differ from these estimates.
Estimates and relevant assumptions are regularly reviewed by Management in order to properly measure some assets, liabilities, income, and expenses. Accounting estimates changes due to reviews are recognized in the year in which the estimate is reviewed and in any future period affected.
In certain cases, the regulator standards and International Financial Reporting Standards require that assets and liabilities be recorded or disclosed at their fair values. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. When market prices in active markets are available, they have been used as a basis for valuation. When market prices in active markets are not available, the Bank has estimated those values as values based on the best available information, including the use of modeling and other valuation techniques.
The Bank has established allowances to cover possible credit losses in accordance with the CAS. These regulations require that, in order to estimate allowances, they be evaluated regularly, taking into account factors such as changes in the nature and size of the loan portfolio, trends in the expected portfolio, credit quality and economic conditions that may affect the payment capacity of the debtors. Changes in allowances for loan losses are reflected as 'Provision for loan losses' in the Interim Consolidated Statement of Income for the year.
Loans are charged-off when the Bank's management determines that the loan or a portion cannot be collected, this in accordance with the regulatory dispositions issued by the CAS, as stated in chapter B-2 'Impaired loans and charge-offs'. Charge-offs are recorded as a reduction of the allowance for loan losses.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
In particular, information on most significant areas of estimate due to uncertainties and critical judgments in the application of accounting policies that have the most important effect on the amounts recorded in the Interim Consolidated Financial Statements are the following:
During the period ended September 30, 2020, with exception of goodwill, there have been no significant changes in estimates made at the end of 2019 (see Note 32).
(i) | Classification of financial assets for measurement purposes |
Financial assets are classified into the following specified categories: 'trading investments', 'held to maturity investments', 'available for sale investments' and 'loans and accounts receivable from customers'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Financial assets are initially recognized at fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue.
Measurement criteria for financial assets recorded in the Interim Consolidated Statement of Financial Position, are as follows:
Financial assets measured at amortized cost
Amortized cost is the acquisition cost of a financial asset or liability, plus or minus, as appropriate, prepayments of principal and the cumulative amortization (recorded in the Interim Consolidated Statement of Income) of the difference between the initial cost and the maturity amount as calculated under the effective interest method. For financial assets, amortized cost also includes any reductions for impairment or uncollectibility.
The 'effective interest rate' is the discount rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows over its remaining life. For fixed-rate financial instruments, the effective interest rate incorporates the contractual interest rate established on the acquisition date plus, where applicable, the fees and transaction costs that are a part of the financial return are included. For floating-rate financial instruments, the effective interest rate matches the current rate of return until the date of the next review of interest rates.
The effective interest rate includes all commissions and other items paid or received that are part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition of a financial asset.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 14 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
Financial assets measured at fair value
According to IFRS 13 'Fair Value Measurement', 'fair value' is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.
Fair value is a market-based measurement, not an entity specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same - to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).
When a price for an identical asset or liability is not observable, an entity measures fair value using another valuation technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. Because fair value is a market-based measurement, it is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk.
Between valuation techniques are included the use of recent market transactions to sell the asset or to transfer the liability between market participants at the measurement date, references to the fair value of other substantially identical financial instrument, discounted cash flows and option pricing models. Consistent with this, the Bank's intention to keep and asset or to sell, dispose or satisfy a liability is not relevant when estimating fair value.
When determining fair value an entity shall consider the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.
To increase consistency and comparability in fair value measurements and related disclosures, IFRS 13 establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1 inputs) and the lowest priority to unobservable inputs (level 3 inputs). Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
In those rare cases when fair value cannot be reasonably estimated for a financial asset or liability, this is measured at its amortized cost.
Additionally, in accordance to what is indicated in Chapter A-2 'Limitations or clarifications to the use of general criteria' of the Compendium of Accounting Standards, banks cannot designate financial assets or liabilities at fair value as an option instead of using the general criteria of amortized cost.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 15 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
The Interim Consolidated Financial Statements have been prepared using the general criteria of amortized cost, except for:
● | Financial derivatives contracts measured at fair value. |
● | Available for sale investments measured at fair value through other comprehensive income. |
● | Trading investments measured at fair value. |
● | Financial assets and liabilities under hedge accounting relationships which allow them to be measured at fair value. |
Trading investments
Financial assets are classified as held for trading when they have been acquired mainly for the purpose of selling them in the near term and on initial recognition are part of a portfolio of identified financial instruments that the Bank manages together and have a recent actual pattern of short-term profit-taking.
Trading investments are measured at fair value according to market quotes or by using valuation techniques at the closing date. Any gains or losses arising on remeasurement are recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the 'Net income (expense) from financial operations' line item in the Interim Consolidated Statements of Income.
Held to maturity investments
Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Bank has the positive intent and ability to hold to maturity. Any other investment instrument is classified as available for sale.
Investment instruments are initially recorded at cost, which includes transaction costs. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment.
Available for sale investments
The category of instruments available for sale includes those instruments that are not classified as trading instruments or as held to maturity.
Available for sale investments are subsequently measured at fair value according to market prices or valuation obtained by using valuation techniques, less impairment losses. Unrealized gains and losses originated as a consequence of fair value changes are recorded in valuation accounts within equity. When these investments are disposed or impaired, the recorded amount in equity is transferred to income and is reported under 'Net income (expenses) from financial operations'.
Interest and inflation-indexation adjustments of investments held to maturity and of instruments available for sale are included in 'Interest income' in the Interim Consolidated Statement of Income.
Investment instruments that are treated as hedged items in hedge accounting transactions relationships are adjusted according to the rules applicable to hedge accounting.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
Purchases and sales of investment instruments that shall be delivered o settled within the term established by market regulations or conventions are recognized at the trading date when the purchase or sale of the instrument is agreed. Investment instruments must be permanently assessing to timely identify impairment indication which may result in losses.
Investment instruments must be permanently assessed to timely identify impairment indication which may result in losses which are recorded in the Interim Consolidated Statement of Income as 'impairment'.
The Bank has assessed its investments portfolio classified as 'Held to maturity investments' and 'Available for sale investments' in order to identify if there is objective evidence of impairment. Such assessment includes economic analysis, risk ratings for the issuers, and Management's ability and intent to hold those investments until maturity. Based on the Management's evaluation of these investments it is concluded that no impairment indication exists.
Loans and accounts receivables from customers and interbank loans
Loans and accounts receivables from customers and interbank loans, originated and purchased, are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and for which the Bank has no intention to sell them immediately or in the short term, They are measured at amortized cost using the effective interest method, less any impairment determined according to the CAS.
Financial derivative contracts
Financial derivative contracts, which include foreign currency and Unidades de Fomento (UF) forwards, interest rate futures, currency and interest rate swaps, currency and interest rate options and other financial derivative instruments are initially recognized in the Interim Consolidated Statement of Financial Position at their fair value (including transaction costs), which is usually their acquisition cost, and subsequently measured at their fair value.
The fair value is obtained from corresponding market pricings, discounted cash flows models and pricing valuation models. The derivative instruments are recognized as an asset when their fair value is positive and as a liability when they are negative in 'Financial derivative contracts' in the Interim Consolidated Statement of Financial Position. Additionally, the Credit Valuation Adjustment and Debit Value Adjustment is included as part of the fair value for each instrument, all that with the objective of properly reflect the counterparty and own risk in the fair value measurement.
Certain derivatives embedded in other financial instruments are treated as separate derivatives when their risks and characteristics are not closely related with those of the host contract and when such host contracts are not measured at fair value through profit or loss.
At inception of a derivative agreement, the Bank must designate it either as a derivative instrument for trading or for hedge accounting purposes. However, in some circumstances, the Bank can subsequently designate a derivative from the trading derivatives portfolio as a hedging instrument if the requirements for hedge accounting set in IAS 39, are met.
Changes in the fair value of derivative instruments held for trading are included in 'Net income (expenses) from financial operations' in the Interim Consolidated Statement of Income.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
If the derivative instrument is classified as hedging instrument for hedge accounting purposes, the hedge can be:
1) | A fair value hedge of existing assets or liabilities or a 'commitment' to be executed |
2) | cash flow hedge of existing assets or liabilities or forecast transactions |
3) | A net investment in foreign operations hedge, as defined by IAS 21 |
A hedging relationship qualifies for hedge accounting if, and only if, all of the following conditions are met:
1) | At the inception of the hedge there is formal designation and documentation of the hedging relationship; |
2) | the hedge is expected to be highly effective; |
3) | the effectiveness of the hedge can be reliably measured, and; |
4) | the hedge is assessed on an ongoing basis and determined to have actually been highly effective throughout the financial reporting periods for which the hedge was designated. |
Certain transactions with derivatives that do not qualify for being classified as hedging derivatives are treated and recognized as trading derivatives, even when they provide effective economic hedges of the risk positions.
When a derivative hedges the exposure to changes in the fair value of an existing item of the asset or liability, such hedged item is measured at fair value from the designation of the fair value hedge until its expiration in connection with the specific hedged risk. Fair value adjustments for both the hedged item and the hedging instrument are recognized in the Interim Consolidated Statements of Income.
If the hedged item in a fair value hedge is a firm commitment, the changes in the fair value of the firm commitment regarding the hedged risk are recognized as assets or liabilities with effect on the Interim Consolidated Statement of Income for the period. Gains or losses from the changes in fair value measurement of the hedging derivative are recognized with effect on the Interim Consolidated Statements of Income for the period. When a new asset or liability is acquired as a result of the firm commitment, the initial recognition of the acquired asset or liability is adjusted to incorporate the accumulated effect of the fair value valuation of the firm commitment recognized in the Interim Consolidated Statement of Financial Position.
When a derivative instrument hedges the exposure to changes in the cash flows of existing assets or liabilities, or forecast transactions, the effective portion of changes in the fair value related to the hedged risk is recognized in other comprehensive income and accumulated valuation accounts within equity. The cumulative loss or gain in cash flows hedge recorded in valuation accounts is transferred to the Interim Consolidated Statement of Income to the extent that the hedged item impacts income because of the hedged risk, offsetting the effect in the same line item of the Interim Consolidated Statement of Income. Any ineffective portion is directly recognized in the Interim Consolidated Statement of Income.
In case of a fair value hedge of interest rate risk of a portfolio with the hedged item representing currency value instead of individual assets or liabilities, gains or losses from the fair value measurement for both the hedged item and the hedging instrument, are recognized in the Interim Consolidated Statement of Income, but the fair value adjustment of the hedged portfolio is presented in the Interim Consolidated Statement of Financial Position under the 'Other assets' or 'Other liabilities' items, depending on the hedged portfolio balance as of the reporting date.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
Financial asset and liability balances are offset, i.e., reported in the Interim Consolidated Statement of Financial Position at their net amount, only if there is a legally enforceable right to offset the recorded amounts and the Bank intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
(ii) | Classification of financial assets for presentation purposes |
For presentation purposes, financial assets are classified by their nature into the following line items:
- | Cash and deposits in banks: This item comprises cash, checking accounts and demand deposits at the Central Bank of Chile and other financial institutions in Chile and abroad. The amounts invested in overnight deposits will continue to be reported under this heading and in the corresponding lines or items. If no special item is indicated for these operations, they will be included together with the accounts reported. |
- | Cash items in process of collection: this item represents domestic transactions in the process of transfer through a central domestic clearinghouse or international transactions which may be delayed in settlement due to timing differences, etc. |
- | Trading investments: this item includes financial instruments held-for-trading and investments in mutual funds which must be adjusted to their fair value in the same way as instruments acquired for trading. |
- | Financial derivative contracts: financial derivative contracts with positive fair values are presented in this item. It includes both independent contracts as well as derivatives that should and can be separated from a host contract, whether they are held for trading or designated as hedging instruments in hedge accounting relationships, as disclosed in Note 8 to the Consolidated Financial Statements. |
- | Interbank loans: this item includes balances of transactions with domestic and foreign banks, including the Central Bank of Chile, other than those reflected in other financial asset classifications listed above. |
- | Loans and accounts receivables from customers: these loans are non-derivative financial assets for which fixed or determined amounts are charged, that are not listed on an active market and for which the Bank has no intention to sell them immediately or in the short term. |
- | Investment instruments: are classified into two categories: held-to-maturity investments, and available-for-sale investments. The held to maturity investment category includes only those instruments for which the Bank has the ability and intent to hold to maturity. The remaining investments are treated as available for sale. |
(iii) | Classification of financial liabilities for measurement purposes |
Financial liabilities are generally measured at amortized cost, except for those financial liabilities designated as hedged item (or as hedge instruments) and liabilities held for trading, which are measured at fair value. Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities.
Financial liabilities at fair value through profit and loss: As of September 30, 2020 and December 31, 2019 the Bank does not maintain financial liabilities at FVTPL other than financial derivative contracts.
Other financial liabilities: Other financial liabilities (including interbank borrowings, issued debt instruments and other accounts payables) are initially recorded at fair value and subsequently measured at amortized cost using the effective interest method.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 19 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
(iv) | Classification of financial liabilities for presentation purposes |
Financial liabilities are classified by their nature into the following line items in the Interim Consolidated Statements of Financial Position:
- | Deposits and other demand liabilities: this item includes all on-demand obligations except for term savings accounts, which are not considered demand instruments in view of their special characteristics. Obligations whose payment may be required during the period are deemed to be on-demand obligations. Operations which become callable the day after the closing date are not treated as on-demand obligations. |
- | Cash items in process of being cleared: this represents domestic transactions in the process of transfer through a central domestic clearing house or international transactions which may be delayed in settlement due to time differences, etc. |
- | Obligations under repurchase agreements: this includes the balances of sales of financial instruments under securities repurchase and loan agreements. The Bank does not record in its own portfolio instruments acquired under repurchase agreements. |
- | Time deposits and other time liabilities: this item includes balances of deposit transactions in which a term at the end of which they become callable has been stipulated. |
- | Financial derivative contracts: this includes financial derivative contracts with negative fair values (i.e. a liability of the Bank), whether they are designated for trading or for hedge accounting purposes, as set forth in Note 8. |
- | Interbank borrowings: this item includes obligations with other domestic banks, foreign banks, or the Central Bank of Chile, other than those reflected in certain other financial liability classifications listed above. |
- | Issued debt instruments: there are three types of instruments issued by the Bank: Obligations under letters of credit, Subordinated bonds and senior bonds placed in both local and foreign markets. |
- | Other financial liabilities: this item includes credit obligations with entities other than domestic banks, foreign banks, or the Central Bank of Chile, for financing purposes or operations in the normal course of business. |
On the date of commencement of a lease the Bank recognizes an asset for right of use and a liability for lease in accordance with the provisions of IFRS 16 'Leases'.
(i) | Assets for-right-of-use |
At the beginning of a lease, the right-of-use asset is measured at cost. The cost includes (a) the amount of the initial measurement of the lease liability; (b) lease payments made before or from the start date, less lease incentives received; (c) the initial direct costs incurred by the lessee; and (d) a modification of the costs to be incurred by the lessee when dismantling and eliminating the underlying asset, restoring the place in which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.
After the initial recognition date, the Bank measures the assets by right of use applying the cost model, which is defined as the asset by right of use measured at cost (a) less accumulated depreciation and accumulated risk losses of value; and (b) adjusted for any new measurement of the lease liability.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 20 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
The Bank applies the depreciation requirements established by IAS 16 'Property, plant and equipment' over the right-of-use in these types of transactions.
If the lease transfers ownership of the underlying asset to the Bank at the end of the lease term or if the cost of the right-of-use asset reflects that the Bank will exercise a purchase option, the Bank will depreciate the right-of-use asset from commencement date to the end of the useful life of the underlying asset. In another case, the Bank will depreciate the right-of-use asset from commencement to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term, whichever comes first.
The Bank applies IAS 36 'Impairment of Assets' to determine whether the right-of-use asset is impaired and to account for any impairment loss identified.
As of September 30, 2020, the Bank has not identified impairment in the value of the right of use assets.
(ii) | Liability for lease |
The Bank measures the lease liability at the present value of lease payments that have not been paid as of that date. Lease payments are discounted using the interest rate implicit in the lease, if that rate could be easily determined. Since that rate cannot be easily determined, the Bank uses the incremental rate for loans (cost of funding).
The lease payments included in the measurement of the lease liability determined the payments for the right of use the underlying asset during the term of the not cancelable lease at the measurement date which includes (a) fixed payments, less any lease incentive receivable (b) variable lease payments, which depends on an index or rate, recently measured using the index or rate on the start date; (c) it matters that the lessee expects to pay as residual value guarantees; (d) the exercise price of a purchase option if the lessee is reasonably sure to exercise that option; and (e) payments for penalties arising from the termination of the lease, if the term of the lease reflects that the lessee exercises an option to terminate the lease.
After the date of initial recognition, the Bank measures the lease liability in order to recognize (a) the interest on the lease liability; (b) lease payments made; and (c) the new measurements or modifications of the lease, and also for fixed lease payments that have essentially been reviewed.
The Bank makes new measures of the lease liability discounting the modified lease payments, if (a) there is a change in the expected amounts payable related to a residual value guarantee. A lessee will determine the lease payments to determine the change in the amounts expected to be paid under the residual value guarantee; (b) there will be a change in future lease payments determined from a change in an index or a rate used to determine those payments. The Bank measures the lease liability again to modify the modified lease payments only when there is a change in cash flows. The Bank will determine the revised lease payments, for the remainder of the lease term, based on the revised contractual payments.
As of January 1, 2019, the Bank measured the lease liability at the present value of the lease payments discounted using the incremental interest rate for loans (cost of funding).
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 21 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
The Bank has established allowances to cover the incurred and expected losses of certain financial assets that have been determined in accordance with the regulations and instructions set forth by the CMF and models and methodologies based on individual and collective analysis of the borrowers, approved by the Board of Directors with the aim of establishing in a timely manner allowances required and sufficient enough to cover incurred and expected losses based on risk characteristics of debtors and their loans that determine the payment behavior and subsequent collection.
Processes and policies compliance are evaluated and supervised according to the established internal control procedures with the purpose of ensuring its compliance and an adequate level of allowances to cover expected and incurred losses.
Individual assessment of borrowers is performed when the customer, due to its size, complexity or exposure, is required to be identified and analyzed on an individual basis. Collective assessment is used for a large number of transactions with homogeneous characteristics, for small amounts which relate to individuals or small size entities.
In order to establish allowances for loan losses, an assessment of the loans and contingent loans portfolios is performed as indicated below:
● | Individual allowances for the normal portfolio. |
● | Individual allowances for the substandard portfolio. |
● | Individual allowances for the non-compliant portfolio. |
● | Group allowances for the normal portfolio. |
● | Group allowances for the non-compliant portfolio |
(i) | Individual allowances |
When a debtor is considered as individually significant, i.e. with significant levels of debt and for those ones that are not significant but cannot be classified in groups of financial assets with homogeneous credit risk characteristics, and due to its size and complexity or exposure it is required to be individually assessed.
The methodology used to classify and determine its allowances is performed in accordance with Chapter B-1 'Provisions for credit risk' from the CAS, assigning risk categories to each debtor according to the following detail:
Normal portfolio
It corresponds to debtors whose capacity payments allows them to comply with their obligations and commitments, and according to the economic-financial situation this condition will not changes. The classifications assigned to this portfolio are the categories that goes from A1 to A6. Notwithstanding the above, the Bank must maintain a minimal allowance percentage of 0.5% over its loan portfolio and contingent loans that form part of the Normal portfolio.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 22 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
Substandard portfolio
The substandard portfolio includes the borrowers which have financial difficulties, or whose payment capacity worsened significantly, presenting reasonable doubt regarding the probability to collect the principal and interest under the contractually agreed terms, indicating that they are less likely to comply with their financial obligations in the short term. In addition, borrowers that recently held loans in default for over 30 days also are included in the substandard portfolio. The classifications assigned to this portfolio are categories B1 to B4.
Normal and Substandard portfolios
As part of the debtors' individual analysis, the Bank classifies its debtors into the aforementioned categories, assigning probabilities of default (PD) and loss given default (LGD), which yield the expected loss percentages as a result. These variables are regulated by the CMF to be applied to each of the individual categories.
Below are presented the probabilities of default and loss given default, as established by the CMF:
Debtor | Probability of default | Loss given default | Expected loss | |||||
Type of portfolio | category | (PD) | (LGD) | (EL) | ||||
(%) | (%) | (% allowance) | ||||||
A1 | 0.04 | 90.00 | 0.03600 | |||||
A2 | 0.10 | 82.50 | 0.08250 | |||||
Normal portfolio | A3 | 0.25 | 87.50 | 0.21875 | ||||
A4 | 2.00 | 87.50 | 1.75000 | |||||
A5 | 4.75 | 90.00 | 4.27500 | |||||
A6 | 10.00 | 90.00 | 9.00000 | |||||
B1 | 15.00 | 92.50 | 13.87500 | |||||
B2 | 22.00 | 92.50 | 20.35000 | |||||
Substandard portfolio | B3 | 33.00 | 97.50 | 32.17500 | ||||
B4 | 45.00 | 97.50 | 43.87500 |
In order to determine the amount of allowance to be established, the first step is to determine the net exposure which is comprised of loans and receivables plus loan commitments, less the amount to be recovered by collateral execution and then the corresponding expected losses percentages are applied. The Bank must demonstrate that the collateral value considered as an exposure deduction reasonably reflects the value that the collateral would have when disposed. The credit risk category of the debtor is substituted by the credit risk category of the guarantor only if the guarantor is an entity with a credit risk classification corresponding to an investment grade or higher, granted by a national or international classification agency approved. In any case the guaranteed values may be deducted from the exposure amount. The procedure applies only in the case of financial or real guarantees.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 23 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
Non-compliant portfolio
Non-compliant portfolio includes the loans to borrowers for which recovery is considered remote, given that they have suffered a loss event resulting in impairment. This portfolio includes borrowers with evident signs of possible bankruptcy, as well as those in which a forced debt renegotiation is required, and also includes any borrower with loans in default for equal to or greater than 90 days in the payment of interest or principal of any loan. This portfolio includes borrowers classified under categories C1 to C6 in the classification scale established below and classification is assigned to the debtor's portfolio at the classification at the riskiest level, including 100% of the loan commitments that those borrowers maintain.
In calculating allowances for the non-compliant portfolio, loss rate percentages are used, which must be applied to the exposure, corresponding to the sum of loans and receivables and loan commitments held by the same borrower. In order to apply this percentage, an expected loss rate must be estimated first, deducting from the exposure the amounts expected to be recovered by execution of collateral and, in the case of having solid data that justifies them, deducting also the net present value of expected recoveries that can be obtained by the execution of actions to collect, net of expenses associated with these actions.
That loss rate must be classified into one of the nine categories defined according to the range of losses effectively expected by the Bank for all the operations of an individual borrower
Allowance percentages to be applied over the exposition are as follows:
Type of portfolio | Risk scale | Expected loss range | Allowance | ||||
C1 | Up to 3% | 2% | |||||
C2 | More than 3% and up to 20% | 10% | |||||
C3 | More than 20% and up to 30% | 25% | |||||
Non-compliant portfolio | C4 | More than 30% and up to 50% | 40% | ||||
C5 | More than 50% and up to 80% | 65% | |||||
C6 | More than 80% | 90% |
Loans are kept in this category until there is observable evidence to conclude that the capacity and payment behavior is back to normal, regardless of charging-off loans that comply with the conditions established in the accounting policy indicated in letter t) 'Impaired loans and charge-offs', charge-off section (title II of Chapter B-2 of the Compendium of Accounting Standards).
To remove a debtor from this portfolio, once the circumstances that made it be classified in this category are overcome, all the following requirements must be met, in a copulative manner:
1) | None of the debtor obligations with the Bank are overdue for more than 30 days. |
2) | No new re-financing of loans has been granted. |
3) | At least one of the payments received includes principal payment (total or partial). |
4) | If the debtor has a loan with partial payments due within six months, two payments have been made. |
5) | If the debtor has to pay monthly installments for one or more loans, at least four consecutive installments have been paid. |
6) | The debtor shows no direct unpaid debts in the consolidated information provided by the CMF, unless those debts are not material. |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 24 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
(ii) | Group allowances |
Collective assessment is used to deal with a large number of loan transactions with small amounts granted to individuals and small size companies. This type of assessment, as well as the criteria to apply them, must be consistent with those used when loans were granted.
To establish allowances, collective assessment requires grouping loans with homogeneous characteristics in terms of type of debtor and loan conditions, in order to conform by technically formulated methodologies and following prudential criteria, the payment behavior of the group and the recoveries for defaulted loans.
Based on the above, the groups are assigned with a probability of default (PD) and loss given default (LGD) considering the profile that best suits the loan. Net exposure is calculated, which includes the book value of the loan plus contingent loans.
Standard method for mortgage loans allowances
For the purposes of calculating credit risk provisions of the mortgage loan portfolio for housing, the Bank recognizes the higher amount of provision resulting from using the internal model and the standard provision method for mortgage loans established in the CNC. According to this method the provision factor to be applied, represented by the expected loss (EL) over the amount of the mortgage loans, depends on the overdue of each loan and the relation, at the end of each month, between the gross exposure and the corresponding collateral (LTV), according to the following table:
Number of overdue | Default | |||||||||||
LTV range | days | 0 | 1 - 29 | 30 - 59 | 60 - 89 | portfolio | ||||||
PI (%) | 1.0916 | 21.3407 | 46.0536 | 75.1614 | 100 | |||||||
LTV ≤ 40% | PDI (%) | 0.0225 | 0.0441 | 0.0482 | 0.0482 | 0.0537 | ||||||
PE (%) | 0.0002 | 0.0094 | 0.0222 | 0.0362 | 0.0537 | |||||||
PI (%) | 1.9158 | 27.4332 | 52.0824 | 78.9511 | 100 | |||||||
40% < LVT ≤ 80% | PDI (%) | 2.1955 | 2.8233 | 2.9192 | 2.9192 | 3.0413 | ||||||
PE (%) | 0.0421 | 0.7745 | 1.5204 | 2.3047 | 3.0413 | |||||||
PI (%) | 2.5150 | 27.9300 | 52.5800 | 79.6952 | 100 | |||||||
80% < LVT ≤ 90% | PDI (%) | 21.5527 | 21.6600 | 21.9200 | 22.1331 | 22.2310 | ||||||
PE (%) | 0.5421 | 6.0496 | 11.5255 | 17.6390 | 22.2310 | |||||||
PI (%) | 2.7400 | 28.4300 | 53.0800 | 80.3677 | 100 | |||||||
LVT > 90% | PDI (%) | 27.2000 | 29.0300 | 29.5900 | 30.1558 | 30.2436 | ||||||
PE (%) | 0.7453 | 8.2532 | 15.7064 | 24.2355 | 30.2436 |
In case the same debtor has more than one mortgage loan with the Bank and one of those loans is 90 days overdue or more all those loans are incorporated to the Non-compliant portfolio, calculating allowances for each one of those loans applying the corresponding percentage according to the LTV.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 25 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
For mortgage loans related to housing programs and benefits from the Government, when guaranteed by the corresponding auction insurance, the allowance percentage could be weighted for a loss mitigating factor, which depends on the LTV percentage and the value of the property at inception. The loss mitigating factors are those shown in the table below:
MP factor of mitigation of losses for credits with state | ||||
Range LTV | insurance of auction | |||
Section V: Deed price of the house (UF) | ||||
V ≤ 1,000 | 1,000 < V ≤ 2,000 | |||
LTV ≤ 40% | 100% | 100% | ||
40% < LTV ≤ 80% | 100% | 100% | ||
80% < LTV ≤ 90% | 95% | 96% | ||
LTV > 90% | 84% | 89% |
Provisions for commercial loans
For this type of loan, the Bank recognizes the higher provision resulting from the internal models and standard models established in the CAS. The applicable percentages of provision and the parameters used to determine the provision, are set out on the CAS.
● | Commercial leasing operations |
The allowance is determined based on the book value of the commercial lease operations (including the purchase option). The allowance percentage used in the calculation will depend on the delinquency of each operation, the type of leased asset and the relationship, at the end of each month, between the book value of each operation and the value of the leased asset (LTV), as indicated in the following tables:
Probability of Default (PD) applicable according to delinquency and type of asset (%) | ||||
Days in arrears of the operation at | Type of leased assets | |||
the end of the month | Real estate | Non-real estate | ||
0 | 0.79 | 1.61 | ||
1-29 | 7.94 | 12.02 | ||
30-59 | 28.76 | 40.88 | ||
60-89 | 58.76 | 69.38 | ||
Non-compliant portfolio | 100.00 | 100.00 |
Loss Given Default (LGD) applicable according to LTV range and type of asset (%) | ||||
LTV= Book value/Value of the leased asset | ||||
LTV range | Real estate | Non-real estate | ||
LTV <= 40% | 0.05 | 18.2 | ||
40% < LTV <= 50% | 0.05 | 57.00 | ||
50% < LTV <= 80% | 5.10 | 68.40 | ||
80% < LTV <= 90% | 23.20 | 75.10 | ||
LTV > 90% | 36.20 | 78.90 |
The LTV relationship is determined considering the guarantee appraisal value, expressed in UF for real estate and in Chilean pesos for non-real estate, recorded at inception, considering any transitory event that may cause an increase on the value of the asset.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 26 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
● | Student loans |
The expected loss (%) is applied over the amount of the student loan and the exposure of the contingent credit when applicable. The factor used is determined based on the type of student loan and the collectable payment of principal or interest, at the end of each month. Only when payment is due, the factor will also depend on overdue.
Probability of Default (PD) applicable according to payment enforceability delinquency and type of loan (%) | ||||||
Presents payment of principal or | Days of delinquency at the | Type of Student Loan | ||||
interest at the end of the month | end of the month | CAE | CORFO or other | |||
Yes | 0 | 5.20 | 2.90 | |||
1-29 | 37.20 | 15.00 | ||||
30-59 | 59.00 | 43.40 | ||||
60-89 | 72.80 | 71.90 | ||||
Portfolio in default | 100.00 | 100.00 | ||||
No | N/A | 41.60 | 16.50 |
Loss given default due according to the enforceability of the payment and type of loan (LGD) (%) | ||||
Presents payment of principal or interest at the end of | Type of Student Loan | |||
the month | CAE | CORFO or other | ||
Yes | 70.90 | 70.90 | ||
No | 50.30 | 45.80 |
● | Generic commercial placements and factoring |
Factoring operations and commercial loans, other than those indicated above, the expected loss (%) is applied over the amount of the loan and on the exposure of the contingent credit. The factor used is determined based on whether the operation has guarantees and it's overdue. In addition, for those operations with guarantees, the relationship between the debtor´s obligations to the bank and the value of the guarantees (LTV) is used to determine the factor as indicated in the following tables:
Probability of Default (PD) applicable according to delinquency and LTV range (%) | ||||||
Days of delinquency at the end of the month | With collateral | No collateral | ||||
LTV <=100% | % | LTV >100% | % | |||
0 | 1.86 | 2.68 | 4.91 | |||
1-29 | 11.60 | 13.45 | 22.93 | |||
30-59 | 25.33 | 26.92 | 45.30 | |||
60-89 | 41.31 | 41.31 | 61.63 | |||
Portfolio in default | 100.00 | 100.00 | 100.00 |
Loss Given Default (LGD) applicable according to LTV range (%) | ||||||
Commercial operations or | Factoring with | |||||
factoring without transferor's | transferor' s | |||||
LTV ranges | responsibility | responsibility | ||||
LTV <= 60% | 5.00 | 3.20 | ||||
With collateral | 60% < LTV <= 75% | 20.30 | 12.80 | |||
75% < LTV <= 90% | 32.20 | 20.30 | ||||
90% < LTV | 43.00 | 27.10 | ||||
No collateral | 56.90 | 35.90 |
A guarantee or collateral can only be considered if, the guarantee was constituted in favor of the Bank with preference and if the guarantees are directly associated with the debtor´s credits (not shared with other
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 27 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
debtors). For the purposes of calculating the LTV, the invoices assigned in the factoring operations, nor the guarantees associated with mortgage loans can be considered.
The guarantees used in calculating the LTV relationship may be of a specific or general purpose, including those that are simultaneously specific and general. For specific guarantees, the LTV ratio must be calculated independently for each guaranteed transaction. For general and specific guarantees, LTV is determined as the division between the sum of the amounts of the loan and exposures of contingent credits and the general, or general and specific guarantees considering any restriction.
Non-compliant portfolio - Collectively assessed loans
Non-compliant portfolio includes all loans and contingent loans of a borrower that presents an overdue equal to or more than 90 days in the payment of interest or principal in any of its loans. It will also include borrowers who renegotiated a loan with more than 60 days overdue and borrower who have been subject to a forced debt renegotiation.
The following can be excluded from the group non-compliant portfolio:
a) | Mortgage loans overdue for less than 90 days, unless the debtor has another loan of the same type with large overdue; and, |
b) | Student loans as set forth in Law No. 20,027, that do not present conditions indicated in Circular No. 3,454 dated December 10, 2008. |
All debtor's loans should be classified in the Non-compliant portfolio until a normalization of its behavior and management capacity can be observed, regardless of charge-offs requirements indicated in the accounting policy detailed in letter w), charge-offs section (title II, Chapter B-2 of the Compendium of Accounting Standards). In order to remove a debtor from the Non-compliant portfolio, once the circumstances that made it be classified in this category are overcome according to these standards, all the following requirements must be met:
- | None of the debtor obligations with the Bank are overdue for more than 30 days. |
- | No new re-financing of loans has been granted |
- | At least one of the payments received includes principal payment (total or partial). |
- | If the debtor has a loan with partial payments due within six months, two payments have been made. |
- | If the debtor has to pay monthly installments for one or more loans, at least four consecutive installments have been paid. |
- | The debtor shows no direct unpaid debts in the consolidated information provided by the CMF, unless those debts are not material. |
(iii) | Guarantees |
Guarantees can be considered for allowances calculation purposes only if they are legally documented and comply with all conditions and requirements to be executable in Bank's favor.
In all cases, for purposes of the standards established by the CMF, the Bank should be able to demonstrate the mitigating effect of the guarantees over the inherent credit risk of the exposures. For allowances calculation purposes, guarantees will be treated according to the following, as applicable:
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 28 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
1) | Collateral and guarantees. Considers contractual agreements to guarantee a specific loan or loans in a way that the coverage over the exposure can be clearly defined and where the rights to collect have been unquestionably transferred over to the guarantor. |
2) | Property guarantees. In order to apply the deduction method or to determine recovery rates, valuation of property and other guarantees (mortgages or financial instruments guarantees) must reflect the net inflow that will be obtained from the sale of the assets, debts instruments or shares in the event that the borrower falls into default and a secondary source of payment is required. In applying the deduction method, the amount to be recovered by executing the guarantee, corresponds to the present value of the asset sold in its current market condition at disposal, minus all expenses required to keep the asset in its current conditions and to sell them, all in accordance with the Bank policies and terms established by Law for assets disposal. |
3) | Financial guarantees. On this type of guarantees the adjustment of its fair value may be deducted from the exposition, solely when the guarantee can be established with the unique aim to guarantee compliance with the related loans. |
Leased assets
Estimated losses when establishing allowances based on the assessment method corresponding to each debtor, consider the amount that will be obtained if the leased asset is sold, taking into account any potential impairment for the assets in case of debtor's default and the related recovery and relocation expenses
Factoring operations
Establishing allowances for factoring operations will consider as counterparty the entity ceding rights over the endorsed in favor of the Bank, when the cession is recourse for the latter, and to the debtor when the cession has been made without recourse.
(iv)Additional provisions
The Bank can establish additional provisions to those established by using its models, according to what is set forth in No 9, Chapter B-1 of the Compendium of Accounting Standards issued by the CMF, recording the liability, see letter x) 'Provisions, contingent assets, and contingent liabilities'. Such provisions can be established to cover potential losses due to macroeconomic changes, in order to anticipate recessions in the future that may adversely affect the Bank and to release those provisions when a positive outlook is anticipated.
According to the above, additional provisions shall always correspond to general allowances for commercial, consumer or mortgage loans, or to identify segments of them and in no case can be used to compensate deficiencies in the Bank's models.
As of September 30, 2020, the Bank recorded additional provisions for its commercial, consumer and mortgage loan portfolios for an amount of Ch$64,500million. See Note 21 Provisions (as of December 31, 2019, the Bank had no additional provisions recorded).
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Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
New accounting pronouncements introduced by the CMF
1) | Circular No. 2,243 December 20, 2019, Compendium of Accounting Standards for Banks, Updated instructions and Circular No. 2,249 issued on April 20, 2020, amends Chapter E, postpones its first application. |
As a result of various changes introduced by the International Accounting Standards Board to International Financial Reporting Standards (IFRS) in recent years, particularly to IFRS 9 'Financial instruments', IFRS 15 'Revenue from contracts with customers' and IFRS 16 'Leases', and as a consequence of a review of the current limitations on the application of these standards on a local basis, the CMF has decided to update the instructions in the Compendium of Accounting Standards for Banks, 'CASB', in full.
All changes aim for a greater convergence to IFRS, as well as to improve financial reporting, to contribute to the financial stability and transparency of the banking system.
From the modifications mentioned before and the following sections are updated as follows:
● | Chapter A-1 Application of accounting criteria |
In this chapter, which deals with the application of accounting standards in the context of the legal framework applicable to banks. In addition, it emphasizes the responsibility of banks to verify the use of updated versions of IFRS.
● | Chapter A-2 Limitations or clarifications on the use of general standards |
The limitations and clarifications for the application of IFRS are adjusted with the aim to move towards greater consistency with IFRS. The main changes are as follows:
- | As a result of the adoption of IFRS 9, the classification of trading and investment instruments as instructed on IAS 39 are eliminated. Therefore, financial assets and liabilities will be classified and measured in accordance with the categories established by IFRS 9: 'Financial assets for trading at fair value through profit and loss', 'Financial assets not for trading compulsorily measured at fair value through profit and loss', 'Financial assets designated at fair value through profit and loss', 'Financial assets at fair value through other comprehensive income' and 'Financial assets at amortized cost'. |
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Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
- | Regarding financial leasing operations, where the bank acts as lessor, it is specified the Commission's instructions prevail over IFRS 16, which must be applied in all aspects that do not conflict with them. |
● | Chapter B-2 Provisions for credit risk |
The criterion for the suspension of recognition of interest income and adjustments on an accrual basis is amended and will now apply to all loan that are more than 90 days past due, whether the loan is subject to individual or group assessment.
● | Chapters C-1 and C-2 Impaired loans and write-offs |
The changes made to the CAS include the modification to the current Statement of Financial Position and the Statement of Income for the period, which are consistent with the adoption of IFRS 9 instead of IAS 39. In addition, the new 'Statement of Other Comprehensive Income' and the 'Statement of Changes in Equity' are included. Likewise, the financing and investment activities in the Cash Flow Statement are defined, incorporating more precise guidelines for the preparation of these
In addition, more detail and disaggregation of the information contained in some notes to the financial statements are required, in order to comply with IFRS 7, along with specifying other considerations particular to other IFRSs that must be observed for the preparation of the notes. To this end, special emphasis is placed on the disclosure of information relating to impairment, considering the impairment model for placements contained in Chapters B-1, B-2 and B-3 of the same CAS. In accordance with these changes, Chapter C-1 containing models for the presentation of the notes on cash and cash equivalents, financial assets at amortized cost, contingent credits, credit losses, related party disclosures and regulatory capital requirements are modified.
Among the other aspects considered in updating chapter C-1, is the requirement for a financial report prepared in accordance with 'IFRS Practice Statement 1 - Management Commentary', which must accompany the interim and annual financial statements.
With regard to the interim financial statements, Chapter C-2 contains references to their composition, presentation of comparative quarterly figures, their notes, the requirement for a financial report mentioned above and the corresponding publications, in accordance with Article 16 of the General Banking Law.
● | Chapter C-3 Contingent credits |
The accounting plan for the standardized monthly financial statements contained in Chapter C-3 of the CAS is modified, both in the coding of the accounts and in their description, so that the information detailed therein is consistent with the Statement of Financial Position, the Statement of Income and the Statement of Other Comprehensive Income.
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Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
● | Other matching adjustments |
In addition to the adjustments relating to the references to the new supervising entity, references to IFRS and some items of financial information that have been modified as mentioned above and which are present in various chapters of the CAS, where also updated.
● | Chapter E- Transitional provisions |
The new CAS provisions will be applicable as of January 1, 2022, with a transition date as of January 1, 2021, for purposes of the comparative financial statements to be issued as of March 2022
Any impact from the transition to the new generally accepted principles and criteria set forth by the Commission at the transition date must be recorded against the equity item 'Other non-earnings reserves' (item 32000.01.00), as of January 1, 2022.
Notwithstanding the above, the change of criteria for the suspension of the recognition of interest income and inflation-indexation adjustments on an accrual basis as established in Chapter B-2, must be adopted no later than January 1, 2022.
In accordance with the above, Chapter E of the CAS is updated, which contains its transitional provisions.
As of the date of issuance of these Interim Consolidated Financial Statements, Management is assessing the impact of the adoption of the New Compendium of Accounting Standards for Banks.
2) | Circular No. 2,247 issued on June 25, 2020 modified the Updated Standards Compilation extending the term for the disposal of assets received in lieu of payment |
The CMF issued this circular as part of its work performed in order to face the COVID-19 virus outbreak due to the potential effects that it may have in the financial markets and entities under its supervision.
The modification extended the period for disposing an asset received in lieu of payment to 18 months. As such a transitional provision has been included on number 6.5 of Chapter 10-1 of the Updated Compilation of Standards, replacing in its first paragraph from 'June 1, 2008 to December 31, 2010' to 'from June 1, 2019 to September 30, 2020.'
Additionally, write-offs may be deferred on a proportional basis to the number of months between the date the asset was received or awarded and that set by the bank for disposal.
The adoption of this new circular had an impact on the presentation of the Interim Consolidated Financial Statements as of September 30, 2020, through the implementation of a transitional accounting policy that decreased the write-offs of the assets received in lieu of payment, to benefit from the extension in the term for disposal and the quotation of the write-offs through the additional term.
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Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
3) | Circular No. 2,248/ No. 2,250/ No. 2,265 Updated Compilation of Standards. Chapter 12-1 Equity for legal and regulatory purposes. |
Circular No. 2,248 issued on March 30, 2020, includes instructions in chapter 12-1 of the Updated Compilation of Standards on treatment of constituted guarantees related to derivatives celebrated under a compensation agreements with the Central Bank of Chile. The Commission decided to include instructions on this matter, for the purposes of calculating assets for capital adequacy.
Circular No. 2,250 released on April 20, 2020, it was issued in order to address the circumstances faced by financial markets as a result of the health crisis caused by the COVID-19 pandemic, and in accordance with the regulations issued by the Government. The circular incorporated an extraordinary provision that allows to use part of the voluntary provisions in the determination of the effective equity, within the limit of 1.25% established in the RAN 12-1, an amount of up to 15% of the guarantees that cover the risk-weighted assets, the guarantees that correspond to guarantees or re-guarantees granted by the Chilean Treasury, CORFO and FOGAPE, which cover the credits granted by the banks.
Circular No. 2,265 issued on August 21, 2020, modifies the ponderation of the risk-weight assets that are guaranteed by the Chilean Treasury, CORFO and FOGAPE, in accordance with the provision of Law No. 21,130, which sets out the treatment of risk-weight assets, as a result of the health crisis caused by the COVID-19 pandemic, and considering in particular the strengthening of the State's guarantor role through FOGAPE and other support mechanisms.
Modifications introduced by this circular are to be implemented as of its issuance date.
The adoption of this standard did not have an impact on the accounting information presented in the Interim Consolidated Financial Statements as of September 30, 2020, however it presents a modification to the measurement of effective equity presented in Note 35 d) Capital requirement.
4) | Circular No. 2,252/ No. 2,256/ No. 2,260/ No. 2,264 regarding aspects related to COVID-19 Guarantee Lines of the Guarantee Fund for Small and Medium-sized Entrepreneurs (COVID-19 FOGAPE). |
Circular No. 2,252 issued on April 30, 2020, provides instructions related to the credits processed through the use of the COVID-19 Guarantee Lines of the Guarantee Fund for Small and Medium-Sized Entrepreneurs (FOGAPE), in terms of provisions, procedures and information to be sent to the Commission.
The Bank must ensure to comply with the rules established in the FOGAPE Regulations, as well as to evaluate clients financial and credit condition, thus being ultimately responsible on deciding to grant the credit to its client, which has to also be in accordance with the criteria established in its internal credit risk policies.
In relation to credit risk management of the commercial loan portfolio, the Commission by means of the circular established certain guidelines regarding determining provisions for credit risk, both with regard to secured transactions by the COVID-19 FOGAPE, as well as for the other debtor credits that are affected by the conditions defined in the FOGAPE Regulation. In addition, it modifies the Information System Manual by incorporating three new files to be sent to the Commission. Requirement set out on the Circular are to be implemented as of the date of its issuance and are in force until October 31, 2021.
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Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
Circular No. 2,256 issued on May 22, 2020, provides modifications to the Information System Manual establishing details and modifications to the three regulatory files incorporated by circular No. 2,252 referring to operations related to credits processed through the use of the guarantee provided by COVID-19 FOGAPE.
Circular No. 2,260 issued on June 26, 2020, introduces adjustments and clarifications incorporated into the FOGAPE Regulations. Which includes clarification to characteristics to categorize companies, instructions to financial institutions with access to financing from the Central Bank, and limitations on the guarantee granted by the fund.
Circular No. 2,264 issued on July 21, 2020, introduces adjustments to Chapter C-3 of the CAS and instructions related to C50 report on 'Operations associated with a FOGAPE COVID-19 guarantee', which requires to present information related to percentage of the deductible associated with financing with FOGAPE COVID-19 guarantee, as well as the provisions established to cover their effect on the expected losses. The provisions of the Circular are as of July 2020.
During the period ended September 30, 2020, the Bank granted credits using the COVID-19 Guarantee line of the Guarantee Fund for Small and Medium-sized Entrepreneurs (FOGAPE), which were accounted for according to the accounting practices adopted by the Bank and informed according to the instructions of the aforementioned circumstances, however the adoption of these circulars did not have an impact on these Interim Consolidated Financial Statements.
5) | Circular No. 2,254 issued on May 8, 2020 - Reserve in foreign currency, transitory provision. |
In accordance with the resolution of the Central Bank of Chile, through Council Agreement No. 2294E-01-200318, imparted a transitory modification to the regulation related to reserve requirements in foreign currency contained in Chapter 3.1 of the Compendium of Monetary and Financial Regulations, the Commission updates Chapter 4-1 of the Updated Compilation of Standards for Banks, replacing the transitory provision with the following: 'Notwithstanding the provisions of numeral 8.2, in accordance with Agreement N ° 2294E-01- 200318 of the Board of the Central Bank of Chile, and in the terms provided in Bank Circular Letter No. 640 of April 8, 2020 of that issuing institution, from the reserve period that begins on March 9, 2020 and until the end of the day September 8, 2020, the reserve in foreign currency may also be established in euros or Japanese yen, all of which are measured by their equivalent in dollars.
As aforementioned on the agreement, excess reserve requirements in national currency may be used to cover reserve requirements in any foreign currency, converted by their equivalent in dollars.
As of September 8, 2020, the Bank implemented this measure in the reserve requirement process, considering the effects of the new regulations, for which the adoption of the circular had no impact on these Interim Consolidated Financial Statements.
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Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
6) | Circular No. 2,257 issued on May 22, 2020. Modifies chapter B-1 of the CAS. Allowing the recognition of the excess of mortgage guarantee for the home in the standard model of provisions of the group commercial portfolio. |
Chapter B-1 of the CAS establishes standard models to determine provisions for credit risk of the mortgage portfolio for housing and commercial group portfolio. Currently, these methodologies do not allow the use of mortgage guarantees associated with home loans in determining the debt guarantee ratio and in the determination of the provisions in the group commercial portfolio.
As a result of the health crisis caused by COVID-19, the effects it has had on the economy and the credit risk in banking, the Commission reviewed this restriction, temporarily and until the aforementioned new legal framework that includes the Basel III guidelines, allowing the recognition of the excess of mortgage guarantee associated with housing loans in the standard model of provisions of the group commercial portfolio in Chapter B-1, determined from the application of a haircut of 20%.
Modifications introduced by this circular are to be implemented as of its issuance date.
As of the date of issuance of these Consolidated Interim Financial Statements, the Administration is in the process of implementing the adoption of the Circular, estimating a release of provision in the group commercial portfolio, which to date has not been determined.
7) | Circular No. 2.261/ No. 2.262/ No. 2.263 on July 6, 2020 these circulars were issued related to the of information security and cyber security management. |
Circular No. 2,261 issued on July 6, 2020, establishes the new Chapter 20-10 'Information security and cybersecurity management' into the Updated Compilation of Standards, which incorporates the minimum requirements that banks must comply in order to establish practices for proper risk management of information security and cybersecurity.
Circular No. 2,262 issued on July 6, 2020, extends to business support companies, bank subsidiaries and real estate companies referred on the General Banking Law, the new provisions on information security and cybersecurity management, incorporated in Chapter 20-10 of its Updated Compilation of Standards.
Circular No. 2,263 establishes the minimum requirements that non-bank payment card issuing companies and payment card operating companies must observe, both supervised by the Commission, must meet the aim of the chapter is to establish practices for an adequate information security and cybersecurity management. These requirement are contained in the new Chapter 20-10 of the Updated Compilation of Standards for banks, which by its nature is fully applicable to the aforementioned card issuers and operators, as well as, consistent with the provisions of the Central Bank of Chile on the content of the Risk Management and Control Policies that such entities must develop and implement.
Chapter 20-10 of the Updated Compilation of Standards contains provisions, based on good practices, that should be considered as minimum requirements to be met by entities on security information and cybersecurity management. Information security shall be understood as the set of actions for the preservation of the confidentiality, integrity and availability of the entity's information.
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Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
Cybersecurity includes the set of actions for the protection of information present in cyberspace and the infrastructure that supports it, which aims to avoid or mitigate the adverse effects of its inherent risks and threats, which may affect the information security and business continuity of the institution.
The instructions established in these Circulars will be in force as of December 1, 2020.
As of the date of issuance of these Interim Consolidated Financial Statements, Management is evaluating the impacts of the adoption of the new Chapter 20-10 information security management and cybersecurity of the Updated Compilation of Standards for banks.
8) | Circular No. 2,266 - Information on student loans for higher education |
In accordance with provisions of Law No. 21,214, on protection of private information, prohibits to report debts information contracted for educational purposes, Chapter 20-6 of the Updated Compilation of Standards was modified, prohibiting to inform loans contracted for education purposes on the Commercial Information Bulletin of the Chilean Chamber of Commerce.The instructions established in this Circular will be in force as of December 1, 2020.
As of the date of issuance of these Interim Consolidated Financial Statements, Management is evaluating the impacts of the adoption of the new Chapter 20-10 information security management and cybersecurity of the Updated Compilation of Standards for banks.
9) | Circular No. 2,267 Bank Factoring Operations. |
The circular was issued with introduced new instructions regarding the discounting of invoices by banks and subsidiaries on their factoring business. Before the issuance of this circular, the assignments of credits originated in the sale of goods or provision of non-financial services, were limited to be carried out by the natural or legal persons with whom the factoring operation is agreed, or on behalf of whose buyers the payment commitment is assumed. The modifications included in the chapter 8-38 of the Updated Compilation of Standards allow the discount of invoices to be carried out by third parties other than those of their originators, given the safeguards provided by Law No. 19,983 in force today. Additionally, a title referring to 'Accounting Standards' is included, which indicates that factoring operations should be treated as commercial placements, based on Chapter B-1 of the Compendium of Accounting Standards, both with regard to provisions for credit risk, as by their classification in the periodic information models.
The instructions established in this Circular came into force as of the date of its issuance.
As of the date of issuance of these Interim Consolidated Financial Statements, Management is evaluating the possible impacts of the adoption of the Circular.
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Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
10) | Circular No. 2,270 introduces a new Chapter 21-13 to the Updated Compilation of Standards for Banks and modifications to Chapter 1-13. |
As a result of the modifications introduced to the General Law of Banks (hereinafter LGB) by Law N ° 21,130, of January 12, 2019, the CMF issued Chapter 21-13 of the Updated Compilation of Standards 'evaluation of the sufficiency of effective equity of the banks' which contains provisions relating to capital management that banks must carry out, in order to have adequate patrimonial safeguards, in accordance with their risks, in line with the instructions of Title V of the LGB and Chapter 1-13 of the Updated Compilation of Standards. Additionally, the criteria that will be considered by the CMF are described to require effective equity charges associated with article 66 quinquies of the LGB.
Additionally, it updates Chapter 1-13 separating the evaluation and qualification of management of resources abroad, which was carried out together. With regard to 'Financial risk management and treasury operations', management of market risk (general and specific interest rates, general and specific stock prices, raw materials and foreign currencies) and market risks are incorporated into the evaluation. for the banking book (interest rates, indexing and intermediation spread); in addition to parameters for the management of negotiation tables and their structure.
The instructions established in this Circular came into force as of the date of its issuance.
As of the date of issuance of these Interim Consolidated Financial Statements, Management is evaluating the modifications to the chapter of RAN 1-13 and the new chapter of RAN 21-13 in order to comply with the equity requirement.
11) | Circular No. 2,272 introduces a new Chapter 21-12 regarding additional basic capital. |
The Circular incorporates the new Chapter 21-12 'Additional Basic Capital, Articles 66 Bis and 66 Ter of the General Banking Law' to the Updated Compilation of Standards, which establishes procedures for the determination, implementation and supervision requirements of additional capital for banks established in Chile. In attention to the transitory provisions of Law No. 21,130.
Law No. 21,130 introduced additional capital requirements to banking regulation, in accordance with the principles established by Basel Committee on Banking Supervision (Basel III). The requirements includes additional capital requirement over the minimum set in the General Banking Law, the additional requirement correspond to the capital buffers: conservation and countercyclical.
The instructions established in this Circular will be in force as of the date of its issuance.
As of the date of issuance of these Consolidated Interim Financial Statements, Management is evaluating the possible impacts in order to fully comply with the new Capital standards.
12) | Tax Reform - Promulgation of the Law. |
On March 1, 2020, the 'Tax Reform', Law No. 21,120, which modernizes the tax legislation, came into force. The reform modified several tax regulations, focused mainly on tax compliance issues, relations with the Internal Revenue Service for reviewing processes, and various adjustments that mainly impacted small and medium-sized companies. For the Bank, there are no substantial modifications regarding the current process to determine its taxes, and some minor modifications have been identified, such as the application of VAT to
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
imports of standard software, the surcharge on real estate contributions and the progressive elimination of the PPUA.
13) | Legislation issued as a response to the pandemic generated by COVID-19. |
In response to the effects that the COVID-19 pandemic has had and is expected to have on the Chilean economy, the Government has taken certain economic measures, issuing new regulations that mainly benefit customers (for example, the Stam Tax exemption for operations carried out between April and September 2020, the possibility of extending VAT payments, etc.), but no impacts of any kind are visualized for the Bank.
On April 29, 2020, the Internal Revenue Service instructed through Circular No. 32 the tax treatment of expenses and donations associated with COVID-19. Broadly speaking, it points out that both money and goods, of any nature or kind, can be donated to the extent that they allow satisfying the basic needs of food, shelter, health, hygiene, decoration, removal of debris, education, communication and transportation of the inhabitants of the affected areas. To the extent that they meet a series of requirements indicated in the circular, they may be deducted as expenses for tax purposes.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
New accounting pronouncements introduced by IASB
1.1.Conceptual framework
In June 2018, the International Accounting Standards Board (the Board) issued a complete set of concepts for financial reporting, the revised Conceptual Framework for Financial Information (Conceptual Framework), replacing the previous version of the Conceptual Framework issued in 2010
The revised Conceptual Framework has an effective date from January 1, 2020.
The amendment introduces new definitions and includes guidance on certain considerations. Given the nature of the amendment, it will not have a significant impact on the Interim Consolidated Financial Statements.
1.2IFRS 3 'Business Combinations' - Business definition
In October 2018, the International Accounting Standards Board (IASB) issued the Definition of aBusiness to make it easier for companies to decide whether the activities and assets they acquire are a business or simply a group of assets. Reduce the limitations of a company to the center of the definition of products in goods and services provided to customers and other income from ordinary activities, instead of providing dividends or other economic benefits directly to investors or reducing costs. The amendment to IFRS 3 has an effective date of January 1, 2020.
The new limitations introduced by the amendment have not had specific difficulties in the Interim Consolidated Financial Statements.
1.3 | Amendments to IAS 1 'Presentation of financial statements' and IAS 8 'Accounting policies, policy changes and accounting errors' |
On October 31, 2018, the IASB published 'Definition of material (amendments to IAS 1 and IAS 8)' to clarify the definition of 'material' and align the definition used in the Conceptual Framework and similar standards.
The changes relate to a new revised definition of 'material' that is cited following the final amendments: 'Information is material if its omission, misstatement or concealment could reasonably be expected to influence the decisions that primary users of general purpose financial statements make on the basis of those statements, which provide financial information about a specific reporting entity'
The new definition of material is found in IAS 1 'Presentation of Financial Statements'. The definition of material in IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' has been replaced with a reference to IAS 1.
The amendments are effective for annual periods beginning on or after January 1, 2020. Early application is allowed.
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Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
The nature of the amendment includes standardizing the definition of 'material', the adoption of which will not have a significant impact on the Interim Consolidated Financial Statements.
Published in September 2019, it is being modified providing certain simplifications in relation to the reform of reference interest rates. The simplifications relate to hedge accounting and have an effect on the IBOR reform, the quality generally should not cause hedge accounting to end. However, any inefficiency of coverage must continue to be recorded in income.
The amendments apply retrospectively to annual periods beginning on or after 1 January 2020.
The nature of the amendment includes simplifying requirements relating to interest rate benchmark reform, the adoption of which will not have a significant impact on the Interim Consolidated Financial Statements.
The International Accounting Standards Board (IASB) has published 'Covid-19-Related Rent Concessions (Amendment to IFRS 16)' amending the standard to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. Concurrently, the IASB also published a proposed Taxonomy IFRS 2020 Update to reflect this amendment.
When there is a change in lease payments, the accounting consequences will depend on whether that change meets the definition of a lease modification, which IFRS 16 Leases defines as 'a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease (for example, adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term)'.
The changes in COVID-19-Related Rent Concessions (Amendment to IFRS 16) amend IFRS 16 to
a) | provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification; |
b) | require lessees that apply the exemption to account for COVID-19-related rent concessions as if they were not lease modifications; |
c) | require lessees that apply the exemption to disclose that fact; and |
d) | require lessees to apply the exemption retrospectively in accordance with IAS 8, but not require them to restate prior period figures. |
The exemption applies to those reductions in payments as a result of the Covid-19, due on or before June 30, 2021 in order to capture the lease concessions granted as of June and with a duration of 12 months.
The amendment is effective for annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted, including in financial statements not yet authorized for issue on 28 May 2020. The amendment is also available for interim reports.
The IFRS 2020 Taxonomy includes elements of the IFRS taxonomy to reflect the new disclosure requirements introduced by the amendment, issued in May 2020.
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Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
The adoption of the amendment did not have a significant impact on the Interim Consolidated Financial Statements since to date there have been no significant changes on current contracts to make use of this amendment.
2.1 | IFRS 9 'Financial Instruments' - Final version |
On November 12, 2009, the International Accounting Standard Board (IASB) issued IFRS 9, 'Financial Instruments'. On October 28, 2010 its revised version is published, agreeing guidelines on the classification and measures of financial liabilities. On November 19, 2013, see an amendment which includes the new general hedge accounting model. On July 24, 2014, the IASB issued the final version of IFRS 9, which contains the accounting requirements for financial instruments, replacing IAS 39 'Financial Instruments: Recognition and Measurement'.
The standard establishes the following requirements:
Classification and Measurement: Financial assets are to be classified based on the business model in which they are held and the characteristics of their contractual cash flows. The 2014 version of IFRS 9 introduces a measurement category called 'fair value with change in other comprehensive income' for certain debt instruments. Financial liabilities are classified in a manner similar to IAS 39 'Financial Instruments: Recognition and Measurement', however, there are differences in the requirements applicable to the measurement of the entity's own credit risk.
Impairment: The 2014 version of IFRS 9 introduces an 'expected credit loss' model for the measurement of impairment of financial assets, so it is not necessary for an event related to the credit to occur before the recognition of the credit losses.
Hedge accounting: Introduces a new model that is designed to align hedge accounting more closely with risk management, when they cover exposure to financial and non-financial risk.
Derecognition of accounts: The requirements for derecognition of financial assets and liabilities keep the existing requirements of IAS 39 'Financial Instruments: Recognition and Measurement'.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018. Early adoption is permitted.
Amendment to IFRS 9 'Financial instruments'
Published on October 17, 2017, this modification allows more assets to be measured at amortized cost in the previous version of IFRS 9, in particular some prepaid financial assets with negative compensation. Qualified assets, which include some loans and debt securities, which would otherwise have been measured at fair value through profit or loss (FVTPL). To qualify at amortized cost, the negative compensation must be a 'reasonable compensation for early termination of the contract.'
The modifications are effective for the annual periods beginning on January 1, 2019.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 41 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
Prepayment Features with Negative Compensation (amendments to IFRS 9)
In October 2017, the IASB issued an amendment to IFRS 9 on 'Advance payments with negative compensation'. These conditions have been successfully modified.
The modifications are effective for annual periods beginning on January 1, 2019.
Amendment toIAS 28 'Investments in associates and joint ventures'
On October 12, 2017, the IASB published Long-Term Participations in Associates and Joint Ventures (Amendments to IAS 28). The amendments clarify that IFRS 9, including its change requirements, involves long-term participation. In addition, when applying IFRS 9 to long-term interests, an entity does not take in the measurement of adjustments to its book values required by IAS 28 (that is, adjustments to the book value of long-term shares that originate from the allocation of investment losses or evaluation of the reduction in accordance with IAS 28).
The retrospectively affected amendments sometimes annual that began on or after January 1, 2019. Early application is allowed. The specific transitional provisions specific to the application for the first time of the amendments coincide with that of IFRS 9.
Bank Management analyzed these amendments/new pronouncements in detail and concluded that, in accordance with the provisions of the CAS in numeral 12 of Chapter A-2, Limitations or Precisions on the Use of General Criteria, it indicates that it will not apply this rule in advance, and furthermore it will not be applied while the CMF does not establish it as a standard of obligatory use for all Banks. With the issuance of the New Compendium of Accounting Standards for Banks (CASB), IFRS 9 should be applied only in those sections where the regulator allows it.
2.2.Sale or Contribution of assets between an investor and its Association or Joint Business (amendments to IFRS 10 and IAS 28)
The amendments to IFRS 10 and IAS 28 address situations where there is a sale or contribution of assets between an investor and its associate or joint venture. Specifically, the amendments provide that gains or losses, resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or joint venture, accounted for using the equity method are recognized in the parent's profit or loss only to the extent of the unrelated investors' interests in that associate or joint venture. Similarly, gains or losses resulting from the remeasurement to fair value of investments held in a former subsidiary (which has become an associate or joint venture that is accounted for using the equity method) are recognized in the results of the former parent only to the extent of the unrelated investors' interests in the new associate or joint venture.
The effective date of the amendments was initially from January 1, 2016, however the IASB on December 17, 2015 indefinitely postponed their entry into force.
Management will evaluate the potential impacts of these amendments, once the new date to be implemented is determined on these amendments.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 42 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
2.3. | Amendment to IAS 1 'Presentation of Financial Statements' - Classification of liabilities as current or non-current |
On January 23, 2020, the IASB published the amendment to IAS 1, which addresses the classification of liabilities and clarifies their presentation as current or non-current. This amendment applies as of January 1, 2023 retroactively and its early application is permitted.
Among the modifications are the following:
● | An entity shall classify a liability as current when it does not have a right to postpone its liquidation for at least twelve months following the date of the reporting period. The amendment removes the factor of 'unconditionality' from this right. |
● | The right to defer settlement of the liability must have substance and must exist at the end of the reporting period. If this right is subject to the entity that covers any condition, such right only exists if it is effectively fulfilled by fulfilling these conditions at the end of the reporting period and can be classified as non-current. The entity must comply with these conditions, although the counterparty does not carry out a testing of these. |
● | The classification of the liability will not be affected by the probability that the entity exercises its right to defer its settlement. Therefore, if the liability meets the non-current condition specified in the standard, it will be classified as non-current, even if the entity plans to liquidate it in less than 12 months from the period in which it is reported or between the periods in which it is reported. And the one that is reported to the regulator. If any of the above cases occurs, it must be disclosed in the Financial Statements to understand the impact of the entity's financial position. |
● | The liability is understood as liquid when the entity extinguishes the obligation to control its effective counterparty, other economic resources, or its own equity instruments. |
The adoption of this amendment will not have a significant impact on the Interim Consolidated Financial Statements. The Bank must present its financial statements in accordance with the regulatory framework set out on section II.3 of Chapter C-1, Financial Statements annual, of the CAS, which presents the Statement of Financial Situation that the Bank must use, therefore, this amendment will not affect the preparation of the factors affected by the entity.
2.4 Amendments to IFRS 3 to update a reference to the Conceptual Framework
On May 14, 2020, the IASB published, amendments to IFRS 3 'Business Combinations' that update an outdated reference in IFRS 3 without significantly changing its requirements.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
The changes in Reference to the Conceptual Framework (Amendments to IFRS 3):
- | update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework; |
- | add to IFRS 3 a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 (instead of the Conceptual Framework) to identify the liabilities it has assumed in a business combination; and |
- | add to IFRS 3 an explicit statement that an acquirer does not recognize contingent assets acquired in a business combination. |
The amendments published are effective for annual periods beginning on or after 1 January 2022. Early application is permitted if an entity also applies all other updated references (published together with the updated Conceptual Framework) at the same time or earlier.
The adoption of the amendment will not have significant impacts on the Interim Consolidated Financial Statements.
2.5 Amendments to IAS 16 'Property, Plant and Equipment - Proceeds before Intended Use
On May 14, 2020, the IASB published amendments to IAS 16)' regarding proceeds from selling items produced while bringing an asset into the location and condition necessary for it to be capable of operating in the manner intended by management.
Amends the standard to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the cost of producing those items, in profit or loss.
The amendments is effective for annual periods beginning on or after 1 January 2022. Early application is permitted
The Bank's Management is currently evaluating the potential impact of the adoption of these amendments in its Consolidated Financial Statements.
2.6 Amendments to IAS 37 'Onerous Contracts - Cost of Fulfilling a Contract
On May 14, 2020, the IASB published 'Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)' amending the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous.
The changes in Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37) specify that the 'cost of fulfilling' a contract comprises the 'costs that relate directly to the contract'. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labor, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract).
The amendments published today are effective for annual periods beginning on or after 1 January 2022. Early application is permitted.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 44 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 1 - General Information and Summary of Significant Accounting Policies, continued
The Bank's Management is currently evaluating the potential impact of the adoption of these amendments in its Consolidated Financial Statements.
2.7 Annual improvements to IFRS standards 2018-2020
On May 14, 2020, the IASB published Annual Improvements to IFRS Standards 2018-2020 makes amendments to the following standards:
IFRS 1 First-time Adoption of International Financial Reporting Standards - Subsidiary as a first-time adopter. The amendment permits a subsidiary that applies paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by its parent, based on the parent's date of transition to IFRSs.
IFRS 9 Financial Instruments- Fees in the '10 per cent' test for derecognition of financial liabilities. The amendment clarifies which fees an entity includes when it applies the '10 per cent' test in paragraph B3.3.6 of IFRS 9 in assessing whether to derecognize a financial liability. An entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other's behalf.
IFRS 16 Leases Lease incentives. The amendment to Illustrative Example 13 accompanying IFRS 16 removes from the example the illustration of the reimbursement of leasehold improvements by the lessor in order to resolve any potential confusion regarding the treatment of lease incentives that might arise because of how lease incentives are illustrated in that example.
IAS 41 Agriculture- Taxation in fair value measurements. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flows when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13.
The amendments to IFRS 1, IFRS 9, and IAS 41 published today are all effective for annual periods beginning on or after 1 January 2022. Early application is permitted.
The amendment to IFRS 16 only regards an illustrative example, so no effective date is stated.
The Bank's Management is currently evaluating the potential impact of the adoption of these amendments in its Consolidated Financial Statements.
2.8 Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The amendments in Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) introduce a practical expedient for modifications required by the reform, clarify that hedge accounting is not discontinued solely because of the IBOR reform, and introduce disclosures that allow users to understand the nature and extent of risks arising from the IBOR reform to which the entity is exposed to and how the entity manages those risks as well as the entity's progress in transitioning from IBORs to alternative benchmark rates, and how the entity is managing this transition.
The amendments are effective for annual periods beginning on or after 1 January 2021 and are to be applied retrospectively.
The Bank's Management is evaluating the potential impact of the adoption of these amendments in its Interim Consolidated Financial Statements.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 2 - Accounting Changes
There are no significant accounting changes in these Interim Consolidated Financial Statements.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 46 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 3 - Significant Events
As of September 30, 2020, the following significant events have influenced the operations of the Bank and its subsidiaries or the Interim Consolidated Financial Statements:
ITAÚ CORPBANCA
Chief Executive Officer appointment
On January 9, 2020 it was communicated the decision made between Mr. Manuel Olivares Rossetti, the Board of Directors, and the main shareholders, to allow Mr. Olivares to serve as Chief Executive Officer of Itaú Corpbanca until January 29, 2020.
The Board also agreed to appoint Mr. Gabriel Moura as the new Chief Executive Officer of Itaú Corpbanca, starting on January 30, 2020.
Investment increase in Nexus S.A.
On January 22, 2020 Itaú Corpbanca acquired 79,577 shares of Nexus S.A. corresponding to 1.9148% of the total equity of this company, for an approximated amount of MCh$338. With this transaction the Bank's participation increased to 14.8148%.
Sale of the investment in Itaú Casa de Valores S.A.
Itaú Comisionista de Bolsa Colombia S.A., a subsidiary of Itaú Corpbanca Colombia S.A., finalized the process of selling the one hundred percent (100%) of its investment held in Itaú Casa de Valores S.A., a public limited company, domiciled in Panama, with the company LVM Holdings SpA, a company domiciled in Chile, was completed.
Annual Ordinary Shareholders' Meeting Agreements
At the Ordinary Shareholders' Meeting of Itaú Corpbanca, held on June 18, 2020, it was approved to distribute a dividend equivalent to 100% of the net income attributable to equity holders of the Bank for the year ended December 31, 2019, which represents an aggregate amount equal to MCh$127,065 payable to the shareholders of the Bank entitled to receive dividends in a proportion of $0.2479770771 per share.
Changes in the Board of Directors
In the ordinary session held on April 29, 2020, the Board of Directors of Itaú Corpbanca was informed and resolved to accept the resignation of the director Mr. Andrés Bucher Cepeda, effective as of the same date. On this matter, the Board of Directors designated Mr. Rogério Carvalho Braga as his replacement, who will exercise his duties until the next Ordinary General Shareholders' Meeting, in which the definitive director will be appointed.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 47 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 3 - Significant Events, continued
ITAÚ CORPBANCA COLOMBIA S.A.
On January 27, 2020, the Shareholders' Meeting of Itaú Corpbanca Colombia S.A. elected the following members of the Board of Directors:
Gabriel Amado de Moura
Cristián Toro Cañas
Juan Echeverría González
Mónica Aparicio Smith
Roberto Brigard Holguín
Proposal for an irrevocable commitment for 2020 profits
On April 20, 2020, during the Extraordinary Shareholders Meeting was approved the commitment, in accordance with the capital requirements made to credit institutions in Colombia, to capitalize 100% of the profits for the 2020 fiscal year in order to increase the legal reserve of Itaú Corpbanca Colombia S.A., once the appropriations that in application of Colombian regulations must be made prior to this legal reserve have been made, thus complying with articles 451 to 455 of the Commercial Code and other pertinent regulations .
Chief Executive Officer appointment
On June 30, 2020, the Board of Directors approved the resignation of the Chief Executive Officer, Mr. Alvaro Pimentel as of November 1, 2020, and to appoint Mr. Baruc Sáez as his replacement, effective as of the same date.
PAYMENT HOLIDAY AND CREDIT FACILITIESFOR OUR CLIENTS
As part of the relief plan for our clients, the Bank granted a series of payment holidays to its clients, which mainly consist of the postponement of one to six installments on their loans under certain conditions.
As of September 30, 2020 the Bank rescheduled installments for an amount to approximately to Ch$327,532 million.
The effects of these payment holiday have been recognized in accordance with the applicable accounting standards and have generated, mainly, the postponement of the recognition of interests in the Consolidated Income Statement as a result of the application of the effective interest rate method in the new granted loans associated with the payment holiday of the existing loans.
The Guarantee Fund for Small and Medium-sized Entrepreneurs (FOGAPE), made an offer of state guarantees in order to finance working capital under certain conditions, also referred as 'COVID-19 lines'. These credits are aimed to natural and legal persons with annual sales of less than UF 1,000,000 affected by the COVID-19 pandemic. The coverage of the guarantees is determined based on their sales which can range between 60% to 85% of the financing, after applying a deductible that may not exceed 5% of the guaranteed amount. Since the beginning of the program and until September 30, 2020, the Bank has carried out 9,574 operations for an aggregated amount of Ch$769,271 million..
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 48 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 3 - Significant Events, continued
GOODWILL AND ASSETS GENERATED IN BUSINESS COMBINATION IMPAIRMENT |
As a result of the application of the requirements established in International Accounting Standard 36 'Impairment of assets', the Bank, at the end of each reporting period, assess impairment indicators that affect the determination of the recoverable amount for its assets.
Consistent with the requirements set forth above, as of the issuance of the Consolidated Financial Statements as of December 31, 2019, prepared in accordance with IFRS issued by the IASB, and incorporated in the 20-F report filed with the Securities and Exchange Commission of the United States, the Bank indicated that the effects of the economic and social events could have on the estimates and significant judgments, made on the process of preparing the Financial Statements, were being monitored and concluded that there was no concrete evidence of impairment .
In the Interim Consolidated Financial Statements referred to as of March 31, 2020, considering the evolution of the economic and health situation, the Bank declared that it continued to monitor and permanently assess the impacts of the pandemic caused by COVID-19 in its results, as well as the effects on significant estimates and judgments including provisions for credit risk and impairment on assets in general, and on Goodwill in particular, concluding that these events did not have an impact on the results of the period or on the Consolidated Statement of Financial Position, despite identifying a decline in the relevant indicators that affect the determination of the recoverable amount of each of its cash generating units (CGUs).
In consideration of the recent impacts on the economy, both in Chile and Colombia, Peru and the United States (main markets where Itaú Corpbanca operates), which have had various factors, including the pandemic caused by COVID-19, as has been described above and in accordance with the constant monitoring carried out by the Bank, the indicators assessed reached the threshold required in order to perform an impairment test in order to determine the recoverable amount of the Goodwill and the intangibles assets generated in business combination assigned to the Chile and Colombia CGUs.
The impairment test determined that it was required to record an impairment loss in the Interim Consolidated Financial Statements. The impairment loss was allocated to the Goodwill assigned to the Chile CGU for Ch$448,273 million, Ch$246,663 million corresponding to the total Goodwill assigned to the CGU Colombia and Ch$113,911 million (Ch$79,364 million net of deferred taxes) that represents all of the intangibles generated in business combinations assigned to the Colombia CGU. The total impact of these effects on the result attributable to the Bank's owners is Ch$764,024 million and Ch$10,276 million corresponding to non-controlling interest. This was reported on July 9, 2020 to the Commission for the Financial Market through a formal communication letter. For further information see Note 32.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 49 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 4 - Reporting Segments
The information reported by segments is determined by the Bank on the basis of its operating segments (Chile, thatincludes the New York Branch, and Colombia), which are mainly differentiated by the risks and rewards that affect them.
The reporting segments and the criteria used to inform the highest authority of the Bank on the decision making of the operation are in accordance with what is set forth in IFRS 8 'Operating Segments'.
a. | Segments |
In accordance with the foregoing, the descriptions of each operating segment are as follows:
(i)Chile
The Bank's business activities in Chile take place mainly in the local market. It has strategically aligned its operations into the following five business areas that are directly related to its customers' needs and the Bank's strategy: 1) Wholesale Banking (a) Corporate Banking, (b) Large Companies, and (c) Real Estate and Construction; 2) Retail Banking (a) Itaú Private Bank, (b) Itaú Companies, (c) Itaú Personal Bank (d) Itaú and (e) Banco Condell; 3) Treasury; 4) Corporate; and 5) Other Financial Services.
The Bank manages these business areas using a reporting system for internal profitability. The operating results are regularly reviewed by the entity's highest decision-making authority for operating decisions as one single Cash Generating Unit, to decide on the resource allocation for the segment and evaluate its performance.
(ii) | Colombia |
Colombia has been identified as a separate operating segment based on its business activities. Its operating results are reviewed regularly by the entity's highest decision-making authority for operating decisions as one single cash generating unit, to decide about resource allocation for the segment and evaluate its performance, and separate financial information is available for it.
The commercial activities of this segment are carried out by Banco Itaú Corpbanca Colombia S.A. and its subsidiaries.
The Bank does not record transactions with a single external customer that generates income equal to or greater than 10% of total income during the nine-month periods ended September 30, 2020 and 2019.
b. | Geographic Information |
Itaú Corpbanca reports revenue by segment from external customers that is:
● | attributed to the entity's country of domicile and |
● | attributed, in aggregate, to all foreign countries where the entity obtains revenue. |
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 4 - Reporting Segments, continued
When income from ordinary activities from external clients attributed to a particular foreign country is significant, they will be disclosed separately. According to the previous, the group operates in two main geographical areas: Chile and Colombia. Chile segment includes the operations carried out by Itaú Corpbanca New York Branch and Colombia segment includes the operations carried out by Itaú (Panamá) S.A., and Itaú Corredores de Seguros Colombia S.A.
The information on interest income and inflation-indexation adjustments for the nine-month periods ended September 30, 2020 and 2019, of the aforementioned geographical areas is as follows:
2020 | 2019 | |||||||||||
Chile | Colombia | Totals | Chile | Colombia | Totals | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Interest income | 804,343 | 331,174 | 1,135,517 | 903,842 | 371,960 | 1,275,802 | ||||||
Interest expense | (370,106) | (157,206) | (527,312) | (463,537) | (182,427) | (645,964) | ||||||
Net interest income | 434,237 | 173,968 | 608,205 | 440,305 | 189,533 | 629,838 |
c. | Information on assets, liabilities, and profits and losses |
Segment information on assets, liabilities, profits and losses for the nine- month period ended on September 30, 2020 and for the year ended on December 31, 2019, is presented in accordance with the main items described in the Compendium of Accounting Standards issued by the CMF.
c.1) Assets and liabilities
As of September 30, 2020 | As of December 31, 2019 | |||||||||||||
Notes | Chile | Colombia | Totals | Chile | Colombia | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
ASSETS | ||||||||||||||
Cash and deposits in banks | 5 | 3,511,494 | 431,586 | 3,943,080 | 610,901 | 398,780 | 1,009,681 | |||||||
Cash items in process of collection | 5 | 405,697 | 611 | 406,308 | 230,595 | 710 | 231,305 | |||||||
Trading investments | 6 | 97,718 | 324,817 | 422,535 | 109,924 | 71,478 | 181,402 | |||||||
Investments under resale agreements | 7 | 68,783 | 103,304 | 172,087 | 46,686 | 29,289 | 75,975 | |||||||
Financial derivative contracts | 8 | 4,272,813 | 194,071 | 4,466,884 | 3,061,530 | 93,427 | 3,154,957 | |||||||
Interbank loans, net and loans and accounts receivable from customers, net | 9-10 | 18,396,486 | 4,314,849 | 22,711,335 | 17,768,441 | 4,661,402 | 22,429,843 | |||||||
Available for sale investments | 11 | 2,086,590 | 427,543 | 2,514,133 | 2,748,183 | 845,021 | 3,593,204 | |||||||
Held to maturity investments | 11 | 8,025 | 82,743 | 90,768 | 30,132 | 85,550 | 115,682 | |||||||
Investments in companies | 12 | 11,007 | 3,221 | 14,228 | 11,166 | 3,772 | 14,938 | |||||||
Intangibles (*) | 13 | 731,822 | 39,516 | 771,338 | 1,190,374 | 427,371 | 1,617,745 | |||||||
Fixed assets | 14 | 34,059 | 18,280 | 52,339 | 36,051 | 21,911 | 57,962 | |||||||
Right of use asset under lease agreements | 15 | 154,222 | 31,289 | 185,511 | 165,986 | 38,573 | 204,559 | |||||||
Current taxes | 16 | 2,885 | 15,394 | 18,279 | 30,773 | 54,743 | 85,516 | |||||||
Deferred taxes | 16 | 220,827 | 30,455 | 251,282 | 176,696 | 7,471 | 184,167 | |||||||
Other assets | 17 | 632,047 | 79,761 | 711,808 | 705,354 | 78,093 | 783,447 | |||||||
Totals | 30,634,475 | 6,097,440 | 36,731,915 | 26,922,792 | 6,817,591 | 33,740,383 |
(*)Includes Goodwill generated from the business combination of Banco Itaú Chile and Corpbanca for Ch$492,512 million as of September 30, 2020 (Ch$1,194,331 million as of December 31, 2019).
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 51 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 4 - Reporting Segments, continued
As of September 30, 2020 | As of December 31, 2019 | |||||||||||||
Notes | Chile | Colombia | Totals | Chile | Colombia | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
LIABILITIES | ||||||||||||||
Deposits and other demand liabilities | 18 | 3,660,580 | 2,001,365 | 5,661,945 | 2,765,496 | 2,107,952 | 4,873,448 | |||||||
Cash items in process of being cleared | 5 | 380,988 | 18 | 381,006 | 164,573 | - | 164,573 | |||||||
Obligations under repurchase agreements | 7 | 346,485 | 90,845 | 437,330 | 499,136 | 60,321 | 559,457 | |||||||
Time deposits and other time liabilities | 18 | 10,369,646 | 1,722,743 | 12,092,389 | 9,700,785 | 1,919,402 | 11,620,187 | |||||||
Financial derivative contracts | 8 | 3,951,622 | 167,200 | 4,118,822 | 2,839,914 | 98,120 | 2,938,034 | |||||||
Interbank borrowings | 19 | 3,705,752 | 587,230 | 4,292,982 | 1,883,900 | 762,856 | 2,646,756 | |||||||
Debt instruments issued | 20 | 5,445,486 | 733,985 | 6,179,471 | 5,687,763 | 720,593 | 6,408,356 | |||||||
Other financial liabilities | 20 | 8,401 | - | 8,401 | 12,966 | - | 12,966 | |||||||
Obligations for lease | 15 | 127,381 | 29,132 | 156,513 | 137,334 | 35,590 | 172,924 | |||||||
Current taxes | 16 | 2,439 | 248 | 2,687 | 13 | - | 13 | |||||||
Deferred taxes | 16 | - | 268 | 268 | - | 263 | 263 | |||||||
Provisions | 21 | 144,516 | 67,228 | 211,744 | 111,796 | 82,311 | 194,107 | |||||||
Other liabilities | 22 | 519,167 | 95,419 | 614,586 | 653,786 | 55,128 | 708,914 | |||||||
Totals | 28,662,463 | 5,495,681 | 34,158,144 | 24,457,462 | 5,842,536 | 30,299,998 |
c.2) Income for the three and nine-month periods ended September 30, 2020 and 2019
For the three-month periods ended September 30, | ||||||||||||||
2020 | 2019 | |||||||||||||
Notes | Chile | Colombia | Totals | Chile | Colombia | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Net interest income | 25 | 139,299 | 55,584 | 194,883 | 148,929 | 55,921 | 204,850 | |||||||
Net fee and commission income | 26 | 24,660 | 8,365 | 33,025 | 32,772 | 9,475 | 42,247 | |||||||
Net income (expense) from financial operations | 27 | (34,171) | 14,052 | (20,119) | 45,971 | 12,952 | 58,923 | |||||||
Net foreign exchange gain (loss) | 28 | 16,761 | (5,650) | 11,111 | 19,303 | 231 | 19,534 | |||||||
Other operating income | 2,191 | 28,971 | 31,162 | 6,525 | 4,262 | 10,787 | ||||||||
Provision for loan losses | 29 | (75,048) | (18,377) | (93,425) | (65,974) | (16,050) | (82,024) | |||||||
NET OPERATING PROFIT | 73,692 | 82,945 | 156,637 | 187,526 | 66,791 | 254,317 | ||||||||
Depreciation and amortization | 32 | (22,194) | (5,001) | (27,195) | (23,035) | (9,588) | (32,623) | |||||||
Operating expenses (*) | (106,429) | (56,644) | (163,073) | (95,346) | (52,572) | (147,918) | ||||||||
OPERATING INCOME (LOSS) | (54,931) | 21,300 | (33,631) | 69,145 | 4,631 | 73,776 | ||||||||
Income (loss) from investments in companies | 12 | (1,054) | 457 | (597) | 25 | 1 | 26 | |||||||
Income taxes | 16 | 32,047 | (10,347) | 21,700 | (35,612) | (315) | (35,927) | |||||||
CONSOLIDATED INCOME (LOSS) FOR THE PERIOD | (23,938) | 11,410 | (12,528) | 33,558 | 4,317 | 37,875 |
For the nine-month periods ended September 30, | ||||||||||||||
2020 | 2019 | |||||||||||||
Notes | Chile | Colombia | Totals | Chile | Colombia | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Net interest income | 25 | 434,237 | 173,968 | 608,205 | 440,305 | 189,533 | 629,838 | |||||||
Net fee and commission income | 26 | 83,388 | 23,219 | 106,607 | 102,871 | 26,469 | 129,340 | |||||||
Net income from financial operations | 27 | 58,012 | 124,840 | 182,852 | 74,520 | 16,515 | 91,035 | |||||||
Net foreign exchange gain (loss) | 28 | 21,673 | (98,158) | (76,485) | (1,454) | 16,358 | 14,904 | |||||||
Other operating income | 33 | 14,855 | 43,199 | 58,054 | 13,859 | 20,160 | 34,019 | |||||||
Provision for loan losses | 29 | (223,660) | (60,372) | (284,032) | (131,436) | (53,667) | (185,103) | |||||||
NET OPERATING PROFIT | 388,505 | 206,696 | 595,201 | 498,665 | 215,368 | 714,033 | ||||||||
Depreciation and amortization | 32 | (65,459) | (25,305) | (90,764) | (64,500) | (29,504) | (94,004) | |||||||
Operating expenses (*) (**) | (746,325) | (513,109) | (1,259,434) | (293,854) | (155,050) | (448,904) | ||||||||
OPERATING INCOME (LOSS) | (423,279) | (331,718) | (754,997) | 140,311 | 30,814 | 171,125 | ||||||||
Income (loss) from investments in companies | 12 | (468) | 1,426 | 958 | 238 | 1,932 | 2,170 | |||||||
Income taxes | 16 | (12,132) | 21,744 | 9,612 | (37,825) | (10,856) | (48,681) | |||||||
CONSOLIDATED INCOME (LOSS) FOR THE PERIOD | (435,879) | (308,548) | (744,427) | 102,724 | 21,890 | 124,614 |
(*)Includes personnel salaries and expenses, administrative expenses, impairment, and other operating expenses.
(**) | For the nine-month period ended September 30, 2020, includes the recognition of an impairment loss of MCh$808,847. The impairment is broken down into MCh$694,936 corresponding to the impairment on Goodwill, MCh$448,273 and MCh$246.663 of CGUs of Chile and Colombia, respectively, and MCh$113,911 corresponds to the intangibles generated in the business combination of the CGU Colombia. |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 52 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 5 - Cash and Cash Equivalents
a. | Cash and Cash Equivalents detail |
The detail of balances included under cash and cash equivalents is as follows:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Cash and deposits in banks | ||||
Cash | 247,272 | 253,779 | ||
Deposits in the Central Bank of Chile | 2,286,464 | 103,756 | ||
Deposits in local banks | 9,131 | 14,254 | ||
Deposits in foreign banks | 1,400,213 | 637,892 | ||
Subtotals cash and deposits in banks | 3,943,080 | 1,009,681 | ||
Cash items in process of collection, net (1) | 25,302 | 66,732 | ||
Highly liquid financial instruments (2) | 52,659 | 295,551 | ||
Investments under resale agreements (3) | 109,948 | 75,975 | ||
Totals cash and cash equivalents | 4,130,989 | 1,447,939 |
(1) See letter b. 'Cash in process of collection and in process of being cleared' on the next page.
(2) Highly liquid financial instruments: Corresponds to those financial instruments included in the trading and available-for-sale portfolios with maturities that do not exceed three months from the acquisition date and the detail is as follows:
As of September 30, | As of December 31, | |||||
Note | 2020 | 2019 | ||||
MCh$ | MCh$ | |||||
Highly liquid financial instruments | ||||||
Trading investments | 6 | 47,979 | 28,772 | |||
Available for sale investments | 11 | 4,680 | 266,779 | |||
Totals | 52,659 | 295,551 |
(3) Investments under resale agreements: Corresponds to resale agreements with maturities that do not exceed three months from the acquisition date, which are presented under the item 'Investments under resale agreements' of the asset in the Interim Consolidated Statement of Financial Position. The detail is as follows:
As of September 30, | As of December 31, | |||||
Note | 2020 | 2019 | ||||
MCh$ | MCh$ | |||||
Investments under resale agreements | 7 a) | 109,948 | 75,975 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 53 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 5 - Cash and Cash Equivalents, continued
b. | Cash in process of collection and in process of being cleared |
Cash items in process of collection and in process of being cleared represent domestic transactions, which have not been processed through the central domestic clearinghouse, or international transactions that may be delayed in settlement due to timing differences. The detail of these balances is as follows:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Assets | ||||
Documents held by other banks (documents to be cleared) | 28,921 | 76,922 | ||
Funds receivable | 377,387 | 154,383 | ||
Subtotals assets | 406,308 | 231,305 | ||
Liabilities | ||||
Funds payable | 381,006 | 164,573 | ||
Subtotals liabilities | 381,006 | 164,573 | ||
Cash items in process of collection, net | 25,302 | 66,732 |
c. | Other operating cash flows |
Based on the nature of its activities, the Bank considers that its funding has a direct relationship with its loan and investing portfolio; for such purpose all those activities are taken into consideration to determine, approve and monitor the financial strategies that guide the Bank with respect to the composition of its assets and liabilities, cash inflows and outflows and transactions with financial instruments.
Finally, the Bank, based on its overall business strategy, considers that gains and losses derived from these transactions are part of the main revenue generating activities and core business, and that the presentation of the cash flows from those items under operating activities consequently shows consistency between our Interim Consolidated Statement of Income and our Interim Consolidated Statement of Cash Flows.
Examples of cash flows from operating activities are:
(i) Investments under resale agreements and obligations under repurchase agreements. These items represent the cash flows (collections and payments) corresponding to the purchase and sale of obligations and securities lending associated with financial intermediation activities (see Note 7).
(ii) Investments portfolio. This item represents the cash flows (collections and payments) of our trading and non-trading portfolio related financial instruments (see Note 11).
(iii) Foreign borrowings and repayment of foreign borrowings. These items represent the cash flows (collections and payments) of obligations with foreign banks (see note 18) for the financing of foreign trade loans, which are included as part of the following items: 'Loans and receivables from banks' (see Note 9) and 'Loans and receivables from customers' (see Note 10).
(iv) Increase and repayment of other borrowings. These items represent the cash flows (collections and payments) arising from the obligations corresponding to financing or operations specific to the business (see Note 20).
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 54 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 6 - Trading Investments
The detail of the financial instruments classified as trading investments is as follows:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Chilean Central Bank and Government securities | ||||
Chilean Central Bank bonds | 9,381 | 52,019 | ||
Other Government securities | 47,294 | 28,879 | ||
Other Chilean securities | ||||
Bonds | 723 | 905 | ||
Notes | 324 | - | ||
Other securities | 37,214 | 22,218 | ||
Foreign financial securities | ||||
Bonds | 322,633 | 67,088 | ||
Other securities | 2,184 | 4,390 | ||
Investments in mutual funds | ||||
Funds managed by related entities | 2,782 | 5,870 | ||
Funds managed by third parties | - | 33 | ||
Totals | 422,535 | 181,402 |
As of September 30, 2020, the trading portfolio financial assets include MCh$47,979 (MCh$28,772 as of December 31, 2019) with maturities which do not exceed three months from the acquisition date and are considered as cash equivalents (see Note 5).
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 55 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 7 - Investments under Resale Agreements and Obligations under Repurchase Agreements
a. | The Bank purchases financial instruments to resell them on a future date. As of September 30, 2020 and December 31, 2019 the instruments acquired under agreements to resell are as follows: |
As of September 30, 2020 | ||||||||
Between 3 | ||||||||
Up to | months and 1 | |||||||
3 months | year | Over 1 year | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Chilean Central Bank and Government securities | ||||||||
Chilean Central Bank instruments | - | - | - | - | ||||
Government securities | 8,083 | 20,388 | - | 28,471 | ||||
Other Chilean Central Bank and Government securities | - | - | - | - | ||||
Other Chilean securities | ||||||||
Bonds | - | 40,312 | - | 40,312 | ||||
Notes | - | - | - | - | ||||
Other securities | - | - | - | - | ||||
Foreign financial securities | ||||||||
Foreign financial securities | 99,241 | - | 1,439 | 100,680 | ||||
Other foreign instruments | 2,624 | - | - | 2,624 | ||||
Totals | 109,948 | 60,700 | 1,439 | 172,087 |
As of December 31, 2019 | ||||||||
Between 3 | ||||||||
Up to | months and 1 | |||||||
3 months | year | Over 1 year | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Chilean Central Bank and Government securities | ||||||||
Chilean Central Bank instruments | 20,593 | - | - | 20,593 | ||||
Government securities | 17,491 | - | - | 17,491 | ||||
Other Chilean Central Bank and Government securities | - | - | - | - | ||||
Other Chilean securities | ||||||||
Bonds | 8,603 | - | - | 8,603 | ||||
Notes | - | - | - | - | ||||
Other securities | - | - | - | - | ||||
Foreign financial securities | ||||||||
Foreign financial securities | 27,546 | - | - | 27,546 | ||||
Other foreign instruments | 1,742 | - | - | 1,742 | ||||
Totals | 75,975 | - | - | 75,975 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 56 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 7 - Investments under Resale Agreements and Obligations under Repurchase Agreements, continued
b. | As of September 30, 2020 and December 31, 2019 the instruments acquired under agreements to repurchase are as follows: |
As of September 30, 2020 | ||||||||
Between 3 | ||||||||
Up to | months and 1 | |||||||
3 months | year | Over 1 year | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Chilean Central Bank and Government securities | ||||||||
Chilean Central Bank instruments | 31 | - | - | 31 | ||||
Government securities | 200,762 | - | - | 200,762 | ||||
Other Chilean Central Bank and Government securities | - | - | - | - | ||||
Other Chilean securities | ||||||||
Bonds | 145,692 | - | - | 145,692 | ||||
Notes | - | - | - | - | ||||
Other securities | - | - | - | - | ||||
Foreign financial securities | - | |||||||
Foreign financial securities | - | - | - | - | ||||
Other foreign instruments | 90,845 | - | - | 90,845 | ||||
Totals | 437,330 | - | - | 437,330 |
As of December 31, 2019 | ||||||||
Between 3 | ||||||||
Up to | months and 1 | |||||||
3 months | year | Over 1 year | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Chilean Central Bank and Government securities | ||||||||
Chilean Central Bank instruments | 168,778 | - | - | 168,778 | ||||
Government securities | 11,970 | - | - | 11,970 | ||||
Other Chilean Central Bank and Government securities | - | - | - | - | ||||
Other Chilean securities | ||||||||
Bonds | 318,389 | - | - | 318,389 | ||||
Notes | - | - | - | - | ||||
Other securities | - | - | - | - | ||||
Foreign financial securities | ||||||||
Foreign financial securities | - | - | - | - | ||||
Other foreign instruments | 60,320 | - | - | 60,320 | ||||
Totals | 559,457 | - | - | 559,457 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 57 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 8 - Financial Derivative Contracts and Hedge Accounting
a. | Derivatives held for trading and hedge accounting |
The Bank and its subsidiaries use the following derivate financial instruments for hedge accounting and trading purposes, which, in order to capture the credit risk in the valuation, are adjusted to reflect the CVA (Credit Value Adjustment) and DVA (Debit Value Adjustment). The detail of these instruments is presented below:
As of September 30, | As of December 31, | |||||||
2020 | 2019 | |||||||
Assets | Liabilities | Assets | Liabilities | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Derivatives held for hedge accounting | 297,112 | 99,468 | 203,868 | 144,069 | ||||
Derivatives held for trading | 4,169,772 | 4,019,354 | 2,951,089 | 2,793,965 | ||||
Totals | 4,466,884 | 4,118,822 | 3,154,957 | 2,938,034 |
a.1) Financial derivatives assets
As of September 30, 2020 | ||||||||
Notional | ||||||||
Up to | Between 3 months | Over | Fair | |||||
3 months | and 1 year | 1 year | value | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Currency forwards | 7,224,760 | 3,680,900 | 803,262 | 348,350 | ||||
Currency swaps | 430,010 | 711,700 | 8,545,873 | 1,186,247 | ||||
Interest rate swaps | 2,395,350 | 8,579,458 | 28,822,428 | 2,931,101 | ||||
Call currency options | 20,548 | 16,870 | - | 867 | ||||
Put currency options | 9,317 | 7,304 | - | 319 | ||||
Totals | 10,079,985 | 12,996,232 | 38,171,563 | 4,466,884 |
As of December 31, 2019 | ||||||||
Notional | ||||||||
Up to | Between 3 months | Over | Fair | |||||
3 months | and 1 year | 1 year | value | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Currency forwards | 8,174,950 | 3,931,647 | 1,234,741 | 454,300 | ||||
Currency swaps | 217,953 | 923,526 | 6,640,937 | 855,780 | ||||
Interest rate swaps | 4,125,562 | 7,225,228 | 31,308,891 | 1,840,855 | ||||
Call currency options | 34,713 | 49,753 | 748 | 3,805 | ||||
Put currency options | 5,067 | 15,940 | - | 217 | ||||
Totals | 12,558,245 | 12,146,094 | 39,185,317 | 3,154,957 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 58 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 8 - Financial Derivative Contracts and Hedge Accounting, continued
a.2) Financial derivatives liabilities
As of September 30, 2020 | ||||||||
Notional | ||||||||
Up to | Between 3 months | Over | Fair | |||||
3 months | and 1 year | 1 year | value | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Currency forwards | 6,981,605 | 2,836,328 | 266,238 | 236,991 | ||||
Currency swaps | 226,281 | 1,018,941 | 7,346,913 | 1,049,187 | ||||
Interest rate swaps | 3,115,101 | 7,634,581 | 28,066,417 | 2,831,251 | ||||
Call currency options | 6,717 | 9,315 | - | 584 | ||||
Put currency options | 11,564 | 8,496 | - | 809 | ||||
Totals | 10,341,268 | 11,507,661 | 35,679,568 | 4,118,822 |
As of December 31, 2019 | ||||||||
Notional | ||||||||
Up to | Between 3 months | Over | Fair | |||||
3 months | and 1 year | 1 year | value | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Currency forwards | 11,622,926 | 4,440,565 | 830,870 | 504,276 | ||||
Currency swaps | 182,481 | 831,635 | 6,249,881 | 769,072 | ||||
Interest rate swaps | 2,939,069 | 6,101,205 | 29,362,545 | 1,662,363 | ||||
Call currency options | 31,482 | 51,810 | - | 1,758 | ||||
Put currency options | 18,837 | 39,941 | 374 | 565 | ||||
Totals | 14,794,795 | 11,465,156 | 36,443,670 | 2,938,034 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 59 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 8 - Financial Derivative Contracts and Hedge Accounting, continued
a.3) Portfolio detail
As of September 30, 2020 and December 31, 2019 the portfolio of financial derivative instruments for hedge accounting and trading purposes are as follows:
As of September 30, 2020 | ||||||||||
Notional totals | Fair Value | |||||||||
Up to | Between 3 months | |||||||||
3 months | and 1 year | Over 1 year | Assets | Liabilities | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||
Derivatives held for hedge accounting | 2,256,377 | 1,889,980 | 2,465,362 | 297,112 | 99,468 | |||||
Fair value hedge | ||||||||||
Currency forwards | - | - | - | - | - | |||||
Currency swaps | - | - | 83,001 | 19,018 | - | |||||
Interest rate swaps | - | 199,868 | 1,954,994 | 204,008 | 57,210 | |||||
Subtotals | - | 199,868 | 2,037,995 | 223,026 | 57,210 | |||||
Cash flows hedge | ||||||||||
Currency forwards | 552,775 | 1,259,153 | - | 34,421 | 1,957 | |||||
Currency swaps | 41,896 | - | - | 4,024 | - | |||||
Interest rate swaps | - | 4,000 | 427,367 | 2,622 | 21,084 | |||||
Subtotals | 594,671 | 1,263,153 | 427,367 | 41,067 | 23,041 | |||||
Net investment in a foreign operation hedge | ||||||||||
Currency forwards | 1,661,706 | 426,959 | - | 33,019 | 19,217 | |||||
Subtotals | 1,661,706 | 426,959 | - | 33,019 | 19,217 | |||||
Derivatives held for trading | 18,164,876 | 22,613,913 | 71,385,769 | 4,169,772 | 4,019,354 | |||||
Currency forwards | 11,991,884 | 4,831,116 | 1,069,500 | 280,910 | 215,817 | |||||
Currency swaps | 614,395 | 1,730,641 | 15,809,785 | 1,163,205 | 1,049,187 | |||||
Interest rate swaps | 5,510,451 | 16,010,171 | 54,506,484 | 2,724,471 | 2,752,957 | |||||
Call currency options | 27,265 | 26,185 | - | 867 | 584 | |||||
Put currency options | 20,881 | 15,800 | - | 319 | 809 | |||||
Subtotals | 18,164,876 | 22,613,913 | 71,385,769 | 4,169,772 | 4,019,354 | |||||
Totals | 20,421,253 | 24,503,893 | 73,851,131 | 4,466,884 | 4,118,822 |
As of December 31, 2019 | ||||||||||
Notional totals | Fair Value | |||||||||
Up to | Between 3 months | |||||||||
3 months | and 1 year | Over 1 year | Assets | Liabilities | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||
Derivatives held for hedge accounting | 3,679,576 | 1,371,790 | 3,072,685 | 203,868 | 144,069 | |||||
Fair value hedge | ||||||||||
Currency swaps | - | - | 47,463 | - | 1,479 | |||||
Interest rate swaps | - | 29,342 | 1,952,968 | 152,011 | 50,247 | |||||
Subtotals | - | 29,342 | 2,000,431 | 152,011 | 51,726 | |||||
Cash flows hedge | ||||||||||
Currency forwards | 1,426,697 | 849,243 | 556,633 | 4,174 | 17,798 | |||||
Currency swaps | - | 47,155 | 78,592 | 6,145 | 2,703 | |||||
Interest rate swaps | 32,408 | - | 437,029 | 2,722 | 5,820 | |||||
Subtotals | 1,459,105 | 896,398 | 1,072,254 | 13,041 | 26,321 | |||||
Net investment in a foreign operation hedge | ||||||||||
Currency forwards | 2,220,471 | 446,050 | - | 38,816 | 66,022 | |||||
Subtotals | 2,220,471 | 446,050 | - | 38,816 | 66,022 | |||||
Derivatives held for trading | 23,673,464 | 22,239,460 | 72,556,302 | 2,951,089 | 2,793,965 | |||||
Currency forwards | 16,150,708 | 7,076,919 | 1,508,978 | 411,310 | 420,456 | |||||
Currency swaps | 400,434 | 1,708,006 | 12,764,763 | 849,635 | 764,890 | |||||
Interest rate swaps | 7,032,223 | 13,297,091 | 58,281,439 | 1,686,122 | 1,606,296 | |||||
Call currency options | 66,195 | 101,563 | 748 | 3,805 | 1,758 | |||||
Put currency options | 23,904 | 55,881 | 374 | 217 | 565 | |||||
Subtotals | 23,673,464 | 22,239,460 | 72,556,302 | 2,951,089 | 2,793,965 | |||||
Totals | 27,353,040 | 23,611,250 | 75,628,987 | 3,154,957 | 2,938,034 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 60 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 9 - Interbank Loans
a) | As of September 30, 2020 and December 31, 2019 interbank loans are detailed as follows: |
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Local Banks | ||||
Loans to local banks | - | - | ||
Allowances for loans losses | - | - | ||
Subtotals | - | - | ||
Foreign Banks | ||||
Interbank cash loans | 59,680 | 37,048 | ||
Loans to foreign banks | - | 755 | ||
Non-transferable deposits with foreign banks | 27,564 | 18,832 | ||
Allowances for loans losses | (404) | (430) | ||
Subtotals | 86,840 | 56,205 | ||
Chilean Central Bank | ||||
Deposits with the Chilean Central Bank not available (*) | - | - | ||
Subtotals | - | - | ||
Totals | 86,840 | 56,205 |
b) | Movements in allowances and impairment for local and foreign interbank loans for the nine-month period ended on September 30, 2020 and for the year ended December 31, 2019 are detailed as follows: |
As of September 30, 2020 | As of December 31, 2019 | |||||||||||
Banks | Banks | |||||||||||
Local | Foreign | Totals | Local | Foreign | Totals | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Balances at the beginning of the period/year | - | (430) | (430) | - | (463) | (463) | ||||||
Charge-offs | - | - | - | - | - | - | ||||||
Allowances established | - | (407) | (407) | - | (507) | (507) | ||||||
Allowances released | - | 414 | 414 | - | 574 | 574 | ||||||
Impairment | - | - | - | - | - | - | ||||||
Exchange differences | - | 19 | 19 | - | (34) | (34) | ||||||
Balances at end of period / year | - | (404) | (404) | - | (430) | (430) |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 61 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 10 - Loans and accounts receivable from customers
a) | Loans and accounts receivable from customers |
As of September 30, 2020 and December 31, 2019 the loan portfolio is detailed as follows:
Assets before allowances | Allowances | |||||||||||||
Normal | Impaired | Individual | Group | Net assets | ||||||||||
As of September 30, 2020 | portfolio | portfolio | Totals | allowances | allowances | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||
Commercial loans | ||||||||||||||
Commercial loans | 11,864,508 | 955,253 | 12,819,761 | (424,459) | (54,171) | (478,630) | 12,341,131 | |||||||
Foreign trade loans | 1,115,939 | 29,960 | 1,145,899 | (35,695) | (3,588) | (39,283) | 1,106,616 | |||||||
Checking accounts debtors | 61,001 | 11,128 | 72,129 | (4,506) | (4,142) | (8,648) | 63,481 | |||||||
Factoring transactions | 131,600 | 603 | 132,203 | (3,332) | (80) | (3,412) | 128,791 | |||||||
Student loans | 613,993 | 65,242 | 679,235 | - | (18,638) | (18,638) | 660,597 | |||||||
Commercial leasing transactions | 891,335 | 59,337 | 950,672 | (14,337) | (4,026) | (18,363) | 932,309 | |||||||
Other commercial loans and receivables | 16,550 | 2,885 | 19,435 | (482) | (1,796) | (2,278) | 17,157 | |||||||
Subtotals | 14,694,926 | 1,124,408 | 15,819,334 | (482,811) | (86,441) | (569,252) | 15,250,082 | |||||||
Mortgage loans | ||||||||||||||
Loans with mortgage finance bonds | 22,830 | 2,002 | 24,832 | - | (122) | (122) | 24,710 | |||||||
Endorsable mortgage mutual loans | 84,988 | 7,971 | 92,959 | - | (573) | (573) | 92,386 | |||||||
Other mortgage mutual loans | 4,414,012 | 214,474 | 4,628,486 | - | (29,065) | (29,065) | 4,599,421 | |||||||
Mortgage leasing transactions | 289,992 | 13,760 | 303,752 | - | (12,478) | (12,478) | 291,274 | |||||||
Other mortgage loans and receivables | 76,274 | 1,766 | 78,040 | - | (343) | (343) | 77,697 | |||||||
Subtotals | 4,888,096 | 239,973 | 5,128,069 | - | (42,581) | (42,581) | 5,085,488 | |||||||
Consumer loans | ||||||||||||||
Installment consumer loans | 1,712,349 | 142,087 | 1,854,436 | - | (134,567) | (134,567) | 1,719,869 | |||||||
Checking account debtors | 112,004 | 11,833 | 123,837 | - | (9,298) | (9,298) | 114,539 | |||||||
Credit card balances | 428,035 | 11,030 | 439,065 | - | (18,203) | (18,203) | 420,862 | |||||||
Consumer leasing transactions | 1,643 | 135 | 1,778 | - | (183) | (183) | 1,595 | |||||||
Other consumer loans and receivables | 33,615 | 2,154 | 35,769 | - | (3,709) | (3,709) | 32,060 | |||||||
Subtotals | 2,287,646 | 167,239 | 2,454,885 | - | (165,960) | (165,960) | 2,288,925 | |||||||
Totals | 21,870,668 | 1,531,620 | 23,402,288 | (482,811) | (294,982) | (777,793) | 22,624,495 |
Assets before allowances | Allowances | |||||||||||||
Normal | Impaired | Individual | Group | Net assets | ||||||||||
As of December 31, 2019 | portfolio | portfolio | Totals | allowances | allowances | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||
Commercial loans | ||||||||||||||
Commercial loans | 11,404,955 | 883,855 | 12,288,810 | (350,331) | (55,621) | (405,952) | 11,882,858 | |||||||
Foreign trade loans | 1,082,539 | 26,630 | 1,109,169 | (72,506) | (1,321) | (73,827) | 1,035,342 | |||||||
Checking accounts debtors | 142,076 | 12,200 | 154,276 | (5,593) | (4,823) | (10,416) | 143,860 | |||||||
Factoring transactions | 220,554 | 550 | 221,104 | (3,231) | (331) | (3,562) | 217,542 | |||||||
Student loans | 595,271 | 78,692 | 673,963 | - | (19,052) | (19,052) | 654,911 | |||||||
Commercial leasing transactions | 948,297 | 56,912 | 1,005,209 | (11,832) | (4,470) | (16,302) | 988,907 | |||||||
Other commercial loans and receivables | 24,251 | 3,004 | 27,255 | (691) | (1,998) | (2,689) | 24,566 | |||||||
Subtotals | 14,417,943 | 1,061,843 | 15,479,786 | (444,184) | (87,616) | (531,800) | 14,947,986 | |||||||
Mortgage loans | ||||||||||||||
Loans with mortgage finance bonds | 27,771 | 2,498 | 30,269 | - | (157) | (157) | 30,112 | |||||||
Endorsable mortgage mutual loans | 95,838 | 8,012 | 103,850 | - | (648) | (648) | 103,202 | |||||||
Other mortgage mutual loans | 4,183,069 | 201,478 | 4,384,547 | - | (31,452) | (31,452) | 4,353,095 | |||||||
Mortgage leasing transactions | 318,777 | 17,810 | 336,587 | - | (12,879) | (12,879) | 323,708 | |||||||
Other mortgage loans and receivables | 18,819 | 1,969 | 20,788 | - | (156) | (156) | 20,632 | |||||||
Subtotals | 4,644,274 | 231,767 | 4,876,041 | - | (45,292) | (45,292) | 4,830,749 | |||||||
Consumer loans | ||||||||||||||
Installment consumer loans | 1,869,870 | 135,168 | 2,005,038 | - | (155,642) | (155,642) | 1,849,396 | |||||||
Checking account debtors | 187,794 | 18,944 | 206,738 | - | (16,179) | (16,179) | 190,559 | |||||||
Credit card balances | 518,471 | 19,270 | 537,741 | - | (27,784) | (27,784) | 509,957 | |||||||
Consumer leasing transactions | 2,943 | 170 | 3,113 | - | (227) | (227) | 2,886 | |||||||
Other consumer loans and receivables | 43,986 | 1,613 | 45,599 | - | (3,494) | (3,494) | 42,105 | |||||||
Subtotals | 2,623,064 | 175,165 | 2,798,229 | - | (203,326) | (203,326) | 2,594,903 | |||||||
Totals | 21,685,281 | 1,468,775 | 23,154,056 | (444,184) | (336,234) | (780,418) | 22,373,638 |
Unimpaired portfolio
This includes individual debtors in the Normal portfolio (A1 to A6) and the Substandard portfolio (B1 to B2). For group assessed loans, it includes the Normal portfolio.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 62 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 10 -Loans and accounts receivable from customers, continued
Impaired portfolio
This includes individually assessed debtors in the Non-compliant portfolio (C1 to C6) and the Substandard portfolio (B3 to B4). For group assessed loans, it includes the Non-compliant portfolio.
b) | Allowances |
Movements in credit risk allowances for the nine-month period ended September 30, 2020 and for the year ended on December 31, 2019 are detailed as follows:
Individual | Group | |||||
allowances | allowances | Totals | ||||
MCh$ | MCh$ | MCh$ | ||||
Balances as of January 1, 2020 | 444,184 | 336,234 | 780,418 | |||
Portfolio charge-offs | ||||||
Commercial loans | (69,353) | (25,229) | (94,582) | |||
Mortgage loans | - | (7,321) | (7,321) | |||
Consumer loans | - | (132,703) | (132,703) | |||
Total charge-offs | (69,353) | (165,253) | (234,606) | |||
Allowances established | 205,707 | 212,042 | 417,749 | |||
Allowances released | (81,858) | (74,411) | (156,269) | |||
Allowances used | - | (1,502) | (1,502) | |||
Exchange differences | (15,869) | (12,128) | (27,997) | |||
Balances as of September 30, 2020 | 482,811 | 294,982 | 777,793 |
Individual | Group | |||||
allowances | allowances | Totals | ||||
MCh$ | MCh$ | MCh$ | ||||
Balances as of January 1, 2019 | 400,736 | 267,977 | 668,713 | |||
Portfolio charge-offs | ||||||
Commercial loans | (80,186) | (36,111) | (116,297) | |||
Mortgage loans | - | (7,381) | (7,381) | |||
Consumer loans | - | (160,700) | (160,700) | |||
Total charge-offs | (80,186) | (204,192) | (284,378) | |||
Allowances established | 299,980 | 374,501 | 674,481 | |||
Allowances released | (163,789) | (112,803) | (276,592) | |||
Allowances used | (20,924) | - | (20,924) | |||
Exchange differences | 8,367 | 10,751 | 19,118 | |||
Balances as of December 31, 2019 | 444,184 | 336,234 | 780,418 |
c) | Portfolio sales |
For the nine-month period ended September 30, 2020, the Bank performed portfolio sales of loans with state guarantee (Law No. 20,027) which generated a loss of MCh$458 (MCh$1,297 in 2019). The loss is net of provisions which amounts to MCh$1,502.
Additionally, during the nine-month period ended September 30, 2019, written-off portfolio sales generated a profit of MCh$2,390. During the same period in 2020, no transactions of this nature were recorded.
These effects are included in 'Net income (expense) from financial operations' in the Interim Consolidated Statement of Income for the period (see Note 27).
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 63 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 11 - Investment Instruments
a) | Investment instruments |
As of September 30, 2020 and December 31, 2019 detail of instruments available for sale and held to maturity is as follows:
As of September 30, 2020 | As of December 31, 2019 | |||||||||||
Available | Held | Available | Held | |||||||||
for sale | to maturity | Totals | for sale | to maturity | Totals | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Securities quoted in active markets | ||||||||||||
Chilean Central Bank and Government securities | ||||||||||||
Chilean Central Bank instruments | 3,102 | - | 3,102 | 477,900 | - | 477,900 | ||||||
Chilean Treasury bonds | 1,691,616 | - | 1,691,616 | 1,609,397 | - | 1,609,397 | ||||||
Other government securities | 104,268 | - | 104,268 | 86,981 | - | 86,981 | ||||||
Other local institutions financial instruments | - | |||||||||||
Time deposits in local banks | 11,202 | - | 11,202 | 412,962 | - | 412,962 | ||||||
Mortgage finance bonds | 33 | - | 33 | 41 | - | 41 | ||||||
Chilean financial institutions bonds | 271,689 | - | 271,689 | 118,583 | - | 118,583 | ||||||
Other local financial investments | 4,680 | - | 4,680 | 4,990 | - | 4,990 | ||||||
Foreign institutions financial instruments | - | |||||||||||
Foreign Governments and Central Banks financial instruments | 76,463 | - | 76,463 | 165,927 | - | 165,927 | ||||||
Other foreign financial instruments | 351,080 | 90,768 | 441,848 | 716,423 | 115,682 | 832,105 | ||||||
Investments not quoted in active markets | - | |||||||||||
Corporate bonds | - | - | - | - | - | - | ||||||
Other financial instruments | - | - | - | - | - | - | ||||||
Totals | 2,514,133 | 90,768 | 2,604,901 | 3,593,204 | 115,682 | 3,708,886 |
As of September 30, 2020, the total of available for sale instruments with maturities that do not exceed three months from the acquisition date and that are considered cash equivalent amounts to MCh$4,680 (MCh$266,779 as of December 31, 2019) (see Note 5).
The portfolio of instruments available for sale includes an unrealized profit of MCh$33,210 as of September 30, 2020 (MCh$44,123 as of December 31, 2019), recognized in 'Valuation accounts' in Equity, distributed between MCh$21,729 as of September 30, 2020 (MCh$35,170 as of December 31, 2019) attributable to equity holders of the Bank and MCh$11,481 as of September 30, 2020 (MCh$8,953 as of December 31, 2019) attributable to non-controlling interest.
As of September 30, 2020, the portfolio available for sale includes instruments that guarantee credits obtained through the use of the Loan Increase Conditional Credit Facility (FCIC) program, granted by the Central Bank of Chile in response to the financial tensions generated by COVID-19 for an amount of MCh$384,227.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 64 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 11 - Investment Instruments, continued
b) | Unrealized gains and losses of the available for sale portfolio |
Unrealized gains and losses of the available for sale portfolio as of September 30, 2020 and December 31, 2019 are detail as follows:
As of September 30, 2020 | ||||||||
Amortized | Unrealized | Fair | ||||||
cost | Gain | Losses | Value | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Securities quoted in active markets | ||||||||
Chilean Central Bank and Government securities | ||||||||
Chilean Central Bank instruments | 3,049 | 53 | - | 3,102 | ||||
Chilean Treasury bonds | 1,691,308 | 6,880 | (6,572) | 1,691,616 | ||||
Other government securities | 100,427 | 3,994 | (153) | 104,268 | ||||
Other local institutions financial instruments | ||||||||
Time deposits in local banks | 10,888 | 314 | - | 11,202 | ||||
Mortgage finance bonds | 32 | 1 | - | 33 | ||||
Chilean financial institutions bonds | 270,626 | 2,712 | (1,649) | 271,689 | ||||
Other local financial investments | 3,189 | 1,491 | - | 4,680 | ||||
Foreign institutions financial instruments | ||||||||
Foreign Governments and Central Banks financial instruments | 58,407 | 18,102 | (46) | 76,463 | ||||
Other foreign financial instruments | 342,997 | 8,191 | (108) | 351,080 | ||||
Investments not quoted in active markets | ||||||||
Corporate bonds | - | - | - | - | ||||
Other financial instruments | - | - | - | - | ||||
Totals | 2,480,923 | 41,738 | (8,528) | 2,514,133 |
As of December 31, 2019 | ||||||||
Amortized | Unrealized | Fair | ||||||
cost | Gain | Losses | Value | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Securities quoted in active markets | ||||||||
Chilean Central Bank and Government securities | ||||||||
Chilean Central Bank instruments | 477,127 | 2,023 | (1,250) | 477,900 | ||||
Chilean Treasury bonds | 1,593,550 | 19,865 | (4,018) | 1,609,397 | ||||
Other government securities | 86,454 | 626 | (99) | 86,981 | ||||
Other local institutions financial instruments | ||||||||
Time deposits in local banks | 412,936 | 85 | (59) | 412,962 | ||||
Mortgage finance bonds | 40 | 1 | - | 41 | ||||
Chilean financial institutions bonds | 117,641 | 1,008 | (66) | 118,583 | ||||
Other local financial investments | 3,189 | 1,801 | - | 4,990 | ||||
Foreign institutions financial instruments | ||||||||
Foreign Governments and Central Banks financial instruments | 160,481 | 5,520 | (74) | 165,927 | ||||
Other foreign financial instruments | 697,663 | 18,965 | (205) | 716,423 | ||||
Investments not quoted in active markets | ||||||||
Corporate bonds | - | - | - | - | ||||
Other financial instruments | - | - | - | - | ||||
Totals | 3,549,081 | 49,894 | (5,771) | 3,593,204 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 65 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 12 - Investments in Companies
As of September 30, 2020 and December 31, 2019 detail of the investments in companies is presented below:
a) | Investments recognized using the equity method (associates): |
As of September 30, 2020 | As of December 31, 2019 | |||||||||||
Investment | | Investment | | |||||||||
Company | Participation | value | | Income | Participation | value | | Income | ||||
% | MCh$ | MCh$ | % | MCh$ | MCh$ | |||||||
Nexus S.A. (*) | 14.8148% | 2,732 | | 114 | 12.9000% | 2,281 | 924 | |||||
Transbank S.A. | 8.7188% | 6,714 | | (611) | 8.7188% | 7,324 | 3,708 | |||||
Totals | 9,446 | | (497) | 9,605 | 4,632 |
(*)On January 22, 2020, Itaú Corpbanca acquired 79,577 shares of Nexus S.A., corresponding to a 1.9148% participation over the total equity. With this transaction, the Bank's total participation increased to 14.8148%.
b) | Shares or rights in other companies |
As of September 30, | As of December 31, | |||||||
Company | 2020 | 2019 | ||||||
% | MCh$ | % | MCh$ | |||||
Combanc S.A. | 8.1848 | 305 | 8.1848 | 305 | ||||
Redbanc S.A. | 2.5043 | 110 | 2.5043 | 110 | ||||
Sociedad Interbancaria de Depósitos de Valores S.A. | 9.4021 | 132 | 9.4021 | 132 | ||||
Imerc OTC S.A. | 8.6624 | 1,012 | 8.6624 | 1,012 | ||||
A.C.H. Colombia (*) | 4.2100 | 189 | 4.2100 | 211 | ||||
Redeban Multicolor S.A. (*) | 1.6000 | 232 | 1.6000 | 259 | ||||
Cámara de Compensación Divisas de Colombia S.A. (*) | 6.2056 | 84 | 6.2056 | 94 | ||||
Cámara de Riesgo Central de Contraparte S.A. (**) | - | - | 2.4300 | 174 | ||||
Bolsa de Valores de Colombia (*) | 0.6700 | 619 | 0.6700 | 691 | ||||
Credibanco (*) | 6.3662 | 2,083 | 6.3662 | 2,326 | ||||
Patrimonio Autónomo Fiducredicorp (Comisionista) (*) | 5.2630 | 16 | 5.2630 | 19 | ||||
Totals | 4,782 | 5,333 |
(*) Correspond to investments in other companies held by subsidiaries established in Colombia.
(**) During August 2020, Cámara de Riesgo Central de Contraparte S.A. participation was sold, corresponding to 2.43% of the total equity, generating a profit of Ch$447 million recorded in income from investments in companies.
c) | During the nine-month period ended September 30, 2020 and 2019, the Bank received dividends, according to the following detail: |
2020 | 2019 | |||
MCh$ | MCh$ | |||
Dividends received | 1,008 | 1,142 | ||
Totals | 1,008 | 1,142 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 66 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 12 - Investments in Companies, continued
d) | Movement on investments in companies for the nine-month period ended September 30, 2020 and for the year ended on December 31, 2019, is as follows: |
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Balances as of January 1, | 14,938 | 10,555 | ||
Acquisition of investments (*) | 338 | - | ||
Sale of investments (**)(***) | (174) | (951) | ||
Initial application of the equity method and participation on income | (497) | 4,933 | ||
Exchange differences | (377) | 401 | ||
Totals | 14,228 | 14,938 |
(*) Corresponds to the participation increase in Nexus S.A. See letter a) on previous page.
(**) In February 2019, 100% of the shares held in Servibanca - Tecnibanca were sold, these shares represented 4.53% of the total equity of the company, the seeling price was MCh$1,818, generating a profit of MCh$1,028 recorded in income from investments in companies.
(***) In 2020 the participation in Cámara de Riesgo Central de Contraparte S.A. was sold. See previous page, letter b).
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 67 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 13 - Intangible Assets
a) | Composition of intangibles assets as of September 30, 2020 and December 31, 2019 is as follows: |
Remaining | Net assets as | Net assets as | ||||||||||
Useful life | amortization | of January 1, | Accumulated | of September 30, | ||||||||
Items | years | years | 2020 | Gross balances | amortization | 2020 | ||||||
N° | N° | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Computer equipment system or software | 5 | 4 | 179,743 | 334,712 | (154,260) | 180,452 | ||||||
IT projects and licenses | 7 | 6 | 5,192 | 35,765 | (29,666) | 6,099 | ||||||
Assets generated in business combination: | 1,431,614 | 681,556 | (97,630) | 583,926 | ||||||||
Goodwill | - | - | 1,194,331 | 492,512 | - | 492,512 | ||||||
Trademarks | 10 | 6 | 31,898 | 51,037 | (22,967) | 28,070 | ||||||
Customer relationship | 10 | 6 | 63,317 | 26,371 | (11,867) | 14,504 | ||||||
Core deposits | 8 | 4 | 142,068 | 111,636 | (62,796) | 48,840 | ||||||
Other projects | 10 | 4 | 1,196 | 4,055 | (3,194) | 861 | ||||||
Totals | 1,617,745 | 1,056,088 | (284,750) | 771,338 |
Remaining | Net assets as | Net assets as | ||||||||||
Useful life | amortization | of January 1, | Accumulated | of December 31, | ||||||||
Items | years | years | 2019 | Gross balances | amortization | 2019 | ||||||
N° | N° | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Computer equipment system or software | 6 | 4 | 151,840 | 314,200 | (134,457) | 179,743 | ||||||
IT projects and licenses | 7 | 6 | 12,614 | 33,352 | (28,160) | 5,192 | ||||||
Assets generated in business combination: | 1,448,859 | 1,588,079 | (156,465) | 1,431,614 | ||||||||
Goodwill | - | - | 1,178,235 | 1,194,331 | - | 1,194,331 | ||||||
Trademarks | 10 | 7 | 37,002 | 51,459 | (19,561) | 31,898 | ||||||
Customer relationship | 12 | 9 | 69,259 | 98,268 | (34,951) | 63,317 | ||||||
Core deposits | 9 | 6 | 164,363 | 244,021 | (101,953) | 142,068 | ||||||
Other projects | 10 | 4 | 494 | 4,055 | (2,859) | 1,196 | ||||||
Totals | 1,613,807 | 1,939,686 | (321,941) | 1,617,745 |
b) | Movements on gross balances for intangible assets as of September 30, 2020 and December 31, 2019 are as follows: |
Computer | Assets generated | |||||||||||
equipment system | IT projects | in business | Other | |||||||||
or software | and licenses | combination | Goodwill | projects | Totals | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Balances as of January 1, 2020 | 314,200 | 33,352 | 393,748 | 1,194,331 | 4,055 | 1,939,686 | ||||||
Acquisitions | 34,357 | 2,396 | - | - | - | 36,753 | ||||||
Disposals | (7) | - | - | - | - | (7) | ||||||
Impairment (1) (2) | - | - | (195,596) | (694,936) | - | (890,532) | ||||||
Exchange differences | (13,830) | 17 | (9,108) | (6,883) | - | (29,804) | ||||||
Others | (8) | - | - | - | - | (8) | ||||||
Balances as of September 30, 2020 | 334,712 | 35,765 | 189,044 | 492,512 | 4,055 | 1,056,088 |
(1) Impairment loss on intangible assets generated in business combinations had a net impact of Ch$113,911 million, which is broken down between an effect on the gross balance of Ch$195,596 million and an effect on the accumulated amortization of Ch$81,685 million.
(2) The impairment on Goodwill is allocated between the Chile CGU in Ch$448,273 million and the Colombia CGU in Ch$246,663 million.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 68 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 13 - Intangible Assets, continued
Computer | Assets generated | |||||||||||
equipment system | IT projects | in business | Other | |||||||||
or software | and licenses | combination | Goodwill | projects | Totals | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Balances as of January 1, 2019 | 263,179 | 42,601 | 383,207 | 1,178,235 | 3,645 | 1,870,867 | ||||||
Acquisitions | 53,140 | 80 | - | - | - | 53,220 | ||||||
Exchange difference | 5,308 | 20 | 12,876 | 16,096 | - | 34,300 | ||||||
Others | (7,427) | (9,349) | (2,335) | - | 410 | (18,701) | ||||||
Balances as of December 31, 2019 | 314,200 | 33,352 | 393,748 | 1,194,331 | 4,055 | 1,939,686 |
Computer | Assets generated | |||||||||
equipment system | IT projects | in business | Other | |||||||
or software | and licenses | combination | projects | Totals | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||
Balances as of January 1, 2020 | (134,457) | (28,160) | (156,465) | (2,859) | (321,941) | |||||
Amortization for the period | (24,968) | (1,494) | (26,313) | (335) | (53,110) | |||||
Impairment | - | - | 81,685 | - | 81,685 | |||||
Exchange differences | 5,157 | (12) | 3,463 | - | 8,608 | |||||
Others | 8 | - | - | - | 8 | |||||
Balances as of September 30, 2020 | (154,260) | (29,666) | (97,630) | (3,194) | (284,750) |
Computer | Assets generated | |||||||||
equipment system | IT projects | in business | Other | |||||||
or software | and licenses | combination | projects | Totals | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||
Balances as of January 1, 2019 | (111,339) | (29,987) | (112,583) | (3,151) | (257,060) | |||||
Amortization for the year | (30,363) | (2,809) | (40,816) | (152) | (74,140) | |||||
Disposals | 3 | - | - | - | 3 | |||||
Exchange differences | (2,995) | (14) | (4,648) | - | (7,657) | |||||
Others | 10,237 | 4,650 | 1,582 | 444 | 16,913 | |||||
Balances as of December 31, 2019 | (134,457) | (28,160) | (156,465) | (2,859) | (321,941) |
Itaú Corpbanca evaluates, at the end of each reporting period, whether there is any indication of impairment of any asset (including Goodwill). If this indication exists, or when an impairment test is required, the Bank estimates the recoverable amount of the asset.
As indicated in Note 3 'Significant events', it has been identified that the behavior of the global economy has been significantly affected by several factors, including the effects of COVID-19, generating an adverse impacts in the relevant markets where Itaú Corpbanca operates (Chile, Colombia, Peru and NY), concluding that as of, there is concrete evidence of impairment as a result of the deterioration of financial indicators such as the cost of credit, portfolio growth and capital costs . As such, an impairment test was performed for the intangible assets generated in the business combination and the Cash Generating Units where Goodwill has been allocated, recognizing an impairment loss of Ch$113,911 million and Ch$694,936 million, respectively. See additional information in Note 32.
Restrictions
Itaú Corpbanca and its subsidiaries have no restrictions on intangible assets as of September 30, 2020 and December 31, 2019. In addition, no intangible assets have been pledged as collateral to secure the fulfillment of any obligations.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 69 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 14 - Fixed Assets
Useful | Remaining | Net assets as | Net assets as of | |||||||||
life | amortization | of January 1, | Gross | Accumulated | September 30, | |||||||
years | years | 2020 | balances | depreciation | 2020 | |||||||
N° | N° | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Land and buildings | 27 | 17 | 13,104 | 16,620 | (4,529) | 12,091 | ||||||
Equipment | 5 | 4 | 27,551 | 81,766 | (56,518) | 25,248 | ||||||
Others | 15 | 10 | 17,307 | 46,020 | (31,020) | 15,000 | ||||||
Furniture | 8,879 | 25,581 | (18,009) | 7,572 | ||||||||
Others | 8,428 | 20,439 | (13,011) | 7,428 | ||||||||
Totals | 57,962 | 144,406 | (92,067) | 52,339 |
Useful | Remaining | Net assets as | Net assets as of | |||||||||
life | amortization | of January 1, | Gross | Accumulated | December 31, | |||||||
years | years | 2020 | balances | depreciation | 2020 | |||||||
N° | N° | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Land and buildings | 27 | 17 | 43,065 | 17,521 | (4,417) | 13,104 | ||||||
Equipment | 6 | 4 | 32,607 | 81,423 | (53,872) | 27,551 | ||||||
Others | 15 | 11 | 19,892 | 47,748 | (30,441) | 17,307 | ||||||
Furniture | 9,373 | 27,088 | (18,209) | 8,879 | ||||||||
Others | 10,519 | 20,660 | (12,232) | 8,428 | ||||||||
Totals | 95,564 | 146,692 | (88,730) | 57,962 |
The useful life presented in the preceding tables, corresponds to the total useful life and residual useful life for the Bank's fixed assets. Total useful lives have been determined based on our expected use of the assets, considering quality of the original construction, the environment in which the assets are located, quality and degree of maintenance carried out, and appraisals performed by external experts of the Bank.
b) | Movements on gross balances of fixed assets for the nine-month period ended September 30, 2020 are as follows: |
Land and | ||||||||
buildings | Equipment | Others | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Balances as of January 1, 2020 | 17,521 | 81,423 | 47,748 | 146,692 | ||||
Acquisitions | 138 | 5,417 | 1,115 | 6,670 | ||||
Sales and/or disposals for the period | - | (1,103) | (1,517) | (2,620) | ||||
Impairment (*) | - | (34) | - | (34) | ||||
Exchange differences | (1,039) | (3,937) | (1,326) | (6,302) | ||||
Balances as of September 30, 2020 | 16,620 | 81,766 | 46,020 | 144,406 |
(*) Corresponds to impaired equipment with a gross balance of Ch$34 million and accumulated depreciation of Ch$19 million. See Note 32.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 70 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 14 - Fixed Assets, continued
Movements on gross balances of fixed assets for the year ended December 31, 2019 are as follows:
Land and | ||||||||
buildings | Equipment | Others | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Balances as of January 1, 2019 | 65,843 | 80,383 | 50,248 | 196,474 | ||||
Acquisitions | 1,505 | 8,503 | 2,488 | 12,496 | ||||
Sales and/or disposals for the year | (1,224) | (4,493) | (4,014) | (9,731) | ||||
Reclassification due to IFRS 16 adoption (*) | (61,733) | - | - | (61,733) | ||||
Reclassification to asset held for sale (**) | 9,863 | - | - | 9,863 | ||||
Exchange differences | 270 | 2,514 | 969 | 3,753 | ||||
Others | 2,997 | (5,484) | (1,943) | (4,430) | ||||
Balances as of December 31, 2019 | 17,521 | 81,423 | 47,748 | 146,692 |
(*) | Correspond to improvements in leased properties which have been reclassified to right of use asset under lease agreements as a result of Circular No. 3,465 implementation issued by the CMF on January 11, 2019 related to the adoption of IFRS 16 'Leases'. See Note 15 'Assets for right of use and lease contracts liabilities' |
(**) | Corresponds to properties reincorporated to buildings and land that were previously classified as held for sale by Itaú Corpbanca Colombia S.A. See Note 17 a). |
c) | Movements on accumulated depreciation of fixed assets for nine-month period ended September 30, 2020 and for the year ended December 31, 2019 are as follows: |
Land and | ||||||||
buildings | Equipment | Others | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Balances as of January 1, 2020 | (4,417) | (53,872) | (30,441) | (88,730) | ||||
Depreciation of the period | (379) | (6,822) | (2,962) | (10,163) | ||||
Sales and/or retirements for the period | - | 1,102 | 1,262 | 2,364 | ||||
Impairment (*) | - | 19 | - | 19 | ||||
Exchange differences | 267 | 3,055 | 1,121 | 4,443 | ||||
Balances as of September 30, 2020 | (4,529) | (56,518) | (31,020) | (92,067) |
(*) Corresponds to impaired equipment with a gross balance of $ 34 million and accumulated depreciation of $ 19 million. See Note 32.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 71 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 14 - Fixed Assets, continued
Land and | ||||||||
buildings | Equipment | Others | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Balances as of January 1, 2019 | (22,778) | (47,776) | (30,356) | (100,910) | ||||
Depreciation of the period | (627) | (9,026) | (4,329) | (13,982) | ||||
Sales and/or disposals for the year | 603 | 3,622 | 2,079 | 6,304 | ||||
Reclassification to right of use asset under lease agreements (*) | 24,813 | - | - | 24,813 | ||||
Reclassification to asset held for sale (**) | (2,152) | - | - | (2,152) | ||||
Impairment | (2) | (11) | (476) | (489) | ||||
Exchange differences | (63) | (2,110) | (705) | (2,878) | ||||
Others | (4,211) | 1,429 | 3,346 | 564 | ||||
Balances as of December 31, 2019 | (4,417) | (53,872) | (30,441) | (88,730) |
(*) | Corresponds to improvements in leased properties which have been reclassified to assets for the right of use assets as a result of Circular No. 3,465 issued by the CMF on January 11, 2019 related to the adoption of IFRS 16 'Leases'. See Note 15 'Assets for right of use and lease contracts liabilities' |
(**) | Correspond to properties reincorporated to land and buildings that were previously classified as held for sale by Itaú Corpbanca Colombia S.A. |
The Bank and its subsidiaries have no restrictions on fixed assets as of September 30, 2020 and December 31, 2019. Additionally, no fixed assets have been pledged as collateral to secure the fulfillment of any obligations. Furthermore, there are no amounts owed by the Bank on fixed assets as of the aforementioned dates.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 72 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 15 - Assets for right of use and lease contracts liabilities
a) | Right of use asset under lease agreements |
i) | The Bank mainly has opening contracts for its branches and corporate building. The composition of the item as of September 30, 2020 and December 31, 2019, is as follows: |
Useful | Remaining | Net assets | Net assets as of | |||||||||
life | amortization | as of January 1, | Gross | Accumulated | September 30, | |||||||
years | years | 2020 | balances | depreciation | 2020 | |||||||
N° | N° | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Land and buildings | 7 | 6 | 167,265 | 195,284 | (44,459) | 150,825 | ||||||
Leasehold improvements | 10 | 7 | 37,118 | 73,495 | (38,923) | 34,572 | ||||||
Other assets | 3 | 3 | 176 | 170 | (56) | 114 | ||||||
Totals | 204,559 | 268,949 | (83,438) | 185,511 |
Useful | Remaining | Net assets | Net assets as of | |||||||||
life | amortization | as of January 1, | Gross | Accumulated | December 31, | |||||||
years | years | 2019 | balances | depreciation | 2019 | |||||||
N° | N° | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Land and buildings | 7 | 7 | 176,795 | 197,065 | (29,800) | 167,265 | ||||||
Leasehold improvements | 10 | 7 | 36,920 | 71,769 | (34,651) | 37,118 | ||||||
Other assets | 3 | 3 | - | 190 | (14) | 176 | ||||||
Totals | 213,715 | 269,024 | (64,465) | 204,559 |
ii) | Movement on gross balances of right of use assets for the nine-month period ended on September 30, 2020 and for the year ended on December 31, 2019, is as follows: |
Land and | Leasehold | Others | ||||||
buildings | improvements | assets | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Balances as of January 1, 2020 | 197,065 | 71,769 | 190 | 269,024 | ||||
Additions of the period | 6,512 | 2,992 | - | 9,504 | ||||
Disposals of the period | (7,741) | (158) | - | (7,899) | ||||
Remeasurements of the liability due to modifications (*) | 710 | - | - | 710 | ||||
Remeasurements of the liability due to indexation adjustments | 2,559 | - | - | 2,559 | ||||
Exchange differences | (3,821) | (1,108) | (20) | (4,949) | ||||
Balances as of September 30, 2020 | 195,284 | 73,495 | 170 | 268,949 |
(*) Corresponds to remeasurements of the recognized liability due to contracts modifications.
Land and | Leasehold | Others | ||||||
buildings | improvements | assets | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Balances as of January 1, 2019 | 176,795 | 61,733 | - | 238,528 | ||||
Additions of the year | 25,624 | 7,944 | 190 | 33,758 | ||||
Disposals of the year | (16,953) | (2,368) | - | (19,321) | ||||
Reclassification | - | 4,223 | - | 4,223 | ||||
Remeasurements of the liability due to indexation adjustments | 9,488 | - | - | 9,488 | ||||
Exchange differences | 2,111 | 237 | - | 2,348 | ||||
Balances as of December 31, 2019 | 197,065 | 71,769 | 190 | 269,024 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 73 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 15 - Assets for right of use and lease contracts liabilities, continued
iii) | Movement on accumulated depreciation of assets for the right to use leased assets for the nine-month period ended September 30, 2020 and for the year ended December 31, 2019, is as follows: |
Land and | Leasehold | Others | ||||||
buildings | improvements | assets | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Balances as of January 1, 2020 | (29,800) | (34,651) | (14) | (64,465) | ||||
Depreciation of the period (*) | (22,401) | (5,046) | (44) | (27,491) | ||||
Disposals due to early termination | 6,780 | 119 | - | 6,899 | ||||
Exchange differences | 962 | 655 | 2 | 1,619 | ||||
Balances as of September 30, 2020 | (44,459) | (38,923) | (56) | (83,438) |
(*) | See note 32 'Depreciation, amortization and impairment'. |
Land and | Leasehold | Others | ||||||
buildings | improvements | assets | Totals | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Balances as of January 1, 2019 | - | (24,813) | - | (24,813) | ||||
Depreciation of the year (*) | (31,843) | (7,187) | (14) | (39,044) | ||||
Disposals due to early termination | 2,590 | 2,281 | - | 4,871 | ||||
Exchange differences | (547) | (16) | - | (563) | ||||
Reclassification | - | (4,677) | - | (4,677) | ||||
Impairment (*) | - | (239) | - | (239) | ||||
Balances as of December 31, 2019 | (29,800) | (34,651) | (14) | (64,465) |
b) | Lease contracts liabilities |
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Lease contracts liabilities | 156,513 | 172,924 | ||
Totals | 156,513 | 172,924 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 74 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 15 - Assets for right of use and lease contracts liabilities, continued
The Bank and its subsidiaries have contracts, with certain renewal options and for which there is reasonable certainty that the option will be exercised. In such cases, the renewal period is considered as part of the term of the lease used to measure the right-of-use asset and a lease liability of the contract.
(ii) | The movement of the obligations for lease contract liabilities for the nine-month period ended on September 30, 2020 and for the year ended December 31, 2019, is as follows: |
As of September 30, | As of December 31, | ||||
2020 | 2019 | ||||
MCh$ | MCh$ | ||||
Opening balances as of January 1, | 172,924 | 176,795 | |||
Additions due to new contracts | 6,431 | 25,624 | |||
Disposals due to early termination | (1,947) | (10,808) | |||
Interest expenses | 3,830 | 5,034 | |||
Remeasurements of the liability due to modifications (1) | 1,399 | - | |||
Remeasurements of the liability due to indexation adjustments | 2,605 | 9,488 | |||
Exchange rate adjustments | 14 | - | |||
Exchange differences | (3,455) | 2,868 | |||
Capital and interest payments | (25,288) | (36,077) | |||
Ending balances | 156,513 | 172,924 |
(1) Includes remeasurements of the recognized liability due to contract modifications.
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Within 1 year | 30,893 | 32,628 | ||
After 1 year but within 2 years | 27,614 | 28,462 | ||
After 2 years but within 3 years | 24,558 | 25,084 | ||
After 3 years but within 4 years | 21,172 | 22,098 | ||
After 4 years but within 5 years | 18,113 | 19,042 | ||
After 5 years | 34,163 | 45,610 | ||
Total | 156,513 | 172,924 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 75 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 16 - Current Taxes and Deferred Taxes
a) | Current taxes |
At the end of each reporting period, the Bank and its subsidiaries recognize a First Category Income Tax Provision, which is determined based on currently enacted tax legislation. The net provision for current recoverable taxes recognized as of September 30, 2020 was MCh$15,592 (MCh$85,503 as of December 31, 2019), according to the following detail:
a.1) Current taxes assets and liabilities by geographical area
As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||
Chile | USA (*) | Colombia | Totals | Chile | USA (*) | Colombia | Totals | |||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Current tax assets | 2,885 | - | 15,394 | 18,279 | 30,773 | - | 54,743 | 85,516 | ||||||||
Current tax liabilities | (2,439) | - | (248) | (2,687) | (13) | - | - | (13) | ||||||||
Totals net | 446 | - | 15,146 | 15,592 | 30,760 | - | 54,743 | 85,503 |
(*)Corresponds to the New York branch.
a.2)Details of current tax items by geographical area
As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||
Chile | USA (*) | Colombia | Totals | Chile | USA (*) | Colombia | Totals | |||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Income tax, with effect in profit and loss | (53,648) | - | (2,601) | (56,249) | (68,075) | - | (9,062) | (77,137) | ||||||||
Income tax, with effect in other comprehensive income | (17,422) | - | - | (17,422) | 7,088 | - | - | 7,088 | ||||||||
Income tax, rate 27% | (71,070) | - | (2,601) | (73,671) | (60,987) | - | (9,062) | (70,049) | ||||||||
Deductions: | ||||||||||||||||
Monthly provisional payments | 37,333 | - | 17,566 | 54,899 | 61,621 | - | 27,218 | 88,839 | ||||||||
Tax credit for training costs | - | - | - | - | 850 | - | - | 850 | ||||||||
Tax credit for donations | 1,431 | - | 21 | 1,452 | 802 | - | - | 802 | ||||||||
Other taxes to be recovered (**) | 32,752 | - | 160 | 32,912 | 28,474 | - | 36,587 | 65,061 | ||||||||
Totals | 446 | - | 15,146 | 15,592 | 30,760 | - | 54,743 | 85,503 |
(*)Corresponds to the New York branch
(**) | Other taxes to be recovered correspond mainly to monthly provisional payments paid in previous years, credits for training expenses, provisional payments for absorbed losses with reimbursement right, among others. |
b) | Effect on income |
The tax expense for the nine-month periods ended September 30, 2020 and 2019 is comprised of the following items:
For the nine-month periods ended | ||||
September 30, | ||||
2020 | 2019 | |||
| MCh$ | MCh$ | ||
Income tax expense | ||||
Income tax for the period | (56,249) | (74,928) | ||
Credit (debit) for deferred taxes | ||||
Origination and reversal of temporary differences for the period | 61,488 | 26,283 | ||
Subtotals | 5,239 | (48,645) | ||
Others | 4,373 | (36) | ||
Net (debit) credit to income taxes | 9,612 | (48,681) |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 76 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 16 - Current Taxes and Deferred Taxes, continued
c) | Effective tax rate reconciliation |
The following table presents the enacted tax rates for each country where the Bank operates as of September 30, 2020 and as of December 31, 2019.
2020 | 2019 | ||||
Nominal tax rates by geographic area | Rate | Rate | |||
Chile | 27.0 | % | 27.0 | % | |
Colombia | 36.0 | % | 37.0 | % | |
United States | 25.3 | % | 25.3 | % |
The main tax effects, according to the nominal tax rates of the countries that are reported consolidated, are the following:
For the nine-month periods ended September 30, | ||||||||
2020 | 2019 | |||||||
Tax | Tax | Tax | Tax | |||||
rate | amount | rate | amount | |||||
% | MCh$ | % | MCh$ | |||||
Amount calculated by using the statutory rates | 27.00 | 203,591 | 27.00 | (46,790) | ||||
Effect due to Goodwill impairment | (24.88) | (187,633) | - | - | ||||
Exchange rate changes on investment in Colombia (****) | (2.53) | (19,069) | 7.60 | (13,163) | ||||
Exchange rate changes on investment in NY branch | (0.23) | (1,735) | 0.73 | (1,265) | ||||
Tax rate change effect in Colombia | (0.76) | (5,727) | (1.44) | 2,491 | ||||
Tax impact arising from New York branch income (**) | (0.26) | (1,951) | 2.29 | (3,970) | ||||
Inflation-indexation adjustment over tax equity (***) | 1.82 | 13,727 | (9.44) | 16,363 | ||||
Effect of Colombian subsidiaries rates (**) | 0.99 | 7,498 | 1.86 | (3,222) | ||||
Effect of New York branch rate (**) | - | (11) | 0.02 | (26) | ||||
Colombian taxable goodwill | - | - | (0.70) | 1,218 | ||||
Other adjustments (*) | 0.12 | 922 | 0.17 | (317) | ||||
Effective tax rate and expense (income) | 1.27 | 9,612 | 28.09 | (48,681) |
(*)This item contains the effects due to changes in the observed US dollar exchange rate in the valuation of the investment in the New York branch for tax purposes and other effects.
(**)These items reflect differences in tax rates of other jurisdictions, based on the Bank's consolidated result.
(***)During the nine-month period ended September 30, 2020, the inflation indexation adjustments over the Tax Equity was equal to 1.5% (1.9% in 2019).
(****) For tax purposes, investment in Colombia is measured in US dollars. The devaluation (appreciation) of the Chilean peso against the US dollar generates income (expenses) for tax purposes and not recognized for financial purposes. The value presented represents the expense (income) of income tax due to the effect of the exchange rate on investment in Colombia. As part of its exchange rate risk management policy, the Bank has managed this exposure through instruments available in the market to economically protect it against the variation in the exchange rate. The effect of the instruments (which compensates the tax effect here presented) is recognized in the Net foreign exchange gain (loss) on the Interim Consolidated Statement of Income for the period.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 77 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 16 - Current Taxes and Deferred Taxes, continued
d) | Tax effects on Other Comprehensive Income |
d.1) Tax effect recorded in other comprehensive income (loss) which may be reclassified subsequently to profit or loss:
For the nine-month periods | ||||
ended September 30, | ||||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Available for sale investments | 3,880 | (6,981) | ||
Net investment in foreign operations hedge | (20,593) | (1,698) | ||
Cash flows hedge | 5,727 | (1,246) | ||
Totals in other comprehensive income | (10,986) | (9,925) |
d.2) Tax effect recorded in other comprehensive income (loss) which may not be reclassified subsequently to profit or loss:
For the nine-month periods | ||||
ended September 30, | ||||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Income taxes related to defined benefits obligations | (635) | 890 | ||
Totals in other comprehensive income | (635) | 890 |
e) | Effect of deferred taxes |
e.1) Totals deferred taxes
As of September 30, 2020 | As of December 31, 2019 | |||||||||||
Assets | Liabilities | Net | Assets | Liabilities | Net | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Deferred taxes with effect on profit and loss | ||||||||||||
Allowances for loan losses | 145,760 | - | 145,760 | 124,774 | - | 124,774 | ||||||
Miscellaneous provisions | 83,264 | - | 83,264 | 67,396 | - | 67,396 | ||||||
Tax losses | 41,836 | - | 41,836 | 55,598 | - | 55,598 | ||||||
Lease division and others | 10,475 | - | 10,475 | 18,925 | - | 18,925 | ||||||
Net tax value of amortizable assets | 3,776 | - | 3,776 | 16,051 | - | 16,051 | ||||||
Provisions for employee benefits | 7,096 | 18 | 7,114 | 20,618 | - | 20,618 | ||||||
Interest and inflation-indexation overdue portfolio | 4,373 | - | 4,373 | 8,214 | - | 8,214 | ||||||
Mark to market of financial instruments | 22,534 | - | 22,534 | (15,846) | - | (15,846) | ||||||
IFRS 16 leases effects | (8,881) | - | (8,881) | 1,403 | - | 1,403 | ||||||
Price difference not accrued | 202 | - | 202 | 324 | - | 324 | ||||||
Itaú-Corpbanca business combination | (16,569) | - | (16,569) | (57,996) | - | (57,996) | ||||||
Depreciation of plants and equipment | (39,481) | (286) | (39,767) | (47,423) | - | (47,423) | ||||||
Others | (1,709) | - | (1,709) | (856) | (263) | (1,119) | ||||||
Totals assets (liabilities) for deferred taxes | 252,676 | (268) | 252,408 | 191,182 | (263) | 190,919 | ||||||
Deferred taxes with effect on other comprehensive income | - | |||||||||||
Taxes for investments available for sale | (5,234) | - | (5,234) | (11,711) | - | (11,711) | ||||||
Defined benefits tax | 3,840 | - | 3,840 | 4,696 | - | 4,696 | ||||||
Subtotal deferred tax assets (liabilities) with effect on other comprehensive income | (1,394) | - | (1,394) | (7,015) | - | (7,015) | ||||||
Total deferred tax assets (liabilities) | 251,282 | (268) | 251,014 | 184,167 | (263) | 183,904 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 78 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 16 - Current Taxes and Deferred Taxes, continued
e.2) Deferred taxes by geographic area:
As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||
Chile | USA (*) | Colombia | Totals | Chile | USA (*) | Colombia | Totals | |||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Deferred tax assets | 201,313 | 19,514 | 30,455 | 251,282 | 158,174 | 18,522 | 7,471 | 184,167 | ||||||||
Deferred tax liabilities | - | - | (268) | (268) | - | - | (263) | (263) | ||||||||
Totals by geographic area, net | 201,313 | 19,514 | 30,187 | 251,014 | 158,174 | 18,522 | 7,208 | 183,904 |
(*) Corresponds to the subsidiary located in New York, branch.
Effects of deferred taxes on assets and liabilities arising from temporary differences (by geographic area) are as follows:
| As of September 30, 2020 | | As of December 31, 2019 | |||||||||||||
| Chile | USA (*) | Colombia | Totals | | Chile | USA (*) | Colombia | Totals | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Allowances for loan losses | 143,118 | - | 2,642 | 145,760 | 117,015 | 358 | 7,401 | 124,774 | ||||||||
Miscellaneous provisions | 61,756 | 640 | 19,534 | 81,930 | 68,147 | 851 | (8,617) | 60,381 | ||||||||
Tax losses | 1,682 | 16,488 | 23,666 | 41,836 | 1,912 | 15,750 | 37,936 | 55,598 | ||||||||
Lease division and others | 3,445 | - | 7,030 | 10,475 | 11,619 | - | 7,306 | 18,925 | ||||||||
Net tax value of amortizable assets | 3,776 | - | - | 3,776 | 16,051 | - | - | 16,051 | ||||||||
Provision associated with staff | 3,257 | 343 | 3,514 | 7,114 | 16,860 | (91) | 3,849 | 20,618 | ||||||||
Interest and inflation-indexation overdue portfolio | 4,373 | - | - | 4,373 | 8,214 | - | - | 8,214 | ||||||||
Mark to market of financial instruments | 39,592 | 51 | (17,109) | 22,534 | (13,484) | - | (2,362) | (15,846) | ||||||||
Lease division and others | 1,006 | 50 | (9,937) | (8,881) | 905 | - | 498 | 1,403 | ||||||||
Price difference not accrued | 202 | - | - | 202 | 324 | - | - | 324 | ||||||||
Itaú-Corpbanca business combination | (16,569) | - | - | (16,569) | (16,584) | - | (41,412) | (57,996) | ||||||||
Depreciation of plants and equipment | (41,199) | (97) | 1,529 | (39,767) | (50,746) | - | 3,323 | (47,423) | ||||||||
Others | (3,126) | 2,039 | (681) | (1,768) | (2,059) | 1,654 | (714) | (1,119) | ||||||||
Totals assets (liabilities), net | | 201,313 | 19,514 | 30,187 | 251,014 | 158,174 | 18,522 | 7,208 | 183,904 |
(*) Corresponds to the subsidiary located in New York, branch.
f) | Summary of deferred taxes |
The following is a summary of the deferred taxes with effect on equity and on income.
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Deferred tax assets | ||||
With effect on other comprehensive income | (1,394) | (7,015) | ||
With effect on profit and loss | 252,676 | 191,182 | ||
Total deferred tax assets | 251,282 | 184,167 | ||
With effect on other comprehensive income | - | - | ||
With effect on profit and loss | (268) | (263) | ||
Total deferred tax liabilities | (268) | (263) |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 79 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 17 - Other Assets
a) | As of September 30, 2020 and December 31, 2019 composition of Other assets is as follows: |
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Assets for leasing (1) | 10,252 | 18,724 | ||
Assets received or awarded in lieu of payment (2) | 7,051 | 5,673 | ||
Assets received in lieu of payment | 14,053 | 45,533 | ||
Provisions for assets received in lieu of payment or awarded | (12,210) | (44,301) | ||
Assets awarded at judicial auction | 5,208 | 4,441 | ||
Other assets | 694,505 | 759,050 | ||
Deposits in guarantee | 11,688 | 12,756 | ||
Accounts and notes receivable (3) | 73,265 | 49,141 | ||
Right of intermediation operations | 20,916 | 158,687 | ||
Assets recovered from leasing for sale | 4,218 | 1,787 | ||
Rentals paid in advance (4) | 1,594 | 3,379 | ||
Fixed assets held for sale (6) | 5,724 | 6,331 | ||
Prepaid expenses (5) | 32,635 | 19,386 | ||
Collateral for financial transactions (threshold) | 482,851 | 428,559 | ||
VAT credit | 3,312 | 4,429 | ||
Insurance brokerage fees receivable | 4,462 | 5,654 | ||
Other assets held for sale (7) | - | 580 | ||
Other assets | 53,840 | 68,361 | ||
Totals | 711,808 | 783,447 |
(1) Fixed assets acquired to be ceded under financial leases.
(2) Assets received in lieu of payment correspond to assets received as payment in connection with past due loans. According to local regulations, the total amount of these assets shall not exceed, under no circumstance, the 20% of the effective equity of the Bank. These assets currently represent 0.04% as of September 30, 2020 (0.2% as of December 31, 2019) of the Bank's effective equity.
The assets awarded in a judicial auction correspond to assets that have been acquired in a judicial auction in order to recover loans previously granted to clients, through subsequent sale. These properties are assets available for sale. The assets acquired at a judicial auction are not subject to the previously mentioned limit. For most assets, the sale is expected to be completed within one year from the date on which the asset is received or acquired. Should such assets not be sold within a year, they must be written-off. In response to the COVID-19 pandemic, the CMF issued a transitory provision and extends the term for the disposal of these assets. See Note 1, letter i) 'New accounting pronouncements'. Provisions may also be required from the difference between the initial value of these assets in relation to its fair value.
(3)This includes rights and accounts that fall outside the Bank's line of business such as tax credits, cash guarantee deposits and other balances pending of collection.
(4) Leases paid in advance to SMU S.A. in connection with ATM locations (see Note 33, letter b)
(5) Includes payments made in advance for different services that will be received (leases, insurance, and others).
(6) Correspond to buildings owned by Itaú Corpbanca Colombia S.A. held for sale, as approved by the Board of Directors of the entity, during the meeting held on July 31, 2018.
(7) As of December 31, 2019, correspondence to assets held for sale associated with Itaú Casa de Valores Panamá. See Note 3 Relevant facts.
b) | Movements on the provision for assets received in lieu of payment or awarded for the nine-month periods ended September 30, 2020 and year ended on December 31, 2019 are as follows: |
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Opening balance | (44,301) | (36,244) | ||
Provisions released | 29,600 | 13,163 | ||
Provisions established | (2,074) | (18,100) | ||
Exchange differences | 4,565 | (3,120) | ||
Ending balance | (12,210) | (44,301) |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 80 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 18 - Deposits and Other Demand Liabilities and Time Deposits
a) | As of September 30,2020 and December 31, 2019 deposits and other demand liabilities are as follows: |
As of September 30, | As of December 31 | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Checking accounts | 3,726,565 | 2,882,535 | ||
Other deposits and demand accounts | 1,666,180 | 1,698,439 | ||
Advance payments received from customers | 31,903 | 45,902 | ||
Other demand liabilities | 237,297 | 246,572 | ||
Totals | 5,661,945 | 4,873,448 |
b) | As of September 30, 2020 andDecember 31, 2019 the composition of deposits and other time deposits is as follow: |
As of September 30, | As of December 31 | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Time deposits | 12,072,796 | 11,599,943 | ||
Time savings accounts | 19,366 | 20,016 | ||
Other time liabilities | 227 | 228 | ||
Totals | 12,092,389 | 11,620,187 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 81 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 19 - Interbank Borrowings
a) | As of September 30, 2020 and December 31, 2019 interbank borrowings are as follows: |
As of September 30, | As of December 31 | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Loans and other obligations | ||||
Chilean Central Bank (*) | 2,257,354 | - | ||
Subtotal | 2,257,354 | - | ||
Loan obtained from foreign financial institutions | ||||
Apple Bank for Saving | 15,732 | 34,195 | ||
Bancaribe Curacao Bank N.V. | - | 2,411 | ||
Banco Crédito del Perú | 6,347 | 104,831 | ||
Banco de Bogotá | - | 8,250 | ||
Banco Latinoamericano de Exportación (BLADEX) | 52,307 | 63,991 | ||
Banco República | 621 | 1,403 | ||
Bancoldex S.A. (Colombia) | 22,054 | 46,390 | ||
Bank of America, N.A. | 132,028 | 160,243 | ||
Bank of Montreal | 137,140 | 104,331 | ||
Bank of New York | 39,348 | - | ||
Bank of Nova Scotia | 95,768 | 101,989 | ||
Barclays Bank Plc | 77,482 | - | ||
Bayern Landesbank | - | 2,411 | ||
BBVA Asset Management Continental S.A. (Perú) | 97,504 | 86,709 | ||
BNP Paribas | 62,705 | 98,817 | ||
China Construction Bank | - | 5,556 | ||
Citibank N.A. | 82,218 | 206,549 | ||
Cobank C.B. | 32,900 | 30,882 | ||
Commerzbank A.G. | 69,060 | 71,646 | ||
Corporación Andina de Fomento | 101,122 | 75,149 | ||
Credicorp Capital SASAF | 190,401 | 200,374 | ||
Deutsche Bank AG | 23,549 | - | ||
Export Development Canada | - | 12,078 | ||
Findeter S.A. Financiera del Desarrollo Territorial | 44,387 | 44,552 | ||
HSBC USA | - | 74,877 | ||
IFC Corporación Financiera Internacional | 169,611 | 118,065 | ||
Ing Bank NV | - | 14,870 | ||
Interfondos S.A. Sociedad Administradora de Fondos | 58,814 | 55,596 | ||
KBC Bank NV | 23,620 | 21,896 | ||
La Caixa | 12,626 | 13,961 | ||
Mizuho Corporate Bank | - | 2,411 | ||
Scotia Fondos Sociedad Administradora de Fondos S.A. | 29,701 | 34,951 | ||
Shanghai Commercial & Savings Bank | - | 279,202 | ||
Standard Chartered Bank | - | 229,063 | ||
Sumitomo Mitsui Banking Corporation | 183,402 | 44,826 | ||
The Export-Import Bank of Korea | - | 146,549 | ||
Unicredit Bank | 15,657 | - | ||
W Capital Safi S.A | 31,596 | - | ||
Wells Fargo Bank, N.A. | 157,596 | 82,480 | ||
Zuercher Kantonalbank | 7,758 | - | ||
Others | 62,574 | 65,252 | ||
Subtotal | 2,035,628 | 2,646,756 | ||
Totals | 4,292,982 | 2,646,756 |
(*) Corresponds to funds obtained through the use of the Conditional Credit Facility to Increase Loans (FCIC) and the Liquidity Credit Line (LCL), granted by the Chilean Central Bank in response to tensions generated by the spread of the COVID-19 virus. The loans obtained through FCIC are guaranteed by high credit quality loans and / or bonds issued by the Chilean Central Bank and have automatic and successively monthly renewal maturities, with a maximum term of 4 years from March 30, 2020, until March 30, 2024. The LCL differs from FCIC as is not guaranteed, has a maximum term of 2 years and is granted based on the amount of the Bank's average reserve requirement. Both the FCIC and the LCL accrue interests at the Monetary Policy Rate (MPR) in force on the date of each operation.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 82 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 19 - Interbank Borrowings, continued
a) | Interbank borrowings by maturity are as follows: |
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Within 1 year | 1,328,783 | 1,997,751 | ||
After 1 year but within 2 years | 898,040 | 442,784 | ||
After 2 years but within 3 years | 98,231 | 83,908 | ||
After 3 years but within 4 years | 1,927,755 | 80,073 | ||
After 4 years but within 5 years | 14,648 | 7,521 | ||
After 5 years | 25,525 | 34,719 | ||
Totals | 4,292,982 | 2,646,756 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 83 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 20 - Debt Instruments Issued and Other Financial Liabilities
As of September 30, 2020 and December 31, 2019 composition of debt instruments issued and other financial liabilities is as follows:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Debt instruments issued | ||||
Mortgage finance bonds | 32,966 | 40,933 | ||
Senior bonds | 5,069,581 | 5,289,084 | ||
Subordinated bonds | 1,076,924 | 1,078,339 | ||
Subtotals | 6,179,471 | 6,408,356 | ||
Other financial liabilities | ||||
Liabilities with the public sector | - | 10 | ||
Borrowings from local financial institutions | 8,401 | 12,956 | ||
Foreign borrowings | - | - | ||
Subtotals | 8,401 | 12,966 | ||
Totals | 6,187,872 | 6,421,322 |
Debts classified as short term are those that constitute demand obligations or will expire within a year.
All other debts are classified as long-term. Detail is as follows:
As of September 30, 2020 | ||||||
Short-term | Long-term | Totals | ||||
MCh$ | MCh$ | MCh$ | ||||
Mortgage finance bonds | 7,899 | 25,067 | 32,966 | |||
Senior bonds | 309,089 | 4,760,492 | 5,069,581 | |||
Subordinated bonds | - | 1,076,924 | 1,076,924 | |||
Debt instruments issued | 316,988 | 5,862,483 | 6,179,471 | |||
Other financial liabilities | 8,401 | - | 8,401 |
As of December 31, 2019 | ||||||
Short-term | Long-term | Totals | ||||
MCh$ | MCh$ | MCh$ | ||||
Mortgage finance bonds | 7,887 | 33,046 | 40,933 | |||
Senior bonds | 643,621 | 4,645,463 | 5,289,084 | |||
Subordinated bonds | - | 1,078,339 | 1,078,339 | |||
Debt instruments issued | 651,508 | 5,756,848 | 6,408,356 | |||
Other financial liabilities | 12,966 | - | 12,966 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 84 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 20 - Debt Instruments Issued and Other Financial Liabilities, continued
The following tables provide with additional information, including maturities, for each type of debt issued as of September 30, 2020 and December 31, 2019.
Detail of maturities for mortgage finance bonds is as follows:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Within 1 year | 7,899 | 7,887 | ||
After 1 year but within 2 years | 5,767 | 6,508 | ||
After 2 years but within 3 years | 5,225 | 6,072 | ||
After 3 years but within 4 years | 3,806 | 5,524 | ||
After 4 years but within 5 years | 3,947 | 5,121 | ||
After 5 years | 6,322 | 9,821 | ||
Totals | 32,966 | 40,933 |
Details for senior bonds, by currency, are as follows:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Bonds in UF | 4,121,234 | 4,273,637 | ||
Bonds in CLP | 399,818 | 481,083 | ||
Bonds in COP | 548,529 | 534,364 | ||
Totals | 5,069,581 | 5,289,084 |
Detail of maturities for senior bonds is as follows:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Within 1 year | 309,089 | 643,621 | ||
After 1 year but within 2 years | 435,596 | 323,921 | ||
After 2 years but within 3 years | 359,313 | 608,342 | ||
After 3 years but within 4 years | 551,199 | 282,882 | ||
After 4 years but within 5 years | 464,716 | 478,634 | ||
After 5 years | 2,949,668 | 2,951,684 | ||
Totals | 5,069,581 | 5,289,084 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 85 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 20 - Debt Instruments Issued and Other Financial Liabilities, continued
The following table presents details for senior bonds issued:
Senior bonds issued during the nine-month period ended on September 30, 2020:
Issuance | Placement | Maturity | ||||||||||
Series | Currency | Amount | Term | rate | date | date | ||||||
BITACR0418 | UF | 500,000 | 5 years and 8 months | 2% annual | 01-14-2020 | 10-09-2025 | ||||||
BITACR0418 | UF | 1,000,000 | 5 years and 8 months | 2% annual | 01-15-2020 | 10-09-2025 | ||||||
BITACR0418 | UF | 500,000 | 5 years and 8 months | 2% annual | 01-16-2020 | 10-09-2025 | ||||||
BITACS0418 | UF | 3,000,000 | 6 years and 6 months | 2% annual | 04-08-2020 | 10-09-2026 | ||||||
BITACR0418 | UF | 3,000,000 | 5 years and 6 months | 2% annual | 04-08-2020 | 10-09-2025 | ||||||
Totals | 8,000,000 |
Issuance | Placement | Maturity | ||||||||||
Series | Currency | Amount | Term | rate | date | date | ||||||
SERIE A - 60 | COP | 148,100,000,000 | 5 years | 6,00% annual | 02-27-2020 | 02-27-2025 | ||||||
SERIE U - 120 | COP | 351,837,710,484 | 10 years | 2,71% annual | 02-27-2020 | 02-27-2030 | ||||||
SERIE A SUBSERIE A60 | COP | 165,915,000,000 | 5 years | 4,83% annual | 09-29-2020 | 09-29-2025 | ||||||
SUBSERIE B36 | COP | 134,100,000,000 | 3 years | 1,28% annual | 09-29-2020 | 09-29-2023 | ||||||
Totals | 799,952,710,484 |
Senior bonds issued during the year ended December 31, 2019:
Issuance | Placement | Maturity | ||||||||||
Series | Currency | Amount | Term | rate | date | date | ||||||
BCORAM0710 | UF | 2,000,000 | 5 years and 5 months | 3% annual | 02-11-2019 | 07-01-2024 | ||||||
BCORAM0710 | UF | 3,000,000 | 5 years and 5 months | 3% annual | 02-15-2019 | 07-01-2024 | ||||||
BITACU0418 | UF | 2,000,000 | 9 years and 7 months | 2% annual | 02-25-2019 | 10-09-2028 | ||||||
BITACU0418 | UF | 2,000,000 | 9 years and 7 months | 2% annual | 02-26-2019 | 10-09-2028 | ||||||
BITACV0418 | UF | 2,000,000 | 10 years and 7 months | 2% annual | 03-07-2019 | 10-09-2029 | ||||||
BITACV0418 | UF | 2,000,000 | 10 years and 7 months | 2% annual | 03-14-2019 | 10-09-2029 | ||||||
BITACW0418 | UF | 2,500,000 | 11 years and 5 months | 2% annual | 05-07-2019 | 10-09-2030 | ||||||
BITACS0418 | UF | 2,000,000 | 7 years and 3 months | 2% annual | 07-03-2019 | 10-09-2026 | ||||||
Totals | 17,500,000 |
Issuance | Placement | Maturity | ||||||||||
Series | Currency | Amount | Term | rate | date | date | ||||||
BCORBX0914 | CLP | 40,000,000 | 2 years and 2 months | 5% annual | 07-04-2019 | 09-01-2021 | ||||||
BCORBX0914 | CLP | 1,000,000 | 2 years and 2 months | 5% annual | 07-05-2019 | 09-01-2021 | ||||||
BCORBX0914 | CLP | 14,500,000 | 2 years and 2 months | 5% annual | 07-10-2019 | 09-01-2021 | ||||||
BCORBX0914 | CLP | 1,500,000 | 2 years and 2 months | 5% annual | 07-15-2019 | 09-01-2021 | ||||||
Totals | 57,000,000 |
Issuance | Placement | Maturity | ||||||||||
Series | Currency | Amount | Term | rate | date | date | ||||||
SUBSERIE A36 | COP | 163,035,000,000 | 3 years | 6.13% annual | 05-21-2019 | 05-21-2022 | ||||||
SUBSERIE C60 | COP | 186,965,000,000 | 5 years | 2.86% annual | 05-21-2019 | 05-21-2024 | ||||||
SERIE A SUBSERIE A60 | COP | 170,820,000,000 | 5 years | 6.05% annual | 10-16-2019 | 10-16-2024 | ||||||
SERIE C SUBSERIE C84 | COP | 50,000,000,000 | 7 years | 2.28% annual | 10-16-2019 | 10-16-2026 | ||||||
SERIE C SUBSERIE C120 | COP | 129,180,000,000 | 10 years | 2.76% annual | 10-16-2019 | 10-16-2029 | ||||||
Totals | 700,000,000,000 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 86 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 20 - Debt Instruments Issued and Other Financial Liabilities, continued
Details of subordinated bonds, by currency, are as follows:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Bonds in UF | 95,418 | 95,545 | ||
Bonds in CLP | 796,051 | 796,564 | ||
Bonds in COP | 185,455 | 186,230 | ||
Totals | 1,076,924 | 1,078,339 |
Detail of maturities for subordinated bonds is as follows:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Within 1 year | - | - | ||
After 1 year but within 2 years | - | - | ||
After 2 years but within 3 years | 33,824 | 14,526 | ||
After 3 years but within 4 years | 134,061 | 23,923 | ||
After 4 years but within 5 years | - | 128,717 | ||
After 5 years | 909,039 | 911,173 | ||
Totals | 1,076,924 | 1,078,339 |
As of September 30, 2020 and for the year ended on December 31, 2019no issuance of subordinated bonds took place.
d) | Other financial obligations |
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Within 1 year | - | - | ||
After 1 year but within 2 years | - | - | ||
After 2 years but within 3 years | - | - | ||
After 3 years but within 4 years | - | - | ||
After 4 years but within 5 years | - | - | ||
After 5 years | - | - | ||
Totals financial liabilities | - | - | ||
Short-term financial liabilities | ||||
Amounts due to credit card transactions | 8,401 | 12,956 | ||
Others | - | 10 | ||
Totals other financial liabilities | 8,401 | 12,966 |
As of September 30, 2020 and December 31, 2019, the Bank has not incurred in any default in payments of principal, interest or others in regard to debt instruments issued.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 87 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 21 - Provisions
Provisions disclosed in liabilities as of September 30, 2020 and December 31, 2019 present the following detail:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Provisions for personnel salaries and expenses | 93,433 | 102,877 | ||
Provisions for mandatory dividends | - | 38,120 | ||
Provisions for contingent loans risk (1) | 45,487 | 44,947 | ||
Provisions for contingencies (2) | 66,932 | 2,559 | ||
Provisions for country risk | 5,892 | 5,604 | ||
Totals | 211,744 | 194,107 |
(1) | See Note 23, letter c |
(2) | Includes additional provisions for commercial portfolio for MCh$23,000, consumer portfolio for MCh$33,000 and mortgage portfolio for MCh$8,500. As of December 31, 2019 there were no additional provision recorded. |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 88 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 22 - Other Liabilities
As of September 30, 2020 and December 31, 2019 composition of this item is as follows:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Accounts and notes payable (1) | 276,890 | 382,271 | ||
Collateral for financial transactions (threshold) | 253,257 | 116,654 | ||
Accounts payable through intermediaries | 18,622 | 140,799 | ||
VAT and other monthly taxes | 15,918 | 20,575 | ||
Deferred fees | 7,943 | 8,321 | ||
Unearned income (2) | 24,840 | 5,644 | ||
Dividends payable | 243 | 267 | ||
Other liabilities | 16,873 | 34,383 | ||
Totals | 614,586 | 708,914 |
(1) | Groups obligations that do not correspond to the business operations, such as purchases of materials, obligations for leasing contracts for the acquisition of fixed assets or provisions for expenses pending payment. |
(2) | Comprises of fees earned by the financial advisory and insurance brokerage businesses that must be deferred in accordance with applicable regulations. |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 89 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 23 - Contingencies, Commitments, and Responsibilities
a) | Lawsuits and Legal Proceedings |
Lawsuits against the Bank with provision
As of the date of issuance of these Interim Consolidated Financial Statements, legal actions have been filed against the Bank and its subsidiaries involving its transactions in the ordinary course of business. They are mainly lawsuits pending against the Bank related to loans and other matters, most of which, according to the Bank's Legal Services Divisions involved in the suits, present no risk of significant loss. Notwithstanding the above, provisions for MCh$563 and MCh$280 as of September 30, 2020 and December 31, 2019, respectively have been established in the Interim Consolidated Financial Statements.
Other lawsuits in Chile against the Bank without provision
There are other legal actions filed against the Bank in relation to the operations of the business. The Bank's maximum exposure for these lawsuits amounts to approximately MCh$21,369 as of September 30, 2020 and MCh$22,207 as of December 31, 2019. However, Management's opinion based on reports from the Legal Division as of September 30, 2020, it is more likely than not that these lawsuits will not result in significant losses not contemplated by the Bank in these Interim Consolidated Financial Statements, so there are no provisions established for them.
Itaú Corpbanca Colombia S.A.
The Bank and its subsidiaries are involved in civil, administrative and labor proceedings. The outstanding civil and administrative proceedings, them are related to banking transactions, and the remaining ones derive from the ownership of leased assets.
Such claims amount, in the aggregate, to MCh$34,567 as of September 30, 2020 (MCh$38,503 as of December 2019). According to the evaluation of the expected results in each lawsuits the Bank has recorded a provision of MCh$38 as of September 30, 2020 (MCh$141 as of December 31, 2019).
b) | Commitments |
Transaction Agreement
On January 29, 2014, Inversiones Corp Group Limitada, Inversiones Saga Limitada (CorpGroup), Itaú-Unibanco Holding S.A., Corpbanca and Bank Itaú, subscribed a contract called 'Transaction Agreement', in accordance to the contract, they agreed a strategic association of its operations in Chile and Colombia. This strategic association gave rise to the merger of Corpbanca and Banco Itaú, which was renamed 'Itaú Corpbanca' and took place on April 1, 2016.
The Transaction Agreement (from January 2014 and its subsequent modifications) also contemplates that on January 28, 2022 Itaú Corpbanca will purchase from CorpGroup the 12.36% of shares in Itaú Corpbanca Colombia, equivalent to the participation that CorpGroup helds (directly or through other entities) in said entity at the merger date, corresponding to 93,306,684 shares. The purchase price agreed will be US$3.5367 per share, amounting to US$329,997,749.30, plus interest from August 4, 2015 until the payment date at an annual interest rate equal to Libor plus 2.7% minus the sum of the aggregate amount of dividends paid by Itaú Corpbanca Colombia to CorpGroup for the corresponding shares. This agreement, as explicitly noted, is subject to the prior approvals from the regulators, as applicable, in Chile and abroad.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 23 - Contingencies, Commitments, and Responsibilities, continued
According to article 76 of the General Banking Law, investments in shares of banks established abroad are subject to the prior approval of the Superintendency of Banks and Financial Institutions in Chile (currently CMF), as well as the Central Bank of Chile (BCCH), which in turn is subject to compliance with the conditions set forth in article 78 of said legal corp. Additionally, in the case of the banks incorporated in Colombia, an eventual acquisition of shares in Itaú Corpbanca Colombia by Itaú Corpbanca is also subject to the prior authorization of the Financial Superintendency of Colombia (SFC).
Consequently, the aforementioned transaction must be confirmed only by the occurrence of one or more future and uncertain events that are not entirely under the control of the Bank.
Acquisition of the MCC entities
In accordance with the Transaction Agreement executed on January 29, 2014 between Inversiones Corp Group Interhold SpA, Inversiones Saga Limitada (these last two, together 'CorpGroup'), Itaú Unibanco Holding S.A., Corpbanca and Banco Itaú Chile, later modified on June 2, 2015 and January 20, 2017, hereinafter the 'Transaction Agreement', Itaú Unibanco Holding S.A. assumed the obligation to transfer to Itaú Corpbanca, and the latter the obligation to acquire, 100% of its shares in MCC Securities Inc., MCC Asesorías Spa and MCC S.A. Corredores de Bolsa (herein 'MCC entities') in accordance with the terms agreed upon and subject to normal terms and conditions for this kind of transactions.
On May 28, 2019, the Board of Itaú Corpbanca approved to proceed with the acquisition of the MCC entities, in accordance with the provisions of the Transaction Agreement and in compliance with the provisions of Title XVI of the Law No. 18,046 on Corporations.
The acquisition of the shares of the MCC entities by Itaú Corpbanca is subject to the corresponding regulatory approvals, including approval from the Commission for the Financial Market.
Acquisition of 20% ownership in Itaú Corredor de Seguros de Colombia S.A.
On November 5, 2019, Itaú Corpbanca committed to acquire 20% of the shares that Helm LLC holds in Itaú Corredor de Seguros de Colombia S.A.
The acquisition of the shares of Itaú Corredor de Seguros de Colombia S.A. by Itaú Corpbanca, is subject to the corresponding regulatory approvals, including the approval from the Commission for the Financial Market.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 91 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 23 - Contingencies, Commitments, and Responsibilities
c) | Contingent loans and provisions |
The following table contains the amounts for which the Bank and its subsidiaries are contractually obliged to grant loans together with the relevant allowances for loan losses:
Contingent loans | Provisions (*) | |||||||
As of September 30, | As of December 31, | As of September 30, | As of December 31, | |||||
2020 | 2019 | 2020 | 2019 | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Collateral and guarantees | 560,460 | 548,521 | 9,189 | 4,316 | ||||
Confirmed foreign letters of credit | 2,444 | 509 | 1 | - | ||||
Documentary letters of credit issued | 82,502 | 97,553 | 364 | 318 | ||||
Letters of credit issued | 1,459,432 | 1,501,957 | 11,538 | 9,792 | ||||
Available on demand credit lines | 2,726,505 | 2,623,744 | 12,423 | 12,601 | ||||
Other credit commitments | 818,844 | 1,167,802 | 11,972 | 17,920 | ||||
Totals | 5,650,187 | 5,940,086 | 45,487 | 44,947 |
(*) | See Note 21 |
d) | Responsibilities |
The Bank and its subsidiaries have the following responsibilities arising from its regular course of business:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Third party operations | ||||
Collections | 17,353 | 17,985 | ||
Transferred financial assets managed by the Bank | 1,131,871 | 1,200,155 | ||
Third party funds under management | 2,393,702 | 2,541,495 | ||
Subtotals | 3,542,926 | 3,759,635 | ||
Custody of securities | ||||
Securities held in custody | 4,554,075 | 5,229,078 | ||
Securities held in custody deposited in other entities | - | - | ||
Securities issued by the Bank held in custody | 132,022 | 131,648 | ||
Subtotals | 4,686,097 | 5,360,726 | ||
Commitments | ||||
Others | - | - | ||
Subtotals | - | - | ||
Totals | 8,229,023 | 9,120,361 |
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 23 - Contingencies, Commitments, and Responsibilities
e) | Guarantees, Contingencies and other |
Itaú Corredores de Seguros S.A.
In order to comply with Article 58, letter d) of the Chilean Decree with Force of Law ('DFL') 251 of 1930, which states that, 'Insurance Brokers, in order to conduct business, must comply with the requirement of contracting insurance policies as determined by the Commission for the Financial Market (Ex- Superintendency of Securities and Insurance or 'SVS'), in order to correctly and fully comply with the obligations arising from its activities and especially regarding damages that may be incurred by insured parties taking policies through the brokerage house,' the subsidiary has renewed the following (civil liability and guarantee) insurance policies
Entity | From | To | Amount (UF) | Beneficiary | ||||
Consorcio Nacional de Seguros S.A. | 04-15-2020 | 04-14-2021 | 60,000 and 500 | Itaú Corredores de Seguros S.A. |
Itaú Corredores de Bolsa Limitada
In order to comply with articles 30 and 31 of Chilean Law 18,045, this subsidiary kept a bank guarantee certificate with the Chilean Electronic Stock Exchange and Santiago Stock Exchange, to ensure the correct and complete fulfillment of its obligations as stockbroker. The beneficiaries are the current or future creditors that the subsidiary has or will have derived from its transactions. The detail of the bank guarantee certificate is as follows:
Entity | From | To | Amount (UF) | Beneficiary | ||||
Itaú Corpbanca Chile | 04-22-2020 | 04-22-2021 | 16,000 | Bolsa Electrónica de Chile | ||||
Mapfre Compañía de Seguros S.A. | 04-22-2020 | 04-22-2022 | 4,000 | Bolsa de Comercio de Santiago | ||||
Itaú Corpbanca Chile | 04-22-2020 | 04-22-2021 | 10,000 | Comisión para el Mercado Financiero |
In addition, the company has contracted an insurance policy to comply with Law No. 52 of the Chilean Electronic Stock Exchange. Amounts recorded with respect to the comprehensive insurance policy are as follows:
Entity | From | To | Amount (UF) | Beneficiary | ||||
Orión Seguros Generales S.A. | 06-15-2020 | 05-31-2021 | 5,000 and 10,000 | Bolsa Electrónica de Chile |
The Company pledge the shares that holds of the Santiago Stock Exchange in favor the insurance company, to secure the fulfillment of the Obligations related to the transactions carried out with other brokers. This amounts to MCh$3,964 as of September 30, 2020 (MCh$18,479 as of December 31, 2019).
The Broker is registered in the Registry of Portfolio Administrators since November 22, 2017, the company granted a bank guarantee certificate from Itaú Corpbanca for an amount of UF 10,000 expiring on June 22, 2021, as a representative of the beneficiaries the guarantee pursuant to Articles 98 and 99 of Chilean Law 20,172 to secure its obligations as Portfolio Manager.
There are guarantees constituted of US$100,000 equivalent to MCh$79 and ThUS$30 equivalent to MCh$24, to guarantee operations with foreign traders, Pershing and Corp FX respectively, the latter is a Chilean broker mainly dedicated to the purchase and sale, either by itself or by third-party account, of financial assets,
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 23 - Contingencies, Commitments, and Responsibilities
and in general, the performance of all types of purchase and sales operations, arbitrations and/or financial assets, expressly including, derivate contracts, either swaps, forwards, options and /or arbitration, all of them with respect to any underlying assets, in addition to receiving the guarantees granted with respect to the contracts and operations mentioned above, and accepting all kinds of mandates with respects to them, whatever the good over which these guarantees fall.
As of September 30, 2020, this subsidiary holds financial assets to guarantee transactions in Cámara de Compensación y Liquidación de Valores for MCh$8,242 (MCh$9,067 as of December 31, 2019).
Itaú Administradora General de Fondos S.A.
On April 9, 2020, Itaú Administradora General de Fondos S.A. contracted a new guarantee certificate for UF 10,000 in favor of Fundación DUOC Pontificia Universidad Católica de Chile, to guarantee faithful compliance with articles 12, 13 and 14 of Law No. 20,712 on Administration of Third Party Funds and Individual Portfolios, its maturity is January 10, 2021. Itaú Corpbanca is representative of its beneficiaries.
Below are the documented guarantees that Itaú Corpbanca Administradora General de Fondos S.A. keeps current to date, which were required to comply with the obligations of portfolio management contracts, their committees, funds, payments of labor and social obligations with the contractor's workers:
Entity | From | To | Amount (UF) | Amount (MCh$) | Beneficiary | |||||
Banco Santander Chile | 06-02-2017 | 08-31-2021 | 15,000 | - | Corporación de Fomento de la Producción CORFO | |||||
Banco Santander Chile | 08-14-2017 | 08-31-2021 | 500 | - | Corporación de Fomento de la Producción CORFO | |||||
Itaú Corpbanca | 07-02-2020 | 07-01-2021 | - | 50 | Ferrocarriles del Estado |
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 24 - Equity
a. | Movements in equity accounts and reserves (attributable to the equity holders of the Bank) |
As of September 30, 2020 and December 31, 2019 the paid capital of the Banks is represented by ordinary shares subscribed and paid, with no par value as presented below:
Common shares | ||||
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
Issued as of January 1, | 512,406,760,091 | 512,406,760,091 | ||
Issuance of paid shares | - | - | ||
Issuance of shares pending payment | - | - | ||
Repurchase of own shares | - | - | ||
Sale of own shares | - | - | ||
Totals | 512,406,760,091 | 512,406,760,091 |
● | Subscribed and paid shares |
As of September 30, 2020 and December 31, 2019 the Bank has a capital in the amount of MCh$1,862,826, consisting of 512,406,760,091 common shares subscribed and paid, with no par value.
● | Purchase and sale of own shares |
During the nine-month period ended September 30, 2020 and the year ended on December 31, 2019 there were no transactions to buy and sell own shares.
List of major shareholders
The shareholders list as of September 30, 2020 and December 31, 2019 is as follows:
Shares | ||||||||||
Company name or shareholder name | As of September 30, 2020 | As of December 31, 2019 | ||||||||
N° shares | Ownership % | N° shares | Ownership % | |||||||
Itaú Unibanco | 200,966,823,626 | 39.22 | % | 195,408,043,473 | 38.14 | % | ||||
Itaú Unibanco Holding S.A. | 115,039,610,411 | 22.45 | % | 115,039,610,411 | 22.45 | % | ||||
ITB Holding Brasil Participaçoes Ltda. | 62,567,655,359 | 12.21 | % | 57,008,875,206 | 11.13 | % | ||||
CGB II SpA | 10,908,002,836 | 2.13 | % | 10,908,002,836 | 2.13 | % | ||||
CGB III SpA | 1,800,000,000 | 0.35 | % | 1,800,000,000 | 0.35 | % | ||||
Saga II SpA | 7,000,000,000 | 1.37 | % | 7,000,000,000 | 1.37 | % | ||||
Saga III SpA | 3,651,555,020 | 0.71 | % | 3,651,555,020 | 0.71 | % | ||||
Familia Saieh | 140,835,760,455 | 27.49 | % | 146,394,540,608 | 28.57 | % | ||||
Corp Group Banking S.A. | 136,127,850,073 | 26.57 | % | 136,127,850,073 | 26.57 | % | ||||
Compañía Inmobiliaria y de Inversiones Saga SpA (1) | 4,707,910,382 | 0.92 | % | 10,266,690,535 | 2.00 | % | ||||
International Finance Corporation | 17,017,909,711 | 3.32 | % | 17,017,909,711 | 3.32 | % | ||||
Others | 153,586,266,299 | 29.97 | % | 153,586,266,299 | 29.97 | % | ||||
Stockbrokers | 78,742,979,901 | 15.37 | % | 63,397,824,244 | 12.37 | % | ||||
ADR holders and foreign investors | 34,455,037,245 | 6.72 | % | 50,376,882,652 | 9.83 | % | ||||
Local institutional investors | 27,244,909,099 | 5.32 | % | 27,989,426,434 | 5.46 | % | ||||
Other minority shareholders | 13,143,340,054 | 2.56 | % | 11,822,132,969 | 2.31 | % | ||||
Totals | 512,406,760,091 | 100 | % | 512,406,760,091 | 100 | % |
(1) | Includes 1,005,897,850 shares of Saga under custody of a third party. |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 95 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 24 - Equity, continued
b. | Dividends |
At the Ordinary Meeting of the Shareholders of Itaú Corpbanca held on March 18, 2020 the shareholders agreed to distribute profits for MCh$127,065 representing 100% of the profits for 2019.
At the Ordinary Meeting of the Shareholders of Itaú Corpbanca held on March 19, 2019 the shareholders agreed to distribute profits for MCh$51,614, representing 30% of the 2018 profits.
Income | ||||||||||||
attributable to | Allocated to | Dividend per | ||||||||||
equity holders of | reserves and | Allocated to | Percentage | Number of | share | |||||||
Exercise | the Bank | retained earnings | dividends | distributed | shares | (in pesos) | ||||||
MCh$ | MCh$ | MCh$ | % | N° | $ | |||||||
Year 2019 (Shareholders Meeting September 2020) | 127,065 | - | 127,065 | 100 | % | 512,406,760,091 | 0.24798 | |||||
Year 2018 (Shareholders Meeting September 2019) | 172,047 | 120,433 | 51,614 | 30 | % | 512,406,760,091 | 0.10073 |
As of September 30, 2020 and December 31, 2019 basic earnings and diluted earnings are as follows:
As of September 30, 2020 | As of December 31, 2019 | |||||||
Basic earnings and diluted earnings | N° shares | Amount | N° shares | Amount | ||||
Millions | MCh$ | Millions | MCh$ | |||||
Basic earnings per share | ||||||||
Net income for the period/year | - | (736,422) | - | 127,065 | ||||
Weighted average number of outstanding shares | 512,407 | - | 512,407 | - | ||||
Assumed convertible debt conversion | - | - | - | - | ||||
Adjusted number of outstanding shares | 512,407 | - | 512,407 | - | ||||
Basic earnings per share (Chilean pesos) | - | (1.437) | - | 0.248 | ||||
Diluted earnings per share | - | |||||||
Net income for the period/year | - | (736,422) | - | 127,065 | ||||
Weighted average number of outstanding shares | 512,407 | - | 512,407 | - | ||||
Dilutive effects | - | |||||||
Assumed convertible debt conversion | - | - | - | - | ||||
Conversion of common shares | - | - | - | - | ||||
Options rights | - | - | - | - | ||||
Adjusted number of shares | 512,407 | - | 512,407 | - | ||||
Diluted earnings per share (Chilean pesos) | - | (1.437) | - | 0.248 |
As of September 30, 2020 and for the year ended on December 31, 2019, there were no dilutive effects.
c. | Valuation accounts |
Available for sale investments: It includes accumulated net changes in the fair value of investments available for sale until the investment is disposed of or any impairment.
Net investment in foreign operations hedge: Corresponds to adjustments for hedges of net investments in foreign operations.
Cash flows hedge: It includes the effects of hedges on the Bank's exposure to variations in cash flows that are attributed to a particular risk related to a recognized asset and/or liability, which may affect the results of the period.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 24 - Equity, continued
Exchange differences on investments in Colombia and New York branch: It includes the effects of converting the financial statements of the New York Branch and Colombian subsidiaries, whose functional currencies are the US dollar and Colombian peso, respectively, to the presentation currency of Banco Itaú Corpbanca (Chilean peso).
Defined benefits obligations: This includes the effects of complying with IAS 19 'Employees Benefit'.
The following are the equity effects and income taxes as of September 30, 2020 and December 31, 2019:
Net investments | Exchange differences | |||||||||||
Available for | in foreign | Cash | on investment | Defined | ||||||||
As of September 30, 2020 | sale | operations | flows | in Colombia | benefits | |||||||
investments | hedges | hedges | and New York branch | obligations | Totals | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Other comprehensive income (loss) before income taxes | ||||||||||||
Balances as of January 1, 2020 | 35,170 | (822) | (17,383) | 35,283 | (6,484) | 45,764 | ||||||
Effects for the period | (13,441) | (29,038) | 76,271 | (46,566) | 192 | |||||||
Balances as of September 30, 2020 | 21,729 | (29,860) | 58,888 | (11,283) | (6,292) | 33,182 | ||||||
Income taxes related to components of other comprehensive income (loss) | ||||||||||||
Balances as of January 1, 2020 | (11,584) | (465) | 6,627 | - | 1,798 | (3,624) | ||||||
Effects for the period | 2,234 | 6,439 | (20,593) | - | (103) | |||||||
Balances as of September 30, 2020 | (9,350) | 5,974 | (13,966) | - | 1,695 | (15,647) | ||||||
Net balances as of September 30, 2020 | 12,379 | (23,886) | 44,922 | (11,283) | (4,597) | 17,535 |
Net investments | Exchange differences | |||||||||||
Available for | in foreign | Cash | on investment | Defined | ||||||||
As of December 31, 2019 | sale | operations | flows | in Colombia | benefits | |||||||
investments | hedges | hedges | and New York branch | obligations | Totals | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Other comprehensive income (loss) before income taxes | ||||||||||||
Balances as of January 1, 2019 | 16,337 | 5,559 | 29,403 | (19,119) | (3,236) | 28,944 | ||||||
Effects for the period | 18,833 | (6,381) | (46,786) | 54,402 | (3,248) | 16,820 | ||||||
Balances as of December 31, 2019 | 35,170 | (822) | (17,383) | 35,283 | (6,484) | 45,764 | ||||||
Income taxes related to components of other comprehensive income (loss) | ||||||||||||
Balances as of January 1, 2019 | (6,375) | (280) | (7,746) | - | 689 | (13,712) | ||||||
Effects for the period | (5,209) | (185) | 14,373 | - | 1,109 | 10,088 | ||||||
Balances as of December 31, 2019 | (11,584) | (465) | 6,627 | - | 1,798 | (3,624) | ||||||
Net balances as of December 31, 2019 | 23,586 | (1,287) | (10,756) | 35,283 | (4,686) | 42,140 |
d. | Reserves |
This item corresponds to 'Other non-earnings reserves' corresponding to the adjustments recorded as a result of the business combination between Banco Itaú Chile and Corpbanca for MCh$744,838 as of September 30, 2020 and December 31, 2019, and reserves from Banco Itaú Chile before the business combination for MCh$451,011 as of September 30, 2020 and December 31, 2019.
e. | Retained earnings from prior years |
Corresponds to profits for the years ended December 31, 2019 and 2018 not distributed to shareholders for a total of MCh$156,342 as of September 30, 2020 and December 31, 2019.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 24 - Equity, continued
f. | Non-controlling interest |
Correspond to the net equity amount of the subsidiaries attributable to equity instruments which do not belong, either directly or indirectly, to the Bank, including the portion that has been attributed to the income (loss) for the year. The amounts and ownership percentage of the non-controlling interest in equity and income (loss) of the subsidiary are shown below:
As of September 30, 2020
Exchange | ||||||||||||||||||||
Non- | Available for | differences on | Cash | Defined | Total other | Total | ||||||||||||||
controlling | Net | sale | investment in | flows | benefits | Deferred | comprehensive | comprehensive | ||||||||||||
Subsidiary | interest | Equity | income | investments | Colombia | hedges | obligations | taxes | income | income | ||||||||||
% | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||
Itaú Corredor de Seguro Colombia S.A. | 20.015 | % | 387 | (43) | - | - | - | - | - | - | (43) | |||||||||
Itaú Corpbanca Colombia S.A. y filiales | 12.900 | % | 77,254 | (7,962) | (4,080) | (7,572) | 714 | 1,899 | 402 | (8,637) | (16,599) | |||||||||
Totals | - | 77,641 | (8,005) | (4,080) | (7,572) | 714 | 1,899 | 402 | (8,637) | (16,642) |
As of December 31, 2019
Exchange | ||||||||||||||||||||
Non- | Available for | differences on | Cash | Defined | Total other | Total | ||||||||||||||
controlling | Net | sale | investment in | flows | benefits | Deferred | comprehensive | comprehensive | ||||||||||||
Subsidiary | interest | Equity | income | investments | Colombia | hedges | obligations | taxes | income | income | ||||||||||
% | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||
Itaú Corredor de Seguro Colombia S.A. | 20.015 | % | 478 | 125 | - | - | - | - | - | - | 125 | |||||||||
Itaú Corpbanca Colombia S.A. y filiales (*) | 12.900 | % | 93,805 | 5,274 | 675 | 17,922 | (411) | (1,184) | 332 | 17,334 | 22,608 | |||||||||
Totals | 94,283 | 5,399 | 675 | 17,922 | (411) | (1,184) | 332 | 17,334 | 22,733 |
(*)On December 3, 2019, after obtaining regulatory approvals from banking supervisors in Chile, Colombia and Brazil, Itaú Corpbanca completed the acquisition of the shares of Itaú Corpbanca Colombia owned by Helm LLC and Kresge Stock Holding Company Inc. In relation to these transactions, Itaú Corpbanca acquired shares representing approximately 20.82% of the share capital of Itaú Corpbanca Colombia, for a total price of approximately US $ 334 million. As a result of these acquisitions, Itaú Corpbanca became the owner of 87.10% of the shares of Itaú Corpbanca Colombia.
The following table shows the non-controlling interest movements for the nine-month period ended September 30, 2020 and for the year ended on December 31, 2019:
As of September 30, | As of December 31, | |||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Balances as of January 1, | 94,283 | 223,081 | ||
Comprehensive income (loss) for the period/year | (16,642) | 22,733 | ||
Effects of change of ownership | - | (151,531) | ||
Balances for the period ended | 77,641 | 94,283 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 98 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 24 - Equity, continued
Itaú Corpbanca's main subsidiary with non-controlling interest is as follows:
As of September 30, 2020 | As of December 31, 2019 | ||||||||||||
Entity name | Non- | Non- | |||||||||||
Main | Ownership | controlling | Ownership | controlling | |||||||||
Country | Business | percentage | interest | percentage | interest | ||||||||
Itaú Corpbanca Colombia S.A. and subsidiaries | Colombia | Bank | 87.10 | % | 12.90 | % | 87.10 | % | 12.90 | % |
Information that represents the non-controlling interest of the aforementioned company before the consolidation elimination adjustments is as follows:
As of September 30, | As of December 31, | |||
Statements of Financial Position summary | 2020 | 2019 | ||
MCh$ | MCh$ | |||
Current assets | 5,461,645 | 5,385,982 | ||
Current liabilities | (2,914,018) | (3,112,252) | ||
Net current assets (liabilities) | 2,547,627 | 2,273,730 | ||
Non-current assets | 632,333 | 1,175,106 | ||
Non-current liabilities | (2,580,134) | (2,729,714) | ||
Net non-current assets (liabilities) | (1,947,801) | (1,554,608) | ||
Total net assets (liabilities) | 599,826 | 719,122 | ||
Accumulated non-controlling interest | 77,254 | 93,806 |
For the nine-month periods ended | ||||
September 30, | ||||
Statements of Income summary | 2020 | 2019 | ||
MCh$ | MCh$ | |||
Interest income | 331,138 | 530,826 | ||
Income (loss) for the period | (61,667) | 21,432 | ||
Non-controlling interest income | (7,962) | 7,227 |
For the nine-month periods ended | ||||
September 30, | ||||
Statements of Cash Flows summary | 2020 | 2019 | ||
MCh$ | MCh$ | |||
Net cash flows provided by (used in) operating activities | (140,651) | (198,019) | ||
Net cash flows provided by (used in) investing activities | 248,178 | 143,429 | ||
Net cash flows provided by (used in) financing activities | 97,961 | 19,100 | ||
Net increase (decrease) in cash flows | 205,488 | (35,490) |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 99 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 24 - Equity, continued
g. | Consolidated comprehensive income for the period |
For the three-month periods ended September 30, | ||||||||||||
2020 | 2019 | |||||||||||
Equity | Non- | Equity | Non- | |||||||||
holders of | controlling | holders of | controlling | |||||||||
Items | the Bank | interest | Totals | the Bank | interest | Totals | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Comprehensive income for the period | (14,006) | 1,478 | (12,528) | 36,449 | 1,426 | 37,875 | ||||||
Other comprehensive income (loss) before income taxes | ||||||||||||
Available for sale investments | (14,309) | 194 | (14,115) | 14,345 | (1,264) | 13,081 | ||||||
Net investment in foreign operations hedges | 53,092 | - | 53,092 | 2,982 | 3,281 | 6,263 | ||||||
Cash flow hedges | (16,554) | (469) | (17,023) | 9,843 | (4,151) | 5,692 | ||||||
Exchange differences | (37,712) | (4,796) | (42,508) | 4,657 | 5 | 4,662 | ||||||
Defined benefits obligations | 421 | 63 | 484 | 47 | 24 | 71 | ||||||
Subtotals | (15,062) | (5,008) | (20,070) | 31,874 | (2,105) | 29,769 | ||||||
Income taxes | ||||||||||||
Available for sale investments | 4,216 | - | 4,216 | (3,603) | 386 | (3,217) | ||||||
Net investment in foreign operations hedges | (14,335) | - | (14,335) | 240 | - | 240 | ||||||
Cash flow hedges | 4,640 | 151 | 4,791 | (3,970) | 98 | (3,872) | ||||||
Defined benefits obligations | (125) | (18) | (143) | (13) | (6) | (19) | ||||||
Subtotals | (5,604) | 133 | (5,471) | (7,346) | 478 | (6,868) | ||||||
Other comprehensive income (loss) for the period | (20,666) | (4,875) | (25,541) | 24,528 | (1,627) | 22,901 | ||||||
Comprehensive income (loss) for the period | (34,672) | (3,397) | (38,069) | 60,977 | (201) | 60,776 |
For the nine-month periods ended September 30, | ||||||||||||
2020 | 2019 | |||||||||||
Equity | Non- | Equity | Non- | |||||||||
holders of | controlling | holders of | controlling | |||||||||
Items | the Bank | interest | Totals | the Bank | interest | Totals | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Comprehensive income for the period | (736,422) | (8,005) | (744,427) | 117,306 | 7,308 | 124,614 | ||||||
Other comprehensive income (loss) before income taxes | ||||||||||||
Available for sale investments | (13,441) | (4,080) | (17,521) | 26,210 | 539 | 26,749 | ||||||
Net investment in foreign operations hedges | 76,271 | - | 76,271 | 12,738 | 3,281 | 16,019 | ||||||
Cash flow hedges | (29,038) | 714 | (28,324) | (2,467) | (3,973) | (6,440) | ||||||
Exchange differences | (46,566) | (7,572) | (54,138) | (5,330) | (2,678) | (8,008) | ||||||
Defined benefits obligations | 192 | 1,899 | 2,091 | (1,401) | (714) | (2,115) | ||||||
Subtotals | (12,582) | (9,039) | (21,621) | 29,750 | (3,545) | 26,205 | ||||||
Income taxes | ||||||||||||
Available for sale investments | 2,234 | 1,646 | 3,880 | (6,859) | (122) | (6,981) | ||||||
Net investment in foreign operations hedges | (20,593) | - | (20,593) | (1,698) | - | (1,698) | ||||||
Cash flow hedges | 6,439 | (712) | 5,727 | (1,312) | 66 | (1,246) | ||||||
Defined benefits obligations | (103) | (532) | (635) | 588 | 302 | 890 | ||||||
Subtotals | (12,023) | 402 | (11,621) | (9,281) | 246 | (9,035) | ||||||
Other comprehensive income (loss) for the period | (24,605) | (8,637) | (33,242) | 20,469 | (3,299) | 17,170 | ||||||
Comprehensive income (loss) for the period | (761,027) | (16,642) | (777,669) | 137,775 | 4,009 | 141,784 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 100 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 25 - Interest Income and Interest Expense
This item comprises interest accrued in the year by all financial assets and liabilities, interest income and expenses, whose implicit or explicit performance is measured by applying the effective interest rate method, regardless if these are measured at fair value, as well as the effects from hedge accounting relationships, which are part of the interest income and expenses included in the Interim Consolidated Statement of Income for the period.
a. | The composition of interest income, including the effects related to hedge accounting, for the three and nine-month periods ended September 30, 2020 and 2019, is as follows: |
For the three-month periods ended September 30, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Inflation | Inflation | |||||||||||||||
indexation | Prepayment | indexation | Prepayment | |||||||||||||
Interest income | Interest | adjustment | fees | Totals | Interest | adjustment | fees | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Investments under resale agreements | 925 | - | - | 925 | 1,259 | (2) | - | 1,257 | ||||||||
Interbank loans | 311 | - | - | 311 | 985 | - | - | 985 | ||||||||
Commercial loans | 168,904 | 2,141 | 951 | 171,996 | 198,301 | 23,253 | 6,239 | 227,793 | ||||||||
Mortgage loans | 45,410 | 1,860 | 206 | 47,476 | 49,122 | 20,546 | 228 | 69,896 | ||||||||
Consumer loans | 78,708 | (4) | 808 | 79,512 | 93,762 | 27 | 802 | 94,591 | ||||||||
Financial investments | 10,548 | 36 | - | 10,584 | 12,958 | 2,950 | - | 15,908 | ||||||||
Other interest income | 1,953 | 14 | - | 1,967 | 6,715 | 151 | - | 6,866 | ||||||||
Gain (loss) from hedge accounting | 8,225 | (611) | - | 7,614 | 9,165 | (7,979) | - | 1,186 | ||||||||
Totals | 314,984 | 3,436 | 1,965 | 320,385 | 372,267 | 38,946 | 7,269 | 418,482 |
For the nine-month periods ended September 30, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Inflation | Inflation | |||||||||||||||
indexation | Prepayment | indexation | Prepayment | |||||||||||||
Interest income | Interest | adjustment | fees | Totals | Interest | adjustment | fees | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Investments under resale agreements | 2,907 | - | - | 2,907 | 3,751 | (1) | - | 3,750 | ||||||||
Interbank loans | 1,413 | - | - | 1,413 | 3,868 | - | - | 3,868 | ||||||||
Commercial loans | 549,397 | 62,056 | 3,783 | 615,236 | 603,291 | 74,145 | 10,497 | 687,933 | ||||||||
Mortgage loans | 137,875 | 60,371 | 901 | 199,147 | 145,961 | 67,422 | 637 | 214,020 | ||||||||
Consumer loans | 245,230 | 77 | 1,950 | 247,257 | 280,812 | 95 | 2,346 | 283,253 | ||||||||
Financial investments | 49,203 | 14,170 | - | 63,373 | 61,154 | 6,528 | - | 67,682 | ||||||||
Other interest income | 5,805 | 725 | - | 6,530 | 14,885 | 831 | - | 15,716 | ||||||||
Gain (loss) from hedge accounting | 22,438 | (22,784) | - | (346) | 23,318 | (23,738) | - | (420) | ||||||||
Totals | 1,014,268 | 114,615 | 6,634 | 1,135,517 | 1,137,040 | 125,282 | 13,480 | 1,275,802 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 101 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Nota 25 - Ingresos y Gastos por Intereses y Reajustes, continuación
b. | For the three and nine-month periods ended September 30, 2020 and 2019, the amount due for interest and inflation-indexation adjustments including the effect related to hedge accounting, is as follows: |
For the three-month periods ended September 30, | ||||||||||||
2020 | 2019 | |||||||||||
Inflation | Inflation | |||||||||||
indexation | indexation | |||||||||||
Interest expense | Interest | adjustment | Totals | Interest | adjustment | Totals | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Deposits and other demand liabilities | (10,773) | (2) | (10,775) | (13,191) | (43) | (13,234) | ||||||
Obligations under repurchase agreements | (414) | - | (414) | (5,937) | - | (5,937) | ||||||
Time deposits and other time liabilities | (54,242) | (107) | (54,349) | (93,790) | (1,633) | (95,423) | ||||||
Interbank borrowings | (12,237) | - | (12,237) | (18,958) | - | (18,958) | ||||||
Debt instruments issued | (46,411) | (1,817) | (48,228) | (54,636) | (25,483) | (80,119) | ||||||
Other financial liabilities | (14) | - | (14) | (112) | - | (112) | ||||||
Lease contracts liabilities | (1,226) | 8 | (1,218) | (1,766) | - | (1,766) | ||||||
Other Interest expense | (31) | (5) | (36) | (18) | (907) | (925) | ||||||
Gain (loss) from hedge accounting | 1,769 | - | 1,769 | 2,842 | - | 2,842 | ||||||
Totals | (123,579) | (1,923) | (125,502) | (185,566) | (28,066) | (213,632) |
For the nine-month periods ended September 30, | ||||||||||||
2020 | 2019 | |||||||||||
Inflation | Inflation | |||||||||||
indexation | indexation | |||||||||||
Interest expense | Interest | adjustment | Totals | Interest | adjustment | Totals | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Deposits and other demand liabilities | (39,094) | (160) | (39,254) | (37,851) | (141) | (37,992) | ||||||
Obligations under repurchase agreements | (7,602) | (4) | (7,606) | (22,454) | - | (22,454) | ||||||
Time deposits and other time liabilities | (213,978) | (4,090) | (218,068) | (277,772) | (5,799) | (283,571) | ||||||
Interbank borrowings | (46,449) | - | (46,449) | (59,004) | 1 | (59,003) | ||||||
Debt instruments issued | (152,996) | (69,797) | (222,793) | (159,101) | (84,254) | (243,355) | ||||||
Other financial liabilities | (186) | - | (186) | (335) | - | (335) | ||||||
Lease contracts liabilities | (3,830) | (14) | (3,844) | (3,801) | - | (3,801) | ||||||
Other Interest expense | (59) | (6,009) | (6,068) | (69) | (2,274) | (2,343) | ||||||
Gain (loss) from hedge accounting | 16,956 | - | 16,956 | 6,890 | - | 6,890 | ||||||
Totals | (447,238) | (80,074) | (527,312) | (553,497) | (92,467) | (645,964) |
For purposes of the Interim Consolidated Statement of cash flows, the net amount of interest and inflation-indexation adjustments for the nine-month period ended September 30, 2020 is MCh$608,205 (MCh$629,838 for the nine-month period ended of September 30, 2019).
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 102 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 26 - Fee and Commission Income and Expense
a) | Fee and commission income |
This item comprises the amount of all commissions accrued and paid during the period that generate the business segments, except for those that form an integral part of the effective interest rate of the financial instruments. Details of these items are as follows:
For the three-month | For the nine-month | |||||||
periods ended | periods ended | |||||||
September 30, | September 30, | |||||||
Fee and commission income | 2020 | 2019 | 2020 | 2019 | ||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Fees and commissions from lines of credits and overdrafts | 438 | 304 | 1,191 | 914 | ||||
Fees and commissions from guarantees and letters of credit | 4,428 | 1,217 | 15,094 | 9,883 | ||||
Fees and commissions from card services | 12,521 | 18,735 | 42,110 | 56,501 | ||||
Fees and commissions from accounts management | 2,751 | 3,857 | 9,622 | 11,863 | ||||
Fees and commissions from collections and payments | 7,192 | 5,758 | 17,990 | 17,840 | ||||
Fees and commissions from brokerage and securities management | 1,386 | 2,150 | 6,134 | 7,249 | ||||
Fees and commissions from asset management | 5,932 | 6,855 | 17,533 | 19,390 | ||||
Compensation for insurance brokerage fees | 7,186 | 9,135 | 21,798 | 27,497 | ||||
Investment banking and advisory fees | 737 | 5,369 | 5,558 | 17,243 | ||||
Fees and commissions from student loans ceded | 1,322 | 538 | 4,206 | 3,430 | ||||
Commissions on loan transactions | 11 | 342 | 760 | 371 | ||||
Commissions from mortgage credits | 9 | 1,102 | 31 | 1,107 | ||||
Other fees from services rendered | 1,883 | 331 | 5,676 | 5,185 | ||||
Other commissions earned | 1,749 | 3,227 | 4,140 | 4,390 | ||||
Totals | 47,545 | 58,921 | 151,843 | 182,864 |
b) | Fee and commission expense |
This item includes expenses for commissions accrued during for the period, according to the following detail:
For the three-month | For the nine-month | |||||||
periods ended | periods ended | |||||||
September 30, | September 30, | |||||||
Fee and commission expense | 2020 | 2019 | 2020 | 2019 | ||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Compensation for card operation | (8,979) | (9,900) | (27,749) | (33,264) | ||||
Fees and commissions for securities transactions | (1,129) | (599) | (3,558) | (2,075) | ||||
Commissions paid for foreign trade transactions | (617) | (195) | (1,822) | (1,538) | ||||
Commissions paid for customer loyalty program benefits | (2,382) | (4,589) | (7,080) | (12,067) | ||||
Commissions paid for services to customers management | (457) | (150) | (1,570) | (952) | ||||
Other commissions paid | (956) | (1,241) | (3,457) | (3,628) | ||||
Totals | (14,520) | (16,674) | (45,236) | (53,524) |
Commissions earned on mortgage finance loans are recorded in the Interim Consolidated Statement of Income under 'Interest income'.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 103 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 27 - Net Income (Loss) from Financial Operations
This item includes the amount of changes in the fair value of financial instruments, except those attributable to interest accrued by applying the effective interest rate method, as well as the results obtained in the purchase and sale thereof.
Net income from financial operations in the Interim Consolidated Statements of Income for the period is as follows:
For the three-month | For the nine-month | |||||||
periods ended | periods ended | |||||||
September 30, | September 30, | |||||||
Net Income (Loss) from Financial Operations | 2020 | 2019 | 2020 | 2019 | ||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Trading investments | 4,037 | 4,957 | 19,261 | 14,415 | ||||
Financial derivative contracts (trading) | (31,053) | 41,629 | 108,314 | 48,072 | ||||
Sale of loans and accounts receivable from customers (*) | (3) | 185 | (458) | 1,093 | ||||
Available for sale investments | 5,733 | 13,954 | 57,250 | 30,707 | ||||
Others | 1,167 | (1,802) | (1,515) | (3,252) | ||||
Totals | (20,119) | 58,923 | 182,852 | 91,035 |
(*) | See detail in Note 10, letter c). |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 104 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 28 - Net Foreign Exchange Income (Loss)
This item includes the income earned from foreign currency trading, differences arising from converting monetary items in a foreign currency to the functional currency, and those generated by non-monetary assets in foreign currency at the time of their disposal. Net foreign exchange income (loss) details are as follow:
For the three-month | For the nine-month | |||||||
periods ended | periods ended | |||||||
Net Foreign Exchange Income (Loss) | September 30, | September 30, | ||||||
2020 | 2019 | 2020 | 2019 | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Net foreign exchange gain (loss) | ||||||||
Gain (loss) on net foreign currency exchange positions | 19,756 | 12,823 | (61,958) | 20,172 | ||||
Other foreign currency Exchange gains (losses) | 386 | 1,192 | 2,247 | 3,021 | ||||
Subtotals | 20,142 | 14,015 | (59,711) | 23,193 | ||||
Net exchange rate adjustments gain (loss) | ||||||||
Adjustments for loans and accounts receivable from customers | (442) | 601 | 438 | 405 | ||||
Adjustment for other assets | (3) | 5 | 4 | (1) | ||||
Net gain (loss) from hedge accounting | (8,586) | 4,913 | (17,216) | (8,693) | ||||
Subtotals | (9,031) | 5,519 | (16,774) | (8,289) | ||||
Totals | 11,111 | 19,534 | (76,485) | 14,904 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 105 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 29 - Provision for Loan Losses
a. | The movement registered in income for the period related to allowances and impairment due to credit risk, for the three and nine-month periods ended September 30, 2020 and 2019, is summarized as follows: |
For the three-month periods ended September 30, 2020 | ||||||||||||||||
Minimum | ||||||||||||||||
Loans and accounts receivable from customers | normal | |||||||||||||||
Interbank | Commercial | Mortgage | Consumer | Contingent | Additional | portfolio | ||||||||||
Provision for Loan Losses | loans | loans | loans | loans | loans | provisions | provisions | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Provisions established | ||||||||||||||||
Individually assessed | (99) | (66,653) | - | - | (5,606) | - | - | (72,358) | ||||||||
Collectively assessed | - | (8,363) | (4,612) | (49,140) | (130) | (45,000) | - | (107,245) | ||||||||
Income (loss) for provisions established (*) | (99) | (75,016) | (4,612) | (49,140) | (5,736) | (45,000) | - | (179,603) | ||||||||
Provisions released | ||||||||||||||||
Individually assessed | - | 37,190 | - | - | 2,533 | - | - | 39,723 | ||||||||
Collectively assessed | - | 1,581 | 1,922 | 25,491 | 844 | - | - | 29,838 | ||||||||
Income (loss) for provisions released (*) | - | 38,771 | 1,922 | 25,491 | 3,377 | - | - | 69,561 | ||||||||
Recovery of loans previously charged-off | - | 6,630 | 542 | 9,445 | - | - | - | 16,617 | ||||||||
Net charge to income | (99) | (29,615) | (2,148) | (14,204) | (2,359) | (45,000) | - | (93,425) |
For the three-month periods ended September 30, 2019 | ||||||||||||||||
Minimum | ||||||||||||||||
Loans and accounts receivable from customers | normal | |||||||||||||||
Interbank | Commercial | Mortgage | Consumer | Contingent | Additional | portfolio | ||||||||||
Provision for Loan Losses | loans | loans | loans | loans | loans | provisions | provisions | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Provisions established | ||||||||||||||||
Individually assessed | - | (58,981) | - | - | (6,760) | - | - | (65,741) | ||||||||
Collectively assessed | - | (35,276) | (4,403) | (71,525) | (450) | (6,000) | - | (117,654) | ||||||||
Income (loss) for provisions established (*) | - | (94,257) | (4,403) | (71,525) | (7,210) | (6,000) | - | (183,395) | ||||||||
Provisions released | ||||||||||||||||
Individually assessed | 96 | 44,614 | - | - | 6,337 | - | - | 51,047 | ||||||||
Collectively assessed | - | 3,034 | 2,023 | 29,378 | 111 | - | - | 34,546 | ||||||||
Income (loss) for provisions released (*) | 96 | 47,648 | 2,023 | 29,378 | 6,448 | - | - | 85,593 | ||||||||
Recovery of loans previously charged-off | - | 5,340 | 875 | 9,563 | - | - | - | 15,778 | ||||||||
Net charge to income | 59 | (41,269) | (1,505) | (32,584) | (762) | (6,000) | - | (82,024) |
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 29 - Provision for Loan Losses
For the nine-month periods ended September 30, 2020 | ||||||||||||||||
Minimum | ||||||||||||||||
Loans and accounts receivable from customers | normal | |||||||||||||||
Interbank | Commercial | Mortgage | Consumer | Contingent | Additional | portfolio | ||||||||||
Provision for Loan Losses | loans | loans | loans | loans | loans | provisions | provisions | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Provisions established | ||||||||||||||||
Individually assessed | (407) | (205,707) | - | - | (13,229) | - | - | (219,343) | ||||||||
Collectively assessed | - | (40,801) | (14,974) | (156,267) | (357) | (64,500) | - | (276,899) | ||||||||
Income (loss) for provisions established (*) | (407) | (246,508) | (14,974) | (156,267) | (13,586) | (64,500) | - | (496,242) | ||||||||
Provisions released | ||||||||||||||||
Individually assessed | 414 | 81,858 | - | - | 10,416 | - | - | 92,688 | ||||||||
Collectively assessed | - | 5,046 | 6,149 | 63,216 | 1,714 | - | - | 76,125 | ||||||||
Income (loss) for provisions released (*) | 414 | 86,904 | 6,149 | 63,216 | 12,130 | - | - | 168,813 | ||||||||
Recovery of loans previously charged-off | - | 17,526 | 1,836 | 24,035 | - | - | - | 43,397 | ||||||||
Net charge to income | 7 | (142,078) | (6,989) | (69,016) | (1,456) | (64,500) | - | (284,032) |
For the nine-month periods ended September 30, 2019 | ||||||||||||||||
Minimum | ||||||||||||||||
Loans and accounts receivable from customers | normal | |||||||||||||||
Interbank | Commercial | Mortgage | Consumer | Contingent | Additional | portfolio | ||||||||||
Provision for Loan Losses | loans | loans | loans | loans | loans | provisions | provisions | Totals | ||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Provisions established | ||||||||||||||||
Individually assessed | (507) | (157,218) | - | - | (10,087) | - | - | (167,812) | ||||||||
Collectively assessed | - | (54,385) | (13,650) | (193,303) | (1,362) | (6,000) | - | (268,700) | ||||||||
Income (loss) for provisions established (*) | (507) | (211,603) | (13,650) | (193,303) | (11,449) | (6,000) | - | (436,512) | ||||||||
Provisions released | ||||||||||||||||
Individually assessed | 487 | 101,946 | - | - | 17,125 | - | - | 119,558 | ||||||||
Collectively assessed | - | 12,365 | 6,715 | 68,909 | 656 | - | - | 88,645 | ||||||||
Income (loss) for provisions released (*) | 487 | 114,311 | 6,715 | 68,909 | 17,781 | - | - | 208,203 | ||||||||
Recovery of loans previously charged-off | - | 15,037 | 2,124 | 26,045 | - | - | - | 43,206 | ||||||||
Net charge to income | (20) | (82,255) | (4,811) | (98,349) | 6,332 | (6,000) | - | (185,103) |
(*)The amounts in the Interim Consolidated Statements of Cash Flows for the period are as follows:
For the nine-month periods ended | ||||
September 30, | ||||
2020 | 2019 | |||
MCh$ | MCh$ | |||
Charge to income for provisions established | 496,242 | 436,502 | ||
Credit to income for provisions used | (168,813) | (208,193) | ||
Totals | 327,429 | 228,309 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 107 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 30 - Personnel Salaries and Expenses
Personnel salaries and expenses for the three and nine-month periods ended September 30, 2020 and 2019, are broken down as follows:
For the three-month | For the nine-month | |||||||
periods ended | periods ended | |||||||
Personnel Salaries and Expenses | September 30, | September 30, | ||||||
2020 | 2019 | 2020 | 2019 | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Personnel compensation | (45,986) | (45,092) | (140,536) | (134,261) | ||||
Bonuses and gratifications | (19,712) | (19,489) | (58,049) | (60,156) | ||||
Seniority compensation | (6,153) | (2,886) | (13,329) | (9,306) | ||||
Training expenses | (230) | (160) | (687) | (616) | ||||
Other personnel expenses | (4,994) | (4,970) | (15,211) | (15,998) | ||||
Totals | (77,075) | (72,597) | (227,812) | (220,337) |
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 31 - Administrative Expenses
For the three and nine-month periods ended on September 30, 2020 and 2019, the composition of this item is as follows:
For the three-month | For the nine-month | |||||||
periods ended | periods ended | |||||||
Administrative Expenses | September 30, | September 30, | ||||||
2020 | 2019 | 2020 | 2019 | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Administration expenses | (38,651) | (42,708) | (127,300) | (129,111) | ||||
Maintenance and repair of fixed assets | (6,835) | (7,621) | (24,630) | (22,700) | ||||
Insurance payments | (4,415) | (3,897) | (12,697) | (12,589) | ||||
Office supplies | (630) | (372) | (1,502) | (1,229) | ||||
IT and communications expenses | (9,633) | (11,898) | (33,416) | (35,272) | ||||
Utilities and other services | (896) | (1,188) | (2,981) | (3,596) | ||||
Security and transportation of securities services | (794) | (884) | (3,010) | (3,956) | ||||
Representation and personnel travel expenses | (162) | (806) | (1,029) | (2,437) | ||||
Legal and notarial expenses | (5,363) | (4,629) | (16,377) | (14,283) | ||||
Technical reports fees | (2,830) | (3,407) | (7,592) | (9,700) | ||||
Professional services fees | (411) | (460) | (1,204) | (1,187) | ||||
Other expenses of obligations for lease agreements | (28) | (181) | (54) | (410) | ||||
Expenses for lease | (347) | (599) | (1,066) | (1,239) | ||||
ATM maintenance and management services | (612) | (269) | (1,852) | (1,958) | ||||
Temporary external services | (180) | (144) | (354) | (492) | ||||
Postage and mailing expenses | (474) | (276) | (1,429) | (833) | ||||
Internal events | (187) | (52) | (583) | (558) | ||||
Donations | (866) | (855) | (3,031) | (1,698) | ||||
Hired services | (2,050) | (1,226) | (4,334) | (4,107) | ||||
Other services | (75) | (181) | (215) | (212) | ||||
Credit card management services | (508) | (1,395) | (2,470) | (3,180) | ||||
Other administrative expenses | (1,355) | (2,368) | (7,474) | (7,475) | ||||
Outsourced services | (10,035) | (4,940) | (20,931) | (15,980) | ||||
Data processing | (1,840) | (2,856) | (8,013) | (9,327) | ||||
Products sales | (169) | - | (562) | - | ||||
Others | (8,035) | (2,084) | (12,356) | (6,653) | ||||
Board expenses | (324) | (326) | (965) | (1,011) | ||||
Board of Directors compensation | (324) | (326) | (965) | (1,011) | ||||
Other expenses of the Board | - | - | - | - | ||||
Marketing and advertising expenses | (3,020) | (3,957) | (7,809) | (9,492) | ||||
Non income taxes and contributions | (8,315) | (8,408) | (25,737) | (24,053) | ||||
Real estate contributions | (46) | (67) | (149) | (258) | ||||
Patents | (337) | (335) | (1,015) | (867) | ||||
Contributions to the CMF | (2,370) | (5,950) | (6,742) | (16,821) | ||||
Other taxes (*) | (5,562) | (2,056) | (17,831) | (6,107) | ||||
Totals | (60,345) | (60,339) | (182,742) | (179,647) |
(*) This amount corresponds mainly to taxes, different from income taxes that affect Itaú Corpbanca Colombia SA and its subsidiaries (Colombia segment), originated from local financial transactions, the permanent performance of commercial activities or services, taxes on non-discounted value added and wealth tax, among others.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 32 - Depreciation, Amortization, and Impairment
The amounts corresponding to charges to income for depreciation and amortization for the three and nine-month periods ended September 30, 2020 and 2019, are detailed below:
For the three-month | For the nine-month | ||||||||
periods ended | periods ended | ||||||||
Depreciation and amortization | Note | September 30, | September 30, | ||||||
2020 | 2019 | 2020 | 2019 | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | ||||||
Depreciation of fixed assets | 14 | (3,572) | (3,583) | (10,163) | (10,311) | ||||
Amortization of intangible assets | 13 | (14,578) | (19,562) | (53,110) | (54,899) | ||||
Depreciation of right to use assets under lease agreements | 15 | (9,045) | (9,478) | (27,491) | (28,794) | ||||
Totals | (27,195) | (32,623) | (90,764) | (94,004) |
The composition of the impairment loss, for the three and nine-month periods ended September 30, 2020 and 2019, is as follows:
For the three-month | For the nine-month | |||||||||
periods ended | periods ended | |||||||||
Note | September 30, | September 30, | ||||||||
2020 | 2019 | 2020 | 2019 | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Impairment of financial assets available for sale | 11 | - | - | - | - | |||||
Impairment of financial assets held to maturity | 11 | - | - | - | - | |||||
Subtotals financial assets | - | - | - | - | ||||||
Impairment of fixed asset | 14 | (5) | - | (15) | (1) | |||||
Impairment of intangible assets | 13 | - | - | (808,847) | - | |||||
Subtotals non-financial assets | (5) | - | (808,862) | (1) | ||||||
Totals | (5) | - | (808,862) | (1) |
Itaú Corpbanca evaluates, at the end of each reporting period, whether there is any indication of impairment of any asset (including Goodwill). If this indication exists, or when an impairment test is required, the Bank estimates the recoverable amount of the asset.
The Bank has defined two CGUs: CGU Chile (Itaú Corpbanca and its Chilean subsidiaries and the New York branch) and CGU Colombia (Itaú Corpbanca Colombia and its subsidiaries and Itaú Corredor de Seguros S.A.). These CGUs were defined based on their main geographic areas. Their cash flow generation and performance are analyzed separately by Top management because their contributions to the consolidated entity may be identified independently. It is worth mentioning that these CGUs are consistent with the Bank's operating segments (see Note 4).
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 32 - Depreciation, Amortization, and Impairment, continued
The Carrying value for both CGUs prior recognition of any impairment losses on an after-tax basis is as follows:
As of June 30, | As of December 31, | |||
Cash Generating Units | 2020 | 2019 | ||
MCh$ | MCh$ | |||
Chile (*) | 1,972,011 | 2,456,253 | ||
Colombia | 601,760 | 984,132 |
(*) Includes the effects of the acquisition of minority interests in Colombia that took place on December 3, 2019. See Note 1 c).
Goodwill impairment test
i. | Goodwill impairment loss |
As a result of the recent development events described in Note 3 'Significant events', at the end of the second quarter the recoverable amount for the CGUs was estimated, resulting in the recognition of an impairment loss of Ch$808,857 million on the following assets of the respective CGUs as of June 30, 2020:
CGU Chile | CGU Colombia | Total | |
Impairment of intangible assets (1) | MCh$ | MCh$ | MCh$ |
Goodwill impairment loss | 448,273 | 246,663 | 694,936 |
Intangibles assets generated in business combination impairment loss | - | 113,911 | 113,911 |
Total impairment of CGU Chile and Colombia | 448,273 | 360,574 | 808,847 |
(1) As reported in 2016 in the original recognition of the business combination between Banco Itaú Chile and Corpbanca described in Note 1, resulted with a registration of a goodwill not deductible for income tax purposes, therefore the recognition of impairment loss does not generate effects on tax results. On the other hand, the intangibles assets generated in a business combination had an associated deferred tax liability of Ch$34,547 million, which generated an impact on income tax results equivalent to that amount, by recognizing the impairment. Considering the above, the effect on income net of taxes generated by the recognition of the impairment loss amounts to Ch$774,300 million, distributed between Ch$764,024 million attributable to the owners of the Bank and Ch$10,276 million attributable to non-controlling interest.
ii. | Goodwill allocation |
The Goodwill allocated to each of the identified CGUs1 generated in the reverse acquisition described in Note 1, section 'General Information' Background of Itaú Corpbanca and subsidiaries, and the movements experienced during the period, are presented below:
CGU Chile | CGU Colombia | |||
Goodwill | MCh$ | MCh$ | ||
Balances as of December 31, 2019 | 940,785 | 253,546 | ||
Exchange differences | - | (6,883) | ||
Impairment | (448,273) | (246,663) | ||
Balances as of June 30, 2020 | 492,512 | - |
1 Goodwill generated by the acquisition of a business abroad (Colombia case) is expressed in the functional currency of the aforementioned business (Colombian peso), converted at the closing exchange rate (exchange rate COP to CLP for the purpose of accounting recognition in Chile) in accordance with IAS 21 'Effects of Changes in Exchange Rates of the Foreign Currency' (see Note 13). Figures presented as of June 30, 2020 have been adjusted to their recoverable amount, recognizing an impairment loss in accordance with the aforementioned information.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 32 - Depreciation, Amortization, and Impairment, continued
iii. | Methodology used by the Bank |
Consistent with prior year, the recoverable amounts of CGU Chile and CGU Colombia have been determined using the dividend discount model. This methodology considers the cash flows that would be generated by dividends distributed to shareholders with at perpetuity, discounted to their cost of capital rate as of the valuation date. Therefore, the economic value of equity can be estimated using cash flow projections derived from financial budgets and other assumptions approved by management.
In testing goodwill for impairment, management considered different sources of information, including:
● | Historical information existing for both banks post-merger and, if relevant, pre-merger. Historical information for events judged to be one-time and non-recurring was excluded. |
● | Forecast approved by management. |
● | Information from external sources such as analyst reports, regulators, central banks and press releases. |
● | Observable market information such as rate curves, inflation and growth projections. |
● | The competitive strategy defined for both banks. |
● | The projected funding structure and its impact on the Bank's capital requirements and internal policy. |
iv. | Assumptions used in calculations of the recoverable amount |
The key assumptions used in calculating recoverable amount, defined as those variables to which the
calculation is more sensitive, are presented below:
As of June 30, 2020 | As of December 31, 2019 | |||||||
Assumptions | Chile | Colombia | Chile | Colombia | ||||
Perpetuity rate | (%) | 5.20 | 6.50 | 5.20 | 6.50 | |||
Projected inflation rate | (%) | 3.00 | 3.00 | 3.00 | 3.00 | |||
Discount rate | (%) | 10.40 | 12.31 | 10.00 | 11.30 | |||
Loans growth | (%) | 5.67 - 7.41 | 6.25 - 8.82 | 9.05 - 10.28 | 9.70 - 10.30 | |||
Solvency index limit | (%) | 10.81 - 12.12 | 10.00 - 11.70 | 11.40 - 12.40 | 10.60 - 14.00 |
(*) Corresponds to the projected long-term inflation rate
● | Projection period and perpetuity |
Cash flow projections are prepared for a period of 5 years from 2020 to 2025. After this period, the present value of cash flows for the year 2025 is calculated, projected to perpetuity using GDP growth rates expected for the markets in which the aforementioned CGUs operate.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 32 - Depreciation, Amortization, and Impairment, continued
● | Loans and deposits |
Loans were projected considering an increase of around 7.40% per year in Chile and 8.10% in Colombia.
Anticipated changes in the product mix were also modeled for both countries. The deposit portfolio was
projected using target reciprocity.
● | Income |
The projected net income was estimated based on the sensitization of the GDP growth and the effects of inflation with respect to the banking industry (both in Chile and Colombia) with which the projected growth rate was obtained, also based on products (consumer, mortgage and commercial loans) and in the target market set by the administration. Projection of financing costs is determined mainly by the average balances of demand deposits, to term and other liabilities.
● | Discount rate |
Cost of own capital (Ke) in local currency was used as the discount rate to discount the cash flows of each CGU. This calculation considered a premium for the particular country risk of each CGU.
● | Perpetuity rate |
A growth rate was considered in perpetuity according to the rates observed in the market where each CGU
operates. Consequently, they were built considering local inflation and GDP growth projections.
● | Dividend payments |
The payment of dividends was carried out by maximizing the results of the share box, as a ratio of technical
equity with risk-weighted assets, not beyond the limits required by the regulatory entities. In this way a
dividend is given for the CGU of 30% for the first 5 years and 50% in perpetuity.
v. | Outcome of impairment testing |
As a result of the impairment testing process described above, management concludes that the relation of the recoverable amount and its carrying amount for both the CGUs as of June 30, 2020 and December 31, 2019, is as follow:
As of June 30, 2020 | As of December 31, 2019 | |||||||
Assumptions | Chile | Colombia | Chile | Colombia | ||||
Recoverable Amount/ Carrying Amount (RA/CA) | (%) | 81.37 | 54.45 | 116.95 | 104.45 |
The recoverable amount for each CGU corresponds to the value in use, the highest comparing the fair value less costs to sell and the value in use.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 113 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 32 - Depreciation, Amortization, and Impairment, continued
vi. | Reconciliation of rates before and after taxes |
The Bank has used the cost of own capital (Ke) rate as a discount rate in its calculation of the recoverable
amount, a rate that is observable after taxes. The following table shows the effect of considering the flows
and the discount rate before taxes.
As of June 30, 2020 | As of December 31, 2019 | |||||||
Chile | Colombia | Chile | Colombia | |||||
Discount rates | (%) | 11.56 | 14.39 | 12.55 | 16.90 | |||
Recoverable Amount/ Carrying Amount (RA/CA) | (%) | 79.84 | 59.79 | 145.80 | 134.43 |
In accordance with the requirements set forth on IAS 36, and as a consequence of this analysis, Management has recognized impairment losses, based on the determination of the recoverable amount as of June 30, 2020 as indicated above.
As of September 30, 2020 and in accordance with the evaluation of the impairment indicators, the Administration has concluded that it is not necessary to make a new determination of the recoverable amounts as of.
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 33 - Related Party Transactions
In accordance with the provisions set forth in the Chilean General Banking Law and the instructions issued by the Chilean Superintendency of Banks and Financial Institutions, related parties are those individuals or corporations related to the ownership or management of the Institution directly or through third parties.
Article 89 of the Ley de Sociedades Anónimas (Chilean Companies Law), which also applies to Banks, establishes that any transaction with a related party must be carried out on an arm's length basis.
In the case of publicly traded companies and their subsidiaries, transactions with related parties involve any negotiation, act, contract or transaction in which the company must intervene; the following are considered as parties related to them: those entities of the corporate group to which the company belongs; the corporations that, with respect to the company, have the status as parent, controlling entity, affiliate, subsidiary; the Directors, Managers, Administrators, Chief Executive Officer or Liquidators of the company, acting in their own names or on behalf of individuals other than the company, and their respective spouses or their relatives up to the second degree of consanguinity, as well as any entity controlled either directly or indirectly, through any of them; and any person who either acting individually or jointly with others with whom it has executed a joint operation agreement, may appoint at least one member of the management of the company or controls 10% or more of its capital stock, with the right to vote, in the case of a sociedad por acciones (stock corporation); those established by the bylaws of the company, or justifiably identified by the Directors' Committee; and those in which it has acted as Director, Manager, Administrator, Chief Executive Officer or Liquidator of the company, during the last eighteen months. Article 147 of the Ley de Sociedades Anónimas (Chilean Companies Law) sets forth that a sociedad anónima abierta (publicly traded company) may only carry out transactions with related parties when they are intended to contribute to the corporate interest, are adjusted in the price, terms and conditions to those prevailing in the market at the time of their approval and comply with the requirements and the procedure indicated by it. Moreover, Article 84 of the Chilean General Banking Law establishes limits for the loans that may be granted to related parties and the prohibition to grant loans to the Directors, Managers or General Attorneys of the Bank.
a. | Loans granted to related parties |
As of September 30, 2020 and December 31, 2019 the loans granted to related persons are detailed below
As of September 30, 2020 | As of December 31, 2019 | |||||||||||
Productive | Investment | Productive | Investment | |||||||||
companies | companies | Individuals | companies | companies | Individuals | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Loans and accounts receivable from customers | ||||||||||||
Commercial loans | 150,447 | 13,921 | 9,654 | 109,840 | 11,910 | 5,054 | ||||||
Mortgage loans | - | - | 29,863 | - | - | 29,419 | ||||||
Consumer loans | - | - | 6,940 | - | - | 8,987 | ||||||
Gross loans and accounts receivable from customers | 150,447 | 13,921 | 46,457 | 109,840 | 11,910 | 43,460 | ||||||
Allowance for loan losses | (2,190) | (204) | (484) | (1,705) | (134) | (283) | ||||||
Net loans and accounts receivable from customers | 148,257 | 13,717 | 45,973 | 108,135 | 11,776 | 43,177 | ||||||
Contingent loans | ||||||||||||
Contingent loans | 8,410 | 20,361 | 12,920 | 9,624 | 17,220 | 18,117 | ||||||
Provisions for contingent loans | (5) | (327) | (18) | (5) | (320) | (24) | ||||||
Net contingent loans | 8,405 | 20,034 | 12,902 | 9,619 | 16,900 | 18,093 |
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Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 33 - Related Party Transactions, continued
b. | Other transactions and contracts with related parties |
Below are the balances as of September 30, 2020 and December 31, 2019, for transactions with related parties and the impact on income for the nine-month periods ended September 30, 2020 and 2019:
For the nine-month period ended | As of | For the nine-month period ended | ||||||||||||
and as of September 30, 2020 | December 31, 2019 | September 30, 2019 | ||||||||||||
Balances | Balances | |||||||||||||
receivable | Effect on income | receivable | Effect on income | |||||||||||
(payable) | Income | (Expense) | (payable) | Income | (Expense) | |||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Adexus S.A. | Data transmission services | - | - | (8) | - | - | (507) | |||||||
Bcycle Latam SPA | Other services | - | - | (1,646) | - | - | (989) | |||||||
Bolsa de Comercio de Santiago | Financial services | - | - | - | - | - | (148) | |||||||
CAI Gestión Inmobiliaria S.A. | Retail | - | - | - | - | - | (3) | |||||||
Combanc S.A. | Data transmission services | - | - | (325) | - | - | (294) | |||||||
Comder Contraparte Central S.A. | Bank services | - | - | (624) | - | - | (689) | |||||||
Compañía Chilena de Televisión S.A. | TV broadcasting services | - | - | (8) | - | - | (39) | |||||||
Corp Group Holding Inversiones Ltda | Advice | - | - | (357) | - | - | (312) | |||||||
Corp Imagen y Diseños S.A. | Other services | - | - | - | - | - | (75) | |||||||
Corp Research S.A. | Administrative advice | - | - | - | - | - | (354) | |||||||
Hotel Corporation of Chile S.A. | Accommodations, events | - | - | (8) | - | - | (14) | |||||||
Inmobiliaria Edificio Corpgroup S.A. | Office lease and common expenses (*) | (14,419) | - | (3,727) | (15,625) | - | (3,461) | |||||||
Inmobiliaria Gabriela S.A. | Leases (*) | (727) | - | (95) | (809) | - | (90) | |||||||
Inversiones Corp Group Interhold Ltda. | Financial services | - | - | (1,954) | - | - | (1,859) | |||||||
Itaú Chile Cía. de Seguros de Vida S.A. | Life insurances | - | - | - | - | 45 | (211) | |||||||
Itaú Chile Inv. Serv. y Administración S.A. | Leases (*) | (194) | - | (594) | (441) | - | (344) | |||||||
Itaú Unibanco | Business management reimbursement | 1,365 | 1,704 | - | 349 | 1,581 | - | |||||||
Operadora Tarjeta de Crédito Nexus S.A. | Credit card administration | - | - | (2,515) | - | - | (2,208) | |||||||
Pulso Editorial S.A. | Publishing services | - | - | (16) | - | - | (22) | |||||||
Redbanc S.A. | ATM network management | - | - | (2,289) | - | - | (2,615) | |||||||
SMU S.A., Rendic Hnos. S.A. | ATM space rentals (See Note 17) | 1,594 | - | (1,785) | 3,379 | (1,733) | ||||||||
Transbank S.A. | Credit card administration | - | - | (10,254) | - | - | (10,809) |
(*) As of 2019, due to the adoption of IFRS 16, leases are recognized as a financial obligation and a right-of-use asset. For disclosure purposes we have included the outstanding balance of the liability and the related interest expense.
These transactions were carried out at normal market prices prevailing on the date of the transactions.
c. | Donations |
For the nine-month | ||||||
period ended | ||||||
Name or corporate Name | Description | September 30, | ||||
2020 | 2019 | |||||
MCh$ | MCh$ | |||||
Foundation Corpgroup Centro Cultural | Donations | 1,556 | 1,324 | |||
Foundation Descúbreme | Donations | 235 | 204 | |||
Foundation Itaú | Donations | 196 | 170 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 116 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities
This disclosure was prepared based on the application of the local regulatory guidelines stated in Chapter 7-12 'Fair value of financial instruments' of the CMF and IFRS 13 'Fair value measurement'. These standards have been applied to both financial assets and non-financial assets measured at fair value (recurring and non-recurring).
The following section details the main guidelines and definitions used by the Group:
Fair value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The transaction is carried out in the principal1or most advantageous3market and is not forced, that is, it does not consider factors specific to the Group that may influence a real transaction.
Market participants:Buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics:
• | They are independent of each other, i.e. they are not related parties as defined in IAS 24 'Related Party Disclosures', although the price in a related party transaction may be used as an input to a fair value measurement if the entity has evidence that the transaction was entered into at market terms. |
• | They are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information, including information that might be obtained through due diligence efforts that are usual and customary. |
• | They are able to enter into a transaction for the asset or liability. |
• | They are willing to enter into a transaction for the asset or liability (i.e. they are motivated, but not forced or otherwise compelled, to do so). |
Fair value measurement. When measuring fair value, the Group takes into account the same characteristics of the asset or liability that market participants would consider in pricing that asset or liability on the measurement date.
Aspects of the transaction. A fair value measurement assumes that the asset or liability is exchanged in an orderly transaction between market participants to sell the asset or transfer the liability at the measurement date under current market conditions. The measurement assumes that the transaction to sell the asset or transfer the liability takes place: (a) on the principal market for the asset or liability; or (b) in the absence of a principal market, on the most advantageous market for the asset or liability.
Market participants. The fair value measurement measures the fair value of the asset or liability using the assumptions that the market participants would use in pricing the asset or liability, assuming that the participants act in their best economic interest.
Prices. Fair value is the price that will be received for the sale of an asset or paid for the transfer of a liability in an orderly transaction on the main (or most advantageous) market as of the measurement date under current market conditions (i.e. exit price) regardless of whether that price is directly observable or estimated using another valuation technique.
1 The market with the greatest volume and level of activity for the asset or liability.
3 The market that maximizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 117 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities, continued
Highest and best use of non-financial assets. The fair value measurement of these assets takes into account the market participant's ability to generate economic benefits through the highest and best use of the asset or through the sale of the asset to another market participant that would maximize the value of the asset.
Group's own liabilities and equity instruments. The fair value measurement assumes that these items are transferred to a market participant on the date of measurement. The transfer of these items assumes that:
(i) | A liability would remain outstanding and the market participant transferee would be required to fulfill the obligation. The liability would not be settled with the counterparty or otherwise extinguished on the measurement date. |
(ii) | An entity's own equity instrument would remain outstanding and the market participant transferee would take on the rights and responsibilities associated with the instrument. The instrument would not be canceled or otherwise extinguished on the measurement date. |
Default risk. The fair value of a liability reflects the effect of the default risk. This risk includes, but is not limited to, the entity's own credit risk. This risk is assumed to be the same before and after the liability is transferred.
Initial recognition. When an asset is acquired or a liability assumed in an exchange transaction involving that asset or liability, the transaction price is the price paid to acquire the asset or received to assume the liability (the entry price). In contrast, the fair value of the asset or liability is the price received to sell the asset or paid to transfer the liability (the exit price). Entities do not necessarily sell assets at the prices paid to acquire them. Likewise, they do not necessarily transfer liabilities at the price received to assume them.
Valuation techniques. The Bank will use techniques that are appropriate for the circumstances and for which sufficient data is available to measure the fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. The following approaches deserve mention. The first two are the most frequently used by the Group:
(i) | Market approach. Uses prices and other relevant information generated by market transactions involving identical or comparable (similar) assets, liabilities, or a group of assets and liabilities (e.g. a business). |
(ii) | Income approach. Converts future amounts (cash flows or income and expenses) to a single current (discounted) amount, reflecting current market expectations about those future amounts. The fair value measurement is determined based on the value indicated by the current market expectations about those future amounts. |
(iii) | Cost approach. Reflects the amount that would be required currently to replace the service capacity of an asset (current replacement cost). |
Present value techniques. Technique to adjust the discount rate and expected cash flows (expected present value). The present value technique used to measure the fair value will depend on the specific facts and circumstances of the asset or liability being measured and the availability of sufficient data.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 118 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities, continued
Components of the present value measurement. Present value is the tool used to link future amounts (e.g. cash flows or values) to a present amount using a discount rate. A fair value measurement of an asset or a liability using a present value technique captures all the following elements from the perspective of market participants at the measurement date:
(i) | An estimate of future cash flows for the asset or liability being measured. |
(ii) | Expectations about possible variations in the amount and timing of the cash flows representing the uncertainty inherent in the cash flows. |
(iii) | The temporary value of money, represented by the rate on risk-free monetary assets that have expiration dates or duration that coincides with the period covered by the cash flows and do not raise uncertainty in the temporary distribution or risk of default for the holder (that is, risk-free interest rate). |
(iv) | The price to bear the uncertainty inherent in the cash flows (i.e., a risk premium). |
(v) | Other factors that market participants would take into account in these circumstances. |
(vi) | For a liability, the credit risk related to that liability, including the entity's own credit risk (i.e. the debtor's). |
Fair value hierarchy. It gives the highest priority to quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1 inputs) and lowest priority to unobservable inputs (Level 3 inputs). Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Determination of fair value
The following is a summary of the fair values of the main financial assets and liabilities as of September 30, 2020 and December 31, 2019, including those that are not presented at fair value in the Consolidated Statement of Financial Position.
As of September 30, 2020 | As of December 31, 2019 | |||||||||||
Estimated fair value | Estimated fair value | |||||||||||
Book value | Recurring | Non-recurring | Book value | Recurring | Non-recurring | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
ASSETS | ||||||||||||
Cash and deposits in banks | 3,943,080 | - | 3,943,080 | 1,009,681 | - | 1,009,681 | ||||||
Cash items in process of collection | 406,308 | - | 406,308 | 231,305 | - | 231,305 | ||||||
Trading investments | 422,535 | 422,535 | - | 181,402 | 181,402 | - | ||||||
Investments under resale agreements | 172,087 | - | 172,087 | 75,975 | - | 75,975 | ||||||
Financial derivative contracts | 4,466,884 | 4,466,884 | - | 3,154,957 | 3,154,957 | - | ||||||
Interbank loans, net | 86,840 | - | 86,840 | 56,205 | - | 56,205 | ||||||
Loans and accounts receivable from customers, net | 22,624,495 | - | 23,601,379 | 22,373,638 | - | 23,413,152 | ||||||
Available for sale investments | 2,514,133 | 2,514,133 | - | 3,593,204 | 3,593,204 | - | ||||||
Held to maturity investments | 90,768 | - | 89,908 | 115,682 | - | 114,175 | ||||||
Totals | 34,727,130 | 7,403,552 | 28,299,602 | 30,792,049 | 6,929,563 | 24,900,493 | ||||||
LIABILITIES | ||||||||||||
Deposits and other demand liabilities | 5,661,945 | - | 5,661,945 | 4,873,448 | - | 4,873,448 | ||||||
Cash in process of being cleared | 381,006 | - | 381,006 | 164,573 | - | 164,573 | ||||||
Obligations under repurchase agreements | 437,330 | - | 437,330 | 559,457 | - | 559,457 | ||||||
Time deposits and other time liabilities | 12,092,389 | - | 12,251,960 | 11,620,187 | - | 11,692,076 | ||||||
Financial derivative contracts | 4,118,822 | 4,118,822 | - | 2,938,034 | 2,938,034 | - | ||||||
Interbank borrowings | 4,292,982 | - | 4,288,576 | 2,646,756 | - | 2,646,176 | ||||||
Debt instruments issued | 6,179,471 | - | 7,210,991 | 6,408,356 | - | 7,244,551 | ||||||
Lease contracts liabilities | 156,513 | - | 165,319 | 172,924 | - | 175,263 | ||||||
Other financial liabilities | 8,401 | - | 8,401 | 12,966 | - | 12,966 | ||||||
Totals | 33,328,859 | 4,118,822 | 30,405,528 | 29,396,701 | 2,938,034 | 27,368,510 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 119 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities, continued
In addition, the fair value estimates presented above do not attempt to estimate the value of the Group's profits generated by its business, nor future business activities, and, therefore, do not represent the value of the Group as a going concern.
The following section describes the methods used to estimate fair value:
a) | Measurement of the fair value of assets and liabilities for disclosure purposes (Non-recurring). |
As of September 30, | As of December 31, | |||
Measurement at fair value of items on non-recurring basis | 2020 | 2019 | ||
MCh$ | MCh$ | |||
ASSETS | ||||
Cash and deposits in banks | 3,943,080 | 1,009,681 | ||
Cash items in process of collection | 406,308 | 231,305 | ||
Investments under resale agreements | 172,087 | 75,975 | ||
Interbank loans, net | 86,840 | 56,205 | ||
Loans and accounts receivable from customers, net | 23,601,379 | 23,413,152 | ||
Held to maturity investments | 89,908 | 114,175 | ||
Totals | 28,299,602 | 24,900,493 | ||
LIABILITIES | ||||
Deposits and other demand liabilities | 5,661,945 | 4,873,448 | ||
Cash in process of being cleared | 381,006 | 164,573 | ||
Obligations under repurchase agreements | 437,330 | 559,457 | ||
Time deposits and other time liabilities | 12,251,960 | 11,692,076 | ||
Financial derivative contracts | 4,288,576 | 2,646,176 | ||
Interbank borrowings | 7,210,991 | 7,244,551 | ||
Lease contracts liabilities | 165,319 | 175,263 | ||
Other financial liabilities | 8,401 | 12,966 | ||
Totals | 30,405,528 | 27,368,510 |
Cash, short-term assets and short-term liabilities
The fair value of these items approximates their book value given their short-term nature. These items include:
● | Cash and deposits in banks |
● | Cash in the process of collection |
● | Investments under agreements to resell |
● | Checking accounts and demand deposits |
● | Other financial obligations |
Loans
The fair value of loans is determined using a discounted cash flow analysis. In the case of mortgage loans and consumer loans, the cash flows were discounted by using the effective average placement rate of the last month of the reporting period for each type of product. The fair value of commercial loans is determined using a discounted cash flow analysis, using a risk-free interest rate adjusted for expected losses from debtors based on their credit quality. The credit risk adjustment is based on variables observable in the market and the Group's policies for qualitative and quantitative credit risk methodologies.
This methodology was applied to:
● | Interbank loans |
● | Loans and accounts receivable from customers |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 120 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities, continued
Held to maturity investments
The estimated fair value of these financial instruments is determined using quotes and transactions observed in the main market for identical instruments, or in their absence, for similar instruments. Fair value estimates of debt instruments or securities representative of debt take into account additional variables and inputs to the extent that they apply, including estimates of prepayment rates and the credit risk of issuers.
Medium and long-term liabilities
The fair value of medium and long-term liabilities is determined using a discounted cash flow analysis, using an interest rate curve that reflects current market conditions at which the entity's debt instruments are traded. Medium and long-term liabilities include:
● | Time deposits and saving accounts |
● | Interbank borrowings |
● | Debt instruments issued |
b) | Fair value measurement of financial assets and liabilities for recording purposes (recurring) |
As of September 30, | As of December 31, | |||
Measurement at fair value of items on a recurring basis | 2020 | 2019 | ||
MCh$ | MCh$ | |||
ASSETS | ||||
Trading securities | 422,535 | 181,402 | ||
Chilean Central Bank and Government securities | 56,675 | 80,898 | ||
Other securities issued locally | 38,261 | 23,123 | ||
Foreign government and central bank instruments | 322,633 | 67,088 | ||
Other securities issued abroad | 2,184 | 4,390 | ||
Investments in mutual funds | 2,782 | 5,903 | ||
Available for sale investments | 2,514,133 | 3,593,204 | ||
Chilean Central Bank and Government securities | 1,798,986 | 2,174,278 | ||
Other securities issued locally | 287,604 | 536,576 | ||
Foreign government and central bank instruments | 76,463 | 165,927 | ||
Other securities issued abroad | 351,080 | 716,423 | ||
Financial derivative contracts | 4,466,884 | 3,154,957 | ||
Forwards | 348,350 | 454,300 | ||
Swaps | 4,117,348 | 2,696,635 | ||
Call options | 867 | 3,805 | ||
Put options | 319 | 217 | ||
Totals | 7,403,552 | 6,929,563 | ||
LIABILITIES | ||||
Financial derivative contracts | 4,118,822 | 2,938,034 | ||
Forwards | 236,991 | 504,276 | ||
Swaps | 3,880,438 | 2,431,435 | ||
Call options | 584 | 1,758 | ||
Put options | 809 | 565 | ||
Totals | 4,118,822 | 2,938,034 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 121 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities, continued
Financial instruments
The estimated fair value of these financial instruments is determined using quotes and transactions observed in the main market for identical instruments, or in their absence, for similar instruments. Fair value estimates of debt instruments or securities representative of debt take into account additional variables and inputs to the extent that they apply, including estimates of prepayment rates and the credit risk of issuers. These financial instruments are classified as follows:
Financial derivative contracts
The estimated fair value of derivative instruments is calculated using prices quoted in the market for financial instruments with similar characteristics. Therefore, the methodology recognizes the own credit risk and the credit risk of each counterparty. The adjustment is known internationally as counterparty risk adjustment, which is composed of CVA (Credit Value Adjustment) and DVA (Debit Value Adjustment), the sum of both risk adjustments the effective counterparty risk that must be recognized. This adjustment is periodically recorded in the financial statements.
As of September 30, 2020, the portfolio of derivative contracts both in Chile and Colombia have an aggregate net effect of MCh$47,058(MCh$27,727 as of December 31, 2019), of CVA y DVA adjustments.
Credit Value Adjustment (CVA) | Debit Value Adjustment (DVA) | |||||||
As of September 30, | As of December 31, | As of September 30, | As of December 31, | |||||
2020 | 2019 | 2020 | 2019 | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
Derivatives held for hedging | (3) | (2) | - | 1 | ||||
Fair value hedge | (1) | - | - | - | ||||
Currency forwards | - | - | - | - | ||||
Currency swaps | (1) | - | - | - | ||||
Interest rate swaps | - | - | - | - | ||||
Cash flows hedge | - | (2) | - | 1 | ||||
Currency forwards | - | (2) | - | 1 | ||||
Currency swaps | - | - | - | - | ||||
Interest rate swaps | - | - | - | - | ||||
Net investment in a foreign operation hedge | (2) | - | - | - | ||||
Currency forwards | (2) | - | - | - | ||||
Currency swaps | - | - | - | - | ||||
Interest rate swaps | - | - | - | - | ||||
Derivatives held for trading | (47,546) | (28,172) | 491 | 446 | ||||
Currency forwards | (622) | (341) | 173 | 123 | ||||
Interest rate swaps | (42,724) | (23,189) | 38 | 28 | ||||
Currency swaps | (4,200) | (4,642) | 280 | 295 | ||||
Call currency options | - | - | - | - | ||||
Put currency options | - | - | - | - | ||||
Totals financial derivatives | (47,549) | (28,174) | 491 | 447 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 122 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities, continued
c) | Fair value hierarchy |
IFRS 13 establishes a fair value hierarchy that classifies assets and liabilities based on the characteristics of the data that the technique requires for its valuation.
● | Level 1 |
Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Entity can access at the measurement date. The inputs needed to value the instruments in this category are available daily and used directly.
In the case of currency, shares and mutual funds, prices are observed directly in over-the-counter markets and the stock exchange. These prices correspond to the values at which the exact same assets are traded. As a result, the portfolio valuation does not require assumptions or models of any type.
For instruments issued by the Chilean Central Bank and the Chilean Treasury, benchmark prices are used. Benchmark prices are defined using similar durations, type of currency and are traded the equivalent of every day. The valuation of these instruments is identical to the valuation of the Santiago Stock Exchange, which is a standard international methodology. This methodology uses the internal rate of return to discount the instrument's cash flows.
● | Level 2 |
The specific instrument does not have daily quotes. However, similar instruments can be observed (e.g. same issuer, different maturity; or different issuer, same maturity and risk rating). In general, they are diverse combinations of pseudo-arbitration. Although the inputs are not directly observable, observable inputs are available with the needed periodicity.
In this category, instruments are valued by discounting contractual cash flows based on a zero-coupon curve determined through the price of instruments with similar characteristics and a similar issuer risk. The income approach is used, which converts future amounts to present amounts.
For derivative instruments within this category, quotes from over-the-counter transactions reported by the most important brokers in the Chilean market and the Bloomberg platform are used. The inputs observed include forward prices, interest rates and volatilities. Based on these inputs, market curves are modeled. They are a numerical representation of the opportunity costs of the instrument's cash flows or the price volatility of an asset. Finally, cash flows are discounted.
The Black and Scholes model is used for options based on prices of brokers in the OTC market.
For money market instruments, prices of transactions on the Santiago Stock Exchange are observed and used to model market curves.
For corporate or bank bonds, given the lack of market depth, the Bank uses transactions (if any) in the Chilean market, on foreign markets, zero-coupon curves of risk-free instruments, adjustment curves, spread modeling, correlation with similar financial instruments, etc. and gives market curves as the final result. These market curves are provided by a pricing supplier and are widely accepted by the market, regulators and scholars.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 123 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities, continued
● | Level 3 |
This is used when prices, data or necessary inputs are not directly or indirectly observable for similar instruments for the asset or liability as of the valuation date. These fair value valuation models are subjective in nature. Therefore, they base their estimate of prices on a series of assumptions that are widely accepted by the market. The Group has two products in this category:
Due to the lack of liquidity in the basis of the active banking rate (TAB) over the chamber rate (camara), the price is not observable and, therefore, models must be used to estimate the future cash flows of the contract. This spread is calculated on a historical basis using the IRS with the greatest market depth, which is the chamber swap.
In addition, the Bank offers American forwards to meet its customers' needs. They do not have a secondary market and, therefore, their value is estimated using an extension of the Hull-White model, used widely by the financial services industry.
None of these products generate significant impacts on the Bank's results as a result of recalibration. The TAB swap does not have significant impacts on the valuation as the parameters are stable and the reversal to a historic average is empirically quick, which this model reflects correctly. On the other hand, the American forward behaves like a traditional forward when there is an important curve differential, which is the case between the Chilean peso-US dollar curve. Also, the model's parameters are very stable.
The table below summarizes the impacts on the portfolio of a recalibration of the models based on a stress scenario, recalibrating parameters with the shock incorporated.
As of September 30, 2020 | As of December 31, 2019 | |||||||||||
American | American | |||||||||||
Impact calibration | Forward | Basis TAB | Basis TAB | Forward | Basis TAB | Basis TAB | ||||||
USD-CLP | CLP | CLF | USD-CLP | CLP | CLF | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Volatility exchange rate USD-CLP | ||||||||||||
TAB 30 | - | 83 | - | - | 98 | - | ||||||
TAB 90 | - | 1 | - | - | 4 | - | ||||||
TAB 180 | - | 36 | 15 | - | 39 | 18 | ||||||
TAB 360 | - | - | 3 | - | - | 4 | ||||||
Totals | - | 120 | 18 | - | 141 | 22 |
The following table summarizes the fair value hierarchy for the Group's recurring valuation of financial instruments:
Level | Instrument | Issuer | Price Source | Model | ||||
I | Currency | N/A | OTC, Bloomberg | Directly observable price. | ||||
Shares | Others | Santiago Exchange | Directly observable price. | |||||
Mutual funds | Asset Managers | CMF | Directly observable price. | |||||
Bonds | Chilean Central Bank and Chilean Treasury | Santiago Exchange | Internal rate of return (IRR) based on prices. | |||||
II | Derivatives | N/A | OTC (brokers), Bloomberg | Interest rate curves based on forward prices and coupon rates. | ||||
Money market | Chilean Central Bank and Chilean Treasury | Santiago Exchange | Interest rate curves based on prices. | |||||
Money market | Banks | Santiago Exchange | Interest rate curves based on prices. | |||||
Bonds | Companies, banks | Pricing supplier | Interest rate curves based on correlations, spreads, extrapolations, etc. | |||||
III | Derivatives, active banking rate (TAB) | N/A | OTC (brokers) | Interest rate curves based on modeling of TAB-Chamber spread. | ||||
Derivatives, American forwards | N/A | Bloomberg | Black and Scholes with inputs from European options. |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 124 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities, continued
The following table classifies assets and liabilities measured at fair value on a recurring basis, in accordance with the fair value hierarchy established in IFRS 13 as of September 30, 2020 and December 31, 2019.
As of September 30, 2020 | ||||||||
Market value of the | Other observable | Non-observable | ||||||
Fair | asset for identified | significant inputs | significant inputs | |||||
Measurement at fair value of instruments on a recurring basis using | value | assets (Level 1) | (Level 2) | (Level 3) | ||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
ASSETS | ||||||||
Trading securities | 422,535 | 382,090 | 40,445 | - | ||||
Chilean Central Bank and Government securities | 56,675 | 56,675 | - | - | ||||
Other securities issued locally | 38,261 | - | 38,261 | - | ||||
Foreign government and central bank instruments | 322,633 | 322,633 | - | - | ||||
Other securities issued abroad | 2,184 | - | 2,184 | - | ||||
Investments in mutual funds | 2,782 | 2,782 | - | - | ||||
Available for sale investments | 2,514,133 | 1,875,449 | 638,684 | - | ||||
Chilean Central Bank and Government securities | 1,798,986 | 1,798,986 | - | - | ||||
Other securities issued locally | 287,604 | - | 287,604 | - | ||||
Foreign government and central bank instruments | 76,463 | 76,463 | - | - | ||||
Other securities issued abroad | 351,080 | - | 351,080 | - | ||||
Financial derivative contracts | 4,466,884 | - | 4,443,626 | 23,258 | ||||
Forwards | 348,350 | - | 347,405 | 945 | ||||
Swaps | 4,117,348 | - | 4,095,035 | 22,313 | ||||
Call options | 867 | - | 867 | - | ||||
Put options | 319 | - | 319 | - | ||||
Totals | 7,403,552 | 2,257,539 | 5,122,755 | 23,258 | ||||
LIABILITIES | ||||||||
Financial derivative contracts | 4,118,822 | - | 4,117,942 | 880 | ||||
Forwards | 236,991 | - | 236,857 | 134 | ||||
Swaps | 3,880,438 | - | 3,879,692 | 746 | ||||
Call options | 584 | - | 584 | - | ||||
Put options | 809 | - | 809 | - | ||||
Totals | 4,118,822 | - | 4,117,942 | 880 |
As of December 31, 2019 | ||||||||
Market value of the | Other observable | Non-observable | ||||||
Fair | asset for identified | significant inputs | significant inputs | |||||
Measurement at fair value of instruments on a recurring basis using | value | assets (Level 1) | (Level 2) | (Level 3) | ||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
ASSETS | ||||||||
Trading securities | 181,402 | 177,009 | 4,393 | - | ||||
Chilean Central Bank and Government securities | 80,898 | 80,898 | - | - | ||||
Other securities issued locally | 23,123 | 23,120 | 3 | - | ||||
Foreign government and central bank instruments | 67,088 | 67,088 | - | - | ||||
Other securities issued abroad | 4,390 | - | 4,390 | - | ||||
Investments in mutual funds | 5,903 | 5,903 | - | - | ||||
Available for sale investments | 3,593,204 | 3,009,607 | 583,597 | - | ||||
Chilean Central Bank and Government securities | 2,174,278 | 2,174,278 | - | - | ||||
Other securities issued locally | 536,576 | - | 536,576 | - | ||||
Foreign government and central bank instruments | 165,927 | 165,927 | - | - | ||||
Other securities issued abroad | 716,423 | 669,402 | 47,021 | - | ||||
Financial derivative contracts | 3,154,957 | - | 3,127,525 | 27,432 | ||||
Forwards | 454,300 | - | 449,240 | 5,060 | ||||
Swaps | 2,696,635 | - | 2,674,263 | 22,372 | ||||
Call options | 3,805 | - | 3,805 | - | ||||
Put options | 217 | - | 217 | - | ||||
Totals | 6,929,563 | 3,186,616 | 3,715,515 | 27,432 | ||||
LIABILITIES | ||||||||
Financial derivative contracts | 2,938,034 | - | 2,936,915 | 1,119 | ||||
Forwards | 504,276 | - | 504,095 | 181 | ||||
Swaps | 2,431,435 | - | 2,430,497 | 938 | ||||
Call options | 1,758 | - | 1,758 | - | ||||
Put options | 565 | - | 565 | - | ||||
Totals | 2,938,034 | - | 2,936,915 | 1,119 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 125 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities, continued
d) | Transfers between level 1 and level 2 |
For the nine-month period ended on September 30, 2020 and for the year ended on December 31, 2019, no transfers were performed between level 1 and 2.
e) | Disclosures Regarding Level 3 Assets and Liabilities |
Level 3 assets and liabilities are valued using techniques that require inputs that are not observable on the market, for which the income approach is used to convert future amounts to present amounts.
This category includes:
● | Financial derivative instruments indexed to the TAB rate. This rate is comprised of an interbank rate and a liquidity premium charged to financial institutions and is determined using a short-rate model with mean reversion. |
● | American forward options. |
As none of these products has a market, the Bank uses financial engineering valuation techniques that use unobservable variables.
These techniques use the following inputs: transaction prices from the main financial instrument markets and assumptions that are widely accepted by the financial services industry. Using this information, unobservable variables are constructed such as: adjustment curves, spreads, volatilities and other variables necessary for the valuation. Lastly, all of the models are subject to internal contrasts by independent areas and have been reviewed by internal auditors and regulators.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 126 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities, continued
None of these products generate significant impacts on the Bank's results as a result of recalibration. The American forward is only offered for the US dollar-Chilean peso market and until now, given the important differential between these interest rates, the product behaves like a traditional forward. The TAB swap does not have significant impacts on the valuation as the modeled liquidity premiums have a quick mean reversion for the short part and low volatility for the long part, concentrating on the book's sensitivity in the longest part of the curve. The following table reconciles assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019.
As of September 30, 2020 | ||||||||||||
Gain (loss) | Gain (loss) | Purchases, | ||||||||||
Opening | recognized in | recognized in | sales and | Transfers from | Ending | |||||||
Level 3 reconciliation | balance | profit or loss | equity | agreements | level 1 or level 2 | balance | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
ASSETS | ||||||||||||
Financial derivative contracts | ||||||||||||
Forwards | 5,060 | 13,593 | - | (17,708) | - | 945 | ||||||
Swaps | 22,372 | 2,216 | - | (2,275) | - | 22,313 | ||||||
Call options | - | - | - | - | - | - | ||||||
Put options | - | - | - | - | - | - | ||||||
Totals | 27,432 | 15,809 | - | (19,983) | - | 23,258 | ||||||
LIABILITIES | ||||||||||||
Financial derivative contracts | ||||||||||||
Forwards | 181 | 1,248 | - | (1,295) | - | 134 | ||||||
Swaps | 938 | (715) | - | 523 | - | 746 | ||||||
Call options | - | - | - | - | - | - | ||||||
Put options | - | - | - | - | - | - | ||||||
Totals | 1,119 | 533 | - | (772) | - | 880 |
As of December 31, 2019 | ||||||||||||
Gain (loss) | Gain (loss) | Purchases, | ||||||||||
Opening | recognized in | recognized in | sales and | Transfers from | Ending | |||||||
Level 3 reconciliation | balance | profit or loss | equity | agreements | level 1 or level 2 | balance | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
ASSETS | ||||||||||||
Financial derivative contracts | ||||||||||||
Forwards | 618 | 12,398 | - | (7,956) | - | 5,060 | ||||||
Swaps | 26,538 | 4,930 | - | (9,096) | - | 22,372 | ||||||
Call options | - | - | - | - | - | - | ||||||
Put options | - | - | - | - | - | - | ||||||
Totals | 27,156 | 17,328 | - | (17,052) | - | 27,432 | ||||||
LIABILITIES | ||||||||||||
Financial derivative contracts | ||||||||||||
Forwards | 49 | 2,565 | - | (2,433) | - | 181 | ||||||
Swaps | 520 | 643 | - | (225) | - | 938 | ||||||
Call options | - | - | - | - | - | - | ||||||
Put options | - | - | - | - | - | - | ||||||
Totals | 569 | 3,208 | - | (2,658) | - | 1,119 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 127 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 34 - Fair Value of Financial Assets and Liabilities, continued
f) | Hierarchy for remaining assets and liabilities. |
The following table classifies assets and liabilities not measured at fair value on a recurring basis, in accordance with the fair value hierarchy as of September 30, 2020 and December 31, 2019:
As of September 30, 2020 | ||||||||
Market value of | ||||||||
the asset for | Other observable | Non-observable | ||||||
Measurement at fair value of items on a non-recurring basis | Estimated fair | identified assets | significant inputs | significant inputs | ||||
value | (Level 1) | (Level 2) | (Level 3) | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
ASSETS | ||||||||
Cash and deposits in banks | 3,943,080 | 3,943,080 | - | - | ||||
Cash items in process of collection | 406,308 | 406,308 | - | - | ||||
Investments under resale agreements | 172,087 | 172,087 | - | - | ||||
Interbank loans, net | 86,840 | 86,840 | - | - | ||||
Loans and accounts receivable from customers, net | 23,601,379 | - | - | 23,601,379 | ||||
Held to maturity investments | 89,908 | 89,908 | - | - | ||||
Totals | 28,299,602 | 4,698,223 | - | 23,601,379 | ||||
LIABILITIES | ||||||||
Deposits and other demand liabilities | 5,661,945 | 5,661,945 | - | - | ||||
Cash in process of being cleared | 381,006 | 381,006 | - | - | ||||
Obligations under repurchase agreements | 437,330 | 437,330 | - | - | ||||
Time deposits and other time liabilities | 12,251,960 | - | 12,251,960 | - | ||||
Interbank borrowings | 4,288,576 | 4,288,576 | - | - | ||||
Debt instruments issued | 7,210,991 | - | 7,210,991 | - | ||||
Lease contracts liabilities | 165,319 | - | 165,319 | - | ||||
Other financial liabilities | 8,401 | 8,401 | - | - | ||||
Totals | 30,405,528 | 10,777,258 | 19,628,270 | - |
As of December 31, 2019 | ||||||||
Market value of | ||||||||
the asset for | Other observable | Non-observable | ||||||
Measurement at fair value of items on a non-recurring basis | Estimated fair | identified assets | significant inputs | significant inputs | ||||
value | (Level 1) | (Level 2) | (Level 3) | |||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||
ASSETS | ||||||||
Cash and deposits in banks | 1,009,681 | 1,009,681 | - | - | ||||
Cash items in process of collection | 231,305 | 231,305 | - | - | ||||
Investments under resale agreements | 75,975 | 75,975 | - | - | ||||
Interbank loans, net | 56,205 | 56,205 | - | - | ||||
Loans and accounts receivable from customers, net | 23,413,152 | - | - | 23,413,152 | ||||
Held to maturity investments | 114,175 | 114,175 | - | - | ||||
Totals | 24,900,493 | 1,487,341 | - | 23,413,152 | ||||
LIABILITIES | ||||||||
Deposits and other demand liabilities | 4,873,448 | 4,873,448 | - | - | ||||
Cash in process of being cleared | 164,573 | 164,573 | - | - | ||||
Obligations under repurchase agreements | 559,457 | 559,457 | - | - | ||||
Time deposits and other time liabilities | 11,692,076 | - | 11,692,076 | - | ||||
Interbank borrowings | 2,646,176 | 2,646,176 | - | - | ||||
Debt instruments issued | 7,244,551 | - | 7,244,551 | - | ||||
Lease contracts liabilities | 175,263 | - | 175,263 | - | ||||
Other financial liabilities | 12,966 | 12,966 | - | - | ||||
Totals | 27,368,510 | 8,256,620 | 19,111,890 | - |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 128 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management
The following is information related to the Bank's Risk Management, regarding the main risks that affect the Bank and its subsidiaries:
a) Credit Risk
Credit risk is the risk of potential loss that it faces, if a client or counterparty in a financial instrument does not comply with its contractual obligations to the Bank.
For Itaú Corpbanca, adequate risk management in all areas and, in particular, with regard to credit risk is one of the fundamental pillars for managing the Bank's portfolio, ensuring that it maintains an adequate risk / return ratio. It should be noted that this management includes both the credit risk originated by the effective placements, as well as by the contingent placements.
The Credit Managements have autonomy vis-à-vis the business areas and their size and organization are in accordance with the demands demanded by the size of the portfolio, as well as the complexity of the operations.
For the management, administration and monitoring of credit risk, each Credit Risk Management uses tools and methodologies that are in accordance with the segments they address. These allow an appropriate control of the risk, according to the size and complexity of the operations carried out by the Bank.
The Bank has a structure of Credit Committees associated with the Debtor's Risk Rating and with attributions based mostly on the committees in which Risk Managers participate. On certain amounts, a concurrence of Bank Directors is required.
It is these committees that define the levels of individual and group exposure to clients, as well as the mitigating conditions such as guarantees, credit agreements or others. As part of the policies it is defined that all customers must be analyzed at least once a year, when the line is renewed (situation that occurs first), or by activation of any alert.
a.1) Individual portfolio risk assessment
The Bank's risk management tool divides its portfolio into the following categories:
● | Normal risk portfolio |
● | Substandard portfolio |
● | Non-compliant portfolio |
Normal risk portfolio
This includes debtors with payment capacity to comply normally with their obligations and commitments whose economic and financial situation shows no signs that this may change.
They are evaluated using a general parametric model with three qualitative factors (industry, shareholders and access to credit) and three quantitative financial position parameters, which are weighted based on the Bank's total sales.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 129 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management, continued
Substandard portfolio
It includes debtors with financial difficulties that significantly affect their payment capacity and about which there are reasonable doubts regarding repayment of all principal and interest in the contractually agreed-upon terms, showing little room to meet its financial obligations in the short term. Among other customers, this portfolio includes debtors with recent balances between 30 and 90 days overdue that can be attributed to the company's performance.
They are evaluated using a default parametric model that includes payment behavior and also considers the impact of negative results (losses).
Non-compliant portfolio
This portfolio is comprised of debtors managed by the Normalization Area and that come from clients with individual classification in default and all the clients that present some expired transaction originated by problems in their capacity to pay, regardless of their rating.
Monthly, the Asset Control and Classification Area checks that this provision is complied with.
a.2) Collectively risk assessed portfolios
To determine the provisions, group evaluations require the formation of groups of credits with homogeneous characteristics in terms of type of debtors and agreed conditions, in order to establish, by means of technically based estimates and following prudential criteria, both the payment behavior of the group in question as the recoveries of their unfulfilled credits.
The non-performing portfolio includes all placements and 100% of the amount of the contingent loans of debtors who, at the end of a month, have any of the following conditions:
i) Overdue equal to or greater than 90 days in the payment of interest or principal of any loans;
ii) they are granted a loan to leave an operation that had more than 60 days of delay in its payment and
iii) it has been subject to forced restructuring or partial debt cancellation.
All other credits that do not follow the restrictions indicated previously for the group portfolio, are identified as part of the normal portfolio.
a.3) Financial instruments
The Bank, for this type of asset, measures the probability of uncollectibility to issuers using internal ratings and, when they are available, external such as independent risk evaluators of the Bank.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 130 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management, continued
Maximum exposure to credit risk
Following is the distribution by financial asset of the maximum exposure to the Bank's credit risk as of September 30, 2020 and December 31, 2019, for the different components of the balance sheet, including derivatives, without deducting the collateral or other credit enhancements received.
As of September 30, | As of December 31, | |||||
Maximum exposure | Notes | 2020 | 2019 | |||
MCh$ | MCh$ | |||||
Interbank loans | 9 | 86,840 | 56,205 | |||
Loans and accounts receivable from customers | 10 | 22,624,495 | 22,373,638 | |||
Financial derivative contracts | 8 | 4,406,544 | 3,038,303 | |||
Investments under resale agreements | 7 | 172,087 | 75,975 | |||
Available for sale investments | 11 | 2,514,133 | 3,593,204 | |||
Held to maturity investments | 11 | 90,768 | 115,682 | |||
Other assets | 17 | 711,808 | 783,447 | |||
Contingent loans | 23 | 5,604,700 | 5,895,139 | |||
Totals | 36,211,375 | 35,931,593 |
(*)Net of guarantees received under agreements to constitute collaterals.
For more details of the maximum exposure to credit and concentration risk for each type of financial instrument, refer to the specific Notes.
a.4) Guarantees
In order to mitigate credit risk, guarantees have been established in the Bank's favor. The main guarantees provided by customers are detailed as follows:
For loans to individuals, the main guarantees are: | For loans to companies, the main guarantees are: | |
-Machinery and/or equipment | - Urban plots or land | |
-Buildings for specific purposes under construction | ||
-Agricultural land | ||
-Maritime ships and aircrafts | ||
-Mining infrastructure | ||
-Inventory | ||
-Agricultural assets | ||
-Industrial assets | ||
-Biological assets | ||
Other warranties |
The guarantees taken by the Bank to ensure the collection of the rights reflected in its loan portfolio correspond to real guarantees of the mortgage and pledge type.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 131 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management, continued
a.5) Credit quality of loans by loan portfolio
Credit quality is described in accordance with the Compendium of Accounting Standards issued by the CMF. A detail by credit risk category is presented below:
As of September 30, 2020 | As of December 31, 2019 | ||||||||||||||||
Individually | % over total | Coverage | Individually | % over total | Coverage | ||||||||||||
Categories | assessed | portfolio | Allowance | ratio | assessed | portfolio | Allowance | ratio | |||||||||
MCh$ | % | MCh$ | % | MCh$ | % | MCh$ | % | ||||||||||
A1 | 171,395 | 0.73 | % | 62 | 0.04 | % | 111,490 | 0.48 | % | 40 | 0.04 | % | |||||
A2 | 685,427 | 2.93 | % | 367 | 0.05 | % | 657,039 | 2.84 | % | 358 | 0.05 | % | |||||
A3 | 3,030,310 | 12.95 | % | 4,390 | 0.14 | % | 3,370,264 | 14.55 | % | 4,742 | 0.14 | % | |||||
A4 | 4,400,302 | 18.80 | % | 33,016 | 0.75 | % | 4,635,425 | 20.02 | % | 36,473 | 0.79 | % | |||||
A5 | 2,815,865 | 12.03 | % | 55,400 | 1.97 | % | 2,978,849 | 12.86 | % | 61,587 | 2.07 | % | |||||
A6 | 956,382 | 4.09 | % | 35,162 | 3.68 | % | 618,793 | 2.67 | % | 15,461 | 2.50 | % | |||||
Normal risk portfolio | 12,059,681 | 51.53 | % | 128,397 | 1.06 | % | 12,371,860 | 53.42 | % | 118,661 | 0.96 | % | |||||
B1 | 644,798 | 2.76 | % | 11,477 | 3.00 | % | 216,493 | 0.93 | % | 7,249 | 3.35 | % | |||||
B2 | 74,348 | 0.32 | % | 4,387 | 5.90 | % | 91,612 | 0.40 | % | 7,309 | 7.98 | % | |||||
B3 | 132,930 | 0.57 | % | 17,215 | 12.95 | % | 43,672 | 0.19 | % | 6,696 | 15.33 | % | |||||
B4 | 232,822 | 0.99 | % | 56,808 | 24.40 | % | 245,773 | 1.06 | % | 58,553 | 23.82 | % | |||||
Substandard portfolio | 1,084,898 | 4.64 | % | 89,887 | 8.29 | % | 597,550 | 2.58 | % | 79,807 | 13.36 | % | |||||
C1 | 123,347 | 0.53 | % | 2,467 | 2.00 | % | 125,258 | 0.54 | % | 2,505 | 2.00 | % | |||||
C2 | 37,001 | 0.16 | % | 3,700 | 10.00 | % | 32,658 | 0.14 | % | 3,266 | 10.00 | % | |||||
C3 | 54,507 | 0.23 | % | 13,627 | 25.00 | % | 60,370 | 0.26 | % | 15,093 | 25.00 | % | |||||
C4 | 45,938 | 0.20 | % | 18,376 | 40.00 | % | 68,805 | 0.30 | % | 27,522 | 40.00 | % | |||||
C5 | 98,282 | 0.42 | % | 63,884 | 65.00 | % | 154,075 | 0.67 | % | 100,148 | 65.00 | % | |||||
C6 | 178,482 | 0.76 | % | 162,473 | 91.03 | % | 107,979 | 0.47 | % | 97,182 | 90.00 | % | |||||
Non-compliant portfolio | 537,557 | 2.30 | % | 264,527 | 49.21 | % | 549,145 | 2.38 | % | 245,716 | 44.75 | % | |||||
Subtotals | 13,682,136 | 58.47 | % | 482,811 | 3.53 | % | 13,518,555 | 58.38 | % | 444,184 | 3.29 | % |
As of September 30, 2020 | As of December 31, 2019 | ||||||||||||||||
% over total | Coverage | % over total | Coverage | ||||||||||||||
Categories | Group | portfolio | Allowance | ratio | Group | portfolio | Allowance | ratio | |||||||||
MCh$ | % | MCh$ | % | MCh$ | % | MCh$ | % | ||||||||||
Normal risk portfolio | 1,916,099 | 8.19 | % | 27,133 | 1.42 | % | 1,737,978 | 7.51 | % | 29,672 | 1.71 | % | |||||
Non-compliant portfolio | 221,099 | 0.94 | % | 59,308 | 26.82 | % | 223,253 | 0.96 | % | 57,944 | 25.95 | % | |||||
Commercial portfolio | 2,137,198 | 9.13 | % | 86,441 | 4.04 | % | 1,961,231 | 8.47 | % | 87,616 | 4.47 | % | |||||
Normal risk portfolio | 4,888,096 | 20.88 | % | 17,448 | 0.36 | % | 4,644,274 | 20.06 | % | 18,798 | 0.40 | % | |||||
Non-compliant portfolio | 239,973 | 1.03 | % | 25,133 | 10.47 | % | 231,767 | 1.00 | % | 26,494 | 11.43 | % | |||||
Mortgage portfolio | 5,128,069 | 21.91 | % | 42,581 | 0.83 | % | 4,876,041 | 21.06 | % | 45,292 | 0.93 | % | |||||
Normal risk portfolio | 2,287,646 | 9.78 | % | 79,286 | 3.47 | % | 2,623,064 | 11.33 | % | 97,319 | 3.71 | % | |||||
Non-compliant portfolio | 167,239 | 0.71 | % | 86,674 | 51.83 | % | 175,165 | 0.76 | % | 106,007 | 60.52 | % | |||||
Consumer portfolio | 2,454,885 | 10.49 | % | 165,960 | 6.76 | % | 2,798,229 | 12.09 | % | 203,326 | 7.27 | % | |||||
Total portfolio | 23,402,288 | 100.00 | % | 777,793 | 3.32 | % | 23,154,056 | 100 | % | 780,418 | 3.37 | % |
b) Financial Risk
Definition and principles of financial risk management
The Bank defines this risk as the possibility of an event having unexpected financial consequences on the institution. Although this definition involves a strong adversity component, it also involves an important opportunity component. Therefore, the purpose of financial risk management is not to eliminate this risk, but rather to limit its exposure to negative events in line with the risk appetite of the Bank's shareholders and the regulations that govern the institution. The main financial risks to which the Bank is exposed are: Market Risk, Liquidity Risk and Counterparty Risk.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 132 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management, continued
b.1) Market Risk
Market Risk is the exposure to economic gains or losses caused by movements in prices and market variables. This risk stems from the activities of the Trading and Banking Books. In the first case, it comes from activities intended to obtain short-term gains and from the intensive use of fair value instruments. In the second case, with a more long-term vision, it stems from commercial activities with products valued at amortized cost.
The following section describes the main market risk factors to which the Bank and its subsidiaries are exposed:
b.1.1) Currency Risk
Currency risk is the exposure to adverse movements in the exchange rates of currencies other than their base currency (CLP in the case of operations in Chile and COP in the case of operations in Colombia) for all those positions inside and outside of balance. The main sources of exchange risk are:
The foregoing means that movements in exchange rates can generate volatility in both the result and the Bank's equity. This effect is known as 'translation risk'.
b.1.2) Inflation-indexation and exchange-indexation
The inflation-indexation and exchange-indexation risk is the exposure due to changes in units or indexes of adjustment (such as UF, UVR or others) defined in national or foreign currency, in which some of the instruments, contracts or other transactions registered in the balance with such characteristics.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 133 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management, continued
The positions in currencies of assets and liabilities as of September 30, 2020 and December 31, 2019 are as follows:
Others | Exchange rate | |||||||||||||||||
As of September 30, 2020 | Note | CLP | UF | USD | COP | EUR | currencies | indexed | Totals | |||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||
Cash and deposits in banks | 5 | 2,467,547 | - | 1,096,173 | 237,785 | 88,387 | 53,188 | - | 3,943,080 | |||||||||
Cash items in process of collection | 5 | 228,521 | - | 168,558 | 611 | 7,491 | 1,127 | - | 406,308 | |||||||||
Trading investments | 6 | 97,378 | 340 | - | 324,817 | - | - | - | 422,535 | |||||||||
Investments under resale agreements | 7 | 68,783 | - | - | 103,304 | - | - | - | 172,087 | |||||||||
Financial derivative contracts | 8 | 2,779,879 | 357,398 | 1,222,462 | 106,649 | 496 | - | - | 4,466,884 | |||||||||
Interbank loans, net | 9 | - | - | 63,698 | 23,142 | - | - | - | 86,840 | |||||||||
Loans and accounts receivable from customers, net | 10 | 6,093,011 | 8,995,430 | 3,421,175 | 4,072,405 | 32,315 | - | 10,159 | 22,624,495 | |||||||||
Available for sale investments | 11 | 1,490,002 | 489,910 | 106,678 | 427,543 | - | - | - | 2,514,133 | |||||||||
Held to maturity investments | 11 | - | - | 8,025 | 82,743 | - | - | - | 90,768 | |||||||||
Investments in companies | 12 | 11,007 | - | - | 3,221 | - | - | - | 14,228 | |||||||||
Intangibles | 13 | 731,619 | - | 216 | 39,503 | - | - | - | 771,338 | |||||||||
Fixed assets | 14 | 33,699 | - | 369 | 18,271 | - | - | - | 52,339 | |||||||||
Right of use assets under lease agreements | 15 | 146,834 | - | 8,003 | 30,674 | - | - | - | 185,511 | |||||||||
Current taxes | 16 | 2,885 | - | 304 | 15,090 | - | - | - | 18,279 | |||||||||
Deferred taxes | 16 | 201,314 | - | 19,592 | 30,376 | - | - | - | 251,282 | |||||||||
Other assets | 17 | 142,111 | 43,445 | 467,910 | 57,509 | 563 | - | 270 | 711,808 | |||||||||
TOTAL ASSETS | 14,494,590 | 9,886,523 | 6,583,163 | 5,573,643 | 129,252 | 54,315 | 10,429 | 36,731,915 | ||||||||||
Deposits and other demand liabilities | 18 | 3,001,836 | 3,426 | 656,250 | 1,982,708 | 17,542 | 183 | - | 5,661,945 | |||||||||
Cash in process of being cleared | 5 | 165,146 | - | 196,319 | 18 | 18,432 | 1,091 | - | 381,006 | |||||||||
Obligations under repurchase agreements | 7 | 346,485 | - | - | 90,845 | - | - | - | 437,330 | |||||||||
Time deposits and other time liabilities | 18 | 8,042,939 | 406,248 | 1,920,443 | 1,722,743 | 15 | - | 1 | 12,092,389 | |||||||||
Financial derivative contracts | 8 | 2,351,110 | 442,668 | 1,157,842 | 165,182 | 2,020 | - | - | 4,118,822 | |||||||||
Interbank borrowings | 19 | 2,257,354 | - | 1,844,861 | 71,799 | 306 | 118,662 | - | 4,292,982 | |||||||||
Debt instruments issued | 20 | 841,444 | 4,604,042 | 507,915 | 226,070 | - | - | - | 6,179,471 | |||||||||
Other financial liabilities | 20 | 8,401 | - | - | - | - | - | - | 8,401 | |||||||||
Lease contracts liabilities | 15 | 566 | 119,393 | 7,859 | 28,493 | - | - | 202 | 156,513 | |||||||||
Current taxes | 16 | 2,439 | - | - | 248 | - | - | - | 2,687 | |||||||||
Deferred taxes | 16 | - | - | - | 268 | - | - | - | 268 | |||||||||
Provisions | 21 | 136,276 | - | 8,624 | 66,844 | - | - | - | 211,744 | |||||||||
Other liabilities | 22 | 177,133 | 134,950 | 201,324 | 94,911 | 389 | - | 5,879 | 614,586 | |||||||||
TOTAL LIABILITIES | 17,331,129 | 5,710,727 | 6,501,437 | 4,450,129 | 38,704 | 119,936 | 6,082 | 34,158,144 | ||||||||||
Assets (liabilities), net | (2,836,539) | 4,175,796 | 81,726 | 1,123,514 | 90,548 | (65,621) | 4,347 | 2,573,771 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 134 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management, continued
Others | Exchange rate | |||||||||||||||||
As of December 31, 2019 | Note | CLP | UF | USD | COP | EUR | currencies | indexed | Totals | |||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||||
Cash and deposits in banks | 5 | 262,828 | - | 364,594 | 379,706 | 2,553 | - | - | 1,009,681 | |||||||||
Cash items in process of collection | 5 | 150,463 | - | 80,132 | 710 | - | - | - | 231,305 | |||||||||
Trading investments | 6 | 109,924 | - | - | 71,478 | - | - | - | 181,402 | |||||||||
Investments under resale agreements | 7 | 46,686 | - | - | 29,289 | - | - | - | 75,975 | |||||||||
Financial derivative contracts | 8 | 2,278,658 | 324,414 | 536,936 | 14,035 | 914 | - | - | 3,154,957 | |||||||||
Interbank loans, net | 9 | - | - | 35,753 | 20,452 | - | - | - | 56,205 | |||||||||
Loans and accounts receivable from customers, net | 10 | 5,722,955 | 8,749,298 | 3,492,562 | 4,397,334 | 841 | - | 10,648 | 22,373,638 | |||||||||
Available for sale investments | 11 | 1,600,147 | 1,023,726 | 124,310 | 845,021 | - | - | - | 3,593,204 | |||||||||
Held to maturity investments | 11 | - | - | 30,132 | 85,550 | - | - | - | 115,682 | |||||||||
Investments in companies | 12 | 11,166 | - | - | 3,772 | - | - | - | 14,938 | |||||||||
Intangibles | 13 | 1,443,761 | - | 1,104 | 172,880 | - | - | - | 1,617,745 | |||||||||
Fixed assets | 14 | 35,648 | - | 422 | 21,892 | - | - | - | 57,962 | |||||||||
Right of use assets under lease agreements | 15 | 158,359 | - | 7,936 | 38,264 | - | - | - | 204,559 | |||||||||
Current taxes | 16 | 30,773 | - | - | 54,743 | - | - | - | 85,516 | |||||||||
Deferred taxes | 16 | 158,174 | - | 18,522 | 7,471 | - | - | - | 184,167 | |||||||||
Other assets | 17 | 284,599 | 91,456 | 359,198 | 47,924 | - | - | 270 | 783,447 | |||||||||
TOTAL ASSETS | 12,294,141 | 10,188,894 | 5,051,601 | 6,190,521 | 4,308 | - | 10,918 | 33,740,383 | ||||||||||
Deposits and other demand liabilities | 18 | 2,255,736 | 2,855 | 534,005 | 2,079,465 | 1,387 | - | - | 4,873,448 | |||||||||
Cash in process of being cleared | 5 | 100,395 | - | 64,178 | - | - | - | - | 164,573 | |||||||||
Obligations under repurchase agreements | 7 | 499,136 | - | - | 60,321 | - | - | - | 559,457 | |||||||||
Time deposits and other time liabilities | 18 | 7,952,973 | 391,679 | 1,356,132 | 1,919,402 | - | - | 1 | 11,620,187 | |||||||||
Financial derivative contracts | 8 | 1,960,447 | 402,899 | 476,568 | 97,212 | 908 | - | - | 2,938,034 | |||||||||
Interbank borrowings | 19 | - | - | 2,563,630 | 83,126 | - | - | - | 2,646,756 | |||||||||
Debt instruments issued | 20 | 763,503 | 4,924,260 | 129,281 | 590,471 | 841 | - | - | 6,408,356 | |||||||||
Other financial liabilities | 20 | 12,956 | 10 | - | - | - | - | - | 12,966 | |||||||||
Lease contracts liabilities | 15 | 659 | 129,034 | 7,689 | 35,273 | - | - | 269 | 172,924 | |||||||||
Current taxes | 16 | 13 | - | - | - | - | - | - | 13 | |||||||||
Deferred taxes | 16 | - | - | - | 263 | - | - | - | 263 | |||||||||
Provisions | 21 | 111,796 | - | - | 82,311 | - | - | - | 194,107 | |||||||||
Other liabilities | 22 | 265,814 | 268,685 | 115,196 | 54,446 | - | - | 4,773 | 708,914 | |||||||||
TOTAL LIABILITIES | 13,923,428 | 6,119,422 | 5,246,679 | 5,002,290 | 3,136 | - | 5,043 | 30,299,998 | ||||||||||
Assets (liabilities), net | (1,629,287) | 4,069,472 | (195,078) | 1,188,231 | 1,172 | - | 5,875 | 3,440,385 |
b.4)Interest Rate Risk
Interest Rate Risk is the exposure to movements in market interest rates. Changes in market interest rates can affect both the price of instruments recorded at fair value and the financial margin and other gains from the Banking Book such as fees. Fluctuations in interest rates also affect the Bank's economic value. Interest rate risk can be represented by sensitivities to parallel and/or non-parallel yield shifts with the effects reflected in the prices of instruments, the financial margin, equity and economic value.
The measurement of the structural interest rate risk is carried out through the representation by risk factor of the cash flows expressed in fair value, assigned on the dates of repricing and by currency. This methodology facilitates the detection of concentrations of interest risk in the different terms. All the balance sheet and off-balance sheet items are unbundled in their flows and placed at the repricing/maturity. In the case of those accounts that do not have a contractual maturity, an internal model of analysis and estimation of their durations and sensitivities is used.
.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 135 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management, continued
The following are the Banking Book items (products valued at amortized cost and instruments available for sale and derivatives valued at fair value) for the most relevant currencies in which the Bank trades for the periods ended on September 30, 2020 and December 31, 2019:
As of September 30, 2020 | ||||||||||||
Up to | 1 to 3 | 3 months | 1 to 3 | More than | ||||||||
Positions | 1 month | months | to 1 year | years | 3 years | Totals | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Assets | 9,912,522 | 2,826,638 | 5,632,648 | 4,957,710 | 9,887,542 | 33,217,060 | ||||||
CLP | 5,086,461 | 843,799 | 2,320,279 | 2,211,528 | 2,185,207 | 12,647,274 | ||||||
CLF | 417,741 | 697,411 | 1,696,691 | 1,613,669 | 6,861,481 | 11,286,993 | ||||||
USD | 2,371,878 | 848,163 | 844,363 | 113,054 | 226,330 | 4,403,788 | ||||||
COP | 2,036,442 | 437,265 | 771,315 | 1,019,459 | 614,524 | 4,879,005 | ||||||
Liabilities | (15,314,245) | (2,868,934) | (5,465,893) | (1,596,511) | (7,845,692) | (33,091,275) | ||||||
CLP | (9,975,924) | (1,753,935) | (3,095,657) | (240,621) | (1,948,379) | (17,014,516) | ||||||
CLF | (175,424) | (62,440) | (428,916) | (734,429) | (5,483,921) | (6,885,130) | ||||||
USD | (2,933,539) | (743,040) | (1,295,744) | (99,066) | - | (5,071,389) | ||||||
COP | (2,229,358) | (309,519) | (645,576) | (522,395) | (413,392) | (4,120,240) | ||||||
Derivative | 89,839 | 37,766 | (154,670) | (677,802) | 870,854 | 165,987 | ||||||
CLP | 459,533 | 804,214 | 1,290,322 | (204,952) | (52,661) | 2,296,456 | ||||||
CLF | (445,526) | (370,745) | (1,244,069) | (275,364) | 985,155 | (1,350,549) | ||||||
USD | (119,577) | 154,009 | 12,681 | (480) | (2,933) | 43,700 | ||||||
COP | 195,409 | (549,712) | (213,604) | (197,006) | (58,707) | (823,620) |
As of December 31, 2019 | ||||||||||||
Up to | 1 to 3 | 3 months | 1 to 3 | More than | ||||||||
Positions | 1 month | months | to 1 year | years | 3 years | Totals | ||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Assets | 7,633,971 | 3,029,532 | 6,307,519 | 5,272,331 | 9,039,580 | 31,282,933 | ||||||
CLP | 3,507,091 | 965,331 | 2,382,124 | 1,924,539 | 1,365,975 | 10,145,060 | ||||||
CLF | 536,885 | 595,857 | 1,670,189 | 2,172,579 | 6,662,306 | 11,637,816 | ||||||
USD | 1,389,199 | 746,880 | 1,469,663 | 88,532 | 125,788 | 3,820,062 | ||||||
COP | 2,200,796 | 721,464 | 785,543 | 1,086,681 | 885,511 | 5,679,995 | ||||||
Liabilities | (12,686,057) | (3,240,522) | (6,377,031) | (1,951,036) | (6,020,743) | (30,275,389) | ||||||
CLP | (8,633,088) | (2,251,174) | (3,200,762) | (632,972) | (215,000) | (14,932,996) | ||||||
CLF | (432,799) | (47,785) | (655,079) | (752,948) | (5,426,561) | (7,315,172) | ||||||
USD | (1,412,752) | (616,060) | (1,856,669) | (44,884) | - | (3,930,365) | ||||||
COP | (2,207,418) | (325,503) | (664,521) | (520,232) | (379,182) | (4,096,856) | ||||||
Derivative | 294,703 | (428,178) | (32,152) | (282,453) | 511,199 | 63,119 | ||||||
CLP | 988,919 | 1,140,587 | 900,023 | 664,608 | (407,679) | 3,286,458 | ||||||
CLF | (936,785) | (814,209) | (485,247) | (904,781) | 910,135 | (2,230,887) | ||||||
USD | 187,347 | 307,934 | (93,046) | 17,637 | 3,513 | 423,385 | ||||||
COP | 55,222 | (1,062,490) | (353,882) | (59,917) | 5,230 | (1,415,837) |
The expositions presented above correspond to the present values resulting from:
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 136 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management, continued
b.3) Volatility risk
In addition to the exposure associated with the underlying asset, the issuance of options involves other risks. These are caused by the non-linear relationship between the profit generated by the option and the price and the levels of the underlying factors, as well as by exposure to changes in the volatility of the price of the underlying asset.
b.4)Liquidity Risk
Liquidity Risk is the exposure of the Bank's and its subsidiaries to events that affect their ability to meet, in a timely manner and at reasonable costs, cash payment obligations arising from maturities of time deposits that are not renewed, withdrawals from demand accounts, maturities or settlements of derivatives, liquidations of investments or any other payment obligation.
Financial institutions are exposed to funding liquidity risk that is intrinsic to the role of intermediary that they play in the economy. In general, in financial markets demand for medium or long-term financing is usually much greater than the supply of funds for those terms while short-term financing is in considerable supply. In this sense, the role of intermediary played by financial institutions, which assume the risk of satisfying the demand for medium and long-term financing by brokering short-term available funds, is essential for the economy to function properly.
Normative Measurement of Contractual Liquidity GAP
According to chapter 12-20 of the RAN, all the items on and off the balance sheet that contribute cash flows are analyzed. The consolidated non-discounted contractual cash flows of financial assets and liabilities of the Bank as of September 30, 2020 and December 31, 2019, are presented below:
As of September 30, 2020 | ||||||||||||||||
Up to 1 | 1 to 3 | 3 to 6 | 6 months to 1 | 1 to 3 | 3 to 5 | More than 5 | ||||||||||
month | months | months | year | years | years | years | Totals | |||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Assets | 7,569,363 | 1,884,996 | 2,022,666 | 2,278,842 | 6,431,437 | 5,493,615 | 8,598,140 | 34,279,059 | ||||||||
Cash | 3,715,368 | - | - | - | - | - | - | 3,715,368 | ||||||||
Financial instruments recorded at market value | 1,245,952 | 15,415 | 30,257 | 130,804 | 392,716 | 79,500 | 69,912 | 1,964,556 | ||||||||
Loans to local banks without credit lines | 107,025 | - | 40,648 | 20,577 | - | - | - | 168,250 | ||||||||
Credit lines granted to local banks | 1,167,048 | 1,427,637 | 1,663,813 | 1,517,857 | 3,879,467 | 3,599,084 | 3,649,712 | 16,904,618 | ||||||||
Commercial loans without credit lines | (46,534) | - | - | - | 1 | - | - | (46,533) | ||||||||
Commercial credit lines and overdrafts | 51,849 | 118,506 | 177,071 | 344,055 | 987,555 | 552,506 | 193,506 | 2,425,048 | ||||||||
Consumer loans without credit lines | (88,619) | - | - | - | - | - | - | (88,619) | ||||||||
Consumer credit lines and overdrafts | 37,490 | 73,715 | 111,267 | 218,628 | 866,193 | 811,430 | 4,545,591 | 6,664,314 | ||||||||
Residential mortgage loans | 226,390 | 216,826 | 12,171 | 41,845 | 20 | 384,237 | 1,801 | 883,290 | ||||||||
Other transactions or commitments without credit lines | 1,130,557 | 6,135 | 26 | - | 260,098 | - | - | 1,396,816 | ||||||||
Derivative contracts | 22,837 | 26,762 | (12,587) | 5,076 | 45,387 | 66,858 | 137,618 | 291,951 | ||||||||
Liabilities | (13,595,365) | (3,064,635) | (2,901,012) | (2,324,195) | (1,957,328) | (3,087,819) | (4,614,074) | (31,544,428) | ||||||||
Checking accounts and demand deposits | (5,716,281) | - | - | - | - | - | - | (5,716,281) | ||||||||
Term savings accounts - unconditional withdrawal | (19,308) | - | - | - | - | - | - | (19,308) | ||||||||
Obligations with the Chilean Central Bank without credit lines | (307,588) | (129,748) | - | - | - | - | - | (437,336) | ||||||||
Credit lines obtained from the Central Bank of Chile | - | - | - | - | (418,140) | (1,843,379) | - | (2,261,519) | ||||||||
Deposits and time deposits | (4,730,372) | (2,502,823) | (2,278,875) | (1,745,801) | (382,565) | (68,574) | (682,922) | (12,391,932) | ||||||||
Foreign borrowings without credit lines | (800,229) | (379,610) | (554,443) | (203,992) | (102,580) | - | - | (2,040,854) | ||||||||
Foreign loans without credit lines | (12) | - | - | - | - | - | - | (12) | ||||||||
Letter of credit obligations | (1,331) | (375) | (1,721) | (3,395) | (12,608) | (9,812) | (7,212) | (36,454) | ||||||||
Bonds payable | (922,273) | (48,277) | (60,337) | (360,195) | (958,744) | (1,135,310) | (3,895,526) | (7,380,662) | ||||||||
Other credit lines obtained | (1,097,971) | (3,802) | (5,636) | (10,812) | (82,691) | (30,744) | (28,414) | (1,260,070) | ||||||||
Net | (6,026,002) | (1,179,639) | (878,346) | (45,353) | 4,474,109 | 2,405,796 | 3,984,066 | 2,734,631 |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 137 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management, continued
As of December 31, 2019 | ||||||||||||||||
Up to 1 | 1 to 3 | 3 to 6 | 6 months to 1 | 1 to 3 | 3 to 5 | More than 5 | ||||||||||
month | months | months | year | years | years | years | Totals | |||||||||
MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | |||||||||
Assets | 7,290,597 | 2,513,201 | 2,329,329 | 2,269,276 | 6,174,755 | 3,642,796 | 8,876,481 | 33,096,435 | ||||||||
Cash | 840,950 | - | - | - | - | - | - | 840,950 | ||||||||
Financial instruments recorded at market value | 2,988,831 | 16,339 | 1,009 | 21,989 | 34,114 | 4,797 | 39,752 | 3,106,831 | ||||||||
Loans to local banks without credit lines | 73,871 | - | - | - | - | - | - | 73,871 | ||||||||
Credit lines granted to local banks | 1,351,426 | 1,837,226 | 1,768,810 | 1,711,296 | 3,862,542 | 2,202,170 | 4,077,052 | 16,810,522 | ||||||||
Commercial loans without credit lines | 133,856 | - | - | - | (4) | - | - | 133,852 | ||||||||
Commercial credit lines and overdrafts | 460,594 | 134,413 | 209,720 | 351,216 | 1,074,368 | 613,673 | 156,218 | 3,000,202 | ||||||||
Consumer loans without credit lines | 278,985 | - | - | - | - | - | - | 278,985 | ||||||||
Consumer credit lines and overdrafts | 36,184 | 72,739 | 109,834 | 219,880 | 863,034 | 809,263 | 4,490,805 | 6,601,739 | ||||||||
Residential mortgage loans | 228,588 | 432,020 | 99,920 | 23,239 | 19 | 12 | - | 783,798 | ||||||||
Other transactions or commitments without credit lines | 973,966 | 6,489 | 125,128 | - | 248,169 | - | - | 1,353,752 | ||||||||
Derivative contracts | (76,654) | 13,975 | 14,908 | (58,344) | 92,513 | 12,881 | 112,654 | 111,933 | ||||||||
Liabilities | (10,209,490) | (3,277,951) | (3,007,364) | (3,804,062) | (2,201,789) | (1,525,066) | (5,089,316) | (29,115,038) | ||||||||
Checking accounts and demand deposits | (4,718,777) | - | - | - | - | - | - | (4,718,777) | ||||||||
Term savings accounts - unconditional withdrawal | (20,016) | - | - | - | - | - | - | (20,016) | ||||||||
Term savings accounts - deferred withdrawal | (164,524) | (396,408) | - | - | - | - | - | (560,932) | ||||||||
Obligations with the Chilean Central Bank without credit lines | (3,969,193) | (2,489,593) | (1,984,846) | (2,051,001) | (832,938) | (89,695) | (703,836) | (12,121,102) | ||||||||
Deposits and time deposits | (232,236) | (360,526) | (784,211) | (1,133,943) | (82,368) | (96,272) | (44,589) | (2,734,145) | ||||||||
Foreign borrowings without credit lines | (47,728) | - | - | - | - | - | - | (47,728) | ||||||||
Letter of credit obligations | (1,467) | (327) | (1,679) | (3,314) | (11,501) | (9,366) | (10,265) | (37,919) | ||||||||
Bonds payable | (53,876) | (31,097) | (236,628) | (615,804) | (1,214,851) | (1,329,733) | (4,330,626) | (7,812,615) | ||||||||
Other obligations or payment commitments without credit lines | (1,001,673) | - | - | - | (60,131) | - | - | (1,061,804) | ||||||||
Net | (2,918,893) | (764,750) | (678,035) | (1,534,786) | 3,972,966 | 2,117,730 | 3,787,165 | 3,981,397 |
Items presented on table above correspond to categories that group financial transactions with similar characteristics from a liquidity point of view.
C) Operational Risk
The Bank and its subsidiaries define operational risk as the possibility of occurrence of losses resulting from failures, deficiencies or inadequacies in internal processes, people, and systems or external events, including in this definition the legal risk and excluding strategic risks and reputational. Operational risk is recognized as a manageable risk, for which it has defined a function in charge of this task within its corporate structure.
Operational risk management is executed, mainly, through the Operational Risk Management function. The Bank adopts a model of three lines of defense as the primary way to implement its operational risk management structure, internal controls and compliance, ensuring compliance with corporate guidelines.
The defense lines are composed by; the business and support areas (first line of defense) responsible for managing the risks related to their processes; Operational Risk, Internal Controls, and Compliance (second line of defense) area in charge of supporting the first line of defense in relation to the fulfillment of its direct responsibilities; and Internal Audit function (third line of defense) responsible for verifying, independently and periodically, the adequacy of the risk identification and management processes and procedures, in accordance with the guidelines established in the Internal Audit Policy and submitting the results of its recommendations for improvement to the Audit Committee.
The risk management program contemplates that all relevant risk issues must be reported to the higher levels and to the Operational Risk Committee.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 138 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management, continued
Our methodology consists in the evaluation of the risks and controls of a business from a broad perspective and includes a plan to monitor the effectiveness of such controls and the identification of eventual weaknesses. The main objectives of the Bank and its subsidiaries in terms of operational risk management are the following:
● | Identification, evaluation, information, management, and monitoring of the operational risk in connection with activities, products, and processes carried out or commercialized by the Bank and its subsidiaries; |
● | Build a strong culture of operational risk management and internal controls, with clearly defined and adequately segregated responsibilities between business and support functions, whether these are internally developed or outsourced to third parties; |
● | Generate effective internal reports in connection with issues related to operational risk management, with a clearly defined escalation protocol; |
● | Control the design and application of effective plans to deal with contingencies that ensure business continuity and losses control. |
Regarding training and awareness, the risk culture continues to be reinforced through face-to-face training in the field of operational risk, internal control, prevention of external and internal fraud, and the implementation of the annual 'more security' program for all collaborators and induction programs for new employees.
Finally, it is worth mentioning that Sarbanes-Oxley methodologies (SOX) continue to be applied for their main products and processes, the application of this methodology is annually certified by an external consultant.
D) | Capital requirements |
The primary objectives of capital management are to ensure compliance with regulatory requirements and to maintain a solid risk rating and healthy capital ratios. During the periods ended on September 30, 2020 and December 31, 2019, the Bank has fully complied with all capital requirements.
In accordance with the General Banking Law, the Bank must maintain a minimum ratio of Regulatory Capital to Consolidated Risk-Weighted Assets of 8%, net of required provisions, and a minimum ratio of Core Capital to Total Consolidated Assets of 3%, net of required provisions. However, after the merger, the CMF determined that the Bank's Regulatory Capital could not be less than 10% of its Risk-Weighted Assets. For this purpose, the Bank has applied the dispose in the Chapter 12-1 'Equity for legal and regulatory purposes' of RAN.
Assets are weighted using risk categories, which are assigned a risk percentage based on the capital needed to back up each asset. There are 5 risk categories (0%, 10%, 20%, 60% and 100%). For example, cash, due from banks and financial instruments issued by the Chilean Central Bank have 0% risk, which means that, in accordance with current standards, no capital is required to back these assets. Property, plant and equipment have 100% risk, which means that a minimum capital equivalent to 8% of the value of these assets is needed. In the case of Itaú, it uses 10%.
All derivative instruments traded off-market are taken into account to determine risk assets using conversion factors over notional values, thus calculating the value of the credit risk exposure (or 'credit equivalent'). For weighting purposes, 'credit equivalent' also considers contingent loans not recorded in the Consolidated Statement of Financial Position.
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 139 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 35 - Risk Management, continued
As of September 30, 2020 and December 31, 2019, the relation between assets and risk weighted assets is as follow:
Consolidated assets | Risk-weighted assets | |||||||||
Note | As of September 30, | As of December 31, | As of September 30, | As of December 31, | ||||||
2020 | 2019 | 2020 | 2019 | |||||||
MCh$ | MCh$ | MCh$ | MCh$ | |||||||
Asset balance (net of allowances) | ||||||||||
Cash and deposits in banks | 5 | 3,943,080 | 1,009,681 | - | - | |||||
Cash items in process of collection | 5 | 406,308 | 231,305 | 85,104 | 40,916 | |||||
Trading investments | 6 | 422,535 | 181,402 | 49,615 | 21,755 | |||||
Investments under resale agreements | 7 | 172,087 | 75,975 | 75,893 | 57,622 | |||||
Financial derivative contracts (*) | 8 | 1,443,041 | 1,674,743 | 1,002,076 | 1,215,171 | |||||
Interbank loans | 9 | 86,840 | 56,205 | 86,840 | 56,205 | |||||
Loans and accounts receivable from customers | 10 | 22,624,495 | 22,373,638 | 19,658,513 | 20,112,889 | |||||
Available for sale investments | 11 | 2,514,133 | 3,593,204 | 299,701 | 387,692 | |||||
Held to maturity investments | 11 | 90,768 | 115,682 | 35,570 | 52,527 | |||||
Investments in companies | 12 | 14,228 | 14,938 | 14,228 | 14,938 | |||||
Intangibles | 13 | 771,338 | 1,617,745 | 278,826 | 423,414 | |||||
Fixed assets | 14 | 52,339 | 57,962 | 52,339 | 57,962 | |||||
Right of use asset under lease agreements | 15 | 185,511 | 204,559 | 185,511 | 204,559 | |||||
Current taxes | 16 | 18,279 | 85,516 | 1,828 | 8,552 | |||||
Deferred taxes | 16 | 251,282 | 184,167 | 25,128 | 18,417 | |||||
Other assets | 17 | 711,808 | 783,447 | 483,853 | 698,801 | |||||
Off-balance sheet assets | - | - | ||||||||
Contingent loans | 2,582,262 | 2,647,938 | 1,549,357 | 1,588,763 | ||||||
Totals | 36,290,334 | 34,908,107 | 23,884,382 | 24,960,183 |
(*) | Items presented at their Equivalent Credit Risk value, in accordance with the provisions of Chapter 12-1 'Equity for Legal and Regulatory Effects' of the RAN, issued by the Superintendency of Commission for the Financial Market. |
Amount | Ratio | ||||||||
As of September 30, | As of December 31, | As of September 30, | As of December 31, | ||||||
2020 | 2019 | 2020 | 2019 | ||||||
MCh$ | MCh$ | % | % | ||||||
Basic capital | 2,496,130 | 3,346,102 | (a) | 6.87 | 9.57 | (c) | |||
Effective equity | 3,148,734 | 3,280,569 | (b) | 13.18 | 13.14 | (d) |
(a) Basic Capital Corresponds to the net amount that must be shown in the Consolidated Financial Statements as 'Equity attributable to equity holders' as indicated in the Compendium of Accounting Standards.
(b) The effective equity will be equal to the aforementioned basic capital, subordinated bonds, additional provisions, non-controlling interest as indicated in the Compendium of Accounting Standards; however, if this amount exceeds 20% of the basic capital, only the amount equivalent to that percentage will be added; the amount of the assets corresponding to the goodwill is deducted and in the event that the sum of the assets corresponding to minority investments in companies other than support companies to the line of business is greater than 5% of the basic capital, the amount in which that sum is deducted will be deducted exceed that percentage.
(c) Consolidated basic capital ratio corresponding to basic capital divided by total assets for capital purposes (includes items outside the Consolidated Financial Statements).
(d) Consolidated solvency ratio corresponds to the ratio of effective equity to weighted assets.
The shareholders' agreement established an 'Optimal Regulatory Capital' with respect to Itaú Corpbanca Chile and Colombia, which must be, at any date, the highest between 120% of the minimum regulatory capital ratio established by the respective legislation and the average of the regulatory capital ratio of the 3 largest private banks in the respective country, multiplied by the consolidated risk-weighted assets (APR) of the Chilean or Colombian bank, as applicable, on the date that is one year from the last day of the fiscal year more recent, assuming that the assets weighted by their level of risk grow during that year at a rate equal to the Minimum Growth Rate.
The Bank, in consolidated terms (owners of the Bank), maintains a total equity of MCh$2,496,130 as of September 30, 2020 (MCh$3,346,102 in December 2019).
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 140 |
Itaú Corpbanca and subsidiaries | |
Notes to the Interim Consolidated Financial Statements | |
As of September 30, 2020 and December 31, 2019 and for the three and nine month period ended on September 30, 2020 and 2019 | |
Note 36 - Subsequent Events
Other |
Between October 1, and October 28, 2020, the date of issuance of these Interim Consolidated Financial Statements, there have been no other subsequent events that could affect the presentation and results of them.
Roxana Zamorano | Gabriel Moura |
Chief Accounting Officer | Chief Executive Officer |
Itaú Corpbanca and subsidiaries - Interim Consolidated Financial Statements - September 30, 2020 | 141 |
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Itaú CorpBanca published this content on 19 May 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 May 2021 20:37:00 UTC.