Banco de Chile Stock

Banco de Chile, together with its subsidiaries, operates as a full service financial institution.

The company provides a wide variety of lending and non-lending products and services to all segments of the Chilean financial market, providing its customers with powerful, differentiated and comprehensive value offerings. In addition to its traditional banking operations, the company's subsidiaries and affiliates permit it to offer a variety of non-banking but specialized financial services, including securities brokerage, mutual funds management, investment banking, insurance brokerage and collection services.

Segments

The company operates through four segments: Retail Banking; Wholesale Banking; Treasury and Money Markets; and Operations through Subsidiaries.

Retail Banking segment

This segment serves the financial needs of individuals and small and medium sized companies through its branch network. The company's retail banking segment manages branches operating under its 'Banco de Chile' and 'Banco Edwards-Citi' brand.

The company serves the retail market through its Retail Banking Segment, which is responsible for offering financial services to individuals and microentrepreneurs, as well as small and medium sized companies. For purposes of personal banking, the Individuals and SME Area maintains a segmentation to provide costumers of all income segments from Consumer Finance to premium customers (middle- and high-income segments) with tailored value propositions.

The strategy followed by the company's Retail Banking Segment is mainly focused on sub segmentation, multi brand positioning, cross sell of lending and non-lending products and service quality based on customized service models for specific customer needs. Also, loyalty programs have been increasingly incorporated into the company's commercial targets for each sub segment and they have enabled it to increase the use of its credit cards and its fee-based income. In addition, the area's operations count on the support of specialized call centers, mobile and internet banking services, along with a wide range of management tools that allow the company to measure returns, the performance of cross sold products and the effectiveness of marketing campaigns. Similarly, over the last years the area has strengthened value offering for small and medium-sized companies (SMEs) by promoting a close relationship, while accompanying entrepreneurs in the diverse stages of their life cycle.

The company also focuses on developing and marketing innovative and customized products targeted to satisfy the needs of its Consumer Finance and microbusinesses customers while introducing them to the banking system. The company complements the services offered by its other business segments, especially its wholesale market segment, by offering services to employers, such as direct deposit capabilities for payroll payment purposes, which in turn enable employees to use its deposit services. In recent years, the company has strived to improve its value offering services by designing and implementing two new financial services, 'Caja Chile' and 'Microbusiness Banking'. On the other hand, the 'Microbusiness Banking' is a specialized portfolio of financial services designed for microbusiness (generally personal businesses) that includes financial advisory, lending and non-lending products and general financial solutions for a segment that has been traditionally uncovered by the banking services.

During 2022, the Retail Banking Segment focused on targeted growth opportunities while developing new business solutions and benefits for its clients in order to improve the company's customers' experience. The company introduced tailored offerings for both digitally-oriented customers and customers which prefer traditional channels. Moreover, this business segment achieved a 7.2% increase in checking account customers in 2022, which was in part the consequence of revised current account plans that became simpler, more flexible and more connected to the benefits of the loyalty program.

In regards to SME banking, during 2022, this business unit focused on supporting customers with comprehensive value offerings. In addition, the company launched the FAN Emprende Account, which targets entrepreneurs, start-ups and SME customers by taking advantage of digital transformation, since it is a 100% digital onboarding demand account. Also the company strengthened the benefits associated with its loyalty program for SMEs through alliances and discounts on products and services for their businesses, such as machinery suppliers, car sale companies, telecommunications providers, training, among others.

In 2022, the Retail Banking Segment also achieved significant increases in lending and saving products. In this regard, throughout the year the segment's customer base grew by approximately 57,732 new current account holders.

As of December 31, 2022, the Retail Banking Segment served 1,337,404 core customers (those holding a current account or a loan outstanding) of which 1,189,742 were individuals and 147,662 were small and medium sized Chilean companies. This customer base resulted jointly in total loans granted to 1,117,187 borrowers, which included 137,610 residential mortgage loans debtors, 132,194 commercial loan debtors, 490,884 utilized lines of credit and 356,499 installment loans.

The company offers a variety of financial services to individuals, SMEs and microbusinesses, directly through the Individuals and SME Area or indirectly through its subsidiaries, such as current accounts, automatic bill payment, debit cards, credit cards, revolving credit lines, residential mortgage loans, consumer loans, commercial loans, mortgage loans for general purposes, leasing agreements, factoring services, mutual funds management and stock brokerage, trade finance, payments and collections, insurance brokerage (which includes life and casualty insurance), savings instruments and foreign currency services.

Installment Loans

The company's consumer installment loans are generally incurred, up to a customer's approved credit limit, to afford purchases of goods and/or services, such as cars, travels, household furnishings and education, among others. Consumer loans may be denominated in both pesos and UF, bear fixed or variable interest rates and are generally repayable in installments over a period of up to 46 months.

Residential Mortgage Loans

The company's residential mortgage loans are generally denominated in Unidades de Fomento (UF) and have maturities ranging from five to 30 years. As of December 31, 2022, the average residual maturity of the company's residential mortgage loan portfolio was 16.1 years. Originally, the company funded its residential mortgage loans through the issuance of mortgage finance bonds, which are recourse obligations only to it with payment terms that are matched to the residential loans. Also, the mortgage finance bonds bear real market interest rates plus a fixed spread over the variable rate of the UF, which permits the company to partially reduce its exposure to interest rate fluctuations and inflation. Chilean banking regulations allow the company to finance up to 100% of a residential mortgage loan with mortgage finance bonds, based on the purchase price of the property securing the loan or the appraised value of such property.

As of December 31, 2022, the company's residential mortgage loan portfolio was principally composed of Mutuos Hipotecarios, as customers have preferred them due to their flexibility and simplicity (for instance the interest rate is known in advance by the customer, which is not the case for mortgage finance bonds that are traded in the secondary market and, therefore, subject to discounts), as they are easier to prepay and permit financing of up to 100% of the purchase price (as stated by the applicable local regulation), although banks limit such maximum financing portion based on internal credit policies and economic cycles, among others.

Credit Cards

As of December 31, 2022, the company issued both individual and corporate Visa and MasterCard credit cards. In addition to traditional credit cards, the company's portfolio includes co-branded cards. As of December 31, 2022, the company had two loyalty programs or cobranding agreements, namely 'Travel Club' and 'Entel Visa'. Credit cards issued under these cobranding agreements supplemented the credit cards that it issued under the brand names Banco de Chile and Banco Edwards-Citi. In addition, as of December 31, 2022, the company offered 18 types of credit cards, targeting diverse types of segments and encompassing different benefits, including: Visa Corporate, Visa Corporate Signature, Visa Dorada, Visa Infinite, Visa Infinite Plus, Visa Internacional, Visa Platinum, Visa Platinum Pyme, Visa Pyme/Empresarial, Visa Signature, Visa Signature Entel, Visa FAN Internacional, MasterCard Black, MasterCard Dorada, MasterCard Internacional, MasterCard Platinum, MasterCard Corporate and MasterCard Corporate Executive.

The company's affiliate, Transbank S.A., provides it with services related to payment transactions support. As of December 31, 2022, the company's equity ownership in Transbank S.A. was 26.16%.

As of December 31, 2022, the company had 1,397,135 valid credit card accounts, with 1,609,994 credit cards issued to individuals and small and medium sized companies (according to the CMF), held by 1,186,328 customers.

As of December 31, 2022, the company's credit card loans to individuals and small and medium sized companies represented 32.5% of its retail market business segment's consumer loans.

Commercial Credits

Commercial credits granted by the company's Retail Banking Segment mainly consist of project financing, long-term financing and working capital loans granted to small and medium sized companies, which are denominated in Chilean pesos, UF and the U.S. dollars and may bear fixed or variable rates of interest with average maturities of approximately four years (excluding non-residential mortgage loans).

Leasing Contracts

Leasing contracts are financial leases for capital equipment and property. Leasing contracts may bear fixed or variable interest rates and they generally have terms that range from one to five years for equipment and from five to 20 years for properties. Most of these contracts are denominated in UF.

Lines of Credit

As of December 31, 2022, the Retail Banking Segment had approximately 996,069 approved lines of credit to individual customers and small and medium sized companies.

The company's lines of credit for individual customers are generally available on a revolving basis, up to an approved credit limit, and may be used for any purpose. Advances under lines of credit are denominated in Chilean pesos and bear an interest rate that is set monthly.

Debit Cards

The company offers different types of debit cards to its customers. Depending on their specifications, these cards can be used for banking transactions at automatic teller machines (ATMs) that operate on the local network provided by Redbanc and the local network of merchants participating in the local Redcompra debit program. Also, the company's debit cards can be used internationally through the Visa International PLUS network or the international network of merchants associated with the Electron program. The company names these debit cards depending on the card's specific features and the link between the brand and target market which they serve. During 2022, the company offered the following debit cards: Visa Infinite, Visa Estándar, Visa Estandar FAN, Visa Signature, Visa Platinum, Visa Debit Business and debit cards for companies.

Deposit Products

The company strategically offer deposit products to increase its deposit-taking activities as a means of diversifying its sources of funding. The company offers current accounts, time deposits and savings accounts to its individual customers. Current accounts are Chilean peso-denominated and the majority bear no interest (approximately 0.05% or 560 of the company's total current accounts are interest-bearing), and savings accounts are denominated in UF and bear a fixed-interest rate.

Wholesale Banking segment

This segment serves the needs of corporate customers. As of December 31, 2022, the company had 11,168 debtors out of a total of 30,308 core customers (those holding either a loan or a current account with the company). The company's wholesale customers are engaged in a wide range of economic sectors. As of December 31, 2022, loans granted by the company's wholesale banking segment were mainly related to financial services (approximately 19.6% of all loans granted by this business segment); manufacturing (approximately 10.7% of all loans granted by this business segment); construction (approximately 9.5% of all loans granted by this business segment); commerce and trade (approximately 9.3% of all loans granted by this business segment); communication and transportation (approximately 7.8% of all loans granted by this business segment); agriculture, forestry and fishing (approximately 6.0% of all loans granted by this business segment); community, social and personal services (approximately 2.5% of all loans granted by this business segment); utilities (approximately 1.9% of all loans granted by this business segment); and mining (approximately 1.4% of all loans granted by this business segment).

In line with the company's strategy of identifying and differentiating market segments in order to provide improved value propositions for a diversified customer base, three of the company's areas provide its wholesale customer base with banking and financial products and services, such as the Corporate Area, the Special Business Area and the Large Companies Area.

Corporate Area

The Corporate Area provides banking products and services to corporations with annual sales exceeding UF 3.0 million (approximately Ch$105,300 million as of December 31, 2022). This area's customers consist of a large proportion of Chile's publicly-traded and non-listed companies, subsidiaries of multinational companies and conglomerates operating in Chile (including those operating in the financial, commercial, manufacturing, industrial and infrastructure sectors), projects and concessions, as well as family offices (wealth management). Thus, in addition to traditional lending products, this area offers a wide range of non-lending services related to project finance, deal structuring associated with business acquisitions, cash management, deposits and funds administration, financial advisory, among others. Also, this area is in charge of coordinating and overseeing both the company's Leasing Business and its International Private Banking Unit.

As of December 31, 2022, the Corporate Area had approximately 1,006 debtors out of a total of approximately 4,173 core customers (those holding either a current account or a loan with the company).

The company offers a wide range of products to large corporations that include short- and long-term financing, working capital loans, mortgage loans, leasing, long-term syndicated loans and factoring, as well as investment banking services offered by the company's subsidiary Banchile Asesoría Financiera S.A. The company also offers cash management, including payment services (payrolls, suppliers, pensions, dividends, etc.), collection services and connections to international funds transfer networks, as well as traditional deposit products, in particular current accounts.

In cash management, as of December 31, 2022, the company was party to approximately 9,905 payment service contracts and approximately 873 collection service agreements with corporations. Cash management and payment service contracts, in particular, provide the company with a source of low-cost deposits and the opportunity to cross sell its products and fees to payees, many of whom maintain accounts with it. Under its collection contracts, the company acts as a collection agent for its corporate customers, providing centralized collection services for their accounts receivable and other similar payments.

In order to provide highly competitive and differentiated services, in conjunction with the company's Treasury and Money Market Operations segment, its Corporate Area offers to its customer diverse solutions to over their liquidity, short-term loans and hedging needs. Similarly, the company offers derivative products, which have become increasingly important, especially those associated with Chilean peso-the U.S. dollar and UF-the U.S. dollar forward contracts, cross currency swaps, interest rate swaps and options, among other derivative products.

The company has focused on optimizing the profitability in this segment by enhancing its cross selling through the generation and enhancement of fee-based services, such as payroll processing, dividend payments and billing services, as well as computer banking services.

In 2022, the business area focused on the offering of traditional and specialized financing loans for corporate customers, in addition to leasing loans, trade finance loans and factoring products.

In addition, the Corporate Area offers specialized services of assets custody and financial advisory in diverse matters, such as capital increases, purchase and sale of shares, private equity placements, public share offerings, mergers and acquisitions, capital markets, initial public offerings and bond placements. Thus, in 2022 the Corporate Area benefited from cross-selling, such as investment banking services offered through its investment banking subsidiary (Banchile Asesoría Financiera).

Special Businesses Area

The Special Business Area provides tailored financial products and services to the real estate and construction industries, as well as family offices. Thus, in addition to traditional lending products, this area offers a wide range of non-lending services related to project finance, deal structuring associated with business acquisitions, cash management, custody services, deposits and funds administration, investment banking, derivative instruments, among others.

As of December 31, 2022, the company's Special Businesses Area had approximately 761 borrowers out of a total of 7,238 core customers (those holding either a current account or a loan with the company).

Large Companies Area

The company's Large Companies Area provides companies with a broad range of financial products and services. Customers served by this area are those related to the commercial, manufacturing, agricultural, forestry, fishing and infrastructure sectors, among others.

As of December 31, 2022, the company had 9,330 large company debtors out of a total of 18,824 core customers (those holding either a current account or a loan with the company).

Products and services offered by this area are mainly related to commercial loans, lines of credit, trade finance and foreign currency transactions, factoring services, leasing, non-residential mortgage loans, syndicated loans, investment banking and financial advisory services for mergers and acquisitions, debt restructuring assistance, payments and collections services, current accounts and related saving services, corporate credit cards, cash and investment management, derivative contracts to hedge against currency or interest rate fluctuations, insurance brokerage, among other traditional and tailored services.

Treasury and Money Market Operations segment

This segment provides a wide range of financial services to its customers, including currency intermediation, forward contracts, interest rate swaps, transactions under repurchase agreements and investment products based on bonds, mortgage finance bonds and deposits.

In addition, the company's Treasury and Money Market Operations business segment is focused on managing its currency, interest rate and maturity gaps, ensuring adequate liquidity levels, managing its investment portfolio and performing the intermediation of fixed-income instruments, currencies and derivatives. Interest rate gap management is aimed at generating an adequate funding structure, prioritizing the company's capitalization and asset and liability cost structure and funding source diversification.

This segment is also responsible for the issuance of short- and long-term senior bonds, as well as long-term subordinated bonds, in Chile or abroad; monitoring compliance with regulatory deposit limits, technical reserves and maturity and rate matches/mismatches; monitoring the company's adherence to the security margins defined by regulatory limits, and risk limits for interest rate, currency and investment gaps. This segment continually monitors the bank's cost of funding by benchmarking with the rest of the local financial system and financing alternatives in Chile or abroad.

Regarding funding functions, during 2022, the company continued to develop a funding diversification strategy by conducting important transactions in Chile and abroad.

The funding functions carried out by the company's Treasury area are complemented by its international area, namely International Financial Institutions (IFI), which manages relations with correspondent banks worldwide, facilitating international payments and obtaining foreign currency financing for the company. As of December 31, 2022, the company had established a network of approximately 600 foreign banks, among which it maintained credit relationships with approximately 120 correspondent banks, from which it maintained 17 account relationships. IFI played an important role in structuring international transactions aimed at diversifying the company's funding.

Operations through Subsidiaries segment

The company has made several strategic long-term investments in financial services companies that are engaged in activities complementary to its commercial banking activities.

Securities Brokerage Services

The company provides securities brokerage services through Banchile Corredores de Bolsa S.A. is registered as a securities broker with the CMF, the regulator of Chilean publicly listed companies, and is a member of the Santiago Stock Exchange and the Chilean Electronic Stock Exchange. Banchile Corredores de Bolsa S.A. provides stock brokerage services, fixed income investments and foreign exchange products to individuals and companies through its branch network.

Mutual and Investment Fund Management

The company provides mutual fund management services through Banchile Administradora General de Fondos S.A. Also, as of December 31, 2022, Banchile Administradora General de Fondos S.A. operated 57 mutual funds and various assets under management owned by 362,591 corporate and individual investors. As of December 31, 2022, Banchile Administradora General de Fondos S.A. operated 56 public investment funds. Banchile (Banchile Corredores de Bolsa S.A.) managed various net assets associated with these public investment funds on behalf of 1,632 participants. As of December 31, 2022, Banchile managed 5 private investment funds of various net assets associated with these private investment funds on behalf of 94 participants. During 2022, Banchile Administradora General de Fondos S.A. created seven new mutual funds and 16 new public investment funds.

Insurance Brokerage

The company provides insurance brokerage services to its customers through Banchile Corredores de Seguros Limitada (Banchile Corredores de Seguros LTDA.). In 2000, the company began to offer life insurance policies associated with consumer loans and non-credit related insurance to its individual customers and the general public.

The company has partnered with Chubb Seguros Chile S.A. and Chubb Seguros de Vida Chile S.A., local subsidiaries of Chubb Limited, as its exclusive provider of life and non-life insurances to be distributed by its insurance brokerage subsidiary. For non-life products, the partnership became effective in June 2019, and for life products, it became effective in January 2020.

Financial Advisory Services

The company provides financial advisory and other investment banking services to its customers through Banchile Asesoría Financiera S.A. The services offered by Banchile Asesoría Financiera S.A. are primarily targeted to the company's corporate customers and include advisory services concerning mergers and acquisitions, restructuring, project finance and strategic alliances.

Collection Services

Socofin S.A. provides judicial and extra judicial loan collection services to the bank.

Distribution Channels and Electronic Banking

The company's distribution network provides integrated financial services and products to its customers through a wide range of channels. The network includes ATMs, branches, internet-based banking platforms, mobile banking applications and call centers.

The company has retail branches throughout Chile. The company's branch system serves as a distribution network for all of the products and services offered to its customers. The company's full-service branches accept deposits, cash withdrawals, offer the full range of its retail banking products, such as consumer loans, credit cards, mortgage loans and current accounts, and provide financial and non-financial information to current and potential customers.

The company also offers electronic banking services to its customers 24 hours a day through its website, www.bancochile.cl, which has tailored homepages for the different segments it serves. Thus, by accessing its website, the company's individual customers may execute electronic money transfers, access their account balances, pay utilities bills, apply for loans, make time deposits, purchase insurance premiums, invest in mutual funds, and so on. On the other hand, the company's corporate homepage offers a broad range of services, including the payment of bills, electronic fund transfers, non-charge orders, as well as a wide variety of account inquiries. These services include the company's office banking service, Banconexion Web for Enterprises, which enables its corporate customers to perform all of their banking transactions from their offices. The company's homepage also offers products with exclusive benefits provided by its customer loyalty marketing programs, which enhance its relationships with customers. Through the jointly administered website of Banchile Administration General de Fondos and Banchile Corredora de Bolsa, the company's mutual funds and securities brokerage subsidiaries, respectively, it also provides customers interested in investing and saving their funds with an internet-based platform on which they can trade stocks and currencies, make time deposits and take positions in mutual funds, foreign stock markets, investments funds and derivatives. The company's foreign trade customers can rely on its international business homepage, www.bancochile.com, which enables them to inquire about the status of their foreign trade transactions and perform transactions, such as opening letters of credit, recording import collection and hedging on instructions and letters of credit.

Also, the company provides its customers with access to a 24-hour phone-bank through which they can access account information and execute certain transactions. This service, through which it receives nearly 363,192 calls per month on average, has enabled it to develop customer loyalty campaigns, sell financial products and services, answer specialized inquiries and receive and resolve complaints by customers and non-customers.

The company has devoted efforts to enhance its mobile banking platforms by developing and launching diverse applications, including the mobile applications MiBanco, MiBanconexion, MiPago, and MiBeneficio. Similarly, the company launched MiCuenta, MiPass, and MiSeguro. MiBanco is a mobile banking platform that enables the company's customers to perform most of the operations they can execute on its website, such as accessing their account balances, making bill payments and electronic money transfers, carrying out cash advances from credit cards to checking accounts. MiBanconexion is an application designed for treasury managers of companies or entrepreneurs, which allows the company's customers to make massive transfers, pay their use of credit lines and check movements in their demand account, among other functionalities. MiPago is a specialized mobile application that permits requests for reimbursements from other Banco de Chile's customers and performs the transaction by generating and scanning a QR code, which reinforces the security standards for these types of operations. MiCuenta is a mobile application that enables users to make monthly payments associated with utility bills and other types of services. MiPass is a password-generating application that, among other features, allows users to set a list of money transfer recipients to make transfers without requiring another password-generating device. Also, the company continued to expand its digital banking offerings by launching the new mobile application called MiInversion. This application serves as a portfolio management mobile platform for retail customers by enabling them to manage their investments in equity, fixed-income and mutual funds. Furthermore, the company added new functionalities to these mobile applications by incorporating an on/off service for credit and debit cards in case of theft, misplacement or other security issues detected by the user, authorization of web transactions with MiPass, biometric access to MiBanco and MiBanconexion, through fingerprint, onsite payment in shops and commerce through MiPago, among other features. Likewise, the company also added new functionalities by expanding its RedGiro service to permit its clients to perform transactions through their smartphones and added new functionalities to MiInversion, through which the company's customers are able to invest in time deposits while exchanging foreign currency. As of 2022, the company had continued enhancing its mobile applications by improving existing functionalities.

Strategy

The company's long-term strategy is intended to maintain growth by placing the customer at the center of all of its decisions and continuously improving productivity in all of its processes and procedures while maintaining a strong commitment to the country.

The key elements of the company's strategy include seeking to be the bank with the best service quality, offering innovative, simple, safe and secure products and services designed to meet the needs and aspirations of each segment, with timely, agile and proactive service, thus building trusting and long-term relationships; having customer service channels that are always available, allowing fluid and timely communication; and relying on collaborators with a vocation for customer service and digital knowledge.

Competition

Within the local banking industry, the company's primary competitors are the main private sector commercial banks in Chile, namely, Banco Santander-Chile, Banco de Crédito e Inversiones (BCI), Scotiabank Chile, and Itaú-Corpbanca. Nevertheless, the company also faces competition from Banco del Estado, a state-owned bank.

In the retail market, the company competes with other private sector Chilean banks, as well as with Banco del Estado, which has a large individual customer base.

The company also competes, mainly through its subsidiaries, with companies that offer non-banking specialized financial services in the high-income individuals segment and the middle market and corporate segment, such as Larrain Vial, BTG Pactual, Moneda Asset and CrediCorp, whose core businesses are stock brokerage, financial advisory and wealth management services.

History

Banco de Chile was founded in 1893.