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Derivative Instruments and Accounting Hedges

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Accounting Hedges [abstract]

Derivative Instruments and Accounting Hedges

9.	Derivative Instruments and Accounting Hedges:

(a)

As of December 31, 2018 and 2019, the Bank’s portfolio of derivative instruments is detailed as follows:

	As of December 31, 2018
	Notional amount		Fair value
	contract		Asset		Liability
	MCh$		MCh$		MCh$
Derivatives held for hedging of fair value
Cross currency swap		11,132		―		3,012
Interest rate swap		226,954		1,116		3,152
Total derivatives held for hedging purposes		238,086		1,116		6,164
Derivatives held as cash flow hedges
Interest rate swap and cross currency swap		1,137,457		34,298		31,818
Total Derivatives held as cash flow hedges		1,137,457		34,298		31,818

Derivatives held-for-trading purposes
Currency forward		35,690,464		735,444		631,089
Interest rate swap		72,330,827		287,611		284,840
Cross currency swap and interest rate swap		13,982,890		450,519		569,868
Call currency options		229,175		4,839		2,921
Put currency options		192,553		120		1,534
Total derivatives held-for-trading purposes		122,425,909		1,478,533		1,490,252
Total		123,801,452		1,513,947		1,528,234

	As of December 31, 2019
	Notional amount		Fair value
	contract		Asset		Liability
	MCh$		MCh$		MCh$
Derivatives held for hedging of fair value
Cross currency swap		8,166		―		2,547
Interest rate swap		86,317		32		6,739
Total derivatives held for hedging purposes		94,483		32		9,286
Derivatives held as cash flow hedges
Interest rate swap and cross currency swap		1,181,882		61,562		34,443
Total Derivatives held as cash flow hedges		1,181,882		61,562		34,443

Derivatives held-for-trading purposes
Currency forward		34,499,472		956,632		673,932
Interest rate swap		61,411,254		888,581		886,963
Cross currency swap and interest rate swap		18,575,756		873,371		1,210,059
Call currency options		178,414		4,961		1,529
Put currency options		158,672		1,076		2,209
Total derivatives held-for-trading purposes		114,823,568		2,724,621		2,774,692
Total		116,099,933		2,786,215		2,818,421

(b)

Fair Value Hedges (notional):

The Bank uses cross-currency swaps and interest rate swaps to hedge its exposure to changes in the fair value of the hedged elements attributable to interest rates. The aforementioned hedge instruments change the effective cost of long-term issuances from a fixed interest rate to a variable interest rate, decreasing the duration and modifying the sensitivity to the shortest segments of the curve.

Below is a detail of the hedged elements and hedge instruments under fair value hedges as of December 31, 2018 and 2019:

	As of December 31,
	2018		2019
	MCh$		MCh$
Notional Amounts
Hedged element
Commercial loans		11,132		8,166
Corporate bonds		226,954		86,317

Hedge instrument
Cross currency swap		11,132		8,166
Interest rate swap		226,954		86,317

(c)

Cash flow Hedges:

(c.1)

The Bank uses cross currency swaps to hedge the risk from variability of cash flows attributable to changes in the interest rates and foreign exchange of borrowings from banks and bonds issued abroad in US dollars, Hong Kong dollars, Swiss franc, Japanese yen, Peruvian sol, Australian Dollars, Euros and Norwegian kroner. The cash flows of the cross currency swaps equal the cash flows of the hedged items, which modify uncertain cash flows to known cash flows derived from a fixed interest rate.

Additionally, these cross currency swap contracts used to hedge the risk from variability of the Unidad de Fomento (CLF) in assets flows denominated in CLF until a nominal amount equal to the portion notional of the hedging instrument CLF, whose readjustment daily impact the item “interest revenue” of the financial statements.

(c.2)

Below are the cash flows of borrowings from banks and bonds issued abroad, the objects of these hedges and the cash flows of the asset part of the derivative:

	Up to 1 month						Over 1 month and up to 3 months						Over 3 months and up to 12 months						Over 1 year and up to 3 years						Over 3 years and up to 5 years						Over 5 years						Total
	2018			2019			2018			2019			2018			2019			2018			2019			2018			2019			2018			2019			2018			2019
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Hedge element
Outflows:
Corporate Bond EUR		—			—			—			—			(1,338	)		(1,421	)		(2,675	)		(2,842	)		(2,675	)		(2,842	)		(87,097	)		(91,089	)		(93,785	)		(98,194	)
Corporate Bond HKD		—			—			—			—			(66,378	)		(12,829	)		(21,601	)		(25,627	)		(83,608	)		(91,034	)		(263,206	)		(320,604	)		(434,793	)		(450,094	)
Corporate Bond PEN		—			—			—			(894	)		—			(894	)		—			(3,575	)		—			(3,575	)		—			(49,651	)		—			(58,589	)
Corporate Bond CHF		—			—			(89,256	)		—			(125,993	)		(798	)		(1,450	)		(1,597	)		(82,552	)		(90,095	)		(106,050	)		(116,765	)		(405,301	)		(209,255	)
Corporate Bond USD		—			—			—			—			(1,476	)		(1,600	)		(2,952	)		(3,200	)		(2,952	)		(3,200	)		(42,060	)		(43,994	)		(49,440	)		(51,994	)
Obligation USD		(870	)		(216	)		(86	)		(336	)		(49,401	)		(884	)		(105,622	)		(166,592	)		—			—			—			—			(155,979	)		(168,028	)
Corporate Bond JPY		—			—			(49,362	)		(34,638	)		(1,072	)		(2,121	)		(33,487	)		(38,596	)		(32,882	)		(3,482	)		(71,830	)		(193,625	)		(188,633	)		(272,462	)
Corporate Bond AUD		—			—			—			(428	)		—			(3,274	)		—			(7,399	)		—			(7,401	)		—			(156,499	)		—			(175,001	)
Corporate Bond NOK		—			—			—			—			—			(2,341	)		—			(4,682	)		—			(4,682	)		—			(75,919	)		—			(87,624	)

Hedge instrument
Inflows:
Cross Currency Swap EUR		—			—			—			—			1,338			1,421			2,675			2,842			2,675			2,842			87,097			91,089			93,785			98,194
Cross Currency Swap HKD		—			—			—			—			66,378			12,829			21,601			25,627			83,608			91,034			263,206			320,604			434,793			450,094
Cross Currency Swap PEN		—			—			—			894			—			894			—			3,575			—			3,575			—			49,651			—			58,589
Cross Currency Swap CHF		—			—			89,256			—			125,993			798			1,450			1,597			82,552			90,095			106,050			116,765			405,301			209,255
Cross Currency Swap USD		—			—			—			—			1,476			1,600			2,952			3,200			2,952			3,200			42,060			43,994			49,440			51,994
Cross Currency Swap USD		870			216			86			336			49,401			884			105,622			166,592			—			—			—			—			155,979			168,028
Cross Currency Swap JPY		—			—			49,362			34,638			1,072			2,121			33,487			38,596			32,882			3,482			71,830			193,625			188,633			272,462
Cross Currency Swap AUD		—			—			—			428			—			3,274			—			7,399			—			7,401			—			156,499			—			175,001
Cross Currency Swap NOK		—			—			—			—			—			2,341			—			4,682			—			4,682			—			75,919			—			87,624

Net cash flows		—			—			—			—			—			—			—			—			—			—			—			—			—			—

(c.2)

Below are the cash flows of the underlying assets portfolio and the cash flow of the liability part of the derivatives:

	Up to 1 month					Over 1 month and up to 3 months						Over 3 months and up to 12 months						Over 1 year and up to 3 years						Over 3 years and up to 5 years						Over 5 years						Total
	2018		2019			2018			2019			2018			2019			2018			2019			2018			2019			2018			2019			2018			2019
	MCh$		MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$

Hedge element
Inflows:
Cash flows in CLF		—		156			144,458			33,648			237,340			21,062			173,263			234,065			195,590			280,074			542,523			795,068			1,293,174			1,364,073

Hedge instrument
Outflows:
Cross Currency Swap HKD		—		(156	)		—			—			(59,667	)		(8,798	)		(16,835	)		(17,906	)		(68,362	)		(69,035	)		(233,286	)		(268,034	)		(378,150	)		(363,929	)
Cross Currency Swap PEN		—		—			—			(47	)		—			(48	)		—			(188	)		—			(189	)		—			(31,223	)		—			(31,695	)
Cross Currency Swap JPY		—		—			(50,247	)		(33,570	)		(2,740	)		(4,096	)		(37,432	)		(40,344	)		(35,213	)		(6,424	)		(78,611	)		(199,778	)		(204,243	)		(284,212	)
Cross Currency Swap USD		—		—			—			—			(47,797	)		(1,275	)		(107,893	)		(161,941	)		(1,243	)		(1,281	)		(36,888	)		(37,242	)		(193,821	)		(201,739	)
Cross Currency Swap CHF		—		—			(94,211	)		—			(125,325	)		(3,858	)		(7,482	)		(7,653	)		(87,164	)		(197,107	)		(108,488	)		—			(422,670	)		(208,618	)
Cross Currency Swap EUR		—		—			—			—			(1,811	)		(1,857	)		(3,621	)		(3,715	)		(3,608	)		(3,718	)		(85,250	)		(85,686	)		(94,290	)		(94,976	)
Cross Currency Swap AUD		—		—			—			(31	)		—			(521	)		—			(1,103	)		—			(1,104	)		—			(108,622	)		—			(111,381	)
Cross Currency Swap NOK		—		—			—			—			—			(609	)		—			(1,215	)		—			(1,216	)		—			(64,483	)		—			(67,523	)

Net cash flows		—		—			—			—			—			—			—			—			—			—			—			—			—			—

With respect to CLF assets hedged, these are revalued monthly according to the variation of the UF, which is equivalent to monthly reinvestment of the assets until maturity of the relationship hedging.

(c.3)

The accumulated amount of unrealized gain was a charge to equity for an amount of Ch$37,546 million (a charge to equity for Ch$30,943 million in 2018 and a credit to equity for Ch$14,979 million in 2017) generated from hedging instruments, which has been recorded in equity. The net effect of tax was a charge to equity for Ch$27,408 million in 2019 (a charge to equity for Ch$22,589 million in 2018 and a credit to equity for Ch$11,158 million in 2017).

The accumulated balance for this concept net of income tax as of December 31, 2019 corresponds to a debit of equity amounted Ch$59,391 million (a debit of equity for Ch$31,983 million in 2018 and a debit to equity for Ch$9,394 million in 2017).

(c.4)

The net effect in income of derivatives cash flow hedges was a credit of Ch$84,684 million in 2019 (a credit to income for Ch$85,659 million in 2018 and a debit to income for Ch$93,612 million in 2017).

(c.5)

As of December 31, 2019 and 2018, it not exist inefficiency in cash flow hedge, because both, hedge item and hedge instruments are mirror one of other, it means that all variation of value attributable to rate and revaluation components are netted almost totally.

(c.6)

As of December 31, 2019 and 2018, the Bank has no hedges of net investments in foreign businesses.