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Derivative Instruments and Accounting Hedges

12 Months Ended

Dec. 31, 2020

Disclosure of derivative financial instruments [text block] [Abstract]

Derivative Instruments and Accounting Hedges

9.	Derivative Instruments and Accounting Hedges:

(a)

As of December 31, 2019 and 2020, the Bank’s portfolio of derivative instruments is detailed as follows:

	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

	As of December 31, 2020
	Notional amount		Fair value
	contract		Asset		Liability
	MCh$		MCh$		MCh$
Derivatives held for hedging of fair value
Cross currency swap		5,031		—		1,646
Interest rate swap		29,508		—		4,873
Total derivatives held for hedging purposes		34,539		—		6,519
Derivatives held as cash flow hedges
Interest rate swap and cross currency swap		1,217,457		51,062		65,172
Total Derivatives held as cash flow hedges		1,217,457		51,062		65,172

Derivatives held-for-trading purposes
Currency forward		21,751,181		551,964		637,164
Interest rate swap		44,189,444		1,167,416		1,189,828
Cross currency swap and interest rate swap		18,893,219		845,831		940,565
Call currency options		71,914		269		306
Put currency options		57,395		1,462		2,099
Total derivatives held-for-trading purposes		84,963,153		2,566,942		2,769,962
Total		86,215,149		2,618,004		2,841,653

(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, 2019 and 2020:

	As of December 31,
	2019		2020
	MCh$		MCh$
Notional Amounts
Hedged element
Commercial loans		8,166		5,031
Corporate bonds		86,317		29,508

Hedge instrument
Cross currency swap		8,166		5,031
Interest rate swap		86,317		29,508

(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 Yens, 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 Income Financial Statements.

(c.2)

Below are the cash flows of borrowings from banks and bonds issued abroad 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
	2019			2020			2019			2020			2019			2020			2019			2020			2019			2020			2019			2020			2019			2020
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Hedge element
Outflows:
Corporate Bond EUR		—			—			—			—			(1,421	)		(1,473	)		(2,842	)		(2,946	)		(2,842	)		(44,037	)		(91,089	)		(51,871	)		(98,194	)		(100,327	)
Corporate Bond HKD		—			—			—			—			(12,829	)		(13,352	)		(25,627	)		(90,988	)		(91,034	)		(78,369	)		(320,604	)		(269,894	)		(450,094	)		(452,603	)
Corporate Bond PEN		—			—			(894	)		(775	)		(894	)		(775	)		(3,575	)		(3,098	)		(3,575	)		(3,098	)		(49,651	)		(41,484	)		(58,589	)		(49,230	)
Corporate Bond CHF		—			—			—			—			(798	)		(829	)		(1,597	)		(94,332	)		(90,095	)		(121,182	)		(116,765	)		—			(209,255	)		(216,343	)
Corporate Bond USD		—			—			—			—			(1,600	)		(1,515	)		(3,200	)		(3,030	)		(3,200	)		(3,030	)		(43,994	)		(40,140	)		(51,994	)		(47,715	)
Obligation USD		(216	)		(202	)		(336	)		(76	)		(884	)		(157,455	)		(166,592	)		—			—			—			—			—			(168,028	)		(157,733	)
Corporate Bond JPY		—			—			(34,638	)		—			(2,121	)		(2,115	)		(38,596	)		(38,110	)		(3,482	)		(3,472	)		(193,625	)		(191,351	)		(272,462	)		(235,048	)
Corporate Bond AUD		—			—			(428	)		(970	)		(3,274	)		(3,928	)		(7,399	)		(9,796	)		(7,401	)		(9,799	)		(156,499	)		(206,991	)		(175,001	)		(231,484	)
Corporate Bond NOK		—			—			—			—			(2,341	)		(2,275	)		(4,682	)		(4,550	)		(4,682	)		(4,550	)		(75,919	)		(71,491	)		(87,624	)		(82,866	)

Hedge instrument
Inflows:
Cross Currency Swap EUR		—			—			—			—			1,421			1,473			2,842			2,946			2,842			44,037			91,089			51,871			98,194			100,327
Cross Currency Swap HKD		—			—			—			—			12,829			13,352			25,627			90,988			91,034			78,369			320,604			269,894			450,094			452,603
Cross Currency Swap PEN		—			—			894			775			894			775			3,575			3,098			3,575			3,098			49,651			41,484			58,589			49,230
Cross Currency Swap CHF		—			—			—			—			798			829			1,597			94,332			90,095			121,182			116,765			—			209,255			216,343
Cross Currency Swap USD		—			—			—			—			1,600			1,515			3,200			3,030			3,200			3,030			43,994			40,140			51,994			47,715
Cross Currency Swap USD		216			202			336			76			884			157,455			166,592			—			—			—			—			—			168,028			157,733
Cross Currency Swap JPY		—			—			34,638			—			2,121			2,115			38,596			38,110			3,482			3,472			193,625			191,351			272,462			235,048
Cross Currency Swap AUD		—			—			428			970			3,274			3,928			7,399			9,796			7,401			9,799			156,499			206,991			175,001			231,484
Cross Currency Swap NOK		—			—			—			—			2,341			2,275			4,682			4,550			4,682			4,550			75,919			71,491			87,624			82,866

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
	2019			2020			2019			2020			2019			2020			2019			2020			2019			2020			2019			2020			2019			2020
	MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$			MCh$
Hedge element
Inflows:
Cash flows in CLF		156			160			33,648			280			21,062			186,116			234,065			213,673			280,074			246,244			795,068			741,654			1,364,073			1,388,127

Hedge instrument
Outflows:
Cross Currency Swap HKD		(156	)		(160	)		—			—			(8,798	)		(9,035	)		(17,906	)		(72,728	)		(69,035	)		(76,073	)		(268,034	)		(206,514	)		(363,929	)		(364,510	)
Cross Currency Swap PEN		—			—			(47	)		(48	)		(48	)		(49	)		(188	)		(194	)		(189	)		(194	)		(31,223	)		(31,965	)		(31,695	)		(32,450	)
Cross Currency Swap JPY		—			—			(33,570	)		—			(4,096	)		(4,195	)		(40,344	)		(40,526	)		(6,424	)		(6,596	)		(199,778	)		(201,852	)		(284,212	)		(253,169	)
Cross Currency Swap USD		—			—			—			—			(1,275	)		(165,634	)		(161,941	)		(1,311	)		(1,281	)		(1,317	)		(37,242	)		(37,584	)		(201,739	)		(205,846	)
Cross Currency Swap CHF		—			—			—			—			(3,858	)		(3,929	)		(7,653	)		(91,923	)		(197,107	)		(114,409	)		—			—			(208,618	)		(210,261	)
Cross Currency Swap EUR		—			—			—			—			(1,857	)		(1,912	)		(3,715	)		(3,805	)		(3,718	)		(44,464	)		(85,686	)		(45,439	)		(94,976	)		(95,620	)
Cross Currency Swap AUD		—			—			(31	)		(232	)		(521	)		(738	)		(1,103	)		(1,939	)		(1,104	)		(1,942	)		(108,622	)		(152,709	)		(111,381	)		(157,560	)
Cross Currency Swap NOK		—			—			—			—			(609	)		(624	)		(1,215	)		(1,247	)		(1,216	)		(1,249	)		(64,483	)		(65,591	)		(67,523	)		(68,711	)

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 unrealized results generated during the year 2020 by those derivative contracts that conform the hedging instruments in this cash flow hedging strategy have been recorded in equity in an amount totaling Ch$10,358 million (a charge to equity for Ch$37,546 million in 2019 and a charge to equity for Ch$30,943 million in 2018). The net effect of tax credit to equity amounts for Ch$7,561 million in 2020 (a charge to equity for Ch$27,408 million in 2019 and a charge to equity for Ch$22,589 million in 2018).

The accumulated balance for this concept net of income tax as of December 31, 2020 corresponds to a debit to equity amounting Ch$51,830 million (a debit to equity amounting to Ch$59,391 million in 2019 and a debit to equity for Ch$31,983 million in 2018).

(c.4)

The effect of the cash flow hedging derivatives that offset the result of the hedged instruments corresponds to a charge to income of Ch$39,449 million in 2020 (a credit to income for Ch$84,684 million in 2019 and a credit to income for Ch$85,659 million in 2018).

(c.5)

As of December 31, 2020 and 2019, there was no inefficiency in the Bank’s cash flow hedge, because as both the hedge item and hedge instruments are mirrors of the other, all variation of value attributable to rate and revaluation components are almost entirely netted.

(c.6)

As of December 31, 2020 and 2019, the Bank had no hedges of net investments in foreign businesses.