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Information on Regulatory Capital and Capital Adequacy Ratios
 12 Months Ended
Dec. 31, 2023
Information on Regulatory Capital and Capital Adequacy Ratios Disclosure [Abstract]  
Information on Regulatory Capital and Capital Adequacy Ratios
45.Information on Regulatory Capital and Capital Adequacy Ratios:

 

Requirements and Capital Management:

 

The main objectives of the Bank’s capital management are to ensure the adequacy and quality of its capital, at a consolidated level, based on the adequate management of the risks it faces in its operations, establishing sufficient capital levels, through the definition of internal objectives, that supports both the business strategy in both normal and stress scenarios in the short and medium term, thus ensuring compliance with regulatory requirements, coverage of its material risks, a solid credit classification and the generation of adequate capital clearances. During 2023, the Bank has comfortably met the required capital requirements and its internal sufficiency objectives.

 

As part of its Capital Management Policy, the Bank has established capital sufficiency alerts and limits approved by the Board of Directors, which are monitored by the governance structures that the Bank has established for these purposes, including the Capital Management Committee. During 2023, none of the internal alerts defined by the Bank were activated as part of the Capital Risk Appetite Framework. In this sense, the Bank manages capital based on its strategic objectives, its risk profile and its ability to generate cash flows, as well as the economic and business context in which it operates. Consequently, the Bank may modify the amount of payment of dividends to its shareholders or issue basic capital, additional tier 1 capital or tier 2 capital instruments.

 

Capital Requirements

 

In accordance with the General Banking Law, the effective equity of a bank may not be less than 8% of its risk-weighted assets (RWA), net of required provisions. Additionally, it establishes that the Basic Capital may not be less than 4.5% of its APR or 3% of its total assets, net of required provisions. Regarding Tier 1 capital, corresponding to the sum of Basic Capital and Additional Tier 1 Capital, the latter in the form of bonds with no maturity date and preferred shares, it is established that it may not be less than 6% of their RWAs, net of required provisions. Likewise, banking entities must comply, as established by current regulations or regulators, with capital buffers, such as the conservation buffer, the systemically important buffer, the countercyclical buffer and/or capital charges by Pillar 2.

 

Adoption of the Basel III standard

 

In 2019, the CMF began the regulatory process for the implementation of Basel III standards in Chile, as established in Law No. 21,130 that modernizes banking legislation. During the years 2020 and 2021, the CMF promulgated the different regulations for the adoption of the Basel III standard for local banking, which are applicable as of December 1, 2021. The regulation includes the standard methodologies to determine, among others, Credit, Operational and Market Risk-Weighted Assets, regulatory capital, leverage ratio and systemically important banks. Additionally, the regulations describe requirements and conditions applicable to: (i) the application of internal models for the calculation of certain risk-weighted assets, (ii) the issuance of additional tier 1 and tier 2 capital hybrid instruments, (iii) market disclosure requirements (Pillar 3), (iv) the principles for determining capital buffers (countercyclical and conservation), (v) additional requirements to which banks defined as systemically important and (vi) the criteria by which banks can be defined as atypical and subject to more exhaustive supervision, as well as additional capital requirements (Pillar 2) among others.

 

On March 31, 2023, the CMF ratified the systemically important banking feature of Banco de Chile, confirming a system cushion of 1.25% for the entity, with the graduality defined by the regulation. Likewise, based on the conclusions of the self-assessment of capital process for the year ended December 31, 2021, the CMF did not establish additional capital charges for Pillar 2 for the Bank.

 

On May 23, 2023, the Central Bank reported that its board agreed to activate the countercyclical capital requirement for banks, at a local banking industry level, equivalent to 0.5% of the risk-weighted assets of banking institutions, payable within one year.

 

On January 17, 2024, the Financial Market Commission (CMF) reported that, as a result of the supervision process, it resolved to apply additional capital requirements of Pillar 2 of 0.5% for Banco de Chile within an implementation period of four years. This requirement must be constituted at 25% no later than June 30, 2024. The remaining amounts for each of the following three years will be adjusted according to the result of the annual evaluation of Patrimonial Sufficiency carried out by the CMF, taking into consideration any possible modifications made to the total additional charge applicable to the bank. Likewise, this requirement must be recognized at least 56.3% with basic capital. As of the date of issuance of these financial statements, the bank has a gap in the basic capital ratio of 8.61% in relation to the requirements, exceeding the aforementioned additional charge.

 

The aforementioned Basel III banking solvency standards consider a series of transitory regulations. These measures include: i) the gradual adoption of the conservation buffer, requirements for systemic banks, ii) the gradual application of adjustments to regulatory capital, iii) the temporary substitution of additional tier 1 capital (AT1) for tier 2 capital instruments, that is, subordinated bonds and additional provisions and iv) gradualness to continue recognizing subordinated bonds issued by banking subsidiaries as effective equity, among other matters.

 

Information on regulatory capital and capital adequacy indicators is presented below:

 

 

Total assets, risk-weighted assets and components of the

 

Local and Overall

consolidated

  

Local and Overall

consolidated

 
   effective equity according to Basel III  December 2023   December 2022 
Item No.  Item description  MCh$   MCh$ 
            
1  Total assets according to the statement of financial position   55,792,552    55,255,362 
2  Non-consolidated investment in subsidiaries   —    — 
3  Assets discounted from regulatory capital, other than item 2   168,765    165,833 
4  Derivative credit equivalents   886,789    1,276,512 
4.1  Financial derivative contracts   2,084,441    2,987,106 
5  Contingent loans   2,827,120    2,756,396 
6  Assets generated by the intermediation of financial instruments   —    
 
 
7   = (1-2-3+4-4.1+5-6) Total assets for regulatory purposes   57,253,255    56,135,331 
8.a  Credit risk weighted assets, estimated according to the standard methodology (CRWA)   31,887,173    30,657,020 
8.b  Credit risk weighted assets, estimated according to internal methodologies (CRWA)   —    — 
9  Market risk weighted assets (MRWA)   1,693,317    1,365,367 
10  Operational risk weighted assets (ORWA)   4,110,324    3,630,835 
11.a   = (8.a/8.b+9+10) Risk-weighted assets (RWA)   37,690,814    35,653,222 
11.b   = (8.a/8.b+9+10) Risk-weighted assets, after application of the output floor (RWA)   37,690,814    35,653,222 
12  Owner’s equity   5,237,283    4,858,325 
13  Non-controlling interest   2    2 
14  Goodwill   —    — 
15  Excess minority investments   —    — 
16   = (12+13-14-15) Core Tier 1 Capital (CET1)   5,237,285    4,858,327 
17  Additional deductions to core tier 1 capital, other than item 2   60,992    (18,940)
18   = (16-17-2) Core Tier 1 Capital (CET1)   5,176,293    4,839,387 
19  Voluntary provisions (additional) imputed as additional Tier 1 capital (AT1)   —    178,266 
20  Subordinated bonds imputed as additional tier 1 capital (AT1)   —    — 
21  Preferred shares allocated to additional tier 1 capital (AT1)   —    — 
22  Bonds without a fixed term of maturity imputed to additional tier 1 capital (AT1)   —    — 
23  Discounts applied to AT1   —    — 
24   = (19+20+21+22-23) Additional Tier 1 Capital (AT1)   —    178,266 
25   = (18+24) Tier 1 Capital   5,176,293    5,017,653 
26  Voluntary provisions (additional) imputed as Tier 2 capital (T2)   398,590    383,213 
27  Subordinated bonds imputed as Tier 2 capital (T2)   1,003,701    972,550 
28   = (26+27) Equivalent tier 2 capital (T2)   1,402,291    1,355,763 
29  Discounts applied to T2   —    — 
30   = (28-29) Tier 2 capital (T2)   1,402,291    1,355,763 
31   = (25+30) Effective equity   6,578,584    6,373,416 
32  Additional basic capital required for the constitution of the conservation buffer   706,706    445,669 
33  Additional basic capital required to set up the countercyclical buffer   —    — 
34  Additional basic capital required for banks qualified as systemic   235,569    111,417 
35  Additional capital required for the evaluation of the adequacy of effective equity (Pillar 2)   —    — 

 

   Local and Overall consolidated   Local and Overall consolidated 
   December 2023   December 2022 
Capital Adequacy Ratios and Regulatory Compliance according to Basel III  %   % 
Leverage Ratio   9.04%   8.62%
Leverage Ratio that the bank must meet, considering the minimum requirements   3%   3%
CET 1 Capital Ratio   13.73%   13.57%
CET 1 Capital Ratio that the bank must meet, considering the minimum requirements   5.13%   4.81%
Capital buffer shortfall   0%   0%
Tier 1 Capital Ratio   13.73%   14.07%
Tier 1 Capital Ratio that the bank must meet, considering the minimum requirements   6%   6%
Total or Regulatory Capital Ratio   17.45%   17.88%
Total or Regulatory Capital Ratio that the bank must meet, considering the minimum requirements   8.63%   8.31%
Total or Regulatory Capital Ratio that the bank must meet, considering the charge for article 35 bis   8%   8%
Total or Regulatory Capital Ratio that the bank must meet, considering the minimum requirements, conservation buffer and countercyclical buffer   10.50%   9.56%
Credit rating   A    A 
Regulatory compliance for Capital Adequacy          
Additional provisions computed in Tier 2 capital (T2) in relation to CRWA   1.25%   1.25%
Subordinated bonds computed as Tier 2 capital (T2) in relation to CET 1 Capital   19.16%   20.02%
Additional Tier 1 Capital (AT1) in relation to CET 1 Capital   0%   3.68%
Voluntary (additional) provisions and subordinated bonds computed as AT1 in relation to RWAs   0%   0.50%