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Derivative Financial Instruments and Hedge Accounting

12 Months Ended

Dec. 31, 2021

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

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

NOTE 07

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

As of December 31, 2021 and 2020 the Bank holds the following portfolio of derivative instruments:

	As of December 31, 2021
	Notional amount								Fair value
	Up to 3 Months		More than 3 months to 1 year		More than 1 year		Total		Assets		Liabilities
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Fair value hedge derivatives
Interest rate swaps		210,000		87,817		8,505,400		8,803,217		22,933		587,702
Cross currency swaps		338,475		3,056,063		5,026,463		8,421,001		493,175		118,199
Subtotal		548,475		3,143,880		13,531,863		17,224,218		516,108		705,901

Cash flow hedge derivatives
Currency forwards		359,062		920,278		-		1,279,340		3,497		1,590
Cross currency swaps		456,684		1,033,671		11,469,640		12,959,995		109,531		656,719
Subtotal		815,746		1,953,949		11,469,640		14,239,335		113,028		658,309

Trading derivatives
Currency forwards		20,194,866		12,383,299		11,511,386		44,089,551		1,088,194		1,199,062
Interest rate swaps		13,982,685		25,156,483		104,333,279		143,472,447		3,009,922		2,997,634
Cross currency swaps		4,920,123		14,514,848		164,061,282		183,496,253		5,392,946		5,308,260
Call currency options		37,321		45,852		427		83,600		3,232		1,137
Put currency options		35,482		174,910		-		210,392		177		892
Others		-		-		504,000		504,000		-		46
Subtotal		39,170,477		52,275,392		280,410,374		371,856,243		9,494,471		9,507,031

Total		40,534,698		57,373,221		305,411,877		403,319,796		10,123,607		10,871,241

	As of December 31, 2020
	Notional amount								Fair value
	Up to 3 months		More than 3 months to 1 year		More than 1 year		Total		Assets		Liabilities
	MCh$		MCh$		MCh$		MCh$		MCh$		MCh$

Fair value hedge derivatives
Interest rate swaps		50,000		410,687		5,064,113		5,524,800		33,816		83,666
Cross currency swaps		317,400		601,987		5,634,700		6,554,087		294,562		178,529
Subtotal		367,400		1,012,674		10,698,813		12,078,887		328,378		262,195

Cash flow hedge derivatives
Currency forwards		2,121,326		503,280		601,582		3,226,188		2,985		3,556
Cross currency swaps		424,358		498,373		9,777,491		10,700,222		35,902		183,386
Subtotal		2,545,684		1,001,653		10,379,073		13,926,410		38,887		186,942

Trading derivatives
Currency forwards		22,729,787		12,175,074		8,215,576		43,120,437		1,085,327		1,158,904
Interest rate swaps		14,006,503		22,118,742		97,803,009		133,928,254		3,651,651		3,588,912
Cross currency swaps		6,719,065		15,138,056		138,352,345		160,209,466		3,921,440		3,819,446
Call currency options		129,339		31,641		57,581		218,561		1,527		909
Put currency options		112,145		16,173		58,276		186,594		4,875		1,352
Subtotal		43,696,839		49,479,686		244,486,787		337,663,312		8,664,820		8,569,523

Total		46,609,923		51,494,013		265,564,673		363,668,609		9,032,085		9,018,660

b) Micro-hedge accounting

Fair value micro-hedge

The Bank uses cross-currency swaps and interest rate swaps to hedge its exposure to changes in fair value of hedged items attributable to interest rates. Those hedging instruments change the effective cost of long-term issuances from a fixed interest rate to a variable interest rate.

Below is a detail of the hedged elements and hedge instruments under fair value hedges as of December 31, 2021 and 2020, classified by term to maturity:

	As of December 31, 2021
	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Debt instruments at FVOCI
Chilean sovereign bonds		12,817		-		71,093		18,371		102,281
Mortgage financing bonds		202		-		-		-		202
US Treasury bonds		-		-		427,240		1,012,559		1,439,799
Chilean Treasury bonds		-		-		73,915		-		73,915
Time deposits and other time liabilities
Time deposits		250,896		-		-		-		250,896
Issued debt instruments
Senior bonds		646,751		1,182,672		2,570,773		1,042,756		5,442,952
Subordinated bonds		-		85,448		-		170,896		256,344
Interbank borrowing
Interbank loans		2,049,044		6,178,000		-		-		8,227,044
Total		2,959,710		7,446,120		3,143,021		2,244,582		15,793,433
Hedging instrument
Cross currency swaps		2,811,893		1,168,120		2,644,687		615,.516		7,240,216
Interest rate swaps		147,817		6,278,000		498,334		1,629,066		8,553,217
Total		2,959,710		7,446,120		3,143,021		2,244,582		15,793,433

	As of December 31, 2020
	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Debt instruments at FVOCI
Chilean sovereign bonds		10,687		10,687		138,044		249,440		408,858
Mortgage financing bonds		-		918		-		-		918
US Treasury bonds		-		-		178,118		-		178,118
Time deposits and other time liabilities
Time deposits		58,238		58,217		-		-		116,455
Issued debt instruments
Senior bonds		88,023		801,349		2,112,831		1,220,521		4,222,724
Subordinated bonds		-		-		249,363		142,494		391,857
Interbank borrowing
Chilean Central Bank loans		-		-		3,865,000		-		3,865,000
Total		156,948		871,171		6,543,356		1,612,455		9,183,930
Hedging instrument
Cross currency swaps		96,261		835,484		2,056,864		1,220,521		4,209,130
Interest rate swaps		60,687		35,687		4,486,492		391,934		4,974,800
Total		156,948		871,171		6,543,356		1,612,455		9,183,930

Cash flow micro-hedges

The Bank uses cross currency swaps to hedge the risk from variability of cash flows attributable to changes in the interest rates of bonds and interbank loans at a variable interest rate. The inflation risk that arises in some items is covered by both forwards as well as cross currency swaps.

Below is the notional amount of the hedged items as of December 31, 2021 and 2020, and the period when the cash flows will be generated:

	As of December 31, 2021
	Within 1 year		Between 1 and 3 years		Between 3 and 6 Years		Over 6 years		Total
	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Loans and accounts receivable at amortized cost
Mortgage loans		1,818,996		4,364,910		2,660,486		1,532,213		10,376,605
Debt instruments at FVOCI
Chilean Treasury bonds		-		-		532,190		209,411		741,601
Time deposits and other time liabilities
Time deposits		85,448		-		-		-		85,448
Issued debt instruments
Senior bonds (fixed rate)		566,184		738,136		952,084		480,210		2,736,614
Interbank borrowings
Interbank loans		299,067		-		-		-		299,067
Total		2,769,695		5,103,046		4,144,760		2,221,834		14,239,335
Hedging instrument
Cross currency swaps		1,490,355		5,103,046		4,144,760		2,221,834		12,959,995
Currency forwards		1,279,340		-		-		-		1,279,340
Total		2,769,695		5,103,046		4,144,760		2,221,834		14,239,335

	As of December 31, 2020
	Within 1 year		Between 1 and 3 years		Between 3 and 6 Years		Over 6 years		Total
	MCh$		MCh$		MCh$		MCh$		MCh$
Hedged item
Loans and accounts receivable at amortized cost
Mortgage loans		1,926,918		2,520,951		2,761,742		2,084,180		9,293,791
Debt instruments at FVOCI
Chilean sovereign bonds		-		-		42,532		-		42,532
Chilean Treasury bonds		-		175,875		891,791		196,428		1,264,094
Issued debt instruments
Senior bonds (variable rate)		167,430		-		-		-		167,430
Senior bonds (fixed rate)		1,125,253		810,385		643,700		415,865		2,795,203
Interbank borrowings
Interbank loans		327,736		35,624		-		-		363,360
Total		3,547,337		3,342,835		4,339,765		2,696,473		13,926,410
Hedging instrument
Cross currency swaps		922,731		2,741,253		4,339,765		2,696,473		10,700,222
Currency forwards		2,624,606		601,582		-		-		3,226,188
Total		3,547,337		3,342,835		4,339,765		2,696,473		13,926,410

Below is an estimate of the periods in which cash flows are expected to be produced:

b.1 Forecasted cash flows for interest rate risk:

	As of December 31, 2021
	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		63			97			-			-			160
Outflows		(1,015,634	)		(274,502	)		(215,324	)		(51,328	)		(1,556,788	)
Net flows		(1,015,571	)		(274,405	)		(215,324	)		(51,328	)		(1,556,628	)

Hedging instrument
Inflows		1,015,634			274,502			215,324			51,328			1,556,788
Outflows (*)		(63	)		(97	)		-			-			(160	)
Net flows		1,015,571			274,405			215,324			51,328			1,556,628

(*)

Only includes cash flow forecast portion of the hedge instruments used to cover interest rate risk.

	As of December 31, 2020
	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		18,219			2,284			2,512			-			23,015
Outflows		(90,303	)		(123,604	)		(104,198	)		(83,397	)		(401,502	)
Net flows		(72,084	)		(121,320	)		(101,686	)		(83,397	)		(378,487	)

Hedging instrument
Inflows		90,303			123,604			104,198			83,397			401,502
Outflows (*)		(18,219	)		(2,284	)		(2,512	)		-			(23,015	)
Net flows		72,084			121,320			101,686			83,397			378,487

(*)

Only includes cash flow forecast portion of the hedge instruments used to cover interest rate risk.

b.2 Forecasted cash flows for inflation risk:

	As of December 31, 2021
	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		224,007			756,915			806,621			628,763			2,416,306
Outflows		(47,028	)		(40,278	)		(67,100	)		(43,980	)		(198,386	)
Net flows		176,979			716,637			739,521			584,783			2,217,920

Hedging instrument
Inflows		47,028			40,278			67,100			43,980			198,386
Outflows		(224,007	)		(756.915	)		(806,621	)		(628,763	)		(2,416,306	)
Net flows		(176,979	)		(716,637	)		(739,521	)		(584,783	)		(2,217,920	)

	As of December 31, 2020
	Within 1 year			Between 1 and 3 years			Between 3 and 6 years			Over 6 years			Total
	MCh$			MCh$			MCh$			MCh$			MCh$
Hedged item
Inflows		114,734			257,698			457,046			406,499			1,235,977
Outflows		(32,238	)		(19,702	)		(55,388	)		(26,993	)		(134,321	)
Net flows		82,496			237,996			401,658			379,506			1,101,656

Hedging instrument
Inflows		32,238			19,702			55,388			26,993			134,321
Outflows		(114,734	)		(257,698	)		(457,046	)		(406,499	)		(1,235,977	)
Net flows		(82,496	)		(237,996	)		(401,658	)		(379,506	)		(1,101,656	)

b.3 Forecasted cash flows for exchange rate risk:

As of December 31, 2021 and 2020 the Bank has no forecasted cash flows for exchange rate risk.

The accumulated effect of the mark to market adjustment of cash flow hedges generated by hedge instruments used in hedged cash flow was recorded in the Consolidated Statements of Changes in Equity, within Other comprehensive income, as of December 31, 2021 and 2020, is as follows:

	As of December 31,
	2021			2020
Hedged item	MCh$			MCh$
Interbank loans		974			(962	)
Time deposits and other time liabilities		(8,816	)		-
Issued debt instruments		21,701			(6,990	)
Debt instruments at FVOCI		(33,509	)		(25,833	)
Loans and accounts receivable at amortized cost		(353,931	)		(102,980	)
Total		(373,581	)		(136,765	)

Since the inflows and outflows for both the hedged element and the hedging instrument mirror each other, the hedges are nearly 100% effective, which means that fluctuations of fair value attributable to risk components are almost completely offset.

During the current year, the Bank did not enter into any cash flow hedges relating to forecasted transactions.

The amounts reclassified from other comprehensive income to income for the year related to cash flow hedges are as follows:

	For the years ended December 31,
	2021			2020			2019
	MCh$			MCh$			MCh$

Bond hedging derivatives		(3,248	)		(3,149	)		(120	)
Interbank loans hedging derivatives		(286	)		1			(955	)
Mortgage loans hedging derivatives		(22,160	)		-			-
Cash flow hedge net gain (loss)		(25,694	)		(3,148	)		(1,075	)

See Note 24 - Equity, letter e), for other comprehensive income reconciliation

Net investment hedges in foreign operations

As of December 31, 2021, and 2020, the Bank does not have any foreign net investment hedges nor hedge accounting.

Fair value macro-hedges

	Notional amount
	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
As of December 31, 2021	MCh$		MCh$		MCh$		MCh$		MCh$
Hedge item
Loans and account receivable at amortized cost
Mortgage loans		582,645		-		-		412,190		994,835
Commercial loans		150,000		-		100,000		185,950		435,950
Total		732,645		-		100,000		598,140		1,430,785
Hedging instrument
Cross currency swaps		582,645		-		-		598,140		1,180,785
Interest rate swaps		150,000		-		100,000		-		250,000
Total		732,645		-		100,000		598,140		1,430,785

	Notional amount
	Within 1 year		Between 1 and 3 years		Between 3 and 6 years		Over 6 years		Total
As of December 31, 2020	MCh$		MCh$		MCh$		MCh$		MCh$
Hedge item
Loans and account receivable at amortized cost
Mortgage loans		823,126		786,352		-		735,479		2,344,957
Commercial loans		400,000		150,000		-		-		550,000
Total		1,223,126		936,352		-		735,479		2,894,957
Hedging instrument
Cross currency swaps		823,126		786,352		-		735,479		2,344,957
Interest rate swaps		400,000		150,000		-		-		550,000
Total		1,223,126		936,352		-		735,479		2,894,957

As of December 31, 2021, and 2020, Other Assets include MCh$217,979 and MCh$327,938 respectively, related to fair value measurement of net assets or liabilities subject to macrohedges. See Note 16.

As of December 31, 2021, and 2020, Other Liabilities include MCh$68,524 and MCh$51,089 respectively, related to fair value measurement of net assets or liabilities subject to macrohedges. See Note 22.