Basis of preparation for the Consolidated Financial Statements

b.

Basis of preparation for the Consolidated Financial Statements

The Consolidated Financial Statements for the years ended December 31, 2022, 2021 and 2020, incorporate the financial statements of the entities over which the Bank has control (including structured entities); and includes the adjustments, reclassifications and eliminations needed to comply with the accounting and valuation criteria established by IFRS. Control is achieved when the Bank:

	i.	has power over the investee;

	ii.	is exposed, or has rights, to variable returns from its involvement with the investee; and

iii.

has the ability to use its power to affect its returns.

The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Bank has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities over the investee unilaterally. The Bank considers all relevant facts and circumstances in assessing whether or not the Bank’s voting rights in an investee are sufficient to give it power, including:

	●	the size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

	●	potential voting rights held by the Bank, other vote holders or other parties;

	●	rights arising from other agreements; and

●

any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control over the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Statements of Income and Comprehensive Income from the date the Bank gains control until the date when the Bank ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Bank and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit in certain circumstances.

When necessary, adjustments are made to the financial statements of the subsidiaries to ensure their accounting policies are consistent with the Bank’s accounting policies. All intragroup assets, liabilities, equity, income, expenses and cash flows relating to transactions between consolidated entities are eliminated in full on consolidation.

Changes in the consolidated entities ownership interests in subsidiaries that do not result in a loss of control over the subsidiaries are accounted for as equity transactions. The carrying values of the Bank’s equity and the non-controlling interests’ equity are adjusted to reflect the changes to their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Bank.

In addition, third parties’ shares in the Bank’s consolidated equity are presented as “Non-controlling interests” in the Consolidated Statements of Changes in Equity. Their share in the income for the year is presented as “Attributable to non-controlling interest” in the Consolidated Statements of Income.

The following companies are considered entities controlled by the Bank and are therefore within the scope of consolidation:

i.

Entities controlled by the Bank through participation in equity

			Percent ownership share
			As of December 31,
		Place of	2022						2021						2020
	Main	Incorporation	Direct		Indirect		Total		Direct		Indirect		Total		Direct		Indirect		Total
Name of the Subsidiary	Activity	and operation	%		%		%		%		%		%		%		%		%
Santander Corredora de Seguros Limitada	Insurance brokerage	Santiago, Chile		99.75		0.01		99.76		99.75		0.01		99.76		99.75		0.01		99.76
Santander Corredores de Bolsa Limitada	Financial instruments brokerage	Santiago, Chile		50.59		0.41		51.00		50.59		0.41		51.00		50.59		0.41		51.00
Santander Asesorias Financieras Limitada	Securities brokerage	Santiago, Chile		99.03		-		99.03		99.03		-		99.03		99.03		-		99.03
Santander S.A. Sociedad Securitizadora	Purchase of credits and issuance of debt instruments	Santiago, Chile		99.64		-		99.64		99.64		-		99.64		99.64		-		99.64
Klare Corredora de Seguros S.A.	Insurance brokerage	Santiago, Chile		50.10		-		50.10		50.10		-		50.10		50.10		-		50.10
Santander Consumer Chile S.A.	Financing	Santiago, Chile		51.00		-		51.00		51.00		-		51.00		51.00		-		51.00
Sociedad operadora de Tarjetas de Pago Santander Getnet Chile S.A. (1)	Card operator	Santiago, Chile		99.99		0.01		100.00		99.99		0.01		100.00		99.99		0.01		100.00

The detail of non-controlling participation on all the remaining subsidiaries can be seen in Note 24– Non-controlling interest.

ii.

Entities controlled by the Bank through other considerations

The following companies have been consolidated based on the determination that the Bank has control as previously defined above and in accordance with IFRS 10 “Consolidated Financial Statements” (IFRS 10):

	-	Santander Gestión de Recaudación y Cobranza Limitada (collection services)

	-	Bansa Santander S.A. (financing revolving inventory lines to automotive dealers)

-

Multiplica SpA (Development card incentive programmes)

iii.

Associates

An associate is an entity over which the Bank has significant influence. Significant influence, in this case, is defined as the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate.

The following companies are considered “Associates” in which the Bank accounts for its participation using the equity method:

			Percentage of ownership share
		Place of	As of December 31,
		Incorporation	2022		2021		2020
Associates	Main activity	and operation	%		%		%
Redbanc S.A.	ATM services	Santiago, Chile		33.43		33.43		33.43
Transbank S.A.	Debit and credit card services	Santiago, Chile		25.00		25.00		25.00
Centro de Compensación Automatizado S.A.	Electronic fund transfer and compensation services	Santiago, Chile		33.33		33.33		33.33
Sociedad Interbancaria de Depósito de Valores S.A.	Delivery of securities on public offer	Santiago, Chile		29.29		29.29		29.29
Cámara Compensación de Pagos de Alto Valor S.A.	Payments clearing	Santiago, Chile		15.00		15.00		15.00
Administrador Financiero del Transantiago S.A.	Administration of boarding passes to public transportation	Santiago, Chile		20.00		20.00		20.00
Servicios de Infraestructura de Mercado OTC S.A.	Administration of the infrastructure for the financial market of derivative instruments	Santiago, Chile		12.48		12.48		12.48

In the case of Cámara Compensación de Pagos Alto Valor S.A., Banco Santander-Chile has a representative on the Board of Directors. As per the definition of associates, the Bank has concluded that it exerts significant influence over those entities.

In the case of Servicios de Infraestructura de Mercado OTC S.A., the Bank actively participates, through its executives, in the administration and in the process of organization, which is why the Administration has concluded that it exerts significant influence on it.

Reporting segments

d.

Reporting segments

Operating segments are components of an entity:

	i.	that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses from transactions with other components of the same entity);

	ii.	whose operating results are regularly reviewed by the entity’s chief executive officer, who makes decisions about resources allocated to the segment and assess its performance; and

iii.

for which discrete financial information is available.

Two or more segments can be combined only if aggregation is consistent with International Financial Reporting Standard 8 “Operating Segments” (IFRS 8) and the segments have similar economic characteristics and are similar in each of the following respects:

	i.	the nature of the products and services;

	ii.	the nature of the production processes;

	iii.	the type or class of customers that use their products and services;

	iv.	the methods used to distribute their products or services; and

v.

if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

The Bank reports separately on each operating segment that exceeds any of the following quantitative thresholds:

i.

its reported revenue, from both external customers and intersegment sales or transfers, is 10% or more of the combined internal and external revenue of all the operating segments.

ii.

the absolute amount of its reported profit or loss is 10% or more of the greater in absolute amount of: (i) the combined reported profit of all the operating segments that did not report a loss; (ii) the combined reported loss of all the operating segments that reported a loss.

iii.

its assets represent 10% or more of the combined assets of all the operating segments.

Operating segments that do not meet any of the quantitative threshold may be treated as segments to be reported, in which case the information must be disclosed separately if management believes it could be useful for the users of the Consolidated Financial Statements.

Information about other business activities of the operating segments not separately reported is combined and disclosed in the “Other segments” category.

Foreign currency transactions

f.

Foreign currency transactions

The Bank performs transactions in foreign currencies, mainly in U.S. dollar. Assets and liabilities denominated in foreign currencies, held by the Bank and its subsidiaries are translated to Chilean pesos at the representative market exchange rate of the month for the reported period; the rate used was Ch$849.59 as of December 31, 2022 (Ch$854.48 per US$1 as of December 31, 2021).

The amounts of net foreign exchange gains and losses includes recognition of the effects that exchange rate variations have on assets and liabilities denominated in foreign currencies and the profits and losses on foreign exchange spot and forward transactions undertaken by the Bank.

Derivatives and hedging activities

h.

Derivatives and hedging activities

The Bank has elected to continue applying the hedge accounting requirements of IAS 39 on adoption of IFRS 9.

A “financial derivative” is a financial instrument whose value changes in response to the changes in an underlying observable market variable (such as an interest rate, a foreign exchange rate, a financial instrument’s price, or a market index, including credit ratings), whose initial investment is very small compared with other financial instruments having a similar response to changes in market factors, and which is generally settled at a future date.

For presentation purposes, derivatives are presented in accordance with its positive or negative fair value as assets or liabilities, respectively, and include trading and hedging instruments separately (see Note 6).

Hedging transactions

The bank has elected to continue applying the hedge accounting requirements in IAS 39 instead of the requirements of IFRS 9, thus the Bank uses financial derivatives for the following purposes:

	i.	to sell to customers who request these instruments in the management of their market and credit risks;

	ii.	to use these derivatives in the management of the risks of the Bank entities’ own positions and assets and liabilities (“hedging derivatives”), and

iii.

to obtain profits from changes in the price of these derivatives (trading derivatives).

All financial derivatives that are not held for hedging purposes are accounted for as trading derivatives.

A derivative qualifies for hedge accounting if all the following conditions are met:

1.

The derivative hedges one of the following three types of exposure:

a.

Changes in the value of assets and liabilities due to fluctuations, among others, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”);

b.

Changes in the estimated cash flows arising from financial assets and liabilities, and highly probable forecasted transactions (“cash flow hedge”);

c.

The net investment in a foreign operation (“hedge of a net investment in a foreign operation”).

2.

It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that:

a.

At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”).

b.

There is sufficient evidence that the hedge was actually effective during the life of the hedged item or position (“retrospective effectiveness”).

The changes in the value of financial instruments qualifying for hedge accounting are recorded as follows:

	i.	For fair value hedges, the gains or losses arising on both hedging instruments and the hedged items (attributable to the type of risk being hedged) are included as “Net income (expense) from financial operations” in the Consolidated Statements of Income.

	ii.	For fair value hedges of interest rate risk on a portfolio of financial instruments (macrohedges), gains or losses that arise in measuring hedging instruments within “Interest income and expense”, and other gains or losses due to changes in fair value of the underlying hedged item (attributable to the hedged risk) are recorded in the Consolidated Statements of Income under “Net income (expense) from financial operations”.

	iii.	For cash flow hedges, the change in fair value of the hedging instrument is included as “Cash flow hedge” in “Other comprehensive income”.

iv.

The differences in valuation of the hedging instrument corresponding to the ineffective portion of the cash flow hedging transactions are recorded directly in the Consolidated Statements of Income under “Net income (expense) from financial operations”.

If a derivative designated as a hedging instrument no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, hedge accounting treatment is discontinued. When “fair value hedging” is discontinued, the fair value adjustments to the carrying amount of the hedged item arising from the hedged risk are amortised to gain or loss from that date, where applicable.

When cash flow hedges are discontinued, any cumulative gain or loss of the hedging instrument recognised under “Other comprehensive income” (from the period when the hedge was effective) remains recorded in equity until the hedged transaction occurs, at which time it is recorded in the Consolidated Statements of Income, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recorded immediately in the Consolidated Statements of Income.

Recognising income and expenses

j.

Recognising income and expenses

The most significant criteria used by the Bank to recognise its revenues and expenses are summarised as follows:

i.

Interest revenue, interest expense, and similar items

Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for financial assets that have subsequently become credit-impaired (or ‘stage 3’), for which interest revenue is calculated by applying the effective interest rate to their amortised cost (i.e. net of the ECL provision).

ii.

Commissions, fees, and similar items

Fee and commission income and expenses are recognised in the Consolidated Statements of Income using criteria established in IFRS 15 “Revenue from contracts with customers”.

Under IFRS 15, the Bank recognises revenue when (or as) satisfied a performance obligation by transferring a service (i.e. an asset) to a customer; under this definition an asset is transferred when (or as) the customer obtains control of that asset. The Bank considers the terms of the contract and its customary business practices to determine the transaction price.

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third-parties.

The Bank transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, and/or the Bank satisfies the performance obligation at a point in time.

The main revenues arising from commissions, fees and similar items correspond to:

-

Fees and commissions for lines of credits and overdrafts: includes accrued fees related to granting lines of credit and overdrafts in checking accounts.

-

Fees and commissions for guarantees and letters of credit: includes accrued fees in the period relating to granting of guarantee payment for current and contingent third party obligations.

-

Fees and commissions for card services: includes accrued and earned commissions in the period related to use of credit cards, debit cards and other cards

-

Fees and commissions for management of accounts: includes accrued commissions for the maintenance of checking, savings and other accounts

-

Fees and commissions for collections and payments: includes income arising from collections and payments services provided by the Bank.

-

Fees and commissions for intermediation and management of securities: includes income from brokerage, placements, administration and securities’ custody services.

-

Fees and commissions for insurance brokerage fees: includes income arising for insurances distribution.

-

Other fees and commissions: include income arising from currency changes, financial advisory, cashier check issuance, placement of financial products and online banking services.

The main expenses arising from commissions, fees and similar items correspond to:

-

Compensation for card operation: includes commission expenses for credit and debit card operations related to income commissions card services.

-

Fees and commissions for securities transactions: includes commissions expense for deposits, securities custody service and securities’ brokerage.

-

Other fees and commissions: include mainly expenses generated from online services.

The Bank has incorporated disaggregated revenue and expense disclosures and reportable segment relationship in Note 28.

Additionally, the Bank maintains certain loyalty programmes associated to its credit cards services, for which it has deferred a percentage of the consideration received in the statements of financial position to comply with its related performance obligation or has liquidated on a monthly basis as far they arise.

iii.

Loan arrangement fees

Fees that arise as a result of the origination of a loan, mainly application and analysis-related fees, are deferred and charged to the Consolidated Statements of Income over the term of the loan.

Property, plant, and equipment

l.

Property, plant, and equipment

This category includes the amount of buildings, land, furniture, vehicles, computer hardware and other fixtures owned by the consolidated entities or acquired under finance leases. Assets are classified according to their use as follows:

i.

Property, plant and equipment for own use

Property, plant and equipment for own use includes but is not limited to tangible assets received by the consolidated entities in full or partial satisfaction of financial assets representing accounts receivable from third parties which are intended to be held for continuing own use and tangible assets acquired under finance leases. These assets are presented at acquisition cost less the related accumulated depreciation and, if applicable, any impairment losses (when net carrying amount was higher than recoverable amount).

Depreciation is calculated using the straight-line method over the acquisition cost of assets less their residual value, assuming that the land on which buildings and other structures stand has an indefinite life and, therefore, is not subject to depreciation. The Bank applies the following useful lives for the tangible assets that comprise its assets:

ITEM	Useful life (Months)
Land		-
Paintings and works of art		-
Carpets and curtains		36
Computers and hardware		36
Vehicles		36
IT systems and software		36
ATMs		60
Other machines and equipment		60
Office furniture		60
Telephone and communication systems		60
Security systems		60
Rights over telephone lines		60
Air conditioning systems		84
Other installations		120
Buildings		1,200

The consolidated entities assess at each reporting date whether there is any indication that the carrying amount of any tangible asset exceeds its recoverable amount. If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in accordance with the revised carrying amount and to the new remaining useful life.

The estimated useful lives of the items of property, plant and equipment held for own use are reviewed at the end of each reporting period to detect significant changes. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recorded in the Consolidated Statements of Income in future years on the basis of the new useful lives.

Maintenance expenses relating to tangible assets held for own use are recorded as an expense in the period in which they are incurred.

ii.

Assets leased out under operating leases

The criteria used to record the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives, and to record the impairment losses thereof, are consistent with those described in relation to property, plant and equipment held for own use.

Intangible assets

n.

Intangible assets

Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of legal or contractual rights. The Bank recognises an intangible asset, whether purchased or self-created (at cost), when the cost of the asset can be measured reliably, and it is probable that the future economic benefits that are attributable to the asset will flow to the Bank.

Intangible assets are recorded initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortisation and any accumulated impairment losses.

Internally developed computer software is recorded as an intangible asset if, among other requirements (basically the Bank’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated.

Intangible assets are amortised on a straight-line basis using the estimated useful life, which has been defined by default in 36 months, and can be modified to the extent that it is demonstrated that the Bank will benefit from the use of the intangible for a different period mentioned above.

Expenditure on research activities is recorded as an expense in the year in which it is incurred and cannot be subsequently capitalized.

Expected credit losses allowance – under IFRS 9

p.

Expected credit losses allowance – under IFRS 9

IFRS 9 established a new single impairment model applies to all financial assets measured at amortised cost and fair value through other comprehensive income (FVOCI), including commitment and contingent loans. Investments in equity are outside of the scope of the new impairment requirements.

The Bank accounted ECL related to financial assets measured at amortised cost as a loss allowance in the statements of financial position, but the carrying amount of these assets is stated net of the loss allowance. ECL related to contingent loans is accounted as a provision in the statements of financial position. The Bank recognises in profit or loss, as an impairment gain or loss, the amount of ECL (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognised in accordance IFRS 9, for financial assets measured at amortised cost and contingent loans.

The new model uses a dual measurement approach, under which the loss allowance is measured as either:

-

12-month expected credit losses

-

Lifetime expected credit losses

The Bank evaluates the clients within the corporate commercial loan portfolio, by preparing individual credit proposals, verifying debt servicing capacity (projected cash flow), client’s financial history and projections for economic sector. All proposal includes analysis of the client, rating and recommendation. For corporations, the evaluation includes subsidiaries and affiliates. Smaller commercial loans, mortgage loans and consumer loans are grouped into homogeneous portfolios, based on a combination of internal and external characteristics.

According to the Bank’s policy, an exposure will be considered as defaulted when the past-due amounts of an exposure exceed materiality thresholds for 90 or more consecutive days, it has been restructured, it is in judicial collection, it has been writen-off or has been identified as impaired by an internal risk committee. The pulling effect defined as the entire outstanding amount on any loan which has an instalment 90 days or more past due.

As of January 2022, the Bank has updated its definition of default – new default – entailing the application of new parameters on PD, LGD y ELBE, resulting in a release of ECL allowance that amounted of MCh$3,341.

The measurement basis depends on whether there has been a significant increase in credit risk since initial recognition. Based on changes in credit quality since initial recognition, IFRS 9 outlines a “three-stage” model impairment in accordance with the following diagram:

	Change in credit quality since initial recognition
Stage 1	Stage 2	Stage 3
Initial recognition	Significant increase in credit risk since initial recognition	Credit impaired assets
12-month expected credit losses	Lifetime expected credit losses	Lifetime expected credit losses

The Bank, at the end of each reporting period, evaluated whether financial instrument’s credit risk has significantly increased since initial recognition or whether an asset is considered to be credit-impaired, and consequently classified the financial instrument in the respective stage:

●

Stage 1: When loans are first recognised, the Bank recognises an allowance based on 12 months ECL. Stage 1 loans also include facilities where the credit risk has improved, and the loan has been returned to Stage 1.

●

Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance for the lifetime ECL. Stage loans also include facilities, where the credit risk has improved, and the loan has been returned to stage 2.

●

Stage 3: Loans considered credit impaired. The Bank records an allowance for the lifetime ECL, setting the PD at 100%.

The Bank considers reasonable and supportable information that is available without undue cost or effort and that may affect the credit risk on a financial instrument, including forward looking information to determine a significant increase in credit risk since initial recognition. Forward looking information includes past events, current conditions and forecast or future economic conditions (macro-economic data).

Credit risk assessment and forward-looking information (including macro-economic factors), includes quantitative and qualitative information based on the Bank’s classification policy:

a.

Adverse changes in the financial situation, such as a significant increase in debt levels.

b.

Significant drops in turnover or in recurring cash flows.

c.

Significant narrowing of operating margins or recurring income.

d.

Significant adverse changes in credit risk cost, due to changes in this risk after initial recognition.

e.

Other changes in the transaction’s credit risk that would impact on conditions being significantly different if the transaction were originated or reissued on the reference date.

f.

An actual or expected reduction of the integral credit rating of the operation (client’s integral rating) or decrease in the performance score.

g.

An actual or expected significant decrease in the price or external credit rating of the mail operation, as well as other external market indicators of the credit risk for similar operations with the same expected life.

The Bank will classify a loan as stage 2, if contractual payments are 30 or more consecutive days past due, because of the credit risk is deemed to have increased significantly since initial credit recognition, but is not an absolute indicator. The bank did not rebut the backstop presumption of IFRS 9 relating to SICR or default.

Expected credit loss measurement (ECL)

The Bank calculates the ECL allowance mainly through IFRS 9 models and using cash flow discounted methodology.

The ECL are the probability-weighted estimate of credit losses, i.e. the present value of all cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The three main components to measure the ECL are:

PD: The Probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio.

LGD: The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral.

EAD: The Exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdown on committed facilities, and accrued interest from missed payments.

For measuring 12-month and lifetime ECL, cash shortfalls are identified as follow:

-

12-month expected credit losses: the portion of lifetime expected credit losses that represents the expected credit losses that result from default events on the financial instruments that are possible within the 12 months after the reporting date.

-

Lifetime expected credit losses: the expected credit losses that result from all possible default events over the expected life of the financial instrument.

The Bank considered a multi-factor analysis to perform credit risk analysis. The type of portfolio or transactions, industry, collaterals and monitoring basis (corporate or Other commercial, which include smaller commercial, mortgage and consumer loans).

The Bank divides its portfolio as:

	i.	Commercial loans;

	ii.	Mortgage loans;

	iii.	Consumer loans; and

iv.

Contingent loans.

ECL allowance calculated on an Individual basis:

For financial assets in the corporate portfolio that are (a) credit-impaired at the reporting date (classified in stage 3 with a PD equal to 100%), and (b) is individually significant, the Bank calculates allowance for expected credit losses on an individual basis by using a “Cash flow discounted Methodology”. In this instance, the Bank measures the expected credit losses as the difference between the asset’s gross carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. Any adjustment is recognised in profit or loss as an impairment gain or loss.

ECL allowance calculated on a collective basis:

Commercial loans (except for those described within the “ECL allowance calculated on an Individual basis” description aforementioned), mortgage loans and consumer loans are grouped and assessed on a collective basis by using a credit loss allowance model. The estimation of the collective basis expected credit loss allowance considers qualitative and quantitative information that may affect the changes in credit risk and the development of assumptions related to the probabilities of default and loss given default, including forward looking information, multi-factor analysis such as type of portfolio or transaction and macroeconomic factors.

Contingent loans

The Bank has established several irrevocable loan commitments and contingent liabilities. Even though these obligations may not be recognised on the statements of financial position, they contain credit risk and, therefore, form part of the overall risk of the Bank.

When the Bank estimates the ECL for contingent loans, it estimates the expected portion of the loan commitment that will be drawn down over its expected life.

i.

Forward looking information

The ECL model includes a broad range of forward-looking information as economic inputs, such as:

●

GDO growth

●

Unemployment rates

●

Central Banks interest rates

●

Real estate prices

ii.

Modifications of financial assets

When loan measured at amortised cost has been renegotiated or modified but not derecognised, the Bank recognises the resulting gains or losses as the difference between the carrying amount of the original loans and modified contractual cash flows discounted using the EIR before modification.

For ECL estimation purposes on financial assets that have been modified, is required to distinguish between modification that result in derecognition from those that does not result in derecognition. If the modification does not result in derecognition, then the subsequent assessment of whether there is a significant increase in credit risk is made comparing the risk at the reporting date based on the modified contractual term and the risk at initial recognition based on the original, unmodified contractual term.

If the modification results in derecognition, then the modified asset is considered to be a new asset. Accordingly, the date of modification is treated as the date of initial recognition for the purposes of the impairment requirements.

iii.

Collateral

The Banks seeks to use collateral to mitigate its credit risks on financial assets, where possible. Types of collateral are: cash, securities, letters of credit, real estate and inventories. The Bank’s accounting policy for collateral assigned to it through its lending arrangements under IFRS 9 is the same is it was under IAS 39. Collateral, unless repossessed, is not recorded on the Bank’s statements of financial position. However, the fair value of collateral affects the calculation of ECLs. The main collateral associated to mortgage loans are real estate, which are valued based on data provided by specialized third parties.

The estimation of ECL reflects the cash flows expected from collateral and other credit enhancement that are part of the contractual terms of the financial instruments.

According to the Bank’s policy when assets are repossessed they are transferred to assets held for sale at their fair value less cost to sell as non-financial assets at the repossession date.

iv.

Write-offs

The gross carrying amount of a financial asset is reduced when there is no reasonable expectation of recovery. A write-off constitutes a derecognition event of the corresponding loan transaction in its entirety, and therefore, include portions not past-due for installments loans or leasing operation (no partial write-off).

Subsequent recoveries of amounts previously written-off are credited to the income statements, as recovery of loans previously write-off, as a deduction from provisions for loan losses.

Loan and accounts receivable write-offs are recorded for overdue and current installments based on the time periods expired since reaching overdue status, as described below:

Type of loan		Term
Consumer loans with or without collateral		6 months
Other transactions without collateral		24 months
Commercial loans with collateral		36 months
Mortgage loans		48 months
Consumer leasing		6 months
Other non-mortgage leasing transactions		12 months
Mortgage leasing (household and business)		36 months

v.

COVID-19 support measures

The COVID-19 pandemic had a major impact on Chile. At first, the Chilean government announced a series of measures to support lending, which included additional funds to the Guarantee Fund for Small Companies (Fogape), a state fund that guarantees loans, leases and other credits provided to small businesses.The chilean Banks, including us, provided loans with preferential interest rates (MPR plus 3%) and terms of up to 48 months to eligible companies (“Fogape loans”), and 6-month grace period before repayment, guaranteed by the government fund. In February 2021, the government approved the FOGAPE 2.0 – or FOGAPE Reactiva – under this new programme, the maximum rate was set at a monthly rate of TPM (overnight rate) plus 0.6% (7.2% annual rate). The focus was to provide loans for SMEs investments and not only for working capital needs. These loans can be granted until December 31, 2021.

The customers who requested COVID-19 relief, including payment holidays, were not subject to any wider SICR triggers, and were not classified as to Stage 2 for a lifetime ECL assessment unless they had other triggered SICR criteria. Additionally, payment holidays did not cause that such loans to become past due and therefore did not trigger a Stage 2 or Stage 3 lifetime ECL assessment. The assessment of SICRs and the measurement of ECLs are required to be based on reasonable and supportable information that is available to an entity without undue cost or effort. The Bank has developed estimates based on the best available information about past events, current conditions and forecasts of economic conditions.

In 2021, with uncertainties still caused by COVID-19 virus and according to corporate guidelines, our management has decided not to modify the thresholds for SICR. However, the Bank updated the macro economical forward-looking information and scenarios in 2021, increasing the ECL allowance and releasing the overlay provision established at the end of 2020.

In 2022, there have been no new government measures.

Deferred income taxes and other deferred taxes

r.

Deferred income taxes and other deferred taxes

The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to differences between the carrying amount of assets and liabilities and their tax bases. The measurement of deferred tax assets and liabilities is based on the tax rate, in accordance with the applicable tax laws, using the tax rate that applies to the period when the deferred asset and liability will be settled. The future effects of changes in tax legislation or tax rates are recorded in deferred taxes beginning on the date on which the law is enacted or substantially enacted.

Non-current assets held for sale

t.

Non-current assets held for sale

As of December 31, 2021 the Bank reclassified its investments on Redbanc and Transbank from Investments held-for-sale to Investments in associates, due to the lack of potential buyers as a result of the ongoing effects caused by COVID-19 pandemic, in Chile and abroad.

The requirements established in IFRS 5 to classify assets (or disposal group) as held for sale are the following:

●

the assets are available for immediate sale in its present conditions and its sale must be highly probable.

●

for the sale to be highly probable, the appropriate level of management is committed to a plan to sell the asset, and an active programme to locate a buyer and complete the plan.

●

additionally, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.

An entity shall measure a non-current asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less sale cost.

Events or circumstances may extend the period to complete the sale beyond one year. An extension of the period required to complete a sale does not preclude an asset from being classified as held for sale if the delay is caused by events or circumstances beyond the entity’s control and there is sufficient evidence that the entity remains committed to its plan to sell the asset.

Assets received or awarded in lieu of payment

Assets received or awarded in lieu of payment of loans and accounts receivable from clients are recognised at their fair value (as determined by an independent appraisal). A price is agreed upon by the parties through negotiation or, when the parties do not reach an agreement, at the amount at which the Bank is awarded those assets at a judicial auction. In the both cases, an independent appraisal is performed. The excess of the outstanding loan balance over the fair value is charged to net income for the period, under “Provision for loan losses”. Any excess of the fair value over the outstanding loan balance, less costs to sell of the collateral, is returned to the client. These assets are subsequently adjusted to their net realizable value less cost to sale (assuming a forced sale).

The difference between the carrying value of the asset and the estimated fair value less costs to sell is charged to net income for the period, under “Other operating expenses”. The result obtained in the sale of the asset is subsequently recorded under “Other operating income”.

Independent appraisals are obtained at least every 18 months and fair values are adjusted accordingly. No adjustments have been made between appraisals with respect to the period covered by these financial statements considering the stability of the real estate market in Chile during past years and expected stability of the real estate market in the coming years.

At least once a year, the Bank performs the necessary analysis to update the “cost to sale” of assets received or awarded in lieu of payments. According to the Bank’s survey, as of December 31, 2022 the average cost to sale was estimated at 5.8% of the appraisal value (4.0% as of December 31, 2021).

Temporary acquisition (assignment) of assets and liabilities

v.

Temporary acquisition (assignment) of assets and liabilities

Purchases or sales of financial assets under non-optional repurchase agreements at a fixed price are recorded in the Consolidated Statements of Financial Position based on the nature of the debtor (creditor) under “Deposits in the Central Bank of Chile,” “Deposits in financial institutions” or “Loans and accounts receivable from customers” (“Central Bank of Chile deposits,” “Deposits from financial institutions” or “Customer deposits”), in Note 7.

Differences between the purchase and sale prices are recorded as financial interest over the term of the contract.

Employee benefits

x.

Employee benefits

i.

Post-employment benefits – Defined Benefit Plan:

According to current collective labor agreements and other agreements, the Bank has an additional benefit available to its principal executives, consisting of a pension plan whose purpose is to endow them with funds for a better supplementary pension upon their retirement.

Features of the Plan:

The main features of the Post-Employment Benefits Plan promoted by the Banco Santander-Chile are:

	a.	Aimed at the Bank’s management.

	b.	The general requirement to apply for this benefit is that the employee must be carrying out his/her duties when turning 60 years old.

	c.	The Bank will create a pension fund, with life insurance, for each beneficiary in the plan. Periodic contributions into this fund are made by the manager and matched by the Bank.

d.

The Bank will be responsible for granting the benefits directly.

The Bank uses the method of projected unit credit, to determine the present value of the defined benefit obligation and the current service cost.

Components of defined benefit cost include:

	i.	current service cost and any past service cost, which are recognised in profit or loss for the period;

	ii.	net interest on the liability (asset) for net defined benefit, which is recognised in profit or loss for the period;

	iii.	new liability (asset) remeasurements for net defined benefit include:

a.

actuarial gains and losses;

b.

the difference between the actual return on plan assets and the interest on plan assets included in the net interest component and;

c.

changes in the effect of the asset ceiling.

The liability (asset) for net defined benefit is the deficit or surplus, determined as the difference between the present value of the defined benefit obligation less the fair value of plan assets.

Plan assets comprise the pension fund taken out by the Group with a third party that is not a related party. These assets are held by an entity legally separated from the Bank and exist solely to pay benefits to employees.

The Bank recognises the present service cost and the net interest of the Personnel salaries and expenses on the Consolidated Statements of Income.

The post-employment benefits liability, recognised in the Consolidated Statements of Financial Position represents the deficit or surplus in the defined benefit plans of the Bank. Any surplus resulting from the calculation is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions.

When employees leave the plan before meeting the requirements to be eligible for the benefit, contributions made by the Bank are reduced.

ii.

Cash-settled share-based compensation

The Bank allocates cash-settled share-based compensation to executives of the Bank and its Subsidiaries in accordance with IFRS 2. The Bank measures the services received and the obligation incurred at fair value. Until the obligation is settled, the Bank determines the fair value at the end of each reporting period, as well as at the date of settlement, recognising any change in fair value in the income statements of the period.

Reclassification

z.

Reclassification

The Bank has made changes to the presentation of the consolidated financial statements. The main impacts are related to a different grouping of some lines without affecting any of the balances previously disclosed.

This new presentation for consolidated statements of financial position and consolidated statements of income was applied retrospectively for the comparative figures included in these financial statements.

The main impacts consist merely of reclassifications as explained below:

Consolidated statements of financial position

Previous presentation

31-12-2021

Current presentation

31-12-2021

MCh$

ASSETS

Cash and deposits in banks

2,881,558

Cash and deposits in banks

2,881,558

Cash items in process of collection

390,271

Cash items in process of collection

390,271

Financial derivative contracts

10,123,607

Financial assets for trading at FVTPL

9,567,818

Trading

9,494,471

A

Financial derivative contracts

9,494,471

A

Hedging

629,136

C

Debt financial instruments

73,347

A

Financial assets held for trading

73,347

A

Financial assets at FVOCI

5,902,514

Loans and account receivable at amortised cost

35,477,628

Debt financial instrument

5,803,139

B

Interbank

428

D

Other financial instruments

99,375

B

L&AR

35,477,200

D

Financial derivative contracts for hedge accounting

629,136

C

Debt instruments at amortised cost

4,691,730

D

Financial assets at amortised cost

40,169,358

Loans and account receivable at FVOCI

99,375

B

Debt financial instruments

4,691,730

D

Debt instruments at FVOCI

5,803,139

B

Interbank loans

428

D

Equity instruments at FVOCI

189

E

Loans and account receivable from customers

35,477,200

D

Investments in associates and other companies

35,745

Investments in associates and other companies

35,934

E

Intangible assets

95,411

Intangible assets

95,411

Property, plant, and equipment

236,939

Property, plant, and equipment

236,939

Right of use assets

137,879

Right of use assets

137,879

Current taxes

121,534

Current taxes

121,534

Deferred taxes

710,896

Deferred taxes

710,896

Other assets

2,962,702

Other assets

2,932,814

Other assets

2,932,814

Non current assets and disposal groups for sale

29,888

F

Non-current assets

29,888

F

TOTAL ASSETS

63,841,950

TOTAL ASSETS

63,841,950

At the statement of financial position level, the Bank has decided to group the assets and liabilities according to their measurement category, among other minor reclassifications, as explained below.

A.

Financial assets for trading at FVTPL

Includes derivative contracts and debt financial instruments for trading purposes.

B.

Financial assets at FVOCI

Includes debt instruments at FVOCI and other financial instruments, which currently include loans at FVOCI.

C.

Financial derivative contracts for hedge accounting

Includes derivative contracts for hedging purposes which are presented separately from trading purposes, to provide more granular information.

D.

Financial assets at amortised cost

Includes debt financial instruments, interbank loans separately from account receivable from customers, which were previously presented in a single line in the face of statement of financial position. The Bank has decided to homogenise the presentation.

E.

Equity instruments at FVOCI

Equity instrumnets are presented together with Investments in associates and other companies at the face of the statement of financial position. The details are presented in Note 9 - Investmente in associates and other companies.

F.

Non-current assets and disposal groups for sale

This new line item includes Assets received or awarded in lieu of payment and Non-current assets held for sale, which currently include assets recovered from leasing for sale. The Bank has decided to open this presentation to improve the transparency of the figures presented in these financial statements.

Previous presentation	31-12-2021				Current presentation	31-12-2021
	MCh$					MCh$
LIABILITIES
Deposits and other demand liabilities		17,900,938		I	Cash items in process of being cleared		379,934
Cash items in process of being cleared		379,934			Financial liabilities for trading at FVTPL		9,507,031
Obligations under repurchase agreements		86,634		I	Financial derivative contracts		9,507,031		G
Time deposits and other time liabilities		10,131,055		I	Financial derivative contracts for accounting hedges		1,364,210		H
Financial derivative contracts		10,871,241			Financial liabilities at amortised cost		44,063,540
Trading		9,507,031		G	Deposits and other demand liabilities		17,900,938		I
Hedging		1,364,210		H	Time deposits and other time liabilities		10,131,055		I
Interbank borrowings		8,826,583		I	Obligations under repurchase agreements		86,634		I
Issued debt instruments		8,397,060			Interbank borrowings		8,826,583		I
Issued instruments		6,935,423		I	Issued debt instruments		6,935,423		I
Capital instruments		1,461,637		J	Other financial liabilities		182,907		I
Other financial liabilities		182,907		I	Lease liabilities		139,795
Lease liabilities		139,795			Regulatory capital financial instruments		1,461,637		J
Current taxes		-			Provisions		463,949
Deferred taxes		427,655			Current taxes		-
Provisions		463,949			Deferred taxes		427,655
Other liabilities		1,606,626			Other liabilities		1,606,626
TOTAL LIABILITIES		59,414,377			TOTAL LIABILITIES		59,414,377
EQUITY
Attributable to the shareholders of the Bank:		4,333,213			Attributable to the shareholders of the Bank:		4,333,213
Capital		891,303			Capital		891,303
Reserves		2,550,559			Reserves		2,550,559
Valuation adjustments		(353,850	)		Valuation adjustments		(353,850	)
Others equity instruments issued other than capital		598,136			Others equity instruments issued other than capital		598,136
Retained earnings		647,065			Retained earnings		647,065
Retained earnings from prior years		57,338			Retained earnings from prior years		57,338
Income for the year		842,467			Income for the year		842,467
Minus: Provision for mandatory dividends		(252,740	)		Minus: Provision for mandatory dividends		(252,740	)
Non-controlling interest		94,360			Non-controlling interest		94,360
TOTAL EQUITY		4,427,573			TOTAL EQUITY		4,427,573
TOTAL LIABILITIES AND EQUITY		63,841,950			TOTAL LIABILITIES AND EQUITY		63,841,950

G.

Financial liabilities for trading at FVTPL

Includes derivative contracts for trading purposes.

H.

Financial derivative contracts for hedge accounting

Includes derivative contracts for hedging purposes which are presented separately from trading purposes, to provide more detailed information.

I.

Financial liabilities at amortised cost

Includes Deposits and other demand liabilities, time deposits and other time liabilities, obligations under repurchase agreements, interbank borrowings, issued debt instruments, and other financial liabilities. Regarding Issued debt instruments, only senior bonds are included, Subordinted bonds are presented separately in Regulatory capital financial instruments.

J.

Regulatory capital financial instruments

Includes subordinated bonds which were presented together with senior bonds into Issued debt instruments in prior years. The Bank is implementing Basel III and subordinated bonds are included for regulatory capital calculation.

Consolidated statements of income

Previous presentation	31-12-2021			Reclassification			Current presentation	31-12-2021
	MCh$			MCh$				MCh$
Interest income		2,921,097		(16,266	)	A	Interest income and inflation		2,904,831
Interest expense		(1,109,746	)				Interest expense and inflation		(1,109,746	)
Net interest income		1,811,351					Net interest income		1,795,085
Fee and commission income		578,604		16,266		A	Fee and commission income		594,870
Fee and commission expense		(245,853	)				Fee and commission expense		(245,853	)
Net fee and commission income		332,751					Net fee and commission income		349,017
							Net income from financial operations:
Net income (expense) from financial operations		(6,403	)	(22,199	)	B	Net income/(expense) from financial assets and liabilities for trading		(28,602	)
				22,199		B	Net income from derecognising financial assets and liabilities at amortised cost and financial assets at fair value through other comprehensive income		22,199
Net foreign exchange gain		125,431					Net income from exchange, adjustment and hedge accounting of foreign exchange		125,431
Other operating income		10,391		(10,391	)	C
Net operating profit before provision for loan losses		2,273,521					Net income from financial operations		119,028
Provision for loan losses		(291,083	)	291,083		F
				(475	)	E, C	Income from investments in associates and other companies		(475	)
				2,297		C, D	Net income from non-current assets and groups available for sale not admissible as discontinued operations		2,297
				1,662		C	Other operating income		1,662
NET OPERATING INCOME		1,982,438					TOTAL OPERATING INCOME		2,266,614
Personnel salaries and expenses		(397,675	)				Personnel salaries and expenses		(397,675	)
Administrative expenses		(280,134	)				Administrative expenses		(280,134	)
Depreciation and amortisation		(122,055	)				Depreciation and amortisation		(122,055	)
Impairment of property, plant, and equipment		-					Impairment of property, plant, and equipment		-
Other operating expenses		(107,819	)	107,819		D
Total operating expenses		(907,683	)	(101,430	)	D, C	Other operating expenses		(101,430	)
OPERATING INCOME		1,074,755					TOTAL OPERATING EXPENSES		(901,294	)
Income from investments in associates and other companies		(663	)	663		E	NET OPERATING INCOME BEFORE CREDIT LOSSES		1,365,320
							Provisions for loan losses for interbank loans and account receivable from customers		(355,638	)
				(145	)	D	Provisions for loan losses for contingent loans and others		(12,254	)
							Recovery of loans previously charged-off		76,999
							Provision for loan losses for other financial assets at amortised cost and financial assets at fair value through OCI		(335	)
				(291,083	)	F	Provision for loan losses		(291,228	)
Income from continuing operations before tax		1,074,092					NET OPERATING INCOME BEFORE INCOME TAX		1,074,092
Income tax expense		(221,664	)				Income tax expense		(221,664	)
Result of continuing operations		852,428					Result of continuing operations		852,428
Result of discontinued operations		-					Result of discontinued operations		-
NET INCOME FOR THE YEAR		852,428		0			NET INCOME FOR THE YEAR		852,428

A.

Prepayment commission

Prepayment commissions are reclassified from Interest income to Fee and commission income.

B.

Net income from financial operations

Net income from financial operations is divided considering its measurement category into the following concepts:

●

Net income/(expense) from financial assets and liabilities for trading, and

●

Net income from derecognising financial assets and liabilities at amortised cost and financial assets at fair value through other comprehensive income.

C.

Other operating income

The Bank has added the line “Net income from non-current assets and groups available for sale not admissible as discontinued operations” in the Consolidated Statement of Income, in order to include the income related to a) assets received or awarded in lieu of payment and b) to a lesser extent, income from sale of non-current assets, and c) other minor reclassifications as presented in the following table:

Previous presentation	31-12-2021		Current presentation	31-12-2021
	MCh$			MCh$
Other operating income		10,391
			Net income from non-current assets and groups available for sale not admissible as discontinued operations
			assets received or awarded in lieu of payment		6,152
			sale of fixed assets		673
			Income from investments in associates and other companies
			Income from sale of investment		188
			Other operating expenses
			recovery from operational risk expenses		2,389
			Other operating income
			others		1,662
TOTAL		10,391	TOTAL		10,391

D.

Other operating expenses

In accordance wth the aforementioned, expenses from assets received or awarded in lieu of payment and are included in Net income from non-current assets and groups available for sale not admissible as discontinued operations and recovery from operational risk expenses are now included in other operating expenses. A summary of the adjustments is presented in the following table:

Previous presentation	31-12-2021		Current presentation	31-12-2021
	MCh$			MCh$
Other operating expenses		107,819
			Net income from non-current assets and groups available for sale not admissible as discontinued operations
			assets received or awarded in lieu of payment		3,855
			Provision for loan losses
			country risk		145
			Other operating expenses
			other		103,819
TOTAL		107,819	TOTAL		107,819
			Other operating expenses
			other		103,819
			Less: recovery from operational risk expenses		(2,389	)
			TOTAL		101,430

E.

Income from investments in associates and other companies

In the current presentation this item is presented as Operating income, plus the income from sale of investments (MCh$188), as mentioned in letter C.

F.

Provision for loan losses

Provision is presented below operating expenses and opening in the main concepts, to provide more detail.