Financial Statements

Transcription

1 Financial Statements 68

2 Balance Sheets at 31 Dicember 1997 Banco de Crédito e Inversiones Consolidated Financial Statements, including the following balance sheets: Banco de Crédito e Inversiones Bci Leasing S.A. Bci Administradora de Fondos Mutuos S.A. Bancrédito S.A. Corredor de Bolsa Bci Asesoría Financiera S.A. 69

3 Balance Sheet ASSETS At 31 December CASH AND BANKS 175, ,871.6 LOANS Commercial loans 726, ,478.6 Foreign trade financing 179, ,328.9 Consumer loans 140, ,487.8 Mortgage loans 294, ,052.2 Contingent assets 200, ,876.2 Other loans 141, ,456.4 Overdue loans 13, ,115.3 Total loans 1,697, ,443,795.4 Less provisions for bad and doubtful assets (16,151.7) (11,082.7) Total net loans 1,681, ,432,712.7 OTHER CREDIT OPERATIONS Interbank lending 8, ,935.1 Securities acquired under repurchase agreements 10, ,314.4 Total other credit operations 19, ,249.5 INVESTMENTS Central Bank of Chile and Chilean Treasury securities 362, ,068.6 Other financial investments 24, ,916.4 Traded securities 61, ,980.0 Deposits with Central Bank of Chile 15, Assets received in lieu of payment,400.4,629.7 Total investments 464, ,594.7 OTHER ASSETS 21, ,017.0 FIXED ASSETS Fixed assets 68, ,821.4 Investments in companies 16, ,213.7 Total fixed assets 85, ,035.1 TOTAL ASSETS 2,446, ,245,480.6 Balance Bci 70

4 LIABILITIES AND SHAREOLDERS EQUITY At 31 December DEPOSITS AND OTHER LIABILITIES Current accounts 443, ,024.6 Term deposits and borrowings 912, ,751.0 Other sight and term obligations 123, ,426.7 Liabilities under repurchase agreements 61, ,108.8 Mortgage funding notes 293, ,959.2 Contingent liabilities 200, ,638.7 Total deposits and other liabilities 2,035, ,913,909.0 BONDS ISSUED Straight bonds - - Subordinated bonds 63, ,778.8 Total bonds issued 63, ,778.8 BORROWINGS FROM FINANCIAL INSTITUTIONS AND CENTRAL BANK OF CHILE Central Bank of Chile refinancing credit lines 7, ,750.8 Other liabilities with the Central Bank of Chile 2, Borrowings from domestic financial institutions 54, ,640.6 Foreign borrowings 68, ,033.2 Other obligations 43, ,095.6 Total borrowings from financial institutions 176, ,876.6 OTHER LIABILITIES 31, ,378.2 Total liabilities 2,306, ,124,942.6 VOLUNTARY PROVISIONS 4, ,160.3 SHAREHOLDER S EQUITY Capital and reserves 106, ,743.7 Net income for the year 30, ,634.0 Total shareholder s equity 136, ,377.7 TOTAL LIABILITIES AND SHAREHOLDER S EQUITY 2,446, ,245, Balance Bci

5 STATEMENT OF INCOME For the years ended 31 December OPERATING INCOME Interest earned and monetary adjustments 262, ,603.6 Income from securities trading 1, Commissions earned 24, ,980.6 Net exchange gains 1, Other operating income Total operating income 291, ,819.8 Interest paid and monetary adjustments (161,407.9) (141,925.8) Losses on securities trading (854.0) (776.6) Commissions paid (3,415.6) (2,843.8) Other operating expenses (54.7) (38.6) Gross margin 125, ,235.0 Staff remuneration and expenses (40,924.3) (39,496.9) Administrative and other expenses (31,558.0) (25,974.6) Depreciation and amortization (5,997.4) (5,613.3) Net margin 47, ,150.2 Provisions for bad and doubtful assets (12,737.7) (5,784.7) Recoveries of loans written-off Operating income 35, ,273.5 NON-OPERATING INCOME Non-operating income 1, Non-operating expenses (1,597.4) (758.8) Income on investments in other companies 3, ,887.9 Price-level restatements (1,436.2) (981.0) Voluntary provisions (2,200.0) (2,126.0) Net income before income tax 34, ,270.2 Income tax (4,429.5) (3,636.2) NET INCOME FOR THE YEAR 30, ,634.0 The accompanying Notes 1 to 13 form an integral part of these financial statements. Balance Bci 72

6 Notes to the Financial Statements At 31 DECEMBER 1997 and 1996 Note 1 - SIGNIFICANT ACCOUNTING PRINCIPLES APPLIED a) General These financial statements have been prepared in accordance with the accounting standards of the Superintendencia de Bancos y Instituciones Financieras (the Chilean Banking Superintendency), which in the case of the present financial statements, conform with accounting principles generally accepted in Chile, except for investments in subsidiaries which are shown on just one line in the balance sheet at their equity value and thus are not consolidated line by line. This treatment does not modify the net income for the year or the shareholders equity. The financial statements for 1997 and 1996 have been issued only for the purpose of making an individual analysis of the Bank and thus should be read together with the consolidated financial statements, which are required by generally accepted accounting principles. b) Interest and Monetary Adjustments Loans, investments, and liabilities include their respective interest and monetary adjustments accrued to the year-end. However, the Bank has followed a conservative policy of suspending the accrual of interest and monetary adjustments on overdue and doubtful current loans. c) Price-Level Restatements Capital, fixed assets and other non-monetary assets and liabilities have been restated based on variations in the consumer price index. These restatements resulted in a net charge to income of 1,436.2 (981.0 in 1996). For comparison purposes, figures relating to 1996 have been restated by 6.3% to express them in constant pesos at 31 December Items in the Statement of income have not been restated. d) Foreign Currency Foreign currency assets and liabilities are shown at their equivalent values in Chilean pesos calculated at the exchange rate advised by the Banking Superintendency of $ per US$1.00 at 31 December 1997 ($ in 1996). Net exchange gains of 1,693.2 (177.3 in 1996) shown in the Statement of income include both the results of foreign exchange trading and the effects of the exchange rate on foreign currency assets and liabilities. e) Financial Investments Long-term financial investments with a secondary market are shown at their market value, in accordance with the specific instructions of the Banking Superintendency. This adjustment represented a net credit to income (net charge of in 1996) for the year, which is included in Operating income under Income from securities trading. The remaining financial investments are shown at cost plus accrued interest and monetary adjustments. 73 Balance Bci

7 f) Fixed Assets Fixed assets are shown at restated cost and net of depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the respective assets. g) Investments in other companies Shares and holdings in companies in which the Bank owns at least 10% of the capital, are valued using the equity method. h) Provisions for Bad and Doubtful Assets The Bank has set up provisions to cover eventual losses on bad and doubtful assets as required by the Banking Superintendency (Note 4). Provisions for loans are shown separately deducted from the respective balances, while provisions for other assets are shown deducted from the respective account. Provisions held by the Bank in excess of the minimum levels required by the Banking Superintendency are shown separately as Voluntary provisions in the Balance sheet and Statement of income. Provisions for consumer loans have be made based on the record of the debtor as from Until 1996, these provisions were determined according to the overdue nature of each credit. i) Deferred Taxes In accordance with the instructions of the Banking Superintendency, the effect of deferred taxes arising from timing differences is not recorded. j) Staff holidays The annual cost of staff holidays and benefits is shown on an accrual basis. Note 2 - RELATED PARTY TRANSACTIONS In accordance with the General Banking Law and Banking Superintendency instructions, related parties are those persons or entities directly or indirectly connected with the Bank s management or ownership. a) Credits granted to related parties At 31 December 1997 and 1996, credits to related parties were as follows: Outstanding Overdue loans loans Total Collateral (*) To productives companies 7, , , , To investment companies 1, , , , To persons (* *) Total 9, , , , (*) Includes only collateral that is valid for individual credit limits as defined by Art.No.84 of the General Banking Law, and valued in accordance with Banking Superintendency instructions. (**) Includes only the liabilities of persons whose debts are the equivalent of UF 3,000 or more. Balance Bci 74

8 b) Other related party transactions The Bank has carried out the following transactions for amounts exceeding UF 1,000 with related parties: Efect on results Company Description Amount Expense Income 1997 BCI Administradora de Fondos Mutuos S.A. Office rental 68,2-68,2 Commission 196,8-166,8 Director s fees 1,6 1,6 - Expense reimbursements 8,3 8,3 - Securities trading: Bonds 1.207,5 8,1 - DPF ,5 25,9 - DPR 6.987,2 18,6 - Bancrédito S.A. Corredor de Bolsa Sale of securities ,7 - - Purchase of securities ,6 12,3 - Dollar trading ,0-4,6 BCI Leasing S.A. Placing of securities 153,0 16,3 - BCI Asesoria Financiera S.A. Financial advisory services 23,6 21,4 - Compañía de Formularios Continuos Jordan (Chile) S.A. Form printing 1.550, ,3 - Editora e Impresora Cabo de Hornos S.A. Form printing 123,6 123,6 - Redbanc S.A. Automatic cash-dispenser operation 920,5 920, BCI Administradora de Fondos Mutuos S.A. Office rental 48,4-48,4 Bancrédito S.A. Corredor de Bolsa Sale of securities ,4 - - Purchase of securities ,8 22,1 - BCI AsesoríaFinanciera S.A. Financial adversory services 21,3 21,3 - BCI Leasing S.A. Office rental 24,9-24,9 Compañía de Formularios Continuos Jordan (Chile) S.A. Printing of forms 1.425, ,5 - Editora e Impresora Cabo de Hornos S.A. Printing of forms 381,5 381,5 - Redbanc S.A. Automatic cash-dispenser operation 803,4 803,4 - All these transactions were carried out at market conditions prevailing at the time. 75 Balance Bci

9 Note 3 - INVESTMENTS IN OTHER COMPANIES The balance sheet shows investments in companies amounting to 16,849.5 (16,213.7 in 1996), as follows: Investment Bank s Accrued Holding Equity Value earnings Company % % BCI Administradora de Fondos Mutuos S.A , , , , BCI Asesoría Financiera S.A Bancrédito S.A. Corredor de Bolsa , , , , BCI Leasing S.A , , , , , ,949.2 Comunidad CCA-CET Redbanc S.A , , Servipag S.A , , Nexus S.A (8.6) - Sub total 20, , , , , ,780.1 Shares or rights in other companies Total 20, , , , , ,887.9 Note 4 - PROVISIONS a) Provisions for bad and doubtful assets At 31 December 1997, the Bank held provisions amounting to 16,151.7 (11,082.7 in 1996) corresponding to the minimum requirements of the Banking Superintendency for covering potential losses. Changes in these provisions during the years are summarized as follows: PROVISIONS FOR ASSETS OTHER LOANS RECEIVED ASSETS Total Balances as at 1 January , ,775.6 Provisions applied (2,650.0) (141.6) - (2,791.6) Provisions made 5, ,907.3 Provisions released (465.4) - - (465.4) Balances at 31 December , ,425.9 Balance Bci 76

10 PROVISIONS FOR ASSETS OTHER LOANS RECEIVED ASSETS Total Balances restated for comparison purposes 11, ,082.7 Balances as at 1 January , ,425.9 Provisions applied (6,546.8) (92.1) - (6,638.9) Provisions made 12, ,328.8 Provisions released (591.0) - - (591.0) Balances at 31 December , ,524.8 Based on the evaluation of available information, it is the opinion of the Bank s management that the above provisions are sufficient to cover all eventual losses. b) Voluntary provisions Apart from the provisions for bad and doubtful assets shown in a) above, the Bank holds voluntary provisions amounting to 4,041.1 ( 5,160.3 in 1996). Voluntary provisions charged to income in 1997 amounted to 2,200 (2,126.0 in 1996). Note 5 - SHAREHOLDERS EQUITY AND RESULTS FOR THE YEAR a) The Bank s paid capital and reserves at 31 December 1997 totalled 106,348.9 (90,743.7 in 1996), including the capital restated in accordance with Art.10 of Law No The following summarizes the movement in the equity accounts during the year: Paid Legal Other capital reserve reserves Total Ch$ Millions Ch$ Millions Ch$ Millions Ch$ Millions Balances as at 1 January , , , ,465.6 Previous year s net income , ,208.3 Dividends paid - - (7,680.0) (7,680.0) Capital restatement 2, , ,371.8 Balances as at 31 December , , , ,365.7 Balances restated for comparison purposes 41, , , , Balance Bci

11 Paid Legal Other capital reserve reserves Total Ch$ Millions Ch$ Millions Ch$ Millions Ch$ Millions Balances as at 1 January , , , ,365.7 Previous year s net income , ,174.0 Dividends paid - - (8,640.0) (8,640.0) Capital restatement 2, , ,449.2 Balances as at 31 December , , , ,348.9 b) Dividends On 11 March 1997, the ordinary shareholders meeting approved the distribution of 8,640.0 (8,163.8 in 1996), the equivalent of $90 ($80 in 1996) per share on the total of 96,000,000 shares issued. Note 6 - INVESTMENTS The Bank held the following investments at 31 December 1997 and 1996: a) Financial investments Sold under Non- repurchase Adjustment transferable Transferable agreements to market Total Central Bank of Chile , , , ,482.7 (38.5) - 417, ,125.1 Chilean Treasury Other public entities , ,497.3 (10.9) (61.8) 5, ,861.7 Domestic financial institutions , , , ,810.4 Foreign investments Own securities , (1.2) (448.8) ,121.1 Other - - 9, , , ,046.7 Total ,151,4 307,490,3 61,254,2 35,980,0 (50,6) (505,3) 448,355,0 342,965,0 b) Other investments Deposits with the Central Bank of Chile (*) 15, Assets received in lieu of payment (**) Other investments - - Total 16, (*) Obligatory deposits with the Central Bank of Chile in compliance with exchange regulations. (**) No provision had been made at 31 December 1997 and 1996 for assets received in lieu of payment. Balance Bci 78

12 Note 7 - MATURITIES OF ASSETS AND LIABILITIES a) Maturities of loans and financial investments The following is a summary of loans and financial investments at 31 December 1997, classified by their remaining term to maturity. The amounts include accrued interest to the year-end. Between Between Up to 1 & 3 3 & 6 Over one year years years 6 years Total Lending (1) Commercial loans and others 947, , , , ,147,054.8 House mortgages 35, , , , ,481.9 Consumer loans 127, , ,458.4 Other credit operations Interbank lending 8, ,205.6 Securities acquired under repurchase agreements 10, ,979.8 Financial investments Marketable securities (2) 427, , , ,707.3 Investment instruments (3) 5, ,647.7 Total 1,561, , , , ,936,535.5 (1) Only those credits outstanding at the year-end with maturities falling within the periods indicated. Consequently, contingent assets and credits passed to the overdue portfolio are excluded, as well as overdue loans not transferred to past-due loans amounting to 14,240.3, of which 11,259.3 are less than 30 days overdue. (2) Includes total investments in securities held for market trading purposes, whether or not sold under repurchase agreements at the year-end. (3) Includes non-transferable securities and investments in instruments not intended to be sold. b) Maturities of deposits, borrowings and other funding operations The following is a summary of deposits, borrowings and other obligations at 31 December 1997, classified by their remaining term to maturity. The amounts include accrued interest to the year-end. 79 Balance Bci

13 Between Between Up to 1 & 3 3 & 6 Over one year years years 6 years Total DEPOSITS AND OTHER OBLIGATIONS (*) Deposits & borrowings 841, , ,631.2 Other term obligations Liabilities under repurchase agreements 61, ,574.3 Mortgage funding notes 20, , , , ,130.5 BONDS ISSUED (**) , , , ,109.5 LOANS FROM FINANCIAL INSTITUTIONS AND CENTRAL BANK OF CHILE Refinancing credit lines , , , ,209.2 Other obligations to the Central Bank 2, ,500.0 Borrowings from domestic financial institutions 53, ,551.4 Foreign borrowings 15, , ,906.4 Other obligations 37, , , ,029.4 Total 1,035, , , , ,442,975.7 (*) Excludes all sight obligations, savings accounts and contingent liabilities. (**) Includes the discount on the placing of bonds whose balance at 31 December 1997 was 2,526.7 ( in 1996) Note 8 - FOREIGN CURRENCY BALANCES n n : The balance sheet includes foreign currency assets and liabilities, or those adjusted according to the exchange rate, whose amounts are summarized below: Operations payable in Foreign currency Chilean pesos (*) Total MUS$ MUS$ MUS$ MUS$ MUS$ MUS$ Assets Cash and Banks (**) 32, , , ,321.9 Loans 481, , , , , ,468.7 Contingent assets 294, , , ,554.3 Interbank lending Financial investments: - in Chile Other Assets 28, , , ,976.1 Total Assets 838, , , , , ,643.8 Balance Bci 80

14 Liabilities Operations payable in Foreign currency Chilean pesos (*) Total MUS$ MUS$ MUS$ MUS$ MUS$ MUS$ Deposits 155, , , , , ,019.7 Contingent liabilities 294, , , ,731.8 Due to Central Bank of Chile Due to domestic banks 82, , , , ,416.3 Due to banks abroad 152, , , ,689.7 Other liabilities 189, , , ,109.7 Total liabilities 876, , , , , ,978.3 (*) Operations expressed in foreign currency and payable in pesos or operations adjustable according to the exchange rate. (**) Includes MUS$5,010.6 (MUS$28,881.6 in 1996) in respect of cash reserve requirements held against foreign borrowings, in accordance with regulations of the Central Bank of Chile. Note 9 - Derivative Products The following summarizes forward currency and arbitrage transactions and other operations in derivative products outstanding at the year-end: Currency and interest rate contracts Type of forward transaction No. of transactions Up to Over Amount of contracts 3 months 3 months MUS$ MUS$ MUS$ MUS$ Domestic market: Future purchases of currency against Chilean pesos , , , ,431 Future sales of currency against Chilean pesos , , , ,502 Foreign currency forward contracts 6 4-1,931 1,447 2,000 External markets: Foreign currency futures bought Foreign currency futures sold , ,372 The amount refers to dollars bought or sold or the equivalent in dollars of the foreign currency bought or sold forward, or the amount in dollars upon which the interest rate contracts are agreed, as the case may be. The terms relate to the term of the contracts as from the date of the transaction. 81 Balance Bci

15 Note 10 - CONTINGENCIES, COMMITMENTS AND OBLIGATIONS Commitments and obligations recorded in memorandum accounts. The Bank has recorded in its memorandum accounts the following commitments or obligations in the ordinary course of business: Securities in custody 912, ,740.3 Documents for domestic collection 46, ,269.3 Foreign collections 57, ,009.5 Credits approved but not disbursed 275, ,932.7 The above includes only the most important balances. Contingent assets and liabilities are shown in the Balance sheet. Note 11 - COMMISSIONS The amount of commissions received and paid as shown in the Statement of income, relates to the following:- Income Expense Lines of credit 7, , Current accounts 4, , Credit cards 3, , , ,147.3 Collection of documents 3, , Automatic cash-dispenser cards 2, , , Forward transactions Letters of credit, guarantees & other contingent operations Savings accounts Custody and trust services Bank drafts & funds transfers Other 2, , Total 24, , , ,843.8 Commissions earned on mortgage lending business are shown in the Statement of income under Interest and monetary adjustments. Balance Bci 82

16 Note 12 - DIRECTORS REMUNERATION AND EXPENSES The following amounts were paid or provided against income: Attendance fees Profit sharing 1, Fees Allowances Total 1, ,214.6 Note 13 - INCOME TAX Provisions to cover First Category income tax and Article No.21 tax, amounting to 4,378.3 and 51.2 respectively (3,602.1 and 34.1 in 1996), have been calculated in accordance with current tax legislation. Ciriaco Lovera Delgado Accountant General Reg Lic Fernando Vallejos Vásquez Manager, Accounting & Administration Division Lionel Olavarría Leyton General Manager Balance Bci 83

17 Report of Independent Auditors Santiago, 15 January To the Shareholders and Directors Banco de Credito e Inversiones We have audited the balance sheets of the Banco de Credito e Inversiones at 31 December 1997 and 1996 and the related statements of income for the years then ended. The preparation of these financial statements (including their respective notes) is the responsibility of the management of Banco de Credito e Inversiones. Our responsibility is to express an opinion on these financial statements based on our audits. Our audits were conducted in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether these financial standards are free from material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Bank s management as well as evaluating the overall statements presentation. We believe that our audits provide a reasonable basis for our opinion. The financial statements for 1997 and 1996 have been prepared to reflect the individual financial position of Banco de Crédito e Inversiones based on the criteria described in Note 1, before proceeding to the line-by-line consolidation of the financial statements of the subsidiaries listed in Note 3. Consequently, for their proper interpretation, these individual financial statements should be read and analyzed together with the consolidated financial statements of Banco de Crédito e Inversiones and its subsidiaries, which are required by generally accepted accounting principles. In our opinion, these individual financial statements present fairly, in all material aspects, the financial position of Banco de Credito e Inversiones at 31 December 1997 and 1996 and the results of its operations for the years then ended, in accordance with the principles described in Note 1. Alberto López-Hermida Balance Bci 84

18 Consolidated Financial Statements CONSOLIDATED BALANCE SHEET ASSETS At 31 December CASH AND BANKS 175, ,495.6 LOANS Commercial loans 726, ,478.6 Foreign trade financing 179, ,328.9 Consumer loans 140, ,488.0 Mortgage loans 294, ,052.2 Lease contracts 83, ,141.4 Contingent assets 200, ,876.2 Other lending 143, ,651.7 Overdue loans 13, ,115.3 Total loans 1,782, ,528,132.3 Less provisions for bad and doubtful assets (17,265.4) (11,904.7) Total net loans and advances 1,764, ,516,227.6 OTHER CREDIT OPERATIONS Interbank lending 8, ,935.1 Securities acquired under repurchase agreements 10, ,265.8 Total other credit operations 19, ,200.9 INVESTMENTS Central Bank of Chile and Chilean Treasury securities 363, ,300.4 Other financial investments 27, ,902.0 Traded securities 94, ,653.6 Deposits with Central Bank of Chile 15, Assets received in lieu of payment Other non-financial investments - - Total Investments 501, ,559.1 OTHER ASSETS 23, ,837.9 FIXED ASSETS Fixed Assets 69, ,793.9 Investments in other companies 2, ,318.7 Total fixed assets 71, ,112.6 TOTAL ASSETS 2,556, ,353,433.7 Consolidated Financial Statements 86

19 LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS EQUITY DEPOSITS AND OTHER LIABILITIES At 31 December Current accounts 443, ,609.2 Term deposits and borrowings 912, ,275.6 Other sight and term obligations 131, ,143.6 Liabilities under repurchase agreements 61, ,733.4 Mortgage funding notes 293, ,959.1 Contingent liabilities 200, ,638.7 Total deposits and other liabilities 2,043, ,955,359.6 BONDS ISSUED Straight bonds 13, ,198.9 Subordinated bonds 62, ,778.7 Total bonds issued 75, ,977.6 BORROWINGS FROM FINANCIAL INSTITUTIONS AND CENTRAL BANK OF CHILE Central Bank of Chile refinancing credit lines 7, ,750.7 Other liabilities with the Central Bank of Chile 2, Borrowings from domestic financial institutions 97, ,180.6 Foreign borrowings 71, ,926.3 Other borrowings 53, ,641.0 Total borrowings from financial institutions 231, ,855.0 OTHER LIABILITIES 64, ,634.5 Total liabilities 2,416, ,232,826.7 VOLUNTARY PROVISIONS 4, ,160.3 MINORITY INTEREST SHAREHOLDER S EQUITY Capital and reserves 106, ,743.7 Net income for the year 30, ,634.0 Total shareholders equity 136, ,377.7 TOTAL LIABILITIES, MINORITY INTEREST AND SHAREHOLDER S EQUITY 2,556, ,353,433.7 The accompanying Notes 1 to 13 form an integral part of these financial statements. 87 Consolidated Financial Statements

20 CONSOLIDATED STATEMENTS OF INCOME For the years ended 31 December OPERATING INCOME Interest received and monetary adjustments , ,7 Income from securities trading 1.830, ,4 Commissions received , ,6 Net exchange gains 1.692,0 89,9 Other operating income 2.246, ,8 Total operating income , ,4 Interest paid and monetary adjustments ( ,0) ( ,4) Losses on securities trading (1.374,2) (1.348,2) Commissions paid (3.660,7) (3.132,1) Other operating expenses (195,4) (76,5) Gross margin , ,2 Staff remuneration and expenses (44.609,0) (42.792,9) Administrative and other expenses (32.868,9) (27.109,4) Depreciation and amortization (6.287,5) (5.804,5) Net margin , ,4 Provisions for bad and doubtful assets (13.597,4) (5.976,1) Recoveries of loans written-off 596,3 908,0 Operating income , ,3 NON-OPERATING INCOME Non-operating income 2.787, ,4 Non-operating expenses (1.782,7) (831,7) Income on investments in companies 355,4 328,9 Price-level restatements (2.172,3) (1.578,9) Voluntary provisions (2.200,0) (2.126,0) Net income before income tax , ,0 Income tax (4.634,8) (3.934,4) Net income after income tax , ,6 Minority interest (9,6) (16,6) NET INCOME FOR THE YEAR , ,0 The accompanying Notes 1 to 13 form an integral part of these financial statements. Consolidated Financial Statements 88

21 Notes to the Consolidated Financial Statements AT 31 DECEMBER 1997 AND 1996 Note 1 - SIGNIFICANT ACCOUNTING PRINCIPLES APPLIED a) General These consolidated financial statements have been prepared in accordance with the accounting standards of the Superintendencia de Bancos y Instituciones Financieras (Chilean Banking Superintendency), which in the case of the present statements, conform with accounting principles generally accepted in Chile. b) Subsidiaries consolidated These consolidated financial statements include the assets, liabilities and results of the Bank and the subsidiaries listed as follows: Holding Direct Indirect Name of subsidiary % % % % BCI Administradora de Fondos Mutuos S.A BCI Asesoría Financiera S.A Bancrédito S.A. Corredor de Bolsa BCI Leasing S.A The combined assets and operating income of the subsidiaries represent 4.0% and 7.3% respectively (4.9% and 7.9% in 1996) of the corresponding consolidated assets and operating income. The effects of unrealized results arising from transactions with the subsidiaries have been eliminated and the participation of minority investors is shown as Minority interest in the Balance sheet. c) Interest and Monetary Adjustments Loans, investments, and liabilities include their respective interest and monetary adjustments accrued to the year-end. However, the Bank has followed a conservative policy of suspending the accrual of interest and monetary adjustments on overdue and doubtful outstanding loans. d) Price-Level Restatements Capital, fixed assets and other non-monetary assets and liabilities have been restated based on variations in the consumer price index. These restatements resulted in a net charge to income of 2,172.3 ( 1,578.9 in 1996). The corresponding figures for 1996 are shown restated by 6.3% for comparison purposes. Items in the Statement of income have not generally been restated. 89 Consolidated Financial Statements

22 e) Foreign Currency Foreign currency assets and liabilities of the Bank and its subsidiaries regulated by the Banking Superintendency are shown at their equivalent values in Chilean pesos calculated at the exchange rate of $ per US$1.00 at 31 December 1997 ($ per US$ 1 in 1996). This does not differ significantly from the exchange rate applied by the subsidiaries regulated by the Superintendency of Securities and Insurance. Net exchange gains of 1,692.0 ( 89.9 in 1996) shown in the Statement of income include both the results of foreign exchange trading and the effects of the exchange rate on foreign currency assets and liabilities. f) Financial Investments Long-term financial investments with a secondary market are shown at their market value, in accordance with the specific instructions of the Banking Superintendency. In the case of the stockbroking and other subsidiaries, this adjustment is shown only when market value is the lower. This adjustment represented a net credit to income for the year (net charge of in 1996), which is included in Operating income under Income from securities trading. Other investment in securities are shown at cost together with accrued interest and monetary adjustments. g) Lease contracts This item shows the nominal value of outstanding lease contracts net of unaccrued interest and value added tax. Provisions are shown separately under Provisions for bad and doubtful assets. Also included under this heading are assets acquired for leasing operations, shown at their restated cost. h) Fixed Assets Fixed assets are shown at restated cost and net of depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the respective assets. i) Investments in Other Companies Shares and rights in companies in which the Bank owns at least 10% of the capital, are valued using the equity method. Those investments representing a holding of less than 10% are valued at restated cost. j) Provisions for Bad and Doubtful Assets The Bank has set up the necessary provisions to cover eventual losses on bad and doubtful assets as required by the Banking Superintendency (Note 4). Provisions for loans are shown separately deducted from the respective balances, while provisions for other assets are shown deducted from the respective asset. Provisions made with respect to consumer loans are based since 1997 on the record of the debtor. Until 1996, the provision was determined based on the overdue state of the credit. Consolidated Financial Statements 90

23 Provisions held by the Bank in excess of the minimum levels required by the Banking Superintendency are shown separately in the Balance sheet and Statement of income. The subsidiaries have made provisions based on the specific regulations applicable to them and an analysis of their risk assets. k) Deferred Taxes In accordance with the instructions of the Banking Superintendency, the effect of deferred taxes arising from timing differences is not recorded. The subsidiaries Bci Administradora de Fondos Mutuos S.A., Bci Asesoría Financiera S.A. and Bancrédito S.A. Corredor de Bolsa show no deferred taxes as their timing differences are insignificant. The subsidiary Bci Leasing S.A. does not show deferred taxes as it has tax losses and it is impossible to accurately determine when these will be reversed. l) Staff holidays The annual cost of staff holidays and benefits are shown on an accrual basis. Note 2 - RELATED PARTY TRANSACTIONS In accordance with current regulations, related parties are those persons or entities directly or indirectly connected with the Bank s management or ownership. a) Credits and lease contracts granted to related parties At 31 December, credits granted to related parties were as follows: Outstanding loans Overdue loans Total Collateral * To productive companies 9, , , , To investment companies 1, , , , To persons (* *) Total 11, , , , (*) Includes only that collateral valid for individual credit limits as defined by Art.No.84 of the General Banking Law, and valued in accordance with Banking Superintendency instructions. (**) Includes only the obligations of persons whose debts are the equivalent of UF 3,000 or more. 91 Consolidated Financial Statements

24 b) Other related party transactions. The Bank has carried out the following transactions for amounts exceeding UF 1,000 with related parties: Effect on results Company Transaction Amount Expense Income 1997 Compañía de Formularios Continuos Jordan (Chile) S.A. Printing of forms 1, , Editora e Impresora Cabo de Hornos S.A. Printing of forms Redbanc S.A. Automatic cash-dispenser operation Empresas Juan Yarur S.A.C. Purchase of securities Inmobiliaria e Inversiones Tauro Ltda. Purchase of securities 4, Hilandería Renca Ltda. Purchase of dollars 1, Automotora del Pacífico S.A. Purchase of leased assets Equipos de Comunicación S.A. Purchase of leased assets Compañía de Formularios Continuos Jordan (Chile) S.A. Form printing 1, , Editora e Impresora Cabo de Hornos S.A. Form printing Redbanc S.A. Automatic cash-dispenser operation BCI Factoring S.A. Office rental All these transactions were carried out at market conditions prevailing at the time. Consolidated Financial Statements 92

25 Note 3 - INVESTMENTS IN OTHER COMPANIES The balance sheet includes investments in companies amounting to 2,183.1 (2,318.7 in 1996), as follows: Investment Accrued Bank s holding Equity Value earnings Company % % Comunidad CCA - CBT Redbanc S.A , , Servipag S.A , , Bolsa de Comercio de Santiago, Bolsa de Valores , , Bolsa Electrónica de Chile, Bolsa de Valores , , Bolsa de Corredores, Bolsa de Valores (0.4) 0.5 Nexus S.A (8.6) - Sub total 1, , Shares or rights in other companies shown at restated cost Total 2, , Note 4 - PROVISIONS a) Provisions for bad and doubtful assets At 31 December 1997, the Bank and its subsidiaries held provisions amounting to 17,869.8 ( 12,098.7 in 1996) corresponding to the minimum requirements of the Banking Superintendency for covering potential losses. 93 Consolidated Financial Statements

26 The movement in these provisions during the years is summarized as follows: Provisions for Loans Assets received and lease in lieu Other contracts of payment assets Total Ch$ Millions Ch$ Millions Ch$ Millions Ch$ Millions Balances as at 1 January , ,628.3 Provisions applied (2,725.8) (142.0) (0.7) (2,868.5) Provisions made 6, ,101.0 Provisions released (1,479.1) - - (1,479.1) Balances at 31 December , ,381.7 Balances restated for comparison purposes 11, ,098.7 Balances as at 1 January , ,381.7 Provisions applied (6,950.5) (158.8) - (7,109.3) Provisions made 13, ,200.6 Provisions released (603.2) - - (603.2) Balances at 31 December , ,869.8 Based on the evaluation of available information, it is the opinion of the Bank s management that the above provisions are sufficient to cover all eventual losses. b) Voluntary provisions Apart from the provisions for bad and doubtful assets shown in a) above, the Bank holds voluntary provisions amounting to 4,041.1 (M$ 5,160.3 in 1996). Voluntary provisions charged to income in 1997 amounted to 2,200 ( 2,126.0 in 1996). Note 5 - SHAREHOLDERS EQUITY AND RESULTS FOR THE YEAR a) Shareholders equity The Bank s paid capital and reserves at 31 December 1997 amounted to 106,348.9 ( 90,743.7 in 1996), including the capital restated in accordance with Art.10 of Law No The following summarizes the movement in the equity accounts during each year: Consolidated Financial Statements 94

27 Paid Legal Other capital reserve reserves Total Ch$ Millions Ch$ Millions Ch$ Millions Ch$ Millions Balances as at 1 January , , , ,465.6 Previous year s net income , ,208.3 Dividends paid - - (7,680.0) (7,680.0) Capital restatement 2, , ,371.8 Balances as at 31 December , , , ,365.7 Balances restated for comparison purposes 41, , , ,743.7 Balances as at 1 January , , , ,365.7 Previous year s net income , ,174.0 Dividends paid - - (8,640.0) (8,640.0) Capital restatement 2, , ,449.2 Balances as at 31 December , , , ,348.9 b) Dividends On 11 March 1997, the ordinary shareholders meeting approved the distribution of 8,640.0 ( 8,163.8 in 1996), the equivalent of $90 per share ($80 in 1996) on the total of 96,000,000 shares issued. Note 6 - Investments The Bank held the following investments at 31 December 1997 and 1996: a) Financial investments Sold under Adjustment Non-transferable Transferable purchase agreements to market Total Central Bank of Chile , , , ,482.7 (38.5) - 406, ,125.1 Other public entities , ,351.5 (10.9) (61.8) 31, ,715.9 Domestic financial institutions , , , , , ,296.4 Own securities , (1.2) (448.8) ,159.0 Other , , , ,559.6 Total , , , ,653.5 (50.6) (505.3) 485, , Consolidated Financial Statements

28 b) Other investments Deposits with Central Bank of Chile ,2 - Assets received in lieu of payment 575,3 703,1 Other investments - - Total ,5 703,1 Note 7 - MATURITIES OF ASSETS AND LIABILITIES a) Maturities of loans and financial investments The following is a summary of loans and financial investments at 31 December 1997, classified by the remaining term to maturity. The amounts include accrued interest to the year-end. LOANS (1) Between Between Up to 1 & 3 3 & 6 Over one year years years 6 years Total Commercial loans and others 948, , , , ,148,302.6 House mortgages 35, , , , ,482.0 Lease contracts 34, , , ,186.2 Consumer loans 127, , ,458.5 OTHER CREDIT OPERATIONS Interbank lending 8, ,205.6 Securities acquired under repurchase agreements 10, ,979.8 FINANCIAL INVESTMENTS Marketable securities (2) 464, , , ,861.2 Investment instruments (3) 5, ,647.7 Total 1,635, , , , ,058,123.6 (1) Only those credits outstanding at the year-end with maturities falling within the periods indicated. Consequently, contingent assets and credits passed to the overdue portfolio are excluded as well as overdue loans not passed to past-due loans amounting to 14,240.3 of which 11,259.3 are less than 30 days overdue. (2) Includes total investments in instruments held for market trading purposes, whether or not sold under repurchase agreements at the yearend. (3) Includes non-transferable securities and investments in securities not intended for sale. Consolidated Financial Statements 96

29 b) Maturities of deposits, borrowings and other funding operations The following is a summary of deposits, borrowings and other obligations at 31 December 1997, classified by the remaining term to maturity. The amounts include accrued interest to the year-end. Between Between Up to 1 & 3 3 & 6 Over one year years years 6 years Total DEPOSITS AND OTHER OBLIGATIONS (*) Deposits & borrowings 841, , ,371.9 Other term obligations Liabilities under repurchase agreements 61, ,574.3 Mortgage funding notes 20, , , , ,130.5 BONDS ISSUED (**) 4, , , , ,803.4 LOANS FROM FINANCIAL INSTITUTIONS AND CENTRAL BANK OF CHILE: Refinancing credit lines , , , ,209.2 Other obligations to the Central Bank 2, ,500.0 Due to domestic financial institutions 74, , , ,218.8 Foreign borrowings 18, , ,434.6 Other obligations 42, , , ,555.3 Total 1,066, , , , ,511,131.8 (*) Excludes all sight obligations, savings accounts and contingent liabilities. (**) Includes the discount on the placing of bonds whose balance at 31 December 1997 is 2,526.7 ( in 1996). 97 Consolidated Financial Statements

30 Note 8 - FOREIGN CURRENCY BALANCES The consolidated balance sheet includes foreign currency assets and liabilities, or those adjusted according to the exchange rate, whose amounts are summarized below: Operations payable in Foreign currency Chilean pesos (*) Total Assets MUS$ MUS$ MUS$ MUS$ MUS$ MUS$ Cash and Banks (**) 32, , , ,473.3 Loans 481, , , , , ,375.5 Contingent assets 294, , , ,554.3 Interbank lending Financial investments: - in Chile Other assets 28, , , , ,447.9 Total Assets 838, , , , , ,173.8 Liabilities Deposits 155, , , , , ,019.7 Contingent liabilities 294, , , ,731.8 Due to Central Bank of Chile Due to domestic banks 82, , , , ,319.8 Due to banks abroad 152, , , ,237.8 Other liabilities 189, , , , , ,089.1 Total liabilities 876, , , , , ,409.3 (*) Operations expressed in foreign currency and payable in Chilean pesos or operations adjustable according to the exchange rate. (**) Includes MUS$ 5,010.6 (MUS$28,881.6 in 1996) in respect of cash reserve requirements held against foreign borrowings, in accordance with regulations of the Central Bank of Chile. Consolidated Financial Statements 98

31 Note 9 - DERIVATIVE PRODUCTS The following summarizes forward currency and arbitrage transactions and other operations in derivative products outstanding at the year-end: Currency and interest rate contracts. Amount of contracts Number of Up to Over Type of forward transaction transactions 3 months 3 months MUS$ MUS$ MUS$ MUS$ Domestic market: Future purchases of currency against Chilean pesos , , , ,431 Future sales of currency against Chilean pesos , , , ,502 Foreign currency forward contracts 6 4-1,931 1,447 2,000 External markets: Foreign currency futures bought Foreign currency futures sold , ,372 The amount refers to dollars bought or sold or the equivalent in dollars of the foreign currency bought or sold forward, or the amount in dollars upon which the interest rate contracts are agreed, as the case may be. The terms relate to the term of the contracts as from the date of the transaction. Note 10 - CONTINGENCIES, COMMITMENTS AND OBLIGATIONS a) Commitments and obligations in memorandum accounts The Bank and its subsidiaries have recorded in their memorandum accounts the following balances related to commitments or obligations in the ordinary course of business: Securities in custody 32, ,791.7 Securities in bank custody 912, ,740.3 Documents for domestic collection 46, ,269.3 Foreign collections 57, ,009.5 Credits approved but not disbursed 275, ,932.7 Credits approved but not disbursed 12, ,456.9 Securities in guarantee 2, ,840.6 The above includes only the most important balances. Contingent assets and liabilities are shown in the Balance sheet. 99 Consolidated Financial Statements

32 b) Guarantees for operations At 31 December 1997, the subsidiary Bancrédito S.A. Corredor de Bolsa had given a guarantee for UF 20,000 (M$ 281,939) to meet the provisions of Article 30 of Law 18,045, which is to ensure the correct and full compliance with all its obligations as a securities broker and whose beneficiaries are present or future creditors of the stockbroking firm. This guarantee comprises the following: UF 10,000 by a policy dated 12 August 1997 and maturing 12 August 1998 with Compañía de Seguros Generales Aetna Chile S.A. in favour of the Chilean Electronic Exchange on behalf of the eventual creditor beneficiaries. UF10,000 by a policy dated 10 September 1997 and maturing 12 August 1998 with Compañía de Seguros Crédito Continental S.A. in favour of the Chilean Electronic Exchange on behalf of the eventual creditor beneficiaries. At 31 December 1996, the guarantee of UF 20,000 consisted of UF 9,000 in a policy issued by Compañía de Seguros Generales Aetna Chile S.A. expiring on 12 August 1997 and UF 11,000 in bonds pledged in guarantee to the Santiago Stock Exchange. The subsidiary Bancrédito S.A. Corredor de Bolsa showed at 31 December 1997 and 1996 guarantees for simultaneous share transactions held in custody in the Santiago Stock Exchange clearing house, for an amount of M$ 635,721 in 1997 and M$ 3,931,365 in Note 11 - COMMISSIONS The amount of commissions received and paid as shown in the Statement of income, relates to the following: Income Expense Lines of credit 7, , Current accounts 4, , Credit cards 3, , , ,147.3 Mutual fund management 2, , Automatic cash-dispenser cards 2, , , Documents for collection 2, , Letters of credit, guarantees & other contingent assets Share trading Advisory services Savings accounts Custody and trust services Bank drafts & funds transfers Other 3, , Total 27, , , ,132.1 Commissions earned on mortgage lending business are shown in the Statement of income under Interest and monetary adjustments. Consolidated Financial Statements 100

33 Note 12 - DIRECTORS REMUNERATION AND EXPENSES The following amounts were paid or provided against income by the Bank and its subsidiaries: Attendance fees Profit sharing 1, ,031.2 Fees Travel expenses Total 1, ,264.3 Note 13 - INCOME TAX Provisions to cover First Category income tax and Article No.21 tax, amounting to 4,577.0 and 57.8 respectively ( 3,589.8 and in 1996) have been calculated in accordance with current tax legislation. Ciriaco Lovera Delgado Accountant General Reg Lic Fernando Vallejos Vásquez Manager Accounting & Administration Division Lionel Olavarría Leyton General Manager 101 Consolidated Financial Statements

34 NT Report of Independent Auditors Santiago, 15 January To the Shareholders and Directors Banco de Credito e Inversiones 1 We have audited the consolidated balance sheets of the Banco de Credito e Inversiones and its subsidiaries as at 31 December 1997 and 1996 and the related consolidated statements of income for the years then ended. The preparation of these financial statements (including their respective notes) is the responsibility of the management of Banco de Credito e Inversiones. Our responsibility is to express an opinion on these financial statements based on our audits. 2 Our audit was conducted in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether these financial standards are free from material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Bank s management as well as evaluating the overall statements presentation. We believe that our audit provides a reasonable basis for our opinion. 3 In our opinion, these consolidated financial statements present fairly, in all material aspects, the financial position of Banco de Credito e Inversiones and its subsidiaries at 31 December 1997 and 1996 and the results of their operations for the years then ended, in accordance with accounting principles generally accepted in Chile. Alberto López-Hermida Consolidated Financial Statements 102

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