(ac) Employee benefits:
(i) Staff vacations
The annual costs of vacations and staff benefits are recognized on an accrual basis.
(ii) Short-term benefits
The Bank has a yearly bonus plan for its employees based on their ability to meet objectives and their individual contribution to the Bank’s results, consisting of a given number or portion of monthly salaries. It is provisioned for based on the estimated amount to be distributed.
(iii) Staff severance indemnities
Banco de Chile has recorded a liability for long-term severance indemnities in accordance with employment contracts it has with certain employees. The liability, which results from payments to specified employees that are retiring with more than 30 years of service, is recorded at the present value of the accrued benefits. It is calculated by applying an equivalent discount rate to the accrued benefits. These benefits accrue over the estimated average remaining service period.
Obligations for this defined benefit plan are valued according to the projected unit credit actuarial valuation method, using inputs such as staff turnover rates, expected growth in wages and the probability that this benefit will be used, discounted at current long-term rates (4.29% as of December 31, 2016 and 4.53% as of December 31, 2017).
The discount rate used corresponds to the return on bonds of the Central Bank with a maturity period of 10 years.
Actuarial gains and losses are recognized as other comprehensive income at the end of each reporting period. There is no past service costs that would have to be recognized by the Bank.