(b) Basis of consolidation:
The financial statements of Banco de Chile as of and for the years ended December 31, 2016 and 2017 have been consolidated with those of its subsidiaries. The financial statements of the bank’s subsidiaries are prepared for the same reporting year as for Banco de Chile, using consistent accounting policies.
(i) Subsidiaries
Consolidated financial statements as of December 31, 2016 and 2017 incorporate financial statements of the Bank and its subsidiaries. According IFRS 10 —“Consolidated Financial Statements”, control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee. Specifically the Bank has power over the investee when it has existing rights that give it the ability to direct the relevant activities of the investee.
When the Bank has less than a majority of the voting rights of an investee, but these voting rights are enough to have the ability to direct the relevant activities unilaterally, then the Bank has control. The Bank considers all factors and relevant circumstances to evaluate if its voting rights are enough to obtain control, which includes:
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· |
The amount of voting rights that the Bank has, related to the amount of voting rights of the other stakeholders. |
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· |
Potential voting rights maintained by the Bank, other holders of voting rights or other parties. |
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· |
Rights that emanated from other contractual arrangements. |
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· |
Any additional circumstance that indicate that the Bank has or does not have the ability to manage the relevant activities when decisions need to be made, including voting behavior patterns in previous shareholders meetings. |
The financial statements of the subsidiaries are included in the consolidated financial statements from the date control is obtained until the loss of such control. The financial statements have been prepared using uniform accounting policies for similar transactions and other events under equivalent circumstances.
The following table details the entities in which the Bank, directly or indirectly — owns a controlling interest and that are therefore consolidated in these financial statements:
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Interest Owned |
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|
|
|
|
|
|
|
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Direct |
|
Indirect |
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Total |
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||||||
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|
|
|
|
|
|
Functional |
|
2016 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
2017 |
|
|
RUT |
|
Subsidiaries |
|
Country |
|
Currency |
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
|
96,767,630-6 |
|
Banchile Administradora General de Fondos S.A. |
|
Chile |
|
Ch$ |
|
99.98 |
|
99.98 |
|
0.02 |
|
0.02 |
|
100.00 |
|
100.00 |
|
|
96,543,250-7 |
|
Banchile Asesoría Financiera S.A. |
|
Chile |
|
Ch$ |
|
99.96 |
|
99.96 |
|
— |
|
— |
|
99.96 |
|
99.96 |
|
|
77,191,070-K |
|
Banchile Corredores de Seguros Ltda. |
|
Chile |
|
Ch$ |
|
99.83 |
|
99.83 |
|
0.17 |
|
0.17 |
|
100.00 |
|
100.00 |
|
|
96,571,220-8 |
|
Banchile Corredores de Bolsa S.A. |
|
Chile |
|
Ch$ |
|
99.70 |
|
99.70 |
|
0.30 |
|
0.30 |
|
100.00 |
|
100.00 |
|
|
96,932,010-K |
|
Banchile Securitizadora S.A. |
|
Chile |
|
Ch$ |
|
99.01 |
|
99.01 |
|
0.99 |
|
0.99 |
|
100.00 |
|
100.00 |
|
|
96,645,790-2 |
|
Socofin S.A. |
|
Chile |
|
Ch$ |
|
99.00 |
|
99.00 |
|
1.00 |
|
1.00 |
|
100.00 |
|
100.00 |
|
Significant intercompany transactions and balances between the Bank and its subsidiaries and among its subsidiaries have been eliminated for consolidation purposes. Any non-controlling interest is recognized as a separate item within the Bank’s consolidated equity.
(ii) Investment in Associates and Joint Ventures
Associates
An associate is an entity over which the Bank has significant influence on its operating and financial management policy decisions, without having control over the associate. Significant influence is generally presumed when the Bank holds between 20% and 50% of the voting rights. Other factors considered when determining whether the Bank has significant influence over another entity are the representation on the Board of Directors and the existence of material intercompany transactions. The existence of these factors could determine the existence of significant influence over an entity despite the Bank holding a participation of less than 20% of the entity’s voting rights.
According to the equity method, the Bank’s investments in an associate are initially recorded at cost, and subsequently increased (or decreased) to reflect both the Bank’s pro rata share of the post-acquisition net income (or loss) of the associate and other movements directly recognized in the associate’s equity. Goodwill arising from the acquisition of an associate is included in the carrying value of the investment (net of any accumulated impairment loss). Since goodwill is not reported separately, an associate is not tested individually for impairment. Rather, the entire investment is tested for impairment as described below.
After the application of the equity method, the Bank determines whether it is necessary to recognize an additional impairment loss on the Bank’s investment in an associate. The Bank determines at each reporting date whether there is objective evidence that the investment in the associate is impaired. If this is the case, the Bank calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount in its income statement.
Joint Ventures
Joint Ventures are joint arrangements whereby the parties to the agreement that have joint control over the arrangement have rights to the net assets covered by the arrangement. Joint control exists only when decisions about the relevant activities covered by the arrangement require the unanimous consent of the parties sharing control in the agreement.
According to IFRS 11, an entity shall determine the type of joint arrangement: “Joint Operation” or “Joint Venture”.
For investments defined as a “Joint Operation”, the assets, liabilities, income and expenses are recognized by the participation in the joint operation.
Investments defined as a “Joint Venture” will be registered according to the equity method.
Investments that, for their characteristics, are defined as “Joint Ventures” include the following:
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· |
Artikos S.A. |
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· |
Servipag Ltda. |
(iii) Structured entities
Special purpose entities (“SPEs”) are generally created to comply with a specific and well-defined objective, such as securitizing specific assets or carrying out a specific loan transaction. An SPE is consolidated if, based on an assessment of its relationship with the Bank and the risks and benefits over the SPE, the Bank concludes that it has control of the SPE.
As of December 31, 2016 and 2017, the Bank does not control and therefore does not consolidate any SPEs.
(iv) Asset management services investments and mutual funds
The Bank, through its subsidiary Banchile Administradora General de Fondos S.A., manages assets through investment and mutual funds and other investment products on behalf of investors.
According to IFRS 10, for consolidation purposes, it is necessary to evaluate the role of the Bank and its subsidiaries in the funds that it manages, determining its role of Agent or Principal. When assessing whether an investor controls an investee, an investor with decision-making rights must determine whether it acts as a Principal or as an Agent for other parties. A number of factors are considered in making this assessment, including the following:
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· |
Scope to make decision over the investee. |
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· |
Rights held by other parties. |
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· |
Remuneration according to compensation arrangements. |
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· |
Exposition of the decision maker to the variability of returns from other interests that keeps the investee. |
The Bank and its subsidiaries manage investments and mutual funds on behalf and for the benefit of investors, acting only as an Agent in this relationship. Under this category, and as per the aforementioned rule, these funds are not controlled and therefore not consolidated by the Bank or its subsidiaries.