y) Cash flow statement
The Bank presents its cash flows from operating, investing and financing activities in a manner that is most appropriate to its business. Classification by activity provides information that allows users to assess the impact of those activities on the financial position of the entity and the amount of its cash and cash equivalents. This information may also be used to evaluate the relationships among those activities.
For the preparation of the cash flow statement, the Bank applied the indirect method, in which, starting with the Bank’s consolidated income before taxes, non-cash transactions were subsequently added/subtracted, as were income and expenses associated with cash flows classified as investing or financing activities.
The preparation of the cash flow statements takes the following items into account:
a) Cash flows. The inflow or outflow of cash and cash equivalents, which includes Central Bank of Chile deposits, domestic bank deposits, and foreign bank deposits (includes Bank of the Republic of Colombia deposits).
b) Operating activities. Normal activities performed by the Bank, as well as other activities that cannot be classified as either investing or financing. In this section, the Bank includes among other, items, investments under agreements to resell and obligations under repurchase agreements, foreign borrowings, available-for-sale and held-to-maturity investments, dividends received from investment, etc.
The Bank’s activity of granting loans encompasses activities with its debtors and related activities that provide the funding to the loans granted. Since the funding for granting such loans is provided by, among other sources, foreign borrowings, repurchase agreements and securities lending, the company presents the related cash flows as operating activities.
c) Investment activities. The acquisition, sale or disposal by other means, of long-term assets and other investments not included in cash and cash equivalents.
d) Financing activities. Activities that produce changes in the size and composition of the net shareholders’ equity and liabilities that are not part of operating activities or investments.
In the statement of cash flows, cash and cash equivalents are defined as cash balances and bank deposits plus the net balance of cash in the process of collection, plus highly-liquid trading and available-for-sale securities with insignificant risk of changing value, maturing in no more than three months from the date of acquisition and repurchase agreements with similar conditions. Cash and cash equivalents balances and their reconciliation to the cash flow statement are detailed in Note 5 “Cash and cash equivalents.”
The Statements of Cash Flows also includes investments in fixed-income mutual funds that are presented together with trading securities in the Consolidated Statement of Financial Position. Balances of cash and cash equivalents and their reconciliation with the Consolidated Statement of Cash Flows are detailed in Note 5 “Cash and Cash Equivalents.”
The provision for loan losses presented in the operating section does not correspond to the amount presented in the statements of income because, for cash flow statement purposes, the provision for loan losses excludes recoveries of assets previously written-off.