NOTE 10 LOANS AND RECEIVABLES FROM CUSTOMERS
a) Loans and receivables from customers
As of December 31, 2017 and 2016, the composition of the loan portfolio was as follows:
| Gross Assets | Allowances for loan losses | ||||||||||||||
| Normal Portfolio |
Impaired Portfolio |
Total | Individually Evaluated for impairment |
Collectively evaluated for impairment |
Total | Net carrying amount |
|||||||||
| As of December 31, 2017 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||
| Commercial loans: | |||||||||||||||
| Commercial Loans | 10,345,995 | 770,081 | 11,116,076 | 263,552 | 117,666 | 381,218 | 10,734,858 | ||||||||
| Foreign trade loans | 650,959 | 49,774 | 700,733 | 21,617 | 7,638 | 29,255 | 671,478 | ||||||||
| Current Account debtors | 131,332 | 8,016 | 139,348 | 1,903 | 2,848 | 4,751 | 134,597 | ||||||||
| Factoring operations | 140,375 | 363 | 140,738 | 270 | 93 | 363 | 140,375 | ||||||||
| Student loans | 598,108 | 54,895 | 653,003 | — | 12,794 | 12,794 | 640,209 | ||||||||
| Leasing transactions (*) | 851,882 | 88,907 | 940,789 | 10,445 | 6,837 | 17,282 | 923,507 | ||||||||
| Other loans and receivables | 24,261 | 1,598 | 25,859 | 365 | 886 | 1,251 | 24,608 | ||||||||
| Subtotals | 12,742,912 | 973,634 | 13,716,546 | 298,152 | 148,762 | 446,914 | 13,269,632 | ||||||||
| Mortgage loans: | |||||||||||||||
| Letter of credit loans | 44,432 | 2,968 | 47,400 | — | 140 | 140 | 47,260 | ||||||||
| Endorsable mutual mortgage loans | 127,153 | 8,766 | 135,919 | — | 1,816 | 1,816 | 134,103 | ||||||||
| Other mutual mortgage loans | 3,507,384 | 153,516 | 3,660,900 | — | 23,736 | 23,736 | 3,637,164 | ||||||||
| Leasing transactions (*) | 272,544 | 9,591 | 282,135 | — | 8,960 | 8,960 | 273,175 | ||||||||
| Other loans and receivables | 24,231 | 2,168 | 26,399 | — | 367 | 367 | 26,032 | ||||||||
| Subtotals | 3,975,744 | 177,009 | 4,152,753 | — | 35,019 | 35,019 | 4,117,734 | ||||||||
| Consumer loans: | |||||||||||||||
| Consumer loans | 1,725,652 | 84,397 | 1,810,049 | — | 100,068 | 100,068 | 1,709,981 | ||||||||
| Current account debtors | 193,325 | 14,176 | 207,501 | — | 11,840 | 11,840 | 195,661 | ||||||||
| Credit card | 405,786 | 15,383 | 421,169 | — | 19,664 | 19,664 | 401,505 | ||||||||
| Consumer leasing transactions (*) | 10,832 | 344 | 11,176 | — | 398 | 398 | 10,778 | ||||||||
| Other loans and receivables | 60,651 | 2,760 | 63,411 | — | 4,624 | 4,624 | 58,787 | ||||||||
| Subtotals | 2,396,246 | 117,060 | 2,513,306 | — | 136,594 | 136,594 | 2,376,712 | ||||||||
| Total | 19,114,902 | 1,267,703 | 20,382,605 | 298,152 | 320,375 | 618,527 | 19,764,078 | ||||||||
| Gross Assets | Allowances for loan losses | ||||||||||||||
| Normal Portfolio |
Impaired Portfolio |
Total | Individually Evaluated for impairment |
Collectively evaluated for impairment |
Total | Net carrying amount |
|||||||||
| As of December 31, 2016 | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||
| Commercial loans: | |||||||||||||||
| Commercial Loans | 11,312,885 | 643,479 | 11,956,364 | 299,630 | 31,647 | 331,277 | 11,625,087 | ||||||||
| Foreign trade loans | 682,188 | 71,956 | 754,144 | 33,068 | 284 | 33,352 | 720,792 | ||||||||
| Current Account debtors | 127,694 | 6,007 | 133,701 | 3,967 | 3,738 | 7,705 | 125,996 | ||||||||
| Factoring operations | 74,967 | 1,174 | 76,141 | 1,531 | 177 | 1,708 | 74,433 | ||||||||
| Student loans | 583,777 | 26,538 | 610,315 | — | 12,369 | 12,369 | 597,946 | ||||||||
| Leasing transactions (*) | 979,305 | 94,201 | 1,073,506 | 26,952 | 3,508 | 30,460 | 1,043,046 | ||||||||
| Other loans and receivables | 26,926 | 3,374 | 30,300 | 910 | 1,147 | 2,057 | 28,243 | ||||||||
| Subtotals | 13,787,742 | 846,729 | 14,634,471 | 366,058 | 52,870 | 418,928 | 14,215,543 | ||||||||
| Mortgage loans: | |||||||||||||||
| Letter of credit loans | 55,199 | 2,509 | 57,708 | — | 119 | 119 | 57,589 | ||||||||
| Endorsable mutual mortgage loans | 147,562 | 4,758 | 152,320 | — | 1,153 | 1,153 | 151,167 | ||||||||
| Other mutual mortgage loans | 3,243,747 | 117,203 | 3,360,950 | — | 16,665 | 16,665 | 3,344,285 | ||||||||
| Leasing transactions (*) | 280,765 | 7,564 | 288,329 | — | 5,245 | 5,245 | 283,084 | ||||||||
| Other loans and receivables | 28,097 | 1,113 | 29,210 | — | 290 | 290 | 28,920 | ||||||||
| Subtotals | 3,755,370 | 133,147 | 3,888,517 | — | 23,472 | 23,472 | 3,865,045 | ||||||||
| Consumer loans: | |||||||||||||||
| Consumer loans | 1,715,059 | 70,945 | 1,786,004 | — | 82,031 | 82,031 | 1,703,973 | ||||||||
| Current account debtors | 174,617 | 8,215 | 182,832 | — | 9,894 | 9,894 | 172,938 | ||||||||
| Credit card | 403,394 | 11,509 | 414,903 | — | 18,389 | 18,389 | 396,514 | ||||||||
| Consumer leasing transactions (*) | 16,760 | 331 | 17,091 | — | 572 | 572 | 16,519 | ||||||||
| Other loans and receivables | 77,179 | 2,955 | 80,134 | — | 6,018 | 6,018 | 74,116 | ||||||||
| Subtotals | 2,387,009 | 93,955 | 2,480,964 | — | 116,904 | 116,904 | 2,364,060 | ||||||||
| Total | 19,930,121 | 1,073,831 | 21,003,952 | 366,058 | 193,246 | 559,304 | 20,444,648 | ||||||||
(*) Lease transactions (commercial, mortgage and consumer) are presented net of allowance and total MCh$1,209,715 as of December 31, 2017 (MCh$1,342,649 as of December 31, 2016).
Guarantees taken by the Bank to secure collections reflected in its loan portfolios are collateral (urban and rural property, farm land, ships and aircraft, mining claims and other assets) and pledges (inventory, farm assets, industrial assets, plantings and other pledged assets). As of December 31, 2017 and 2016, the fair value of guarantees taken corresponds to 126.89% and 116.97% of the loans and receivables, respectively.
In the case of mortgage guarantees, as of December 31, 2017 and 2016, the fair value of the guarantees taken corresponds to 85.46% and 78.35% of the balance of these loans and receivables, respectively.
The Bank finances its customers’ asset purchases, both movable and real estate, through lease contracts that are included within loans and receivables from customers. As of December 31, 2017, MCh$306,931 corresponds to leases of movable assets (MCh$447,424 as of December 31, 2016) and MCh$927,168 to leases of real estate assets (MCh$931,502 as of December 31, 2016).
Where appropriate, we obtain collateral in respect of our loans and receivables from customers. The collateral normally takes the form of a mortgage (i.e., urban and rural properties, agricultural lands, maritime vessels and aircraft, mineral rights and other assets) and liens (i.e., inventories, agricultural goods, industrial goods, plantations and other property pledged as security) over the customer’s assets. The existence and amount of collateral generally varies from loan to loan, based on the credit-worthiness of the borrower.
We review collateral fair values by obtaining appraisals on impaired secured loans every 18 months and on normal secured loans every three years.
We monitor collateral values between appraisals on an ongoing basis in order to capture any unusual significant changes (i.e., improved conditions in the real estate industry, changes in overall economic conditions, etc.) in market-based evidence used in the appraisals. In the event that unusual significant changes occur between appraisals, the collateral values are reassessed and recalculated.
During 2017, the Bank received assets such as homes, apartments, commercial and agricultural lands, among others, with a fair value of MCh$7,227 (MCh$2,813 in 2016) through foreclosure or judicial proceedings.
b) Portfolio characteristics
As of December 31, 2017 and 2016, the loan portfolio before allowances for loan losses by customer economic activity was as follows:
| Local loans | Foreign loans | Total | Distribution Percentage | ||||||||||||||
| As of December 31, | As of December 31, | As of December 31, | As of December 31, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | % | % | ||||||||||
| Commercial loans | |||||||||||||||||
| Manufacturing | 784,608 | 1,065,647 | 255,883 | 155,749 | 1,040,491 | 1,221,396 | 5.11 | 5.81 | |||||||||
| Mining | 363,065 | 428,384 | 280,996 | 275,056 | 644,061 | 703,440 | 3.16 | 3.35 | |||||||||
| Electricity, gas and water | 589,067 | 720,818 | 347,416 | 414,511 | 936,483 | 1,135,329 | 4.59 | 5.41 | |||||||||
| Agriculture and livestok | 205,333 | 262,449 | 210,597 | 165,296 | 415,930 | 427,745 | 2.04 | 2.04 | |||||||||
| Forestry and wood extraction | 22,975 | 28,853 | 15,832 | 6,494 | 38,807 | 35,347 | 0.19 | 0.17 | |||||||||
| Fishing | 1,527 | 58,770 | 12,385 | — | 13,912 | 58,770 | 0.07 | 0.28 | |||||||||
| Transport | 461,486 | 442,468 | 206,991 | 251,885 | 668,477 | 694,353 | 3.28 | 3.31 | |||||||||
| Comunications | 29,296 | 31,712 | 65,143 | 48,448 | 94,439 | 80,160 | 0.46 | 0.38 | |||||||||
| Construction | 1,368,057 | 1,359,125 | 270,063 | 265,669 | 1,638,120 | 1,624,794 | 8.04 | 7.74 | |||||||||
| Commerce | 815,184 | 912,877 | 897,666 | 801,712 | 1,712,850 | 1,714,589 | 8.40 | 8.16 | |||||||||
| Services | 2,616,171 | 2,869,113 | 1,164,562 | 1,418,260 | 3,780,733 | 4,287,373 | 18.55 | 20.41 | |||||||||
| Others | 2,322,773 | 2,465,332 | 409,470 | 185,843 | 2,732,243 | 2,651,175 | 13.41 | 12.62 | |||||||||
| Subtotals | 9,579,542 | 10,645,548 | 4,137,004 | 3,988,923 | 13,716,546 | 14,634,471 | 67.30 | 69.68 | |||||||||
| Mortgage loans | 3,635,993 | 3,360,930 | 516,760 | 527,587 | 4,152,753 | 3,888,517 | 20.37 | 18.51 | |||||||||
| Consumer loans | 1,544,062 | 1,353,422 | 969,244 | 1,127,542 | 2,513,306 | 2,480,964 | 12.33 | 11.81 | |||||||||
| Total | 14,759,597 | 15,359,900 | 5,623,008 | 5,644,052 | 20,382,605 | 21,003,952 | 100.00 | 100.00 | |||||||||
c) Allowances for loans losses
The changes in allowances for loan losses during the periods ended December 31, 2017 and 2016 are summarized as follows:
| Individually evaluated for impairment |
Collectively evaluated for impairment |
Total | |||||||
| Note | MCh$ | MCh$ | MCh$ | ||||||
| Balances as January 1, 2017 | 366,058 | 193,246 | 559,304 | ||||||
| Impaired portfolio write-offs: | |||||||||
| Commercial loans | (69,702 | ) | (39,648 | ) | (109,350 | ) | |||
| Mortgage loans | — | (8,303 | ) | (8,303 | ) | ||||
| Consumer loans | — | (115,708 | ) | (115,708 | ) | ||||
| Total write-offs | (69,702 | ) | (163,659 | ) | (233,361 | ) | |||
| Established provision | 27 | 338,701 | 480,567 | 819,268 | |||||
| Provision released | 27 | (302,504 | ) | (169,801 | ) | (472,305 | ) | ||
| Application of provisions | (9,760 | ) | — | (9,760 | ) | ||||
| Exchange rate differences | (24,641 | ) | (19,978 | ) | (44,619 | ) | |||
| Balances as of December 31, 2017 | 10a) | 298,152 | 320,375 | 618,527 |
| Individually evaluated for impairment |
Collectively evaluated for impairment |
Total | |||||||
| Note | MCh$ | MCh$ | MCh$ | ||||||
| Balances as January 1, 2016 | 50,914 | 44,665 | 95,579 | ||||||
| Impaired portfolio write-offs: | |||||||||
| Commercial loans | (61,460 | ) | (24,184 | ) | (85,644 | ) | |||
| Mortgage loans | — | (8,157 | ) | (8,157 | ) | ||||
| Consumer loans | — | (94,294 | ) | (94,294 | ) | ||||
| Total write-offs | (61,460 | ) | (126,635 | ) | (188,095 | ) | |||
| Established provision | 27 | 387,737 | 286,297 | 674,034 | |||||
| Provision released | 27 | (251,582 | ) | (153,212 | ) | (404,794 | ) | ||
| Integration Itaú Corpbanca | 297,850 | 145,097 | 442,947 | ||||||
| Application of provisions | (57,170 | ) | (1,576 | ) | (58,746 | ) | |||
| Exchange rate differences | (231 | ) | (1,390 | ) | (1,621 | ) | |||
| Balances as of December 31, 2016 | 10a) | 366,058 | 193,246 | 559,304 |
d) Portfolio sales
1. As of December 31, 2017, 2016 and 2015, the Bank and its subsidiaries engaged in portfolio purchases and sales. The effect on income of these transactions as a whole does not exceed 5% of before-tax profit for the year, and is recorded within net gains from trading and investment income activities in the Consolidated Statement of Income for the period, disclosed in Note 25 “Net Trading and Investment Income” within “Other financial investments at fair value with effect on profit or loss.”
2. As of December 31, 2017, 2016 and 2015, the Bank and its subsidiaries derecognized 100% of its sold portfolio, thus complying with the requirements of the accounting policy for derecognizing financial assets and liabilities in Note 1.2, letter u) of these annual Consolidated Financial Statements.
During 2017 and 2016, Itaú Corpbanca sold part of its portfolio of state-guaranteed loans and receivables (or “CAE” the Spanish acronym) acquired through a competitive bidding process for awards of the Financing Facility and Administration of Loans for Studies in Higher Education Law No. 20,027.The open bidding model for financial institutions, reflected in the respective databases, allows companies to sell a percentage of state-guaranteed loans and receivables to third parties. On the portfolio sale, Itaú Corpbanca transferred
substantially all the risks and benefits associated with this portfolio. The detail of loans and receivables sold is as follows:
| Carrying | Proceeds for | Gain (loss) | |||||||
| Amount | sales | on sale (*) | |||||||
| No. Of Loans | MCh$ | MCh$ | MCh$ | ||||||
| As of December 31, 2017 | 60,675 | 118,027 | 147,725 | 29,910 | |||||
| As of December 31, 2016 | 72,780 | 142,636 | 175,707 | 33,871 | |||||
| As of December 31, 2015 | 23,662 | 46,405 | 60,324 | 14,639 |
(*) This amount is included under line item “Trading and investment income, net” in the Consolidated Statements of Income, disclosed in Note 25 Net Trading and Investment Income, line “Other financial investments at fair value with effect on profit or loss.”
The gain on the sale, excluding the effect of any provisions on these loans, is comprised of MCh$15.852 as of December 31, 2017 (MCh$18,332 in 2016, and MCh$9,533 in 2015), recognized in the Consolidated Statement of Income within net financial operating income, and the difference, amounting to MCh$14.058 as of December 31, 2017 (MCh$ 14,739 in 2016 and MCh$4,386 in 2015), is recorded in profit or loss based on its period of deferral at the effective tax rate, in accordance with IAS 39.
e) Lease
The Bank’s scheduled cash flows to be received from finance lease contracts have the following maturities:
| Total receivable | Unearned income | Net lease receivable | |||||||||||
| As of December 31, | As of December 31, | As of December 31, | |||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||
| MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | MCh$ | ||||||||
| Up to one month | 29,846 | 30,896 | 3,677 | 1,782 | 26,169 | 29,114 | |||||||
| More than a month to three months | 32,672 | 38,246 | 2,857 | 3,561 | 29,815 | 34,685 | |||||||
| More than three months up to one year | 120,691 | 146,124 | 11,596 | 14,774 | 109,095 | 131,350 | |||||||
| More than one year up to three years | 262,576 | 291,393 | 33,717 | 39,983 | 228,859 | 251,410 | |||||||
| More than three years up to six years | 283,010 | 319,920 | 57,453 | 69,467 | 225,557 | 250,453 | |||||||
| More than six years | 1,062,625 | 1,199,476 | 448,020 | 517,562 | 614,605 | 681,914 | |||||||
| Total (*) | 1,791,420 | 2,026,055 | 557,320 | 647,129 | 1,234,100 | 1,378,926 | |||||||
(*) Includes:
| As of December 31, | |||||
| 2017 | 2016 | ||||
| Leasing Transactions | MCh$ | MCh$ | |||
| Commercial | 940,789 | 1,073,506 | |||
| Mortgage | 282,135 | 288,329 | |||
| Consumer | 11,176 | 17,091 | |||
| Total | 1,234,100 | 1,378,926 | |||