8 

Exchange Rates

Chile has two currency markets, theMercado Cambiario Formal, or the Formal Exchange Market, and theMercado Cambiario Informal, or the Informal Exchange Market. According to Law 18,840, the organic law of the Central Bank and the Central Bank Act (Ley Orgánica Constitucional del Banco Central de Chile), the Central Bank determines which purchases and sales of foreign currencies must be carried out in the Formal Exchange Market. Pursuant to Central Bank regulations currently in effect, all payments, remittances or transfers of foreign currency abroad which are required to be effected through the Formal Exchange Market may be effected with foreign currency procured outside the Formal Exchange Market. The Formal Exchange Market is comprised of the banks and other entities so authorized by the Central Bank. The Informal Exchange Market is comprised of entities that are not expressly authorized to operate in the Formal Exchange Market, such as certain foreign exchange houses and travel agencies, among others. The Central Bank is empowered to require that certain purchases and sales of foreign currencies be carried out on the Formal Exchange Market. The conversion from pesos to U.S. dollars of all payments and distributions with respect to the ADSs described in this Annual Report must be transacted at the spot market rate in the Formal Exchange Market.

Both the Formal and Informal Exchange Markets are driven by free market forces. Current regulations require that the Central Bank be informed of certain transactions and that they be effected through the Formal Exchange Market. In order to keep the average exchange rate within certain limits, the Central Bank may intervene by buying or selling foreign currency on the Formal Exchange Market.

The U.S.$ Observed Exchange Rate (dólar observado), which is reported by the Central Bank and published daily in the Chilean newspapers, is the weighted average exchange rate of the previous business day’s transactions in the Formal Exchange Market. The Central Bank has the power to intervene by buying or selling foreign currency on the Formal Exchange Market to attempt to maintain the Observed Exchange Rate within a desired range. Even though the Central Bank is authorized to carry out its transactions at the Observed Exchange Rate, it generally uses spot rates for its transactions. Other banks generally carry out authorized transactions at spot rates as well.

Purchases and sales of foreign currencies may be legally carried out in the Informal Exchange Market. The Informal Exchange Market reflects transactions carried out at informal exchange rates by entities not expressly authorized to operate in the Formal Exchange Market. There are no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the Observed Exchange Rate. In recent years, the variation between the Observed Exchange Rate and the Informal Exchange Rate has not been significant. On December 31, 2015 and 2016 the exchange rate in the Informal Exchange Market as published by Reuters at 1:30 pm on these days was Ch$707.80 and Ch$666.00 respectively, or 0.06% more and 0.19% less, respectively, than the Central Bank’s published observed exchange rate for such date of Ch$707.34 and Ch$667.29, respectively, per U.S.$1.00.

The following table sets forth the annual low, high, average and period-end observed exchange rate for U.S. dollars for each of the following periods, as reported by the Central Bank. We make no representation that the Chilean peso or the U.S. dollar amounts referred to herein actually represent, could have been or could be converted into U.S. dollars or Chilean pesos, as the case may be, at the rates indicated, at any particular rate or at all. The Federal Reserve Bank of New York does not report a noon buying rate for pesos.

Source: Central Bank.

Dividends

Under the current General Banking Law, a Chilean bank may only pay a single dividend per year (i.e., interim dividends are not permitted). Santander-Chile’s annual dividend is proposed by its Board of Directors and is approved by the shareholders at the annual ordinary shareholders’ meeting held the year following that in which the dividend is generated. For example, the 20162019 dividend must be proposed and approved during the first four months of 2017.2020. Following shareholder approval, the proposed dividend is declared and paid. Historically, the dividend for a particular year has been declared and paid no later than one month following the shareholders’ meeting. Dividends are paid to shareholders of record on the fifth day preceding the date set for payment of the dividend. The applicable record dates for the payment of dividends to holders of ADSs will, to the extent practicable, be the same.

Under the General Banking Law, a bank must distribute cash dividends in respect of any fiscal year in an amount equal to at least 30% of its net income for that year, as long as the dividend does not result in the infringement of minimum capital requirements. The balances of our distributable net income are generally retained for use in our business (including for the maintenance of any required legal reserves). Although our Board of Directors currently intends to pay regular annual dividends, the amount of dividend payments will depend upon, among other factors, our then current level of earnings, capital and legal reserve requirements, as well as market conditions, and there can be no assurance as to the amount or timing of future dividends.

Dividends payable to holders of ADSs are net of foreign currency conversion expenses of The Bank of New York Mellon, as depositary (the “Depositary”) and will be subject to the Chilean withholding tax currently at the rate of 35% (subject to credits in certain cases as described in “Item 10. Additional Information—E. Taxation—Material Tax Consequences of Owning Shares of Our Common Stock or ADSs”).

Under the Foreign Investment Contract (as defined herein), the Depositary, on behalf of ADS holders, is granted access to the Formal Exchange Market to convert cash dividends from Chilean pesos to U.S. dollars and to

pay such U.S. dollars to ADS holders outside Chile, net of taxes, and no separate registration by ADS holders is required. In the past, Chilean law required that holders of shares of Chilean companies who were not residents of Chile to register as foreign investors under one of the foreign investment regimes contemplated by Chilean law in order to have dividends, sale proceeds or other amounts with respect to their shares remitted outside Chile through the Formal Exchange Market. On April 19, 2001, the Central Bank deregulated the Exchange Market and eliminated the need to obtain approval from the Central Bank in order to remit dividends, but at the same time this eliminated the possibility of accessing the Formal Exchange Market. These changes do not affect the current Foreign Investment Contract, which was signed prior to April 19, 2001, which grants access to the Formal Exchange Market with prior approval of the Central Bank. See “Item 10. Additional Information—D. Exchange Controls.”

The following table presents dividends declared and paid by us in nominal terms in the past four years:

(6)

(6)

Calculated by dividing dividend paid in the year by net income attributable to the equity holders of the Bank for the previous year under IFRS. (7) Dividend proposed by the Board for shareholders’ approval on April 26, 2017.   B. Capitalization and Indebtedness B. Capitalization and Indebtedness   Not applicable.   11  TableC. Reasons for the Offer and Use of Contents Proceeds C. Reasons for the Offer and Use of Proceeds   Not applicable.   D. Risk Factors 9 Table of Contents D. Risk Factors   You should carefully consider the following risk factors, which should be read in conjunction with all the other information presented in this Annual Report. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties that we do not know about or that we currently think are immaterial may also impair our business operations. Any of the following risks, if they actually occur, could materially and adversely affect our business, results of operations, prospects and financial condition.   We are subject to market risks that are presented both in this subsection and in “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”   Risks Associated with Our Business   We are vulnerable to disruptions and volatility in the global financial markets.   In the recent past, financial systems worldwide have experienced difficult credit and liquidity conditions and disruptions leading to less liquidity and greater volatility (such as volatility in spreads). Global economic conditions deteriorated significantly between 2007 and 2009, and manysome countries fell into recession. Although mostmany countries have begun to recover,recovered, this recovery may not be sustainable. ManySome major financial institutions, including some of the world’s largest global commercial banks, investment banks, mortgage lenders, mortgage guarantors and insurance companies experienced, and some continue to experience, significant difficulties. Around the world, there have also beenwere runs on deposits at several financial institutions, numerous institutions have sought additional capital or have beenwere assisted by governments, and many lenders and institutional investors have reduced or ceased providing funding to borrowers (including to other financial institutions).   In particular, we face, among others, the following risks related to the economic downturn:   · Reduced demand for our products and services.   · Increased regulation of our industry. Compliance with such regulation will continue to increase our costs and may affect the pricing for our products and services, increase our conduct and regulatory risks to non-compliance and limit our ability to pursue business opportunities.   · Inability of our borrowers to timely or fully comply with their existing obligations. Macroeconomic shocks may negatively impact the household income of our retail customers and may adversely affect the recoverability of our retail loans, resulting in increased loan losses.   · The process we use to estimate losses inherent in our credit exposure requires complex judgments, including forecasts of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans. The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the sufficiency of our loan loss allowances.   · The value and liquidity of the portfolio of investment securities that we hold may be adversely affected.   · Any worsening of global economic conditions may delay the recovery of the international financial industry and impact our financial condition and results of operations.   Despite recent improvements in certain segmentsthe improvement of the global economy, uncertainty remains concerning the future economic environment. Such economic uncertainty could have a negative impact on our business and results of operations. A slowing or failing of the economic recoveryexpansion would likely aggravate the adverse effects of these difficult economic and market conditions on us and on others in the financial services industry.   12  Table of Contents Increased volatilityA return to volatile conditions in the global financial markets could have a material adverse effect on us, including on our ability to access capital and liquidity on financial terms acceptable to us, if at all. If capital markets financing ceases to become available, or becomes excessively expensive, we may be forced to raise the rates we pay on deposits to attract more customers and become unable to maintain certain liability maturities. Any such increase in capital markets funding availability or costs or in deposit rates could have a material adverse effect on our interest margins and liquidity.   10 Table of Contents Additionally, the results of the 2016 United States presidential and congressional elections generated volatility in the global capital and currency markets and created uncertainty about the relationship between the United States and its major trade partners. The uncertainty persists in relation to the United States trade policy, in particular with respect to any further protectionist shift. If all or some of the foregoing risks were to materialize, this could have a material adverse effect on our financing availability and terms and, more generally, on our results, financial condition and prospects. Additionally, the results of the 2016 United States presidential and congressional elections have generated volatility in the global capital and currency markets and have created uncertainty about the relationship between the United States and Latin American countries. Any material change to United States trade policy with respect to Chile could have a material adverse effect on the economy, which could in turn materially harm our financial condition and results of operations.   Credit, market and liquidity risk may have an adverse effect on our credit ratings and our cost of funds. Any downgrade in Chile’s, our controlling shareholders or our credit rating would likely increase our cost of funding, require us to post additional collateral or take other actions under some of our derivative contracts and adversely affect our interest margins and results of operations.   Credit ratings affect the cost and other terms upon which we are able to obtain funding. Rating agencies regularly evaluate us, and their ratings of our debt are based on a number of factors, including our financial strength and conditions affecting the financial services industry generally.industry. In addition, due to the methodology of the main rating agencies, our credit rating is affected by the rating of Chile’s sovereign debt. If Chile’s sovereign debt is downgraded, our credit rating would also likely be downgraded by an equivalent amount.   In December 2016, Moody’s Investors ServicesAugust 2017, Fitch Ratings Ltd. (“Moody’s”Fitch”) concludeddowngraded our main ratings from A+ to A following a reviewsimilar action on the sovereign rating of the Bank’s ratings and downgraded the baseline credit assessments from a2 to a3 due to their belief that the prospectsRepublic of a continued slowdown in the Chilean economy and relevant market shift have changed the competitive landscape. Moody’s confirmed our other ratings, maintaining a stable outlook. Also in December 2016, Fitch changed their outlook on the Bank from stable to negative due to concerns over the sovereign ratings for Chile. Standard and Poor’s Ratings Services (“S&P”) announcedplaced the same actionBank’s ratings on Outlook Negative in JanuaryAugust 2017 and reaffirmed this rating and outlook in November 2017. In August 2018, the Bank’s outlook changed from negative to stable after the outlook for the sovereign rating of the Republic of Chile was changed to stable in July 2017 and the Bank’s A rating was affirmed in August 2017. In July 2018, Moody’s downgraded our main rating to A1 from Aa3, after revising the sovereign rating of the Republic of Chile to A1 as well. Moody’s currently has a stable outlook on the Republic of Chile’s sovereign rating and on our rating as well. In March 2019, Japan Credit Rating Agency started covering Santander Chile, assigning an international rating of A+ (stable), after assigning the sovereign rating of the Republic of Chile AA- (stable).   In addition, our ratings may be adversely affected by any downgrade in the ratings of our parent company, Santander Spain. The long-term debt of Santander Spain is currently rated investment grade by the major rating agencies: A3A2 (stable) by Moody’s, A- (positive)A (stable) by S&P and A- (stable) by Fitch Ratings Ltd. (“Fitch”).Fitch.   Any downgrade in our debt credit ratings would likely increase our borrowing costs and require us to post additional collateral or take other actions under some of our derivative contracts, and could limit our access to capital markets and adversely affect our commercial business. For example, a ratings downgrade could adversely affect our ability to sell or market certainsome of our products, engage in certain longer-term and derivatives transactions and retain our customers, particularly customers who need a minimum rating threshold in order to invest. In addition, under the terms of certain of our derivative contracts and other financial commitments we may be required to maintain a minimum credit rating or terminate such contracts or post collateral. Any of these results of a ratings downgrade could reduce our liquidity and have an adverse effect on us, including our operating results and financial condition.   While certain potential impacts of these downgrades are contractual and quantifiable, the full consequences of a credit rating downgrade are inherently uncertain, as they depend upon numerous dynamic, complex and inter-related factors and assumptions, including market conditions at the time of any downgrade, whether any downgrade of our long-term credit rating precipitates downgrades to our short-term credit rating, and assumptions about the potential behaviors of various customers, investors and counterparties. Actual outflows could be higher or lower than the preceding hypothetical examples, depending upon certain factors including which credit rating agency downgrades our credit rating, any management or restructuring actions that could be taken to reduce cash outflows and the potential liquidity impact from loss of unsecured funding (such as from money market funds) or loss of secured funding capacity. Although unsecured and secured funding stresses are included in our stress testing scenarios and a portion of our total liquid assets is held against these risks, a credit rating downgrade could still have a material adverse effect on us.   13 11 Table of Contents  In addition, if we were required to cancel our derivatives contracts with certain counterparties and were unable to replace such contracts, our market risk profile could be altered.   There can be no assurance that the rating agencies will maintain the current ratings or outlooks. Failure to maintain favorable ratings and outlooks could increase our cost of funding and adversely affect interest margins, which could have a material adverse effect on us.   Increased competition, including from non-traditional providers of banking services such as financial technology providers, and industry consolidation may adversely affect our results of operations.   The Chilean market for financial services is highly competitive. We compete with other private sector Chilean and non-Chilean banks, with Banco del Estado de Chile, the principal government-owned sector bank, with department stores and with larger supermarket chains that make consumer loans and sell other financial products to a large portion of the Chilean population. The lower to middle-income segments of the Chilean population and the small- and mid- sized corporate segments have become the target markets of several banks and competition in these segments may increase. In addition, there has been a trend towards consolidation in the Chilean banking industry in recent years, which has created larger and stronger banks with which we must now compete.compete. There can be no assurance that this increased competition will not adversely affect our growth prospects, and therefore our operations.We also face competition from non-bank (such as department stores, insurance companies,cajas de compensaciónandcooperativas) and non-finance competitors (principally department stores, auto-lenders and larger supermarket chains) with respect to some of our credit products, such as credit cards, consumer loans and insurance brokerage. In addition, we face competition from non-bank finance competitors, such as leasing, factoring and automobile finance companies, with respect to credit products, and from mutual funds, pension funds and insurance companies with respect to savings products.   Non-traditional providers of banking services, such as internetInternet based e-commerce providers, mobile telephone companies and internetInternet search engines may offer and/or increase their offerings of financial products and services directly to customers. These non-traditional providers of banking services currently have an advantage over traditional providers because they are not subject to banking regulation. Several of these competitors may have long operating histories, large customer bases, strong brand recognition and significant financial, marketing and other resources. They may adopt more aggressive pricing and rates and devote more resources to technology, infrastructure and marketing. New competitors may enter the market or existing competitors may adjust their services with unique product or service offerings or approaches to providing banking services. If we are unable to successfully compete with current and new competitors, or if we are unable to anticipate and adapt our offerings to changing banking industry trends, including technological changes, our business may be adversely affected. In addition, our failure to effectively anticipate or adapt to emerging technologies or changes in customer behavior, including among younger customers, could delay or prevent our access to new digital-based markets, which would in turn have an adverse effect on our competitive position and business. The rise in customer use Furthermore, the widespread adoption of internetnew technologies, including cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services as we continue to grow our Internet and mobile banking platformscapabilities. Our customers may choose to conduct business or offer products in recent yearsareas that may be considered speculative or risky. Such new technologies could negatively impact our investments in bank premises, equipment and personnel for our branch network. The persistence or acceleration of this shift in demand towards internetInternet and mobile banking may necessitate changes to our retail distribution strategy, which may include closing and/or selling certain branches and restructuring our remaining branches and work force. These actions could lead to losses on these assets and may lead to increased expenditures to renovate, reconfigure or close a number of our remaining branches or to otherwise reform our retail distribution channel. Furthermore, our failure to swiftly and effectively implement such changes to our distribution strategy could have an adverse effect our competitive position.   Increasing competition could also require that we increase ourthe rates offered on deposits or lower the rates we charge on loans, which could also have a material adverse effect on us, including our profitability. It may also negatively affect our business results and prospects by, among other things, limiting our ability to increase our customer base and expand our operations and increasing competition for investment opportunities.   14 12 Table of Contents  If our customer service levels were perceived by the market to be materially below those of our competitor financial institutions, we could lose existing and potential business. If we are not successful in retaining and strengthening customer relationships, we may lose market share, incur losses on some or all of our activities or fail to attract new deposits or retain existing deposits, which could have a material adverse effect on our operating results, financial condition and prospects.   Our ability to maintain our competitive position depends, in part, on the success of new products and services we offer our clients and our ability to continue offering products and services from third parties, and we may not be able to manage various risks we face as we expand our range of products and services that could have a material adverse effect on us.   The success of our operations and our profitability depends, in part, on the success of new products and services we offer our clients and our ability to continue offering products and services from third parties. However, we cannot guarantee that our new products and services will be responsive to client demands, or that they will be successful. In addition, our clients’ needs or desires may change over time, and such changes may render our products and services obsolete, outdated or unattractive and we may not be able to develop new products that meet our clients’ changing needs. Our success is also dependent on our ability to anticipate and leverage new and existing technologies that may have an impact on products and services in the banking industry. Technological changes may further intensify and complicate the competitive landscape and influence client behavior. If we cannot respond in a timely fashion to the changing needs of our clients, we may lose clients, which could in turn materially and adversely affect us.   As we expand the range of our products and services, some of which may be at an early stage of development in the markets of certain regions where we operate, we will be exposed to new and potentially increasingly complex risks and development expenses in those markets, with respect to which our experience and the experience of our partners may not be sufficient. Our employees and our risk management systems may not be sufficient to enable us to properly manage such risks. In addition, the cost of developing products that are not launched is likely to affect our results of operations. Any or all of these factors, individually or collectively, could have a material adverse effect on us.   Our strong position in the credit card market is in part due to our credit card co-branding agreement with Chile’s largest airline. This agreement expireswas renewed in August 2020 andJanuary 2019 for seven more years. Once this agreement expires, no assurance can be given that it will be renewed, which may materially and adversely affect our results of operations and financial condition in the credit card business. While we have successfully increased our customer service levels in recent years, should these levels ever be perceived by the market to be materially below those of our competitor financial institutions, we could lose existing and potential business. If we are not successful in retaining and strengthening customer relationships, we may lose market share, incur losses on some or all of our activities or fail to attract new deposits or retain existing deposits, which could have a material adverse effect on our operating results, financial condition and prospects.   The financial problems faced by our customers could adversely affect us.   Market turmoil and economic recession could materially and adversely affect the liquidity, credit ratings, businesses and/or financial conditions of our borrowers, which could in turn increase our non-performing loan ratios, impair our loan and other financial assets and result in decreased demand for borrowings in general. In addition, our customers may further significantly decrease their risk tolerance to non-deposit investments such as stocks, bonds and mutual funds, which would adversely affect our fee and commission income. We may also be adversely affected by the negative effects of the heightened regulatory environment on our customers due to the high costs associated with regulatory compliance and proceedings. Any of the conditions described above could have a material adverse effect on our business, financial condition and results of operations.   We may generate lower revenues from fee and commission based businesses.   The fees and commissions that we earn from the different banking and other financial services that we provide represent a significant source of our revenues. Our customers may significantly decrease their risk tolerance to non-deposit investments such as stocks, bonds and mutual funds for a number of reasons, including a market downturn, which would adversely affect us, including our fee and commission income.   15  Table of Contents Banco Santander Chile sold its asset management business in 2013 and signed a management service agreement for a 10 year-period with the acquirer of this business in which we sell asset management funds on their behalf. Therefore, even in the absence of a market downturn, below-market performance by the mutual funds of the firm we broker for may result in a reduction in revenue we receive from selling asset management funds and adversely affect our results of operations.   13 Table of Contents Market conditions have resulted, and could result, in material changes to the estimated fair values of our financial assets. Negative fair value adjustments could have a material adverse effect on our operating results, financial condition and prospects.   In the recent past, financial markets have been subject to significant stress resulting in steep falls in perceived or actual financial asset values, particularly due to volatility in global financial markets and the resulting widening of credit spreads. We have material exposures to securities, loans and other investments that are recorded at fair value and are therefore exposed to potential negative fair value adjustments. Asset valuations in future periods, reflecting then-prevailing market conditions, may result in negative changes in the fair values of our financial assets and these may also translate into increased impairments. In addition, the value ultimately realized by us on disposal may be lower than the current fair value. Any of these factors could require us to record negative fair value adjustments, which may have a material adverse effect on our operating results, financial condition or prospects.   In addition, to the extent that fair values are determined using financial valuation models, such values may be inaccurate or subject to change, as the data used by such models may not be available or may become unavailable due to changes in market conditions, particularly for illiquid assets, and particularly in times of economic instability. In such circumstances, our valuation methodologies require us to make assumptions, judgments and estimates in order to establish fair value, and reliable assumptions are difficult to make and are inherently uncertain and valuation models are complex, making them inherently imperfect predictors of actual results. Any consequential impairments or write-downs could have a material adverse effect on our operating results, financial condition and prospects.   The credit quality of our loan portfolio may deteriorate, and our loan loss reserves could be insufficient to cover our actual loan losses, which could have a material adverse effect on us.   Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of our businesses. Non-performing or low credit quality loans have in the past negatively impacted our results of operations and could do so in the future. In particular, the amount of our reported non-performing loans may increase in the future as a result of growth in our total loan portfolio, including as a result of loan portfolios that we may acquire in the future (the credit quality of which may turn out to be worse than we had anticipated), or factors beyond our control, such as adverse changes in the credit quality of our borrowers and counterparties or a general deterioration in economic conditions in Chile or in global economic and political conditions. If we were unable to control the level of our non-performing or poor credit quality loans, this could have a material adverse effect on us.   As of December 31, 2016,2019, our non-performing loans were Ch$564,131671,336 million, and the ratio of our non-performing loans to total loans was 2.1%. As of December 31, 2016,2019, our allowance for loan losses was Ch$790,605896,095 million, and the ratio of our allowance for loan losses to total loans was 2.9%2.7%. For additional information on our asset quality, see “Item 5. Operating and Financial Review and Prospects—C. Selected Statistical Information–Information—Classification of Loan Portfolio Based on the Borrower’s Payment Performance.”   Our current allowance for loan losses may not be adequate to cover an increase in the amount of non-performing loans or any future deterioration in the overall credit quality of our total loan portfolio. Our allowance for loan losses is based on our current assessment of and expectations concerning various factors affecting us, including the quality of our loan portfolio. These factors include, among other things, our borrowers’ financial condition, repayment abilities and repayment intentions, the realizable value of any collateral, the prospects for support from any guarantor, Chile’s economy, government macroeconomic policies, interest rates and the legal and regulatory environment. As the recent global2008 financial crisis has demonstrated, many of these factors are beyond our control. In addition, as these factors evolve, the models we use to determine the appropriate level of allowance for loan losses and other assets require recalibration, which can lead to increased provision expense. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results–Results of Operations for the Years ended December 31, 2016, 20152019, 2018 and 2014—2017—Provision for loan losses, net of recoveries.” 16  Table of Contents   As a result, there is no precise method for predicting loan and credit losses, and we cannot assure you that our allowance for loan losses will be sufficient in the future to cover actual loan and credit losses. If our assessment of and expectations concerning the above-mentioned factors differ from actual developments, if the quality of our total loan portfolio deteriorates, for any reason, including the increase in lending to individuals and small and medium enterprises, the volume increase in the consumer loan portfolio and the introduction of new products, or if the future actual losses exceed our estimates of incurredexpected losses, we may be required to increase our provisions and allowance 14 Table of Contents for loan losses, which may adversely affect us. If we are unable to control or reduce the level of our non-performing or poor credit quality loans, this could have a material adverse effect on us.   The value of the collateral securing our loans may not be sufficient, and we may be unable to realize the full value of the collateral securing our loan portfolio.   The value of the collateral securing our loan portfolio may fluctuate or decline due to factors beyond our control, including macroeconomic factors affecting Chile’s economy. The value of the collateral securing our loan portfolio may be adversely affected by force majeure events, such as natural disasters, particularly in locations where a significant portion of our loan portfolio is composed of real estate loans. Natural disasters such as earthquakes and floods may cause widespread damage, which could impair the asset quality of our loan portfolio and could have an adverse impact on Chile’s economy. The real estate market is particularly vulnerable in the current economic climate and this may affect us, as real estate represents a significant portion of the collateral securing our residential mortgage loan portfolio. We may also not have sufficiently recent information on the value of collateral, which may result in an inaccurate assessment for impairment losses of our loans secured by such collateral. If any of the above were to occur, we may need to make additional provisions to cover actual impairment losses of our loans, which may materially and adversely affect our results of operations and financial condition.   The growth of our loan portfolio may expose us to increased loan losses. Our exposure to individuals and small and mid-sized businesses could lead to higher levels of past due loans, allowances for loan losses and charge-offs.   The further expansion of our loan portfolio (particularly in the consumer, small- and mid-sized companies and real estate segments) can be expected to expose us to a higher level of loan losses and require us to establish higher levels of provisions for loan losses. See “Note 8—Interbank Loans”9—Loans and Account Receivable at Amortized Cost – under IFRS 9” and “Note 9—10—Loans and Accounts Receivables from Customers”Account Receivable at Fair Value through Other Comprehensive Income – under IFRS 9” in our Audited Consolidated Financial Statements for a description and presentation of our loan portfolio as well as “Item 5-Selected5. Operating and Financial Review and Prospects—C. Selected Statistical Information—Loan Portfolio.”   Retail customers represent 68.4%70.2% of the value of the total loan portfolio at amortized cost as of December 31, 2016.2019. As part of our business strategy, we seek to increase lending and other services to retail clients, which are more likely to be adversely affected by downturns in the Chilean economy. In addition, as of December 31, 2016,2019, our residential mortgage loan portfolio totaled Ch$8,619,35511,262,995 million, representing 31.7%34.5% of our total loans. See “Note 9—Loans and Accounts Receivables from Customers”Account Receivable at Amortized Cost –under IFRS 9” in our Audited Consolidated Financial Statements for a description and presentation of our residential mortgage loan portfolio. If the economy and real estate market in Chile experience a significant downturn, this could materially adversely affect the liquidity, businesses and financial conditions of our customers, which may in turn cause us to experience higher levels of past-due loans, thereby resulting in higher provisions for loan losses and subsequent charge-offs. This may materially and adversely affect our asset quality, results of operations and financial condition.   OurThe growth rate of our loan portfolio may not continue to grow at the same rate andbe affected by economic turmoil, maywhich could also lead to a contraction in our loan portfolio.   There can be no assurance that our loan portfolio will continue to grow at similar rates to the historical growth rate described above.rates. A reversal of the rate of growth of the Chilean economy, a slowdown in the growth of customer demand, an increase in market competition or changes in governmental regulations could adversely affect the rate of growth of our loan portfolio and our risk index and, accordingly, increase our required allowances for loan losses. An economicEconomic turmoil could materially adversely affect the liquidity, businesses and financial condition of our customers as well as lead to a general decline in consumer spending and a rise in unemployment. All this could in turn lead to decreased demand for borrowings in general. 17  Table of Contents   Our financial results are constantly exposed to market risk. We are subject to fluctuations in interest rates and other market risks, which may materially and adversely affect us and our profitability.   Market risk refers to the probability of variations in our net interest income or in the market value of our assets and liabilities due to volatility of interest rate, inflation, exchange rate or equity price. Changes in interest rates affect the following areas, among others, of our business:   15 Table of Contents · net interest income;   · the volume of loans originated;   · credit spreads;   · the market value of our securities holdings;   · the value of our loans and deposits; and   · the value of our derivatives transactions.   Interest rates are sensitive to many factors beyond our control, including increased regulation of the financial sector, the reserve policies of the Central Bank, deregulation of the financial sector in Chile, monetary policies and domestic and international economic and political conditions. Variations in interest rates could affect the interest earned on our assets and interest paid on our borrowings, thereby affecting our net interest income, which comprises the majority of our revenue, reducing our growth rate and potentially resulting in losses. Interest rate variations could adversely affect us, including our net interest income, reducing our growth rate or even resulting in losses. When interest rates rise, we may be required to pay higher interest on our floating-rate borrowings while interest earned on our predominately fixed-rate assets may not rise as quickly, which could cause profits to grow at a reduced rate or decline in some parts of our portfolio.   Increases in interest rates may reduce the volume of loans we originate. Sustained high interest rates have historically discouraged customers from borrowing and have resulted in increased delinquencies in outstanding loans and deterioration in the quality of assets. Increases in interest rates may also reduce the propensity of our customers to prepay or refinance fixed-rate loans. Increases in interest rates may reduce the value of our financial assets and may reduce gains or require us to record losses on sales of our loans or securities.   If interest rates decrease, although this is likely to decrease our funding costs, it is likely to adversely impact the income we receive from our investments in securities as well as loans with similar maturities. In addition, we may also experience increased delinquencies in a low interest rate environment when such an environment is accompanied by high unemployment and recessionary conditions.   The market value of a security with a fixed interest rate generally decreases when the prevailing interest rates rise, which may have an adverse effect on our earnings and financial condition. In addition, we may incur costs as we implement strategies to reduce interest rate exposure in the future (which, in turn, will impact our results). The market value of an obligation with a floating interest rate can be adversely affected when interest rates increase, due to a lag in the implementation of repricing terms or an inability to refinance at lower rates.   We are also exposed to foreign exchange rate risk as a result of mismatches between assets and liabilities denominated in different currencies. Fluctuations in the exchange rate between currencies may negatively affect our earnings and value of our assets and securities. Therefore, while the Bank seeks to avoid significant mismatches between assets and liabilities due to foreign currency exposure, from time to time, we may have mismatches. “See Item 11. Quantitative and Qualitative Disclosure About Market Risks—E. Market Risks—Foreign exchange fluctuations.”   We are also exposed to equity price risk in our investments in equity securities in the banking book and in the trading portfolio. The performance of financial markets may cause changes in the value of our investment and trading portfolios. The volatility of world equity markets due to the continued economic uncertainty and sovereign debt crisis has had a particularly strong impact on the financial sector. Continued volatility may affect the value of our investments in equity securities and, depending on their fair value and future recovery expectations, could become a permanent impairment which would be subject to write-offs against our results. To the extent any of these risks materialize, our interest income / (charges) or the market value of our assets and liabilities could be materially adversely affected. 18 16 Table of Contents  Failure to successfully implement and continue to improve our risk management policies, procedures and methods, including our credit risk management system, could materially and adversely affect us, and we may be exposed to unidentified or unanticipated risks.   The management of risk is an integral part of our activities. We seek to monitor and manage our risk exposure through a variety of separate but complementary financial, credit, market, operational, compliance and legal reporting systems.systems, among others. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, such techniques and strategies may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we may fail to identify or anticipate.   Some of our qualitative tools and metrics for managing risk are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to arrive at quantifications of our risk exposures. These qualitative tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses thus could be significantly greater than the historical measures indicate. In addition, our quantified modeling does not take all risks into account. Our more qualitative approach to managing those risks could prove insufficient, exposing us to material unanticipated losses. We could face adverse consequences as a result of decisions, which may lead to actions by management, based on models that are poorly developed, implemented or used, or as a result of the modelled outcome being misunderstood or the use of such information for purposes for which it was not designed. In addition, if existing or potential customers or counterparties believe our risk management is inadequate, they could take their business elsewhere or seek to limit their transactions with us. This could have a material adverse effect on our reputation, operating results, financial condition and prospects.   As a commercial bank, one of the main types of risks inherent in our business is credit risk. For example, an important feature of our credit risk management system is to employ an internal credit rating system to assess the particular risk profile of a customer. As this process involves detailed analyses of the customer, taking into account both quantitative and qualitative factors, it is subject to human or IT systems errors. In exercising their judgment on current or future credit risk behavior of our customers, our employees may not always be able to assign an accurate credit rating, which may result in our exposure to higher credit risks than indicated by our risk rating system.   Failure to effectively implement, consistently followmonitor or continuously refine our credit risk management system may result in an increase in the level of non-performing loans and a higher risk exposure for us, which could have a material adverse effect on us.   The effectiveness of our credit risk management is affected by the quality and scope of information available in Chile.   In assessing customers’ creditworthiness, we rely largely on the credit information available from our own internal databases, the SBIF, Dicom en Capital,FMC, Directorio de Información Comercial (Dicom), a Chilean nationwide credit bureau, and other sources. Due to limitations in the availability of information and the developing information infrastructure in Chile, our assessment of credit risk associated with a particular customer may not be based on complete, accurate or reliable information. In addition, although we have been improving our credit scoring systems to better assess borrowers’ credit risk profiles, we cannot assure you that our credit scoring systems will collect complete or accurate information reflecting the actual behavior of customers or that their credit risk can be assessed correctly. Without complete, accurate and reliable information, we will have to rely on other publicly available resources and our internal resources, which may not be effective. As a result, our ability to effectively manage our credit risk and subsequently our loan loss allowances may be materially adversely affected.   Liquidity and funding risks are inherent in our business and could have a material adverse effect on us.   Liquidity risk is the risk that we either do not have available sufficientenough financial resources to meet our obligations as they fall due or can secure them only at excessive cost. This risk is inherent in any retail and commercial banking business and can be heightened by a number of enterprise-specific factors, including over-reliance on a particular source of funding, changes in credit ratings or market-wide phenomena such as market dislocation. While we implementhave in place liquidity management processes to seek to mitigate and control these risks, unforeseen systemic market factors make it difficult to eliminate completely these risks. Continued constraintsConstraints in the supply of liquidity, including in inter-bank lending, has affected and may materially and adversely affect the cost of 19  Table of Contents funding our business, and extreme liquidity 17 Table of Contents constraints may affect our current operations and our ability to fulfill regulatory liquidity requirements as well as limit growth possibilities.   Increases in prevailing market interest rates and in our credit spreads can significantly increase the cost of our funding. Changes in our creditCredit spreads variations may be influenced by market perceptions of our creditworthiness. Changes to interest rates and our credit spreads occur continuously and may be unpredictable and highly volatile.   We rely, and will continue to rely, primarily on commercial deposits to fund lending activities. The ongoing availability of this type of funding is sensitive to a variety of factors outside our control, such as general economic conditions and the confidence of commercial depositors in the economy and in the financial services industry, and the availability and extent of deposit guarantees, as well as competition for deposits between banks or with other products, such as mutual funds, for deposits.funds. Any of these factors could significantly increase the amount of commercial deposit withdrawals in a short period of time, thereby reducing our ability to access commercial deposit funding on appropriate terms, or at all, in the future. If these circumstances were to arise, this could have a material adverse effect on our operating results, financial condition and prospects.   We anticipate that our customers will continue, in the near future, to make short-term deposits (particularly demand deposits and short-term time deposits), and we intend to maintain our emphasis on the use of banking deposits as a source of funds. As of December 31, 2016, 99.1%2019, 97.7% of our customer deposits had remaining maturities of one year or less, or were payable on demand. A significant portion of our assets have longer maturities, resulting in a mismatch between the maturities of liabilities and the maturities of assets. Historically, one of our principal sources of funds has been time deposits. Time deposits represented 35.5%28.0% and 35.2%33.4% of our total liabilities and equity as of December 31, 20162019 and 2015,2018, respectively. The Chilean time deposit market is concentrated given the importance in size of various large institutional investors such as pension funds and corporations relative to the total size of the economy. As of December 31, 2016,2019, the Bank’s top 20 time deposits represented 29.5%23.4% of total time deposits, or 10.5%6.1% of total liabilities and equity, and totaled U.S.$5.8 4.1 billion. No assurance can be given that future economic stability in the Chilean market will not negatively affect our ability to continue funding our business or to maintain our current levels of funding without incurring increased funding costs, a reduction in the term of funding instruments or the liquidation of certain assets. If this were to happen, we could be materially adversely affected.   The short-term nature of this funding source could cause liquidity problems for us in the future if deposits are not made in the volumes we expect or are not renewed. If a substantial number of our depositors withdraw their demand deposits or do not roll over their time deposits upon maturity, we may be materially and adversely affected.   Central banks have taken extraordinary measures to increase liquidity in the financial markets as a response to the financial crisis. If current facilities were rapidly removed or significantly reduced, this could have an adverse effect on our ability to access liquidity and on our funding costs.   We cannot assure that in the event of a sudden or unexpected shortage of funds in the banking system, we will be able to maintain levels of funding without incurring high funding costs, a reduction in the term of funding instruments or the liquidation of certain assets. If this were to happen, we could be materially adversely affected.   We are subject to regulatory capital and liquidity requirements that could limit our operations, and changes to these requirements may further limit and adversely affect our operating results, financial condition and prospects.   Chilean banks are required by the General Banking Law to maintain regulatory capital of at least 8% of risk-weighted assets, net of required loan loss allowance and deductions, and paid-in capital and reserves (“core capital”) of at least 3% of total assets, net of required loan loss allowances. As we are the result of the merger between two predecessors with a relevant market share in the Chilean market, we are currently required to maintain a minimum regulatory capital to risk-weighted assets ratio of 11%. As of December 31, 2016,2019, the ratio of our regulatory capital to risk-weighted assets, net of loan loss allowance and deductions, was 13.4%12.9% and our core capital ratio was 10.5%10.1%. Certain developments could affect our ability to continue to satisfy the current capital adequacy requirements applicable to us, including:   · the increase of risk-weighted assets as a result of the expansion of our business or regulatory changes;   · the failure to increase our capital correspondingly;   20 18 Table of Contents  · losses resulting from a deterioration in our asset quality;   · declines in the value of our investment instrument portfolio;   · changes in accounting standards;   · changes in provisioning guidelines that are charged directly against our equity or net income; and   · changes in the guidelines regarding the calculation of the capital adequacy ratios of banks in Chile.   Chilean banks are gradually being required to adopt the guidelines set forth under the Basel III Capital Accord with adjustments incorporated by the SBIF once these changes are approved byOn January 19, 2019, the Chilean Congressgovernment passed a law that amends, among others, the General Banking Law (the General Banking Law, as amended, is referred to herein as the “New General Banking Law”) and establishes new capital regulation for banks in 2017 or 2018. Following this approval, Chilean banks will most likely have to fully complyChile in line with Basel III requirementsstandards and the merger of the banking regulator with the FMC, with all current SBIF attributions being transferred to the FMC. The FMC was created by 2018Law 21,000 in 2017 and started operations December 14, 2017 (eliminating the Superintendency of Securities and Insurance as of January 15, 2018). As of June 1, 2019, the SBIF merged into the FMC. Therefore, the FMC has become the sole supervisor for the Chilean financial system overseeing insurance companies, companies with publicly traded securities, credit unions, credit card and prepaid card issuers, and banks. This Commission is responsible for the proper functioning, development and stability of the financial market, facilitating the participation of market agents and defending public faith in the financial markets. To do so, it must maintain a general and systemic vision of the market, considering the interests of investors and policyholders. It is also responsible for ensuring that the persons or 2019. This could resultentities audited, from their initiation until the end of their liquidation, comply with the laws, regulations, statutes and other provisions that govern them. The Commission is in charge of a different levelCouncil, which is composed of five members, who are appointed and are subject to the following rules: · A Commissioner appointed by the President of Chile, of recognized professional or academic prestige in matters related to the financial system, which will have the character of President of the Commission. · Four commissioners appointed by the President of Chile, from among persons of recognized professional or academic prestige in matters related to the financial system, by supreme decree issued through the Ministry of Finance, after ratification of the Senate by the four sevenths of its members in exercise, in session specially convened for that purpose. The Council’s responsibilities include regulation, sanctioning and the definition of general supervision policies. In addition, there is a prosecutor in charge of investigations and the Chairman is responsible for supervision. The FMC acts in coordination with the Chilean Central Bank (Central Bank). Under the New General Banking Law, minimum capital requiredrequirements have increased in terms of amount and quality. Total Regulatory Capital remains at 8% of risk-weighted assets which includes credit, market and operational risk. Minimum Tier 1 capital increased from 4.5% to 6% of risk-weighted assets, of which up to 1.5% may be maintained by us. AccordingAdditional Tier 1 (AT1), either in the form of preferred shares or perpetual bonds, both of which may be convertible to initial estimatescommon equity. The FMC also establishes the conditions and requirements for the issuance of perpetual bonds and preferred equity. Tier 2 capital is now set at 2% of risk-weighted assets. Additional capital demands are incorporated through a Conservation Buffer of 2.5% of risk-weighted assets. The Central Bank may set an additional Counter Cyclical Buffer of up to 2.5% of risk-weighted assets in agreement with the impactFMC. Both buffers must be comprised of market risk oncore capital. The FMC, with agreement from the Central Bank, may impose additional capital requirements for Systemically Important Banks (“SIB”) of between 1-3.5% of risk-weighted assets. Notably, the Central Bank may require: (1) the addition of up to 2% to the core capital to a bank’s total assets ratios; (2) a reduction in the technical reserve requirement trigger from 2.5 times regulatory capital published byto 1.5 times regulatory capital; and/or (3) a reduction in the SBIF for informational purposes only,interbank loan limit to 20% of regulatory capital of any SIB. 19 Table of Contents The FMC will have until December 1, 2020 to establish the weightings. Until then, banks must maintain regulatory capital of at least 8% of risk-weighted assets, net of required loan loss allowance and deductions, and paid-in capital and reserves (“core capital”) of at least 3% of total assets, net of required loan loss allowances. We must maintain a minimum regulatory capital to risk-weighted assets ratio of 11%. As of December 31, 2019 our ratio of regulatory capital to risk-weightedrisk weighted assets net of loan loss allowance and deductions, including an initial estimate of the adjustments for market risk was 12.2% as of December 31, 2016. Additionally, for the purposes of reporting to our parent company, we calculate this ratio using a model approved by the European Central Bank standards. In this scenario our core capital ratio is 12.1% and our regulatory capital ratio is 15.5 % as of December 31, 2016. No assurance can be given that the adoption of the Basel III capital requirements will not have a material impact on our capitalization ratio.13.4%.   The FMC has already started publishing drafts for consultation. On August 12, 2019, the FMC published their first draft for the identification and core capital charge for those banks considered SIBs. There are a total of four factors that are then weighted to reach a market share: 1. Size (weighted at 30%): Includes total assets consolidated in the domestic market. 2. Domestic interconnection (weighted at 30%): Includes assets and liabilities with financial institutions (banks and non-banks) and assets in circulation in the Chilean financial market (equity and fixed income). 3. Domestic substitution (weighted at 20%): Includes the share in local payments, assets in custody, deposits and loans. 4. Complexity (weighted at 20%): Includes factors that could lead to greater difficulties regarding costs and/ or time for the orderly resolution of the Bank. These include notional amount of OTC derivatives, inter-jurisdictional assets and liabilities and available-for-sale assets. The minimum amount of the sum of the factors to be considered systemic is 1000 bp, equivalent to a weighted participation of 10% of all four factors. The core capital additional charge depends on the size of the total factor, as set out in the table below: Systemic Level Range (bp) Core capital additional charge (% of risk-weighted assets) I 1000-1300 1.0%-1.25% II 1300-1800 1.25%-1.75% III 1800-2000 1.75%-2.5% IV >=2000 2.5%-3.5% Given our size and market share, it is likely that we will be classified as a SIB, according to the FMC’s proposed regulation on SIBs. On September 13, 2019, the FMC published the risk weightings for operational risk. In order to estimate the operational risk coefficient, two factors are considered: 1. The business indicator component (BIC): A component that considers interest income, interest earning assets, dividend income, financial transactions, fees, and other operational income and expenses. These are then multiplied by a marginal coefficient. 2. Internal Loss Multiplier (ILM): This component is based on 10 years of historical operational losses, or at least five years in some special cases. On January 27, 2019, the FMC published for consultation the risk weighting model for credit risk. The Basel Committee on Banking Supervision (BCBS) defines credit risk (CR) as the risk that a debtor or bank counterparty does not meet its obligations in accordance with the agreed terms. Credit risk is the most relevant in the Chilean banking industry. The mechanism in force today estimates Risk Weighted Assets by Credit Risk (RWCR) using a methodology based on the Basel I standard. The proposed standard method with Basel III standards is more advanced, since it has categories that depend on the type of counterparty and different risk factors. These categories are not based on accounting criteria, but rather on the underlying risk. Thus, all exposures that have mortgage guarantees, for example mortgage loans for housing, have a different treatment from those exposures not guaranteed by a mortgage. Additionally, in the case of mortgage-backed exposures, there will be different types of treatment depending on the type of real estate and whether the obligations are paid with income generated by the property itself. The new framework will also allow the use of internal methodologies, subject to compliance with minimum requirements. The standard in consultation includes the possibility of reducing RWCR when considering credit risk mitigators, such as compensation agreements, guarantees and other compensations. 20 Table of Contents The New General Banking Law also incorporates Pillar II capital requirements with the objective of assuring an adequate management of risk. The FMC, with at least four votes from the Council of the FMC, will have the power to impose additional regulatory capital demands of up to 4% of risk-weighted assets, either Tier I or Tier II, if it determines that the previous capital levels and buffers are not enough for a particular financial institution. The FMC will be responsible for establishing weightings for risk-weighted assets as a separate regulation based on the implementation of standard models, subject to agreement from the Central Bank. The following table sets forth a comparison between the regulatory capital demands under the previous law, and those under the New General Banking Law: Capital requirements: Basel III, previous GBL and new requirements Capital categories   Previous Law   New General Banking Law (% over risk weighted assets) (1) Total Tier 1 Capital (2+3)   4.5   6 (2) Shareholders’ Equity   4.5   4.5 (3) Additional Tier 1 Capital (AT1)   —   1.5 (4) Tier 2 Capital   3.5   2 (5) Total Regulatory Capital (1+4)   8   8 (6) Conservation Buffer   2% over regulatory capital in order to be classified in Category A solvency.   2.5 (7) Total Equity Requirement (5+6)   8   10.5 (8) Counter Cyclical Buffer   —   up to 2.5 (9) SIB* Requirement   Up to 6% in case of a merger   Between 1 - 3.5 * Systemically Important Banks The regulations for calculating RWA under the new guidelines must be implemented by December 1, 2020. We may also be required to raise additional capital in the future in order to maintain our capital adequacy ratios above the minimum required levels. Our ability to raise additional capital may be limited by numerous factors, including: our future financial condition, results of operations and cash flows; any necessary government regulatory approvals; our credit ratings; general market conditions for capital raising activities by commercial banks and other financial institutions; and domestic and international economic, political and other conditions. If we require additional capital in the future, we cannot assure you that we will be able to obtain such capital on favorable terms, in a timely manner or at all. Furthermore, the SBIFFMC may increase the minimum capital adequacy requirements applicable to us. Accordingly, although we currently meet the applicable capital adequacy requirements, we may face difficulties in meeting these requirements in the future. If we fail to meet the capital adequacy requirements, we may be required to take corrective actions. These measures could materially and adversely affect our business reputation, financial condition and results of operations. In addition, if we are unable to raise sufficientenough capital in a timely manner, the growth of our loan portfolio and other risk-weighted assets may be restricted, and we may face significant challenges in implementing our business strategy. As a result, our prospects, results of operations and financial condition could be materially and adversely affected.   The SBIF (now the FMC) and the Central Bank published new liquidity standards in 2015 and ratios that must be implemented and calculated by all banks. These will eventually replace the current regulatory limits imposed by the SBIFFMC and the Central Bank described above. These new liquidity standards are in line with those established in Basel III. The most important liquidity ratios that will eventually be adopted by Chilean banks are:   · Liability concentration per institutional and wholesale counterparty. Banks will have to calculate the percentage of their liabilities coming from institutional and wholesale counterparties, including ratios regarding renovation, renewals, restructurings, maturity and product concentration of these counterparties.   · Liquidity coverage ratio (LCR), which measures the percentage of liquid Assets over net cash outflows. The new guidelines also define liquid assets and the formulas for calculating net cash outflows.   21 Table of Contents · Net Stable Funding Ratio (NSFR) which will measure a bank’s available stable funding relative to its required stable funding. Both concepts are also defined in the new regulations.   Beginning on March 30, 2016, banks began reporting these ratios to the Central Bank and the SBIF. The evolution of these indicators will be monitored for a 12 month period and adjustments to the required ratios could be made. The final limits and results should begin to be published in the first half of 2017. The initial limits banks must meet in order to comply with these new ratios have not been published yet. For this reason, we cannot yet determine the effect thatFinally, the implementation of these models willinternationally accepted liquidity ratios might require changes in business practices that affect our profitability. The LCR is a liquidity standard that measures if banks have onenough high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. At December 31, 2019, our business. Such effectLCR ratio was 143% under Chilean regulations, which is above the 60% minimum requirement for 2019. The net stable funding ratio (NSFR) provides a sustainable maturity structure of assets and liabilities such that banks maintain a stable funding profile in relation to their activities. The Chilean regulator has not yet defined a calendar of implementation for the local NSFR. This could be material and adverse if it materially increasesincrease the liquidity we are required to maintain.maintain on our balance sheet. 21  Table of Contents   We are subject to regulatory risk, or the risk of not being able to meet all of the applicable regulatory requirements and guidelines.   As a financial institution, we are subject to extensive regulation, inspections, examinations, inquiries, audits and other regulatory requirements by Chilean regulatory authorities, which materially affect our businesses. We cannot assure you that we will be able to meet all of the applicable regulatory requirements and guidelines, or that we will not be subject to sanctions, fines, restrictions on our business or other penalties in the future as a result of noncompliance. If sanctions, fines, restrictions on our business or other penalties are imposed on us for failure to comply with applicable requirements, guidelines or regulations, our business, financial condition, results of operations and our reputation and ability to engage in business may be materially and adversely affected.   In their supervisory roles, the regulators seek to maintain the safety and soundness of financial institutions with the aim of strengthening the protection of customers and the financial system. The supervisors’ continuing supervision of financial institutions is conducted through a variety of regulatory tools, including the collection of information by way of prudential returns, reports obtained from skilled persons, visits to firms and regular meetings with management to discuss issues such as performance, risk management and strategy. In general, these regulators have a more outcome-focused regulatory approach that involves more proactive enforcement and more punitive penalties for infringement. As a result, we face increased supervisory scrutiny (resulting in increasing internal compliance costs and supervision fees), and in the event of a breach of our regulatory obligations we are likely to face more stringent regulatory fines. Changes in regulations may also cause us to face increased compliance costs and limitations on our ability to pursue certain business opportunities and provide certain products and services. As some of the banking laws and regulations have been recently adopted, the manner in whichway those laws and related regulations are applied to the operations of financial institutions is still evolving. Moreover, to the extent these recently adopted regulations are implemented inconsistently in the various jurisdictions in which we operate, itwe may face higher compliance costs. No assurance can be given generally that laws or regulations will be adopted, enforced or interpreted in a manner that will not have a material adverse effect on our business and results of operations.   Modifications to reserve requirements may affect our business.   Deposits are subject to a reserve requirement of 9.0% for demand deposits and 3.6% for time deposits (with terms of less than one year). The Central Bank has statutory authority to require banks to maintain reserves of up to an average of 40.0% for demand deposits and up to 20.0% for time deposits (irrespective, in each case, of the currency in which these deposits are denominated) to implement monetary policy. In addition, to the extent that the aggregate amount of the following types of liabilities exceeds 2.5 times the amount of a bank’s regulatory capital, a bank must maintain a 100% reserve against them: demand deposits, deposits in checking accounts, obligations payable on sight incurred in the ordinary course of business and, in general, all deposits unconditionally payable immediately. IfThe New General Banking Law also states that the FMC, with the approval from the Central Bank, weremay lower this threshold from 2.5 times to increase reserve requirements, this1.5 times a bank’s regulatory capital for a bank considered to be a SIB. This could lead to lower loan growth and have a negative effect on our business.   22 Table of Contents Our business could be affected if its capital is not managed effectively or if changes limiting our ability to manage our capital position are adopted.   Effective management of our capital position is important to our ability to operate our business, to continue to grow organically and to pursue our business strategy. However, in response to the global financial crisis, a number of changes to the regulatory capital framework have been adopted or continue to be considered. As these and other changes are implemented or future changes are considered or adopted that limit our ability to manage our balance sheet and capital resources effectively or to access funding on commercially acceptable terms, we may experience a material adverse effect on our financial condition and regulatory capital position.   Changes to the pension fund system may affect the funding mix of the Bank   The current pension fund system dates from the 1980’s1980s when pension savingpensions went from being state-funded to private fundsprivately-funded, which requirerequires Chilean employees to set aside 10% of their wages. While the system is widely regarded as a success, the demographics of the Chilean society have changed and there have been some modifications to the system. As of December 31, 2016,2019, the Chilean pension fund management companies (Administradora de Fondos de Pensión, or “AFPs”) had US$6,270U.S.$7,409 million invested in the Bank via equity, deposits and fixed income. ThereThe demographics of Chilean society have changed resulting in needs to modify this system. In January 2020, the Chilean government presented a proposal for pension reform to Congress for discussion. These changes include increasing minimum pensions and introducing a social insurance scheme for events such as longevity. The amount each worker must set aside is no assurance that inalso expected to increase from the future there willcurrent 10% of wages to 16%. The additional 6% would be gradually introduced over 12 years and would be a cost of the employer, thus potentially raising personnel expenses. The additional 6% would not be significant reforms that may affect our funding mix which may have anmanaged by the AFPs, but by a new government pension entity. Although the bill is currently being discussed and widely expected to be approved, we are unable to predict the final content of the law. The potential adverse effect of the proposed law on our financial condition and results of operations.operations cannot yet be ascertained. 22  Table of Contents   The legal restrictions on the exposure of Chilean pension funds to different asset classes may affect our access to funding.   Chilean regulations impose a series of restrictions on how Chilean pension fund management companies (Administradora de Fondos de Pensión, or “AFPs”) may allocate their assets. In the particular case of financial issuers’ there are three restrictions, each involving different assets and different limits determined by the amount of assets in each fund and the market and book value of the issuer’s equity. As a consequence, limits vary within funds of AFPs and issuers. According to our estimates in December 2016,2019, the AFPs still had the possibility of being able to invest another US$9,338U.S.$11,975 million in the Bank via equity, deposits and fixed income. If the exposure of any AFP to Santander-Chile exceeds the regulatory limits or the regulatory limits are reduced, we would need to seek alternative sources of funding, which could be more expensive and, as a consequence, may have a material adverse effect on our financial condition and results of operations.   Our financial statements are based in part on assumptions and estimates which, if inaccurate, could cause material misstatement of the results of our operations and financial position.   The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts which differ from those estimates. Estimates, judgments and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. The accounting policies deemed critical to our results and financial position, based upon materiality and significant judgments and estimates, include impairment of loans, valuation of financial instruments, valuation of derivatives, impairment of available-for-sale financial assets, deferred tax assets and liabilities and provision forprovisions -contingent liabilities.   If the judgment, estimates and assumptions we use in preparing our consolidated financial statements are subsequently found to be incorrect, there could be a material effect on our results of operations and a corresponding effect on our funding requirements and capital ratios.   23 Table of Contents Changes in accounting standards could impact reported earnings.   The accounting standard setters and other regulatory bodies periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. For example, IFRS 9 will bewas adopted as of January 1, 2018, and will establishestablishing a new impairment model of expected loss and make changes to the classification and measurement requirements for financial assets.assets and liabilities. In addition, the Bank adopted IFRS 16 will be adopted as of January 1, 2019, and will specifyrequiring new standards for recognition, measurement, presentation and disclosure of leases. This led to approximately Ch$154,284 million of assets for the right of use and lease liabilities for the same amount as of the date of adoption of IFRS 16. Changes made to accounting standards can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. For further information about developments in financial accounting and reporting standards, see Note 1 to our Audited Consolidated Financial Statements.   We are subject to review by taxing authorities, and an incorrect interpretation by us of tax laws and regulations may have a material adverse effect on us.   The preparation of our tax returns requires the use of estimates and interpretations of complex tax laws and regulations and is subject to review by taxing authorities.   We are subject to the income tax laws of Chile and certain foreign countries. These tax laws are complex and subject to different interpretations by the taxpayer and relevant governmental taxing authorities, which are sometimes subject to prolonged evaluation periods until a final resolution is reached. In establishing a provision for income tax expense and filing returns, we must make judgments and interpretations about the application of these inherently complex tax laws.   If the judgment, estimates and assumptions we use in preparing our tax returns are subsequently found to be incorrect, there could be a material adverse effect on our results of operations. In some jurisdictions, the interpretations of the taxing authorities are unpredictable and frequently involve litigation, which introduces further uncertainty and risk as to tax expense.   23  Table of Contents Disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud.   Disclosure controls and procedures, including internal controls, over financial reporting are designed to provide reasonable assurance that information required to be disclosed by the company in reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.   These disclosure controls and procedures have inherent limitations, which include the possibility that judgments in decision-making can be faulty and that breakdowns can occur because of errors or mistakes. Additionally, controls can be circumvented by any unauthorized override of the controls. Consequently, our businesses are exposed to risk from potential non-compliance with policies, employee misconduct or negligence and fraud, which could result in regulatory sanctions, civil claims and serious reputational or financial harm. In recent years, a number of multinational financial institutions have suffered material losses due to the actions of ‘rogue traders’ or other employees. It is not always possible to deter employee misconduct and the precautions we take to prevent and detect this activity may not always be effective. Accordingly, because of the inherent limitations in the control system, misstatements due to error or fraud may occur and not be detected.   We engage in transactions with related parties that others may not consider to be on an arm’s-length basis.   We and our affiliates have entered into a number of services agreements pursuant to which we render services, such as administrative, accounting, finance, treasury, legal services and others.   Chilean law applicable to public companies and financial groups and institutions and our bylawsby-laws provide for several procedures designed to ensure that the transactions entered into with or among our financial subsidiaries and/or affiliates do not deviate from prevailing market conditions for those types of transactions, including the requirement that our board of directors approve such transactions. Furthermore, all significant related party 24 Table of Contents transactions must be approved by the Audit Committee and the Board. These significant transactions are also reported in our annual shareholders meeting. Please see Note 3436 of our Audited Consolidated Financial Statements and “Item 7. Major Shareholders and Related Party Transactions.”   We are likely to continue to engage in transactions with our affiliates. Future conflicts of interests between us and any of affiliates, or among our affiliates, may arise, which conflicts are not required to be and may not be resolved in our favor.   We may not effectively manage risks associated with the replacement of benchmark indices. Interest rate, equity, foreign exchange rate and other types of indices which are deemed to be “benchmarks,” including those in widespread and long-standing use, have been the subject of ongoing international, national and other regulatory scrutiny and initiatives and proposals for reform. Some of these reforms are already effective while others are still to be implemented or are under consideration. These reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences, which cannot be fully anticipated. Any of the benchmark reforms which have been proposed or implemented, or the general increased regulatory scrutiny of benchmarks, could also increase the costs and risks of administering or otherwise participating in the setting of benchmarks and complying with regulations or requirements relating to benchmarks. Such factors may have the effect of discouraging market participants from continuing to administer or contribute to certain benchmarks, trigger changes in the rules or methodologies used in certain benchmarks or lead to the disappearance of certain benchmarks. Any of these developments, and any future initiatives to regulate, reform or change the administration of benchmarks, could result in adverse consequences to the return on, value of and market for loans, mortgages, securities, derivatives and other financial instruments whose returns are linked to any such benchmark, including those issued, funded or held by Banco Santander. Various regulators, industry bodies and other market participants in the U.S. and other countries are engaged in initiatives to develop, introduce and encourage the use of alternative rates to replace certain benchmarks. There is no assurance that these new rates will be accepted or widely used by market participants, or that the characteristics of any of these new rates will be similar to, or produce the economic equivalent of, the benchmarks that they seek to replace. If a particular benchmark were to be discontinued and an alternative rate has not been successfully introduced to replace that benchmark, this could result in widespread dislocation in the financial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities, all of which could have adverse effects on Banco Santander’s results of operations. In addition, the transition of a particular benchmark to a replacement rate could affect hedge accounting relationships between financial instruments linked to that benchmark and any related derivatives, which could adversely affect Banco Santander’s results. On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates the London interbank offered rate (“LIBOR”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot be guaranteed after 2021. Therefore, after 2021 LIBOR may cease to be calculated. The Bank of England and the FCA are working with market participants to catalyze a transition to using the Sterling Overnight Index Average (Sonia). In addition, the European Money Market Institute (EMMI) announced the discontinuation of the EONIA after January 3, 2022 and that from October 2, 2019 until its total discontinuation it will be replaced by the €STR plus a spread of 8.5 basis points. Many unresolved issues remain, such as the timing of the successor benchmarks, introduction and the transition of a particular benchmark to a replacement rate, which could result in wide spread dislocation in the financial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities. These and other reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences which cannot be fully anticipated which introduces a number of risks for the Group. These risks include (i) legal risks arising from potential changes required to documentation for new and existing transactions; (ii) risk management, financial and accounting risks arising from market risk models and from valuation, hedging, discontinuation and recognition of financial instruments linked to benchmark rates; (iii) business risk that the revenues of products linked to LIBOR (in particular those indices that will be replaced) decrease; (iv) 25 Table of Contents pricing risks arising from how changes to benchmark indices could impact pricing mechanisms on some instruments; (v) operational risks arising from the potential requirement to adapt IT systems, trade reporting infrastructure and operational processes; (vi) conduct risks arising from the potential impact of communication with customers and engagement during the transition period, and (vii) litigation risks regarding our existing products and services, which could adversely impact our profitability. The replacement benchmarks and their transition path have been defined, but the mechanisms for implementation are under development. As of December 31, 2019, the Bank had contracts with a maturity after 2021 that used IBOR as a benchmark. Of these, the majority are linked to the USD LIBOR, including derivatives, loans, and master agreements (e.g. ISDAs, CSAs). Accordingly, it is not currently possible to determine whether, or to what extent, any such changes would affect us. However, the implementation of alternative benchmark rates may have a material adverse effect on our business, results of operations, financial condition and prospects. We may also be adversely affected if the change restricts our ability to provide products and services or if it necessitates the development of additional information technology systems. Any failure to effectively improve or upgrade our information technology infrastructure and management information systems in a timely manner or any failure to successfully implement new IT regulations could have a material adverse effect on us.   Our ability to remain competitive depends in part on our ability to upgrade our information technology on a timely and cost-effective basis. We must continually make significant investments and improvements in our information technology infrastructure in order to remain competitive. We cannot assure you that in the future we will be able to maintain the level of capital expenditures necessary to support the improvement or upgrading of our information technology infrastructure. Any failure to effectively improve or upgrade our information technology infrastructure and management information systems in a timely manner could have a material adverse effect on us. In addition, several new regulations are defining how to manage cyber risks and technology risks, how to report a data breach, and how the supervisory process should work, among others. These regulations are quite fragmented in terms of definitions, scope and applicability. A failure to successfully implement all or some of these new global and local regulations, that in some cases have severe sanctions regimes, could have a material adverse effect on us.   Risks relating to data collection, processing and storage systems and security are inherent in our business.   Like other financial institutions, we manage and hold confidential personal information of customers in the conduct of our banking operations, as well as a large number of assets. Accordingly, our business depends on the ability to process a large number of transactions efficiently and accurately, and on our ability to rely on our digital technologies, computer and email services, software and networks, as well as on the secure processing, storage and transmission of confidential sensitive personal data and other information using our computer systems and networks. The proper functioning of financial control, accounting or other data collection and processing systems is critical to our businesses and to our ability to compete effectively. Losses can result from inadequate personnel, inadequate or failed internal control processes and systems, or from external events that interrupt normal business operations. We also face the risk that the design of our controls and procedures prove to be inadequate or are circumvented such that our data and/or client records are incomplete, not recoverable or not securely stored. Although we work with our clients, vendors, service providers, counterparties and other third parties to develop secure data and information processing, storage and transmission capabilities to prevent against information security risk, we routinely manage 24  Table of Contents personal, confidential and proprietary information by electronic means, and we may be the target of attempted cyber-attack. If we cannot maintain an effective and secure electronic data and information, management and processing system or we fail to maintain complete physical and electronic records, this could result in regulatory sanctions and serious reputational or financial harm to us.   We take protective measures and continuously monitor and develop our systems to protect our technology infrastructure, data and information from misappropriation or corruption, but our systems, software and networks nevertheless may be vulnerable to unauthorized access, misuse, computer viruses or other malicious code and other events that could have a security impact. An interception, misuse or mishandling of personal, confidential or proprietary information sent to or received from a client, vendor, service provider, counterparty or third party could result in legal liability, regulatory action, reputational harm and financial loss. There can be no absolute assurance that we will not suffer material losses from operational risk in the future, including those relating to any security breaches.   26 Table of Contents We have seen in recent years computer systems of companies and organizations being targeted, not only by cyber criminals, but also by activists and rogue states. We have been and continue to be subject to a range of cyber-attacks, such as denial of service, malware and phishing. Cyber-attacks could give rise to the loss of significant amounts of customer data and other sensitive information, as well as significant levels of liquid assets (including cash). In addition, cyber-attacks could disrupt our electronic systems used to service our customers. As attempted attacks continue to evolve in scope and sophistication, we may incur significant costs in order to modify or enhance our protective measures against such attacks, or to investigate or remediate any vulnerability or resulting breach, or in communicating cyber-attacks to our customers. If we fail to effectively manage our cyber security risk, e.g. by failing to update our systems and processes in response to new threats, this could harm our reputation and adversely affect our operating results, financial condition and prospects through the payment of customer compensation, regulatory penalties and fines and/or through the loss of assets. In addition, we may also be impacted by cyber-attacks against national critical infrastructures of the countries where we operate; for example, the telecommunications network. Our information technology systems are dependent on such national critical infrastructure and any cyber-attack against such critical infrastructure could negatively affect our ability to service our customers. As we do not operate such national critical infrastructure, we have limited ability to protect our information technology systems from the adverse effects of such a cyber-attack. For further information see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—2. Non-financial risks—Cyber-security and data security plans.”   Although we have procedures and controls to safeguard personal information in our possession, unauthorized disclosures could subject us to legal actions and administrative sanctions as well as damages and reputational harm that could materially and adversely affect our operating results, financial condition and prospects. Further, our business is exposed to risk from potential non-compliance with policies, employee misconduct or negligence and fraud, which could result in regulatory sanctions and serious reputational or financial harm. It is not always possible to deter or prevent employee misconduct, and the precautions we take to detect and prevent this activity may not always be effective. In addition, we may be required to report events related to information security issues (including any cyber security issues), events where customer information may be compromised, unauthorized access and other security breaches, to the relevant regulatory authorities. Any material disruption or slowdown of our systems could cause information, including data related to customer requests, to be lost or to be delivered to our clients with delays or errors, which could reduce demand for our services and products, could produce customer claims and could materially and adversely affect us.   The Chilean Congress is currently discussing modifications to Law 20,009, which defines the scope of responsibility for users and issuers when a client’s cards and/or online payment or transfer user information are lost, stolen or fraudulently used (including through hacking and cloning). Cardholders are obligated to notify the bank through an easily accessible channel when their cards have been lost, stolen, or fraudulently used. Some members of Congress are proposing that for those transactions realized prior to the notice of loss or theft of a credit card, the cardholder must also notify the issuer of all of the unauthorized transactions in the same notice or up to five business days following the original notification. In cases of fraud, the user will not be responsible for the transactions that they did not authorize and which were made prior to the fraud notification within the 30 calendar days following the issuance of said notice. In these cases, some members of Congress are seeking that the issuer be responsible for assuming these costs or must demonstrate that the transaction was in fact authorized by the owner or user of the credit card. The law also considers increasing fines and jail time for those committing theft or fraud with credit cards, which must be legally pursued by the card issuer. In light of these developments, we are trying to limit the exposure of our clients to credit card fraud through education, insurance coverage, marketing campaigns, daily transfer amount limits, chip technology, improved ATM software, and other technological improvements, but we cannot assure that this law will not increase the financial costs related to cybercrime and credit card fraud. We rely on third parties and affiliates for important products and services.   Third party vendors and certain affiliated companies provide key components of our business infrastructure such as loan and deposit servicing systems, back office and business process support, information technology production and support, internet connections and network access. Relying on these third parties and affiliated companies can be a source of operational and regulatory risk to us, including with respect to security breaches affecting such parties. We are also subject to risk with respect to security breaches affecting the vendors and other 27 Table of Contents parties that interact with these service providers. As our interconnectivity with these third parties and affiliated companies increases, we increasingly face the risk of operational failure with respect to their systems. We may be required to take steps to protect the integrity of our operational systems, thereby increasing our operational costs and potentially decreasing customer satisfaction. In addition, any problems caused by these third parties or affiliated companies, including as a result of them not providing us their services for any reason, or performing their services 25  Table of Contents poorly, could adversely affect our ability to deliver products and services to customers and otherwise conduct our business, which could lead to reputational damage and regulatory investigations and intervention. Replacing these third party vendors could also entail significant delays and expense. Further, the operational and regulatory risk we face as a result of these arrangements may be increased to the extent that we restructure such arrangements. Any restructuring could involve significant expense to us and entail significant delivery and execution risk which could have a material adverse effect on our business, operations and financial condition.   Damage to our reputation could cause harm to our business prospects.   Maintaining a positive reputation is critical to protect our brand, attract and retain customers, investors and employees and conduct business transactions with counterparties. Damage to our reputation can therefore cause significant harm to our business and prospects. Harm to our reputation can arise from numerous sources, including, among others, employee misconduct, including the possibility of fraud perpetrated by our employees, litigation or regulatory enforcement, failure to deliver minimum standards of service and quality, compliance failures, unethical behavior, and the activities of customers and counterparties. Further, negative publicity regarding us may result in harm to our prospects.   Actions by the financial services industry generally or by certain members of, or individuals in, the industry can also affect our reputation. For example, the role played by financial services firms in the financial crisis and the seeming shift toward increasing regulatory supervision and enforcement has caused public perception of us and others in the financial services industry to decline.   We could suffer significant reputational harm if we fail to identify and manage potential conflicts of interest properly. The failure, or perceived failure, to adequately address conflicts of interest could affect the willingness of clients to deal with us, or give rise to litigation or enforcement actions against us. Therefore, there can be no assurance that conflicts of interest will not arise in the future that could cause material harm to us.   We may be the subject of misinformation and misrepresentations deliberately propagated to harm our reputation or for other deceitful purposes, or by profiteering short sellers seeking to gain an illegal market advantage by spreading false information about us. There can be no assurance that we will effectively neutralize and contain a false information that may be propagated regarding the business, which could have an adverse effect on our operating results, financial condition and prospects. We rely on recruiting, retaining and developing appropriate senior management and skilled personnel.   Our continued success depends in part on the continued service of key members of our senior executive team and other key employees. The ability to continue to attract, train, motivate and retain highly qualified and talented professionals is a key element of our strategy. The successful implementation of our strategy and culture depends on the availability of skilled and appropriate management, both at our head office and at each of our business units. If we or one of our business units or other functions fails to staff its operations appropriately or loses one or more of its key senior executives or other key employees and fails to replace them in a satisfactory and timely manner, our business, financial condition and results of operations, including control and operational risks, may be adversely affected.   In addition, the financial industry has and may continue to experience more stringent regulation of employee compensation, which could have an adverse effect on our ability to hire or retain the most qualified employees. If we fail or are unable to attract and appropriately train, motivate and retain qualified professionals, our business may also be adversely affected.   28 Table of Contents We may not be able to detect or prevent money laundering and other financial crime activities fully or on a timely basis, which could expose us to additional liability and could have a material adverse effect on us.   We are required to comply with applicable anti-money laundering (“AML”), anti-terrorism, anti-bribery and corruption, sanctions and other laws and regulations applicable to us. These laws and regulations require us, among other things, to conduct full customer due diligence (including sanctions and politically-exposed person screening), keep our customer, account and transaction information up to date and have implemented effective financial crime policies and procedures detailing what is required from those responsible. We are also required to conduct AML training for our employees and to report suspicious transactions and activity to appropriate law enforcement following full investigation by our AML team.   Financial crime has become the subject of enhanced regulatory scrutiny and supervision by regulators globally. AML, anti-bribery and corruption and sanctions laws and regulations are increasingly complex and detaileddetailed. The Basel Committee is now introducing guidelines to strengthen the interaction and have become the subject of enhanced regulatory supervision, requiring improvedcooperation between prudential and AML/CFT supervisors. Compliance with these laws and regulations requires automated systems, sophisticated monitoring and skilled compliance personnel. 26  Table of Contents   We have developed policies and procedures aimed at detecting and preventing the use of our banking network for money laundering and other financial crime related activities. However, emerging technologies, such as cryptocurrencies and blockchain, could limit our ability to track the movement of funds. Our ability to comply with the legal requirements depends on our ability to improve detection and reporting capabilities and reduce variation in control processes and oversight accountability. These require implementation and embedding within our business effective controls and monitoring, which in turn requires on-going changes to systems and operational activities. Financial crime is continually evolving and, as noted is subject to increasingly stringent regulatory oversight and focus. This requires proactive and adaptable responses from us so that we are able to deter threats and criminality effectively. Even known threats can never be fully eliminated, and there will be instances where we may be used by other parties to engage in money laundering and other illegal or improper activities. In addition, we rely heavily on our employees to assist us by spotting such activities and reporting them, and our employees have varying degrees of experience in recognizing criminal tactics and understanding the level of sophistication of criminal organizations. Where we outsource any of our customer due diligence, customer screening or anti financial crime operations, we remain responsible and accountable for full compliance and any breaches. If we are unable to apply the necessary scrutiny and oversight of third parties to whom we outsource certain tasks and processes, there remains a risk of regulatory breach.   If we are unable to fully comply with applicable laws, regulations and expectations, our regulators and relevant law enforcement agencies have the ability and authority to impose significant fines and other penalties on us, including requiring a complete review of our business systems, day-to-day supervision by external consultants and ultimately the revocation of our banking license.   The reputational damage to our business and global brand would be severe if we were found to have breached AML, anti-bribery and corruption or sanctions requirements. Our reputation could also suffer if we are unable to protect our customers’ bank products and services from being used by criminals for illegal or improper purposes.   In addition, while we review our relevant counterparties’ internal policies and procedures with respect to such matters, we, to a large degree, rely upon our relevant counterparties to maintain and properly apply their own appropriate compliance procedures and internal policies. Such measures, procedures and internal policies may not be completely effective in preventing third parties from using our (and our relevant counterparties’) services as a conduit for illicit purposes (including illegal cash operations) without our (and our relevant counterparties’) knowledge. If we are associated with, or even accused of being associateassociated with, breaches of AML, anti-terrorism or sanctions requirements, our reputation could suffer and/or we could become subject to fines, sanctions and/or legal enforcement (including being added to any “black lists” that would prohibit certain parties from engaging in transactions with us), any one of which could have a material adverse effect on our operating results, financial condition and prospects.   Any such risks could have a material adverse effect on our operating results, financial condition and prospects.   29 Table of Contents We are exposed to risk of loss from legal and regulatory proceedings.   We face risk of loss from legal and regulatory proceedings, including tax proceedings, that could subject us to monetary judgments, regulatory enforcement actions, fines and penalties. The current regulatory and tax enforcement environment in the jurisdictions in which we operate reflects an increased supervisory focus on enforcement, combined with uncertainty about the evolution of the regulatory regime, and may lead to material operational and compliance costs.   We are from time to time subject to certain regulatory investigations and civil and tax claims and party to certain legal proceedings incidental to the normal course of our business, including in connection with conflicts of interest, lending activities, relationships with our employees and other commercial or tax matters. In view of the inherent difficulty of predicting the outcome of legal matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories, involve a large number of parties or are in the early stages of investigation, discovery, we cannot state with confidencecertainty what the eventual outcome of these pending matters will be or what the eventual loss, fines or penalties related to each pending matter may be. The amount of our reserves in respect of these matters is substantially less than the total amount of the claims asserted against us and in light of the uncertainties involved in such claims and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by us. As a result, the outcome of a particular matter may be material to our operating results for a particular period. 27  Table At December 31, 2019, we had provisions for legal contingencies of Contents Ch$1,274 million.   We are subject to market, operational and other related risks associated with our derivative transactions that could have a material adverse effect on us.   We enter into derivative transactions for trading purposes as well as for hedging purposes. We are subject to market, credit and operational risks associated with these transactions, including basis risk (the risk of loss associated with variations in the spread between the asset yield and the funding and/or hedge cost) and credit or default risk (the risk of insolvency or other inability of the counterparty to a particular transaction to perform its obligations thereunder, including providing sufficient collateral).   Market practices and documentation for derivative transactions in Chile may differ from those in other countries. For example, documentation may not incorporate terms and conditions of derivatives transactions as commonly understood in other countries. In addition, the execution and performance of these transactions depend on our ability to maintain adequate control and administration systems. Moreover, our ability to adequately monitor, analyze and report derivative transactions continues to depend, largely, on our information technology systems. These factors further increase the risks associated with these transactions and could have a material adverse effect on us.   We are subject to counterparty risk in our banking business.   We are exposed to counterparty risk in addition to credit risks associated with lending activities. Counterparty risk may arise from, for example, investing in securities of third parties, entering into derivative contracts under which counterparties have obligations to make payments to us or executing securities, futures or currency or commodity trades from proprietary trading activities that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, clearing houses or other financial intermediaries.   We routinely transact with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual funds, hedge funds and other institutional clients. Defaults by, and even rumors or questions about the solvency of, certain financial institutions and the financial services industry generally have led to market-wide liquidity problems and could lead to losses or defaults by other institutions. Many of the routine transactions we enter into expose us to significant credit risk in the event of default by one of our significant counterparties.   Our loan and investment portfolios are subject to risk of prepayment, which could have a material adverse effect on us.   Our fixed rate loan and investment portfolios are subject to prepayment risk, which results from the ability of a borrower or issuer to pay a debt obligation prior to maturity. Generally, in a declining interest rate environment, 30 Table of Contents prepayment activity increases, which reduces the weighted average lives of our earning assets and could have a material adverse effect on us. We would also be required to amortize net premiums into income over a shorter period of time, thereby reducing the corresponding asset yield and net interest income. Prepayment risk also has a significant adverse impact on credit card and collateralized mortgage loans, since prepayments could shorten the weighted average life of these assets, which may result in a mismatch in our funding obligations and reinvestment at lower yields. Prepayment risk is inherent to our commercial activity and an increase in prepayments or a reduction in prepayment fees could have a material adverse effect on us. The current administration is presently analyzing an initiative to reduce or limit prepayment fees and the Bank does not yet have an estimate of the potential impact of such initiatives. We cannot assure you that this change or any future regulatory changes related to prepayment fees will not have a material impact on our business.   CurrentA significant deterioration in economic conditions may make it more difficult for us to continue funding our business on favorable terms with institutional investors.   Large denominations of funding from time deposits, interbank loans or commercial paper from institutional investors may, under some circumstances, be a less stable source of funding than savings and bonds, such as during periods of significant changes in market interest rates for these types of deposit products and any resulting increased competition for such funds. As of December 31, 20162019, short-term funding from institutional investors as defined by our Asset and Liability Committee totaled US$ 3.7U.S.$3.0 billion or 6.7%4.4% of total liabilities and equity. Although our results of operations and financial position have not suffered a significant impact as a consequence of the credit market instability in the U.S.,Significant future market instability in the U.S. or in Europeanglobal markets, specifically the Spanish market,Eurozone and the U.S., may negatively affect our ability to continue funding our business or maintain our current levels of funding without incurring higher funding costs or having to liquidate certain assets. 28  Table of Contents   If we are unable to manage the growth of our operations, this could have an adverse impact on our profitability.   We allocate management and planning resources to develop strategic plans for organic growth, and to identify possible acquisitions and disposals and areas for restructuring our businesses. From time to time, we evaluate acquisition and partnership opportunities that we believe offer additional value to our shareholders and are consistent with our business strategy.strategy such as our acquisition of 51% of Santander Consumer S.A. in 2019. However, we may not be able to identify suitable acquisition or partnership candidates, and our ability to benefit from any such acquisitions and partnerships will depend in part on our successful integration of those businesses. Any such integration entails significant risks such as unforeseen difficulties in integrating operations and systems, and unexpected liabilities or contingencies relating to the acquired businesses, including legal claims.claims and delivery and execution risks. We can give no assurances that our expectations with regard to integration and synergies will materialize. We also cannot provide assurance that we will, in all cases, be able to manage our growth effectively or deliver our strategic growth objectives. Challenges that may result from our strategic growth decisions include our ability to:   · manage efficiently the operations and employees of expanding businesses;   · maintain or grow our existing customer base;   · assess the value, strengths and weaknesses of investment or acquisition candidates, including local regulation that can reduce or eliminate expected synergies;   · finance strategic investments or acquisitions;   31 Table of Contents · align our current information technology systems adequately with those of an enlarged group;   · apply our risk management policy effectively to an enlarged group; and   · manage a growing number of entities without over-committing management or losing key personnel.   Any failure to manage growth effectively could have a material adverse effect on our operating results, financial condition and prospects.   In addition, any acquisition or venture could result in the loss of key employees and inconsistencies in standards, controls, procedures and policies.   Moreover, the success of the acquisition or venture will at least in part be subject to a number of political, economic and other factors that are beyond our control. Any of these factors, individually or collectively, could have a material adverse effect on us.   Climate change can create transition risks, physical risks, and other risks that could adversely affect us. Climate change presents a number of risks, including: · Transition risks associated with the move to a low-carbon economy, both at individual and systemic levels, such as through policy, regulatory and technological changes; · Physical risks related to extreme weather impacts and longer term trends, which could result in financial losses that could impair asset values and the creditworthiness of our customers; and · Liability risks derived from parties who may suffer losses from the effects of climate change and may seek compensation from those they hold responsible such as state entities, regulators, investors and lenders. Should any of these risk materialize, they may introduce additional financial risks, including the following: · Credit risks: Physical climate change could lead to increased credit exposure and companies with business models not aligned with the transition to a low-carbon economy may face a higher risk of reduced corporate earnings and business disruption due to new regulations or market shifts. Central Chile is currently enduring the longest drought of its recent history. · Market risks: Market changes in the most carbon-intensive sectors could affect energy and commodity prices, corporate bonds, equities and certain derivatives contracts. Increasing frequency of severe weather events could affect macroeconomic conditions, weakening fundamental factors such as economic growth, employment and inflation. · Operational risks: Severe weather events could directly impact business continuity and operations of both us and customers. · Reputational risk could also arise from shifting sentiment among customers and increasing attention and scrutiny from other stakeholders (investors, regulators, etc.) on our response to climate change. In December 2019, the FMC published new guidelines for discussion on disclosure of social responsibility and sustainable development by issuers. Any of the conditions described above could have a material adverse effect on our business, financial condition and results of operations. Our operations and results may be negatively impacted by the coronavirus outbreak. Global or national health concerns, including the outbreak of pandemic or contagious disease, such as the recent coronavirus, may adversely affect us. Since December 2019, a novel strain of coronavirus has spread in China and other countries. Such events could cause disruption of regional or global economic activity, which could affect our operations and financial results. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. 32 Table of Contents Risks Relating to Chile Political, legal, regulatory and economic uncertainty arising from social unrest and the resulting social reforms, as well as the referendum on Chile’s constitution could adversely impact the Bank’s business During October 2019, growing public concern over perceived social inequality led to a rise in social unrest. There are numerous demands by the population, related to more economic inclusion and fairer social relationships. In response to these events, the government has announced a social agenda intended to increase basic pensions, expand social health coverage, reduce working hours, and reduce and stabilize some public services tariffs (including public transport and electricity). To fund these initiatives, the government and opposition lawmakers reached an agreement regarding a new tax reform. The main points of the new agreement are: (i) increasing the marginal rate for the top personal tax bracket from 35% to 40%, (ii) increasing the property tax for high income properties, (iii) limiting the use of retained losses as a mean of reducing taxes, (iv) creating a special tax regime for Small to Mid-size Enterprises (“SMEs”) (sales below US$3 million per year) to avoid owner-operated SMEs from paying a higher tax bill than the income tax rate paid by workers with similar income levels, (v) introducing new tax rules for investment vehicles, (vi) ending the beneficial VAT treatment for construction companies, and (vii) introducing a long-term plan to review tax exemptions for several economic sectors. Important political and social actors claim that the social unrest reflects the desire of a new constitution, as Chile’s current constitution dates to 1980. When the government announced the possibility of enacting a new Constitution, there was increased volatility in the Chilean stock market and exchange rate fluctuations that resulted in a weakening of the Chilean peso against the U.S. dollar. The peso depreciated 12.1% since October 18, 2019, when the more serious events started, to a record high level of Ch$801.83 on November 15, 2019. The share prices on local banks and bond spreads, including Santander Chile, suffered significant declines in the market as social protests continued in the country. Seventy of the Bank’s branches suffered different levels of damages during this period but most of these costs were covered by insurance. There was also a rise in early non-performance levels among SMEs, mortgage and consumer loans due to reduced working hours in the economy. We have cut our GDP forecast for 2019 and 2020 to 1.1% and 1.0%, respectively, and the budget deficit estimate has been increased to 4.5% of GDP in 2020. On November 15, 2019, the majority of the local political parties announced a referendum to vote on two matters: (i) whether a new constitution should be enacted and (ii) if so, whether constituent convention should be comprised of an elected mixed assembly of current Congress members and newly elected persons or entirely comprised of newly-elected citizens. This referendum will take place in April 2020 and the elections for the convention that will draft the new Constitution, if that is decided, will take place in October 2020. Each new article of the Constitution would have to be approved by two thirds of the convention. The convention would have approximately one year, starting in October 2020, to complete the draft of the Constitution. An exit referendum with compulsory participation would then be held to ratify the new Constitution. News of the referendum calmed markets and unrest levels have improved since then. The long-term effects of this social unrest are hard to predict, but could include slower economic growth, which could adversely affect the Bank’s profitability and prospects. A further increase in the unemployment rate could diminish demand for loans and increase the risk of loan losses. The ongoing political environment could further deteriorate economic growth and the business environment in the future.   Our growth, asset quality and profitability may be adversely affected by macroeconomic and political conditions in Chile.   A substantial number of our loans are to borrowers doing business in Chile. Chile’s economy has experienced significant volatility in recent decades, characterized, in some cases, by slow or regressive growth and declining investment and hyperinflation.investment. This volatility resulted in fluctuations in the levels of deposits and in the relative economic strength of various segments of the economies to which we lend. The Chilean economy may not continue to grow at similar rates as in the past or future developments may negatively affect Chile’s overall levels of economic activity.   Negative and fluctuating economic conditions, such as slowing or negative growth and a changing interest rate and inflationary environment, impact our profitability by causing lending margins to decrease and credit quality to 33 Table of Contents decline and leading to decreased demand for higher margin products and services. Negative and fluctuating economic conditions in Chile could also result in government defaults on public debt. This could affect us in two ways: directly, through portfolio losses, and indirectly, through instabilities that a default in public debt could cause to the banking system as a whole, particularly since commercial banks’ exposure to government debt is high in Chile.   29  Table of Contents Our revenues are also subject to risk of loss from unfavorable political and diplomatic developments, social instability, and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest-rate caps and tax policies.   The recent fall and subsequentAny future fluctuation in oil prices may give rise to volatility in the global financial markets and further economic instability in oil-dependent regions, such as Chile. In addition, the ability of borrowers in or exposed to the oil sector has been and may be further adversely affected by such price fluctuations.   Our growth, asset quality and profitability may be adversely affected by volatile macroeconomic and political conditions in Chile. Any material change to United States trade policy with respect to Chile could have a material adverse effect on the economy, which could in turn materially harm our financial condition and results of operations.   Portions of our loan portfolio are subject to risks relating to force majeure events and any such event could materially adversely affect our operating results.   Chile lies on the Nazca tectonic plate, making it one of the world’s most seismically active regions. Our financial and operating performance may be adversely affected by force majeure events, such as natural disasters, particularly in locations where a significant portion of our loan portfolio is composed of real estate loans. Natural disasters such as earthquakes and floods may cause widespread damage which could impair the asset quality of our loan portfolio and could have an adverse impact on the economy of the affected region.   Changes in taxes, including the corporate tax rate, in Chile may have an adverse effect on us and our clients.   The Chilean Government enacted various tax reforms in 2014, 2016 and again in 2015 a reform to the tax and other assessment regimes to which we are subject2020 in order to finance greater expenditure in education.social expenditures. The most important changes approved were:relevant change was the rise of the corporate tax rate to 27% by 2018 and the introduction of two corporate taxation regimes (Sistema Parcialmente Integrado(SIP or Semi-Integrated Regime) and theSistema de Renta Atribuida(Attributed Income Regime)). However, a corporation such as Banco Santander-Chile with a majority of shareholders that are incorporated entities is obliged to adhere to the Semi-Integrated Regime. The statutory tax rate rose to 27% in 2018, with personal and withholding taxes imposed on a cash basis (when dividends are distributed), therefore retaining some benefits for shareholders of companies that reinvest profits.   1. A corporation such as Banco Santander Chile with a majority of shareholders that are incorporated entities is obliged to adhere to thesistema integrado parcial (SIP or partially integrated tax system). The statutory tax rate rose to 25.5% in 2016 and will rise to 27% in 2017 and onward, with personal taxes paid on a dividend basis, therefore retaining some benefits for shareholders of companies that reinvest profits. Furthermore, in January 2020, Congress approved the latest tax reform introduced to better finance social demands, becoming law as of February 28, 2020. Key changes to the individual income tax system include (i) the use of electronic receipts, to increase VAT collection, (ii) a new VAT tax on digital services, (iii) higher property taxes for all properties belonging to the same tax identification number with tax appraisal values that exceeds Ch$400 million (US$535 thousand), (iv) to increase the income tax paid by high income earners (individuals earning above US$250,000 a year) from 35% to 40%, and (v) exemptions on property taxes for low income pensioners. 2. The Taxable Profits Fund (FUT), a mechanism that gives shareholders tax exemptions on reinvested profits, will be eliminated in fiscal 2018. 3. Decree-Law 600, which gives foreign investors certain tax and other guarantees, will be replaced by a new law, yet to be designed. 4. The maximum personal income tax rate will be reduced from 40% to 35%, starting in 2018. 5. An increase in stamp tax from 0.45% to 0.8% in 2016. 6. Lowering of VAT exemption for construction of houses up to 2,000 UF to 225 UF per dwelling. 7. Charge VAT tax on real estate transactions beginning in 2016. VAT tax is 19% in Chile. 8. Extension of certain tax benefits and simplified accounting for companies with annual sales lower than 50,000 UF. 9. Withholding tax on dividends paid to ADR holders remains unchanged at 35% with the statutory corporate tax rate paid by the company still available as credit to the withholding tax.   In general, these reforms may haveThe following changes were introduced to the corporate tax regime: (i) the gradual elimination of tax refunds for companies with losses, and (ii) to create a Pro-SME regime for companies with sales of up to UF 75,000 or approximately US$2.8 million, in which 100% of corporate tax can be used as a credit for personal taxes based on withdrawals, SMEs pay a 25% corporate tax rate and benefit from instant depreciation and cash-based taxation. A new “transparency regime” is also created for companies whose owners are natural persons, which includes simplified accounting and taxation rules to equalize an adverse effect onowner-operated business tax rate with the growth rate of mortgage loans and could slow down the rate of economic growth if tax receipts are not spent efficiently or for their intended purposes. personal income rate. We cannot predict at this time if these reforms will have a material impact on our business or clients or if further tax reforms will be implemented in the future. Banco Santander Chile’s effective corporate tax rate shouldcould rise in the future, which may have an adverse impact on our results of operations. Please see “Item 10—Additional information—E. Taxation” for more information regarding the impacts of this tax reform on ADR holders.   30 34 Table of Contents  Developments in other countries may affect us, including the prices for our securities.   The prices of securities issued by Chilean companies, including banks, are influenced to varying degrees by economic and market considerations in other countries. We cannot assure you that future developments in or affecting the Chilean economy, including consequences of economic difficulties in other markets, will not materially and adversely affect our business, financial condition or results of operations.   We are exposed to risks related to the weakness and volatility of the economic and political situation in Asia, the United States, Europe (including Spain, where Santander Spain, our controlling shareholder, is based), Brazil, Argentina and other nations. Although economic conditions in Europe and the United States may differ significantly from economic conditions in Chile, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Chilean issuers. In particular, investor perceptions of the risks associated with our securities may be affected by perception of risk conditions in Spain.   If these, or other nations’ economic conditions deteriorate, the economy in Chile, as both a neighboring country and a trading partner, could also be affected and could experience slower growth than in recent years, with possible adverse impact on our borrowers and counterparties. If this were to occur, we would potentially need to increase our allowances for loan losses, thus affecting our financial results, our results of operations and the price of our securities. As of December 31, 2016,2019, approximately 5.9%3.4% of our assets were held abroad. There can be no assurance that the ongoing effects of thea global financial crisis will not negatively impact growth, consumption, unemployment, investment and the price of exports in Chile. Crises and political uncertainties in other Latin American countries could also have an adverse effect on Chile, the price of our securities or our business.   Chile has considerable economic ties with China, the United States and Europe. In 2016,2019, approximately 24.1%30.8% of Chile’s exports went to China, mainly copper. China’s economy has grown at a strong pace in recent times, but a slowdown in economic activity in China may affect Chile’s GDP and export growth as well as the price of copper, which is Chile’s main export. Chile exported approximately 17.8%14.3% of total exports to the United States and 18.7 %13.4% to Europe in 2016.2019.   Chile is alsowas recently involved in an international litigation with Bolivia regarding maritime borders. We cannot assure you that crises and political uncertainty in other Latin American countries will not have an adverse effect on Chile, the price of our securities or our business.   Fluctuations in the rate of inflation may affect our results of operations.   High levels of inflation in Chile could adversely affect the Chilean economy and have an adverse effect on our business, financial condition and results of operations. Extended periods of deflation could also have an adverse effect on our business, financial condition and results of operations. InFor example, in 2009 Chile experienced deflation of 1.4% as the global economy contracted. In 2016,2019, CPI inflation was 2.7%3.0% compared to 4.4%2.6% in 2015.2018.   Our assets and liabilities are denominated in Chilean pesos, UF and foreign currencies. The UF is revalued in monthly cycles. On each day in the period beginning on the tenth day of any given month through the ninth day of the succeeding month, the nominal peso value of the UF is indexed up (or down in the event of deflation) in order to reflect a proportionate amount of the change in the Chilean Consumer Price Index during the prior calendar month. For more information regarding the UF, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Impact of Inflation.” Although we benefit from inflation in Chile due to the current structure of our assets and liabilities (i.e., a significant portion of our loans are indexed to the inflation rate, but there are no corresponding features in deposits, or other funding sources that would increase the size of our funding base), there can be no assurance that our business, financial condition and result of operations in the future will not be adversely affected by changing levels of inflation, including from extended periods of inflation that adversely affect economic growth or periods of deflation.   Any change in the methodology of how the CPI index or the UF is calculated could also adversely affect our business, financial condition and results of operations.   31 35 Table of Contents  Currency fluctuations could adversely affect our financial condition and results of operations and the value of our securities.   Any future changes in the value of the Chilean peso against the U.S. dollar will affect the U.S. dollar value of our securities. The Chilean peso has been subject to large devaluations and appreciations in the past and could be subject to significant fluctuations in the future. Our results of operations may be affected by fluctuations in the exchange rates between the peso and the dollar despite our policy and Chilean regulations relating to the general avoidance of material exchange rate exposure. In order to avoid material exchange rate exposure, we enter into forward exchange transactions. The following table shows the value of the Chilean peso relative to the U.S. dollar as reported by the Central Bank at year end for the last five years and the devaluation or appreciation of the peso relative to the U.S. dollar in each of those years. Year  Exchange rate (Ch$) at year end  Devaluation (Appreciation) (%)  2012 478.60 (8.2) 2013 523.76 9.4 2014 607.38 16.0 2015 707.34 16.5 2016 667.29 (5.7) 2017 (through March 22, 2017) 657.83 (1.4) Source: Central Bank.   We may decide to change our policy regarding exchange rate exposure. Regulations that limit such exposures may also be amended or eliminated. Greater exchange rate risk will increase our exposure to the devaluation of the peso, and any such devaluation may impair our capacity to service foreign currency obligations and may, therefore, materially and adversely affect our financial condition and results of operations. Notwithstanding the existence of general policies and regulations that limit material exchange rate exposures, the economic policies of the Chilean government and any future fluctuations of the peso against the dollar could affect our financial condition and results of operations.   We are subject to substantialextensive regulation and regulatory and governmental oversight which could adversely affect our business, operations and financial condition.   As a financial institution, we are subject to extensive regulation, inspections, examinations, inquiries, audits and other regulatory requirements by Chilean regulatory authorities, which materially affectsaffect our businesses. We cannot assure you that we will be able to meet all of the applicable regulatory requirements and guidelines, or that we will not be subject to sanctions, fines, restrictions on our business or other penalties in the future as a result of noncompliance. If sanctions, fines, restrictions on our business, higher capital requirement or other penalties are imposed on us for failure to comply with applicable requirements, guidelines or regulations, our business, financial condition, results of operations and our reputation and ability to engage in business may be materially and adversely affected. In their supervisory roles, the regulators seek to maintain the safety and soundness of financial institutions with the aim of strengthening the protection of customers and the financial system. The statutes, regulationssupervisors’ continuing supervision of financial institutions is conducted through a variety of regulatory tools, including the collection of information by way of prudential returns, reports obtained from skilled persons, visits to firms and policiesregular meetings with management to whichdiscuss issues such as performance, risk management and strategy. In general, these regulators have a more outcome-focused regulatory approach that involves more proactive enforcement and more punitive penalties for infringement. As a result, we face increased supervisory scrutiny (resulting in increasing internal compliance costs and supervision fees), and in the event of a breach of our regulatory obligations we are subjectlikely to face more stringent regulatory fines. Changes in regulations may be changed at any time. In addition,also cause us to face increased compliance costs and limitations on our ability to pursue certain business opportunities and provide certain products and services. As some of the interpretation and the application by regulators of thebanking laws and regulations to which we are subject may also change from time to time. Inhave been recently adopted, the wake of the global financial crisis, the financial services industry continues to experience significant financial regulatory reform in jurisdictions outside of Chile that directly or indirectly affect our business, including Spain, the European Union, the United States, Latin America and other jurisdictions. Changes to current legislation and their implementation through regulation (including additional capital, leverage, funding, liquidity and tax requirements), policies (including fiscal and monetary policies established by central banks and financial regulators, and changes to global trade policies), and other legal and regulatory actions may impose additional regulatory burden on Santander Group, including Santander-Chile, in these jurisdictions. The manner in which thesethose laws and related regulations are applied to the operations of financial institutions is still evolving. Moreover, to the extent these recently adopted regulations are implemented inconsistently in the various jurisdictions in which we operate, we may face higher compliance costs. Any legislative No assurance can be given generally that laws or regulatory actions and any required changes to our business operations resulting from such legislation and regulations as well as any deficiencieswill be adopted, enforced or interpreted in our compliance with such legislation and regulation, could result in significant loss of revenue, limit our ability to pursue business opportunities in which we might otherwise consider engaging and provide certain products and services, affect the value of assetsa manner that we hold, require us to increase our prices and therefore reduce demand for our products, impose additional compliance and other costs on us or otherwise adversely affect our businesses. In particular, legislative or regulatory actions resulting in enhanced prudential standards, in particular with respect to capital and liquidity, could imposewill not have a significant regulatory burden on the Bank or on its bank subsidiaries and could limit the bank subsidiaries’ ability to distribute capital and liquidity to the Bank, thereby negatively impacting the Bank. Future liquidity standards could require the Bank to maintain a greater proportion of its assets in highly-liquid but lower-yielding financial instruments, which would 32  Table of Contents negatively affect its net interest margin. Moreover, the Bank's regulatory authorities, as part of their supervisory function, periodically review the Bank's allowance for loan losses. Such regulators may require the Bank to increase its allowance for loan losses or to recognize further losses. Any such additional provisions for loan losses, as required by these regulatory agencies, whose views may differ from those of the Bank's management, could have anmaterial adverse effect on the Bank’s earnings and financial condition. Accordingly, there can be no assurance that future changes in regulations or in their interpretation or application will not adversely affect us. The wide range of regulations, actions and proposals which most significantly affect the Bank, or which could most significantly affect the Bank in the future, relate to capital requirements, funding and liquidity and regulatory reforms in Chile, and are discussed in further detail below. These and other regulatory reforms adopted or proposed in the wake of the financial crisis have increased and may continue to materially increase our operating costs and negatively impact our business model. Furthermore, regulatory authorities have substantial discretion in how to regulate banks, and this discretion, and the means available to the regulators, have been increasing during recent years. Regulation may be imposed on an ad hoc basis by governments and regulators in response to a crisis. In addition, the volume, granularity, frequency and scaleresults of regulatory and other reporting requirements necessitate a clear data strategy to enable consistent data aggregation, reporting and management. Inadequate management information systems or processes, including those relating to risk data aggregation and risk reporting, could lead to a failure to meet regulatory reporting requirements or other internal or external information demands and we may face supervisory measures as a result.operations.   The main regulations and regulatory and governmental oversight that can adversely impact us include but are not limited to the following (see more details on “Item 4. Information on the Company—B. Business Overview—Regulation and Supervision”):   We are subject to regulation by the SBIFFMC and by the Central Bank with regard to certain matters, including reserve requirements, interest rates, foreign exchange mismatches and market risks. Chilean laws, regulations, policies and interpretations of laws relating to the banking sector and financial institutions are continually evolving and changing. Any new reforms could result in increased competition in the industry and thus may have a material adverse effect on our financial condition and results of operations.   36 Table of Contents Pursuant to the General Banking Law, all Chilean banks may, subject to the approval of the SBIF,FMC, engage in certain businesses other than commercial banking depending on the risk associated with such business and their financial strength. Such additional businesses include securities brokerage, mutual fund management, securitization, insurance brokerage, leasing, factoring, financial advisory, custody and transportation of securities, loan collection and financial services. The General Banking Law also applies to the Chilean banking system a modified version of the capital adequacy guidelines issued by the Basel Committee on Banking Regulation and Supervisory Practices and limits the discretion of the SBIFFMC to deny new banking licenses. There can be no assurance that regulators will not in the future impose more restrictive limitations on the activities of banks, including us. Any such change could have a material adverse effect on our financial condition or results of operations.   Historically, Chilean banks have not paid interest on amounts deposited in checking accounts. We have begun to pay interest on some checking accounts under certain conditions. If competition or other factors lead us to pay higher interest rates on checking accounts, to relax the conditions under which we pay interest or to increase the number of checking accounts on which we pay interest, any such change could have a material adverse effect on our financial condition or results of operations.   On November 20, 2013,The changes in the Chilean Congress approvedway banking institutions with economic difficulties should be treated shifts the focus from solving to anticipating potential adverse situations that may affect a bank or the banking system or that implies the dissolution and liquidation of a bank. To that extent banks will be obliged to inform the FMC whenever they are in any of a certain number of situations specified in the proposed bill and present an Early Regularization Plan for approval by the FMC. Banks in such situations will be able to undertake a preventive capital increase or receive a three-year term loan from another bank, which will be considered as capital. The creditors agreement considered in the current banking law is eliminated. In case the Regularization Plan fails or is not presented by the bank, the FMC will appoint a delegated inspector or eventually a Provisional Administrator. We cannot assure you that we will not incur in such situations in the future, which could have a material adverse impact on you. Currently, a credit line associated to a current account accrues interest until the client directly pays off the credit line. Starting January 1, 2020, a new legislationlaw regarding the automatic credit line payments will come into governance. This law states that the credit line associated to reducecurrent accounts will automatically be paid off when there are funds available in the maximum rates that cancurrent account. Bank clients will have the possibility to decide to turn off this feature of automatic discount, but must expressly and voluntarily do so. In this manner, the Bank may have a negative material impact on the future accrual of interest under this item. We estimate this impact will be charged on loans. This new legislation is aimed at loansof Ch$20,000 million of less than UF 200 (U.S.$7,241) and with a term of more than 90 days, and thus includes consumer loansnet interest income in installments, lines of credit and credit card lines. Previously, the maximum interest rate for loans of less than UF 200 and with a term of more than 90 days was calculated as the average rate of all transactions undertaken within the banking industry over the previous month of loans of less than UF 200 and with a term of more than 90 days, multiplied by a factor of 1.5. The average and maximum rates are published daily by the SBIF. By year-end 2016 the maximum rate was 36.64%, close to the level the authorities are seeking for loans of this size.2020.   On December 13, 2013,A draft bill currently in Congress proposes to regulate prepayment commissions. This bill eliminates the SBIF publishedprepayment fee for all interest-bearing loans, permitting the new maximum rates for loans between UF 50 (US$1,810)debtor to pay off capital and UF 200 (US$7,241). The objective was to lower the maximum rate to a level closer tointerests accrued at any moment during the average interest rate for loans between UF 200 (US$7,241) to UF 5,000 (US$181,047) plus 14%, unless the flow of new loans in the 33  Table of Contents industry decreases by 10%-20%, in which case the reduction will be partially or completely suspended until the next period. By year-end 2016 the maximum rate was 29.64%, close to the level the authorities are seeking for loans of this size. In March 2012, a bill aimed at giving additional enforcement powers to the SERNAC (Chile’s Consumer Protection Agency) regarding financial services became effective and created the SERNAC Financiero, a specific consumer protection agency for the financial industry. The SERNAC Financiero has powers to supervise and regulate Bank products and services. The creationduration of the SERNAC Financiero hasloan, unless otherwise expressly specified in the contract. This bill also resultedprohibits grace periods to accrue interest. These bills are still in additional scrutiny regarding prices and contracts for financial products and services, making it more difficult to raise prices and increasing competition among bank and non-bank competitors. The government is currently discussing with the Chilean Congress a bill to again reform the SERNAC Financiero and its powers. Noearly phases of congressional discussion so we cannot estimate an impact, bur no assurance can be given that these changesthis will not have a material impact on our feefuture income.   The SBIFA draft bill currently in Congress will also modify the responsibility of credit card and the Ministry of Finance have drafted a new General Banking Lawinternet frauds. It is proposed that is expected tobanks will be submitted to the Chilean Congress in 2017. Among other things, the new banking law is expected to include clearer guidelinesresponsible for the adoption of Basel III regulations in Chile and new regulations regarding the SBIF’s corporate governance. Although we currently have a regulatory capital ratio of 13.4% as of December 31, 2016 and a core capital ratio of 10.5%, this change could require us to inject additional capital to our businessall damages that are produced by deficiencies in the future. Accordingprotection of technological systems in the payment systems. Additionally, the card issuer will be responsible for all frauds and will subsequently have the ability to initial estimatesseek payment from those responsible of the impactcrime. The bill also protects users from frauds they had no previous knowledge of. If this bill is passed, the Bank could be adversely affected by having to reimburse a larger amount of market risk on regulatory capital, publishedusers for informational purposes only byfraudulent operations. There could also be additional costs due to stricter due diligence and more robust processes in order to safeguard the SBIF, our ratio of regulatory capital to risk-weighted assets, net of loan loss allowance and deductions, including an initial estimate of the adjustments for market risk was 12.2% as of December 31, 2016. Additionally, for the purposes of reporting to our parent company, we calculate this ratio using a model approved by the European Central Bank standards. In this scenario our core capital ratio is 12.1% and our regulatory capital ratio is 15.5% as of December 31, 2016. No assurance can be given that these changes will not have a material impact on our capitalization ratio.from additional payments.   A change in labor laws in Chile or a worsening of labor relations in the Bank could impact our business.   As of December 31, 20162019 on a consolidated basis, we had 11,35411,200 employees, of which 72.2%75.1% were unionized. In March 2014,February 2018, a new collective bargaining agreement was signed with the main unions ahead of schedule, which became effective on JanuarySeptember 1, 2014,2018 and which will expireexpires on DecemberAugust 31, 2018.2021, though it may also be renegotiated ahead of schedule with the consent of management and the union. We generally apply the terms of our collective bargaining agreement to unionized and non-unionized employees. We have traditionally had good relations with our employees and their unions, but we cannot assure you that in the future, a strengthening of cross-industry labor movements will not materially and adversely affect our business, financial condition or results of operations.   Congress passed a new labor law in 2016 that becomes effective April 1, 2017. The main points included in this law are: · Expands the scope of collective bargaining. Currently some groups of workers are excluded from the collective bargaining process. · Expands workers ability to switch unions and gives workers the same rights under a collective bargaining agreement if they affiliate themselves post-negotiations. · Expand the right to greater information of unions including the wages of each worker included in a collective bargaining agreement. · Simplifies the standard collective bargaining process. · Collective bargaining agreements must last maximum three years instead of four. · Eliminate the ability of the employer to replace workers on strike and establishes minimum service guidelines that workers must respect. 34 37 Table of Contents  · Establishes the current collective bargaining agreement as the bargaining floor for future collective bargaining agreements. · Amplifies the matters that can be negotiated in collective bargaining. · Greater hours for training of union representatives. · Strengthen the participation of women in unions. The BankThere is currently has a high unionization level and goodnew labor relations. At this time, we are unable to estimate the impact these new regulations will have on labor relations and costs. The current project may also suffer additional modification willreform being discussed in Congress.Congress, which, among other items, shortens the work week from 45 hours to 40 hours, excluding the lunch break. There is also discussion to increase minimum wage currently set at Ch$301,000/month (US$415/month) by up to 50%. At Santander Chile, the weekly working hours agreed under the collective bargaining agreement are 40 hours- excluding lunch- and our minimum wage is set above the legal minimum. Despite this, we cannot assure at this time that the new labor reform will not have material impact on our expenses.   These and any additional legislative or regulatory actions in Chile, Spain, the European Union, the United States or other countries, and any required changes to our business operations resulting from such legislation and regulations, could result in reduced capital availability, significant loss of revenue, limit our ability to continue organic growth (including increased lending), pursue business opportunities in which we might otherwise consider engaging and provide certain products and services, affect the value of assets that we hold, require us to increase our prices and therefore reduce demand for our products, impose additional costs on us or otherwise adversely affect our businesses. Accordingly, we cannot provide assurance that any such new legislation or regulations would not have an adverse effect on our business, results of operations or financial condition in the future.   Our corporate disclosure may differ from disclosure regularly published by issuers of securities in other countries, including the United States.   Issuers of securities in Chile are required to make public disclosures that are different from, and that may be reported under presentations that are not consistent with, disclosures required in other countries, including the United States. In particular, as a Chilean regulated financial institution, we are required to submit to the SBIFFMC on a monthly basis unaudited consolidated balance sheets and income statements, excluding any note disclosure, prepared in accordance with Chilean Bank GAAP as issued by the SBIF.FMC. This disclosure differs in a number of significant respects from generally accepted accounting principles in the United States and information generally available in the United States with respect to U.S. financial institutions.institutions or IFRS. In addition, as a foreign private issuer, we are not subject to the same disclosure requirements in the United States as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules under Section 16 of the Exchange Act. Accordingly, the information about us available to you will not be the same as the information available to shareholders of a U.S. company and may be reported in a manner that you are not familiar with.   Chile imposes controls on foreign investment and repatriation of investments that may affect your investment in, and earnings from, our ADSs.   Equity investments in Chile by persons who are not Chilean residents have generally been subject to various exchange control regulations, which restrict the repatriation of the investments and earnings therefrom. In April 2001, the Central Bank eliminated the regulations that affected foreign investors, except that investors are still required to provide the Central Bank with information relating to equity investments and conduct such operations within Chile’s Formal Exchange Market. The ADSs are subject to a contract, dated May 17, 1994, among the Depositary, us and the Central Bank (the “Foreign Investment Contract”) that remains in full force and effect. The ADSs continue to be governed by the provisions of the Foreign Investment Contract subject to the regulations in existence prior to April 2001. The Foreign Investment Contract grants the Depositary and the holders of the ADSs access to the Formal Exchange Market, which permits the Depositary to remit dividends it receives from us to the holders of the ADSs. The Foreign Investment Contract also permits ADS holders to repatriate the proceeds from the sale of shares of our common stock withdrawn from the ADR facility, or that have been received free of payment as a consequence of spin offs, mergers, capital increases, wind ups, share dividends or preemptive rights transfers, enabling them to acquire the foreign currency necessary to repatriate earnings from such investments. Pursuant to Chilean law, the Foreign Investment Contract cannot be amended unilaterally by the Central Bank, and there are judicial precedents (although not binding with respect to future judicial decisions) indicating that contracts of this type may not be abrogated by future legislative changes or resolutions of the Advisory Council of the Central Bank. Holders of shares of our common stock, except for shares of our common stock withdrawn from the ADS facility or 35  Table of Contents received in the manner described above, are not entitled to the benefits of the Foreign Investment Contract, may not have access to the Formal Exchange Market, and may have restrictions on their ability to repatriate investments in shares of our common stock and earnings therefrom.   38 Table of Contents Holders of ADSs are entitled to receive dividends on the underlying shares to the same extent as the holders of shares. Dividends received by holders of ADSs will be paid net of foreign currency exchange fees and expenses of the Depositary and will be subject to Chilean withholding tax, currently imposed at a rate of 35.0% (subject to credits in certain cases). If for any reason, including changes in Chilean law, the Depositary were unable to convert Chilean pesos to U.S. dollars, investors would receive dividends and other distributions, if any, in Chilean pesos.   We cannot assure you that additional Chilean restrictions applicable to holders of our ADSs, the disposition of the shares underlying them or the repatriation of the proceeds from such disposition or the payment of dividends will not be imposed in the future, nor can we advise you as to the duration or impact of such restrictions if imposed.   Investors may find it difficult to enforce civil liabilities against us or our directors, officers and controlling persons.   We are a Chilean corporation. None of our directors are residents of the United States and most of our executive officers reside outside of the United States. In addition, a substantial portion of our assets and the assets of our directors and executive officers are located outside the United States. Although we have appointed an agent for service of process in any action against us in the United States with respect to our ADSs, none of our directors, officers or controlling persons has consented to service of process in the United States or to the jurisdiction of any United States court. As a result, it may be difficult for investors to effect service of process within the United States on such persons.   It may also be difficult for ADS holders to enforce in the United States or in Chilean courts money judgments obtained in United States courts against us or our directors and executive officers based on civil liability provisions of the U.S. federal securities laws. If a U.S. court grants a final money judgment in an action based on the civil liability provisions of the federal securities laws of the United States, enforceability of this money judgment in Chile will be subject to the obtaining of the relevant “exequatur” (i.e., recognition and enforcement of the foreign judgment) according to Chilean civil procedure law currently in force, and consequently, subject to the satisfaction of certain factors. The most important of these factors are the existence of reciprocity, the absence of a conflicting judgment by a Chilean court relating to the same parties and arising from the same facts and circumstances and the Chilean courts’ determination that the U.S. courts had jurisdiction, that process was appropriately served on the defendant and that enforcement would not violate Chilean public policy. Failure to satisfy any of such requirements may result in non-enforcement of your rights.   Risks Relating to Our Controlling Shareholder and our ADSs   Our controlling shareholder has a great deal of influence over our business and its interests could conflict with yours.   Santander Spain, our controlling shareholder, controls Santander-Chile through its holdings in Teatinos Siglo XXI Inversiones S.A. and Santander Chile Holding S.A., which are controlled subsidiaries. Santander Spain has control over 67.18% of our shares and actual participation, excluding non-controlling shareholders that participate in Santander Chile Holding, S.A. of 67.06%67.12%.   Due to its share ownership, our controlling shareholder has the ability to control us and our subsidiaries, including the ability to:   · elect the majority of the directors and exercise control over our company and subsidiaries;   · cause the appointment of our principal officers;   · declare the payment of any dividends;   · agree to sell or otherwise transfer its controlling stake in us; and   · determine the outcome of substantially all actions requiring shareholder approval, including amendments of our bylaws,by-laws, transactions with related parties, corporate reorganizations, acquisitions and disposals of assets and issuance of additional equity securities, if any.   36 39 Table of Contents  In December 2012, primarily in response to the requirements of the European Banking Authority, the Bank of Spain and regulators in various jurisdictions, Santander Spain adopted a corporate governance framework (Marco de Gobierno Interno del Grupo Santander). The purpose of the framework is to organize and standardize the corporate governance practices of Santander Spain and its most significant subsidiaries, including us. (Our Board of Directors approved the adoption of this corporate governance framework in July 2013,) subject to certain overarching principles, such as the precedence of applicable laws and regulations over the framework to the extent they are in conflict. See “Item 16G. Corporate Governance.” Our adoption of this framework may increase Santander Spain’s control over us.   We operate as a stand-alone subsidiary within the Santander Group. Our controlling shareholder has no liability for our banking operations, except for the amount of its holdings of our capital stock. The interests of Santander Spain may differ from the interests of our other shareholders, and the concentration of control in Santander Spain may differ from the interests of our other shareholders, and the concentration of control in Santander Spain will limit other shareholders’ ability to influence corporate matters. As a result, we may take actions that our other shareholders do not view as beneficial.   Our status as a controlled company and a foreign private issuer exempts us from certain of the corporate governance standards of the New York Stock Exchange (“NYSE”), limiting the protections afforded to investors.   We are a “controlled company” and a “foreign private issuer” within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a controlled company is exempt from certain NYSE corporate governance requirements. In addition, a foreign private issuer may elect to comply with the practice of its home country and not to comply with certain NYSE corporate governance requirements, including the requirements that (1) a majority of the board of directors consist of independent directors, (2) a nominating and corporate governance committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (3) a compensation committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities and (4) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken. Although we have similar practices, they do not entirely conform to the NYSE requirements for U.S. issuers; therefore we currently use these exemptions and intend to continue using them. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements.   There may be a lack of liquidity and market for our shares and ADSs.   Our ADSs are listed and traded on the NYSE.NYSE (under the ticker “BSAC”). Our common stock is listed and traded on the Santiago Stock Exchange (under the Chile Electronic Stock Exchange and the Valparaiso Stock Exchange,ticker “BSANTANDER”), which we refer to collectively as the Chilean Stock Exchanges,Exchange, although the trading market for the common stock is small by international standards. At December 31, 2016,2019, we had 188,446,126,794 shares of common stock outstanding. The Chilean securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States. According to Article 14 of the Ley de Mercado de Valores, Ley No. 18,045, or the Chilean Securities Market Law, the Superintendencia de Valores y Seguros, or the Superintendency of Securities and Insurance,FMC may suspend the offer, quotation or trading of shares of any company listed on one or more Chilean Stock Exchangesstock exchanges for up to 30 days if, in its opinion, such suspension is necessary to protect investors or is justified for reasons of public interest. Such suspension may be extended for up to 120 days. If, at the expiration of the extension, the circumstances giving rise to the original suspension have not changed, the Superintendency of Securities and InsuranceFMC will then cancel the relevant listing in the registry of securities. In addition, the Santiago Stock Exchange may inquire as to any movement in the price of any securities in excess of 10% and suspend trading in such securities for a day if it deems necessary.   Although our common stock is traded on the Chilean Stock Exchanges,Exchange, there can be no assurance that a liquid trading market for our common stock will continue to exist. Approximately 33.0% of our outstanding common stock is held by the public (i.e., shareholders other than Santander Spain and its affiliates), including our shares that are represented by ADSs trading on the NYSE. A limited trading market in general and our concentrated ownership in particular may impair the ability of an ADS holder to sell in the Chilean market shares of common stock obtained upon withdrawal of such shares from the ADR facility in the amount and at the price and time such holder desires, and could increase the volatility of the price of the ADSs.   37 40 Table of Contents  You may be unable to exercise preemptive rights.   TheLey Sobre Sociedades Anónimas, Ley No. 18,046 and theReglamento de Sociedades Anónimas, which we refer to collectively as the Chilean Companies Law, and applicable regulations require that whenever we issue new common stock for cash, we grant preemptive rights to all of our shareholders (including holders of ADSs), giving them the right to purchase a sufficient number of shares to maintain their existing ownership percentage. Such an offering would not be possible in the United States unless a registration statement under the U.S. Securities Act of 1933 (“Securities Act”), as amended, were effective with respect to such rights and common stock or an exemption from the registration requirements thereunder were available.   Since we are not obligated to make a registration statement available with respect to such rights and the common stock, you may not be able to exercise your preemptive rights in the United States. If a registration statement is not filed or an applicable exemption is not available under U.S. securities law, the Depositary will sell such holders’ preemptive rights and distribute the proceeds thereof if a premium can be recognized over the cost of any such sale.   As a holder of ADSs you will have different shareholders’ rights than in the United States and certain other jurisdictions.   Our corporate affairs are governed by our estatutos, or by-laws, and the laws of Chile, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in certain other jurisdictions outside Chile. Under Chilean corporate law, you may have fewer and less well-defined rights to protect your interests than under the laws of other jurisdictions outside Chile. For example, under legislation applicable to Chilean banks, our shareholders would not be entitled to appraisal rights in the event of a merger or other business combination undertaken by us.   Although Chilean corporate law imposes restrictions on insider trading and price manipulation, the form of these regulations and the manner of their enforcement may differ from that in the U.S. securities markets or markets in certain other jurisdictions. In addition, in Chile, self-dealing and the preservation of shareholder interests may be regulated differently, which could potentially disadvantage you as a holder of the shares underlying ADSs.   Holders of ADSs may find it difficult to exercise voting rights at our shareholders’ meetings.   Holders of ADSs will not be our direct shareholders and will be unable to enforce directly the rights of shareholders under our by-laws and the laws of Chile. Holders of ADSs may exercise voting rights with respect to the common stock represented by ADSs only in accordance with the deposit agreement governing the ADSs. Holders of ADSs will face practical limitations in exercising their voting rights because of the additional steps involved in our communications with ADS holders. Holders of our common stock will be able to exercise their voting rights by attending a shareholders’ meeting in person or voting by proxy. By contrast, holders of ADSs will receive notice of a shareholders’ meeting by mail from the Depositary following our notice to the Depositary requesting the Depository to do so. To exercise their voting rights, holders of ADSs must instruct the Depositary on a timely basis on how they wish to vote. This voting process necessarily will take longer for holders of ADSs than for holders of our common stock. If the Depositary fails to receive timely voting instructions for all or part of the ADSs, the Depositary will assume that the holders of those ADSs are instructing it to give a discretionary proxy to a person designated by us to vote their ADSs, except in limited circumstances.   Holders of ADSs also may not receive the voting materials in time to instruct the Depositary to vote the common stock underlying their ADSs. In addition, the Depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of ADSs may not be able to exercise voting rights, and they will have little, if any, recourse if the common stocks underlying their ADSs are not voted as requested.   38  Table of Contents ADS holders may be subject to additional risks related to holding ADSs rather than shares.   Because ADS holders do not hold their shares directly, they are subject to the following additional risks, among others:   41 Table of Contents · as an ADS holder, you may not be able to exercise the same shareholder rights as a direct holder of ordinary shares;   · we and the Depositary may amend or terminate the deposit agreement without the ADS holders’ consent in a manner that could prejudice ADS holders or that could affect the ability of ADS holders to transfer ADSs; and   · the Depositary may take or be required to take actions under the Deposit Agreement that may have adverse consequences for some ADS holders in their particular circumstances.   ITEM 4. INFORMATION ON THE COMPANY   A. History and Development of the Company A. History and Development of the Company   Overview   We are the largest bank in Chilethe Chilean market in terms of loans (excluding loans held by subsidiary of Chilean banks abroad) and the second largest bank in terms of total assets and loans.deposits (excluding deposits held by subsidiary of Chilean banks aboard). As of December 31, 2016,2019, we had total assets of Ch$37,030,02550,574,714 million (U.S.$55,60167,670 million), outstanding loans at amortized cost, net of allowances for loan losses of Ch$26,147,154 31,775,420 million (U.S.$39,26042,605 million), total deposits of Ch$20,691,02423,490,249 million (U.S.$31,068 31,431 million) and shareholders’ equity of Ch$2,938,1993,398,870 million (U.S.$4,4125,366 million). As of December 31, 2016,2019, we employed 11,35411,200 people. We have a leading presence in all the major business segments in Chile, and the largesta large distribution network with national coverage spanning across all the country, including the only privately owned bank with a branch in Easter Island.country. We offer unique transaction capabilities to clients through our 423377 branches and 1,2951,088 ATMs. Our headquarters are located in Santiago and we operate in every major region of Chile.   We provide a broad range of commercial and retail banking services to our customers, including Chilean peso and foreign currency denominated loans to finance a variety of commercial transactions, trade, foreign currency forward contracts and credit lines and a variety of retail banking services, including mortgage financing. We seek to offer our customers a wide range of products while providing high levels of service. In addition to our traditional banking operations, we offer a variety of financial services, including financial leasing, financial advisory services, mutual fund management, securities brokerage, insurance brokerage and investment management.   The legal predecessor of Santander-Chile was Banco Santiago (“Santiago”). Old Santander-Chile was established as a subsidiary of Santander Spain in 1978. On August 1, 2002, Santiago and Old Santander Chile merged, whereby the latter ceased to exist and Santander-Chile (formerly known as Santiago) being the surviving entity.   Our principal executive offices are located at Bandera 140, 20th floor, Santiago, Chile. Our telephone number is +562-320-2000 and our website is www.santander.cl. None of the information contained on our website is incorporated by reference into, or forms part of, this Annual Report. Our agent for service of process in the United States is CT Corporation, locatedPuglisi & Associates, 850 Library Ave., Suite 204, Newark, DE 19711. The SEC maintains a website on the Internet at 111 Eighth Avenue, 13th Floor, New York, New York 10011.http://www.sec.gov that contains reports and information statements and other information about us. The reports (including this annual report) and information statements and other information about us can be downloaded from the SEC’s website www.sec.gov website or our investor relations website www.santandercl.gcs-web.com. None of the information contained on our website, or any website referred to in this Annual Report, is incorporated by reference into, or forms part of, this Annual Report.   Relationship with Santander Spain   We believe that our relationship with our controlling shareholder, Santander Spain, offers us a significant competitive advantage over our peer Chilean banks. Santander Spain, our parent company, is one of the largest financial groups in Brazil and the rest of Latin America, in terms of total assets measured on a regional basis. It is the largest financial group in Spain and is a major player elsewhere in Europe, including the United Kingdom, Poland and Portugal, where it is the third-largest banking group. Through Santander Consumer, it also operates a leading consumer finance franchise in the United States, as well as in Germany, Italy, Spain, and several other European countries.   39 42 Table of Contents  Our relationship with Santander Spain provides us with access to the group’s client base, while its multinational focus allows us to offer international solutions to our clients’ financial needs. We also have the benefit of selectively borrowing from Santander Spain’s product offerings in other countries, as well as of its know-how in systems management. We believe that our relationship with Santander Spain will also enhance our ability to manage credit and market risks by adopting policies and knowledge developed by Santander Spain. In addition, our internal auditing function has been strengthened as a result of the addition of an internal auditing department that concurrently reports directly to our Audit Committee and the audit committee of Santander Spain. We believe that this structure leads to improved monitoring and control of our exposure to operational risks.   Santander Spain’s support of Santander-Chile includes the assignment of managerial personnel to key supervisory areas of Santander-Chile, such as risks, auditing, accounting and financial control. Santander-Chile does not pay any management or other fees to Santander Spain in connection with these support services.   B. Business Overview B. Business Overview   We have 423377 total branches, 274251 of which are operated under the Santander brand name, with the remaining branches under certain specialty brand names, including 39 under theSantander Banefe brand name, 5338 under the Select brand name, 87 specialized branches for the Middle Market and 4928 as auxiliary and payment centers. During 2019, we also opened 13 Santander Workcafés, reaching a total of 53 Workcafés across all regions of Chile. We provide a full range of financial services to corporate and individual customers. We divide our clients into the following groups: (i) Retail banking, (ii) Middle-market, (iii) Global Corporate Investment Banking and (iv) Corporate Activities (“Other”).   The Bank has the reportable segments noted below (see “Segmentation Criteria” for further information):   Retail Banking   ConsistsThis segment consists of individuals and small to middle-sizedmedium-sized entities (SMEs) with annual sales less than Ch$2,000 million (U.S.$3.01.6 million). This segment gives customers a variety of services, including consumer loans, credit cards, auto loans, commercial loans, foreign exchange, mortgage loans, debit cards, checking accounts, savings products, mutual funds, stock brokerage, and insurance brokerage. Additionally, the SME clients are offered government-guaranteed loans, foreign trade services, leasing and factoring.   Middle-market   This segment serves companies and large corporations with annual sales exceeding Ch$2,000 million (U.S.$3.01.6 million). It also serves institutions such as universities, government entities, local and regional governments and companies engaged in the real estate industry who carry out projects to sell properties to third parties and annual sales exceeding Ch$800 million (U.S.$1.21.1 million) with no upper limit. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, savings products, mutual funds, and insurance brokerage. Also, companies in the real estate industry are offered specialized services to finance projects, chiefly residential, with the aim of expanding sales of mortgage loans.   Global Corporate Investment Banking   This segment consists of foreign and domestic multinational companies with sales over Ch$10,000 million (U.S.$15.013.4 million). The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, project finance, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, investments, savings products, mutual funds and insurance brokerage.   This segment also consists of a Treasury Division which provides sophisticated financial products, mainly to companies in the Middle-market segment and Global Corporate Investment Banking. These include products such as short-term financing and fund raising, brokerage services, foreign exchange services, derivatives, securitization and other tailor-made products. The Treasury Division may act as broker to transactions and also manages the Bank’s investmenttrading fixed income portfolio.   40 43 Table of Contents  Corporate Activities (“Other”)   This segment mainly includes our Financial Management Division, which develops global management functions, including managing inflation rate risk, foreign currency gaps, interest rate risk and liquidity risk. Liquidity risk is managed mainly through wholesale deposits, debt issuances and the Bank’s available-for-sale portfolio. This segment also manages capital allocation by unit. These activities, with the exception of our inflation gap, usually result in a negative contribution to income.   In addition, this segment encompasses all the intra-segment income and all the activities not assigned to a given segment or product with customers. The segments’ accounting policies are those described in the summary of accounting policies. The Bank earns most of its income in the form of interest income, fee and commission income and income from financial operations. To evaluate a segment’s financial performance and make decisions regarding the resources to be assigned to segments, the Chief Operating Decision Maker (CODM) bases his or her assessment on the segment'ssegment’s interest income, fee and commission income, and expenses.   The tables below show the Bank’s results by reporting segment for the year ended December 31, 2016,2019, in addition to the corresponding balances of loans and accounts receivable from customers:       As of December 31, 2016   Loans and accounts receivable from customers (1) Net interest income Net fee and commission income Financial transactions, net (2) Provision for loan losses Support expenses (3) Segment`s net contribution   Ch$mn                 Retail Banking 18,604,936 931,105 196,845 21,141 (323,888) (529,909) 295,294 Middle-market 6,396,376 244,960 30,851 19,577 (26,748) (83,412) 185,228 Global Corporate Banking 2,121,513 95,105 25,077 55,927 7,579 (53,935) 129,753 Other 83,606 10,196 1,651 43,713 974 (19,649) 36,885 Total 27,206,431 1,281,366 254,424 140,358 (342,083) (686,905) 647,160                 Other operating income         6,427 Other operating expenses and impairment         (69,136) Income from investments in associates and other companies         3,012 Income tax expense         (109,031) Net income for the year         478,432                   (1) Corresponds to loans and accounts receivable from customers, without deducting their allowances for loan losses.     For the year ended December 31, 2019     Loans and accounts receivable at amortized cost (1)   Net interest income   Net fee and commission income   Financial transactions, net (2)   Provision for loan losses   Support expenses (3)   Segment’s net contribution     (in millions of Ch$)                               Retail Banking     22,926,377       960,361       230,627       28,426       (279,969 )     (575,511 )     363,934   Middle-market     8,093,496       298,587       38,712       13,535       (38,746 )     (97,054 )     215,034   Corporate Investment Banking     1,603,633       98,154       29,103       94,761       224       (65,343 )     156,899   Other     48,009       59,862       (11,356 )     64,970       (4,819 )     (11,953 )     96,704   Total     32,671,515       1,416,964       287,086       201,692       (323,311 )     (749,861 )     832,570   Other operating income                                                     13,001   Other operating expenses and impairment                                                     (52,029 ) Income from investments in associates and other companies                                                     1,146   Income tax expense                                                     (174,074 ) Result of continuous operations                                                     620,614   Result of discontinued operations                                                     1,699   Net income for the year                                                     622,313     (2) Corresponds to the sum of the net income from financial operations and the foreign exchange profit or loss.   (3) Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation and amortization. (1) Corresponds to loans and accounts receivable at amortized cost under IFRS 9, without deducting their allowances for loan losses. (2) Corresponds to the sum of the net income from financial operations and the foreign exchange profit or loss. (3) Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.   41 44 Table of Contents  Operations through Subsidiaries   Today, the General Banking Law permits us to directly provide the leasing and financial advisory services that we could formerly offer only through our subsidiaries, to offer investment advisory services outside of Chile and to undertake activities that we could not formerly offer directly or through subsidiaries, such as factoring, securitization, foreign investment funds, custody and transport of securities and insurance brokerage services. For the twelve–month period ended December 31, 2016,2019, our subsidiaries collectively accounted for 0.6%4.4% of our total consolidated assets.         Percent ownership share As of December 31,       Percent ownership share as of December 31,       2016   2015   2014       2019   2018   2017 Name of the Subsidiary   Main activity   Direct   Indirect   Total   Direct   Indirect   Total   Direct   Indirect   Total   Main activity   Direct   Indirect   Total   Direct   Indirect   Total   Direct   Indirect   Total         %       %       %       %       %       %       %       %       %         (in %) Santander Corredora de Seguros Limitada   Insurance brokerage     99.75       0.01       99.76       99.75       0.01       99.76       99.75       0.01       99.76     Insurance brokerage     99.75       0.01       99.76       99.75       0.01       99.76       99.75       0.01       99.76   Santander Corredores de Bolsa Limitada(*)   Financial instruments brokerage     50.59       0.41       51.00       50.59       0.41       51.00       50.59       0.41       51.00   Santander Agente de Valores Limitada   Securities brokerage     99.03       —       99.03       99.03       —       99.03       99.03       —       99.03   Santander Corredores de Bolsa Limitada   Financial instruments brokerage     50.59       0.41       51.00       50.59       0.41       51.00       50.59       0.41       51.00   Santander Asesorias Financieras Limitada   Financial advisory     99.03       –         99.03       99.03       –         99.03       99.03       –         99.03   Santander S.A. Sociedad Securitizadora   Purchase of credits and issuance of debt instruments     99.64       —       99.64       99.64       —       99.64       99.64       —       99.64     Purchase of credits and issuance of debt instruments     99.64       –         99.64       99.64       –         99.64       99.64       –         99.64   Santander Servicios de Recaudación y Pagos Limitada(**)   Support business, making and receiving payments     —       —       —       —       —       —       99.90       0.1       100.00   Klare Corredora de Seguros S.A.   Insurance brokerage     50.10       –         50.10       –         –         –         –         –         –     Santander Consumer Chile S.A.   Financing     51.00       –         51.00       –         –         –         –         –         –     As of December 18, 2019, changes were made to the company name and objective of Santander Agente de Valores Limitada, becoming Santander Asesorias Financieras Limitada.   (*) On June 19, 2015, Santander Corredores de Bolsa Limitada, our stock brokerage company changed its corporate structure to that of a limited liability company. As of October 19, 2019 Klare Corredores de Seguros S.A. was established as a digital insurance brokerage and is a banking subsidiary subject to banking regulations. The Bank owns the 50.1% of the company's capital share. (**) As of May 1, 2014, this entity was absorbed by the Bank pursuant to authorization obtained from the SBIF on March 25, 2014. As of November 15, 2019 the FMC approved the acquisition of 51% of Santander Consumer Chile S.A. by the Bank. This acquisition had been previously approved in the extraordinary shareholders’ meeting held on July 20, 2019 where it was agreed that the Bank would acquire the ownership held by SK Bergé Financiamiento S.A. and a further 2% held by the Santander Group. The total payment for the total 51% was Ch$62,136 million.   The following companies have been consolidated based on the determination that they are controlled by the Bank, in accordance with IFRS 10 Consolidated Financial Statements:   - · Santander Gestión de Recaudación y Cobranza Limitada (collection services) · Bansa Santander S.A. (management of repossessed assets and leasing of properties) · Multiplica SpA (management of co-branding agreements) As of December 2019 the Bank no longer directly consolidates Bansa Santander S.A., however it is indirectly consolidated through Santander Consumer Chile S.A. Bansa has developed a new line of business, therefore, based 45 Table of Contents on IFRS 10 Consolidated Financial Statement, the Bank has ceased to exercise control, since the Bank is not exposed, or has rights, to variable returns from its involvement with the investee.   - Bansa Santander S.A. (management of repossessed assets and leasing of properties) During 2015, Multinegocios S.A. (management of sales force), Servicios Administrativos y Financieros Limitada (management of sales force) and Multiservicios de Negocios Limitada (call center) have ceased rendering sales services toOn October 4, 2019 the company Multiplica SpA was created as a banking business support company. In accordance with IFRS 10 Consolidated Financial Statement, the Bank controls the entity, since the relevant activities are addressed by the Bank, and the Bank no longer controls their relevant activities. Thereforeis exposed, or has rights, to variable returns from its involvement with the investee. The Bank also has significant influence over the following entities:             Percentage of ownership share as of December 31,             2019   2018   2017 Associates   Main activity   Place of Incorporation and operation   (in %) Centro de Compensación Automatizado   Electronic fund transfer and compensation services   Santiago, Chile     33.33       33.33       33.33   Sociedad Interbancaria de Depósito de Valores S.A.   Delivery of securities on public offer   Santiago, Chile     29.29       29.29       29.29   Cámara Compensación de Alto Valor S.A.   Payments clearing   Santiago, Chile     15.00       15.00       15.00   Administrador Financiero del Transantiago S.A.   Administration of boarding passes for public transportation   Santiago, Chile     20.00       20.00       20.00   Servicios de Infraestructura de Mercado OTC S.A.   Administration of the infrastructure for the financial market of derivative instruments   Santiago, Chile     12.48       12.48       12.48   In the case of Cámara Compensación de Pagos Alto Valor S.A., Banco Santander-Chile has a representative on the Board of Directors. As per the definition of associates, the Bank has concluded that it exerts significant influence over this entity. In the case of Servicios de Infraestructura de Mercado OTC S.A., the Bank actively participates, through its executives, in the administration and in the process of organization, which is why the Administration has concluded that it exerts significant influence over it. The Bank classifies the following entities as of June 30, 2015, these entities have been excluded from our consolidated results. Assets Held for Sale and Discontinued Operations:             Percentage of ownership share as of December 31,             2019   2018   2017 Associates   Main activity   Place of Incorporation and operation   (in %) Sociedad Nexus S.A.   Credit card processor   Santiago, Chile     1.94        12.90       12.90   Redbanc S.A .   ATM services   Santiago, Chile     33.43       33.43       33.43   Transbank S.A.   Debit and credit card services   Santiago, Chile     25.00       25.00       25.00   As of August 1, 2014, Servicios de Cobranza Fiscalex LimitadaDecember 31, 2019, the Bank is in the process of selling its stake in Redbanc S.A. and Transbank S.A., while the Bank’s stake in Sociedad Nexus S.A. was absorbed by Santander Gestión de Recaudación y Cobranza Limitada.sold in October 2019 and January 2020. See Note 39 of our Audited Consolidated Financial Statements.   42 46 Table of Contents  Competition   Overview   The Chilean financial services market consists of a variety of largely distinct sectors. The most important sector, commercial banking, includes a number of privately-owned banks and one public-sector bank, Banco del Estado de Chile (which operates within the same legal and regulatory framework as the private sector banks). The private-sector banks include local banks and a number of foreign-owned banks operating in Chile. The Chilean banking system is comprised of 2218 banks, including one public-sector bank. The foursix largest banks accounted for 69.1%86.7% of all outstanding loans by Chilean financial institutions as of December 31, 20162019 (excluding assets held abroad by Chilean banks). In July 2018, Scotiabank Chile acquired BBVA Chile, becoming the third largest bank in terms of loans in the Chilean market. Furthermore, in the last quarter of 2018, BCI acquired the credit card financing business of Walmart Chile and the credit card of CMR Falabella was integrated into Banco Falabella. This represented an increase of total credit cards in the banking system of approximately 6%.   The Chilean banking system has experienced increased competition in recent years, largely due to consolidation in the industry and new legislation. We also face competition from non-bank and non-finance competitors, principally department stores, credit unions andcajas de compensación (private, non-profitable corporations whose aim is to administer social welfare benefits, including payroll loans, to their members) with respect to some of our credit products, such as credit cards, consumer loans and insurance brokerage. In addition, we face competition from non-bank finance competitors, such as leasing, factoring and automobile finance companies, with respect to credit products, and mutual funds, pension funds and insurance companies, with respect to savings products. Currently, banks continue to be the main suppliers of leasing, factoring and mutual funds, and the insurance sales business has grown rapidly.   All the competition data in the following sections is based on Chilean Bank GAAP.   The following tables set out certain statistics comparing our market position to that of our peer group, defined as the fivesix largest banks in Chile in terms of total loans as of December 31, 20162019 (excluding assets held by Chilean banks abroad).   As of December 31, 2016, unless otherwise noted    As of December 31, 2019, unless otherwise noted Market Share  Rank    Market Share   Rank Commercial loans 17.3% 2     16.0 %     2   Consumer loans 23.4% 1     20.8 %     1   Residential mortgage loans 21.6% 1     21.1 %     1   Total loans 19.4% 1     19.0 %     1   Deposits 18.8% 1     17.4 %     2   Credit card issued 15.5% 1 Checking accounts (1) 21.8% 1 Credit card usage(1)     26.4 %     1   Checking accounts(1)     21.6 %     1   Branches 19.3% 1     18.8 %     2       Source: SBIF Source: FMC   (1) As of November 2016,October 2019, according to the latest publicly available information   43  Table of Contents Loans   As of December 31, 2016,2019, our loan portfolio was the largest among Chilean banks. Our loan portfolio, including interbank loans, represented 19.4%18.2% of the market for loans in the Chilean financial system as of such date. The following table sets forth our and our peer group’s market shares in terms of loans (excluding assets held by Chilean banks abroad).       As of December 31, 2016 (Chilean Bank GAAP) Loans   Ch$ million   U.S.$ million   Market Share Santander-Chile     27,206,431       40,850       19.4 % Banco de Chile     25,858,639       38,827       18.4 % Banco de Crédito e Inversiones     18,183,165       27,302       13.0 % Banco del Estado de Chile     20,208,686       30,343       14.4 % BBVA, Chile     9,271,674       13,921       6.6 % Itaú Corpbanca     15,503,610       23,279       11.1 % Others     51,232,466       76,926       36.5 % Chilean financial system     140,258,239       210,598       100.0 % 47 Table of Contents     As of December 31, 2019 (Chilean Bank GAAP) Loans   Ch$ million   U.S.$ million   Market Share Santander-Chile     32,731,735       43,796       18.2 % Banco de Chile     30,529,608       40,849       17.0 % Scotiabank Chile     25,349,436       33,918       14.1 % Banco de Crédito e Inversiones     24,920,596       33,344       13.8 % Banco del Estado de Chile     24,872,216       33,280       13.8 % Itaú Corpbanca     17,679,376       23,655       9.8 % Others     23,974,470       32,078       13.3 % Chilean financial system     180,057,437       240,921       100.0 %     Source: SBIF Source: FMC.   Deposits   We had a 18.8%17.4% market share in deposits, ranking firstsecond among banks in Chile as of December 31, 2016.2019. Deposit market share is based on total time and demand deposits as of the respective dates. The following table sets forth our and our peer group’s market shares in terms of deposits (excluding assets held by Chilean banks abroad).     As of December 31, 2016 (Chilean Bank GAAP)   As of December 31, 2019 (Chilean Bank GAAP) Deposits   Ch$ million   U.S.$ million   Market Share   Ch$ million   U.S.$ million   Market Share Banco del Estado de Chile     24,505,565       32,789       18.2 % Santander-Chile     20,691,024       31,068       18.8 %     23,490,249       31,431       17.4 % Banco de Chile     18,874,049       28,339       17.2 %     22,182,751       29,681       16.5 % Banco de Crédito e Inversiones     13,492,879       20,260       12.3 %     17,111,046       22,895       12.7 % Banco del Estado de Chile     19,744,842       29,647       18.0 % BBVA, Chile     6,876,369       10,325       6.3 % Scotiabank Chile     15,989,560       21,394       11.9 % Itaú Corpbanca     10,648,447       15,989       9.7 %     12,067,573       16,147       9.0 % Others     19,573,689       29,390       17.8 %     19,463,698       26,043       14.4 % Chilean financial system     109,901,300       165,017       100.0 %     134,810,442       180,380       100.0 %     Source: SBIF. Source: FMC.   Total equityEquity   With Ch$2,898,047 million3,390,823million (U.S.$4,3514,537 million) in equity in Chilean Bank GAAP as of December 31, 2016,2019, we were the secondthird largest commercial bank in Chile in terms of shareholders’ equity. The following table sets forth our and our peer group’s shareholders’ equity.     As of December 31, 2016 (Chilean Bank GAAP)   As of December 31, 2019 (Chilean Bank GAAP) Total Equity   Ch$ million   U.S.$ million   Market Share   Ch$ million   U.S.$ million   Market Share Banco de Crédito e Inversiones     3,791,478       5,073       17.8 % Banco de Chile     3,528,222       4,721       16.5 % Santander-Chile     2,898,047       4,351       16.3 %     3,390,823       4,537       15.9 % Banco de Chile     2,887,411       4,335       16.2 % Banco de Crédito e Inversiones     2,518,677       3,782       14.1 % Itaú Corpbanca     3,346,102       4,477       15.7 % Scotiabank Chile     2,038,149       2,727       9.6 % Banco del Estado de Chile     1,572,861       2,362       8.8 %     1,802,797       2,412       8.5 % BBVA, Chile     829,494       1,245       4.7 % Itaú Corpbanca     3,404,296       5,112       19.1 % Others     3,692,173       5,544       20.7 %     3,421,740       4,578       16.0 % Chilean financial system     17,802,959       26,731       100.0 %     21,319,311       28,526       100.0 %     Source: SBIF. Source: FMC. 44  Table of Contents   Efficiency   As of December 31, 2016,2019, we were the most efficient bank in our peer group. The following table sets forth our and our peer group’s efficiency ratio (defined as operating expenses as a percentage of operating revenue, which is the aggregate of net interest income, fees and income from services (net), net gains from mark-to-market and trading, exchange differences (net) and other operating income (net)) in each case under Chilean Bank GAAP.   48 Table of Contents Efficiency ratio as defined by the SBIF  FMC As of December 31, 2016 (Chilean2019 (Chilean Bank GAAP) Santander-Chile 44.4% 41.3 % Banco de Chile 45.2% 44.8 % Scotiabank Chile 49.9 % Banco de Crédito e Inversiones 53.8% 50.5 % Itaú Corpbanca 57.7 % Banco del Estado de Chile 61.3% BBVA, Chile 61.5% Itaú Corpbanca 71.2%58.9 % Chilean financial system 53.9% 48.4 %   Source: SBIF. Source: FMC.   Net incomeIncome for the period attributablePeriod Attributable to equity holdersEquity Holders   In 2016,2019, we were the second largest bank in Chile in terms of net income attributable to shareholders of Ch$472,351552,093 million (U.S.$709739 million) measured under Chilean Bank GAAP. The following table sets forth our and our peer group’s net income.     As of December 31, 2016 (Chilean Bank GAAP)   As of December 31, 2019 (Chilean Bank GAAP) Net income attributable to equity holders   Ch$ million   U.S.$ million   Market Share   Ch$ million   U.S.$ million   Market Share Banco de Chile     593,008       793       23.4 % Santander-Chile     472,351       709       24.3 %     552,093       739       21.8 % Banco de Chile     552,249       829       28.4 % Banco de Crédito e Inversiones     340,121       511       17.5 %     402,645       539       15.9 % Scotiabank Chile     254,226       340       10.0 % Banco del Estado de Chile     147,090       221       7.6 %     167,019       223       6.6 % BBVA, Chile     80,440       121       4.1 % Itaú Corpbanca     2,059       3       0.1 %     127,065       170       5.0 % Others     349,001       524       18.0 %     437,790       586       17.3 % Chilean financial system     1,943,311       2,918       100.0 %     2,533,846       3,390       100.0 %     Source: SBIF. FMC.   Return on equity   As of December 31, 2016,2019, we were the second most profitable bank in our peer group (as measured by return on period-end equity under Chilean Bank GAAP) and the third most capitalized bank as measured by the Chilean BIS ratio. The following table sets forth our and our peer group’s return on average equity and BIS ratio.     Return on period-end equity as of December 31, 2016 (Chilean Bank GAAP)   BIS Ratio as of December 31, 2016 (Chilean Bank GAAP)   Return on period-end equity as of December 31, 2019 (Chilean Bank GAAP)   BIS Ratio as of November 30, 2019 (Chilean Bank GAAP) Banco de Chile     16.8       13.7   Santander-Chile     16.4 %     13.4 %     16.0       12.3   Banco de Chile     19.1 %     13.9 % Banco de Crédito e Inversiones     13.5 %     13.4 %     10.6       11.8   Banco del Estado de Chile     10.2 %     11.3 %     10.1       10.9   BBVA, Chile     9.7 %     12.3 % Itaú Corpbanca     (0.1 )%     14.0 %     3.9       13.3   Chilean Financial System     11.0 %     13.8 % Scotiabank Chile     12.8       10.4   Chilean financial system     12.1       12.5       Source: SBIF. Source: FMC. 45  Table of Contents   Asset Quality   As of December 31, 2016,2019, we had the second-highestfourth lowest non-performing loan to loan ratio in our peer group. The following table sets forth our and our peer group’s non-performing loan ratio as defined by the SBIFFMC as of December 31, 2016.2019.   49 Table of Contents   Non-performing loans / total loans(1)loans(1) as of December 31, 2016 (Chilean2019 (Chilean Bank GAAP) Santander-Chile 2.07% Banco de Chile 1.12% Banco de Crédito e Inversiones 1.42% 1.3 Banco de Chile 1.4 Scotiabank Chile 1.9 Santander-Chile 2.1 Itaú Corpbanca 2.8 Banco del Estado de Chile 3.34% BBVA, Chile 1.30% Itaú Corpbanca 1.66%3.7 Chilean financial system 1.85% 2.1     Source: SBIF. Source: FMC   (1) Excluding interbank loans.   Regulation and Supervision   General   In Chile, only banks may maintain checking accounts for their customers, conduct foreign trade operations, and, together with non-banking financial institutions, accept time deposits. The principal authorities that regulate financial institutions in Chile are the FMC, previously the SBIF prior to being absorbed by the FMC on June 1, 2019, and the Central Bank. Chilean banks are primarily subject to the General Banking Law, and secondarily subject, to the extent not inconsistent with this statute, the provisions of the Chilean Companies Law governing public corporations, except for certain provisions which are expressly excluded.   The modern Chilean banking system dates from 1925 and has been characterized by periods of substantial regulation and state intervention, as well as periods of deregulation. The most recent period of deregulation commenced in 1975 and culminated in the adoption of a series of amendments to General Banking Law. That law was amended most recently in 2001 grantedto grant additional powers to banks, including general underwriting powers for new issues of certain debt and equity securities and the power to create subsidiaries to engage in activities related to banking, such as brokerage, investment advisory and mutual fund services, administration of investment funds, factoring, securitization products and financial leasing services. The most recent amendment to the General Banking Law was introduced by law 21,130, passed in January 2019, which modernizes Chile’s banking legislation by adopting capital and resolution standards in line with the requirements of the Basel Committee.   The Central Bank   The Central Bank is an autonomous legal entity created by the Chilean Constitution. It is subject to the Chilean Constitution and its ownley orgánica constitucional, or organic constitutional law. To the extent not inconsistent with the Chilean Constitution or the Central Bank’s organic constitutional law, the Central Bank is also subject to private sector laws (but in no event is it subject to the laws applicable to the public sector). It is directed and administered by a Board of Directors composed of five members designated by the President of Chile, subject to the approval of the Chilean Senate.   The legal purpose of the Central Bank is to maintain the stability of the Chilean peso and the orderly functioning of Chile’s internal and external payment systems. The Central Bank’s powers include setting reserve requirements, regulating the amount of money and credit in circulation, establishing regulations and guidelines regarding finance companies, foreign exchange (including the Formal Exchange Market) and banks’ deposit-taking activities.   The SBIFFinancial Market Commission   Banks are supervised and controlled byIn 2017, Law 21,000 created the SBIF, an independentComisión para el Mercado Financiero or Financial Market Commission (FMC). This law became a Law of the Republic in January 2018. The FMC is now the sole supervisor for the Chilean governmental agency. The SBIF authorizes the creation of new banks and has broad powers to interpret and enforce legal and regulatory requirements applicable to banks and financial companies. Furthermore, in cases of noncompliancesystem overseeing insurance companies, companies with such legal and regulatory requirements, the SBIF has the ability to impose sanctions. In extreme cases, it can appoint, with thepublicly traded securities, credit unions,   46 50 Table of Contents  prior approvalcredit card and prepaid card issuers, and, as of June 1, 2019, banks. It is the responsibility of this commission to ensure the proper functioning, development and stability of the Boardfinancial market, facilitating the participation of Directorsmarket agents and defending public faith in the financial markets. To do so, it must maintain a general and systemic vision of the Central Bank, a provisional administrator to manage a bank. It must also approve any amendment to a bank’s by-lawsmarket, considering the interests of investors and policyholders. Likewise, it shall be responsible for ensuring that the persons or any increase in its capital.entities audited, from their initiation until the end of their liquidation, comply with the laws, regulations, statutes and other provisions that govern them.   The Commission is in charge of a Council, which is composed of five members, who are appointed and are subject to the following rules: · A Commissioner appointed by the President of Chile, of recognized professional or academic prestige in matters related to the financial system, which will have the character of President of the Commission. · Four commissioners appointed by the President of Chile, from among persons of recognized professional or academic prestige in matters related to the financial system, by supreme decree issued through the Ministry of Finance, after ratification of the Senate by the four sevenths of its members in exercise, in session specially convened for that purpose. The Council’s responsibilities include regulation, sanctioning and the definition of general supervision policies. In addition, there will be a prosecutor in charge of investigations and the Chairman will be responsible for supervision. The FMC will act in coordination with the Chilean Central Bank (BCCh). The date of entry into operation of the Commission for the Financial Market was December 14, 2017. The Superintendency of Securities and Insurance was eliminated on January 15, 2018 and all functions of this Superintendency were absorbed by the FMC. In January 2019, Law 21,130, which modernized the banking legislation contained in the General Banking Law and amended Law 21,000 (among others), was published in the Official Gazette. The law modernizes Chilean banking regulation in order to comply with Basel III practices and provisions. The law provides for stronger banking capital and reserves requirements in accordance with Basel III guidelines. The law also modernizes the corporate governance function of the FMC and, importantly, transfers the SBIF functions to the domain of the FMC. The FMC now has the faculty to determine the risk weighting of assets through a standardized model to be approved by the FMC or banks can implement their own methodology, subject to approval by the FMC. The law also imposes limitations on dividend distributions and puts in place intervention mechanisms in the event of insolvency. The regulator examines all banks from time to time, generally at least once a year. Banks are also required to submit their financial statements monthly to the SBIF,FMC, and a bank’sthe banks’ financial statements are published at least four times a year in a newspaper with countrywide coverage. In addition, banks are required to provide extensive information regarding their operations at various periodic intervals to the SBIF.FMC. A bank’s annual financial statements and the opinion of its independent auditors must also be submitted to the SBIF.FMC.   Any person wishing to acquire, directly or indirectly, 10.0% or more of the share capital of a bank must obtain the prior approval of the SBIF.FMC. Absent such approval, the acquirer of shares so acquired will not have the right to vote. The SBIFFMC may only refuse to grant its approval, based on specific grounds set forth in the General Banking Law.   According to Article 35bis of the New General Banking Law, the prior authorization of the SBIFregulator is required for:   · the merger of two or more banks;   · the acquisition of all or a substantial portion of a bank’s assets and liabilities by another bank;   · the control by the same person, or controlling group, of two or more banks; or   · a substantial increase in the existing control of a bank by a controlling shareholder of that bank.   Such prior authorization is required solely when the acquiring bank or the resulting group51 Table of banks would own a significant market share in loans, defined by the SBIF to be more than 15.0% of all loans in the Chilean banking system. Contents The intended purchase, merger or expansion may be denied by the SBIF; or, ifregulator with an accompanying resolution recording the acquiring bank or resulting group would ownspecific reasons for denial and with agreement of a market share in loans determined to be more than 20.0% of all loans in the Chilean banking system, the purchase, merger or expansion may be conditioned on one or moremajority of the following: · that the bank or banks maintain regulatory capital higher than 8.0% and up to 14.0% of their risk-weighted assets; · that the technical reserve established in Article 65 of the General Banking Law be applicable when deposits exceed one and a half times the resulting bank’s paid-in capital and reserves; or · that the margin for interbank loans be reduced to 20.0% of the resulting bank’s regulatory capital. If the acquiring bank or resulting group would own a market share in loans determined by the SBIF to be more than 15.0% but less than 20.0%, the authorization will be conditioned on the bank or banks maintaining a regulatory capital not lower than 10.0%Board of their risks-weighted assets for the period specified by the SBIF, which may not be less than one year. The calculationDirectors of the risk-weighted assets is based on a five-category risk classification system applied to a bank’s assets that is based on the Basel Committee recommendations.Central Bank.   Pursuant to the regulations of the SBIF,FMC, the following ownership disclosures are required:   · a bank is required to inform the SBIFFMC of the identity of any person owning, directly or indirectly, 5.0% or more of such banks’ shares;   · holders of ADSs must disclose to the Depositary the identity of beneficial owners of ADSs registered under such holders’ names;   · the Depositary is required to notify the bank as to the identity of beneficial owners of ADSs which such Depositary has registered and the bank, in turn, is required to notify the SBIFFMC as to the identity of the beneficial owners of the ADSs representing 5.0% or more of such banks’ shares; and   · bank shareholders who individually hold 10.0% or more of a bank’s capital stock and who are controlling shareholders must periodically inform the SBIFFMC of their financial condition. 47  Table of Contents   Limitations on Types of Activities   Chilean banks can only conduct those activities allowed by the General Banking Law: making loans, accepting deposits and, subject to limitations, making investments and performing financial services. Investments are restricted to real estate for the bank’s own use, gold, foreign exchange and debt securities. Through subsidiaries, banks may also engage in other specific financial service activities such as securities brokerage services, equity investments, securities, mutual fund management, investment fund management, financial advisory and leasing activities. Subject to specific limitations and the prior approval of the SBIFFMC and the Central Bank, Chilean banks may own majority or non-controlling interests in foreign banks.   Since June 1, 2002, Chilean banks are allowed to offer a new checking account product that pays interest. The SBIF also stated that these accounts may be subject to minimum balance limits and different interest rates depending on average balances held in the account and that banks may also charge fees for the use of this new product. For banks with a solvency score of less than A, the Central Bank has also imposed additional caps to the interest rate that can be paid. On June 5, 2007, pursuant to Law 20.190, new regulations became effective authorizing banks to enter into transactions involving a wider range of derivatives, such as futures, options, swaps, forwards and other derivative instruments or contracts subject to specific limitations established by the Central Bank of Chile. Previously, banks were able to enter into transactions involving derivatives, but subject to more restrictive guidelines. Deposit Insurance   The Chilean government guarantees up to 90.0% of the principal amount of certain time and demand deposits and savings accounts held by natural persons with a maximum value of UF120UF400 per person (Ch$3,161,75811,323,976 or U.S.$4,74715,152 as of December 31, 2016)2019) per calendar year in the entire financial system.system and a maximum of UF200 per person per bank.   Reserve Requirements   Deposits are subject to a reserve requirement of 9.0% for demand deposits and 3.6% for time deposits (with terms of less than one year). For purposes of calculating the reserve obligation, banks are authorized to deduct daily from their foreign currency denominated liabilities, the balance in foreign currency of certain loans and financial investments held outside of Chile, the most relevant of which include:   · cash clearance account, which should be deducted from demand deposit for calculating reserve requirement;   · certain payment orders issued by pension providers; and   · the amount set aside for “technical reserve” (as described below), which can be deducted from reserve requirement.   The Central Bank has statutory authority to require banks to maintain reserves of up to an average of 40.0% for demand deposits and up to 20.0% for time deposits (irrespective, in each case, of the currency in which they are denominated) to implement monetary policy. In addition, to the extent that the aggregate amount of the following types of liabilities exceeds 2.5 times the amount of a bank’s regulatory capital, a bank must maintain a 100.0% “technical reserve” against them: demand deposits, deposits in checking accounts, or obligations payable on sight incurred in the ordinary course of business, and in general all deposits unconditionally payable immediately but excluding interbank demand deposits.   52 Table of Contents Minimum Capital   Under the General Banking Law, a bank is required to have a minimum of UF800,000 (approximately Ch$21,07822,648 million or U.S.$31.6.30.3 million as of December 31, 2016)2019) of paid-in capital and reserves, calculated in accordance with Chilean Bank GAAP, regulatory capital of at least 8.0% of its risk weighted assets, net of required allowances, and paid in capital and reserves of at least 3.0% of its total assets, net of required allowances, as calculated in accordance with Chilean Bank GAAP. 48  Table Under the New General Banking Law, total regulatory capital remains at 8% of Contents risk-weighted assets which includes credit, market and operational risk, while Minimum Tier 1 capital increases from 4.5% to 6% of risk-weighted assets.   Regulatory capital is defined as the aggregate of:   · a bank’s paid-in capital and reserves, excluding capital attributable to subsidiaries and foreign branches orcapital básico;   · its subordinated bonds, valued at their placement price (but decreasing by 20.0% for each year during the period commencing six years prior to maturity), for an amount up to 50.0% of its core capital; and   · its voluntary allowances for loan losses for an amount of up to 1.25% of risk weighted-assets.   Capital Adequacy Requirements   According to the General Banking Law, eacha bank shouldis required to have regulatory capital of at least 8.0% of its risk-weighted assets, net of required allowances. The calculation of risk weighted assets is based on a five-category risk classification system for bank assets that is based on the Basel Committee recommendations. The SBIF is expected to implement in 2017 the Basel IIIloan loss allowances, and paid-in capital standards in Chile, which will includes the implementation of capital limits with market risk and operational risk-weighted assets. These changes must be approved by the Chilean Congress, as it involves a modification to the General Banking Law. Banks should also havecapital básicoreserves (i.e., or core capital,capital) of at least 3.0% of theirits total assets, net of required loan loss allowances. CoreFor these purposes, the regulatory capital of a bank is the sum of: (1) the bank’s core capital; (2) subordinated bonds issued by the bank valued at their placement price for an amount up to 50.0% of its core capital, provided that the value of the bonds is required to be decreased by 20.0% for each year that elapses during the period commencing six years prior to their maturity; and (3) its voluntary allowances for loan losses, for an amount of up to 1.25% of its risk-weighted assets. Santander-Chile does not have goodwill, but if it did, this value would be required to be deducted from regulatory capital. When calculating risk weighted assets, we also include off-balance sheet contingent loans. The merger of Old Santander Chile and Santiago on August 1, 2002 required a special regulatory pre-approval of the SBIF (predecessor of the FMC), which was granted on May 16, 2002. The resolution granting this pre-approval imposed a regulatory capital to risk weighted assets ratio of 12.0% for the merged bank. This requirement was reduced to 11.0% by the SBIF (now the FMC) effective January 1, 2005. For purposes of weighing the risk of a bank’s assets, the General Banking Law considers five different categories of assets, based on the nature of the issuer, the availability of funds, and the nature of the assets and the existence of collateral securing such assets. On November 19, 2019, the FMC published for consultation a new regulation on regulatory capital to comply with effective net worth rules in accordance with Basel III and the New General Banking Law. The new regulation will become effective on December 1, 2020 and will be gradually implemented and adjusted to be fully in place by December 1, 2024. Pursuant to the proposed regulation, there will be three levels of capital: ordinary capital level 1 or CET1 (basic capital), additional capital level 1 or AT1 (perpetual bonds and preferred stock) and capital level 2 or T2 (subordinated bonds and voluntary provisions). Regulatory capital will be composed of the sum of CET1, AT and T2 after making some deductions, mainly for intangible assets, hybrid securities issued by foreign subsidiaries, partial deduction for deferred taxes and some reserve and profit accounts. Under the New General Banking Law, minimum capital requirements have increased in terms of amount and quality. Total Regulatory Capital remains at 8% of risk-weighted assets which includes credit, market and operational risk. Minimum Tier 1 capital increased from 4.5% to 6% of risk-weighted assets, of which up to 1.5% may be Additional Tier 1 (AT1), either in the form of preferred shares or perpetual bonds, both of which may be convertible to common equity. The FMC also establishes the conditions and requirements for the issuance of perpetual bonds and preferred equity. Tier 2 capital is defined to include shareholders’ equity.now set at 2% of risk-weighted assets.   WithinAdditional capital demands are incorporated through a Conservation Buffer of 2.5% of risk-weighted assets. The Central Bank may set an additional Counter Cyclical Buffer of up to 2.5% of risk-weighted assets in agreement with the scopeFMC. Both buffers must be comprised of core capital. 53 Table of Contents The FMC, with agreement from the Central Bank, may impose additional capital requirements for Systemically Important Banks (“SIB”) of between 1-3.5% of risk-weighted assets. Notably, the Central Bank may require: (1) the addition of up to 2% to the core capital to a bank’s total assets ratios; (2) a reduction in the technical reserve requirement trigger from 2.5 times regulatory capital to 1.5 times regulatory capital; and/or (3) a reduction in the interbank loan limit to 20% of regulatory capital of any SIB. The FMC will have until December 1, 2020 to establish the weightings. Until then, banks must maintain a regulatory capital of at least 8% of risk-weighted assets, net of required loan loss allowance and deductions, and paid-in capital and reserves (“core capital”) of at least 3% of total assets, net of required loan loss allowances. We must maintain a minimum regulatory capital to risk-weighted assets ratio of 11%. As of December 31, 2019 our ratio of regulatory capital to risk weighted assets was 13.4%. The FMC has already started publishing drafts for consultation. On August 12, 2019, the FMC published their first draft for the identification and core capital charge for those banks considered SIBs. There are a total of four factors that are then weighted to reach a market share: 1. Size (weighted at 30%): Includes total assets consolidated in the domestic market. 2. Domestic interconnection (weighted at 30%): Includes assets and liabilities with financial institutions (banks and non-banks) and assets in circulation in the Chilean financial market (equity and fixed income). 3. Domestic substitution (weighted at 20%): Includes the share in local payments, assets in custody, deposits and loans. 4. Complexity (weighted at 20%): Includes factors that could lead to greater difficulties regarding costs and/ or time for the orderly resolution of the Bank. These include the notional amount of OTC derivatives, inter-jurisdictional assets and liabilities and available-for-sale assets. The minimum amount of the sum of the factors to be considered systemic is 1000 bp, equivalent to a weighted participation of 10% of all four factors. The core capital additional charge depends on the size of the total factor, as set out in the table below: Systemic Level Range (bp) Core capital additional charge (% of risk-weighted assets) I 1000-1300 1.0%-1.25% II 1300-1800 1.25%-1.75% III 1800-2000 1.75%-2.5% IV >=2000 2.5%-3.5% Given our size and market share, it is likely that we will be classified as a SIB, according to the FMC’s proposed regulation on SIBs. On September 13, 2019, the FMC published the risk weightings for operational risk. In order to estimate the operational risk coefficient, two factors are considered: 1. The business indicator component (BIC): A component that considers interest income, interest earning assets, dividend income, financial transactions, fees, and other operational income and expenses. These are then multiplied by a marginal coefficient. 2. Internal Loss Multiplier (ILM): This component is based on 10 years of historical operational losses, or at least five years in some special cases. On January 27, 2019, the FMC published for consultation the risk weighting model for credit risk. The Basel Committee on Banking Supervision (BCBS) defines credit risk (CR) as the risk that a debtor or bank counterparty does not meet its obligations in accordance with the agreed terms. Credit risk is the most relevant in the Chilean banking industry. The mechanism in force today estimates Risk Weighted Assets by Credit Risk (RWCR) using a methodology based on the Basel I standard. The proposed standard method with Basel III standards is more advanced, since it has categories that depend on the type of counterparty and different risk factors. These categories are not based on accounting criteria, but rather on the underlying risk. Thus, all exposures that have mortgage guarantees, for example mortgage loans for housing, have a different treatment from those exposures not guaranteed 54 Table of Contents by a mortgage. Additionally, in Chile, further changes in regulation may occur. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Chile—Wethe case of mortgage-backed exposures, there will be different types of treatment depending on the type of real estate and whether the obligations are paid with income generated by the property itself. The new framework will also allow the use of internal methodologies, subject to substantialcompliance with minimum requirements. The standard in consultation includes the possibility of reducing RWCR when considering credit risk mitigators, such as compensation agreements, guarantees and other compensations. The New General Banking Law also incorporates Pillar II capital requirements with the objective of assuring an adequate management of risk. The FMC, with at least four votes from the Council of the FMC, will have the power to impose additional regulatory capital demands of up to 4% of risk-weighted assets, either Tier I or Tier II, if it determines that the previous capital levels and buffers are not enough for a particular financial institution. The FMC will be responsible for establishing weightings for risk-weighted assets as a separate regulation based on the implementation of standard models, subject to agreement from the Central Bank. The following table sets forth a comparison between the regulatory capital demands under the previous law, and regulatory and governmental oversight which could adversely affectthose under the New General Banking Law: Capital requirements: Basel III, previous GBL and new requirements Capital categories   Previous Law   New General Banking Law (% over risk weighted assets) (1) Total Tier 1 Capital (2+3)   4.5   6 (2) Shareholders’ Equity   4.5   4.5 (3) Additional Tier 1 Capital (AT1)   —   1.5 (4) Tier 2 Capital   3.5   2 (5) Total Regulatory Capital (1+4)   8   8 (6) Conservation Buffer   2% over regulatory capital in order to be classified in Category A solvency.   2.5 (7) Total Equity Requirement (5+6)   8   10.5 (8) Counter Cyclical Buffer   —   up to 2.5 (9) SIB* Requirement   Up to 6% in case of a merger   Between 1 - 3.5 * Systemically Important Banks The regulations for calculating RWA under the new guidelines must be implemented by December 1, 2020. We may be required to raise additional capital in the future in order to maintain our business, operations and financial condition.”capital adequacy ratios above the minimum required levels.   Lending Limits   Under the General Banking Law, Chilean banks are subject to certain lending limits, including the following material limits:   · A bank may not extend to any entity or individual (or any one group of related entities), except for another financial institution, directly or indirectly, unsecured credit in an amount that exceeds 10.0% of the bank’s regulatory capital, or in an amount that exceeds 30.0% of its regulatory capital if the excess over 10.0% is secured by certain assets with a value equal to or higher than such excess. These limits were raised from 5.0% and 25.0%, respectively, in 2007 by theReformas al Mercado de Capitales II (also known as MK2). In the case of financing infrastructure projects built by government concession, the 10.0% ceiling for unsecured credits is raised to 15.0% if secured by a pledge over the concession, or if granted by two or more banks or finance companies which have executed a credit agreement with the builder or holder of the concession;concession in the case of export loans in foreign currency the ceiling is raised to 30%;   · a bank may not extend loans to another financial institution subject to the General Banking Law in an aggregate amount exceeding 30.0% of its regulatory capital; 55 Table of Contents · a bank may not grant loans to a single business group, as defined in Title XV of Law 18.045, that exceeds 30% of the Bank’s regulatory capital. This limit excludes interbank loans. · if a bank originates a loan in excess of these limits, a fine equivalent to 10% of the excess will be applied to the bank.   · a bank may not directly or indirectly grant a loan whose purpose is to allow an individual or entity to acquire shares of the lender bank;   · a bank may not lend, directly or indirectly, to a director or any other person who has the power to act on behalf of the bank; and   · a bank may not grant loans to related parties (including holders of more than 1.0% of its shares) on more favorable terms than those generally offered to non-related parties. Loans granted to related parties are subject to the limitations described in the first bullet point above. In addition, the aggregate amount of loans to related parties may not exceed a bank’s regulatory capital.   In addition, the General Banking Law limits the aggregate amount of loans that a bank may grant to its employees to 1.5% of its regulatory capital, and provides that no individual employee may receive loans in excess of 10.0% of this 1.5% limit. Notwithstanding these limitations, a bank may grant to each of its employees a single residential mortgage loan for personal use during such employee’s term of employment.   49  Table of Contents Allowance for Loan Losses   Chilean banks are required to provide to the SBIFFMC detailed information regarding their loan portfolio on a monthly basis. The SBIFFMC examines and evaluates each financial institution’s credit management process, including its compliance with the loan classification guidelines. Banks are classified into four categories: 1, 2, 3 and 4. Each bank’s category depends on the models and methods used by the bank to classify its loan portfolio, as determined by the SBIF.FMC. Category 1 banks are those banks whose methods and models are satisfactory to the SBIF.FMC. Category 1 banks will be entitled to continue using the same methods and models they currently have in place. A bank classified as a category 2 bank will have to maintain the minimum levels of reserves established by the SBIFFMC while its Board of Directors will be made aware of the problems detected by the SBIFFMC and required to take steps to correct them. Banks classified as categories 3 and 4 will have to maintain the minimum levels of reserves established by the SBIFFMC until they are authorized by the SBIFFMC to do otherwise. Santander-Chile is categorized as a “Category 1” bank.   Differences between IFRS and Chilean Bank GAAP   As stated above, Chilean Bank GAAP, as prescribed by the Compendium of Accounting Standards (the “Compendium”), differs in certain respects from IFRS. The main differences that should be considered by an investor are the following:   Suspension of Income Recognition on Accrual Basis   In accordance with the Compendium, financial institutions must suspend recognition of income on an accrual basis in their statements of income for certain loans included in the impaired portfolio. IFRS does9 and IAS 39 did not allow the suspension of accrual of interest on financial assets for which an impairment loss has been determined. As of January 1, 2018, the Bank adopted IFRS 9. Under IFRS 9, interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for financial assets that have subsequently become credit-impaired (or “Stage 3”), for which interest revenue is calculated by applying the effective interest rate to their amortized cost (i.e., net of ECL provision). Off-balance interests are recorded as interest income only if the Bank receives the related payments. This difference does not materially impact our Audited Consolidated Financial Statements.   Charge-offs and Accounts Receivable   The Compendium requires companies to establish deadlines for the charge-off of loans and accounts receivable. IFRS does not require any such deadline for charge-offs. A charge-off due to impairment would be recorded, if 56 Table of Contents and only if, all efforts at collection of the loan or account receivable had been exhausted. Accordingly, this difference does not materially impact our Audited Consolidated Financial Statements.   Assets Received in Lieu of Payment   The Compendium requires that the initial value of assets received in lieu of payment be the value agreed upon with a debtor as a result of the loan settlement or the value awarded in an auction, as applicable. These assets are required to be written off one year after their acquisition, if the assets have not been previously disposed of. IFRS requires that assets received in lieu of payment be initially accounted for at fair value. Subsequently, asset valuation depends on the classification provided by the entity for that type of asset. No deadline is established for charging-off an asset. The Bank has adjusted the Audited Consolidated Financial Statements accordingly.   Loan loss allowancesLoss Allowances   Prior to the adoption of IFRS 9 on January 1, 2018, the Bank calculated loan loss allowances in accordance with IAS 39. The main difference between Chilean bankBank GAAP and IFRS 9 and IAS 39 regarding loan loss allowances is that loan loss allowances under Chilean Bank GAAP these are calculated using expected loss models based on specific guidelines set by the SBIF,FMC, which are in turn are based on an expected losses approach and under IFRS, we usewhile IAS 39 used an incurred loss approach. According to both Chilean Bank GAAP and IFRS, loan loss allowances are calculated using expected loss models. The models adopted with IFRS 9 used an expected loss approach, however these are not in accordance with specific guidelines under Chilean Bank GAAP given by the FMC. The FMC has not yet adopted IFRS 9 and therefore the Bank has adjusted the Audited Consolidated Financial Statements.Statements to fully comply with IFRS standards. The most significant impact of IFRS 9 on the Bank’s financial statements arises from the new impairment requirements. Impairment losses will increase and become more volatile for financial instruments in the scope of the IFRS 9 impairment model. Based on the assessment made the total impact (net of tax) of the adoption of IFRS 9 on the opening balance on the Bank’s equity at 1 January 2018 is Ch$82,454 million (net of tax).   Provisions for country riskCountry Risk and for contingent loan riskContingent Loan Risk   Under Chilean Bank GAAP, the Bank provisions for country risk to cover the risk taken when holding or committing resources with any foreign country. These allowances are established according to country risk classifications established by the SBIFFMC and therefore are not in accordance with IFRS as issued by the IASB. Our Audited Consolidated Financial Statements have been adjusted accordingly.   Also under Chilean Bank GAAP, the Bank has established allowances related to the undrawn available credit lines and contingent loans in accordance with the SBIF. AsFMC. Prior to the adoption of IFRS 9, IAS 39 only permitspermitted allowances following its internal models based on incurred debt,debt. With the adoption of IFRS 9, provisions for contingent loans are calculated based on expected credit loss. The Bank has adjusted the Audited Consolidated Financial Statements accordingly. 50  Table of Contents   These differences do not materially impact our financial statements.   Deferred taxes   The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to differences between the carrying amount of assets and liabilities and their tax bases. Due to the adjustments made to the consolidated financial statements, we adjust deferred taxes accordingly.   Provision for mandatory dividendsMandatory Dividends   This provision is made in accordance with the Bank’s internal policy and Article 79 of the Chilean Companies Law, pursuant to which at least 30% of net income for the period is distributed, except in the case of a contrary resolution adopted at the respective shareholders’ meeting by unanimous vote of the outstanding shares. While the Bank uses the same policy under Chilean Bank GAAP and IFRS, the net income used to calculate the provision is adjusted in accordance with IFRS principles.principles, however for the distribution of dividends, the Bank uses the net income according to Chilean Bank GAAP.   57 Table of Contents Capital Markets   Under the General Banking Law, banks in Chile may purchase, sell, place, underwrite and act as paying agents with respect to certain debt securities. Likewise, banks in Chile may place and underwrite certain equity securities. Bank subsidiaries may also engage in debt placement and dealing, equity issuance advice and securities brokerage, as well as in financial leasing, mutual fund and investment fund administration, investment advisory services and merger and acquisition services. These subsidiaries are regulated by the SBIF and, in some cases, also by the Superintendency of Securities and Insurance, the regulator of the Chilean securities market, open-stock corporations and insurance companies.FMC.   Legal Provisions Regarding Banking Institutions with Economic Difficulties   TheArticle 112 of the New General Banking Law provides that if specified adverse economic circumstances exist at any bank, its Board of Directors must approve a financing plan to correct the situation and present it to the FMC. In its proposal, the bank must state the scheduled time within 30 days fromwhich the date of receiptplan will be completed, which may not exceed 6 months. If one of the relevant financial statements. Ifmeasures contained in the Board of Directorsfinancing plan is unable to do so, it must call a special shareholders’ meeting to increase the capital of the bank by the amount necessary to return the bank to financial stability.stability, the Board of Directors must call a special shareholders’ meeting to the capital increase. If the shareholders reject the capital increase, the FMC may apply one or if itmore of the restrictions stated in Article 116 of the New General Banking Law for a period not exceeding 6 months, which may be renewed once for the same period. These restrictions include limiting the bank’s ability to grant loans to any person or legal entity linked (directly or through third parties) to the property or management of the bank, limiting loan renewals for more than 180 days, limiting security documents governing existing loans, among others. If the approval of shareholders is not effected within the term andrequired for a different measure included in the manner agreed to at the meeting, or if the SBIF does not approve the Board of Directors’ proposal, the bank will be barred from increasing its loan portfolio beyond that stated in the financial statements presented toplan, the Board of Directors and from making any further investments in any instrument other than in instruments issued bymust call the Central Bank. In such a case, or in the event that a bank is unable to make timely payment in respect of its obligations, or if a bank is under provisional administration of the SBIF, theshareholders’ meeting within 15 days. The General Banking Law provides that the bank may receive a two-yearthree-year term loan from another bank.one or more banking institutions. The terms and conditions of such a loan must be approved by the directors of both banks, as well as by the SBIF,FMC, but need not be submitted to the borrowing bank’sany institution’s shareholders for their approval. In any event, a creditor bank cannot grant interbank loans to an insolvent bank in an amount exceeding 25.0% of the creditor bank’s regulatory capital. The Board of Directors of aIf the bank that is unable to make timely payment of its obligations must present a reorganization planpay the loan to its creditors, in order to capitalize the credits, extend their respective terms, condone debts or take other measures for the paymentarticle 115 of the debts. IfGeneral Banking Law provides that a bank’s unpaid debt may be: (i) capitalized in a merger between the Boardbank and creditor bank, where the creditor bank may establish the terms and conditions of Directors ofthe merger provided such terms and conditions are approved by the FMC; (ii) used to complete a bank submits a reorganization plan to its creditors and such arrangement is approved, all subordinated debt issuedcapital increase agreed by the bank, whether or not matured, willprovided that the shares are issued by a third party; and (iii) to subscribe and pay a capital increase. The shares acquired by the creditor bank must be convertedsold within a period of 180 days, which can be extended by operation of law into common stock in the amount requiredFMC for the ratio of regulatory capital to risk-weighted assets to be not lower than 12.0%. If a bank fails to pay an obligation, it must notify the SBIF, which shall determine if the bank is solvent.further 180 days.   Dissolution and Liquidation of Banks   The SBIFFMC may establish that a bank should be liquidated for the benefit of its depositors or other creditors when such bank does not have the necessary solvency to continue its operations. In such case, the SBIFFMC must revoke a bank’s authorization to exist and order its mandatory liquidation, subject to agreement by the Central Bank. The SBIFFMC must also revoke a bank’s authorization if the reorganization plan of such bank has been rejected twice. The resolution by the SBIFFMC must state the reason for ordering the liquidation and must name a liquidator, unless the SBIFFMC assumes this responsibility. When a liquidation is declared, all checking accounts and other demand deposits received in the ordinary course of business, are required to be paid by using existing funds of the bank, its deposits with the Central Bank or its investments in instruments that represent its reserves. If these funds are insufficient to 51  Table of Contents pay these obligations, the liquidator may seize the rest of the bank’s assets, as needed. If necessary and in specified circumstances, the Central Bank will lend the bank the funds necessary to pay these obligations. Any such loans are preferential to any claims of other creditors of the liquidated bank. On January 12, 2019, Law No. 21,130 was published in the Official Gazette of Chile. The law modernizes banking legislation including the General Banking Law by, among other things, transferring the supervisory powers of the SBIF to the FMC, updating the capital and risk management requirements applicable to banking companies in accordance with the Basel III standards, and introducing measures for the early regularization and intervention of banking companies that are at risk of insolvency. With respect to measures for early regularization, Law No. 21,130 establishes an obligation on banks to inform the FMC if any of the regulatory non-compliance situations listed in Article 112 of the New General Banking Law arise or if it has detected any event indicative of financial instability or deficient administration. Within five days of notifying the FMC, the bank must present a regularization plan approved by its board of directors containing 58 Table of Contents concrete measures that shall remedy the relevant situation and ensure the bank’s normal performance. The bank must comply with the regularization plan within 6 months of the resolution approving it. During the implementation of the plan, the bank must also submit periodic reports on its progress to the FMC, and the FMC may require the implementation of additional measures and/or prohibitions it deems necessary for the plan’s success. Article 161 of the New General Banking Law provides that directors, managers, administrators and attorneys-in-fact who, without written authorization from the FMC, agree to, perform or cause the execution of any of the acts prohibited under Article 116 of the New General Banking Law shall be sanctioned with ordinary imprisonment for a term within the medium to maximum range. If a bank fails to submit the regularization plan, the plan is rejected by the FMC, the bank fails to comply with any of the measures set out in the plan, the bank repeatedly breaches the plan’s terms or is subject to fines, or if any serious event occurs that raises concerns for the bank’s financial stability, the FMC may appoint a delegated inspector, who shall have powers to, among other things, suspend any agreement of the board of directors or act of the attorneys-in-fact of the institution, and/or a provisional administrator, who shall have all the ordinary faculties that the law and the by-laws provide for the board of directors, or whoever acts in its place, and for the general manager. Other amendments incorporated by Law No. 21,130 include the elimination of creditors’ agreements as a mechanism for regularizing a bank’s financial situation, the incorporation of modifications to financial system capitalization and preventive capitalization, and the incorporation of further requirements for bank directors.   Obligations Denominated in Foreign Currencies   Santander-Chile must also comply with various regulatory and internal limits regarding exposure to movements in foreign exchange rates (See “Item 11. Quantitative and Qualitative Disclosures About Market Risk”).   Loans and Investments in Foreign Securities   Under current Chilean banking regulations, banks in Chile may grant loans to foreign individuals and entities and invest in certain securities of foreign issuers. Banks may grant commercial loans and foreign trade loans, and can buy loans granted by banks abroad. Banks in Chile may also invest in debt securities traded in formal secondary markets. Such debt securities must be (1) securities issued or guaranteed by foreign sovereign states or their central banks or other foreign or international financial entities, and (2) bonds issued by foreign companies. If the sum of investment in foreign securities and loans granted outside of Chile surpasses 70.0% of regulatory capital, the amount that exceeds 70.0% is subject to a mandatory reserve of 100.0%.   Table 1   Rating Agency Short Term Long Term Moody’s P2 Baa3 Standard and Poor’s A3 BBB- Fitch F2 BBB- Dominion Bond Rating (DBRS) R-2 BBB (low)   In the event that the sum of: (a) loans granted abroad that are not to subsidiaries of Chilean companies, and that have a rating of BB- or less and do not trade on a foreign stock exchange, and (b) the investments in foreign securities which have a rating that is below that indicated in Table 1 above, but is equal to or exceeds the ratings mentioned in the Table 2 below and exceeds 20.0% (and 30.0% for banks with a BIS ratio equal or exceeding 10% of the regulatory capital of such bank), the excess is subject to a mandatory reserve of 100.0%.   Table 2   Rating Agency Short Term Long Term Moody’s P2 Ba3 Standard and Poor’s A-2 BB- Fitch F2 BB- Dominion Bond Rating (DBRS) R-2 BB (low)   59 Table of Contents In addition, banks may invest in foreign securities whose ratings are equal or exceeds those mentioned in Table 3 below for an additional amount equal to 70% of their regulatory capital. This limit constitutes an additional margin and is not subject to the 100% mandatory reserve.   Additionally, a Chilean bank may invest in foreign securities whose rating is equal to or exceeds those mentioned in Table 3 below in: (i) demand deposits with foreign banks, including overnight deposits in a single entity; and (ii) securities issued or guaranteed by sovereign states or their central banks or securities issued or guaranteed by foreign entities within the Chilean State, though investment will be subject to the limits by issuer up to 30.0% and 50.0%, respectively, of the regulatory capital of the Chilean bank that makes the investment. If these foreign securities do not have a rating, the individual limit will be 10.0% of regulatory capital.   52  Table of Contents Table 3   Rating Agency Short Term Long Term Moody’s P1 Aa3 Standard and Poor’s A1+ AA- Fitch F1+ AA- DBRS R-1 (high) AA (low)AA(low)   Moreover, the sum of all demand deposits with foreign banks, including overnight deposits to related parties, as defined by the Central Bank and the SBIF,FMC cannot surpass 25.0% of a bank’s regulatory capital. This limit excludes foreign branches of Chilean banks or their subsidiaries, but must include amounts deposited by these entities in related parties abroad.   Chilean banks may only invest in equity securities of foreign banks and certain other foreign companies which may be affiliates of the bank or which would be complementary to the bank’s business if such companies were incorporated in Chile.   “Mortgage Bonds”United States Supervision and Regulation Financial Regulatory Reform Banking statutes and regulations are continually under review by the United States Congress. In addition to laws and regulations, the U.S. bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance. Many changes have occurred as a result of the 2010 Dodd-Frank Act and its implementing regulations, most of which are now in place. More recently, the President of the United States issued an executive order in 2017 that sets forth principles for financial regulatory and legislative reform. In May 2018 the United States Congress passed, and President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) which, among other things, revised the thresholds for total consolidated assets at which certain enhanced prudential standards apply to bank holding companies. EGRRCPA made clear that the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") retains the right to apply enhanced prudential standards to FBOs with greater than $100 billion in global total consolidated assets, such as Santander Spain.   In 2012,October 2019, the mortgage-covered bond legislation was approved byfederal banking agencies issued final rules that, pursuant to EGRRCPA, adjust the Chilean Congress. These bonds, knownthresholds at which certain enhanced prudential standards and capital and liquidity requirements apply to certain banking organizations, including large FBOs such as “mortgage bonds,” are debt backed by the company that sells them, as well as bySantander Spain. As a pool of mortgages that in the event of insolvency the pool of mortgages are auctioned with the corresponding mortgage bond. Unlike covered bonds, they are not be limitedresult, Santander Spain is now generally subject to banks. These bonds, if bought by banks, are available for immediateless restrictive enhanced prudential standards and capital and liquidity in the Central Bank liquidity window and have other restrictions as to the type of mortgage they will be funding,i.e. mortgage loans with loan-to-values of maximum 80.0%.requirements than under previously applicable regulations.   U.S. Banking Regulation—Volcker Rule   Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and its implementing rules (collectively, the “Volcker Rule”) prohibit “banking entities” from engaging in certain forms of proprietary trading or from sponsoring or investing in or entering into certain credit-related transactions with related “covered funds,” in each case subject to certain limited exceptions.The term “covered fund” is defined very broadly to include traditional hedge funds, private equity funds, certain securitization vehicles and other entities that must rely on Section 3(c)(1) or 3(c)(7) of the U.S. Investment Company Act of 1940 for an exemption under that Act, as well as certain similar foreign funds. The Volcker Rule also limits the ability of banking entities and their affiliates to enter into certain transactions with covered funds with which they or their affiliates have certain relationships. Banking entities such as Santander-Chile and Santander Spain were required to bring their activities and investments into compliance with the requirements of the Volcker 60 Table of Contents Rule by the end of the conformance period applicable to each requirement. Santander Spain has assessed how the Volcker Rule affects its businesses and subsidiaries, including Santander-Chile, and has brought its activities into compliance. The Group has adopted processes to establish, maintain, enforce, review and test the compliance program designed to achieve and maintain compliance with the Volcker Rule. The Volcker Rule contains exclusions and certain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, as well as certain foreign government obligations, and trading solely outside the United States, and also permitpermits certain ownership interests in certain types of funds to be retained. Banking entities such as Santander Spain must bring their activities and investments worldwide into compliance with the requirements of the Volcker Rule by the end of the conformance period applicable to each requirement. In general, all banking entities were required to conform to the requirements of the Volcker Rule, except for provisions related to certain funds, and to implement a compliance program by July 21, 2015. In December 2014, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) issued an order extending the Volcker Rule’s general conformance period until July 21, 2016 for investments in and relationships with covered funds and certain foreign funds that were in place on or prior to December 31, 2013 (“legacy covered funds”). In July 2016, the Federal Reserve Board granted a final one-year extension of the general conformance period to July 21, 2017 for banking entities to conform ownership interests in and relationships with legacy covered funds. Santander Spain has assessed how the Volcker Rule affects the businesses of Santander Group and Santander Group, including Santander-Chile, generally has brought its activities into compliance, with the exception of certain legacy covered funds activities. Santander Group, including Santander-Chile, has further adopted the necessary measures to bring these legacy covered funds activities into compliance prior to July 21, 2017. Santander Group’sSpain’s non-U.S. banking organizations, such asorganization subsidiaries, including Santander-Chile, are largely able to continue their activities outside the United States in reliance on the “solely outside the U.S.” exemptions underfrom the Volcker Rule. Santander Group, including Santander-Chile, will monitorThose exemptions generally exempt proprietary trading, and sponsoring or investing in covered funds if, among other restrictions, the financial regulatory reform developments inessential actions take place outside the United States includingand any transactions are not with respectU.S. persons. On July 21, 2017 the five regulatory agencies charged with implementing the Volcker Rule announced the coordination of reviews of the treatment of certain foreign funds that are investment funds organized and offered outside of the United States and that are excluded from the definition of covered fund under the agencies’ implementing regulations. Also, in July 2017, the Federal Reserve issued guidelines for banking entities seeking an extension to conform certain “seeding” investments in covered funds to the requirements of the Volcker Rule. As of October 2019, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the Volcker Rule. These amendments tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain key provisions in the Volcker Rule, and modify the information companies are required to provide the federal agencies. Santander-Chile will still largely rely on the “solely outside the U.S. exemption” to conduct its trading activities. In early 2020, the five federal agencies proposed additional amendments to the Volcker Rule related to the restrictions on ownership interests in and make appropriate adjustments, if necessary,relationships with covered funds. Santander Spain will continue to ensure continued regulatory compliancemonitor Volcker Rule-related developments and assess their impact on its operations, including those of its operations.Santander-Chile, as necessary. 53  Table of Contents   U.S. Anti-Money Laundering, Anti-Terrorist Financing, and Foreign Corrupt Practices Act Regulations   The Bank,Santander-Chile, as a foreign private issuer whose securities are registered under the U.S. Securities Exchange Act of 1934, is subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”). The FCPA generally prohibits such issuers and their directors, officers, employees and agents from using any means or instrumentality of U.S. interstate commerce in furtherance of any offer or payment of money to any foreign official or political party for the purpose of influencing a decision of such person in order to obtain or retain business. It also requires that the issuer maintain books and records and a system of internal accounting controls sufficient to provide reasonable assurance that accountability of assets is maintained, and accurate financial statements can be prepared. Penalties, fines and imprisonment of the Bank’sSantander-Chile’s officers and/or directors can be imposed for violations of the FCPA.   Furthermore, the BankSantander-Chile is subject to a variety of U.S. anti-money laundering and anti-terrorist financing laws and regulations, such as the Bank Secrecy Act of 1970, as amended, and the USA PATRIOT ACTAct of 2001, as amended, and a violation of such laws and regulations may result in substantial penalties, fines and imprisonment of the Bank’sSantander-Chile’s officers and/or directors.   Disclosure pursuant to Section 219 of the Iran Threat Reductionthreat reduction and Syria Human Rights Act Santander-Chile has no exposure to Iran or Syria. As we are part of Grupo Santander, we must disclose the exposure of other entities of the Group to Iran and Syria.human rights act   Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.   As we are part of the Santander Group, we must also disclose the exposure of other entities of the Santander Group to Iran. The following activities are disclosed in response to Section 13(r) with respect to affiliates ofthe Santander U.K. within the Group.Group and its affiliates. During the period covered by this annual report:   (a)       Santander U.K. holds two savings accounts and one current account for two customers resident in the U.K. who are currently designated by the U.S. under the Specially Designated Global Terrorist (SDGT) sanctions program. Revenues and profits generated by Santander U.K. on these accounts in the year ended December 31, 2016 were negligible relative to the overall revenues and profits of Banco Santander S.A. (b)       Santander U.K. held a savings account for a customer resident in the U.K. who is currently designated by the U.S. under the SDGT sanctions program. The savings account was closed on July 26, 2016. Revenue generated by Santander U.K. on this account in the year ended December 31, 2016 was negligible relative to the overall revenues of Banco Santander S.A. (c)       Santander U.K. held a current account for a customer resident in the U.K. who is currently designated by the U.S. under the SDGT sanctions program. The current account was closed on December 22, 2016. Revenue generated by Santander U.K. on this account in the year ended December 31, 2016 was negligible relative to the overall revenues of Banco Santander S.A. (d)       Santander U.K. holds two frozen current accounts for two U.K. nationals who are designated by the U.S. under the SDGT sanctions program. The accounts held by each customer have been frozen since their designation and have remained frozen through the year ended December 31, 2016. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander U.K. Collections & Recoveries department. Revenues and profits generated by Santander U.K. on these accounts in the year ended December 31, 2016 were negligible relative to the overall revenues and profits of Banco Santander S.A. (e)       In addition, during the year ended December 31, 2016, Santander U.K. had an OFAC match on a power of attorney account. The power of attorney listed on the account is currently designated by the U.S. under the SDGT and the Iranian Financial Sanctions Regulations (IFSR) sanctions program. The power of attorney was removed from the account on July 29, 2016. During the year ended December 31, 2016, revenues and profits generated by Santander U.K. were negligible relative to the overall revenues and profits of Banco Santander S.A. 54 61 Table of Contents  a) Santander UK holds accounts for two customers, with the first customer holding one Savings Account and one Current Account, and the second customer holding one Savings Account. Both customers, who are resident in the UK, are currently designated by the US under the SDGT sanctions programme. Revenues and profits generated by Santander UK on these accounts in the year ended December 31, 2019 were negligible relative to the overall profits of Banco Santander S.A.   (f)       An Iranian national, resident in the U.K., who is currently designated by the U.S. under the Iranian Financial Sanctions Regulations and the Non-Proliferation of Weapons of Mass Destruction (NPWMD) designation, held a mortgage with Santander U.K. that was issued prior to such designation. The mortgage account was redeemed and closed on April 13, 2016. No further drawdown has been made (or would be allowed) under this mortgage although we continued to receive repayment instalments prior to redemption. Revenues generated by Santander U.K. on this account in the year ended December 31, 2016 were negligible relative to the overall revenues of Banco Santander S.A. The same Iranian national also held two investment accounts with Santander ISA Managers Limited. The funds within both accounts were invested in the same portfolio fund. The accounts remained frozen until the investments were closed on May 12, 2016 and bank checks issued to the customer. Revenues generated by Santander U.K. on these accounts in the year ended December 31, 2016 were negligible relative to the overall revenues of Banco Santander S.A. b) During the period covered by this annual report, Santander UK held one savings account with a balance of £1.24, and one current account with a balance of £1,884.53 for another customer resident in the UK who is currently designated by the US under the SDGT sanctions program. The customer relationship pre-dates the designations of the customer under these sanctions. The United Nations and European Union removed this customer from their equivalent sanctions lists in 2008. Santander UK determined to put a block on these accounts, and the accounts were subsequently closed on January 14, 2019. Revenues and profits generated by Santander UK on these accounts in the year ended December 31, 2019 were negligible relative to the overall profits of Banco Santander S.A.   (g)       In addition, during the year ended December 31, 2016, Santander U.K. held a basic current account for an Iranian national, resident in U.K., previously designated under the OFAC Iran designation. The account was closed in September 2016. Revenues generated by Santander U.K. on this account in the year ended December 31, 2016 were negligible relative to the overall revenues of Banco Santander S.A. c) Santander UK holds two frozen current accounts for two UK nationals who are designated by the US under the SDGT sanctions programme. The accounts held by each customer have been frozen since their designation and have remained frozen through 2019. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander UK Collections and Recoveries department. No revenues or profits were generated by Santander UK on these accounts in the year ended December 31, 2019.   In addition, the Group has an outstanding legacy export credit facility with Bank Mellat. In 2005 Banco Santander S.A. participated in a syndicated credit facility for Bank Mellat of €15.5 million, which matured on July 6, 2015. As of December 31, 2016, the Group was owed €0.1 million not paid at maturity under this credit facility, corresponding to the 5% that was not covered by official export credit agencies. d) The Santander Group also has certain legacy performance guarantees for the benefit of Bank Sepah and Bank Mellat (stand-by letters of credit to guarantee the obligations - either under tender documents or under contracting agreements - of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.   Banco Santander has not been receiving payments from Bank Mellat under this or other credit facilities in recent years. Banco Santander has been and expects to continue to be repaid any amounts due by official export credit agencies. No funds have been extended by Santander under this facility since it was granted. The Group also has certain legacy performance guarantees for the benefit of Bank Sepah and Bank Mellat (stand-by letters of credit to guarantee the obligations – either under tender documents or under contracting agreements – of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007. e) During the period covered by this annual report, Santander Brasil held one current account with a balance of R$100.0 for a customer resident in Brazil who is currently designated by the US under the SDGT sanctions program. The customer relationship pre-dates the designation of the customer under these sanctions. Santander Brasil determined to terminate the account even prior to the customer being formally designated under the SDGT sanctions program on September 10, 2019, and the account was subsequently closed on October 9, 2019. Revenues and profits generated by Santander Brasil on this account in the year ended December 31, 2019 were negligible relative to the overall profits of Banco Santander S.A.   In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the year ended December 31, 2016,2019, which were negligible relative to the overall revenues and profits of Banco Santander, S.A. The Santander Group has undertaken significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. The Santander Group is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, the Santander Group intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.   C. Organizational Structure C. Organizational Structure   Santander Spain controls Santander-Chile through its holdings in Teatinos Siglo XXI Inversiones S.A. and Santander Chile Holding S.A. which are controlled subsidiaries. Santander Spain control over 67.18% of our shares and actual participation when excluding non-controlling interests participating in Santander Chile Holding S.A. of 67.06%67.12%.   Shareholder   Number of Shares   Percentage Santander Chile Holding S.A.     66,822,519,695       35.46   Teatinos Siglo XXI Inversiones S.A.     59,770,481,573       31.72     55 62 Table of Contents  The chart below sets forth the names and areas of responsibility of our senior managers as of March 2017.6, 2020.     D. Property, plants and equipment   D. Property, Plant and Equipment   We are domiciled in Chile and own our principal executive offices located at Bandera 140, 20th20th floor, Santiago, Chile. At December 31, 2016,2019, we owned the locations at which 23.5%34.6% of our branches were located. The remaining branches operate at rented locations. We believe that our existing physical facilities are adequate for our needs.   Main propertiesProperties as of December 31, 2016  2019 Number Central Offices   Owned 4 Rented 5 Total 9     Branches(1)   Owned 98 97 Rented 319 279 Total 417 376     Other property(2)property(1)   Owned 49 52 Rented 5 Total 54 57   (1) Some branches are located inside central office buildings and other properties. Including these branches, the total number of branches is 423. Special payment centers are included in Other property.   (2) Consists mainly of parking lots, mini-branches and property owned by our subsidiaries. (1) Consists mainly of parking lots, mini-branches and property owned by our subsidiaries.   ITEM 4A. UNRESOLVED STAFF COMMENTS   None.   56  Table of Contents ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS   Accounting Standards Applied in 20162019   Santander-Chile is a Chilean bank and maintains its financial books and records in Chilean pesos and prepares its consolidated financial statements in accordance with IFRS-IASBIFRS as issued by the IASB in order to comply with requirements of the SEC. As required by the General Banking Law, which subjects Chilean banks to the regulatory supervision of the SBIF,FMC, and which mandates that Chilean banks abide by the accounting standards stipulated by the SBIF,FMC, our locally-filed consolidated financial statements have been prepared in accordance with Chilean Bank GAAP as issued by the SBIF.FMC. The accounting principles issued by the SBIFFMC are substantially similar to IFRS but 63 Table of Contents there are some exceptions, as described in Item 4. Therefore, our locally-filed consolidated financial statements have been adjusted according to IFRS as issued by the IASB.   Critical Accounting Policies   Our consolidated financial statements include various estimates and assumptions, including but not limited to the adequacy of the allowance for loan losses, estimates of the fair value of certain financial instruments and the selection of useful lives of certain assets.   We evaluate these estimates and assumptions on an ongoing basis. Management bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances. Actual results in future periods could differ from those estimates and assumptions, and if these differences were significant enough, our reported results of operations would be affected materially. We believe that the following are the most critical judgment areas or involve a higher degree of complexity in the application of the accounting policies that currently affect our financial condition and results of operations.   Adoption of IFRS 9 in 2018: Allowance for Loan Losses Since January 2018, the Bank has replaced the “incurred loss” model in IAS 39 with the “expected credit loss (ECL)” model of IFRS 9. See “Note 2—Accounting Changes” of our Audited Consolidated Financial Statements. The new single impairment model applies to all financial assets measured at amortized cost and fair value through other comprehensive income (“FVOCI”), including loan commitments and contingent loans. The Bank accounted the ECL related to financial assets measured at amortized cost and FVOCI as a loss allowance in the statement of financial position and the carrying amount of these assets is stated net of the loss allowance. The ECL related to contingent loans are accounted as a provision in the statement of financial position. For financial assets that are measured at fair value through other comprehensive income, the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of the financial asset in the statement of financial position. The new model uses a dual measurement approach, under which the loss allowance is measured as either: (a) 12-month expected credit losses or (b) lifetime expected credit losses Based on changes in credit quality since initial recognition, IFRS 9 outlines a “three-stage” impairment model as illustrated by the following chart:  Change in credit quality since initial recognition Stage 1 Stage 2 Stage 3 Initial recognition Significant increase in credit risk since initial recognition Credit impaired assets 12-month expected credit losses Lifetime expected credit losses Lifetime expected credit losses The Bank, at the end of each reporting period, evaluates whether a financial instrument’s credit risk has increased since initial recognition, and consequently classifies the financial instrument in the relevant stage: · Stage 1: At initial recognition of a loan or when there has been an improved credit risk following a significant increase or impairment of assets, the Bank recognizes an allowance based on 12 months ECL. · Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance for the lifetime ECL. Stage 2 loans also include loans where the credit risk has improved following a Stage 3 classification. · Stage 3: Loans considered credit-impaired. The Bank records an allowance for the lifetime ECL, setting the probability of default at 100%. The Bank considers reasonable and verifiable information available without undue cost or effort to it that may affect the credit risk on a financial instrument, including forward-looking information to determine whether there is or has been a significant increase in credit risk since initial recognition of a loan. Forward-looking information includes past events that affect future performance, current conditions and forecasts of future economic conditions. 64 Table of Contents Expected credit loss measurement The expected credit losses is the probability-weighted estimate of credit losses, i.e., the present value of all cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The three main components in measuring expected credit losses are: · PD: The probability of default is an estimate of the likelihood of default over a given time period. A default may only happen at a certain time over the assessed period, if the facility has not been previously de-recognized and is still in the portfolio. · LGD: The loss given default is an estimate of the loss arising after a specific default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. · EAD: The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdown on committed facilities and accrued interest from missed payments. For measuring 12-month and lifetime expected credit losses, cash shortfalls are identified as follows: · 12-month expected credit losses: the portion of lifetime expected credit losses that represents the expected credit losses that result from default events on the financial instruments that are possible within the 12 months after the reporting date. · Lifetime expected credit losses: the expected credit losses that result from all possible default events over the expected life of the financial instrument. Forward-looking information The ECL model includes a broad range of forward-looking information as economic inputs, such as: · GDP growth; · Unemployment rates; · Central Bank interest rates; and · Real estate prices. Interbank loans According to the new balance presentation required under IFRS 9, the Bank has grouped interbank loans with loans and accounts receivable since both are measured at amortized cost and are evaluated together for impairment purposes. Contingent loans The Bank enters into various irrevocable loan commitments and contingent liabilities. Even though these obligations may not be recognized on the statement of financial position, they contain credit risk and, therefore, form part of the overall risk of the Bank. When the Bank estimates the ECL for contingent loan commitments and letters of credit, it estimates the expected portion of the loan commitment that will be drawn down over its expected life. 65 Table of Contents Loans and account receivable measured at fair value through other comprehensive income When the Bank enters into arrangements with its major customers for project finance and syndicated loans, the amount requested sometimes exceeds the Bank’s limit for single client exposure under credit risk policy, so these operations are approved under the condition that a portion of the loans be sold in the near term. The Bank also has loans that it expects to sell if market conditions are favorable to the Bank. These loans are measured at fair value through other comprehensive income and are subject to impairment requirements. Allowance for Loan Losses Prior to 2018   The Bank records its allowances following its internal models for the recording of incurred debt.losses. These models have been approved by the Board. To establish impairment losses, the Bank carries out an evaluation of outstanding loans and accounts receivable from customers, as detailed below:   · Individual assessment of debtors: when debtors are recorded as individually significant,i.e., when they have significant debt levels or, even for those that do not have these levels, could be classified in a group of financial assets with similar credit risk features and who, due to the size, complexity or level of exposure, require detailed information. See “Item 5. Operating and Financial Review and Prospects—C. Selected Statistical Information—Classification of Loan Portfolio—Classification of Loan Portfolio—Credit Approval: Loans approved on an individual basis” and “Note 1—Summary of Significant Accounting Policies—(p) Provisions for loan losses” of our Audited Consolidated Financial Statements.   · Group assessment of debtors: when there is no evidence of impairment for individually-assessed debtors and debtors with loans grouped collectively—whether or not significant—the Bank groups debtors with similar credit risk credit features and assesses them for impairment. Debtors individually assessed for impairment and for whom a loss due to impairment has been recorded, are not included in the group assessment of impairment. See “Item 5. Operating and Financial Review and Prospects—C. Selected Statistical Information—Classification of Loan Portfolio—Classification of Loan Portfolio—Credit Approval: Loans approved on a group basis” and “Note 1—Summary of Significant Accounting Policies—(p) Provisions for loan losses” of our Audited Consolidated Financial Statements.   · The following table reconciles the closing impairment allowance measured in accordance with the IAS 39 incurred loss model as of December 31, 2017 to the new impairment model under IFRS 9.     Loans Loss Allowance under IAS 39   Reclassification   Remeasurement   Loans Loss Allowance under IFRS 9     (in millions of  Ch$) Loans and receivable (IAS 39)/ Financial assets at amortised cost (IFRS 9)                 Interbank loans     472       (472 )     –         –     Loans and account receivable from customers     790,685       84       97,322       888,091   Total loans and account receivable at amortised cost     791,157       (388 )     97,322       888,091   Available for sale investment (IAS39)/Financial assets at FVOCI (IFRS 9)                                 Loans and account receivable from customer – at FVOCI     –         388       (291 )     97   Total financial assets at FVOCI     –         388       (291 )     97   Other credit- related commitments                                 Contingent liabilities     8,404       –         (3,767 )     4,637   Loan commitments     –         –         19,124       19,124   Total contingents     8,404       –         15,357       23,761   Total provision for loan losses     799,561       –         112,388       911,949   66 Table of Contents Valuation of financial instrumentsFinancial Instruments   Fair value is the price that would be received to sell an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. IFRS 13 provides a hierarchy that separates the inputs and/or valuation technique assumptions used to measure the fair value of financial instruments. The hierarchy reflects the significance of the inputs used in making the measurement. 57  Table of Contents   The hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The Bank uses valuation techniques appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.   For financial instruments with no available market prices, fair values are estimated using recent transactions in analogous instruments, and in the absence thereof, the present values or other valuation techniques based on mathematical valuation models sufficiently accepted by the international financial community. In the use of these models, consideration is given to the specific particularities of the asset or liability to be valued, and especially to the different kinds of risks associated with the asset or liability.   These techniques are significantly influenced by the assumptions used, including the discount rate, the estimates of future cash flows and prepayment expectations. See “Note 36— 38—Fair valueValue of financial assetsFinancial Assets and liabilities”Liabilities” in our Audited Consolidated Financial StatementsStatements.   Derivative activitiesActivities   Derivatives are measured at fair value on the statement of financial position and the net unrealized gain (loss) on derivatives is classified as a separate line item within the income statement. Under IFRS, banks must mark-to-market derivatives. A derivative financial instrument held for trading purposes must be marked to market and the unrealized gain or loss must be recognized in the income statement. Within the fair value of derivatives are included Credit Valuation Adjustment (CVA)(“CVA”) and Debit Valuation Adjustment (DVA)(“DVA”), all with the objective that the fair value of each instrument includes the credit risk of its counterparty and Bank’s own risk. The CVA is a valuation adjustment to OTC derivatives as a result of the risk associated with the credit exposure assumed by each counterparty in each future period. The DVA is a valuation adjustment similar to the CVA but, in this case, it arises as a result of the Bank’s own risk assumed by its counterparties. The following inputs are used to calculate the CVA and DVA:   · Expected exposure: Including for each transaction the mark-to-market (MtM) value plus an add-on for the potential future exposure for each period. Mitigating factors such as collateral and netting agreements are taken into account, as well as a temporary impairment factor for derivatives with interim payments.   · LGD: percentage of final loss assumed in a counterparty credit event/default.   · Probability of default: for cases where there is no market information, proxies based on comparable companies in the same industry and with the same external rating as the counterparty, are used.   · Discount factor curve.   Impairment of available-for-sale financial assets,Available-for-Sale Financial Assets Prior to 2018   Available for sale financial assets are evaluated for impairment throughout the year and at each reporting date in order to assess whether events or changes in circumstances indicate that these assets are impaired, such as an adverse change in business climate or observable market data, indicate that these assets may be impaired. If there is objective evidence of an impairment of an asset, an impairment test is performed by comparing the investments’ recoverable amount, which is the higher of its value in use and fair value less costs to sell, with its carrying amount.   The Bank evaluates available-for-saleavailable for sale financial assets with unrealized losses as of the end of each period and concludes if these were impaired. This review consistconsists of evaluating the economic reasons for any declines, the credit ratings of the securities’ issuers, and the Bank’s intention and ability to hold the securities until the unrealized loss is recovered. See “Note 10— Available for sale investments”12— Debt Instruments at Fair Value through Other Comprehensive Income” in our Audited Consolidated Financial Statements.   67 Table of Contents Deferred tax assetsTax Assets and liabilitiesLiabilities   The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to differences between the carrying amount of assets and liabilities and their tax bases. The measurement of deferred tax assets and liabilities is based on the tax rate, in accordance with the applicable tax laws, using the tax rate that applies to the period when the deferred asset and liability will be settled. The future effects of changes in 58  Table of Contents tax legislation or tax rates are recorded in deferred taxes beginning on the date on which the law is enacted or substantially enacted. See “Note 14—16—Current and deferred taxes”Deferred Taxes” of our Audited Consolidated Financial Statements.   Provision for liabilitiesProvisions – Contingent Liabilities   Provisions for liabilities such asrelated to contingencies associated to pending signature of contracts, potential clients and other administrative claims, operational risk arise from financial transactions, and potential property tax associated to leasing contracts and personnel salaries and expenses are quantified using the best available information on the consequencesof uncertain future events that are not wholly within control of the event giving rise to them andBank. These are reviewed and adjusted at the end of each year.reporting date. See “Note 20—22—Provisions and Contingent Provisions” of our Audited Consolidated Financial Statements.   A. Operating Results Adoption of IFRS 16 Leases On January 1, 2019, IFRS 16 Leases has become effective; this standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, thus a lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The Bank has elected to adopt IFRS 16 using a modified retrospective approach at the date of initial application, therefore, it has recognized a right-of-use asset for an amount equal to the lease liability, which amounted to Ch$154,284 million. Below is the detail of impacts and reclassifications as of January 1, 2019. For more details, see Note 14 of our Audited Consolidated Financial Statements. A. Operating Results   Chilean Economy   All of our operations and substantially all of our customers are located in Chile. Accordingly, our financial condition and results of operations are substantially dependent upon economic conditions prevailing in Chile. In 2016,2018, the Chilean economy grew approximately 1.6%4.0% compared to 2.1%1.5% in 2015 and 1.9% in 2014. In2017. During 2019 the same period, the Central Bank of Chile reported that internal demand increased 1.1% comparedChilean economy grew at a slower rate due to an increase of 1.8% in 2015 and a decrease of 0.3% in 2014. Thelower global growth of internal demand was led by growth of total consumption, which was up 2.8% while growthaffected by the China-U.S. trade disputes and the social unrest that affected Chile in the mining sector contracted due to concerns regarding global economic growth, especially growthlast quarter of the year. It is expected that GDP will grow 1.2% in China.2019 and 1.0% in 2020.   As of December 2016,2019, the unemployment rate was 6.1%7.0% in the last quarter of 2019 compared to 5.8%6.7% in 2015 and 6.0%the same period of 2018. The higher unemployment rate in 2014. 2019 was due to the loss of jobs during the social unrest. The exchange rate appreciateddepreciated by 7.0% in 2016 by 5.7% compared to a depreciation of 16.5%2019 and 13.1% in 2015. As a result of this appreciation2018. On November 29, 2019, at the peak of the period of social unrest, the Observed Exchange rate reached a level of Ch$828.25, depreciating 19.1% year-to-date. The peso began to re-appreciate once the Central Bank began to actively intervene in the exchange rate market. CPI inflation reached 2.7%remained at 3.0% in 2016 compared to 4.4% in 2015 and 4.7% in 2014. Given2019. The Central Bank relaxed monetary policy throughout much of 2019 given the slower economic growth in 20162019 and the loweran inflation rate consistently at or below the Central Bank decidedBank’s target of 3%. The current Monetary Policy Rate is 1.75% compared to reduce the rate to 3.00% in the first quarter of 2017. Economic activity is expected to increase by approximately 2.0% in 2017, but with continued uncertainty regarding global growth, especially in growth in China, which impacts Chile’s mining sector, and internal political issues.2.75% at year-end 2018.   The growth of the Chilean banking sector evolved in line with overall economic developments with an increase inand the volumeacquisition carried out by Chilean banks of loans and deposits.loan portfolios previously owned by non-banks. Total loans as of December 31, 20162019, in the Chilean financial system, were Ch$140,258,239 million (U.S.$211 billion), excluding loans held abroad by subsidiaries of Chilean banks, abroad,and grew 5.7% in 2016.10.0% year-over-year. Total customer deposits (defined as time deposits plus checking accounts), excluding loansamounts held by subsidiaries of Chilean banks abroad grew 3.4% in 2016 and totaled Ch$109,901,300 million (U.S.$165 billion)increased 9.5% year-over-year as of December 31, 2016.2019. The non-performing loan (defined 68 Table of Contents (defined as loans with an installment that is at least 90 days past-due) to total loans ratio remained stableincreased from 1.7% at year end for both 2016 and 2015.year-end 2018 to 1.9% at year-end 2019. This rise occurred mainly in the fourth quarter as a result of the impacts of the social unrest on asset quality.     Impact of inflationInflation   Our assets and liabilities are denominated in Chilean pesos, Unidades de Fomento (UF) and foreign currencies. The Bank no longer recognizes inflation accounting and has eliminated price-level restatement in line with IFRS, but inflationInflation impacts our results of operations as some loan and deposit products are contracted in UF. The UF is revalued in monthly cycles. Each day in the period beginning on the tenth day of the current month through the ninth day of the succeeding month, the nominal peso value of the UF is indexed up (or down in the event of deflation) in order to reflect a proportionate amount of the change in the Chilean Consumer Price Index during the prior calendar month. One UF equaled Ch$26,347.9828,309.94 at December 31, 2016,2019, Ch$25,629.0927,565.79 at December 31, 20152018 and Ch$24,627.1026,798.14 at December 31, 2014.2017. High levels of inflation in Chile could adversely affect the Chilean economy and could have an adverse effect on our business, financial condition and results of operations. Negative inflation rates also negatively impact our results. Inflation measured as the annual variation of the UF was 2.8%2.7% in 2016, 4.1%2019, 2.9% in 20152018 and 5.7%1.7% in 2014.2017. There can be no assurance that Chilean inflation will not change significantly from the current level. Although we currently benefit from moderate levels of inflation, due to the current structure of our assets and liabilities (i.e., a significant portion of our loans are indexed to the inflation rate, but there are no correspondingsignificantly less features in deposits orand other funding sources that would increase the size of our funding base), there can be no assurance that our business, financial condition and result of operations in the future will not be adversely affected by changing levels of inflation. In summary:   59  Table of Contents · UF-denominated assets and liabilitiesliabilities.. The effect of any changes in the nominal peso value of our UF-denominated interest earning assets and interest bearinginterest-bearing liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest income and expense, respectively. Our net interest income will be positively affected by an inflationary environment to the extent that our average UF-denominated interest earning assets exceed our average UF-denominated interest bearinginterest-bearing liabilities. Our net interest income will be positively affected by deflation in any period in which our average UF-denominated interest bearinginterest-bearing liabilities exceed our average UF-denominated interest earning assets. Our net interest income will be negatively affected in a deflationary environment if our average UF-denominated interest earning assets exceed our average UF-denominated interest bearinginterest-bearing liabilities.   · Inflation and interest rate hedgehedge.. A key component of our asset and liability policy is the management of interest rate risk. The Bank’s assets generally have a longer maturity than our liabilities. As the Bank’s mortgage portfolio grows, the maturity gap tends to rise as these loans, which are contracted in UF, have a longer maturity than the average maturity of our funding base. As most of our long termlong-term financial instruments and mortgage loans are contracted in UF and most of our deposits are in nominal pesos, the rise in mortgage lending increases the Bank’s exposure to inflation and to interest rate risk. The size of this gap is limited by internal and regulatory guidelines in order to avoid excessive potential losses due to strong shifts in interest rates. In order to keep this duration gap below regulatory limits, the Bank issues long term bonds denominated in UF or interest rate swaps. The financial cost of the bonds and the efficient part of these hedges is recorded as net interest income. In 2016,2019, the loss from the swaps taken in order to hedge mainly for inflation and interest rate risk and included in net interest income totaled a loss of Ch$42,42031,346 million compared to a loss of Ch$107,86718,799 million in 20152018 and a gain of Ch$130,25415,408 million in 2014.2017. The average gap between our interest earnings assets and total liabilities linked to the inflation, including hedging, was Ch$4,534,6654,279,082 million in 2016,2019, Ch$3,507,2504,537,476 million in 20152018 and Ch$4,193,7014,340,626 million in 2014.2017. Therefore, our sensitivity to a 100 basis point shift in UF inflation considering our year end gap would be approximately Ch$42 billion.   · The financial impact of the gap between our interest earning assets and liabilities denominated in UFs including hedges was in the results of the Bank Ch$133,702114,340 million in 2016,2019, Ch$130,666126,260 million in 20152018 and Ch$229,94673,050 million in 2014.2017. The 2.3% rise9.4% decrease in thethese results from our UF gap was due to the higher gap in 2016 compared to 2015, which was partially offset by thea lower UF inflation rate in 20162019 compared to 2015.2018.       As of December 31,   % Change   % Change Impact of inflation on net interest income       2016       2015       2014       2016 /2015     2015 /2014       (in millions of Ch$) Results from UF GAP (1)     133,702       130,666       229,946       2.3 %     (43.2 %) Annual  UF inflation     2.8 %     4.1 %     5.7 %                 69 Table of Contents     As of December 31,   % Change Impact of inflation on net interest income   2019   2018   2017   2019/2018   2018/2017     (in millions of Ch$) Results from UF GAP(1)     114,340       126,260       73,050       (9.4 %)     72.8 % Annual UF inflation     2.7 %     2.9 %     1.7 %                     (1) UF GAP is net interest income from asset and liabilities denominated in UFs and include the results from hedging the size of this gap via interest rate swaps.   · Peso-denominated assets and liabilitiesliabilities.. Interest rates prevailing in Chile during any period primarily reflect the inflation rate during the period and the expectations of future inflation. The sensitivity of our peso-denominated interest earning assets and interest bearinginterest-bearing liabilities to changes to such prevailing rates varies. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Interest Rates.” We maintain a substantial amount of non-interest bearingnon-interest-bearing peso-denominated demand deposits. Because such deposits are not sensitive to inflation, any decline in the rate of inflation would adversely affect our net interest margin on inflation indexed assets funded with such deposits, and any increase in the rate of inflation would increase the net interest margin on such assets. The ratio of the average of such demand deposits and average shareholder’s equity to average interest-earning assets was 29.0%30.5%, 29.9%,30.6% and 30.2%29.8%, for the years ended December 31, 2016, 2015,2019, 2018 and 2014,2017, respectively. 60  Table of Contents   Interest Rates   Interest rates earned and paid on our assets and liabilities reflect, to a certain degree, inflation, expectations regarding inflation, changes in short term interest rates set by the Central Bank and movements in long term real rates. The Central Bank manages short term interest rates based on its objectives of balancing low inflation and economic growth. Because our liabilities are generally re-priced sooner than our assets, changes in the rate of inflation or short termshort-term rates in the economy are reflected in the rates of interest paid by us on our liabilities before such changes are reflected in the rates of interest earned by us on our assets. Therefore, when short term interest rates fall, our net interest margin is positively impacted, but when short term rates increase, our interest margin is negatively affected. At the same time, our net interest margin tends to be adversely affected in the short term by a decrease in inflation rates since generally our UF-denominated assets exceed our UF-denominated liabilities. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Impact of Inflation—Peso-denominated assets and liabilities.” An increase in long term rates has a positive effect on our net interest margin, because our interest earning assets generally have longer terms than our interest bearinginterest-bearing liabilities. A flattening of the yield curve (i.e. long-term rates falling quicker than short-term rates) negatively affects our margins by lowering loan yields at a greater pace than deposits costs. In addition, because our peso-denominated liabilities have relatively short re-pricing periods, they are generally more responsive to changes in inflation or short termshort-term rates than our UF-denominated liabilities. As a result, during periods when or expected inflation exceeds the previous period’s inflation, customers often switch funds from UF-denominated deposits to peso-denominated deposits, which generally bear higher interest rates, thereby adversely affecting our net interest margin.   Foreign Exchange Fluctuations   The Chilean government’s economic policies and any future changes in the value of the Chilean peso against the U.S. dollar could adversely affect our financial condition and results of operations. The Chilean peso has been subject to significant devaluation in the past and may be subject to significant fluctuations in the future. The Central Bank exchange rate appreciated 5.7%depreciated 7.0% in 20162019 and 16.5%13.1% in 2015.2018. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates.” A significant portion of our assets and liabilities are denominated in foreign currencies, principally the U.S. dollar, and we historically have maintained and may continue to maintain material gaps between the balances of such assets and liabilities. Our current strategy is not to maintain a significant difference between the balances of our assets and liabilities in foreign currencies. In 2016, 20152019, the Bank held significant short-term assets in US$ overnight deposits in order to maintain strong liquidity levels in this currency. In 2018 and 2014,2017, the Bank, in its spot position, usually held more liabilities than assets in foreign currencies, mainly the U.S. dollar, as a result of an ample supply of U.S. dollar deposits from companies that receive export revenues, foreign correspondent bank loans and bonds issued abroad. This difference isIn either case, any differences are usually hedged using forwards and cross-currency swaps. Including derivatives, the Bank seeks to run no foreign currency risk in its non-trading balance sheet. Because such assets and liabilities, as well as interest earned or paid on such assets and liabilities, and 70 Table of Contents gains and losses realized upon the sale of such assets, are translated to Chilean pesos in preparing our financial statements, our reported income is affected by changes in the value of the Chilean peso relative to foreign currencies (principally the U.S. dollar). The translation gain or loss over assets and liabilities (excluding derivatives held for trading) isand derivatives accounted under hedge accounting standards are included as foreign exchange transactions in the income statement. The translation and mark-to-market of foreign currency derivatives held for trading is recognized as a gain or loss in the net results from mark-to-market and trading. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk—E. Market Risks—Foreign exchange fluctuations” for more detail on the Bank’s exposure to foreign currency. The Bank also uses a sensitivity analysis with both internal limits and regulatory limits to seek to manage the potential loss in net interest income resulting from fluctuations of interest rates on U.S. dollar denominated assets and liabilities and a VaR model to limit foreign currency trading risk.   We also set an absolute limit on the size of Santander-Chile’s consolidated net foreign currency trading position. As of December 31, 2016, the net difference between assets and liabilities in foreign currency was a net asset position of U.S.105.4 million. The average gap, be it a net asset or liability position in foreign currency, in 2016 was U.S.$121.6 million. Both figures include derivatives used to hedge foreign currency risk. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Volume limits.” The limitE. Market Risks—Foreign exchange fluctuations” for more detail on the size of the netBank’s exposure to foreign currency position is determined by the Asset and Liability Committee and is calculated and monitored by our Market Risk and Control Department.currency. 61  Table of Contents   Segmentation criteriaCriteria   The accounting policies used to determine the Bank’s income and expenses by reporting segment are the same as those described in the summary of accounting policies in “Note 1—Summary of Significant Accounting Policies” of the Bank’s Consolidated Financial Statements and are customized to meet the needs of the Bank’s management. The Bank earns most of its income in the form of interest income, fee and commission income and income from financial operations.   To evaluate a segment’s financial performance and make decisions regarding the resources to be assigned to segments, the Chief Operating Decision Maker (CODM) bases his or her assessment on the segment'ssegment’s interest income, fee and commission income, and expenses. Due to changes aimed at improving relations with its customers, streamlining processes and saving costs, the Bank simplified its internal structure in 2015. For this reason, the disclosure has been simplified to reflect how the Bank is currently managed. The Bank’s reporting segments have three Chief Operating Decision Makers: (i) Director of Retail banking, (ii) the Director of the Middle-market segment and (iii) the Director of Global corporate banking,Corporate Investment Banking, each of which report to our Chief Executive Officer. All reporting segment information is presented following this structure. Due to changes aimed at allocating customers to the segment best capable of servicing them and streamlining processes, the Bank modified its internal structure in 2015. This change in composition of the segments resulted in the following: · commissions paid in “Net fee and commission income “were reassigned among segments to more appropriately reflect the distributions in accordance with the management of each segment; · the effects of changes in foreign exchange rates of provisions were reallocated to the line item “Other” to more appropriately reflect the effects directly attributable to the respective segments; and · the improvement of the allocation of interest costs at the time of placement of the loan.   Under IFRS 8, the Bank has aggregated operating segments with similar economic characteristics according to the aggregation criteria specified in the standard. A reporting segment consists of clients that are offered differentiated but, considering how their performance is measured, homogenous services based on IFRS 8 aggregation criteria, thus they form part of the same reporting segment. The clients included in each business segment are constantly revised and reclassified if a client no longer meets the criteria for the segment they are in and transferred to a different CODM. Therefore, variations of loan volumes and profit and loss items reflect business trends as well as client migration effects. Overall, this aggregation has no significant impact on the understanding of the nature and effects of the Bank’s business activities and the economic environment. The information relating to 2015 and 2014 has been prepared using the above-mentioned current criteria so that the figures presented are comparable.   The Bank’s reportable segments are (i) Retail banking, (ii) Middle-market, (iii) Global Corporate Investment Banking and (iv) Corporate Activities (“Other”). See “Note 4—Reporting Segments” of our Audited Consolidated Financial Statements for more information.   62 71 Table of Contents  Results of Operations for the Years Ended December 31, 2016, 20152019 and 20142018 In this section, we discuss the results of our operations for the year ended December 31, 2019 compared to the year ended December 31, 2018. For a discussion of the results of our operations for the year ended December 31, 2018 compared to the year ended December 31, 2017, please refer to “Item 5. – A. Operating Results – Results of Operations for the Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017” in our Annual Report on Form 20-F for the year ended December 31, 2018.   The following discussion is based upon and should be read in conjunction with the Audited Consolidated Financial Statements. The Audited Consolidated Financial Statements have been prepared in accordance with IFRS as issued by the IASB. The following table sets forth the principal components of our net income for the years ended December 31, 2016, 20152019 and 2014.2018.       2016   2016   2015       2014     % Change   % Change CONSOLIDATED INCOME STATEMENT DATA   (ThU.S.$)(1)   (Ch$ million)     2016/2015    2015/2014 IFRS:                     Interest income and expense                                                 Interest income     3,208,775       2,137,044       2,085,988       2,227,018       2.4 %     (6.3 %) Interest expense     (1,284,802 )     (855,678 )     (830,782 )     (909,914 )     3.0 %     (8.7 %) Net interest income     1,923,973       1,281,366       1,255,206       1,317,104       2.1 %     (4.7 %) Fees and income from services                                                 Fees and commission income     647,423       431,184       402,900       366,729       7.0 %     9.9 % Fees and commission expense     (265,405 )     (176,760 )     (165,273 )     (139,446 )     7.0 %     18.5 % Total net fees and commission income     382,018       254,424       237,627       227,283       7.1 %     4.6 % Financial transactions, net                                                 Net income (expense) from financial operations     (551,102 )     (367,034 )     (457,897 )     (159,647 )     (19.8 %)     186.8 % Net foreign exchange gain (loss)     761,850       507,392       603,396       272,212       (15.9 %)     121.7 % Financial transactions, net     210,748       140,358       145,499       112,565       (3.5 %)     29.3 % Other operating income     9,650       6,427       6,439       6,545       (0.2 %)     (1.6 %) Net operating profit before provision for loan losses     2,526,389       1,682,575       1,644,771       1,663,497       2.3 %     (1.1 %) Provision for loan losses     (513,638 )     (342,083 )     (399,277 )     (354,903 )     (14.3 %)     12.5 % Net operating profit     2,012,751       1,340,492       1,245,494       1,308,594       7.6 %     (4.8 %) Operating expenses                                                 Personnel salaries and expenses     (593,293 )     (395,133 )     (387,063 )     (338,888 )     2.1 %     14.2 % Administrative expenses     (339,959 )     (226,413 )     (220,531 )     (205,149 )     2.7 %     7.5 % Depreciation and amortization     (98,137 )     (65,359 )     (53,614 )     (44,172 )     21.9 %     21.4 % Impairment of property, plant and equipment     (351 )     (234 )     (21 )     (36,664 )     1014.3 %     (99.9 %) Other operating expenses     (103,456 )     (68,902 )     (58,729 )     (58,946 )     17.3 %     (0.4 %) Total operating expenses     (1,135,197 )     (756,041 )     (719,958 )     (683,819 )     5.0 %     5.3 % Net Operating income     877,554       584,451       525,536       624,775       11.2 %     (15.9 %) Income from investments in associates and other companies     4,523       3,012       2,588       2,165       16.4 %     19.5 % Income before tax     882,077       587,463       528,124       626,940       11.2 %     (15.8 %) Income tax expense     (163,710 )     (109,031 )     (76,395 )     (51,050 )     42.7 %     49.6 % Consolidated Net income for the year     718,366       478,432       451,729       575,890       5.9 %     (21.6 %) Net income for the year attributable to:                                                 Equity holders of the Bank     714,815       476,067       448,466       569,910       6.2 %     (21.3 %) Non-controlling interests     3,551       2,365       3,263       5,980       (27.5 %)     (45.4 %)                                                   Consolidated Income Statement Data IFRS     2019   2019   2018   % Change 2019/2018     (U.S.$ thousands)(1)   (Ch$ million)     Interest income and expense                 Interest income     3,106,067       2,321,381       2,244,317       3.4 % Interest expense     (1,210,133 )     (904,417 )     (829,949 )     9.0 % Net interest income     1,895,934       1,416,964       1,414,368       0.2 % Fees and income from services                                 Fees and commission income     667,217       498,658       484,463       2.9 % Fees and commission expense     (283,089 )     (211,572 )     (193,578 )     9.3 % Total net fees and commission income     384,128       287,086       290,885       (1.3 %) Financial transactions, net                                 Net income (expense) from financial operations     (104,587 )     (78,165 )     53,174       - % Net foreign exchange gain     374,456       279,857       51,908       439.1 % Financial transactions, net     269,869       201,692       105,082       91.9 % Other operating income     17,396       13,001       23,129       (43.8 %) Net operating profit before provision for loan losses     2,567,327       1,918,743       1,833,464       4.7 % Provision for loan losses     (432,598 )     (323,311 )     (317,408 )     1.9 % Net operating profit     2,134,729       1,595,432       1,516,056       5.2 % Operating expenses                                 Personnel salaries and expenses     (548,800 )     (410,157 )     (397,564 )     3.2 % Administrative expenses     (312,579 )     (233,612 )     (245,089 )     (4.7 %) Depreciation and amortization     (141,954 )     (106,092 )     (79,280 )     33.8 % Impairment of property, plant and equipment     (3,647 )     (2,726 )     (39 )     6889.7 % Other operating expenses     (65,969 )     (49,303 )     (32,342 )     52.4 % Total operating expenses     (1,072,949 )     (801,890 )     (754,314 )     6.3 % Net Operating income     1,061,780       793,542       761,742       4.2 % Income from investments in associates and other companies (2)     1,533       1,146       1,324       (13.5 %) Income before tax     1,063,313       794,688       763,066       4.1 % Income tax expense     (234,253 )     (175,074 )     (167,144 )     4.7 % Income from continuous operations     829,059       619,614       595,922       4.0 % Income from discontinued operations (2)     2,273       1,699       3,771       (54.9 %) Consolidated net income for the year     831,333       621,313       599,693       3.6 % Net income for the year attributable to:                                 Equity holders of the Bank     828,359       619,091       595,333       4.3 % Non-controlling interests     2,974       2,222       4,360       (49.0 %)   (1) Amounts stated in U.S. dollars at and for the year ended December 31, 20162019 have been translated from Chilean pesos at the exchange rate of Ch$666.00747.37 = U.S.$1.00 as of December 31, 2016.2019. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates” for more information on exchange rate.   72 Table of Contents (2) In 2019, we entered into the process of selling the investments in Redbanc S.A., Transbank S.A. and Nexus S.A. In accordance with IFRS 5, the Bank has reclassified and presented these investments in Other Assets classified as held for sale separate from the rest of the investments in associates and presented the effects in the income statement as discontinued operations. See “Note 39- Non-current assets held for sale”. Results of operationsOperations for the years endedYears Ended December 31, 20162019 and 2015. Consolidated net2018 Net income for the year ended December 31, 2016attributable to equity holders of the Bank increased 5.9%4.3% in 2019 compared to 2018 and totaled Ch$478,432619,091 million. Our return on annualized average equity was 16.8%18.0% in 20162019 compared to 16.0%18.4% in 2015.2018.   In 2016,2019, net operating profit before loan losses was Ch$1,682,5751,918,743 million, an increase of 2.3%4.7% compared to 2015.2018. Our net interest income increased 2.1% to Ch$1,281,366 million0.2% in 20162019 compared to 2015. Our2018. This was mainly driven by loan growth, but offset by the lower gains from inflation-indexed assets as UF inflation was lower in 2019 compared to 2018 and the flattening of the yield curve led to a record level of re-financing of mortgage loans at lower real rates. Overall, our net interest margin decreaseddeclined to 3.95% in 2019 from 4.32% in 2016 from 4.40% in 2015. Net interest margins were negatively affected by the lower UF inflation rate in 2016 compared to 2015.2018.   Net fees and commission income increased 7.1% decreased 1.3% to Ch$254,424287,086 million in the twelve-month period ended December 31, 20162019 compared to the same period in 2015. In 2016,2018. Fees from credit, debit and ATM cards decreased 1.7% in 2019 compared to 2018. This fall was due to the Bank continuedhigher upfront costs relating to experience positive client basevarious initiatives implemented in our card business, which reduced net fee commission income for the period. We began the process of moving into a four-part pricing model, which uses the international interchange fees set by the main card brands (i.e. MasterCard, Visa, AMEX), and product usage growth. This has driven growth of fees in Global Corporate Banking that rose 64.6% in 2016 as the Bank won an important sharemoved out of the investment banking, cash managementpricing model set by Chile’s main credit card acquirer (Transbank). Fees from collections decreased 16.8% in 2019 compared to 2018. This line item includes, among other items, fees collected on behalf of insurance companies for fire and advisory servicesearthquake insurance that are mandatory with mortgage loans. During 2019, a change in the methodology for estimating incident rates for mandatory fire and earthquake insurance for mortgage loans led to a reduction in the largecollection of these fees. This was offset by good client growth in 2019 that drove a 24.3% and 6.2% increase in insurance brokerage and checking account fees, respectively.   63  Table of Contents projects being developed in Chile. The Middle-market segment increased fees by 8.1% and Retail banking increased 3.4% in 2016, mainly due to greater product usage. Total financial transactions, net,, which is the sum of net income from financial operations and foreign exchange gain (loss), totaled Ch$140,358201,692 million in the year ended December 31, 2016, a decrease2019, an increase of 3.5%91.9% compared to the same period in 2015.2018. These results include the results of our Treasury Division’s trading business and financial transactions with customers, as well as the results of our non-client treasury operations, mainly the Financial Management Division. Client treasury services totaled Ch$138,648 million, an increase of 45.7% compared to 2018. The results from our client treasury business increased 7.1% in 2016 and totaled Ch$89,786 million. The results from Santander Global Connect and market-making mainly include the results from the sale of derivatives, foreign exchange and fixed income instruments to our client base. In 2016, the results from Santander Global Connect increased 2.3%. The highhigher market volatility and depreciation of the peso in the second half of 2019 led to a largerhigher demand for hedging from our Corporate and Middle-market clients, driving this income line.clients. The results from market-making with client services increased 19.8% in 2016, mainly due to higher business volumes with specific corporate clients, especially in our cash management services. Results from non-client treasury income increased 537.2% to Ch$63,044 million in 20162019 compared to 2018. These results mainly consist of the results of our Financial Management Division, in charge of managing the Bank’s capital, liquidity, funding and inflation positions. The results of the Bank’s Financial Management Division increased 420.4% to Ch$63,691 million in 2019 compared to 2018. This was due to the 651% increase in the net gains on the derecognition of financial assets measured at amortized cost which totaled Ch$63,672 million, which, in turn, was mainly due to the sharp decline in local interest rates across the entire yield curve that increased the realized gains from these investments. Total other operating income decreased 18.0%by 43.8% in 2019 compared to 2018 and totaled a gain of Ch$50,57213,001 million. This decreaselower result was mainly due to lower realized gains onincome from the available-for-sale portfolio in 2016.release of non-credit contingencies compared to 2018.   Other operating income totaled a gain of Ch$6,427 million in For the year ended December 31, 2016, a 0.2% decrease2019 provisions for expected credit loss totaled Ch$323,311 million and increased 1.9% compared to 2015. The main reasons for this decrease was lower income received from assets received in lieu of payment which decreased 32.3%. Provisions for loan losses, net of recoveries totaled Ch$342,083 million in 2016 and decreased 14.3% compared to the amount of provisions recorded in 2015. Provisions for loan losses totaled Ch$409,159 million in 2016 compared to Ch$454,462 million in 2015 and decreased 10.0%. Improvements in asset quality and higher loan loss recoveries drove this decrease in provisions for loan losses. Non-performing loans as a percentage of the loan portfolio decreased from 2.6% in 2015 to 2.1% in 2016 and the non-performing loans coverage ratio increased from 118.5% to 140.2%.2018. This environment also led to a decrease in the loans charged-off during 2016 to Ch$11,222 million. The provision expense for loan loss for commercial loans decreased from Ch$197,247 million in 2015 to Ch$137,242 million in 2016. Thisrise was mainly due to an improvement in asset quality in commercial loans. The non-performinggrowth of our loan ratio of commercial loans reached 2.3% in 2016 compared to 2.6% in 2015. This improvement in asset quality was due to two factors. First, the NPL ratio among small to middle-sized entities in retail banking decreased from 6.8% in 2015 to 5.8% in 2016. Second, there was an improvement in asset quality among loans evaluated on an individual basis, which resulted in a provision expense of Ch$17,819 million in 2016 compared to an expense of Ch$78,354 million in 2015. This was due to (i) a 2.6% decrease in loan volumes in global corporate banking, (ii) an unusually high provision expense in 2015 for specific corporate clients that were downgradedbook and (iii) an increase in 2016 inexpected losses driven by the number of clients that either improved their risk status or paid their loans. Provisions for mortgage loans decreased by 38.7% from Ch$27,168 million in 2015 compared to Ch$16,646 million in 2016. During 2016,economic slowdown and social unrest during the Bank lowered its exposure to the lower endlast quarter of the market and lowered the loan-to-value of residential mortgages at origination, which led to an improvement in mortgage loan asset quality and in April 2016 the mortgage loan allowance model was recalibrated resulting in a decrease in mortgage loan allowance of approximately Ch$3,500 million. The non-performing ratio for mortgage loans decreased from 2.1% in 2015 to 1.7% in 2016 and the impaired mortgage loans ratio also improved from 5.1% in 2015 to 4.6% in 2016. The provision expense for consumer loans increased 8.2% during 2016, primarily attributable to growth of 7.1% in the loan portfolio in 2016. During 2016, the Bank lowered its exposure to the lower end of the consumer market and restricted renegotiations for consumer clients presenting payment difficulties, which led to an increase in charge-offs in 2016 and improvements in consumer loan asset quality. This was partially offset by recoveries from loans previously charged-off that increased from Ch$35,565 million in 2015 to Ch$41,072 million in 2016. The consumer non-performing loans ratio was 2.2% in 2016 compared to 2.7% in 2015 and the impaired consumer loan ratio decreased from 8.9% in 2015 to 6.5% in 2016. Recoveries on loans previously charged-off increased 14.9% in 2016 compared to 2015. This was due to higher recoveries from charged-off consumer and residential mortgage loans mainly due to improved recovery efforts. year. 64  Table of Contents   As a result of the factors mentioned above,net operating profit increased 7.6%5.2% in 20162019 compared to 20152018 and totaled Ch$1,340,4921,595,432 million.   Operating expenses in the year ended December 31, 2019 increased 5.0%6.3% compared to 2015.the corresponding period in 2018. The efficiency ratio was 44.9%41.7% in 2016 compared to 43.8%2019 and 41.1% in 2015. The increase in 2016 is explained by the digital transformation undertaken by the Bank that involves developing technology capabilities and branch formats in order to achieve greater efficiencies in the long term.2018.   73 Table of Contents The 2.1%3.2% increase in personnel salaries and expenses was mainly due to an increasea rise in personnel compensation due to all salaries being indexed to inflation. Duringvariable incentives, severance payments, training and other benefits that increased 8.3%, while salary costs only grew by 0.4%. Headcount increased 1.5% in 2019, including partially as a result of the year the Bank made changesincorporation of Santander Consumer Chile, which added approximately 200 employees to the management structure and the total headcount was reduced 3.1% to 11,354 employees in December 2016, in line with the Bank’s strategy of reducing mid-upper management levels and the sales force.Bank.   Administrative expenses increased 2.7%decreased 4.7% in the year ended December 31, 20162019 compared to the corresponding period in 2015,2018, mainly due to the implementation of IFRS 16 during 2019. As a result, rental expenses for branches are now recognized in the line item depreciation and amortization. Excluding this effect, administrative expenses increased 8.5% in the period, mainly due to a rise in marketing expenses, outsourced IT services, insurance costs and communication expenses that increased from Ch$28,420 million in 2015IT investments to Ch$37,351 million in 2016 as part of technological innovation to maintain and develop the Bank’s digital platform. This also ledservices and back-office platform, which is allowing the Bank to an increase in impairment charges to Ch$234 million in 2016 compared to Ch$21 million in 2015, primarily due to impairmentsconsolidate the branches and create efficiencies in the ATM network.long-term.   Depreciation and amortization expense increased 21.9%33.8% in 20162019 compared to 20152018. This increase was mainly due to the adoption of IFRS 16 in 2019 that reclassified certain branch rental expenses as depreciation and totaled Ch$65,359 million. This is in line with the greater investments in hardware and other equipment made by the Bank as it modernizes its branch network and systems.amortization.   The Bank recognized an impairment expense of Ch$2,726 million in 2019 mainly due to impairment of fixed assets following the social unrest that affected Chile in the fourth quarter that resulted in damage to some branches and facilities. Other operating expenses were Ch$68,90249,303 million in 2016, a 17.3%2019, an increase of 52.4% compared to 2015.2018. This was mainly due to a one time severance pay of Ch$10,789 million in April 2016 as the Bank made changes to the management structure in line with the strategy of reducing mid-upper management levels. Total income tax expense in 2016 totaled Ch$109,031 million a 42.7% increase compared to 2015. This rise was mainly due to the higher effective tax rate paid by the Bank, which in 2016 reached 18.6% compared to 14.5% in 2015. The higher effective tax rate was mainly due to the higher statutory corporate tax rate in Chile, which increased from 22.5% in 2015 to 24.0% in 2016. Also, the lower CPI inflation rate in 2016 compared to 2015 resulted in higher income tax expense since the Bank, for Chilean tax purposes, must re-measure its capital each year for the variation in CPI inflation. Results of operations for the years ended December 31, 2015 and 2014. Consolidated net income for the year ended December 31, 2015 decreased 21.6% to Ch$451,729 million. Our return on annualized average equity was 16.0% in 2015 compared to 21.4% in 2014. In 2015,net operating profit before loan losses was Ch$1,644,771 million, a decrease of 1.1% compared to 2014. Our net interest income decreased 4.7% to Ch$1,255,206 million in 2015 compared to 2014. Our net interest margin decreased to 4.40% in 2015 from 4.92% in 2014. Net interest margins were negatively affected by the lower UF inflation rate in 2015 compared to 2014. Net fees and commission income increased 4.6% to Ch$237,627 million in the twelve-month period ended December 31, 2015 compared to the same period in 2014. In 2015, the Bank continued to experience positive client base andgeneral product usage growth. This has driven growth of fees in Retail banking that rose 8.8% in 2015 and the Middle-market segment in which fees increased 5.5% in the period being analyzed. This was partially offset by the 31.8% decrease in fees from Global corporate banking which were negatively affected by the slower economic growth environment that lowered investment banking revenue. Total financial transactions, net, which is the sum of net income from financial operations and foreign exchange gain (loss), totaled Ch$145,499 million in the year ended December 31, 2015, an increase of 29.3% compared to the same period in 2014. These results include the results of our Treasury Division’s trading business and financial transactions with customers, as well as the results of our non-client treasury operations, mainly the Financial Management Division. The results from our Client treasury business were flat compared to 2014 and totaled Ch$83,845 million. The results from Santander Global Connect and market-making mainly include the results from the sale of derivatives, foreign exchange and fixed income instruments to our client base. In 2015, the results from Santander Global Connect increased 20.2%. The depreciation of the peso and higher market volatility led to a larger demand for hedging from our Corporate and Middle-market clients, driving this income line. The results from market-making with client services decreased 31.0% in 2014, mainly due to lower business volumes of tailor-made treasury services sold to specific corporate clients. 65  Table of Contents Results from non-client treasury income in 2015 increased 114.6% and totaled Ch$61,654 million. This higher result was mainly due to larger realized gains from the available-for-sale portfolio. The results from our available-for-sale portfolio increased 241.1% in 2015 compared to 2014 and totaled Ch$23,655 million. This higher gain arose from the decline in long-term interest rates, especially in the first quarter of 2015. Other operating income totaled a gain of Ch$6,439 million in the year ended December 31, 2015, a 1.6% decrease compared to 2014. The main reasons for this decrease was lower income received from assets received in lieu of payment which decreased 12.7%. Provisions for loan losses, net of recoveries totaled Ch$399,277 million in 2015 and increased 12.5% compared to the amount of provisions recorded in 2014. Provision for loan losses totaled Ch$454,462 million in 2015 compared to Ch$403,069 million in 2014 and increased 12.8%. Provisions established for the Bank’s consumer loans increased by 27.8% to Ch$230,811 million in 2015 compared to 2014. This rise was mainly due to the release of consumer provisions of Ch$26,563 million during the second half of 2014insurance as a result of a re-calibration of the allowances model for consumer loans. Excluding this effect in 2014, consumer loan loss provisions grew 11.4%. This rise was mainly due to: (i) consumer loan growth, which reached 5.9% year over year in 2015 compared to 2014, and (ii) greater charge-offs of consumer loans assessed on a group basis. In light of lower economic growth, the Bank restricted renegotiations of consumer loans for customers presenting payment difficulties and this resulted in higher charge-offs. Provision expense in commercial lending decreased 3.1% in 2015 compared to 2014. During the second half of 2014, and as a response to the ongoing improvement of the allowances models for loans, the Bank updated its allowances model for commercial loans analyzed on a group basis. This resulted in the recognition of Ch$45,141 million in provisions for our commercial loan book in 2014. Excluding this impact, provisions for commercial loans grew 24.6% in the period being analyzed. This rise was mainly due to higher provisions in Global corporate banking as the Bank downgraded various corporate clients affected by the slower economic environment, but which have not yet entered non-performing status. On the other hand, improvements in asset quality of middle-market and SME customers in the retail banking segment led to an improvement in commercial NPLs and impaired loans. The total NPL ratio in commercial loans decreased from 3.0% in 2014 to 2.6% in 2015 mainly due to improvements in asset quality of the middle-market customers and SMEs in the retail banking segment. The impaired commercial loan ratio reached 7.1% in 2015 compared to 7.2% at year-end 2014 due to improvements in asset quality among SME clients in retail banking. Provisions for mortgage loans increased 48.1% in 2015 compared to 2014. This rise was mainly due to: (i) mortgage loan growth, which increased 17.8% in the period being analyzed, and (ii) greater charge-offs of mortgage loans. In light of lower economic growth, the Bank has been restricting the renegotiations of mortgage loans for customers presenting payment difficulties and this resulted in higher charge-offs. This is also leading to higher recoveries, which in the case of mortgage loans, increased 27.7% in 2015 compared to 2014. The Bank also focused mortgage loan growth on higher income earners that in general are less risky. As a result of the change in the loan mix and the higher charge-offs, mortgage loan asset quality improved in 2015 compared to 2014. Mortgage loan asset quality improved in 2015 compared to 2014. The non-performing ratio for mortgage loans declined from 2.7% in 2014 to 2.1% in 2015. The impaired mortgage loans ratio also improved from 5.6% in 2014 to 5.1% in 2015. Additionally, the lower economic growth in 2015 resulted in a rise in charge-off of loans analyzed on an individual basis that totaled Ch$12,955 million in 2015 and rose 19.8% compared to 2014. Recoveries on loans previously charged-off increased 15.5% in 2015 compared to 2014 (see “Provision for loan losses” in the table above). This was due to higher recoveries of charged-off commercial and residential mortgage loans mainly due to improved recovery efforts, especially in the Middle-market segment. As the Bank has improved the asset quality in consumer lending, the growth rate of recoveries has also diminished. As a result of the factors mentioned above,net operating profit decreased 4.8% in 2015 compared to 2014 and totaled Ch$1,245,494 million. Operating expenses increased 5.3% compared to 2014. The efficiency ratio was 43.8% in 2015 compared to 41.1% in 2014. The 14.2% increase in personnel salaries and expenses was mainly due to an increase in personnel compensation, higher severance paymentscost of cyber security and greater costs relatedfraud insurance to benefits included in the Bank’s collective bargaining agreement. Severance payments increased 222.4% to Ch$34,051 million. The Bank in 2015 executed a 66  Table of Contents program to eliminate high level management positions in order to mitigate cost growth which entailed greater severance payments. In March 2014, a new collective bargaining agreement was signed with the main unions, which became effective on October 1, 2014, and which will expire on December 31, 2018. This resulted in an increase in certain benefits related to the Bank’s health insurance fund and other benefits. Administrative expenses increased 7.5% in the year ended December 31, 2015 compared to the corresponding period in 2014. The increase in administrative expenses was mainly due to the 14.3% increase in maintenance, repair of property, plant and equipment, which totaled Ch$20,002 million. In 2015, the Bank continued to refurbish branches, open new Santander Select branches, expand the number of Middle-market centers and close Santander Banefe branches and other payment centers. Impairment charges totaled Ch$21 million in 2015 compared to Ch$36,664 million in 2014. In 2014, the Bank initiated a plan to transform its business and operating model with a better focus on the client. In 2014, the Bank evaluated a number of applications that were in use or in development and tested them for impairment. Following the testing, in accordance with IAS 36, the Bank has recognized an impairment of Ch$36,556 million in 2014 due to the abandonment of unnecessary systems. Depreciation and amortization expense increased 21.4% in 2015 compared to 2014 and totaled Ch$53,614 million. This rise was mainly due tocover the increase in depreciationuse of equipment that reacheddigital banking and the development of new digital innovations at the Bank, which required greater cyber security and fraud protection. Also, the Bank recognized Ch$18,4171,823 million in 2015 compared2019 related to Ch$12,331 million in 2014. This is in line withensuring the greater investments in hardwaresafety of our employees and other equipment asinfrastructure during the Bank modernizes its branch network and systems.period of social unrest.   Other operating expenses were Ch$58,729 million in 2015, a 0.4% decrease compared to 2014. In 2015, customer service expenses, which are related to our phone banking service, decreased 60.6% due to cost restructurings. Additionally in 2015, the Bank had less expenses related to adopting chip technology on cards. These lower other operating expenses were offset by greater provisions for assets received in lieu of payment. Total income tax expense by the Bank in 2015 totaled2019 was Ch$76,395175,074 million, a 49.6%4.7% increase compared to 2014. This rise was2018, mainly due to the higher effective tax rate paiddriven by the Bank, which3.6% rise in 2015 reached 14.5% compared to 8.1% in 2014. The higher effective tax rate was mainly due to the higher statutory corporate tax rate which increased from 21% in 2014 to 22.5% in 2015. In 2015, the Bank also recognized lower credits from deferred tax assets that totaled Ch$10,600 million in 2015 compared to Ch$39,262 million in 2014. Finally, the lower CPI inflation rate in 2015 compared to 2014 also resulted in highernet income tax expense since the Bank, for Chilean tax purposes, must re-value its capital each year for the variation in CPI inflation.before taxes.   Net interest incomeInterest Income     Year ended December 31,   % Change   Year ended December 31,   % Change   2016   2015   2014   2016/2015   2015/2014   2019   2018   2019/2018   (in millions of Ch$, except percentages)   (in millions of Ch$, except percentages)     Retail banking     931,105       873,026       833,139       6.7 %     4.8 %     960,361       949,764       1.1 % Middle-market     244,960       229,812       200,675       6.6 %     14.5 %     298,587       272,912       9.4 % Total commercial banking     1,176,065       1,102,838       1,033,814       6.6 %     6.7 % Global corporate banking     95,105       85,553       71,992       11.2 %     18.8 % Corporate Investment banking     98,154       96,722       1.5 % Total reporting segments     1,271,170       1,188,391       1,105,806       7.0 %     7.5 %     1,357,102       1,319,398       2.9 % Other (1)     10,196       66,815       211,298       (84.7 %)     (68.4 %) Other(1)     59,862       94,970       (37.0 %) Net interest income     1,281,366       1,255,206       1,317,104       2.1 %     (4.7 %)     1,416,964       1,414,368       0.2 % Average interest-earning assets     29,671,311       28,523,005       26,759,696       4.0 %     6.6 %     35,850,253       32,760,203       9.4 % Average non-interest-bearing demand deposits     5,753,622       5,719,889       5,386,272       0.6 %     6.2 %     7,466,991       6,763,546       10.4 % Net interest margin (2)     4.32 %     4.40 %     4.92 %                 Net interest margin(2)     3.95 %     4.32 %         Average shareholders’ equity and average non-interest-bearing demand deposits to total average interest-earning assets     29.0 %     29.9 %     30.2 %                     30.5 %     30.6 %             (1) Consists mainly of net interest income from the Financial Management Division and the cost of funding our fixed income trading portfolio.financial assets held for trading. Each segment obtains funding from its clients. Any surplus deposits are transferred to the Financial Management Division, which in turn makes such excess available to other areas that need funding. The Financial Management Division also sells the funds it obtains in the institutional funding market at a transfer price equal to the market price of the funds. This segment also includes intra-segment income and activities not assigned to a given segment or product line.   (2) Net interest margin is net interest income divided by average interest-earning assets.   67  Table of Contents For the years ended December 31, 20162019 and 2015. Our2018 our net interest income totaled Ch$1,281,3661,416,964 million in the year ended December 31, 2016,2019, an increase of 2.1%0.2% from Ch$1,255,2061,414,368 million in 2015. Average2018 and average interest earning assets increased 4.0%9.4% in the same period, drivenperiod. During 2019, the loan portfolio grew 8.1%, but mainly by lending in lower yielding commercial and mortgage loans. At the Retail banking and Middle-market segments. Whilesame time, the average nominal interest income from our reporting segments grew 7.0% during 2016 , netrate earned on interest margin in 2016 decreased to 4.3% compared to 4.4% in 2015 due to 74 Table of Contents earning assets was also negatively affected by the lower UF inflation in 2016. Because the Bank has more interest earning assets indexed to the UF than interest bearing liabilities, the lower inflation rate in 20162019 compared to 20152018. This caused our average nominal interest rate earned on interest earning assets indexed to the UF to decrease from 7.6%6.2% in 20152018 to 6.6%5.9% in 2016. 2019. Moreover, the relatively large decline in long-term interest rates in 2019 also led to a high level of refinancing of residential mortgage loans, which also led to lower rates earned on these assets in 2019. The nominal yield earned on peso-denominated consumer loans also declined due to a lower rate environment for most of 2019 and continued focus on growing among high income earners that obtain a lower yield, but who also have a lower risk profile. This was partially offset by the acquisition of Santander Consumer Chile S.A. in November 2019, which is a company mainly dedicated to higher yielding auto-lending. All the factors mentioned above led to a decline in the overall average nominal interest rate forearned over interest earning assets denominatedfrom 6.9% in pesos increased from 9.6%2018 to 6.5% in 2015 to 9.9% in 2016, while the average nominal rate for interest bearing liabilities denominated in pesos also increased from 4.4% in 2015 to 4.7% in 2016.2019.   Average nominal interest rate earned on interest earning assets   2016   2015   2014   2019   2018 Ch$     9.9 %     9.6 %     10.3 %     8.2 %     8.6 % UF     6.6 %     7.6 %     9.3 %     5.9 %     6.2 % Foreign currencies     2.1 %     1.8 %     1.5 %     3.4 %     3.4 % Total     7.2 %     7.3 %     8.3 %     6.5 %     6.9 %   The average rate paid on our interest bearing liabilities decreased to 3.9%3.5% in 20162019 from 4.0%3.6% in 2015.2018. This was mainly due to a lower rate environment in 2019 triggered by the Central Bank’s relaxation of monetary policy due to lower than expected economic growth and inflation. This especially reduced the nominal rate paid on Ch$ denominated time deposits. The nominal rate paid over the average balance of these deposits fell from 3.0% in 2018 to 2.7% in 2019. The rate paid on UF denominated liabilities as a result ofalso declined due to the lower UF inflation rate in the year,year. Average nominal interest rate paid on interest bearing liabilities   2019   2018 Ch$     3.3 %     3.3 % UF     5.1 %     5.4 % Foreign currencies     2.3 %     2.2 % Total     3.5 %     3.6 % Additionally, in 2019, average non-interest bearing demand deposits increased 10.4%, which decreasedhelped to 5.6%lower total funding costs as well. In summary, the lower inflation coupled with the growth of lower yielding assets and the negative effects of a flatter yield curve in 20162019, partially offset by a cheaper funding cost and mix, led to a decline in our net interest margin to 3.95% in 2019 compared to 7.2%4.32% in 2015.2018. Net interest income from our reporting segments totaled Ch$1,357,102 million and increased 2.9% compared to 2018. This rise was mainly due to the growth of the loan book, which grew 8.1% in 2019, partially offset by the negative impact of inflation onlower loan yield earned by each segment due to the interest earning assets. Average nominal interest rate paid on interest bearing liabilities   2016   2015   2014 Ch$     4.7 %     4.4 %     6.0 % UF     5.6 %     7.2 %     8.4 % Foreign currencies     1.1 %     1.3 %     0.7 % Total     3.9 %     4.0 %     4.7 % lower rate environment and the lower spread earned over their non-interest bearing demand deposits. The changes in net interest income by segment in 20162019 as compared to 20152018 were as follows:   · Net interest income from Retail banking increased 6.7%1.1%, mainly asled by a result of the 9.2%10.3% increase in loan volumes, offset by the growth of lower yielding loans, mainly mortgage loans and a lower return earned on these loans due to greater amount of loan refinancing in this segment. The Bank focused growthproduct, following the decline in the high end oflong-term rates in 2019. Consumer loan volumes in this segment in order to focus on margins netinclude loans acquired through the incorporation of risks, especially considering that in 2016 economic growth continued to slow. As a result, the highest growing loan product was residential mortgage loans that have a lower yield compared to other retail loans.Santander Consumer Chile, which at year-end 2019 totaled Ch$451 billion.   · Net interest income from the Middle-market segment increased 6.6%9.4% in 2016,2019, mainly as a result of stabledue to loan growth of 6.5%5.2% in 2019 and the improvement in funding costs in this segment. Loan growth has been more selective, focusing on the potential return net of risk with a focus on non-lending products which are positive for margin growth, such as the spread between the rate on deposits and the Central Bank rate.   · The focus for Global corporate banking was on growth of non-lending products especially cash management which generatesNet interest income from the Corporate Investment Banking segment increased 1.5% in 2019 compared to 2018. Despite a higher return than lendingdecrease in loan volumes in this segment. This led to an increasesegment, the improved funding mix drove the growth in net interest income of 11.2% in 2016 despite a 2.6% decrease in loan volumes.this segment.   75 Table of Contents · Other net interest income consists mainly of net interest income from the Bank’s ALCO, which includes the available-for-sale investment portfolio,net interest income from the Bank’s debt instruments recorded at fair value through other comprehensive income, deposits in the Central Bank, and the financial cost of supporting our cash position and investment portfoliofinancial investments held for trading the(the interest income from which is recognized as net income from financial operations and not interest income.income). The result of the Bank’s inflation gap is also included in this line. The net interest income included as “other” decreased from a gain of37% to Ch$66,81559,862 million in 20152019 compared to a gain of Ch$10,196 million2018. This was mainly due to the lower UF inflation rate recorded in 2016. This2019 compared to 2018 and the lower yield earned on the Bank’s debt instruments recorded at fair value through other comprehensive income, which in turn was due to the lower inflationinterest rate in 2016environment and lower interest income fromflattening of the Bank’s liquidity position as well as the gradual introduction of Basel III liquidity requirements, which led the Bank to take more investments with higher liquidity and shorter maturities that have a lower yield.local currency yield curve. 68  Table of Contents   The following table shows our balances of loans and accounts receivable from customers and interbank loans by segment at the dates indicated.     At December 31,   % Change   At December 31,   % Change   2016   2015   2014   2016/2015   2015/2014   2019   2018   2019/2018   (in millions of Ch$, except percentages)   (in millions of Ch)     Retail banking     18,604,936       17,034,707       15,191,808       9.2 %     12.1 %     22,926,377       20,786,637       10.3 % Middle-market     6,396,376       6,006,282       5,443,983       6.5 %     10.3 %     8,093,496       7,690,380       5.2 % Global corporate banking     2,121,513       2,178,643       2,201,913       (2.6 %)     (1.1 %) Corporate Investment banking     1,603,633       1,613,088       (0.6 %) Other (1)     83,606       81,125       54,945       3.1 %     47.6 %     48,009       123,309       (61.1 %) Total loans     27,206,431       25,300,757       22,892,649       7.5 %     10.5 %     32,671,515       30,213,414       8.1 %     (1) Includes interbank loans.   For the years endedThe following table shows interest income of financial assets by valuation as of December 31, 20152019 and 2014. Our net interest income totaled Ch$1,255,206 million in the year ended December 31, 2015, a decrease of 4.7% from Ch$1,317,104 million in 2014. Average interest earning assets increased 6.6% in the same period, driven mainly by lending in the Retail banking and Middle-market segments. Net interest margin in 2015 was 4.40% compared to 4.92% in 2014. Net interest margins were negatively affected by the decrease of the average nominal rate we earned on our interest earning assets. This was mainly due to a decrease in the UF inflation rate in 2015 compared to 2014, which in turn lowered the average nominal rate earned on UF denominated interest earning assets. This impact is more relevant than the decrease in funding cost of liabilities linked to the UF since the Bank has more assets than liabilities linked to the UF. We also earned a lower nominal rate on our peso-denominated interest earning assets. This was mainly due to loan growth focused in lower yielding, but less risky loans. This was reflected in the decrease in the average nominal interest rate earned on our peso denominated consumer loans that decreased from 17.2% in 2014 to 14.0% in 2015.2018.   The average rate paid on our interest bearing liabilities decreased from 4.7% in 2014 to 4.0% in 2015. This was mainly due to a lower rate paid on UF denominated liabilities as a result of the lower UF inflation in the year. As a result, the average nominal rate paid on interest bearing liabilities denominated in UF decreased to 7.2% in 2015 compared to 8.4% in 2014. At the same time and despite rising short-term interest rates, the average nominal rate paid on peso denominated interest bearing liabilities also decreased from 6.0% in 2014 to 4.4% in 2015, reflecting positive management of time deposits costs with our clients.     At December 31,   % Change     2019   2019/2018         (in millions of Ch$)     Financial assets measured at amortized cost(1)     2,195,339       2,122,253       3.4 % Financial assets measured al FVOCI(2)     97,319       100,213       (2.9 %) Other interest     21,979       20,657       6.4 % Interest income not including income from hedge accounting     2,314,637       2,243,123       3.2 %   The changes in net interest income by segment in 2015 as compared to 2014 were as follows: ·(1) NetFinancial assets measured at amortized cost include loans measured at amortized cost as described above and investments under resale agreements. The effective interest income from Retail banking increased 4.8%, mainly as a resultmethod is used in the calculation of the 12.1% increase in loan volumes in this segment. The Bank focused growthamortized cost of the financial asset and in the high end of this segment in order to focus on margins net of risks, especially considering that in 2015 economic growth slowed. As a result, the highest growing loan product was residential mortgage loans that have a lower yield compared to consumer loans. At the same time, the focus on high income earners also resulted in a reductionallocation and recognition of the rate earned on consumer loans.interest revenue over the relevant period.   ·(2) Net interestFinancial assets measured at fair value through other comprehensive income from the Middle-market segment increased 14.5% in 2015, mainly as a result of the 10.3% increase in loans in this segment. This segment was of significant strategic focus in 2015 as the Bank increased business volumes in this segment both in lending and non-lending services. · Net interest income from Global corporate banking increased 18.8% in 2015 despite a 1.1% decrease in loan volumes. Loan yields in this segment improved as alternative sources of funds for Chilean corporates, especially from foreign sources, became more expensive. This segment also saw an improvement in cash management services that improved the funding mix. · Other net interest income consists mainly of net interest income from the available-for-sale investment portfolio and deposits in the Central Bank and the financial cost of supporting our cash position and investment portfolio for trading,include the interest income from which is recognized as net income from financial operationsdebt instruments. These mainly consisted of securities and not interest income. The resultbonds of the Bank’s inflation gap is also included in this line. The netChilean Central Bank that contain contractual terms that give rise on specific dates to cash flows that are solely payments of principal and interest income included as “other” totaled a gain of Ch$66,815million in 2015 compared to a gain of Ch$211,298 million in 2014. The gain in 2015 can be explained by the lower UF inflation in 2015 compared to the previous period(SPPI), and the greater UF gap in 2014. The lower variation of the UF gap resulted in Ch$99,280 million less net interest income (See “Item 5A—Impact of Inflation”). Other netare measured at FVOCI. 69  Table of Contents interest income was also negatively affected by lower net interest income from the Bank’s liquidity position, especially the portion denominated in U.S. dollars. This was mainly due to the low interest rate environment observed globally.   Fee and commission incomeCommission Income   For the years ended December 31, 2016 and 2015. Net fees and commission income increased 7.1%decreased 1.3% to Ch$254,424287,086 million in the twelve-month period ended December 31, 20162019 compared to the same period in 2015.2018. The following table sets forth certain components of our income from services (net of fees paid to third parties directly connected to providing those services, principally fees relating to credit card processing and ATM network administration) in the years ended December 31, 2019 and 2018. 76 Table of Contents     Year ended December 31,   % Change     2019   2018   2019/2018     (in millions of Ch$)     Credit, debit and ATM cards     54,189       55,109       (1.7 %) Collections     33,355       40,077       (16.8 %) Insurance brokerage     49,664       39,949       24.3 % Letters of credit     35,039       33,654       4.1 % Checking accounts     35,949       33,865       6.2 % Custody and brokerage services     9,154       9,211       (0.6 %) Lines of credit     10,314       6,624       55.7 % Others     59,422       72,396       (17.9 %) Total fees and commission income, net     287,086       290,885       (1.3 %) Fees from credit, debit and ATM cards decreased 1.7% in 2019. This fall was due to higher upfront costs relating to the various initiatives implemented in our card business, which reduced net fee and commission income for the period. We began the process of moving into a four-part pricing model, which uses the international interchange fees set by the main card brands (i.e. MasterCard, Visa, AMEX), and moved out of the pricing model set by Chile’s main credit card acquirer (Transbank). We also modified some aspects of our co-branding agreement with Latam Airlines. Fees from collections decreased 16.8% in 2019 compared to 2018. This line item includes, among other items, fees collected on behalf of insurance companies for fire and earthquake insurance that are mandatory with mortgage loans. During 2019, a change in the methodology for estimating incident rates for mandatory fire and earthquake insurance for mortgage loans led to a reduction in the collection of these fees. Insurance brokerage fees increased 24.3% due to higher brokerage of fraud, car and life insurance policies as advances in our digital platforms have enabled clients to search for and purchase these products online. Fees from letters of credit and other contingent operations increased 4.1% in 2019. This line corresponds to international and foreign trade financing business with clients. The depreciation of the peso and business growth drove this revenue line in 2019. Fees from checking accounts increased 6.2% in 2019 compared to 2018. This was mainly due to a rise in the Bank’s checking account base. The number of checking accounts increased 9.2% to 1,066,800. Our corporate cash management services also continued to boost fee growth in this product. Brokerage and custody fees decreased 0.6% in 2019 as compared to 2018 due to lower volumes in our brokerage business, dampening the growth we experienced in 2018. Fees from lines of credit increased 55.7% due to an increase of usage of these lines as a result of the lower rates available and the increase in account openings in 2019. The 17.9% decrease in other fee income in 2019 compared to 2018 was mainly due to lower fees earned by our Corporate Investment Banking segment for investment banking and advisory services, in line with the slowdown of economic growth. On the other hand, fees from the brokerage of mutual funds increased 3.7% in 2019 compared to 2018. In 2016,2019, asset management brokerage fees totaled Ch$47,331 million. In December 2013, our Asset Management business was sold, but we continue to serve as an exclusive broker for Santander Asset Management, the acquirer of our asset management business. The following table sets forth, for the periods indicated our fee income broken down by segment for the periods indicated:     Year ended December 31,   % Change     2019   2018   2019/2018     (in millions of Ch$)     Retail banking     230,627       220,532       4.6 % Middle-market     38,712       36,746       5.4 % 77 Table of Contents     Year ended December 31,   % Change     2019   2018   2019/2018     (in millions of Ch$)     Corporate Investment banking     29,103       35,064       (17.0 %) Other     (11,356 )     (1,457 )     679.4 % Total fees and commission income, net     287,086       290,885       (1.3 %) Fees from Retail banking increased 4.6% in 2019 compared to 2018. Total retail clients with a checking account increased 9.2% to 1,043,399. In 2019, the Bank continued to experience positive client base and product growth that drove fee growth in various products. Internally, we measure the quantity of products that a client uses and identify them as a loyal customer when they meet certain internal criteria for their segment. For example,segment (clients with more than four products plus minimum usage and profitability levels). Client loyalty continues to rise in retail banking, especially among high income earners, which was the area we continued to focus on. Loyal individual customers in the high-income segment grew 6.9% during 2019. Our debit and credit card products sold through the Santander Life brand also had a strong year, as we added on a new debit card option and the possibility of accumulating airline miles with Santander Life credit cards. As a result, loyal individual customers use four products and have a minimum profitability level and a minimum usage indicator. For SMEs and Middle-market customers, cross-selling is differentiated by client size using a point system that depends on the number of products, usage of products and income net of risk. According to this measurement, the number of loyal high-income clients increased 6.5% and the number of loyal SMEs and middle-market clients increased by 13.8% during 2016 The following table sets forth certain components of our income from services (net of fees paid to third parties directly connected to providing those services, principally fees relating to credit card processing and ATM network administration) in the years ended December 31, 2016, 2015 and 2014.     Year ended December 31,   % Change     2016   2015   2014   2016/2015   2015/2014     (in millions of Ch$) Credit, debit and ATM cards     52,057       46,066       43,161       13.0 %     6.7 % Collections     31,376       30,399       35,355       3.2 %     (14.0 %) Insurance brokerage     40,882       39,252       34,695       4.2 %     13.1 % Letters of credit     35,911       35,276       32,403       1.8 %     8.9 % Checking accounts     31,540       30,291       29,031       4.1 %     4.3 % Custody and brokerage services     8,358       8,685       8,307       (3.8 %)     4.6 % Lines of credit     5,754       6,597       7,015       (12.8 %)     (6.0 %) Others     48,546       41,061       37,316       18.2 %     10.0 % Total fees and commission income, net     254,424       237,627       227,283       7.1 %     4.6 % Fees from credit, debit and ATM cardsmiddle-income segment increased by 13.0% in 2016, reflecting the positive growth of the usage of the Bank’s credit and debit cards. Active credit cards totaled 2,002,998 as of November 2016, the latest market data available, and increased 3.3% compared to the same period in 2015. In the second half of 2015, our contract with Redbank, an ATM services provider, was renegotiated, which led to higher interbank fees charged for ATM usage for the second half of 2015 and the year 2016. Fees from collections increased by 3.2% in 2016 compared to 2015 due to a growth in loan volumes, particularly in mortgage loans. This line item includes, among other items, fees collected on behalf of insurance companies for fire and earthquake insurance that are mandatory with mortgage loans. Insurance brokerage fees increased 4.2% due to higher sales volume from cross-selling of insurance products to customers. Fees from letters of credit and other contingent operations increased 1.8% in 2016. This increase was mainly due to growth of our international and foreign trade financing businesses with clients. Fees from checking accounts increased 4.1% in 2016 compared to 2015. This was mainly due to a rise in the Bank’s checking account base. The amount of retail banking clients with a checking account rose 4.3% in 2016, totaling 844,971. Combined with this an increase in corporate cash management services also boosted fee growth in this product. Brokerage and custody fees decreased 3.8% in 2016 as compared to 2015 due to weak trading volumes in local equity market during 2016. 70  Table of Contents Fees from lines of credit decreased 12.8% as there was a switch from clients using credit lines to credit cards and other facilities offered by online banking. The rise in other fee income of 18.2% in 2016 compared to 2015 was mainly due to higher fees from the brokerage of asset management services. In December 2013, our Asset Management business was sold. The Bank is no longer in the asset management business, but serves as an exclusive broker for Santander Asset Management, the acquirer of our asset management business. In 2016, asset management brokerage fees totaled Ch$38,244 million and increased 5.7% compared to 2015. Other fees also include fees from our Global corporate banking segment. The positive growth of our client loyalty in this segment led to higher advisory fees in global transactional banking. The following table sets forth, for the periods indicated our fee income broken down by segment and sub-segment for the periods indicated:     Year ended December 31,   % Change   % Change     2016   2015   2014   2016/2015   2015/2014     (in millions of Ch$) Retail banking     196,845       190,380       175,007       3.4 %     8.8 % Middle-market     30,851       28,537       27,055       8.1 %     5.5 % Global corporate banking     25,077       15,231       22,338       64.6 %     (31.8 %) Other     1,651       3,479       2,883       (52.5 %)     20.7 % Total fees and commission income, net     254,424       237,627       227,283       7.1 %     4.6 % Fees from Retail banking increased 3.4% in 2016 compared to 2015. Since mid-2013, the Bank has been executing a profound overhaul of its Client Relationship Management (CRM) systems, client service and other changes to its commercial team front-office functions, which has continued to increase product sales and usage.2019. This has led to high fee growth among retail bank clients, especially cards, insurance brokerage, brokerage of asset management products and checking accounts. Total retailThis has also been driven by digital innovations leading to an increase of digital clients reached 3.58 million at year-end 2016 and total retail clients with a checking account increased 4.3% to 844,971. Loyal retail clients increased 7.7% to 600,132 by year-end 2016.of 13.3% in 2019.   The 8.1%5.4% increase in fees from the Middle-market segment was mainly due to the positive expansion of business volumes in this segment from a greater client loyaltybase. Total loyal clients (clients that have a defined minimum amount of products and product usage.profitability) increased 5.2% in 2019 compared to 2018.   Fees from the Global corporateCorporate Investment banking segment increased 64.6%decreased 17.0% in 20162019 compared to 2015. In 2016, the Bank won an important share of the2018, mainly due to lower investment banking cash management and advisory services for the large projects being developed in Chile.fees as a result of lower economic growth. This was offset by better results from Client Treasury activities (See Financial Transactions, net below).   Fees in Other decreased 52.5% from a loss of Ch$3,4791,457 million in 20152018 to an expense of Ch$1,65111,355 million in 2016 due to distributing more fee and commission income among segments. For2019. In this line item we included the years ended December 31, 2015 and 2014. Net fees and commission income increased 4.6% to Ch$237,627 millionimpact of the change in the twelve-month period ended December 31, 2015 compared to the same period in 2014. In 2015, the Bank continued to experience positive client basemethodology for estimating incident rates for mandatory fire and product growth that drove fee growth in various products. Fees from credit, debit and ATM cards increased by 6.7% in 2015, reflecting the positive growth of the usage of the Bank’s credit and debit cards. Active credit cards totaled 1,936,697 as of October 2015, the latest market data available and increased 3.1% compared to the same period in 2014. Fees from collections decreased by 14.0% in 2015 compared to 2014. In 2015, we once again auctioned to the lowest bidder the mandatoryearthquake insurance products that are sold withfor mortgage loans. This negatively impacted collection fees whereAs this incomewas not assigned to any segment, it is recognized. Insurance brokerage fees increased 13.1% as business volumes recoveredpresented in line with a recovery in client and product growth. Fees from letters of credit and other contingent operations increased 8.9% in 2015. This increase was mainly due to positive performance of our international and foreign trade financing businesses with clients and also due to the depreciation of the peso against the U.S. dollar since this business is mainly transacted in foreign currency. 71  Table of Contents Fees from checking accounts increased 4.3% in 2015 compared to 2014. This was mainly due to a rise in the Bank’s checking account base. According to the latest data published by the SBIF as of December 2015, the Bank’s checking accounts totaled 852,492 compared to 815,182 in 2014 or a growth of 5.5%. Higher checking account balances both in retail banking as well as an increase in corporate cash management services also boosted fee growth in this product. Brokerage and custody fees increased 4.6% in 2015 as compared to 2014. Despite lack luster performance of local equity markets, which hurt brokerage activity, the depreciation of the peso against the dollar positively affected brokerage and custody fees. The Bank also saw an increase in custody services with corporate clients. Fees from lines of credit decreased 6.0% in 2015 compared to 2014. Lower spending on behalf of individuals resulted in less usage of lines of credit attached to checking accounts. At the same time, as the Bank continued to de-risk its retail loan book, it reduced its exposure of lines of credit among low income earners. Fees from our asset management business totaled Ch$0 in 2015 and 2014. In December 2013, our Asset Management business was sold. In 2014 and 2015, the Bank continued to broker asset management products for Santander Asset Management. These brokerage fees are included as other income from fees. The rise in other fee income of 10.0% in 2015 compared to 2014 was mainly due to higher fees from the brokerage of asset management services. As mentioned in the paragraph above, the Bank is no longer in the asset management business, but serves as an exclusive broker for Santander Asset Management, the acquirer of our asset management business. In 2015, asset management brokerage fees totaled Ch$36,182 million and increased 16.8% compared to 2014. The positive growth of our client base among high income earners led to higher brokerage fees of asset management products. Fees from Retail banking increased 8.8% in 2015 compared to 2014. Since mid-2013, the Bank has been executing a profound overhaul of its Client Relationship Management (CRM) systems, client service and other changes to its commercial team front-office functions, which has continued to increase product sales and usage. This has led to high fee growth among retail bank clients, especially cards, insurance brokerage, brokerage of asset management products and checking accounts. Total retail clients reached 3.38 million at year-end 2015 and increased 1.6%. Total retail clients with a checking account increased 6.4% to 692,359 and loyal retail clients (a new internal measure that considers the amount of products a client has, uses and their profitability) increased 4.8% to 519,889 by year-end 2015. The 5.5% increase in fees from the Middle-market segment was mainly due to the positive expansion of business volumes in this segment, which led to greater product usage. Fees from the Global corporate banking segment decreased 31.8% in 2015 compared to 2014. In 2015, this segment saw a reduction in investment banking activities such as bond issuances and financial advisory, mainly due to the slower economic growth.Other.   Financial transactions, netTransactions, Net   The following table sets forth information regarding our income (loss) from financial transactions for the years ended December 31, 2016, 20152019 and 2014.2018.     Year ended December 31,   % Change   % Change   Year ended December 31,   % Change   2016   2015   2014   2016/2015   2015/2014   2019   2018   2019/2018   (in millions of Ch$)   (in millions of Ch$)     Net income from financial operations     (367,034 )     (457,897 )     (159,647 )     19.8 %     (186.8 %)     (78,165 )     53,174       – % Foreign exchange profit (loss), net     507,392       603,396       272,212       (15.9 %)     121.7 % Foreign exchange gain, net     279,857       51,908       439.1 % Total financial transactions, net     140,358       145,499       112,565       (3.5 %)     29.3 %     201,692       105,082       91.9 %   For the years ended December 31, 2016 and 2015. Total financial transactions, net, which is the sum of net income from financial operations and foreign exchange profit (loss),gain, totaled Ch$140,358201,692 million in the year ended December 31, 2016, a decrease2019, an increase of 3.5%91.9% compared to the same period in 2015.2018. These results include the results of our Treasury Division’s trading business and financial transactions with customers, as well as the results of our Financial Management Division. 72  Table of Contents   Internal Bank policy does not allow significant foreign currency mismatches and requires that the results included in Total financial transactions, net include not only the market-to-market of our foreign currency spot position, but also the results of the derivatives used to hedge currency risk. The mark-to-market of our spot position is included in the line item Foreign exchange profit (loss), net. This line item also includesgain, net along with the effect of those derivatives accounted for under hedge accounting rules. The derivatives used to hedge foreign currency risk, but which are classified as trading are included in the line item Net income from financial operations. For more details regarding our management and 78 Table of Contents exposure to foreign currency risk, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—E. Market Risks—Market risk management— Market risk – local and foreign financial management.”   The results from net income (loss) from financial operations totaled a loss of Ch$367,03478,165 million in 20162019 compared to a lossgain of Ch$457,89753,174 million in 2015.2018.       Year ended December 31,   % Change   % Change     2016   2015   2014   2016/2015   2015/2014     (in millions of Ch$) Derivatives classified as trading     (395,209 )     (503,981 )     (224,015 )     21.6 %     (125.0 %) Trading investments     18,229       21,505       45,952       (15.2 %)     (53.2 %) Sale of loans     4,190       863       6,070       385.5 %     (85.8 %) Available-for-sale instruments sales     14,598       23,655       6,934       (38.3 %)     241.1 % Other results     (8,842 )     61       5,412       (14,595.1 %)     (98.9 %) Net income (loss) from financial operations     (367,034 )     (457,897 )     (159,647 )     19.8 %     186.8 %     For the year ended December 31,    % Change      2019    2018    2019/2018      (in millions of Ch$)     Net (loss) gains on trading derivatives     (162,183 )     38,217       (524.4 %) Net gains on financial assets at fair value through profit or loss     11,878       9,393       26.5 % Net gains on derecognition of financial assets measured at amortized cost     63,672       8,479       650.9 % Sale of loans and accounts receivables from customers     3,310       400       727.6 % Current portfolio     63       (309 )     (120.3 %) Charged-off portfolio     3,248       709       358.1 % Repurchase of issued bonds     3,265       (840 )     (488.7 %) Other income (expense) from financial operations     1,893       (2,475 )     (176.4 %) Total income (expense)     (78,165 )     53,174       –  %   The lower loss from financial operations in 20162019 compared to 2015a gain in 2018 was mainly due to:   (i) Lesser lossesA loss of Ch$162,183 million in the sub-item derivatives classified as trading. In 2016, the average yearly exchange rate depreciated 3.5% compared to 14.8% in 2015.net gains on trading derivatives. Movements in foreign currency and interest rates affect this line item because it includes the valuation adjustments of our derivatives classified as trading. The Bank’s spot foreign currency position includes all assets and liabilities in foreign currency and assets and liabilities in Ch$ linked to U.S.$ that are not derivatives. Internal policy prohibits us from opening a large exposure in foreign currency, but we usually have more liabilities in foreign currency (mainly U.S.$) in our spot position than assets due to our long-term funding in foreign currency and deposits denominated in foreign currencies from Chilean exporters. This net foreign currency liability spot position is hedged using different instruments. We use derivatives classified as trading, mainly forwards and cross-currency swaps, to hedge the net foreign currency spot position between short-term assets and liabilities. Onshort-term liabilities and it includes results from our client foreign currency business, such as the sale of currency derivatives. In 2019, especially towards the end of the year, the Bank increased its dollar over-night liquidity position as a defensive measure due to the strong demand of dollars by most market agents as social unrest intensified in this period. Therefore, on average, the Bank hashad more short-term assets such as U.S.in dollars invested in overnight, than short-term deposits in U.S. dollars.liabilities, which was hedged through a short-term foreign currency liability position classified as trading. The averageCentral Bank exchange rate depreciated 3.5%7.0% in 2016, producing2019 with a 20% depreciation in October and November at the peak of the social unrest. FX forward rates also increased significantly at year-end, leading to net loss in derivatives classified as trading. This loss was lower than in 2015, since the average depreciation rate was lower in 2016 against 2015.from trading of derivatives. This was offset by:   (ii) The 15.2% lower gain of Ch$11,878 million from trading investments was mainly due to the lower UF inflation rate in 2016 compared to 2015.financial assets at fair value through profit or loss. In this line item the mark-to-market and interest income of the trading fixed income portfolio are recognized. In 2016,The sharp decline in local interest rates across the lower UF inflation decreased interestentire yield curve increased the gain from this portfolio,these investments in 2019, which is mainly comprised of Central Bank instruments denominated in UF.instruments.   (iii) The results from our available-for-sale portfolio decreased 38.3%651% increase in 2016 compared to 2015. The results for 2015 were very highthe gains on the derecognition of financial assets measured at amortized cost, which totaled Ch$63,6782 million. This increase was mainly due to gains realized whenthe sharp decline in local interest rates fell abruptly inacross the first quarterentire yield curve that increased the gain from these investments which are mainly comprised of 2015; this situation was not repeated in 2016.fixed income instruments issued by the Central Bank of Chile and the Republic of Chile.   (iv) The loss in other results of Ch$8,842 million in 2016 was due toIn 2019, despite falling rates, corporate bond spreads increased, and the effect of depreciationBank repurchased certain bonds at a price below par, resulting in the average exchange rate on the partial repurchase of senior bonds during the year.gain recorded in this line item. See Note 18 – issued debt instruments“Note 20—Issued Debt Instruments and other financial liabilities – Other Financial Liabilities—b) Senior bondsBonds” in the Audited Consolidated Financial Statements.   (v) The Bank also realized a larger gain from the sale of charged off loans in 2019 compared to 2018. 79 Table of Contents The net result from foreign exchange transactions totaled a gain of Ch$507,392279,857 million in 20162019 compared to Ch$603,39651,908 million in 2015.2018.   73  Table of Contents   Year ended December 31,   % Change   % Change   Year ended December 31,   % Change   2016   2015   2014   2016/2015   2015/2014   2019   2018   2019/2018   (in millions of Ch$)   (in millions of Ch$)     Net profit or loss from foreign currency exchange differences     116,117       (197,875 )     (370,282 )     158.7 %     46.6 %     (89,893 )     (212,618 )     (57.7 %) Hedge-accounting derivatives     399,875       777,254       621,767       (48.6 %)     25.0 %     362,374       252,275       43.6 % Translation gains and losses over assets and liabilities indexed to foreign currencies, net     (8,600 )     24,017       20,727       (135.8 %)     15.9 %     7,376       12,251       (39.8 %) Net results from foreign exchange profit (loss)     507,392       603,396       272,212       (15.9 %)     121.7 % Net results from foreign exchange gain     279,857       51,908       439.1 %   Included in these results is the sub-item Net profit or loss from foreign currency exchange differences which totaled a gain of Ch$116,117 million in 2016 compared to a loss of Ch$197,875 million in 2015. This result includes the mark-to-market of the Bank’s spot position and results from our client foreign currency business, such as currency transactionstransactions. The Central Bank exchange rate depreciated 7.0% in 2019 and market making. The lower rate of average depreciation ofdepreciated 13.1% in 2018, which reflects the pesoloss from our net liability spot position in 2016 compared to 20152019 and 2018. This is offset by the results from hedge-accounting derivatives and the increase in client currency transactions resulted in a higher result in this sub-item compared to 2015.results from derivatives classified as trading.   Results from the sub-item hedge-accounting derivative are mainly comprised of the mark-to-market of derivatives that are used to mainly hedge the foreign currency risk of our long-term foreign currency funding. Therefore, we generally have a net foreign currency asset position in our hedge-accounting derivatives. These are mainly cross-currency swaps that are accounted under hedge accounting rules. These derivatives produced a gain of Ch$399,875362,374 million in 2016 attributable2019, 43.6% higher than in 2018 due to the average depreciation of the peso in the year. This gain was lower than in 2015 due to2019, especially towards the lower rateend of depreciation in 2016 compared to 2015.the 2019.   Finally, the Bank has some assets and liabilities that are in Chilean pesos, but indexed to foreign currency. This position produced a translation lossgain in 20162019 of Ch$8,6007,376 million. This exposure is also hedged.   In order to more easily compare the results from financial transactions, net, we present the following table that separates the results by lines of business for 2016, 20152019 and 2014.2018.     Year ended December 31,   % Change   Year ended December 31,   % Change   2016   2015   2014   2016/2015   2015/2014   2019   2018   2019/2018   (in millions of Ch$)   (in millions of Ch$)     Santander Global Connect (1)     62,404       60,995       50,740       2.3 %     20.2 % Client treasury products     101,519       73,912       37.4 % Market-making with clients     27,382       22,850       33,097       19.8 %     (31.0 %)     37,129       21,276       74.5 % Client treasury services     89,786       83,845       83,837       7.1 %     — %     138,648       95,188       45.7 % Sale of loans and charged-off loans     4,190       863       6,070       3 85.5 %     (85.8 %)     3,310       400       727.6 % Proprietary trading     (94 )     (567 )     (1,113 )     83.5 %     49.0 % CVA adjustments     (3,957 )     (2,745 )     44.1 % Financial Management Division and others (2)(1)     46,475       61,358       23,771       (24.3 %)     158.1 %     63,691       12,239       420.4 % Non-client treasury income (loss)     50,572       61,654       28,728       (18.0 %)     114.6 %     63,044       9,894       537.2 % Total financial transactions, net     140,358       145,499       112,565       (3.5 %)     29.3 %     201,692       105,082       91.9 %     (1) Santander Global Connect is the Bank’s commercial platform for selling treasury products to its clients. (2) The Financial Management Division manages the structural interest rate risk, the structural position in inflation-indexed assets and liabilities, capital requirements and liquidity levels. The aim of the Financial Management Division is to provide stability and continuity in our net interest income from commercial activities, and to ensure that we comply with internal and regulatory limits regarding liquidity, regulatory capital, reserve requirements and market risk.   Client treasury services totaled Ch$89,786138,648 million, a gainan increase of 7.1%45.7% compared to 2015.2018. The results from Santander Global Connectclient treasury products and market-making mainly include the results from the sale of derivatives, foreign exchange and fixed income instruments to our client base. In 2016,2019, the results from Santander Global Connectclient treasury products increased 2.3%37.4%. The higher market volatility and depreciation of the peso and high market volatilityin the second semester of 2019 led to a largerhigher demand for 80 Table of Contents hedging from our Corporate and Middle-market clients, driving this income line.clients. The results from market-making with client services increased 19.8%74.5% in 2015,2019, mainly due to a growthan improvement in business volumes of tailor-made treasury services and cash management sold to specific corporate clients. These results may vary year-to-year as some large operations with corporate clients may not be repeated in subsequent years.   The results from non-client treasury income decreased 18.0% and totaled a gain ofincreased 537.2% to Ch$50,57263,044 million in 20162019 compared to Ch$61,654 million in 2015.2018. These results include the income from sale of loans, including charged-off loans, proprietary trading and the results from our Financial Management Division. 74  Table of Contents The results from the sale of loans increased to Ch$4,190 million in 2016. The results from proprietary trading totaled a loss of Ch$94 million. Since year-end 2012, the Bank no longer has a proprietary trading area and these results are from residual positions that are being closed. In 2016, income from the Bank’s Financial Management Division decreased 24.3% to Ch$46,475 million. This department manages the structural interest rate risk, the structural position in inflation-indexed assets and liabilities, capital requirements and liquidity levels. The aim of the Financial Management Division is to provide stability and continuity in our net interest income from commercial activities, and to ensure that we comply with internal and regulatory limits regarding liquidity, regulatory capital, reserve requirements and market risk. This decrease in results was mainly due to lower realized gains from our available-for-sale portfolio. The results from our available-for-sale portfolio decreased 38.3% in 2016 compared to 2015 and totaled Ch$14,598 million due to the significant decrease in long-term interest rates in the first quarter of 2015. The results from Financial Management Division also include the offset of the foreign currency exposure hedging on provision expenses for loans denominated in U.S. dollars. For the years ended December 31, 2015 and 2014. Total financial transactions, net, which is the sum of net income from financial operations and foreign exchange profit (loss), totaled Ch$145,499 million in the year ended December 31, 2015, an increase of 29.3% compared to the same period in 2014. These results include the results of our Treasury Division’s trading business and financial transactions with customers, as well as the results of our Financial Management Division. Net income from financial operations was a loss of Ch$457,897 million in 2015 compared to a loss of Ch$159,647 million in 2014. The higher loss from financial operations in 2015 compared to 2014 was mainly due to: (i) Higher losses from derivatives classified as trading. In 2015, the average yearly exchange rate depreciated 14.8%. Movements in foreign currency affect this line item because it includes the valuationCVA adjustments of our derivatives classified as trading. The Bank’s spot position includes all assets and liabilities in foreign currency and assets and liabilities in Ch$ linked to U.S.$ that are not derivatives. Internal policy prohibits us from opening a large exposure in foreign currency, but we usually have more liabilities in foreign currency (mainly U.S.$) than assets in our spot position due to our long-term funding in foreign currency and deposits denominated in foreign currencies from Chilean exporters. This net foreign currency liability spot position is hedged using different instruments. Our long-term foreign currency funding is hedged with cross-currency swaps that are matched and are accounted under hedge accounting rules. Therefore, the liability and the corresponding hedge are recognized in foreign exchange profits, described below and not in this line item. Excluding this part of our funding in foreign currency, we are left with the foreign currency deposits and other short-term foreign currency funding mechanisms, which are smaller than the foreign currency assets, mainly cash. This difference is hedged with derivatives that are accounted as trading derivatives and since the size of our cash position in U.S. dollars (see Note 4a of our Audited Consolidated Financial Statements) increased, the amount of derivatives hedging this position also rose and the loss from derivatives classified as trading rose. For more details, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—E. Market Risks—Market risk management— Market risk – local and foreign financial management.” (ii) The 53.2% lower gain from trading investments was mainly due to the lower UF inflation rate in 2015 compared to 2014. In this line item the mark-to-market and interest income of the trading fixed income portfolio are recognized. In 2015, the lower UF inflation decreased interest from this portfolio. This explains the 53.2% increase in results from the trading portfolio compared to 2014, which totaled Ch$21,505 million. (iii) The results from our available-for-sale portfolio increased 241.1% in 2015 compared to 2014. This was mainly due to higher realized gains from our available-for-sale fixed income portfolio, especially in the first quarter of 2015 when long-term interest rates declined sharply. The net result from foreign exchange transactions totaled a gain of Ch$603,396 million in 2015 compared to Ch$272,212 million in 2014. 75  Table of Contents Included in these results is the sub-item Net profit or loss from foreign currency exchange differences which totaled a loss of Ch$197,875 million in 2015. Since the Bank, in its spot position has more liabilities than asset in foreign currency, the depreciation of the peso in 2015 resulted in a net loss in this sub-item. Included in the net results from foreign exchange profit (loss) are the results from hedge-accounting derivative that are used to hedge the foreign currency risk of our long-term foreign currency funding. These are mainly cross-currency swaps that are accounted under hedge accounting rules. These derivatives produced a gain of Ch$777,254 million in 2015. Finally, the Bank has assets and liabilities that are in Chilean pesos, but indexed to foreign currency. In this case, we have more asset than liabilities linked to foreign currency and when the peso depreciates this produces a translation gain which in 2015 totaled Ch$24,017 million. This exposure is also hedged. For more details, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—E. Market Risks—Market risk management— Market risk – local and foreign financial management.” Client treasury services totaled Ch$83,845 million and were flat compared to 2014. The results from Santander Global Connect and market-making mainly include the results from the sale of derivatives, foreign exchange and fixed income instruments to our client base. In 2015, the results from Santander Global Connect increased 20.2%. The depreciation of the peso and higher market volatility led to a larger demand for hedging from our Corporate and Middle-market clients, driving this income line. The results from market-making with client services decreased 31.0% in 2014, mainly due to lower business volumes of tailor-made treasury services sold to specific corporate clients. These results may vary year-to-year as some large operations with corporate clients may not be repeated in subsequent years. The results from non-client treasury income increased 114.6% and totaled a gain of Ch$61,654 million in 2015 compared to Ch$28,728 million in 2014. These results include the income from sale of loans, including charged-off loans, proprietary trading and the results from our Financial Management Division.   The results from the sale of loans decreased 85.8% to Ch$863 million in 2015. The results from proprietary trading totaled a loss of Ch$567 million. The Bank since year-end 2012, no longer has a proprietary trading area and these results are from residual positions that are being closed. In 2015, income from the Bank’s Financial Management Division increased 158.1%420% to Ch$61,35863,691 million in 2019 compared to 2018. This was due to the 651% increase in the gains on the derecognition of financial assets measured at amortized cost which totaled Ch$63,6782 million, mainly due to the sharp decline in local interest rates across the entire yield curve that increased the gain from these investments. The results from the sale of loans totaled a gain of Ch$3,310 million in 2019, increasing 727.5% from 2018 due to the large sale of charged-off loans in 2019 compared to the previous period. The results from CVAs totaled a loss of Ch$3,957 million. This department manageswas mainly due to a loss from CVA adjustments of our derivative portfolio which is included in this line item, since the structural interest rate risk, the structural position in inflation-indexed assetsCVA generated by derivatives taken for hedging and liabilities, capital requirementson behalf of clients is not part of client income or part of Financial Management’s profit and liquidity levels.loss. The aimgrowth of the Financial Management Division isBank’s derivative portfolio and the increase in counterparty risk drove the rise in CVA adjustment loss in 2019. Other Operating Income     Year ended December 31,   % Change     2019   2018   2019/2018     (in millions of Ch$)     Income from assets received in lieu of payment     5,613       7,106       (21.0 %) Release of contingencies provisions (1)     –         12,020       – % Other income     7,388       4,003       84.6 % Leases     –         222       – % Income from sale of property, plant and equipment     2,456       2,490       (1.4 %) Compensation from insurance companies due to damages     4,681       144       3,150.7 % Other     251       1,147       (78.1 %) Total     13,001       23,129       (43.8 %) (1) In accordance with IAS 37, the Bank recorded contingency provisions, which during 2018 were favorable to the Bank. Total other operating income decreased by 43.8% in 2019 compared to provide stability2018 and continuity in our net interest income from commercial activities, and to ensure that we comply with internal and regulatory limits regarding liquidity, regulatory capital, reserve requirements and market risk.totaled a gain of Ch$13,001 million. This higherlower result was mainly due to larger realized gainslower income from our available-for-sale portfolio. The results from our available-for-sale portfolio increased 241.1% in 2015the release of non-credit contingencies compared to 2014 and totaled Ch$23,655 million.2018. This higher gain arose from the decline in long-term interest rates, especially in the first quarter of 2015. The results from Financial Management Division also include the offset of the foreign currency impact on provision expenses in foreign currency. As the peso depreciated against the U.S. dollar, the provision expenses in pesos for dollar denominated loans increased. This exchange rate exposure is hedged and the offsetting gain is recognized here. Other operating income     Year ended December 31,   % Change   % Change     2016   2015   2014   2016/2015   2015/2014     (In millions of Ch$) Income from assets received in lieu of payment     1,663       2,455       2,811       (32.3 %)     (12.7 %) Net results from sale of investment in other companies     —       617       —       —%       —%   Operational leases (as lessor)     519       708       805       (26.7 %)     (12.0 %) Gain on sale of Bank property, plant and equipment     2,017       381       687       429.4 %     (44.5 %) Compensation from insurance companies due to damages     1,530       435       661       251.7 %     (34.2 %) Other     698       1,843       1,581       (62.1 %)     16.6 % Sub-total other income     4,764       3,367       3,734       41.5 %     (9.8 %) Total other operating income     6,427       6,439       6,545       (0.2 %)     (1.6 %) 76  Table of Contents For the years ended December 31, 2016 and 2015. Total other operating income fell by 0.2% in 2016 compared to 2015 and totaled a gain of Ch$6,427 million mainly due to less income from assets received in lieu of paymentwas partially offset by a larger gain from the sale of property as a result of the consolidation of our branch network. Also during 2016, there was a greater gain from the compensationhigher income from insurance companies duecompensation for damages to damages claimed from natural disasters such as earthquakes.our branches during the social unrest that affected Chile in October- December of 2019.   For the years ended December 31, 2015 and 2014. Total other operating income fell 1.6% in 2015 compared to 2014 and totaled a gain of Ch$6,439 million. Other operating income was negatively affected by lower gains from income received from assets in lieu of payment, lower income from operational leases and less payments from insurance coverage for earthquake damages. Provision for loan lossesExpected Credit Loss Allowance   The following table sets forth for the periods indicated, certain information relating to our provision for loan losses.     Year ended December 31,   % Change   % Change     2016   2015   2014   2016/2015   2015/2014     (in millions of Ch$) Provision for loan losses     (409,159 )     (454,462 )     (403,069 )     (10.0 %)     12.8 % Charge-off of loans analyzed on an individual basis     (11,222 )     (12,955 )     (10,811 )     (13.4 %)     19.8 % Recoveries on loans previously charged-off     78,298       68,140       58,977       14.9 %     15.5 % Provision for loan losses, net     (342,083 )     (399,277 )     (354,903 )     (14.3 %)     12.5 % Year end loans (1)     27,206,431       25,300,757       22,892,649       7.5 %     10.5 % Non-performing loans (2)     564,131       643,468       644,327       (12.3 %)     (0.1 %) Impaired loans (3)     1,615,441       1,669,340       1,617,251       (3.2 %)     3.2 % Allowance for loan losses (4)     790,605       762,301       684,317       3.7 %     11.4 % Impaired loans / Year end loans (5)     5.94 %     6.60 %     7.06 %                 Non-performing loans / Year end loans (2)     2.07 %     2.54 %     2.81 %                 Allowances for loan losses / Total loans     2.91 %     3.01 %     2.99 %                 Coverage ratio non-performing loans (5)     140.15 %     118.47 %     106.21 %                 (1) Loans and accounts receivable from customers, including Ch$272,807 million in 2016, Ch$10,877 million in 2015 and Ch$11,943 million in 2014 in interbank loans. (2) Non-performing loans include the aggregate unpaid principal and accrued but unpaid interest on all loans with at least one installment at least 90 days past-due. (3) Impaired loans include: (a) for loans individually evaluated for impairment: (i) the carrying amount of all loans to clients that are rated C1 through C4, D1 and D2 and (ii) the carrying amount of all loans to an individual client with at least one non-performing loan (which is not a residential mortgage loan past due less than 90 days), regardless of category; and (b) for loans collectively evaluated for impairment, the carrying amount of all loans to a client, when at least one loan to that client is not performing or has been renegotiated. See “Note 9—Loans and Accounts Receivables from Customers—(a) Loans and accounts receivables from customers” in the Audited Consolidated Financial Statements. (4) Allowance for loanexpected credit losses for loans and accounts receivable from customers, including Ch$4,135 million in 2016, Ch$1,166 million in 2015 and Ch$1 million in 2014 in allowance for loan losses for interbank loans. (5) Calculated as allowance for loan losses divided by non-performing loans. For the years ended December 31, 20162019 and 2015. Provisions for loan losses, net2018.     As of December 31, 2019     Stage 1   Stage 2   Stage 3       Individual   Collective   Individual   Collective   Individual   Collective   Total     (in millions of Ch$) Commercial loans     (3,002 )     (4,930 )     (10,469 )     (8,686 )     (79,501 )     (33,657 )     (140,245 ) Mortgage loans     –         (1,177 )     –         (4,998 )     –         (8,237 )     (14,412 ) Consumer loans     –         (8,875 )     –         (15,280 )     –         (145,328 )     (169,483 ) 81 Table of recoveries totaled Ch$342,083 million in 2015 and decreased 14.3% compared to the amount of provisions recorded in 2015.Contents   Provision     As of December 31, 2019     Stage 1   Stage 2   Stage 3       Individual   Collective   Individual   Collective   Individual   Collective   Total     (in millions of Ch$) Contingent loans     45       589       10       24       152       188       1,008   Loans and AR at FVOCI     5       –         –         –         –         –         5   Debt at FVOCI     –         (184 )     –         –         –         –         (184 ) Total Expected credit losses allowance     (2,952 )     (14,577 )     (10,459 )     (28,940 )     (79,349 )     (187,034 )     (323,311 )     As of December 31, 2018     Stage 1   Stage 2   Stage 3       Individual   Collective   Individual   Collective   Individual   Collective   Total     (in millions of Ch$) Commercial loans     79       5,652       (2,891 )     (1,533 )     (96,131 )     (47,959 )     (142,782 ) Mortgage loans     –         5,583       –         5,161       –         3,375       14,119   Consumer loans     –         1,861       –         192       –         (191,304 )     (189,251 ) Contingent loans     (90 )     1,214       11       (68 )     (225 )     (834 )     9   Loans and AR at FVOCI     363       –         68       –         –         –         431   Debt at FVOCI     –         66       –         –         –         –         66   Total Expected credit losses allowance     353       14,376       (2,811 )     3,752       (96,356 )     (236,722 )     (317,408 ) For the year ended December 31, 2019 provisions for expected credit loss totaled Ch$323,311 million and increased 1.9% compared to 2018. This rise was mainly due to growth of our loan book and an increase in expected losses which includesdriven by the full amounteconomic slowdown and social unrest during the last quarter of provisions recognizedthe year. The table below breakdowns this results by main product item:     Year ended December 31,   % Change     2019   2018   2019/2018     (in millions of Ch$)     Commercial loans     (140,245 )     (142,783 )     (1.8 %) Mortgage loans     (14,412 )     14,121       – % Consumer loans     (169,483 )     (189,251 )     (10.4 %) Contingent loans     1,008       8       12,500.0 % Loans and AR at FVOCI     5       431       (98.8 %) Debt at FVOCI     (184 )     66       – % Total Provision For Loan Losses     (323,311 )     (317,408 )     1.9 % Provisions for expected credit losses of our commercial loans totaled Ch$140,245 million for the year ended December 31, 2019 and decreased 1.8%. In 2019, general asset quality in commercial loans improved as the Bank restricted loan growth among riskier small enterprises. This positive asset quality trend began to reverse in the last quarter of the year due to the social unrest and lower economic growth. At the same time there was an increase in write-offs, mainly in the Middle-Market as a result of loan growthan acceleration of legal and change in risk classification as well ascollection proceedings for various specific lenders, which permitted the net result of provisions and charge-offs of loans analyzed on a group basis, totaled Ch$409,159 million in 2016 comparedBank to Ch$454,462 million in 2015 and decreased 10.0%. The following table breaks down provisionaccelerate the write-off period for loans losses by loan product for the years ended December 31, 2016, 2015 and 2014. 77  Table of Contents                 % Change     2016   2015   2014   2016/2015   2015/2014     (in millions of Ch$) Interbank loans     (2,969 )     (1,165 )     494       154.8 %     — % Commercial loans     (137,242 )     (197,247 )     (203,454 )     (30.4 %)     (3.1 %) Mortgage loans     (16,646 )     (27,168 )     (18,346 )     (38.7 %)     48.1 % Consumer loans     (249,754 )     (230,811 )     (180,666 )     8.2 %     27.8 % Contingent loans     (2,548 )     1,929       (1,097 )     (232.1 %)     (275.8 %) Total(1)     (409,159 )     (454,462 )     (403,069 )     (10.0 %)     12.8 % (1) Includes the full amount of provisions recognized as a result of loan growth and change in risk classification as well as the net result of provisions and charge-offs of loans analyzed on a group basis In general, there was a decrease in the provision expense for commercial loans due to improving asset quality. Non-performing loans as a percentage of the loan portfolio decreased from 2.5% in 2015 to 2.1% in 2016 and the non-performing loans coverage ratio increased from 118.5% to 140.2%. This environment also led to a decrease in the loans charged-off during 2016 to Ch$11,222 million. The provision expense for loan loss for commercial loans decreased from Ch$197,247 million in 2015 to Ch$137,242 million in 2016. This was mainly due to an improvement in asset quality in commercial loans. The non-performing loan ratio of commercial loans reached 2.3% in 2016 compared to 2.6% in 2015. This improvement in asset quality was due to two factors. First, the NPL ratio among small to middle-sized entities in retail banking decreased from 6.8% in 2015 to 5.8% in 2016. Second, there was an improvement in asset quality among loans evaluated on an individual basis, which resulted in a provision expense of Ch$17,819 million in 2016 compared to an expense of Ch$78,354 million in 2015. This was due to (i) a 2.6% decrease in loan volumes in global corporate banking, (ii) an unusually high provision expense in 2015 for specific corporate clients that were downgraded and (iii) an increase in 2016 in the number of clients that either improved their risk status or paid their loans.these clients.   Provisions for expected credit losses for mortgage loans decreased by 38.7% fromtotaled an expense of Ch$27,16814,412 million for the year ended December 31, 2019, compared to a reversal of Ch$14,121 million in 2015 compared2018. Mortgage loans increased 11.0% in 2019. Mortgage loans classified in Stage 3 increased 19%, due to Ch$16,646 million in 2016. During 2016, the Bank lowered its exposure to the lower end of the market and lowered the loan-to-value of residential mortgages at origination, which led to an improvement in mortgage loan asset quality and in April 2016 the mortgage loan allowance model was recalibrated resulting in a decrease in mortgage loan allowance of approximately Ch$3,500 million. The Bank also focused mortgageoverall loan growth on higher income earners with less riskin this product and greater transfers from Stage 2 to Stage 3 as a result mortgageof the deceleration of economic growth in the fourth quarter as a result of the social unrest, which resulted in a rise in early non-performance. 82 Table of Contents The provisions for expected credit losses for consumer loans fortotaled a charge of Ch$169,483 million and decreased 10.4% in 2019 compared to 2018. In 2019, Stage 3 consumer loans increased by just 1.7% mainly due to our strategy of focusing loan growth among high income earners, grew 10.3%which has led to a positive evolution of asset quality in 2016. The non-performing ratio for mortgage loans decreased from 2.1%this product. Asset quality trends began to reverse in 2015the last quarter of the year due to 1.7% in 2016the impact of the social unrest already mentioned. Regardless of other factors, if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial recognition and the impaired mortgage loans ratio also improved from 5.1% in 2015 to 4.6% in 2016. The provision expense for consumer loans increased 8.2% during 2016, primarily attributable to growth of 7.1%are written off after 6 months. These positive trends in the risk of our consumer loan portfolio may reverse if the economy continues to decelerate and unemployment rises in 2016. During 2016, the Bank lowered its exposure to the lower end of the consumer market and restricted renegotiations for consumer clients presenting payment difficulties, which led to an increase in charge-offs in 2016 and improvements in consumer loan asset quality. This was partially offset by recoveries from loans previously charged-off that increased from Ch$35,565 million in 2015 to Ch$41,072 million in 2016. The consumer non-performing loans ratio was 2.2% in 2016 compared to 2.7% in 2015 and the impaired consumer loan ratio decreased from 8.9% in 2015 to 6.5% in 2016.2020.   Recoveries on loans previously charged-off increased 14.9%decreased 6.5% in 20162019 compared to 2015.2018. This was due to higherlower recoveries from charged-off consumermortgage and residential mortgagecommercial loans mainly due to improved recovery efforts. For a descriptiongreater sale of the provisions related to our residential mortgagecharged-off loans and commercial loans analyzed on a group basis, please see “Item 5. Operating and Financial Review and Prospects—C. Selected Statistical Information—Classification of Loan Portfolio—Classification of Loan Portfolio—Loans analyzed on a group basis—Allowances for residential mortgage loans” and “—Loans analyzed on a group basis—Small and mid-sized commercial loans.” Additionally, the provisions for interbank loans increased in 2016 to Ch$2,969 million, mainly due to the growth in the loan portfolio. In 2016,year. The social unrest also limited recovery efforts in the Bank granted loans to Chinese banks due to Chilean foreign trade with China. See “Item 5. Operating and Financial Review and Prospects—C. Selected Statistical Information-Classificationlast part of Loan Portfolio—Foreign Assets and2019. This was partially offset by higher recoveries of consumer loans.” The contingent loans in 2016 registered a provision expense of Ch$2,548 million in 2016 compared to a release of Ch$1,929 million in 2015, due to an increase in preapproval of available credit lines. 78  Table of Contents The following table shows recoveries of loans previously charged-off by type of loan.     Year ended December 31,    % Change    % Change    Year ended December 31,   % Change   2016    2015    2014    2016/2015    2015/2014    2019   2018   2019/2018   (in millions of Ch$)   (in millions of Ch$) Recovery of loans previously charged-off                                                     Consumer loans     41,072       35,565       36,908       15.5 %     (3.6 %)     42,432       40,180       5.6 % Residential mortgage loans     10,041       6,543       5,122       53.5 %     27.7 %     13,652       17,367       (21.4 %) Commercial loans     27,185       26,032       16,947       4.4 %     53.6 %     26,629       30,934       (13.9 %) Total recoveries     78,298       68,140       58,977       14.9 %     15.5 %     82,713       88,481       (6.5 %)   In some instances, we will sell a portfolio of charged-off loans to a third party. Gain (loss) on these charged-off loans is recognized as net income from financial transactions as disclosed in “Note 27—Profit and Loss29—Net Income (Expense) from Financial Operations” of our Audited Consolidated Financial Statements. The following table sets forth information about our sale of charged-off loans for the year ended December 31, 2016, 20152019 and 2014.2018.       Year ended December 31,    % Change    % Change      2016    2015    2014    2016/2015    2015/2014      (in millions of Ch$) Gains (losses) on sale of loans previously charged-off     2,720       (58 )     4,809       —%       —%       Year ended December 31,   % Change     2019   2018   2019/2018     (in millions of Ch$) Gains (losses) on sale of loans previously charged-off     3,248       709       358.1 %   The following table sets forth, for the periods indicated, our net provision expense broken down by business segment:       Year ended December 31,    % Change    % Change      2016    2015    2014    2016/2015    2015/2014      (in millions of Ch$) Retail banking     (323,888 )     (332,657 )     (325,621 )     (2.6 %)     2.2 % Middle-market     (26,748 )     (26,147 )     (22,034 )     2.3 %     18.7 % Global corporate banking     7,579       (28,426 )     1,924       (126.7 %)     — % Other     974       (12,047 )     (9,172 )     (108.1 %)     31.3 % Total provisions, net     (342,083 )     (399,277 )     (354,903 )     (14.3 %)     12.5 %     Year ended December 31,   % Change     2019   2018   2019/2018     (in millions of Ch$) Retail banking     (279,969 )     (287,739 )     (2.7 %) Middle-market     (38,746 )     (26,314 )     47.2 % Corporate Investment banking     224       2,339       (90.4 %) Other     (4,820 )     (5,694 )     (15.3 %) Total provisions, net     (323,311 )     (317,408 )     1.9 %    Net provisions expense from retail banking decreased 2.6%2.7% in 20162019 compared to 2015.2018. This is in line with our strategy of focusing on higher income clients, net of risk for loans for individuals and SMEs, which has led to better asset qualityless provisions, especially in consumer lending as well as our restricting loan growth to riskier small enterprises during the year. This was partially offset by higher provisions for mortgage loans, the negative impact of slower economic growth and rising unemployment and the incorporation of Santander Consumer Chile in the loan portfolio.last quarter of the year, which is primarily focused on retail banking.   Net provision expense from the Middle-market segment was stableincreased 47.2% in 2016, increasing 2.3% compared to 20152019 due to the increase in write-offs of commercial loans in this segment as a result of an increaseacceleration of 6.5% in the loan portfolio.legal and collection proceedings for certain clients.   83 Table of Contents Net provision expense from Global corporateCorporate Investment banking totaled a release of provisionsCh$224 million compared to a release of Ch$7,5792,339 million a 126.7% decrease from 2015in 2018. The net release is mainly due to the significant increase of provisionsnegative loan growth in 2015 for specific clients that were downgraded and thatthis segment in 2016 either improved their risk status or paid their loans.2019.   Total provisions, net included in Others reachedtotaled an expense of Ch$4,820 million, 15.3% lower than in 2018. This difference is explained by a gain of Ch$974 million compared tochange in the loss of Ch$12,047 million. In Other provision expense, we mainly includeway the impact of the fluctuationeffects of the exchange rate on ourover provision expense. Of our total loan book, 12.1% is inexpenses are recognized. In 2019, the impact of foreign currency mainly in U.S. dollarsmovements on provision expenses and consisting of short-term foreign trade loans. When the peso depreciates, the amount of provisions set aside for these loans translated to local currency rises. In 2016 the average depreciation of the peso was 3.5%, considerably less than the depreciation in 2015 of 14.8% .This impact has a corresponding hedge recognizedwas included in Financial Transactions, net. In 2018, the results from financial transactionsimpact of foreign currency movements on provision expenses was included as Other provisions, and for this reason it is not assigned to any reporting segment.segment, with the corresponding hedge registered in Financial Transactions, net.   We believe that our loan loss allowances are currently adequate for all known and estimated incurredexpected credit losses.   For the years ended December 31, 2015 and 2014. Provisions for loan losses, net of recoveries totaled Ch$399,277 million in 2015 and increased 12.5% compared to the amount of provisions recorded in 2014. 79  Table of Contents Provision for loan losses, which includes the full amount of provisions recognized as a result of loan growth and change in risk classification as well as the net result of provisions and charge-offs of loans analyzed on a group basis, totaled Ch$454,462 million in 2015 compared to Ch$403,069 million in 2014 and increased 12.8%. Provisions established for the Bank’s consumer loans increased by 27.8% to Ch$230,811 million in 2015 compared to 2014. During the second half of 2014, and as a response to the ongoing improvement of the allowances models for loans, the Bank updated its allowances model for consumer loans. The models were calibrated with the aim of improving the prediction of client behavior and maintaining statistical and management standards. Part of these improvements consisted of the advancement of the models’ governance allowing technical and decisional approvals at different points of the approval process, more robust statistical processes and more historical information, allowing stronger parameters of the Probability of Non-Performance (PNP) and the Severity (SEV) involved in the provision calculation. These changes in 2014 resulted in the release of consumer provisions of Ch$26,563 million in 2014. As this is a change in estimation, this improvement was recognized under the "Provisions for loan losses" in the Consolidated Statement of Income for the year in accordance with IAS 8. See “Item 5. Operating and Financial Review and Prospects—C. Selected Statistical Information-Classification of Loan Portfolio— Classification of Loan Portfolio-Loans analyzed on a group basis—Allowances for consumer loans.” Excluding this effect in 2014, consumer loan loss provisions grew 11.4%. This rise was mainly due to: (i) consumer loan growth, which reached 5.9% year over year in 2015 compared to 2014, and (ii) greater charge-offs of consumer loans assessed on a group basis. In light of lower economic growth, the Bank restricted renegotiations of consumer loans for customers presenting payment difficulties and this resulted in higher charge-offs. As a result of this policy, the consumer non-performing loans ratio reached 2.7% in 2015 compared to 2.5% in 2014 as more clients became non-performing. Overall asset quality trends, measured according to the impaired consumer loan ratio, remained healthy in 2015. The impaired consumer loan ratio decreased from 9.3% in 2014 to 8.9% in 2015 as growth in the consumer loan book was focused on high income earners that are usually less risky. Provision expense in commercial lending decreased 3.1% in 2015 compared to 2014. During the second half of 2014, and as a response to the ongoing improvement of the allowances models for loans, the Bank updated its allowances model for commercial loans analyzed on a group basis. The models were calibrated with the aim of improving the prediction of client behavior and maintaining statistical and management standards. Part of these improvements consisted of the advancement of the models’ governance allowing technical and decisional approvals at different points of the approval process, more robust techniques of statistical processes and more historical information, allowing stronger parameters of the Probability of Non-Performance (PNP) and the Severity (SEV) involved in the provision calculation. These changes resulted in an increase in commercial provisions of Ch$45,141 million. As this is a change in estimation, this impact was recognized under the "Provisions for loan losses" in the Consolidated Statement of Income for the year in accordance with IAS 8. Excluding this impact, provisions for commercial loans grew 24.6% in the period being analyzed. This rise was mainly due to higher provisions in Global corporate banking as the Bank downgraded various corporate clients affected by the slower economic environment, but which have not yet entered non-performing status. On the other hand, asset quality in commercial loans in retail banking improved throughout 2015, as the Bank focused growth on less risky commercial retail customers. The NPL ratio in commercial loans decreased from 3.0% in 2014 to 2.6% in 2015 mainly due to improvements in asset quality in retail banking. The impaired commercial loan ratio reached 7.1% in 2015 compared to 7.2% at year-end 2014. Provisions for mortgage loans increased 48.1% in 2015 compared to 2014. This rise was mainly due to: (i) mortgage loan growth, which increased 17.8% in the period being analyzed, and (ii) greater charge-offs of mortgage loans. In light of lower economic growth, the Bank has been restricting the renegotiations of mortgage loans for customers presenting some payment difficulties and this resulted in higher charge-offs. The Bank also focused mortgage loan growth on higher income earners that in general are less risky. As a result of the change in the loan mix and the higher charge-offs, mortgage loan asset quality improved in 2015 compared to 2014. The non-performing ratio for mortgage loans declined from 2.7% in 2014 to 2.1% in 2015. The impaired mortgage loans ratio also improved from 5.6% in 2014 to 5.1% in 2015. 80  Table of Contents For a description of the provisions related to our residential mortgage loans and commercial loans analyzed on a group basis, please see “Item 5. Operating and Financial Review and Prospects—C. Selected Statistical Information—Classification of Loan Portfolio—Classification of Loan Portfolio—Loans analyzed on a group basis—Allowances for residential mortgage loans” and “—Loans analyzed on a group basis—Small and mid-sized commercial loans.” Additionally, the lower economic growth in 2015 resulted in a rise in charge-off of loans analyzed on an individual basis that totaled Ch$12,955 million in 2015 and rose 19.8% compared to 2014. Recoveries on loans previously charged-off increased 15.5% in 2015 compared to 2014. This was due to higher recoveries of charged-off commercial and residential mortgage loans mainly due to improved recovery efforts, especially in the Middle-market segment. As the Bank has improved the asset quality in consumer lending, the growth rate of recoveries has also diminished. In some instances, we will sell a portfolio of charged-off loans to a third party. Gain (loss) on these charged-off loans is recognized as net income from financial transactions as disclosed in “Note 27—Profit and Loss from Financial Operations” of our Audited Consolidated Financial Statements. Net provisions expense from retail banking increased 2.2% in 2015 compared to 2014. Excluding the net impact of Ch$18,578 million as a result of modifications made to the provisioning models for loans assessed on a group basis done in 2014, provision expense in retail banking increased 8.3%. This rise was mainly due to: (i) retail loan growth that totaled 12.1% in 2015 compared to 2014, and (ii) greater charge-offs. The Bank, in light of slower economic growth, restricted renegotiations of retail loans, which resulted in a greater amount of loans being charged-off. Net provision expense from in the Middle-market segment increased 18.7% compared to 2014. In 2015, the Bank performed various downgrades of specific clients mainly in the salmon industry. Net provision expense from Global corporate banking totaled a loss of Ch$28,426 million compared to net reversal of Ch$1,924 million in 2014. In 2015, the Bank downgraded specific clients in the non-bank financial sectors and a client in the agro-industrial sector due to company specific weaknesses. Total provisions, net included in Others reached Ch$12,047 million compared to the Ch$9,172 million. In Other provision expense we include the impact of the fluctuation of the exchange rate on our provision expense. Of our total loan book, 13.3% is in foreign currency, mainly in dollars and consisting of short-term foreign trade loans. When the peso depreciates, as was the case in 2015 and 2014, the amount of provisions set aside for these loans translated to local currency rises. This impact has a corresponding hedge recognized in the results from financial transactions and for this reason it is not assigned to any reporting segment. We believe that our loan loss allowances are currently adequate for all known and estimated incurred losses. Operating expensesExpenses   The following table sets forth information regarding our operating expenses in the years ended December 31, 2016, 20152019 and 2014.2018.     Year ended December 31,   % Change   % Change   Year ended December 31,   % Change   2016   2015   2014   2016/2015   2015/2014   2019   2018       (in millions of Ch$)   (in millions of Ch$)     Personnel salaries and expenses     (395,133 )     (387,063 )     (338,888 )     2.1 %     14.2 %     (410,157 )     (397,564 )     3.2 % Administrative expenses     (226,413 )     (220,531 )     (205,149 )     2.7 %     7.5 %     (233,612 )     (245,089 )     (4.7 %) Depreciation and amortization     (65,359 )     (53,614 )     (44,172 )     21.9 %     21.4 %     (106,092 )     (79,280 )     33.8 % Impairment     (234 )     (21 )     (36,664 )     1,014.3 %     (99.9 %)     (2,726 )     (39 )     – % Other operating expenses     (68,902 )     (58,729 )     (58,946 )     17.3 %     (0.4 %)     (49,303 )     (32,342 )     52.4 % Total operating expenses     (756,041 )     (719,958 )     (683,819 )     5.0 %     5.3 %     (801,890 )     (754,314 )     6.3 % Efficiency ratio(1)     44.9 %     43.8 %     41.1 %                     41.8 %     41.1 %             (1) The efficiency ratio is the ratio of total operating expenses to total operating income. Total operating income consists of net interest income, fee income, financial transactions, net and other operating income.   81  Table of Contents For the years ended December 31, 2016 and 2015. Operating expenses in the year ended December 31, 2016 decreased 5.0%2019 increased 6.3% compared to the corresponding period in 2015.2018. The efficiency ratio was 44.9%41.8% in 2016, 43.8% in 20152019 and 41.1% in 2014.2018.   The 2.1%3.2% increase in personnel salaries and expenses was mainly due to an increasea rise in personnel compensationvariable incentives, severance payments, training and greaterother benefits that increased 8.3%, while salary costs related to benefits includedonly grew by 0.4%. Headcount increased 1.5% in 2019, including as a result of the Bank’s collective bargaining agreement. In 2016, CPI inflation was 2.7% and all salaries are indexed to inflation pursuantincorporation of Santander Consumer Chile, which added approximately 200 employees to the collective bargaining agreement. This was offset by the 3.1% reduction in headcount to 11,354 employees in December 2016, in line with the Bank’s strategy of reducing mid-upper level management levels and the sales force.Bank.   Administrative expenses increased 2.7%decreased 4.7% in the year ended December 31, 20162019 compared to the corresponding period in 2015,2018, mainly due to the implementation of IFRS 16 during 2019. As a result, rental expenses for branches are now recognized in the line item depreciation and amortization. Excluding this effect, administrative expenses increased 8.5% in the period, mainly due to a rise in marketing expenses, outsourced IT services, insurance costs and communication expenses that increased from Ch$28,420 million in 2015IT investments to Ch$37,351 million in 2016 as part of technological innovation to maintain and develop the Bank’s digital services and back-office platform, which will allowis allowing the Bank to consolidate the branches and create efficiencies in the long term.long-term. IT investments include: (i) SuperDigital, a mobile app, which provides non-banked clients access to transactional banking services with a digital prepaid debit and credit card, (ii) Santander Life, a digital banking service that rewards clients for positive credit and saving behavior through the accumulation of “Merits” which results in reduced interest rates on loan products, (iii) Klare, a digital open platform being developed for selling insurances products, (iv) other digital processes for back office functions and (v) the opening and transformation of branches into the new WorkCafé format. As of December 31, 2019, the Bank had a total of 377 branches, 53 of which were in the WorkCafé format. The table below provides a breakdown of the Bank’s branch network during the periods indicated. In 2019, we also increased our cyber security expenditures which totaled Ch$13,337 million in 2019, up from Ch$11,055 million in 2018.   In 2016, the Bank began to transform the branch network, adopting two main formats (i) a multi-segment approach with smaller branches that are multi-segment with dedicated spaces for the different business segments (Select, SME Advance, Banefe, etc.) and: (ii) our Work Café spaces that are high tech / high touch branches with no human tellers or back offices. 84 Table of Contents     Year ended December 31,   % Change   Year ended December 31,     2016   2015   2016/2015   2019   2018   % Change 2019/2018 Traditional branches     274       276       (0.7 %)     279       287       (2.8 %) Middle-market centers     8       8       — %     7       7       0.0 % Santander Select     53       53       — %     38       46       (17.4 %) Banefe and other payment centers     88       134       (34.4 %) Workcafés     53       40       32.5 % Total branches     434       471       (7.9 %)     377       380       (0.8 %) Total ATMs(including depositary ATMs)     1,088       998       9.0 %   Depreciation and amortization expense increased 21.9%33.8% in 20162019 compared to 20152018. This increase was mainly due to the adoption of IFRS 16 in 2019 that reclassified certain branch rental expenses as depreciation and amortization. Excluding this impact, amortization and depreciation expenses would have decreased 8.3% in the period due to lower depreciation of fixed assets in the period. In 2019, impairment expenses totaled Ch$65,359 million. This expense is2,726 million for impairments of fixed assets as a result of the social unrest that affected Chile in line with the greater investments in hardwareOctober and other equipment that the Bank has made as it modernizes its branch networkNovember. A total of 70 branches suffered damages and systems. This has also led to an increase in impairment charges to Ch$234 million in 2016 compared to Ch$21 million in 2015 mainly related to our ATM network.15 were destroyed. Most of this damage was insured (See Other Operating Income above).   Other operating expenses were Ch$68,90249,303 million in 2016, a 17.3%2019, an increase of 52.4% compared to 2015. In April 2016,2018. This was mainly due to higher general product insurance costs, which are related to the increase in cost of cybersecurity and fraud insurance. Also, the Bank made changesrecognized Ch$1,823 million in 2019 related to ensuring the management structure in line withsafety of our employees and infrastructure during the strategyperiod of reducing mid-upper management levels, incurring a one-off expense of Ch$10,789 million due to severance payments ..social unrest. See “Note 33—35—Other operating incomeOperating Income and expenses”Expenses” to our Audited Consolidated Financial Statements for more detail on Other operating expenses.   The following table sets forth, for the periods indicated, our personnel salaries, administrative and depreciation and amortization expenses broken down by business segment. These amounts exclude impairment and other operating expenses.     Year ended December 31,   % Change   % Change   Year ended December 31,   % Change   2016   2015   2014   2016/2015   2015/2014   2019   2018   2019/2018   (in millions of Ch$)   (in millions of Ch$)     Retail banking     (529,909 )     (533,086 )     (479,954 )     (0.6 %)     11.1 %     (575,511 )     (553,157 )     4.0 % Middle-market     (83,412 )     (77,261 )     (66,321 )     8.0 %     16.5 %     (97,054 )     (92,377 )     5.1 % Global corporate banking     (53,935 )     (49,533 )     (44,195 )     8.9 %     12.1 % Corporate Investment banking     (65,343 )     (64,913 )     0.7 % Other     (19,649 )     (1,328 )     2,261       1379.6 %     — %     (11,953 )     (11,486 )     4.1 % Total personnel, administrative expenses, depreciation and amortization (1)     (686,905 )     (661,208 )     (588,209 )     3.9 %     12.4 % Total personnel, administrative expenses, depreciation and amortization(1)     (749,861 )     (721,933 )     3.9 %     (1) Excludes impairment and other operating expenses.   By business segment, the 3.9% increase in costs excluding impairment and other operating expenses in 20162019 compared to the corresponding period in 20152018 was mainly due to a rise in cost in the 0.6% decreaseRetail and Middle-market segments. This rise in costs incurred in retail banking. In 2016, retail banking costs decreased mainly as a result of lower headcount partially offsetwas driven by greater expenses related to the investment in better digital banking services. Costs in the Middle-market segment grew 8.0% 82  Table of Contents in 2016 compared to 2015 and 8.9% in the Global corporate banking segment in line with business growth in this segment, especially in transactional banking and cash management services that are intense in data processing. For the years ended December 31, 2015 and 2014. Operating expenses in the year ended December 31, 2015 increased 5.3% compared to the corresponding period in 2014. The efficiency ratio was 43.8% in 2015, 41.1% in 2014 and 40.2% in 2013. The 14.2% increase in personnel salaries and expenses wascosts explained above, which mainly due to an increase in personnel compensation, higher severance payments and greater costs related to benefits included inimpacted retail banking where the Bank’s collective bargaining agreement. The 9.5% increase in personnel compensation, which totaled Ch$233,707 million in 2015, was mainly due to: (i) growth in total headcount of 2.1% to 11,723 people, (ii) the impactmajority of the Bank’s meritocracy policies and (iii) the impact of CPI inflation on wages. In 2015, CPI inflation was 4.4% and all salaries are indexed to inflation per collective bargaining agreement. Severance payments increased 222.4% to Ch$34,051 million. The Bank in 2015 executed a program to eliminate high level management positions in order to mitigate cost growth which entailed greater severance payments. In March 2014, a new collective bargaining agreement was signed with the main unions, which became effective on October 1, 2014, and which will expire on December 31, 2018. This resulted in an increase in certain benefits related to the Bank’s health insurance fund and other benefits. Administrative expenses increased 7.5% in the year ended December 31, 2015 compared to the corresponding period in 2014. The increase in administrative expenses was mainly due to the 14.3% increase in maintenance, repair of property, plant and equipment, which totaled Ch$20,002 million. In 2015, the Bank continued to refurbish branches, open new Santander Select branches, expand the number of Middle-market centers and close Santander Banefe branches and other payment centers. The Bank’s total Outsourced service expenses increased 21.8% in 2015 compared to 2014 and totaled Ch$39,286 million. The Bank outsources various functions especially data processing and IT services. These increased as a result of the depreciation of the peso against the Euro, since several of the firms that provide the Bank with IT services are in Spain. Imbedded in the Bank results from financial transactions, net is an offsetting result, since this exposure to foreign currency is hedged. Finally the Bank marketing expenses rose 12.6% to Ch$18,483 million as the Bank promoted more intensively various new products and was a sponsor for the Copa America tournament held in Chile in 2015. Impairment charges totaled Ch$21 million in 2015 compared to Ch$36,664 million in 2014. In 2014, the Bank initiated a plan to transform its business and operating model with a better focus on the client. In 2014, the Bank evaluated a number of applications that were in use or in development and tested them for impairment. Following the testing, in accordance with IAS 36, the Bank has recognized an impairment of Ch$36,556 million in 2014 due to the abandonment of unnecessary systems. Depreciation and amortization expense increased 21.4% in 2015 compared to 2014 and totaled Ch$53,614 million. This rise was mainly due to the increase in depreciation of equipment that reached Ch$18,417 million in 2015 compared to Ch$12,331 million in 2014. This is in line with the greater investments in hardware and other equipment as the Bank modernizes its branch network and systems. Other operating expenses were Ch$58,729 million in 2015, a 0.4% decrease compared to 2014. In 2015, customer service expenses, which are related to our phone banking service, decreased 60.6% due to cost restructurings. Additionally in 2015, the Bank had less expenses related to adopting chip technology on cards. These lower other operating expenses were offset by greater provisions for assets received in lieu of payment. See “Note 33—Other operating income and expenses” to our Audited Consolidated Financial Statements for more detail on Other operating expenses. By business segment, the 12.4% increase in costs excluding impairment and other operating expenses in 2015 compared to the corresponding period in 2014 was mainly due to the 11.1% increase in costs incurred in retail banking. In 2015, the Bank continued with its strategy of shifting its strategic focus away from retail clients attended in the Santander Banefe branch network and more towards high income earners and small and mid-sized enterprises. This implied additional costs mainly in our distribution network and technology. Costs in the Middle-market segment grew 16.5% in 2015 compared to 2014 as this segment was a growth priority during the year, increasing in terms of size of balance sheet and headcount. Finally, costs in Global corporate banking rose 12.1% in line with business growth in this segment, especially in transactional banking and cash management services that are intense 83  Table of Contents in data processing. All segmentsemployees work. Higher costs were also affecteddriven by higher IT investments across all business segments and the depreciationcosts of the peso against the eurobranch transformations in 2015, which has a negative impact on IT costs denominated in that currency.Retail banking.   Income tax     Year ended December 31,   % Change   % Change   Year ended December 31,   % Change   2016   2015   2014   2016/2015   2015/2014   2019   2018   2019/2018   (in millions of Ch$)   (in millions of Ch$)     Net income before tax     587,463       528,124       626,940       11.2 %     (15.8 %)     794,688       763,066       4.1 % Income tax expense     (109,031 )     (76,395 )     (51,050 )     42.7 %     49.6 %     (175,074 )     (167,144 )     4.7 % Effective tax rate(1)     18.6 %     14.5 %     8.1 %                     22.0 %     21.9 %             (1) The effective tax rate is the income tax expense divided by net income before tax.   For the years ended December 31, 2016 and 2015. 85 Table of Contents Total income tax expense by the Bank in 2016 totaled2019 was Ch$109,031175,074 million, a 42.7%4.7% increase compared to 2015.2018. Net income before tax increased 4.1%. The Bank paid an effective tax rate of 18.6%22.0% in 20162019 compared to 14.5%21.8% in 2015.2018. The higherstatutory corporate tax rate in Chile in both 2019 and 2018 was 27%. The Bank paid a lower effective tax rate was mainly due to: (i) the statutory corporate tax rate increased from 22.5% in 2015 to 24.0% in 2016. In 2017, the statutory corporate tax rate will rise to 25.5% in 2017 and 27.0% in 2018; (ii) income tax expenses includes non-cash income of Ch$86 million in 2016 from the re-adjustments made to the Bank’s deferred tax asset base following passage of the new tax law compared to an income of Ch$10,600 million in 2015. This gain arises from the difference between the Bank’s accounting and tax books regarding how provisions and charge-offs are recognized. When the statutory rates were modified, the Bank’s net deferred tax assets increased as the future tax rates used to calculate this asset were gradually increased from 20.0% to 27.0%; (iii) the lower CPI inflation rate in 2016 compared to 2015 also resulted in lower losses for the revaluation of capital for inflation. The Bank, in its Chilean tax book accounting, must re-measure its capital each year for the variation in CPI inflation. See “Note 14—Current and Deferred Taxes” of the Audited Consolidated Financial Statements for more detail on income tax expense. For the years ended December 31, 2015 and 2014. Total income tax expense bysince the Bank, in 2015 totaled Ch$76,395 million,its Chilean tax books, must re-measure its capital each year for the variation in CPI inflation and this produced a 49.6% increase compared to 2014. The Bank paid an effective tax rateloss. See “Note 16—Current and Deferred Taxes” of 14.5% in 2015 compared to 8.1% in 2014. The higher effectivethe Audited Consolidated Financial Statements for more detail on income tax rate was mainly due to:expense.   (i) the statutory corporate tax rate increased from 21.0% in 2014 to 22.5% in 2015. In 2016, the statutory corporate tax rate rose to 24.0% in 2016 and will rise to 25.5% in 2017 and 27.0% in 2018; B. Liquidity and Capital Resources (ii) income tax expenses in included non-cash income of Ch$10,600 million in 2015 from the re-adjustments made to the Bank’s deferred tax asset base following passage of the new tax law compared to Ch$39,262 million in 2014. The Bank has more deferred tax assets than liabilities. This gain arises from the difference between the Bank’s accounting and tax books regarding how provisions and charge-offs are recognized. When the statutory rates were modified, the Bank’s net deferred tax assets increased as the future tax rates used to calculate this asset were gradually increased from 20.0% to 27.0%; (iii) the lower CPI inflation rate in 2015 compared to 2014 also resulted in lower permanent differences since the Bank, for Chilean tax purposes, must re-value its capital each year for the variation in CPI inflation. See “Note 14—Current and Deferred Taxes” of the Audited Consolidated Financial Statements for more detail on income tax expense. 84  Table of Contents B. Liquidity and Capital Resources   Sources of Liquidity   Santander-Chile’s liquidity depends upon its (i) capital, (ii) reserves and (iii) financial investments, including investments in government securities. To cover any liquidity shortfalls and to augment its liquidity position, Santander-Chile has established lines of credit with foreign and domestic banks and also has access to Central Bank borrowings.   The following table sets forth our contractual obligations and commercial commitments by time remaining to maturity. As of the date of the filing of this Annual Report, the Bank does not have significant purchase obligations. As of December 31, 2016,2019, the scheduled maturities of our contractual obligations and of other commercial commitments, including accrued interest, were as follows:     Demand Up to 1 month Between 1 and 3 months Between 3 and 12 months Subtotal up to 1 year Between 1 and 3 years Between 3 and 5 years More than 5 years Subtotal after 1 year Total As of December 31, 2016 (in millions of Ch$) Obligations under repurchase agreements — 212,437 — — 212,437  — — — — 212,437  Checking accounts, time deposits and other time liabilities (1) 7,949,315 6,105,767 4,193,906 2,537,299  20,786,287 118,101 13,913 61,196 193,210 20,979,497  Financial derivatives contracts —  92,335  122,565  263,893  478,793 494,539 346,948  971,881 1,813,368  2,292,161 Interbank borrowings  4,557  373,423  115,769  1,154,063  1,647,812  233,542  35,014 —  268,556  1,916,368 Issue debt instruments  —  43,141  185,425  922,705  1,151,271 1,168,117 1,444,593  3,562,391 6,175,101  7,326,372 Other financial liabilities (2)  153,049  1,461  1,161 2,817  158,488  58,641  7,766  15,121  81,528 240,016 Subtotal 8,106,921  6,828,564  4,618,826  4,880,777  24,435,088  2,072,940  1,848,234  4,610,589  8,531,763  32,966,851  Contractual interest payments (3)  2,273  56,121  170,861  537,941  767,196 1,762,884 — 987,370 2,750,254  3,517,450 Total 8,109,194 6,884,685 4,789,687 5,418,718 25,202,284 3,835,824 1,848,234 5,597,959  11,282,017 36,484,301     Demand   Up to 1 month   Between 1 and 3 months   Between 3 and 12 months   Subtotal up to 1 year   Between 1 and 3 years   Between 3 and 5 years   More than 5 years   Subtotal after 1 year   Total As of December 31, 2019   (in millions of Ch$) Obligations under repurchase agreements     –         380,055       –         –         380,055       –         –         –         –         380,055   Checking accounts, time deposits and other time liabilities(1)     10,439,705       5,184,567       4,905,414       2,417,703       22,947,389       357,856       163,121       21,883       542,860       23,490,249   Financial derivatives contracts     –         422,749       427,825       951,684       1,802,258       1,253,280       1,180,948       3,154,168       5,588,396       7,390,654   Interbank borrowings     94       363,560       624,167       1,141,824       2,129,645       387,936       2,237       –         390,173       2,519,818   Issue debt instruments     –         285,159       759,519       1,044,674       2,089,352       2,394,850       2,042,292       2,974,229       7,411,371       9,500,723   Obligations for lease agreements     –         –         –         26,061       26,061       45,978       36,393       50,062       132,433       158,494   Other financial liabilities(2)     161,021       5,155       30,969       28,888       226,033       83       99       143       325       226,358   Subtotal     10,600,820       6,641,245       6,747,894       5,610,834       29,600,793       4,439,983       3,425,090       6,200,485       14,065,558       43,666,351   Contractual interest payments(3)     10,473       148,731       267,994       1,727,401       2,154,599       1,720,990       1,653,500       3,101,084       6,475,574       8,630,173   Total     10,611,293       6,789,976       7,015,888       7,338,235       31,755,392       6,160,973       5,078,590       9,301,569       20,541,132       52,296,524       (1) Includes demand deposits and other demand liabilities, cash items in process of being cleared and time deposits and other time liabilities.   (2) Mainly includes amounts owed to credit card processors and to the Chilean Production Development Corporation (Corporación de Fomento de la Producción de Chile), the state development agency.   (3) The table above includes future cash interest payments. For variable rate obligations, we assume the same rate as the last rate known. Various of the payment obligations in the table above are variable debt instruments, since they are denominated in UF, for which we have estimated a long-term inflation rate equal to 3%, which is at the center of the Central Bank’s long-term inflation target. No exclusions requiring further explanation have been made in this table.   Operational Leases86 Table of Contents Obligations for lease agreements   Certain bank premises and equipment are leased under various operating leases. Future minimum rental commitmentsand the scheduled maturities of obligations for lease agreements as of December 31, 2016 under non-cancelable leases are2019 were as follows:     As of December 31, 2016  2019   (in millions of Ch$) Due within 1 year 26,455 26,061 Due after 1 year but within 2 years 24,903 24,311 Due after 2 years but within 3 years 20,582 21,667 Due after 3 years but within 4 years 17,321 19,411 Due after 4 years but within 5 years 14,569 16,982 Due after 5 years 53,694 50,062 Total 157,524 158,494   85  Table of Contents Other Commercial Commitments   As of December 31, 2016,2019, the scheduled maturities of other commercial commitments, including accrued interest, were as follows:     Up to 1 month   Between 1 and 3 months   Between 3 and 12 months   Between 1 and 5 years   More than 5 years   Total Other Commercial Commitments   Up to 1 month   Between 1 and 3 months   Between 3 and 12 months   Between 1 and 5 years   More than 5 years   Total   (in millions of Ch$)   (in millions of Ch$) Guarantees     79,457       175,437       739,170       592,017       151,435       1,737,516   Confirmed foreign letters of credit     12,247       8,125       8,505       28,809       —       57,686   Performance guarantee     144,364       544,370       899,437       312,559       22,292       1,923,022   Foreign letters of credit confirmed     25,491       1,808       11,306       31,587       –         70,192   Letters of credit issued     36,662       82,342       39,768       27       —       158,799       30,555       348       33,439       70,924       –         135,266   Pledges and other commercial commitments     9,916       11,591       39,811       63,731       —       125,049   Personal guarantees     30,357       9,009       317,824       94,561       –         451,751   Total other commercial commitments     138,282       277,495       827,254       684,584       151,435       2,079,050       230,767       555,535       1,262,006       509,631       22,292       2,580,231     Risk-Weighted Assets and Regulatory Capital   We currently have regulatory capital in excess of the minimum requirement under the current Chilean regulations. According to the General Banking Law, a bank is required to have regulatory capital of at least 8.0% of its risk-weighted assets, net of required loan loss allowances, and paid-in capital and reserves (i.e.(i.e., core capital) of at least 3.0% of its total assets, net of required loan loss allowances. For these purposes, the regulatory capital of a bank is the sum of: (1) the bank’s core capital; (2) subordinated bonds issued by the bank valued at their placement price for an amount up to 50.0% of its core capital, provided that the value of the bonds is required to be decreased by 20.0% for each year that elapses during the period commencing six years prior to their maturity; and (3) its voluntary allowances for loan losses, for an amount of up to 1.25% of its risk-weighted assets. Santander-Chile does not have goodwill, but if it did, this value would be required to be deducted from regulatory capital. When calculating risk weighted assets, we also include off-balance sheet contingent loans. The merger of Old Santander Chile and Santiago on August 1, 2002 required a special regulatory pre-approval of the SBIF (predecessor of the FMC), which was granted on May 16, 2002. The resolution granting this pre-approval imposed a regulatory capital to risk weighted assets ratio of 12.0% for the merged bank. This requirement was reduced to 11.0% by the SBIF effective January 1, 2005. For purposes of weighing the risk of a bank’s assets, the General Banking Law considers five different categories of assets, based on the nature of the issuer, the availability of funds, and the nature of the assets and the existence of collateral securing such assets.   The following table sets forth our consolidated and risk-weighted assets and regulatory capital as of December 31, 20162019 and 20152018 as required by the SBIF.     Consolidated assets as of    Risk-weighted assets(1)      December 31, 2016    December 31, 2015    December 31, 2016    December 31, 2015      (Ch$ million) Asset Balance (Net of allowances)                 Cash and deposits in bank     2,279,389       2,064,806       —       —   Unsettled transactions     495,283       724,521       80,623       80,447   Trading investments     396,987       324,271       24,709       57,796   Investments under resale agreements     6,736       2,463       6,736       493   Financial derivative contracts(2)     1,285,157       1,425,450       943,727       1,158,218   Interbank loans     272,635       10,861       80,200       1,505   Loans and accounts receivables from customers     26,113,485       24,535,201       22,655,553       21,480,044   Available-for-sale investments     3,388,906       2,044,411       263,016       222,784   Investments in other companies     23,780       20,309       23,780       20,309   Intangibles assets     58,085       51,137       58,085       51,137   Property, plant and equipment     257,379       240,659       257,379       240,659   Current taxes     —       —       —       —   Deferred taxes     372,699       331,714       37,270       33,171   Other assets     840,499       1,097,826       585,739       603,503   Off-balance sheet assets                                 Contingent loans     3,922,023       4,516,319       2,221,018       2,507,530   Total     39,713,043       37,389,948       27,237,835       26,457,596   Chilean regulation.   86 87 Table of Contents              Ratio     December 31, 2016   December 31, 2015   December 31, 2016   December 31, 2015           (Ch$ million)       %       %     Core capital(3)       2,868,706       2,734,699       7.22       7.31     Regulatory capital(4)       3,657,707       3,538,216       13.43       13.37       Consolidated assets as of   Risk-weighted assets(1)     December 31, 2019   December 31, 2018   December 31, 2019   December 31, 2018     (Ch$ million) Asset Balance (Net of allowances)                 Cash and deposits in bank     3,554,520       2,065,441       –         –     Unsettled transactions     355,062       353,757       112,948       105,421   Trading investments     270,204       77,041       26,825       10,704   Investments under resale agreements     –         –         –         –     Financial derivative contracts(2)     1,355,786       1,226,892       964,623       868,578   Interbank loans     14,833       15,065       14,833       15,064   Loans and accounts receivables from customers     31,823,735       29,470,370       27,316,050       25,403,426   Available-for-sale investments     4,010,272       2,394,323       258,958       172,859   Investments in other companies     10,467       32,293       10,467       32,293   Intangibles assets     73,389       66,923       73,389       66,923   Property, plant and equipment     197,833       253,586       197,833       253,586         210,500       –         210,500       –     Current taxes     11,648       –         1,165       –     Deferred taxes     462,867       382,934       46,287       38,293   Other assets     1,434,308       984,988       1,421,361       983,299   Off-balance sheet assets     –         –         –         –     Contingent loans     4,938,194       4,624,073       2,823,713       2,649,730   Total     48,723,618       41,947,686       33,478,952       30,600,176                 Ratio     December 31, 2019   December 31, 2018   December 31, 2019   December 31, 2018     (Ch$ million)   (in %) Core capital(3)     3,390,823       3,239,546       6.96       7.72   Regulatory capital(4)     4,304,401       4,101,664       13.4       13.40     (1) As required by local regulations.   (2) Derivatives are shown as required by Chapter 12-1 RAN of Chilean Bank GAAP guidelines   (3) As a percentage of total assets.   (4) As a percentage of risk weighted assets (BIS ratio).   Financial Investments   As of January 1, 2018 the Bank adopted IFRS 9 as follows: On initial recognition, financial assets and financial liabilities are measured at the transaction price, i.e. the fair value of the consideration given or received (IFRS 13). In the case of financial instruments not at fair value through profit or loss, transaction costs are directly attributable to the acquisition or issue of the financial asset or financial liability. After initial recognition, an entity shall measure a financial liability at amortized cost and an entity shall measure a financial asset at: (a) Amortized Cost Financial assets that are held in a business model to collect the contractual cash flows and contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at amortized cost. The effective interest method is used in the calculation of the amortized cost of a financial asset or a financial liability and in the allocation and recognition of the interest revenue or interest expense in profit or loss over the relevant period. The effective interest rate (“EIR”) is the rate that exactly discounts estimated future cash payments 88 Table of Contents or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortized cost of a financial liability. (b) Fair Value through Other Comprehensive Income (FVOCI) Financial assets that are debt instruments held in a business model that is achieved by both collecting contractual cash flow and selling, and that contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at FVOCI. They are subsequently remeasured at fair value and changes therein (except for those relating to impairment, interest income and foreign currency exchange gains and losses) are recognized in other comprehensive income, until the assets are sold. Upon disposal, the cumulative gain and losses in OCI are recognized in the income statement. (c) Fair Value through Profit or Loss (FVTPL) Financial assets that do not contain contractual terms that give rise on specified dates to cash flows that are SPPI, or if the financial assets, or if the financial asset is not held in a business model that is either (i) a business model to collect the contractual cash flows or (ii) a business model that is achieved by both collecting contractual cash flows and selling. Financial assets held for trading are recognized at fair value through profit or loss, likewise derivatives contracts for trading purposes. (d) Equity Instruments For certain equity instruments, the Bank may make an irrevocable election to present subsequent changes in the fair value of the instrument in other comprehensive income, except for dividend income which is recognized in profit or loss. Gains or losses on derecognition of these equity instruments are not transferred to profit or loss. Prior to January 1, 2018 the Bank classified financial instruments in accordance with IAS 39 as follows: Financial assets are classified into the following specified categories: financial assets trading investments at fair value through profit or loss (FVTPL), “held‘held to maturity”maturity investments’, ‘available for sale investments “available-for-sale investments” (AFS) financial assets’ and “loans‘loans and accounts receivable from customers.”customers’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assetsthe asset within the time frame established by regulation or convention in the marketplace.   Effective interest methodInterest Method   The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.   Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as at fair value through profit or loss.   Financial assetsAssets at FVTPL — Trading investments   Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at fair value through profit or loss.   A financial asset is classified as held for trading if:   · it has been acquired principally for the purpose of selling it in the near term; or   · on initial recognition it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent actual pattern of short-term profit-taking; or   89 Table of Contents · it is a derivative that is not designated and effective as a hedging instrument.   A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:   · such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or   · the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Bank'sBank’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or   · it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as at FVTPL.   87  Table of Contents Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘net income (expense) from financial operations'operations’ line itemitem.   Held to maturity investmentsMaturity Investments   Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Bank has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment.   Available-for-sale investmentsAvailable-for-Sale Investments (AFS investments)Investments)   AFS investments are non-derivatives that are either designated as AFS or are not classified as (a) loans and accounts receivable from customers, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss (trading investments).   Financial instruments held by the Bank that are traded in an active market are classified as AFS and are stated at fair value at the end of each reporting period. The Bank also has investments in financial instruments that are not traded in an active market but that are also classified as AFS investments and stated at fair value at the end of each reporting period (because the directors consider that fair value can be reliably measured). Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency rates, interest income calculated using the effective interest method and dividends on AFS equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale investments are recognized in other comprehensive income and accumulated under the heading of Valuation Adjustment. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.   Dividends on AFS equity instruments are recognized in profit or loss when the Bank'sBank’s right to receive the dividends is established.   The fair value of AFS monetary financial assets denominated in a foreign currency is determined in that foreign currency and translated asconverted to Chilean pesos using the described in f) above.market rate. The foreign exchange gains and losses that are recognized in profit or loss are determined based on the amortized cost of the monetary asset.   AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment losses at the end of each reporting period.   Detail regarding the financial investments discussed above is presented below.   a) Trading       As of December 31,          2016       2015       2014         (in millions of Ch$)    Central Bank and Government Securities                         Chilean Central Bank bonds     158,686       159,767       270,004   Chilean Central Bank notes     —       —       —   Other Chilean Central Bank and government securities     237,325       123,468       461,340   Subtotal     396,011       283,235       731,344   Other Chilean Securities                         Time deposits in Chilean financial institutions     —       —       —   Mortgage bonds of Chilean financial institutions     —       —       —   Chilean financial institutions bonds     —       —       —   Chilean corporate bonds     976       37,630       36,339   Other Chilean securities     —       —       —   Subtotal     976       37,630       36,339   Foreign securities                         Foreign Financial Securities     —       —       —   Other foreign financial instruments     —       —       —   Subtotal     —       —       —   Investments in mutual funds     —       —       —   Funds managed by related entities     —       3,406       7,132   Subtotal     —       3,406       7,132                             Total     396,987       324,271       774,815   88 90 Table of Contents  a) Financial Assets Held For Trading / Trading Investments     As of December 31,     2019   2018   2017     (in millions of Ch$) Central Bank and Government Securities             Chilean Central Bank bonds     1,952       22,947       272,272   Other Chilean Central Bank and government securities     268,252       48,211       209,370   Subtotal     270,204       71,158       481,642   Other Chilean Securities                         Chilean corporate bonds     –         –         –     Subtotal     –         –         –     Foreign securities                         Other foreign financial instruments     –         5,883       –     Subtotal     –         5,883       –     Investments in mutual funds     –         –         4,094   Subtotal     –         –         4,094   Total     270,204       77,041       485,736   b) Debt instruments at fair value through other comprehensive income (FVOCI) - under IFRS 9   b) Available-for-saleAs of December 31, 2019 and 2018, the debt instruments at fair value through other comprehensive income (FVOCI) in accordance with IFRS 9 are as follows:       As of December 31,     2016   2015   2014     (in millions of Ch$) Central Bank and Government Securities             Chilean Central Bank bonds     468,386       687,292       381,117   Chilean Central Bank notes     1,222,283       —       384   Other Chilean Central Bank and government securities     52,805       145,603       353,419   Subtotal     1,743.474       832,895       734,920   Other Chilean Securities                         Time deposits in Chilean financial institutions     893,000       712,859       590,382   Mortgage bonds of Chilean financial institutions     25,488       29,025       31,693   Chilean financial institution bonds     —       —       —   Chilean corporate bonds     —       —       —   Other Chilean securities     —       —       —   Subtotal     918,488       741,884       622,075   Foreign Financial Securities                         Central Bank and Government Foreign Securities     387,146       —       —   Other Foreign financial securities     339,798       469,632       294,603   Subtotal     726,944       469,632       294,603   Total     3,388,906       2,044,411       1,651,598       As of December 31,     2019   2018     (in millions of Ch$) Chilean central bank and government securities         Chilean central bank bonds     272,802       657,096   Chilean central bank notes     1,186,724       56,719   Other Chilean central bank and government securities     1,908,031       1,207,221   Subtotal     3,367,557       1,921,036   of which sold under repurchase agreement     379,294       16,109   Other Chilean securities                 Time deposits in Chilean financial institutions     398       2,693   Mortgage finance bonds of Chilean financial institutions     16,748       19,227   Other instruments issued in the country     2,410       2,907   Subtotal     19,556       24,827   of which sold under repurchase agreement     131       128   Foreign financial securities                 Foreign Central Banks and Government securities     197,685       280,622   Other foreign financial securities     425,474       167,838   Subtotal     623,159       448,460   of which sold under repurchase agreement     –         –     Total     4,010,272       2,394,323     c)(c) Available-for-sale Instruments – under IAS 39 For periods prior to January 1, 2018, the Bank valued available for sale instruments in accordance with IAS 39. 91 Table of Contents As of December 31, 2017 (in millions of Ch$) Central Bank and Government Securities Chilean Central Bank bonds 816,331 Chilean Central Bank notes 330,952 Other Chilean Central Bank and government securities 1,115,518 Subtotal 2,262,801 Other Chilean Securities Time deposits in Chilean financial institutions 2,361 Mortgage bonds of Chilean financial institutions 22,312 Chilean financial institution bonds –   Chilean corporate bonds –   Other Chilean securities 3,000 Subtotal 27,673 Foreign Financial Securities Central Bank and Government Foreign Securities 132,822 Other Foreign financial securities 151,250 Subtotal 284,072 Total 2,574,546 d) Held-to-maturity   No financial investments were classified as held-to-maturity as of December 31, 2016, 2015 and 2014.2017. Analysis of investments   The following table sets forth an analysis of our investments as of December 31, 20162019 by remaining maturity and the weighted average nominal rates of such investments.       Within one year   Weighted average Nominal Rate    After one year but within five years    Weighted average Nominal Rate    After five years but within ten years    Weighted average Nominal Rate    After ten years    Weighted average Nominal Rate    Total    Weighted average Nominal Rate  As of December 31, 2019   (in millions of Ch$, except rates) Financial Assets Held For Trading / Trading Investments                                         Central Bank and Government Securities                                         Central Bank bonds     645       2.5       1,091       1.2       105       0.6       111       0.6       1,952       1.5   Central Bank notes     –         –         –         –         –         –         –         –         –         –     Central Bank and government securities     38,644       1.0       218,274       1.3       3,426       0.1       7,908       3.5       268,252       1.3   Subtotal     39,289               219,365               3,531               8,019               270,204           Other Chilean Securities                                                                                 Time deposits in Chilean financial institutions     –         –         –         –         –         –         –         –         –         –     Mortgage bonds of Chilean financial institutions     –         –         –         –         –         –         –         –         –         –     Chilean financial institutions bonds     –         –         –         –         –         –         –         –         –         –     Chilean corporate bonds     –         –         –         –         –         –         –         –         –         –     Other Chilean securities     –         –         –         –         –         –         –         –         –         –     Subtotal     –                 –                 –                 –                 –                 Within one year   After one year but within five years    Weighted average Nominal Rate    After five years but within ten years   Weighted average Nominal Rate   After ten years   After ten years   Weighted average Nominal Rate   Total   Weighted average Nominal Rate     (in millions of Ch$, except rates) Trading                                         Central Bank and Government Securities                                         Central Bank bonds     44,461       1.7       93,313       0.3       20,880       0.4       32       1.5       158,686       0.7   Central Bank notes     —       —       —       —       —       —       —       —       —       —   Central Bank and government securities     140,079       1.1       88,453       2.6       8,739       0.3       54       2.8       237,325       1.6   Subtotal     184,540               181,766               29,619               86               396,011           Other Chilean Securities                                                                                 Time deposits in Chilean financial institutions     —       —       —       —       —       —       —       —       —       —   Mortgage bonds of Chilean financial institutions     —       —       —       —       —       —       —       —       —       —   Chilean financial institutions bonds     —       —       —       —       —       —       —       —       —       —   Chilean corporate bonds     —       —       420       2.4       556       1.5       —       —       976       1.9   Other Chilean securities     —       —       —       —       —       —       —       —       —       —   Subtotal     —               420               556               —               976           Investment in mutual funds                                                                                 Mutual funds administered by related parties     —       —       —       —       —       —       —       —       —       —   Subtotal     —       —       —       —       —       —       —       —       —       —   Total     184,540               182,186               30,175               86               396,987                                                                                               89 92 Table of Contents        Within one year   Weighted average Nominal Rate   After one year but within five years   Weighted average Nominal Rate   After five years but within ten years   Weighted average Nominal Rate   After ten years   Weighted average Nominal Rate   Total   Weighted average Nominal Rate     (in millions of Ch$, except rates) Available-for-sale                                         Central Bank and Government Securities                                                                                 Central Bank bonds     11,046       1.3       373,786       4.2       83,555       4.2       —       —       468,386       4.1   Central Bank notes     1,222,283       —       —       —       —       —       —       —       1,222,283       —   Central Bank and government securities     13,707       1.2       686       4.1       38,412       4.4       —       —       52,805       3.5   Subtotal     1,247,036               374,472               121,966               —               1,743,474           Other Chilean Securities                                                                                 Time deposits in Chilean financial institutions     893,000       0.4       0       —       —       —       —       —       893,000       0.4   Mortgage bonds of Chilean financial institutions     47       3.9       1,287       3.7       12,083       3.8       12,071       3.5       25,488       3.7   Chilean financial institutions bonds     —       —       —       —       —       —       —       —       —       —   Chilean corporate bonds     —       —       —       —       —       —       —       —       —       —   Other Chilean securities     —       —       —       —       —       —       —       —       —       —   Subtotal     893,047               1,287               12,083               12,071               918,488           Other financial securities                                                                                 Central Bank and Government Foreign Securities     6,658       0.7       —       —       380,488       1.5       —       —       387,146       1.5   Other Foreign financial securities     —       —       42,081       2.3       297,717       3.1       —       —       339,798       3.0   Subtotal     6,658               42,081               678,205               —               726,944           Total     2,146,742               417,840               812,255               12,071               3,388,906               Within one year   Weighted average Nominal Rate    After one year but within five years    Weighted average Nominal Rate    After five years but within ten years    Weighted average Nominal Rate    After ten years    Weighted average Nominal Rate    Total    Weighted average Nominal Rate  As of December 31, 2019   (in millions of Ch$, except rates) Foreign Financial Securities                                                                                 Other foreign financial instruments     –         –         –         –         –         –         –         –         –         –     Subtotal     –                 –                 –                 –                 –             Investment in mutual funds                                                                                 Mutual funds administered by related parties     –         –         –         –         –         –         –         –         –         –     Subtotal     –                 –                 –                 –                 –             Total     39,289               219,365               3,531               8,019               270,204           Debt instruments at FVOCI                                                                                 Central Bank and Government Securities                                                                                 Central Bank bonds     –         –         272,802       2.3       –         –         –         –         272,802       2.3   Central Bank notes     1,186,724       0.3       –         –         –         –         –         –         1,186,724       0.3   Central Bank and government securities     205       –         957,766       2.9       478,086       4.1       471,974       4.0       1,908,031       3.5   Subtotal     1,186,929       –         1,230,568       –         478,086       –         471,974       –         3,367,557       –     Other Chilean Securities                                                                                 Time deposits in Chilean financial institutions     398       3.3       –         –         –         –         –         –         398       3.3   Mortgage bonds of Chilean financial institutions     60       3.9       3,191       4.0       10,595       3.5       2,902       3.9       16,748       3.7   Chilean financial institutions bonds     –         –         –         –         –         –         –         –         –         –     Chilean corporate bonds     –         –         –         –         –         –         –         –         –         –     Other Chilean securities     –         –         –         –         –         –         2,410       –         2,410       –     Subtotal     458       –         3,191       –         10,595       –         5,312       –         19,556       –     Other financial securities                                                                                 Central Bank and Government Foreign Securities     –         –         –         –         197,685       –         –         –         197,685       –     Other Foreign financial securities     –         –         –         –         378,454       3.1       47,020       –         425,474       3   Subtotal     –         –         –         –         576,139       –         47,020       –         623,159       –     Total     1,187,387       –         1,233,759       –         1,064,820       –         524,306       –         4,010,272       –        Working Capital   As a bank, we satisfy our working capital needs through general funding, the majority of which derives from deposits and other borrowings from the public. (See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Deposits and Other Borrowings”). In our opinion, our working capital is sufficient for our present needs.   90  Table of Contents Liquidity Management   Liquidity management seeks to ensure that, even under adverse conditions, we have access to the funds necessary to cover client needs, maturing liabilities and capital requirements. Liquidity risk arises in the general funding for our financing, trading and investment activities. It includes the risk of unexpected increases in the cost of funding the portfolio of assets at appropriate maturities and rates, the risk of being unable to liquidate a position in a timely manner at a reasonable price and the risk that we will be required to repay liabilities earlier than anticipated.   93 Table of Contents The following table sets forth the balance of our liquidity portfolio managed by our Financial Management Division in the manner in whichway it is presented to the Asset and Liability Committee (ALCO) and the Board. The ALCO has determined that our liquidity portfolio must be comprised of cash plus assets that can be readily convertible into cash either through the Central Bank window, overnight deposits or instruments or the local secondary market. The management of the Bank’s liquidity portfolio is performed by the Financial Management Division under rules determined by the ALCO.ALCO and based on classifications by the FMC and the Bank’s management.       December 31, 2016   December 31, 2015     Ch$ million Balance as of:         Financial investments for trading     396,987       324,271   Available-for-sale investments     3,388,906       2,044,411   Encumbered assets (net) (1)     (205,703 )     (77,647 ) Net cash (2)     16,259       (315,415 ) Net interbank deposits (3)     1,335,017       1,683,208   Total liquidity portfolio     4,931,466       3,658,829       December 31, 2019   December 31, 2018     Ch$ million Balance as of:         Trading Investments     270,204       77,041   Available-for-sale investments     4,010,272       2,394,323   Encumbered assets (net)(1)     (380,055 )     (48,843 ) Net cash(2)     2,384,323       149,321   Net interbank deposits(3)     (271,620 )     967,095   Total liquidity portfolio     6,013,124       3,538,937       (1) Assets encumbered through repurchase agreements are deducted from the liquidity portfolioportfolio.   (2) Total cash minus reserve requirement of the Central Bank, and includes overnight deposits in Central Bank and foreign banks.   (3) Includes overnight deposits in the Central Bank, domestic banks and foreign banksbanks.     December 31, 2016   December 31, 2015   December 31, 2019   December 31, 2018   Ch$ million   Ch$ million Average balance as of:                 Financial investments for trading     277,775       405,352       170,795       259,654   Available-for-sale investments     2,455,220       1,902,050       2,988,746       2,690,184   Encumbered assets (net) (1)     (90,460 )     (74,664 ) Net cash (2)     (202,771 )     (244,186 ) Net interbank deposits (3)     1,263,768       1,197,325   Encumbered assets (net)(1)     (234,444 )     (134,408 ) Net cash(2)     977,177       109,757   Net interbank deposits(3)     (7,151 )     613,259   Total liquidity portfolio     3,703,533       3,185,876       3,895,123       3,538,446       (1) Assets encumbered through repurchase agreements are deducted from the liquidity portfolioportfolio.   (2) Total cash minus reserve requirement of the Central Bank, and includes overnight deposits in Central Bank and foreign banks.   (3) Includes overnight deposits in the Central Bank, domestic banks and foreign banksbanks.   Our general policy is to maintain liquidity adequate to ensure our ability to honor withdrawals of deposits, make repayments of other liabilities at maturity, extend loans and meet our own working capital needs. Our minimum amount of liquidity is determined by the statutory reserve requirements of the Central Bank. Deposits are subject to a statutory reserve requirement of 9.0% for demand deposits and 3.6% for Chilean peso-, UF- and foreign currency denominated time deposits with a term of less than a year. See “Item 4. Information on the Company—B. Business Overview—Competition—Regulation and Supervision.” The Central Bank has statutory authority to increase these percentages to up to 40.0% for demand deposits and up to 20.0% for time deposits. In addition, a 100.0% special reserve (reserva técnica) applies to demand deposits, deposits in checking accounts, other demand deposits received or obligations payable on sight and incurred in the ordinary course of business, other than deposits unconditionally payable immediately. This special reserve requirement applies to the amount by which the total of such deposits exceeds 2.5 times the amount of a bank’s regulatory capital. Interbank loans are deemed to have a maturity of more than 30 days, even if payable within the following 10 days.   91  Table of Contents The Central Bank also requires us to comply with the following liquidity limits:   94 Table of Contents · The sum of the liabilities with a maturity of less than 30 days may not exceed the sum of the assets with a maturity of less than 30 days by an amount greater than our Shareholders’ equity. This limit must be calculated in local currency and foreign currencies together as one gap. At December 31, 20162019 the percentage of (i) our liabilities with a maturity of less than 30 days in excess of our assets with a maturity of less than 30 days to (ii) our capital and reserves was 15.0%63.0%, thus resulting in our compliance.   · The sum of the liabilities in foreign currency with a maturity of less than 30 days may not exceed the sum of the assets in foreign currency with a maturity of less than 30 days by more than an amount greater than our Shareholders’ equity. At December 31, 20162019 the percentage of (i) our liabilities with a maturity of less than 30 days in foreign currency in excess of our assets in foreign currency with a maturity of less than 30 days to (ii) our capital and reserves was 0%11.0%, as the Bank had more foreign currency assets than liabilities for the calculation of this limit.   · The sum of the liabilities with a maturity of less than 90 days may not exceed the sum of the assets with a maturity of less than 90 days by more than 2 times our Shareholders’ equity. This limit must be calculated in local currency and foreign currencies together as one gap. At December 31, 2016the2019 the percentage of (i) our liabilities with a maturity of less than 90 days in excess of our assets with a maturity of less than 90 days to (ii) our capital and reserves was 37.0%79.0%, thus resulting in our compliance.   We have set other liquidity limits and ratios that minimize liquidity risk. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”   Cash Flow   The tables below set forth our main sources of cash. The subsidiaries are not an important source of cash flow for us and therefore have no impact on our ability to meet our cash obligations. No legal or economic restrictions exist on the ability of subsidiaries to transfer funds to us in the form of loans or cash dividends as long as these subsidiaries abide by the regulations of theLey General de Bancos and theLey de Sociedad Anónimas regarding loans to related parties and minimum dividend payments. See our Consolidated Statements of Cash Flows in our Audited Consolidated Financial Statements for a detailed breakdown of the Bank’s cash flow.       Year ended December 31,     2016   2015   2014     Millions of Ch$ Net cash provided by (used in) operating activities     736,154       687,796       282,423       Year ended December 31,     2019   2018   2017     Millions of Ch$ Net cash (used in) provided by operating activities     1,849,165       1,022,522       (416,357 )   Our operating activities generated cash of Ch$736,1541,849,165 million in 2016. The consumption of cash2019, mainly due to the expansion of our loans bookrise in debits in customer checking accounts and financial investments was offset by the cash provided from our funding activities, especially the issuance of senior bonds. Senior bonds provided cashThis was compensated by the growth of Ch$3,537,855 million in 2016 compared to Ch$878,389 million in 2015, partially offset by an increase in redemptions during the year. The higher amount of feesloans and interest received also boosted cash from operating activities.financial investments.   Our operating activities generated cash of Ch$687,7961,022,522 million in 2015. The consumption of cash2018, mainly due to an increase in liquidity at the end of 2018 particularly from time deposits. This was compensated by strong loan growth and interest paid was more than offset by growth of deposits and interest and fee income received. Cash flow provided by total deposits was Ch$2,513,690 million in 2015 compared to Ch$1,466,272 million in 2014. Our operating activities generated cash of Ch$282,423 million in 2014. The consumption of cash due to loan growth andduring the expansion of our financial investments was more than offset by growth of deposits and other liabilities, but at a slower pace than in 2015.year.     Year ended December 31,    2016  2015  2014    Millions of Ch$ Net cash (used in) provided by investment activities (90,200) (92,865) (92,666)           92  Table of Contents     Year ended December 31,     2019   2018   2017     Millions of Ch$ Net cash (used in) provided by investment activities     (135,369 )     (91,595 )     (73,458 )   In 2016,2019, the Bank’s investment activities consumed cash in an amount of Ch$90,200 million. This was135,369 million mainly due to purchasesthe purchase of property, plant and equipment and the acquisition of shares in connection with investments in affiliates. For more information please see Note 1 b) of our Audited Consolidated Financial Statements.Santander Consumer Finance S.A.   In 2015,2018, the Bank’s investment activities consumed cash in an amount of Ch$92,865 million. This was mainly91,595 million due to the purchases of property, plant and equipment and the acquisition of intangibles. In 2014, the Bank’s investment activities consumed cash in an amountfixed assets. 95 Table of Ch$92,666 million. This was also mainly due to the purchases of property, plant and equipment and the acquisition of intangibles.Contents       Year ended December 31,     2016   2015   2014     Millions of Ch$ Net cash used in financing activities     (336,659 )     (330,199 )     (265,156 )     Year ended December 31,   2019   2018   2017     Millions of Ch$ Net cash used in financing activities     (385,286 )     (423,611 )     (330,645 )   In 2016, 20152019, 2018 and 2014,2017, the net cash used in financing activities can be explained by the Bank’s annual dividend payment each year.   Deposits and Other Borrowings   The following table sets forth our average balance of liabilities for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, in each case together with the related average nominal interest rates paid thereon.     2016   2015   2014   2019   2018   2017   Average Balance   % of Total Average Liabilities   Average Nominal Rate   Average Balance   % of Total Average Liabilities   Average Nominal Rate   Average Balance   % of Total Average Liabilities   Average Nominal Rate   Average Balance   % of Total Average Liabilities   Average Nominal Rate   Average Balance   % of Total Average Liabilities   Average Nominal Rate   Average Balance   % of Total Average Liabilities   Average Nominal Rate   (in millions of Ch$, except percentages)   (in millions of Ch$, except percentages) Interest-bearing liabilities                                                                     Savings accounts     116,339       0.3 %     2.5 %     114,330       0.3 %     3.4 %     108,185       0.3 %     5.0 %     120,896       0.3 %     2.5 %     117,885       0.3 %     2.7 %     117,305       0.3 %     1.6 % Time deposits     13,620,848       38.6 %     3.3 %     12,685,504       36.7 %     3.2 %     11,952,994       36.5 %     3.4 %     13,779,534       31.9 %     2.6 %     13,154,916       35.3 %     2.8 %     13,146,520       37.0 %     2.9 % Central Bank borrowings     871       —       3.4 %     4,891       —       1.0 %     6,906       —       0.2 %     –         0.0 %     0.0 %     4       0.0 %     6.0 %     6       0.0 %     2.2 % Repurchase agreements     121,875       0.3 %     2.4 %     228,050       0.7 %     3.1 %     413,263       1.3 %     2.0 %     414,951       1.0 %     2.5 %     291,913       0.8 %     2.3 %     294,368       0.8 %     2.3 % Mortgage finance bonds     52,414       0.1 %     8.1 %     63,061       0.2 %     10.2 %     81,805       0.2 %     11.9 %     20,923       0.0 %     7.7 %     28,685       0.1 %     8.0 %     38,714       0.1 %     7.0 % Other interest bearing liabilities     7,856,201       22.3 %     5.0 %     7,500,408       21.7 %     5.5 %     6,865,084       21.0 %     6.9 %     11,261,529       26.1 %     4.8 %     9,401,475       25.3 %     4.8 %     8,632,128       24.4 %     4.0 % Subtotal interest-bearing liabilities     21,768,547       61.8 %     3.7 %     20,596,244       59.6 %     4.0 %     19,428,237       59.4 %     4.6 %     25,597,833       59.2 %     3.5 %     22,994,878       61.8 %     3.6 %     22,229,041       62.6 %     3.3 %                                                                         Non-interest bearing liabilities                                                                                                                                                 Non-interest bearing deposits     5,753,622       16.3 %             5,719,889       16.6 %             5,386,272       16.5 %             7,466,991       17.3 %             6,763,546       18.2 %             6,117,644       17.2 %         Derivatives     2,724,994       7.7 %             2,958,942       8.6 %             2,719,386       8.3 %             4,165,330       9.6 %             2,020,857       5.4 %             2,175,063       6.1 %         Other non-interest bearing liabilities     2,156,015       6.1 %             2,454,037       7.1 %             2,501,651       7.6 %             2,549,130       5.9 %             2,170,906       5.8 %             1,997,799       5.6 %         Shareholders’ equity     2,840,843       8.1 %             2,816,116       8.2 %             2,689,037       8.2 %             3,450,729       8.0 %             3,263,155       8.8 %             3,001,680       8.5 %         Subtotal non-interest bearing liabilities     13,475,473       38.2 %             13,948,984       40.4 %             13,296,346       40.6 %             17,632,180       40.8 %             14,218,464       38.2 %             13,292,186       37.4 %         Total liabilities     35,244,021       100.0 %             34,545,228       100.0 %             32,724,583       100.0 %             43,230,013       100.0 %             37,213,342       100.0 %             35,521,227       100.0 %           Our most important source of funding is our deposits. Average time deposits plus non-interest bearing demand deposits represented 54.9%49.1% of our average total liabilities and shareholders’ equity in 2016.2019. Our current funding strategy is to continue to utilize all sources of funding in accordance with their costs, their availability and our general asset and liability management strategy. Special emphasis is being placed on lengthening the maturities of funding with institutional clients, diversifying our bond holder base and broadening our core deposit funding. We 96 Table of Contents believe that broadening our deposit base by increasing the number of account holders has created a more stable funding source.   93  Table of Contents Composition of Deposits   The following table sets forth the composition of our deposits and similar commitments at December 31, 2019, 2018, 2017, 2016 2015, 2014, 2013 and 2012.2015.     2016   2015   2014   2013   2012   2019   2018   2017   2016   2015   (in millions of Ch$)   (in millions of Ch$) Demand deposits and other demand obligations                                         Current accounts     6,144,688       5,875,992       5,131,130       4,403,526       4,006,143       8,093,108       6,794,132       6,272,656       6,144,688       5,875,992   Other deposits and demand accounts     564,966       577,077       554,785       569,395       455,315       741,103       709,711       590,221       564,966       577,077   Other demand obligations     829,661       903,052       794,582       647,842       508,561       1,463,221       1,237,574       905,289       829,661       903,052   Subtotals     7,539,315       7,356,121       6,480,497       5,620,763       4,970,019       10,297,432       8,741,417       7,768,166       7,539,315       7,356,121   Time deposits and other time deposits                                                                                 Time deposits     13,031,319       12,065,697       10,303,167       9,567,855       9,008,902       13,064,932       12,944,846       11,792,466       13,031,319       12,065,697   Time saving accounts     116,451       113,562       107,599       104,143       101,702       123,787       118,587       116,179       116,451       113,562   Other time deposits     3,939       3,508       3,174       3,274       1,609       4,098       4,386       5,300       3,939       3,508   Subtotals     13,151,709       12,182,767       10,413,940       9,675,272       9,112,213       13,192,817       13,067,819       11,913,945       13,151,709       12,182,767   Total deposits and other commitments     20,691,024       19,538,888       16,894,437       15,296,035       14,082,232       23,490,249       21,809,236       19,682,111       20,691,024       19,538,888     Maturity of Interest Bearing Deposits   The following table sets forth information regarding the currency and maturity of our interest bearing deposits as of December 31, 2016,2019, expressed in percentages of our total deposits in each currency category. UF-denominated deposits are similar to peso-denominated deposits in all respects, except that the principal is readjusted periodically based on variations in the Chilean consumer price index.     Ch$   UF   Foreign Currencies   Total   Ch$   UF   Currencies   Total Demand deposits     0.02 %     0.13 %     0.01 %     0.03 %     0.02 %     0.17 %     0.01 %     0.03 % Savings accounts     0.02 %     7.78 %     — %     0.89 %     0.02 %     9.35 %     0.00 %     0.94 % Time deposits:                                                                 Maturing within 3 months     79.54 %     49.92 %     95.04 %     78.26 %     80.85 %     24.21 %     95.54 %     76.58 % Maturing after 3 but within 6 months     12.60 %     12.70 %     4.28 %     11.52 %     12.36 %     14.92 %     3.71 %     11.83 % Maturing after 6 but within 12 months     6.83 %     23.31 %     0.44 %     7.84 %     6.64 %     10.94 %     0.43 %     6.50 % Maturing after 12 months     0.99 %     6.16 %     0.23 %     1.47 %     0.12 %     40.40 %     0.31 %     4.11 % Total time deposits     99.97 %     92.09 %     99.99 %     99.08 %     99.96 %     90.48 %     99.99 %     99.03 % Total deposits     100.00 %     100.00 %     100.00 %     100.00 %     100.00 %     100.00 %     100.00 %     100.00 %   The following table sets forth information regarding the maturity of our outstanding time deposits in excess of U.S.$100,000 as of December 31, 2016.2019.     Ch$   UF   Foreign Currencies   Total   Ch$   UF   Foreign Currencies   Total   (in millions of Ch$)       (in millions of Ch$)     Time deposits:                 Time deposits: Maturing within 3 months     7,910,465       736,896       1,644,819       10,292,180       8,648,949       315,507       1,138,907       10,103,363   Maturing after 3 but within 6 months     1,253,336       187,509       74,088       1,514,933       1,322,006       194,412       44,250       1,560,668   Maturing after 6 but within 12 months     679,209       344,110       7,550       1,030,869       710,349       142,558       5,133       858,040   Maturing after 12 months     98,497       90,890       3,950       193,337       12,745       526,437       3,678       542,860   Total time deposits     9,941,507       1,359,405       1,730,407       13,031,319       10,694,049       1,178,914       1,191,968       13,064,931     97 Table of Contents Short-term Borrowings   The principal categories of our short-term borrowings are repurchase agreements and interbank borrowings. The table below presents the amounts outstanding at each year-end indicated and the weighted-average nominal interest rate for each such year by type of short-term borrowing.   94  Table of Contents   2016   2015   2014   2019    2018    2017    Balance   Weighted-Average Nominal Interest Rate   Balance   Weighted-Average Nominal Interest Rate   Balance   Weighted-Average Nominal Interest Rate   Balance    Weighted- Average Nominal Interest Rate    Balance    Weighted -Average Nominal Interest Rate    Balance    Weighted- Average Nominal Interest Rate    (in millions of Ch$, except percentages)       (in millions of Ch$, except percentages)     Obligations arising from repurchase agreements     212,437       2.3 %     143,689       0.3 %     392,126       0.2 %     380,055       2.4 %     48,545       2.5 %     268,061       2.5 % Obligations with the Central Bank     7       0.5 %     4       0.5 %     94       0.5 %     –         –         –         –         5       3.0 % Loans from domestic financial institutions     365,436       0.0 %     —       —       66,006       0.2 %     143,865       –         –         –         480       –     Foreign obligations     1,647,805       1.4 %     868,593       0.4 %     717,416       0.2 %     1,985,773       2.8 %     1,648,955       2.5 %     1,477,318       1.6 % Total short-term borrowings     2,225,685       1.2 %     1,012,286       0.7 %     1,175,642       0.2 %     2,509,693       2.6 %     1,697,500       2.5 %     1,745,864       1.8 %   The following table shows the average balance and the average nominal rate for each short-term borrowing category for the years indicated.     2016   2015   2014     Average Balance   Average Nominal Interest Rate   Average Balance   Average Nominal Interest Rate   Average Balance   Average Nominal Interest Rate     (in millions of Ch$, except percentages) Obligations arising from repurchase agreements     121,875       2.4 %     228,050       3.1 %     413,263       2.0 % Obligations with the Central Bank     871       3.4 %     4,891       1.0 %     6,906       0.2 % Loans from domestic financial institutions     114,882       4.2 %     88,296       0.6 %     100,513       4.9 % Foreign obligations     1,435,395       1.1 %     1,038,686       0.8 %     1,508,559       1.3 % Total short-term borrowings     1,680,300       1.4 %     1,359,923       1.1 %     2,029,241       1.6 %     2019    2018    2017      Average Balance    Average Nominal Interest Rate    Average Balance    Average Nominal Interest Rate    Average Balance    Average Nominal Interest Rate      (in millions of Ch$, except percentages) Obligations arising from repurchase agreements     414,951       2.5 %     291,913       2.3 %     294,368       2.3 % Obligations with the Central Bank     –         –         4       6.0 %     6       2.2 % Loans from domestic financial institutions     270       –         80       –         413       –     Foreign obligations     1,903,862       2.3 %     1,462,975       2.3 %     1,465,653       1.7 % Total short-term borrowings     2,319,083       2.4 %     1,754,972       2.3 %     1,760,440       1.8 %   The following table presents the maximum month-end balances of our principal sources of short-term borrowings during the years indicated.     Maximum 2016 Month-End Balance   Maximum 2015 Month-End Balance   Maximum 2014 Month-End Balance     (in millions of Ch$) Obligations arising from repurchase agreements     212,437       388,735       392,126   Obligations with the Central Bank     22       85       205   Loans from domestic financial institutions     365,436       205,069       206,530   Foreign obligations     1,787,746       1,387,403       1,809,514   Total short-term borrowings     2,365,641       1,981,292       2,408,375       Maximum 2019 Month-End Balance   Maximum 2018 Month-End Balance   Maximum 2017 Month-End Balance     (in millions of Ch$) Obligations arising from repurchase agreements     527,836       345,927       526,826   Obligations with the Central Bank     –         5       6   Loans from domestic financial institutions     271,620       164,606       200,000   Foreign obligations     3,025,476       1,918,519       1,778,183   Total short-term borrowings     3,824,932       2,429,057       2,505,015     Total Borrowings       As of December 31, 2016     Long-term   Short-term       Total     (in millions of Ch$) Central Bank credit lines for renegotiations of loans (a)     —       7       7   Obligations under repurchase agreements     —       212,437       212,437   Mortgage finance bonds (b)     35,015       11,236       46,251   Senior bonds (c)     5,280,561       1,135,713       6,416,274   Mortgage bonds(d)     99,864       4,318       104,182   Subordinated bonds(e)     759,661       4       759,665   Borrowings from domestic financial institutions     —       356,436       356,436   Foreign borrowings(f)     1,025,404       525,521       1,550,925   Other obligations(g)     81,528       158,488       240,016   Total borrowings     7,282,033       2,404,160       9,686,193       As of December 31, 2019      Long-term    Short-term    Total      (in millions of Ch$) Central Bank credit lines for renegotiations of loans     –         –         –     Obligations under repurchase agreements     –         380,055       380,055     95 98 Table of Contents      As of December 31, 2019     Long-term   Short-term   Total     (in millions of Ch$) Central Bank credit lines for renegotiations of loans     –         –         –     Obligations under repurchase agreements     –         380,055       380,055   Mortgage finance bonds (a)     12,489       6,013       18,502   Senior bonds (b)     6,496,011       2,078,202       8,574,213   Mortgage bonds(c)     84,787       5,137       89,924   Subordinated bonds(d)     818,084       –         818,084   Borrowings from domestic financial institutions     127,748       158,855       286,603   Foreign borrowings(e)     262,425       1,970,790       2,233,215   Other obligations(f)     318       226,040       226,358   Total borrowings     7,801,862       4,825,092       12,626,954         As of December 31, 2015   As of December 31, 2018    Long-term   Short-term   Long-term    Short-term    Total    (in millions of Ch$)   (in millions of Ch$) Central Bank credit lines for renegotiations of loans (a)     —       4       4       –         –         –     Obligations under repurchase agreements     —       143,689       143,689       –         48,545       48,545   Mortgage finance bonds (b)(a)     57,314       5,544       62,858       18,660       6,830       25,490   Senior bonds (c)(b)     4,245,624       796,012       5,041,636       6,353,967       844,898       7,198,865   Mortgage bonds(d)(c)     103,519       4,063       107,582       90,088       4,833       94,921   Subordinated bonds(e)(d)     738,436       6,583       745,019       795,956       1       795,957   Borrowings from domestic financial institutions     —       —       —       –         –         –     Foreign borrowings(f)(e)     438,977       868,593       1,307,570       139,671       1,648,955       1,788,626   Other obligations(g)(f)     84,355       136,172       220,527       9,529       205,871       215,400   Total borrowings     5,668,225       1,960,660       7,628,885       7,407,871       2,759,933       10,167,804         As of December 31, 2014     Long-term   Short-term     (in millions of Ch$) Central Bank credit lines for renegotiations of loans (a)     —       94       94   Obligations under repurchase agreements     —       392,126       392,126   Mortgage finance bonds (b)     74,948       6,561       81,509   Senior bonds (c)     3,701,885       1,166,602       4,868,487   Mortgage bonds(d)     105,422       3,778       109,200   Subordinated bonds(e)     715,465       10,451       725,916   Borrowings from domestic financial institutions     —       66,006       66,006   Foreign borrowings(f)     448,085       717,416       1,165,501   Other obligations(g)     84,576       120,549       205,125   Total borrowings     5,130,381       2,483,583       7,613,964                                 As of December 31, 2017     Long-term   Short-term   Total     (in millions of Ch$) Central Bank credit lines for renegotiations of loans     –         5       5   Obligations under repurchase agreements     –         268,061       268,061   Mortgage finance bonds (a)     25,788       8,691       34,479   Senior bonds (b)     5,849,594       337,166       6,186,760   Mortgage bonds(c)     94,681       4,541       99,222   Subordinated bonds(d)     773,189       3       773,192   Borrowings from domestic financial institutions     –         480       480   Foreign borrowings(e)     220,554       1,477,318       1,697,872   Other obligations(f)     29,205       212,825       242,030   Total borrowings     6,993,011       2,309,090       9,302,101     (a) Credit lines for renegotiations of loans Central Bank borrowings include credit lines for the renegotiations of loans and other Central Bank borrowings. The maturities of the outstanding amounts due are as follows:     As of December 31, 2016   As of December 31, 2015     (in millions of Ch$) Due within 1 year     7       4   Total     7       4   (b) Mortgage finance bonds   These bonds are used to finance mortgage loans. Their principal amounts are amortized on a quarterly basis. The range of maturities of these bonds is between five and twenty years. Loans are indexed to UF and pay a yearly interest rate.       As of December 31, 20162019     (in millions of Ch$) Due within 1 year     11,2366,013   Due after 1 year but within 2 years     8,6734,944   Due after 2 years but within 3 years     6,9283,928   Due after 3 years but within 4 years     6,2462,442   Due after 4 years but within 5 years     5,2781,005   Due after 5 years     7,890170   Total mortgage finance bonds     46,25118,502     96 99 Table of Contents  (c)(b) Senior bonds   The following table sets forth, at the dates indicated, our issued senior bonds. The bonds are denominated principally in UFs or U.S. dollars, and are principally used to fund assets with similar durations.   As of December 31,    As of December 31, 2016  2015  2014    2019   2018   2017 (in millions of Ch$)   (in millions of Ch$) Senior Bonds in UF 3,588,373 2,179,643 1,797,438     4,814,604       4,095,741       3,542,006   Senior Bonds in U.S.$ 909,354 1,625,150 2,191,347     1,649,238       1,094,267       1,045,465   Senior Bonds in CHF 568,549 535,448 443,186     499,485       386,979       268,281   Senior Bonds in Ch$ 1,037,515 475,075 236,025     1,242,633       1,291,900       1,135,527   Senior Bonds in CNY 60,890 — — Current bonds in AUD 179,426 62,066 62,472     124,748       24,954       14,534   Santander bonds in JPY 72,167 164,254 138,019     77,797       191,598       126,059   Senior bonds in EUR     165,708       113,426       54,888   Total senior bonds 6,416,274 5,041,636 4,868,487     8,574,213       7,198,865       6,186,760         The maturities of these bonds are as follows:       As of December 31, 20162019     (in millions of Ch$) Due within 1 year     1,135,7132,078,202   Due after 1 year but within 2 years     321,5091,147,825   Due after 2 years but within 3 years     816,9191,221,393   Due after 3 years but within 4 years     663,289742,338   Due after 4 years but within 5 years     754,7681,278,746   Due after 5 years     2,724,0762,105,809   Total bonds     6,416,2748,574,313     In 2016,2019, the Bank issued bonds for UF62,000,000; CLP590,000,000,000; CHF125,000,000; JPY3,000,000,000; USD215,000,000UF 32,000,000, CLP 225,000,000,000, EUR65,000,000, AUD 185,000,000 and EUR104,000,000CHF 250,000,000, as detailed as follows:   Series Currency Amount Term Issuance rate Series approval date Series maximum amount Maturity date R1 UF 15,000,000 5.5 2.50% 01-09-2015 15,000,000 01-03-2021 R2 UF 10,000,000 7.5 2.60% 01-09-2015 10,000,000 01-03-2023 R3 UF 10,000,000 10.5 3.00% 01-09-2015 10,000,000 01-03-2026 R5 UF 7,000,000 7.0 2.55% 01-12-2015 7,000,000 01-12-2022 R6 UF 7,000,000 9.0 2.65% 01-12-2015 7,000,000 01-12-2024 P9 UF 3,000,000 10.5 2.60% 01-03-2015 5,000,000 01-09-2025 T2 UF 5,000,000 4.5 2.25% 01-02-2016 5,000,000 01-08-2020 T5 UF 5,000,000 6.0 2.40% 01-02-2016 5,000,000 01-02-2022 Total UF 62,000,000           R4 CLP 100,000,000,000 5.5 5.50% 01-09-2015 100,000,000,000 01-03-2021 P4 CLP 50,000,000,000 5.0 4.80% 01-03-2015 150,000,000,000 01-03-2020 SD CLP 140,000,000,000 5.0 5.50% 01-06-2014 200,000,000,000 01-06-2019 SC CLP 200,000,000,000 10.0 5.95% 01-06-2014 200,000,000,000 01-06-2024 P3 CLP 50,000,000,000 7.0 5.50% 01-01-2015   50,000,000,000 01-01-2022 P1 CLP 50,000,000,000 10.0 5.80% 01-01-2015   50,000,000,000 01-01-2025 Total CLP 590,000,000,000           JPY JPY 3,000,000,000 5.0 0.115% 22-06-2016 3,000,000,000 29-06-2021 Total JPY 3,000,000,000           DN USD 10,000,000 5.0 Libor-USD 3M+1.05% 02-06-2016   10,000,000 09-06-2021 DN USD 10,000,000 5.0 Libor-USD 3M+1.22% 08-06-2016   10,000,000 17-06-2021 DN USD 10,000,000 5.0 Libor-USD 3M+1.20% 01-08-2016   10,000,000 16-08-2021 DN USD 185,000,000 5.0 Libor-USD 3M+1.20% 10-11-2016 185,000,000 28-11-2021 Total USD 215,000,000           EUR EUR 54,000,000 12.0 1.307% 05-08-2016   54,000,000 17-08-2028 EUR EUR 20,000,000 8.0 0.80% 04-08-2016   20,000,000 19-08-2024 EUR EUR 30,000,000 3.0 0.25% 09-12-2016   30,000,000 20-12-2019 Total EUR 104,000,000           CHF CHF   125,000,000 8.5  0.35% 14-11-2016  125,000,000 30-05-2025 Total CHF 125,000,000           Series      Currency      Amount      Term      Issuance rate      Series approval date      Series maximum amount      Maturity date    T7   UF   5,000,000   4   2.50%   01-02-2016   5,000,000   01-02-2023 T8   UF   8,000,000   4 yr 6 months   2.55%   01-02-2016   8,000,000   01-08-2023 14   UF   9,000,000   8   2.80%   01-02-2016   18,000,000   01-02-2027 T6   UF   5,000,000   10   1.70%   01-11-2018   5,000,000   01-05-2029 T10    UF     5,000,000   5yr 4 months     2.60%     01-02-2016     5,000,000    01-08-2024   Total UF         32,000,000               41,000,000     U9   CLP   75,000,000,000   2yr 8 months   ICP + 0.8%   01-11-2018   75,000,000,000   19-11-2021 P-5     CLP   75,000,000,000   2yr 6 months   5.30%   01-03-2015   150,000,000,000   01-03-2022 Total CLP         150,000,000,000               225,000,000,000     EUR   EUR   30,000,000   7   1.10%   01-02-2019   40,000,000   07-02-2026 EUR      EUR     25,000,000   15   1.25%   26-11-2019   25,000,000   26-11-2034 Total EUR          55,000,000               65,000,000     AUD   AUD   22,000,000   15   3.66%   20-05-2019   22,000,000   20-05-2034 AUD   AUD   20,000,000   5   1.13%   11-07-2019   20,000,000   11-07-2024 AUD   AUD   28,000,000   5   1.13%   17-07-2019   28,000,000   17-07-2024 AUD   AUD   15,000,000   5   1.13%   17-07-2019   15,000,000   17-07-2024 AUD   AUD   75,000,000   20   3.05%   30-08-2019   75,000,000   28-02-2039 AUD   AUD   12,000,000   15   3.16%   12-11-2019   12,000,000   20-11-2034 AUD      AUD   13,000,000   15   2.91%   21-11-2019   13,000,000   27-11-2034 Total AUD          185,000,000                 185,000,000       CHF   CHF   150,000,000   5yr 6 months   0.38%   12-03-2019   150,000,000   27-09-2024 CHF      CHF     100,000,000     10   0.14%   29-08-2019   100,000,000     29-08-2029 Total CHF       250,000,000                250,000,000       97 100 Table of Contents  (d)(c) Mortgage bonds   These bonds are used to finance mortgage loans with certain characteristics such as loan-to-value ratios below 80.0% and a debt servicing ratio of the client lower than 20.0%. All outstanding mortgage bonds are UF denominated.   The maturities of our mortgage bonds are as follows:     As of December 31,   2016   2015   As of December 31,   Ch$mn   Ch$mn   2019   2018           (in millions of Ch$) Due within 1 year     4,318       4,063       5,137       4,833   Due after 1 year but within 2 years     6,932       6,522       8,248       7,758   Due after 2 year but within 3 years     7,156       6,733       8,514       8,008   Due after 3 year but within 4 years     7,386       6,951       8,788       8,267   Due after 4 year but within 5 years     7,626       7,175       9,072       8,534   Due after 5 years     70,764       76,138       50,165       57,521   Total mortgage bonds     104,182       107,582       89,924       94,921                   During 2016,2019, the Bank hasdid not placedplace any mortgage bonds.   (e)(d) Subordinated bonds   The following table sets forth, at the dates indicated, the balances of our subordinated bonds. The following table sets forth, at the dates indicated, our issued subordinated bonds. The bonds are denominated principally in UFs or U.S. dollars, and are principally used to fund the Bank’s mortgage portfolio and are considered to be a part of our regulatory capital.       As of December 31,     2016   2015   2014     (in millions of Ch$) Subordinated bonds denominated in U.S.$     —       —       3   Subordinated bonds linked to the Ch$     4       6       —   Subordinated bonds linked to the UF     759,661       745,013       725,913   Total subordinated bonds     759,665       745,019       725,916   98  Table of Contents     As of December 31,     2019   2018   2017     (in millions of Ch$) Subordinated bonds linked to the Ch$     –         1       3   Subordinated bonds linked to the UF     818,084       795,956       773,189   Total subordinated bonds     818,084       795,957       773,192     The maturities of these bonds, which are considered long-term, are as follows.       As of December 31, 20162019     (in millions of Ch$) Due within 1 year     4–     Due after 1 year but within 2 years     —–     Due after 2 years but within 3 years     —–     Due after 3 years but within 4 years     —–     Due after 4 years but within 5 years     —–     Due after 5 years     759,661818,084   Total subordinated bonds     759,665818,084     During 2016,2019, the Bank did not issue subordinated bonds.   (f)(e) Foreign borrowings   These are short-term and long-term borrowings from foreign banks used to fund our foreign trade business. The maturities of these borrowings are as follows.   101 Table of Contents   As of December 31, 2016  2019   (in millions of Ch$) Due within 1 year 525,521 1,970,790 Due after 1 year but within 2 years 725,315 225,025 Due after 2 years but within 3 years 186,352 37,400 Due after 3 years but within 4 years 80,473 –   Due after 5 years 33,264 –   Total loans from foreign financial institutions 1,550,925 2,233,215 (g) (f) Other obligations   Other obligations are summarized as follows:     As of December 31, 2016  2019   Ch$ millions Long term obligations   Due after 1 years but within 2 years 33,777 41 Due after 2 years but within 3 years 24,863 44 Due after 3 years but within 4 years 5,794 48 Due after 4 years but within 5 years 1,973 53 Due after 5 years 15,121 132 Long-term financial obligations subtotals 81,528 318 Short term obligations:   Amounts due to credit card operators 151,620 151,984 Acceptance of letters of credit 2,069 5,709 Other long-term financial obligations, short-term portion 4,799 68,347 Short-term financial obligations subtotals 158,488 226,040 Other financial obligations totals 240,016 226,358 99  Table of Contents    Other Off-Balance Sheet Arrangements and Commitments   In the normal course of our business, we are party to transactions with off-balance sheet risk. These transactions expose us to credit risk in addition to amounts recognized in the consolidated financial statements. The most important off-balance sheet item is contingent loans. Contingent loans consist of guarantees granted by us in Ch$, UF and foreign currencies (principally U.S.$), unused letters of credit and commitments to extend credit such as overdraft protection and credit card lines of credit. Such commitments are agreements to lend to a customer at a future date, subject to the customer compliance with the contractual terms. Since a substantial portion of these commitments is expected to expire without being drawn upon, the total amount of commitments does not necessarily represent our actual future cash requirements. We use the same credit policies in making commitments to extend credit as we do for granting loans, therefore, in the opinion of our management, our outstanding commitments represent normal credit risk.   The following table presents the Bank’s outstanding contingent loans as of December 31, 2016, 20152019, 2018 and 2014:2017:       As of December 31,     2016   2015   2014     (in millions of Ch$) Issued and documented letters of credit     158,800       179,042       205,920   Confirmed foreign letters of credit     57,686       70,434       75,813   Documented guarantees     1,752,610       1,684,847       1,481,154   Other guarantees     125,050       163,955       262,169   Subtotals     2,094,146       2,098,278       2,025,056   Lines of credit with immediate availability     7,548,820       6,806,745       5,699,573   Other irrevocable obligation     260,266       82,328       109,520   Totals     9,903,232       8,987,351       7,834,149       As of December 31,     2019   2018   2017     (in millions of Ch$) Letters of credit issued     140,572       223,420       201,699   Foreign letters of credit confirmed     70,192       57,038       75,499   Performance guarantee     1,929,894       1,954,205       1,823,793   Personal guarantee     451,950       133,623       81,577   Total contingent liabilities     2,592,608       2,368,286       2,182,568   Lines of credit with immediate availability     8,732,422       8,997,650       8,135,489   102 Table of Contents     As of December 31,     2019   2018   2017     (in millions of Ch$) Other irrevocable obligation     485,991       327,297       260,691   Total loan commitments     9,218,413       9,324,947       8,396,180   Totals     11,811,021       11,693,233       10,578,748     Asset and Liability Management   Please refer to “Item 11. Quantitative and Qualitative Disclosures about Market Risk” for information regarding our policies with respect to asset and liability management.   Capital Expenditures   The following table reflects capital expenditures in each of the three years ended December 31, 2016, 20152019, 2018, and 2014:2017:     Year Ended December 31,   Year Ended December 31,   2016   2015   2014   2019   2018   2017   (in millions of Ch$)   (in millions of Ch$) Land and Buildings     26,567       27,781       24,957       10,065       30,396       27,592   Machinery, Systems and Equipment     30,965       29,282       22,785       33,302       27,697       26,278   Furniture, Vehicles, Other(1)     4,823       8,048       11,346       7,602       8,646       4,902   Total     62,355       65,111       59,088       50,969       66,739       58,772       (1) Includes assets ceded under operating leases.   The decreaseincrease in capital expenditures in 2016 was mainly2019 is due to a reduction in the investments mainly related to the digital transformation of the front and back offices, branch network.upgrades to WorkCafé format, new digital products and branch security measures.   C. Selected Statistical Information C. Selected Statistical Information   The following information is included for analytical purposes and should be read in conjunction with our Audited Consolidated Financial Statements, as well as the discussion in this “Item 5. Item 5. Operating and Financial Review and Prospects.” The UF is linked to, and is adjusted daily to reflect changes in, the previous month’s Chilean consumer price index. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Impact of Inflation.”   100  Table of Contents Average Balances, Income Earned from Interest-Earning Assets and Interest Paid on Interest-Bearing Liabilities   The average balances for interest-earning assets and interest-bearing liabilities, including interest and readjustments received and paid, have been calculated on the basis of daily balances for us on an unconsolidated basis. Such average balances are presented in Chilean pesos, UFs and in foreign currencies (principally U.S. dollars). Figures from our subsidiaries have been calculated on the basis of monthly balances. The average balances of our subsidiaries, except Santander S.A. Agente de Valores, have not been categorized by currency. As such it is not possible to calculate average balances by currency for such subsidiaries on the basis of daily, weekly or monthly balances.   The nominal interest rate has been calculated by dividing the amount of interest and principal changes in the UF index (gain or loss) during the period by the related average balance, both amounts expressed in constant pesos.   Foreign exchange gains or losses on foreign currency-denominated assets and liabilities are not included in interest income or expense. When a financial asset becomes credit-impaired and is, therefore, regarded as “Stage 3”, the Bank suspends the interest income recognition in the income statement. Similarly, interest on the available-for-sale investment portfolio does not include trading orand mark-to-market gains or losses on these investments.investments are not included in interest income or expense. Interest is not recognized on non-performing loans. Non-performing loans that are past-due for 90 days or less have been included in each of the 103 Table of Contents various categories of loans, and therefore affect the various averages. Non-performing loans consist of loans as to which either principal or interest is past-due (i.e., non-accrual loans) and restructured loans earning no interest.   Included in interbank deposits are checking accounts maintained in the Central Bank and foreign banks. Such assets have a distorting effect on the average interest rate earned on total interest-earning assets because currently balances maintained in Chilean peso amounts do not earn interest, and the only balances held in a foreign currency that earn interest are those maintained in U.S. dollars, but those only earn interest on the amounts that are legally required to be held for liquidity purposes. Additionally, this account includes interest earned by overnight investments. Consequently, the average interest earned on such assets is comparatively low. We maintain these deposits in these accounts to comply with statutory requirements and to facilitate international business, rather than to earn income. See Note 1—Summary of Significant Accounting Policies—(k) Recognizing Income and Expenses of our Audited Consolidated Financial Statements.   The following tables show, by currency of denomination, average balances and, where applicable, interest amounts and real rates for our assets and liabilities for the years ended December 31, 2016, 20152019, 2018 and 2014.2017.     For the year ended December 31,   For the year ended December 31,       2016           2015            2014        2019   2018   2017   Average Balance    Interest Earned    Average Nominal Rate    Average Balance    Interest Earned    Average Nominal Rate    Average Balance    Interest Earned    Average Nominal Rate    Average Balance   Interest Earned   Average Nominal Rate   Average Balance   Interest Earned   Average Nominal Rate   Average Balance   Interest Earned   Average Nominal Rate Assets                                                                 Interest earning assets                                                                         Interest earning assets                                 Deposits in Central Bank                                                                                                             Ch$     341,040       5,396       1.6 %             283,376               7,246       2.6 %     477,977     8,728   1.8%     496,804       822       0.2 %     451,805       5,930       1.3 %     358,445       4,395       1.2 % UF     —       —       —%               —               —       —%       —     —   —%     -         -         - %     -         -         - %     -         -         - % Foreign currency     —       —       —%               —               —       —%       —     —   —%     -         -         - %     -         -         - %     -         -         -   % Total     341,040       5,396       1.6 %             283,376               7,246       2.6 %     477,977     8,728   1.8%     496,804       822       0.2 %     451,805       5,930       1.3 %     358,445       4,395       1.2 % Financial investments                                                                         Financial investments (1)                                                                         Ch$     1,553,848       78,410       5.0 %             1,323,540               29,488       2.2 %     1,339,117     40,701   3.0%     1,571,480       36,695       2.3 %     1,490,010       64,839       4.4 %     1,626,073       91,945       5.7 % UF     108,646       4,727       4.4 %             139,394               9,583       6.9 %     295,570     38,906   13.2%     877,872       17,547       2.0 %     826,333       35,573       4.3 %     250,729       8,894       3.5 % Foreign currency     1,106,205       14,452       1.3 %             1,054,110               10,784       1.0 %     1,368,089     6,047   0.4%     958,466       10,519       1.1 %     677,343       10,616       1.6 %     919,711       13,077       1.4 % Total     2,768,699       97,589       3.5 %             2,517,044               49,855       2.0 %     3,002,776     85,654   2.8%     3,407,818       64,761       1.9 %     2,993,686       111,028       3.7 %     2,796,513       113,916       4.1 % Commercial Loans                                                                                                                                                 Ch$     5,848,483       532,675       9.1 %             5,679,661               502,137       8.8 %     5,658,176     474,537   8.4%     6,668,248       459,659       6.9 %     6,651,575       461,343       6.9 %     6,117,872       468,181       7.7 % UF     4,786,383       329,402       6.9 %             4,466,365               352,466       7.9 %     4,077,560     381,244   9.3%     6,075,706       374,361       6.2 %     5,553,732       357,932       6.4 %     5,074,723       284,831       5.6 % Foreign currency     3,254,913       87,735       2.7 %             3,388,381               78,552       2.3 %     2,874,210     67,140   2.3%     2,974,697       134,925       4.5 %     2,852,514       116,991       4.1 %     2,937,416       94,914       3.2 % Total     13,889,779       949,812       6.8 %             13,534,407               933,155       6.9 %     12,609,946     922,921   7.3%     15,718,651       968,945       6.2 %     15,057,821       936,266       6.2 %     14,130,010       847,926       6.0 % Consumer loans                                                                                                                                                 Ch$     3,858,386       542,597       14.1 %             3,711,552               520,553       14.0 %     3,502,026     600,869   17.2%     5,023,394       643,526       12.8 %     4,288,778       585,064       13.6 %     4,081,337       616,639       15.1 % UF     21,015       1,821       8.7 %             80,848               8,229       10.2 %     91,668     11,191   12.2%     18,003       1,273       7.1 %     19,517       1,470       7.5 %     17,475       1,395       8.0 % Foreign currency     39,458       —       —%               34,370               —       —%       27,606     —   —%     65,880       -         - %     55,440       -         - %     45,904       -         - % Total     3,918,859       544,418       13.9 %             3,826,770               528,782       13.8 %     3,621,300     612,060   16.9%     5,107,277       644,799       12.6 %     4,363,735       586,534       13.4 %     4,144,716       618,034       14.9 % Mortgage loans                                                                                                                                                 Ch$     15,180       964       6.4 %             17,291               1,312       7.6 %     23,758     4,918   20.7%     4,938       67       1.4 %     6,826       106       1.5 %     10,485       139       1.3 % UF     8,234,264       535,128       6.5 %             7,695,618               564,579       7.3 %     6,535,989     591,446   9.0%     10,581,292       633,871       6.0 %     9,497,908       597,548       6.3 %     8,795,965       469,618       5.3 % Foreign currency     —       —       —%               —               —       —%       —     —   —%     -         -         - %     -         -         - %     -         -         - % Total     8,249,444       536,092       6.5 %             7,712,909               565,891       7.3 %     6,559,747     596,364   9.0%     10,586,230       633,938       6.0 %     9,504,734       597,654       6.3 %     8,806,450       469,757       5.3 % Interbank loans                                                                         Ch$     35,415       1,263       3.6 %     35,178       897       2.6 %     37,188       969       2.6 % UF     -         -         -  %     -         -         - %     -         -         - % Foreign currency     -         -         - %     -         -         - %     1       -         - % Total     35,415       1,263       3.6 %     35,178       897       2.6 %     37,189       969       2.6 % Investment agreements to resell                                                                         Ch$     14,638       1,481       10.1 %     11,564       1,341       11.6 %     417       927       222.2 % UF     149       42       27.9 %     380       -         - %     340       13       3.8 % Foreign currency     -         -         - %     -         -         - %     -         -         - % Total     14,787       1,523       10.3 %     11,944       1,341       11.2 %     757       940       124.2 %   101 104 Table of Contents      For the year ended December 31,   For the year ended December 31,   2016           2015            2014            Average Balance    Interest Earned    Average Nominal Rate    Average Balance    Interest Earned    Average Nominal Rate    Average Balance    Interest Earned    Average Nominal Rate    2019   2018   2017 Interbank loans                                                                         Ch$     8,291       295       3.6 %             2,271               364       16.0 %     4,356     139   3.2% UF     —       —       —%               —               —       —%       —     —   —% Foreign currency     2       —       —%               3,327               11       0.3 %     1     —   —% Total     8,293       295       3.6 %             5,598               375       6.7 %     4,357     139   3.2% Investment Agreements to resell                                                                         Ch$     1,388       1,208       87.0 %             204               105       51.5 %     4,074     793   19.5% UF     —       302       —%               —               23       —%       —     95   —% Foreign currency     —       4       —%               —               —       —%       —     —   —% Total     1,388       1,514       87.0 %             204               128       51.5 %     4,074     888   19.5% Threshold(1)                                                                           Average Balance   Interest Earned   Average Nominal Rate   Average Balance   Interest Earned   Average Nominal Rate   Average Balance   Interest Earned   Average Nominal Rate Threshold (2)                                                                         Ch$     57,859       242       0.4 %             29,895               62       0.2 %     31     —   —%     95,994       372       0.4 %   �� 83,959       590       0.7 %     85,882       321       0.4 % UF     4       —       —%               —               —       —%       —     —   —%     4       -         - %     4       -         - %     4       -         - % Foreign currency     435,946       1,762       0.4 %             612,802               494       0.1 %     479,488     264   0.1%     387,273       4,958       1.3 %     257,337       4,077       1.6 %     235,091       2,190       0.9 % Total     493,809       2,004       0.4 %             642,697               556       0.1 %     479,519     264   0.1%     483,271       5,330       1.1 %     341,300       4,667       1.4 %     320,977       2,511       0.8 % Total interest earning assets                                                                                                                                                 Ch$     11,684,475       1,161,787       9.9 %             11,047,790               1,061,267       9.6 %     11,009,515     1,130,685   10.3%     13,910,911       1,143,885       8.2 %     13,019,695       1,120,110       8.6 %     12,317,700       1,183,515       9.6 % UF     13,150,312       871,380       6.6 %             12,382,225               934,880       7.6 %     11,000,787     1,022,882   9.3%     17,553,026       1,027,094       5.9 %     15,897,874       992,523       6.2 %     14,139,235       764,750       5.4 % Foreign currency     4,836,524       103,953       2.1 %             5,092,990               89,841       1.8 %     4,749,394     73,451   1.5%     4,386,316       150,402       3.4 %     3,842,64       131,684       3.4 %     4,138,124       110,181       2.7 % Total     29,671,311       2,137,120       7.2 %             28,523,005               2,085,988       7.3 %     26,759,696     2,227,018   8.3%     35,850,253       2,321,381       6.5 %     32,760,203       2,244,317       6.9 %     30,595,059       2,058,446       6.7 %                                                                                                                                                                                                                         Non-interest earning assets                                                                                                                                                 Cash                                                                                                                                                 Ch$     686,449                               715,484                               677,003       723,924                       622,469                       632,208                   UF     —                               —                               —       -                         -                         -                     Foreign currency     98,052                               98,936                               78,195       121,966                       122,178                       120,832                   Total     784,501                               814,420                               755,198       845,890                       744,647                       753,040                   Allowance for loan losses                                                                                                                                                 Ch$     (833,455 )                             (805,244 )                             (722,660 )     (848,776 )                     (844,671 )                     (841,415 )                 UF     —                               —                               —       -                         -                         -                     Foreign currency     (106 )                             (15 )                             —       (17 )                     (41 )                     (118 )                 Total     (833,561 )                             (805,259 )                             (722,660 )     (848,793 )                     (844,712 )                     (841,533 )                 Fixed assets                                                                                                                                                 Ch$     220,919                               222,083                               202,902       90,157                       225,115                       237,409                   UF     —                               —                               —       -                         -                         -                     Foreign currency     —                               —                               —       -                         -                         -                     Total     220,919                               222,083                               202,902       90,157                       225,115                       237,409                   Derivatives                                                                                                                                                 Ch$     2,940,584                               3,300,507                               2,910,369       4,617,101                       2,186,596                       2,360,426                   UF     —                               —                               —       -                         -                         -                     Foreign currency     —                               —                               —       -                         -                         -                     Total     2,940,584                               3,300,507                               2,910,369       4,617,101                       2,186,596                       2,360,426                   Financial Investment (Trading)                                                                                                                                                 Ch$     177,617                               141,784                               114,875       133,743                       167,090                       231,878                   UF     122,113                               195,203                               600,005       75,187                       92,164                       260,526                   Foreign currency     32,496                               21,828                               7       114,922                       49,520                       18,173                   Total     332,226                               358,815                               714,887       323,852                       308,774                       510,577                   Other assets                                                                                                                                                 Ch$     1,246,306                               1,215,289                               1,065,307       1,792,250                       1,345,349                       1,276,197                   UF     69,335                               69,534                               71,241       77,148                       74,713                       77,338                   Foreign currency     812,400                               846,834                               967,643       482,155                       412,657                       552,715                   Total     2,128,041                               2,131,657                               2,104,191       2,351,553                       1,832,719                       1,906,250                   Total non-interest earning assets                                                                                                                                                 Ch$     4,438,420                               4,789,903                               4,247,703       6,508,399                       3,701,948                       3,896,703                   UF     191,448                               264,737                               671,363       152,335                       166,877                       337,864                   Foreign currency     942,842                               967,583                               1,045,821       719,026                       584,314                       691,602                   Total     5,572,710                               6,022,223                               5,964,887       7,379,760                       4,453,139                       4,926,169                                                                                           Total assets                                                                                                                                                 Ch$     16,122,895       1,161,787                       15,837,693               1,061,266               15,257,218     1,130,685     20,419,310       1,143,772               16,721,643       1,120,110               16,214,403       1,183,515           UF     13,341,760       871,380                       12,646,962               934,881               11,672,150     1,022,882     17,705,361       1,027,094               16,064,751       992,523               14,477,099       764,750           Foreign currency     5,779,366       103,953                       6,060,573               89,841               5,795,215     73,451     5,105,342       150,402               4,426,948       131,684               4,829,725       110,181           Total     35,244,021       2,137,120                       34,545,228               2,085,988               32,724,583     2,227,018     43,230,013       2,321,268               37,213,342       2,244,317               35,521,227       2,058,446           Liabilities And Share-Holders’ Equity                                                                         Interest bearing liabilities                                                                         Savings accounts                                                                         Ch$     1,503       4       0.3 %     1,413               5               0.4 %     1,213     3   0.2% UF     114,836       2,949       2.6 %     112,917               3,937               3.5 %     106,972     5,461   5.1% Foreign currency     —       —       —%       —               —               —%       —     —   —% Total     116,339       2,953       2.5 %     114,330               3,942               3.4 %     108,185     5,464   5.0%   102 105 Table of Contents      For the year ended December 31,   For the year ended December 31,   2016           2015            2014        2019   2018   2017   Average Balance    Interest Earned    Average Nominal Rate    Average Balance    Interest Earned    Average Nominal Rate    Average Balance    Interest Earned    Average Nominal Rate    Average Balance   Interest Earned   Average Nominal Rate   Average Balance   Interest Earned   Average Nominal Rate   Average Balance   Interest Earned   Average Nominal Rate                                     Liabilities And Shareholders’ Equity Liabilities And Shareholders’ Equity                                                                 Interest bearing liabilities Interest bearing liabilities                                 Savings accounts                                     Ch$     1,874       5       0.3 %     1,830       5       0.3 %     1,677       4       0.3 % UF     119,022       3,043       2.6 %     116,055       3,130       2.7 %     115,628       1,881       1.6 % Foreign currency     -         -         -  %     -         -         - %      -         -         -  % Total     120,896       3,048       2.5 %     117,885       3,135       2.7 %     117,305       1,885       1.6 % Time deposits                                                                                                                                                 Ch$     9,545,050       387,566       4.1 %     9,260,339               334,259               3.6 %     7,891,805     307,868   3.9%     10,674,547       291,100       2.7 %     9,792,164       289,990       3.0 %     9,506,696       318,803       3.4 % UF     1,299,866       54,320       4.2 %     965,138               63,857               6.6 %     1,345,965     93,624   7.0%     1,004,456       33,744       3.4 %     1,133,420       45,401       4.0 %     1,141,258       35,196       3.1 % Foreign currency     2,775,932       9,873       0.4 %     2,460,027               5,303               0.2 %     2,715,224     8,443   0.3%     2,100,531       27,612       1.3 %     2,229,332       28,581       1.3 %     2,498,566       20,718       0.8 % Total     13,620,848       451,759       3.3 %     12,685,504               403,419               3.2 %     11,952,994     409,935   3.4%     13,779,534       352,456       2.6 %     13,154,916       363,972       2.8 %     13,146,520       374,717       2.9 % Central bank borrowings                                                                                                                                                 Ch$     858       29       3.4 %     4,869               46               1.0 %     6,815     5   0.1%     -         -         -  %     -         114       -   %     -         64       - % UF     14       1       3.9 %     22               2               9.1 %     91     9   9.9%     -         -         - %     4       -         6.0 %     6       -         2.2 % Foreign currency     —       —       —%       —               —               —%       —     —   —%     -         -         -  %      -         -         -  %     -         -         -  %  Total     871       29       3.4 %     4,891               48               1.0 %     6,906     14   0.2%     -         -          %     4       114       6.0 %     6       64       2.2 % Repurchase Agreements                                                                                                                                                 Ch$     108,902       2,812       2.6 %     220,849               6,954               3.1 %     400,673     8,267   2.1%     237,937       10,181       4.3 %     184,458       4,632       2.5 %     254,006       5,676       2.2 % UF     —       —       —%       —               1               —%       —     —   —%     -         1       - %     2       -         - %     -         -         - % Foreign currency     12,973       58       0.4 %     7,201               22               0.3 %     12,590     27   0.2%     177,014       36       - %      107,453       2,036       1.9 %     40,362       1,076       2.7 % Total     121,875       2,870       2.4 %     228,050               6,977               3.1 %     413,263     8,294   2.0%     414,951       10,218       2.5 %     291,913       6,668       2.3 %     294,368       6,752       2.3 % Mortgage finance bonds                                                                                                                                                 Ch$     —       —       —%       —               —               —%       —     —   —%     -         -         - %     -         -         -  %     -         -         - % UF     52,414       4,258       8.1 %     63,061               6,420               10.2 %     81,805     9,698   11.9%     20,923       1,611       7.7 %     28,685       2,305       8.0 %     38,714       2,709       7.0 % Foreign currency     —       —       —%       —               —               —%       —     —   —%     -         -         -   %     -         -         -  %      -         -         -  %  Total     52,414       4,258       8.1 %     63,061             �� 6,420               10.2 %     81,805     9,698   11.9%     20,923       1,611       7.7 %     28,685       2,305       8.0 %     38,714       2,709       7.0 % Other interest bearing liabilities                                                                                                                                                 Ch$     857,325       100,810       11.8 %     677,014               109,455               16.2 %     409,021     203,374   49.7%     1,718,861       115,923       6.7 %     1,305,791       81,616       6.3 %     1,198,933       69,592       5.8 % UF     3,903,076       238,721       6.1 %     3,020,987               227,384               7.5 %     2,538,094     234,284   9.2%     5,503,352       302,825       5.5 %     4,778,773       278,362       5.8 %     4,590,260       217,116       4.7 % Foreign currency     3,095,800       54,356       1.8 %     3,802,407               73,137               1.9 %     3,917,969     38,851   1.0%     4,039,316       118,336       2.9 %     3,316,911       93,777   ��   2.8 %     2,842,935       58,918       2.1 % Total     7,856,201       393,886       5.0 %     7,500,408               409,976               5.5 %     6,865,084     476,509   6.9%     11,261,529       537,084       4.8 %     9,401,475       453,755       4.8 %     8,632,128       345,626       4.0 % Total interest bearing liabilities                                                                                                                                                 Ch$     10,513,637       491,220       4.7 %     10,164,484               450,719               4.4 %     8,709,527     519,517   6.0%     12,633,219       417,209       3.3 %     11,284,243       376,357       3.3 %     10,961,312       394,139       3.6 % UF     5,370,205       300,249       5.6 %     4,162,125               301,601               7.2 %     4,072,927     343,076   8.4%     6,647,753       341,224       5.1 %     6,056,939       329,198       5.4 %     5,885,866       256,903       4.4 % Foreign currency     5,884,705       64,286       1.1 %     6,269,635               78,462               1.3 %     6,645,783     47,321   0.7%     6,316,861       145,984       2.3 %     5,653,696       124,394       2.2 %     5,381,863       80,712       1.5 % Total     21,768,547       855,755       3.9 %     20,596,244               830,782               4.0 %     19,428,237     909,914   4.7%     25,597,833       904,417       3.5 %     22,994,878       829,949       3.6 %     22,229,041       731,754       3.3 %                                                                                                                                                 Non interest bearing liabilities                                                                         Non interest bearing demand deposits                                                                         Non-interest bearing liabilities                                                                         Non-interest bearing demand deposits                                                                         Ch$     5,633,226                       5,617,012                                       5,282,135       7,282,508                       6,561,631                       5,980,167                   UF     39,075                       35,163                                       35,333       56,262                       47,091                       41,129                   Foreign currency     81,321                       67,714                                       68,804       128,221                       154,824                       96,348                   Total     5,753,622                       5,719,889                                       5,386,272       7,466,991                       6,763,546                       6,117,644                   Derivatives                                                                                                                                                 Ch$     2,724,994                       2,958,942                                       2,719,386       4,165,330                       2,020,857                       2,175,063                   UF     —                       —                                       —       -                         -                         -                     Foreign currency     —                       —                                       —       -                         -                         -                     Total     2,724,994                       2,958,942                                       2,719,386       4,165,330                       2,020,857                       2,175,063                   Other non-interest bearing liabilities                                                                                                                                                 Ch$     884,290                       896,466                                       762,367       1,115,058                       946,965                       932,082                   UF     339,168                       410,866                                       398,108       447,362                       405,225                       301,516                   Foreign currency     932,557                       1,146,705                                       1,341,176       986,710                       818,716                       764,201                   Total     2,156,015                       2,454,037                                       2,501,651   Shareholders’ equity                                                                         Ch$     2,840,846                       2,816,116                                       2,689,037   UF     —                       —                                       —   Foreign currency     (4 )                     —                                       —   Total     2,840,843                       2,816,116                                       2,689,037   Total non-interest bearing liabilities and shareholders’ equity                                                                         Ch$     12,083,356                       12,288,536                                       11,452,925   UF     378,243                       446,029                                       433,441   Foreign currency     1,013,875                       1,214,419                                       1,409,980   Total     13,475,473                       13,948,984                                       13,296,346   Total Liabilities and Share-Holders’ Equity                                                                         Ch$     22,596,993       491,220               22,453,020               450,719                       20,162,452     519,517 UF     5,748,447       300,249               4,608,154               301,601                       4,506,368     343,076 Foreign currency     6,898,580       64,286               7,484,054               78,462                       8,055,763     47,321 Total     35,244,021       855,755               34,545,228               830,782                       32,724,583     909,914 106 Table of Contents     For the year ended December 31,     2019   2018   2017     Average Balance   Interest Earned   Average Nominal Rate   Average Balance   Interest Earned   Average Nominal Rate   Average Balance   Interest Earned   Average Nominal Rate                                       Total     2,549,130                       2,170,906                       1,997,799                   Shareholders’ equity                                                                         Ch$     3,450,729                       3,263,155                       3,001,686                   UF     -                         -                         -                     Foreign currency     -                         -                         (6 )                 Total     3,450,729                       3,263,155                       3,001,680                                                                                             Total non-interest bearing liabilities and shareholders’ equity                                                                         Ch$     16,013,625                       12,792,608                       12,088,998                   UF     503,624                       452,316                       342,645                   Foreign currency     1,114,931                       973,540                       860,543                   Total     17,632,180                       14,218,464                       13,292,186                                                                                             Total Liabilities and Shareholders’ Equity                                                                         Ch$     28,646,844       417,209               24,076,851       376,357               23,050,311       394,139           UF     7,151,377       341,224               6,509,255       329,198               6,228,511       256,903           Foreign currency     7,431,792       145,984               6,627,236       124,394               6,242,406       80,712           Total     43,230,013       904,417               37,213,342       829,949               35,521,228       731,754                (1)       Threshold is the asset generated when we post collateral for a derivative with a counterparty that has negative mark-to-market for us. Some CSD agreements permit this collateral to generate interest at the overnight rate and this is the source of interest income associated with this asset. (1) For the periods ending December 31, 2019 and 2018 this line item includes debt instruments at fair value through other comprehensive income according to IFRS 9. For 2017, this line item consists of available for sale instruments. 103  Table of Contents (2) Threshold is the asset generated when we post collateral for a derivative with a counterparty that has negative mark-to-market for us. Some Central Security Depository agreements permit this collateral to generate interest at the overnight rate and this is the source of interest income associated with this asset.   Changes in Net Interest Revenue and Interest Expense: Volume and Rate Analysis   The following table allocates, by currency of denomination, changes in our net interest revenue and interest expense between changes in the average volume of interest-earning assets and interest-bearing liabilities and changes in their respective nominal interest rates for 20162019 compared to 20152018 and 20152018 compared to 2014.2017. Volume and rate variances have been calculated based on movements in average balances over the period and changes in nominal interest rates on average interest-earning assets and average interest-bearing liabilities.       Increase (Decrease) from 2015 to 2016 Due to Changes in   Increase (Decrease) from 2014 to 2015 Due to Changes in     Volume   Rate   Net Change from 2015 to 2016   Volume   Rate   Net Change from 2014 to 2015 Assets                         Interest earning assets                                                 Deposits in Central Bank                                                 Ch$     (413 )     (1,437 )     (1,850 )     (4,199 )     2,718       (1,482 ) UF     —       —       —       —       —       —   Foreign currency     —       —       —       —       —       —   Subtotal     (413 )     (1,437 )     (1,850 )     (4,199 )     2,718       (1,482 ) Financial investments                                                 Ch$     5,103       43,819       48,992       (474 )     (10,739 )     (11,213 ) UF     (2,230 )     (2,626 )     (4,856 )     (20,539 )     (8,784 )     (29,323 ) Foreign currency     622       3,046       3,668       (1,174 )     5,911       4,737   Subtotal     3,495       44,239       47,734       (22,186 )     (13,613 )     (35,799 ) Commercial loans                                                 Ch$     14,002       16,537       30,539       2,031       25,568       27,599   UF     25,822       (48,887 )     (23,065 )     36,353       (65,130 )     (28,777 ) Foreign currency     (2,833 )     12,016       9,183       11,412       —       11,412   Subtotal     36,991       (20,334 )     16,657       49,790       (39,562 )     (10,234 ) Consumer loans                                                 Ch$     18,560       3,484       22,044       34,986       (115,302 )     (80,316 ) UF     (6,093 )     (315 )     (6,408 )     (1,331 )     (1,631 )     (2,962 ) Foreign currency     —       —       —       —       —       —   Subtotal     12,467       3,169       15,636       33,655       (116,933 )     (83,278 ) Mortgage loans                                                 Ch$     (163 )     (185 )     (348 )     (1,340 )     (2,266 )     (3,606 ) UF     43,613       73,064       (29,451 )     105,976       (132,843 )     (26,867 ) Foreign currency     —       —       —       —       —       —   Subtotal     43,450       (73,249 )     (29,799 )     104,637       (135,110 )     (30,473 ) Interbank loans                                                 Ch$     1,024       (1,093 )     (69 )     (67 )     292       225   UF     —       —       —       —       —       —   Foreign currency     —       (11 )     (11 )     —       11       11   Subtotal     1,024       (1,104 )     (80 )     (67 )     303       236   Investment under agreement to resell                                                 Ch$     610       493       1,103       (753 )     65       (688 ) UF     —       —       —       —       —       —   Foreign currency     —       —       —       —       —       —   Subtotal     610       493       1,103       (753 )     65       (688 ) Threshold                                                 Ch$     59       121       180       —       62       62   UF     —       —       —       —       —       —   Foreign currency     (198 )     1,466       1,268       230       —       230   Subtotal     (139 )     1,587       1,448       230       62       292       Increase (Decrease) from 2018 to 2019 Due to Changes in   Increase (Decrease) from 2017 to 2018 Due to Changes in     Volume   Rate   Net Change from 2018 to 2019   Volume   Rate   Net Change from 2017 to 2018 Assets                         Interest earning assets                         Deposits in Central Bank                         Ch$     (451 )     (4,657 )     (5,108 )     2,602       (1,067 )     1,535   UF     –         –         –         –         –         –     Foreign currency     –         –         –         –         –         –     Subtotal     (451 )     (4,657 )     (5,108 )     2,602       (1,067 )     1,535   Financial investments                                                 Ch$     1,315       (29,459 )     (28,144 )     (5,103 )     (22,002 )     (27,105 ) UF     811       (18,837 )     (18,026 )     14,259       12,420       26,679   Foreign currency     (111 )     15       (96 )     (2,344 )     (117 )     (2,461 ) Subtotal     2,015       (48,281 )     (46,266 )     6,812       (9,699 )     (2,887 ) Commercial loans                                                 Ch$     1,390       (3,074 )     (1,684 )     9,466       (16,304 )     (6,838 )   104 107 Table of Contents      Increase (Decrease) from 2015 to 2016 Due to Changes in   Increase (Decrease) from 2014 to 2015 Due to Changes in     Volume   Rate   Net Change from 2015 to 2016   Volume   Rate   Net Change from 2014 to 2015 Total interest earnings assets                                                 Ch$     38,782       61,739       100,521       30,185       (99,603 )     (69,419 ) UF     61,112       (124,892 )     (63,780 )     120,459       (208,388 )     (87,929 ) Foreign currency     (2,409 )     16,517       14,108       10,468       5,922       16,390   Total     97,485       (46,636 )     50,849       161,112       (302,070 )     (140,958 ) Liabilities and Shareholders’ Equity                                                 Interest bearing liabilities                                                 Savings accounts                                                 Ch$     —       (1 )     (1 )     —       2       2   UF     69       (1,057 )     (988 )     307       (1,831 )     (1,524 ) Foreign currency     —       —       —       —       —       —   Subtotal     69       (1,058 )     (989 )     307       (1,830 )     (1,522 ) Time deposits                                                 Ch$     9,424       43,883       53,307       55,039       (28,648 )     26,391   UF     23,140       (32,677 )     (9,537 )     (26,002 )     (3,766 )     (29,768 ) Foreign currency     467       4,103       4,570       (745 )     (2,395 )     (3,140 ) Subtotal     33,032       15,308       48,340       28,292       (34,809 )     (6,517 ) Central bank borrowings                                                 Ch$     (35 )      18       (17 )     (2 )     43       41   UF     (1 )     —       (1 )     (7 )     —       (7 ) Foreign currency     —       —       —       —       —       —   Subtotal     (36 )     18     (18 )     (9 )     43       34   Repurchase agreements                                                 Ch$     3,580       (562 )     (4,142 )     (3,163 )     1,850       (1,313 ) UF     —       —       —       —       1       1   Foreign currency     21       15       36       (15 )     10       (5 ) Subtotal     (3,560 )     (546 )     (4,106 )     (3,178 )     1,861       (1,317 ) Mortgage finance bonds                                                 Ch$     —       —       —       —       —       —   UF     (1,074 )     (1,088 )     (2,162 )     (2,214 )     (1,064 )     (3,278 ) Foreign currency     —       —       —       —       —       —   Subtotal     (1,074 )     (1,088 )     (2,162 )     (2,214 )     (1,064 )     (3,278 ) Other interest bearing liabilities                                                 Ch$     29,669       (38,314 )     (8,645 )     133,636       (227,555 )     (93,919 ) UF     65,141       (53,804 )     11,337       44,230       (51,130 )     (6,900 ) Foreign currency     (15,262 )     (3,519 )     (18,781 )     (1,198 )     35,484       34,286   Subtotal     79,547       (95,637 )     (16,090 )     176,668       (243,201 )     (66,533 ) Total interest bearing liabilities                                                 Ch$     35,478       5,024       40,502       185,510       (254,308 )     (68,798 ) UF     87,275       (88,626 )     (1,351 )     16,314       (57,790 )     (41,476 ) Foreign currency     (14,774 )     599       (14,175 )     (1,958 )     33,099       31,141   Total     107,979       (83,004 )     24,975       199,866       (278,999 )     (79,133 )       Increase (Decrease) from 2018 to 2019 Due to Changes in   Increase (Decrease) from 2017 to 2018 Due to Changes in     Volume   Rate   Net Change from 2018 to 2019   Volume   Rate   Net Change from 2017 to 2018 UF     129,183       (112,754 )     16,429       18,497       54,603       73,101   Foreign currency     10,461       7,472       17,933       4,021       18,057       22,077   Subtotal     141,034       (108,356 )     32,678       31,984       56,356       88,340   Consumer loans                                                 Ch$     134,945       (76,484 )     58,461       18,807       (50,380 )     (31,574 ) UF     (92 )     (103 )     (196 )     336       (262 )     74   Foreign currency     –         –         –         –         –         –     Subtotal     134,853       (76,587 )     58,265       19,143       (50,642 )     (31,500 ) Mortgage loans                                                 Ch$     (94 )     55       (39 )     (23 )     (11 )     (33 ) UF     191,144       (154,822 )     36,322       24,165       103,766       127,930   Foreign currency     –         –         –         –         –         –     Subtotal     191,050       (154,767 )     36,283       24,142       103,755       127,897   Interbank loans                                                 Ch$     –         366       366       (18 )     (53 )     (71 ) UF     –         –         –         –         –         –     Foreign currency     –         –         –         –         –         –     Subtotal     –         366       366       (18 )     (53 )     (71 ) Investment under agreement to resell                                                 Ch$     697       (556 )     140       (25,888 )     26,302       414   UF     5       36       42       1       (14 )     (13 ) Foreign currency     –         –         –         –         –         –     Subtotal     702       (520 )     182       (25,887 )     26,288       401   Threshold                                                 Ch$     (92 )     (126 )     (218 )     31       238       269   UF     –         –         –         –         –         –     Foreign currency     953       (72 )     881       15,592       (13,705 )     1,887   Subtotal     861       (198 )     663       15,623       (13,467 )     2,156   Total interest earnings assets                                                 Ch$     137,710       (113,935 )     23,774       (126 )     (63,279 )     (63,405 ) UF     321,051       (286,480 )     34,571       57,259       170,514       227,773   Foreign currency     11,303       7,415       18,718       17,268       4,235       21,503   Total     470,064       (393,000 )     77,063       74,401       111,470       185,871   Liabilities and Shareholders’ Equity                                                 Interest bearing liabilities                                                 Savings accounts                                                 Ch$     –         –         –         1       –         1   UF     2       (89 )     (87 )     (3 )     1,252       1,249   Foreign currency     –         –         –         –         –         –     Subtotal     2       (89 )     (87 )     (2 )     1,252       1,250   Time deposits                                                 Ch$     (172 )     1,282       1,110       2,470       (31,282 )     (28,812 ) UF     (2,536 )     (9,120 )     (11,657 )     (61 )     10,265       10,204   Foreign currency     (1,015 )     46       (969 )     5,491       2,372       7,863   Subtotal     (3,723 )     (7,793 )     (11,516 )     7,900       (18,645 )     (10,745 ) Central bank borrowings                                                 Ch$     –         (114 )     (114 )     50       –         50   UF     –         –         –         –         –         –     108 Table of Contents     Increase (Decrease) from 2018 to 2019 Due to Changes in   Increase (Decrease) from 2017 to 2018 Due to Changes in     Volume   Rate   Net Change from 2018 to 2019   Volume   Rate   Net Change from 2017 to 2018 Foreign currency     –         –         –         –         –         –     Subtotal     –         (114 )     (114 )     50       –         50   Repurchase agreements                                                 Ch$     (41 )     5,590       5,549       (47 )     (997 )     (1,044 ) UF     1       –         1       –         –         –     Foreign currency     (3,256 )     1,255       (2,001 )     816       144       960   Subtotal     (3,295 )     6,845       3,550       769       (853 )     (84 ) Mortgage finance bonds                                                 Ch$     –         –         –         –         –         –     UF     (593 )     (101 )     (694 )     (1,130 )     726       (404 ) Foreign currency     –         –         –         –         –         –     Subtotal     (593 )     (101 )     (694 )     (1,130 )     726       (404 ) Other interest bearing liabilities                                                 Ch$     21,814       12,493       34,307       4,659       7,366       12,025   UF     107,121       (82,658 )     24,463       4,868       56,376       61,244   Foreign currency     23,553       1,006       24,559       115,986       (81,127 )     34,859   Subtotal     152,488       (69,159 )     83,329       125,513       (17,385 )     108,128   Total interest bearing liabilities                                                 Ch$     21,601       19,251       40,852       7,133       (24,915 )     (17,782 ) UF     103,995       (91,969 )     12,026       3,676       68,619       72,295   Foreign currency     19,282       2,307       21,589       122,293       (78,611 )     43,682   Total     144,879       (70,411 )     74,468       133,102       (34,907 )     98,195      Interest-Earning Assets: Net Interest Margin   The following table analyzes, by currency of denomination, the levels of average interest-earning assets and net interest earned by Santander-Chile, and illustrates the comparative net interest margins obtained, for each of the years indicated in the table.   105  Table of Contents     Year ended December 31,     2019   2018   2017     (in millions of Ch$) Total average interest-earning assets             Ch$     13,910,911       13,019,695       12,317,700   UF     17,553,026       15,897,874       14,139,235   Foreign currencies     4,386,316       3,842,634       4,138,124   Total     35,850,253       32,760,203       30,595,059   Net interest earned (1)                         Ch$     726,676       743,753       789,376   UF     685,870       663,325       507,847   Foreign currencies     4,418       7,290       29,469   Total     1,416,964       1,414,368       1,326,692   Net interest margin (2)                         Ch$     5.2 %     5.7 %     6.4 % UF     3.9 %     4.2 %     3.6 % Foreign currencies     0.1 %     0.2 %     0.7 % Total     4.0 %     4.3 %     4.3 %       Year ended December 31,     2016   2015   2014     (in millions of Ch$) Total average interest-earning assets             Ch$     11,684,475       11,047,790       11,009,515   UF     13,150,312       12,382,225       11,000,787   Foreign currencies     4,836,524       5,092,990       4,749,384   Total     29,671,311       28,523,005       26,759,696   Net interest earned (1)                         Ch$     670,567       610,548       611,168   UF     571,131       633,279       679,806   Foreign currencies     39,667       11,379       26,130   Total     1,281,365       1,255,206       1,317,104   Net interest margin (2)                         Ch$     5.74 %     5.53 %     5.55 % UF     4.34 %     5.11 %     6.18 % Foreign currencies     0.82 %     0.22 %     0.55 % Total     4.32 %     4.40 %     4.92 %   (1) Net interest earned is defined as interest revenue earned less interest expense incurred.   (2) Net interest margin is defined as net interest earned divided by total average interest-earning assets.   109 Table of Contents Return on Equity and Assets; Dividend Payout   The following table presents certain information and selected financial ratios for Santander-Chile for the years indicated.     Year ended December 31,   Year ended December 31, Ch$ million   2016   2015   2014   2019   2018   2017   Ch$ million Net income     478,432       451,729       575,910       621,313       599,693       575,249   Net income attributable to shareholders     476,067       448,466       569,910       619,091       595,333       562,801   Average total assets     35,244,021       34,545,228       32,724,583       43,230,013       37,213,342       35,521,228   Average equity     2,840,843       2,816,116       2,689,037       3,450,729       3,263,155       3,001,680   Net income as a percentage of:                                                 Average total assets     1.4%     1.3%     1.8%     1.4 %     1.6 %     1.6 % Net income attributable to shareholders as a percentage of:                         Average equity     16.8%     16.0%     21.4%     18.0 %     18.2 %     18.7 % Average equity as a percentage of:                                                 Average total assets     8.1%     8.2%     8.2%     8.0 %     8.8 %     8.5 % Cash dividend (1)     330,646       336,659       330,198       n/a       355,141       423,611   Dividend payout ratio, based on net income attributable to shareholders (1)     69.0%     75.0%     58.0%     n/a       60.0 %     75.3 %   (1) Cash dividends for each year are declared and approved by shareholders at the annual shareholders’ meeting in the following the year. (1) As of the report date, dividends to be paid in 2020 of the 2019 shareholders’ income has yet to be announced.   Dividends declared at the annual shareholders’ meeting of each year correspond to the Bank’s earnings of the previous year. The following table presents dividends declared and paid by us in nominal terms in the past four years:   Year   Dividend Ch$ millions (1)   Dividend U.S.$ millions (2)   Per share Ch$/share (3)   Per ADS U.S.$/ADS (4)   % over earnings (5)   % over earnings (6) 2013       232,780       493.1       1.24       1.05       60       65   2014       265,156       476.0       1.41       1.01       60       60   2015       330,198       540.4       1.75       1.15       60       58   2016       336,659       503.7       1.79       1.07       75       75   2017(7)     330,646       496.5       1.75       1.05       70       69   Year paid   Dividend Ch$ millions (1)   Dividend U.S.$ millions (2)   Per share Ch$/share (3)   Per ADS U.S.$/ADS (4)   % over earnings (5)   % over earnings (6) 2016     336,659       503.7       1.79       1.07       75       75   2017     330,646       496.5       1.75       1.05       70       69   2018     423,611       702.32       2.25       1.49       75       75   2019     355,141       531.5       1.88       1.13       60       60     106  Table of Contents   (1) Millions of nominal pesos.   (2) Millions of U.S.$ using the observed exchange rate of the day the dividend was approved at the annual shareholders’ meeting, except for 2017 when the exchange rate used is Ch$666.00.meeting.   (3) Calculated on the basis of 188,446 million shares.   (4) Dividend in U.S.$ million divided by the number of ADS, which was calculated on the basis of 1,039 shares per ADS for 2012. For 2013, 2014, 2015 and 2016, it is calculatedCalculated on the basis of 400 shares per ADS.   (5) Calculated by dividing dividend paid in the year by net income attributable to the equity holders of the Bank for the previous year under Chilean Bank GAAP.   (6) Calculated by dividing dividend paid in the year by net income attributable to the equity holders of the Bank for the previous year under IFRS. (7) Dividend proposed by the Board for shareholders’ approval on April 26, 2017.   Loan Portfolio   The following table analyzes our loans by product type. Except where otherwise specified, all loan amounts stated below are before deduction for loan loss allowances. Total loans reflect our loan portfolio, including principal amounts of past due loan and substandard loans. Any collateral provided generally consists of a mortgage on real estate, a pledge of marketable securities, a letter of credit or cash. The existence and amount of collateral generally varyvaries from loan to loan.       As of December 31,     2016   2015   2014   2013   2012     (in millions of Ch$) Commercial Loans:                     Commercial loans     9,853,657       8,985,452       8,324,949       7,797,682       7,316,417   Foreign trade loans     1,829,904       2,152,570       1,786,232       1,840,334       1,270,423   Checking account debtors     179,468       234,723       266,231       279,657       205,355   Factoring transactions     296,751       275,647       327,841       316,114       322,242   Leasing transactions     1,485,123       1,534,192       1,489,384       1,349,814       1,277,555   Other loans and accounts receivable     222,562       143,775       135,663       118,651       97,029   Subtotal     13,867,465       13,326,359       12,330,300       11,702,252       10,489,021                                             Mortgage loans:                                         Mortgage finance bond backed loans     32,579       134,105       116,150       72,297       92,204   Mortgage mutual loans     119,934       44,028       57,356       71,833       46,105   Other mortgage mutual loans     8,466,843       7,634,717       6,458,525       5,481,682       5,133,272   Subtotal     8,619,356       7,812,850       6,632,031       5,625,812       5,271,581                                             Consumer loans:                                         Installment consumer loans     2,722,365       2,469,646       2,320,775       2,168,121       1,857,657   Credit card loans     1,448,118       1,434,609       1,362,587       1,235,881       1,054,473   Consumer leasing contracts     5,117       5,460       5,270       3,451       3,688   Other consumer loans     271,203       240,956       229,743       199,795       199,659   Subtotal     4,446,803       4,150,671       3,918,375       3,607,248       3,115,477                                             Subtotal Loans to customers     26,933,624       25,289,880       22,880,706       20,935,312       18,876,079                                             Interbank loans     272,807       10,877       11,943       125,449       90,573                                             Total     27,206,431       25,300,757       22,892,649       21,060,761       18,966,652   107 110 Table of Contents      As of December 31,      2019 (1)    2018 (1)  2017    2016    2015      (in millions of Ch$) Commercial Loans:                     Commercial loans     11,723,039       11,148,859       9,990,656       9,853,657       8,985,452   Foreign trade loans     1,713,633       1,752,437       1,574,513       1,829,904       2,152,570   Checking account debtors     196,893       215,162       195,696       179,468       234,723   Factoring transactions     489,400       380,983       449,890       296,751       275,647   Student loans     71,273       79,916       –         –         –     Leasing transactions     1,424,862       1,443,724       1,457,004       1,485,123       1,534,192   Other loans and accounts receivable     243,225       165,063       240,883       222,562       143,775   Subtotal     15,862,325       15,186,144       13,908,642       13,867,465       13,326,359                                             Mortgage loans:                                         Mortgage finance bond backed loans     12,298       17,426       24,060       32,579       134,105   Mortgage mutual loans     100,152       108,536       115,078       119,934       44,028   Other mortgage mutual loans     11,150,545       10,025,019       8,957,757       8,466,843       7,634,717   Subtotal     11,262,995       10,150,981       9,096,895       8,619,356       7,812,850   Consumer loans:                                         Installment consumer loans     3,917,536       3,189,670       2,910,742       2,722,365       2,469,646   Credit card loans     1,377,710       1,417,152       1,364,980       1,448,118       1,434,609   Consumer leasing contracts     3,952       4,157       4,715       5,117       5,460   Other consumer loans     246,997       265,310       277,255       271,203       240,956   Subtotal     5,546,195       4,876,289       4,557,692       4,446,803       4,150,671                                             Subtotal Loans to customers     32,671,515       30,213,414       27,563,229       26,933,624       25,289,880                                             Interbank loans (2)     –         –         162,685       272,807       10,877                                       ��     Total     32,671,515       30,213,414       27,725,914       27,206,431       25,300,757   ____________________ (1) Loans as of December 31, 2019 and 2018 are loans at amortized cost in accordance with IFRS 9. See “Note 9— Loans and Account Receivable at Amortized Cost - under IFRS 9” of our Audited Consolidated Financial Statements. (2) Interbank loans for December 31, 2019 and 2018 are included within commercial loans. At December 31, 2019, the Bank had some loans measured at fair value through other comprehensive income according to IFRS 9 as follows:     Stage 1   Stage 2   Stage 3         Individual   Individual   Individual   Total Gross carrying amount at January 1, 2019     63,745       4,949       –         68,694   Net changes on financial assets     1,428     (4,914 )     –         (3,486 ) Foreign Exchange adjustments     993       (35 )     –         958   At December 31, 2019     66,166       –         –         66,166     The loan categories are as follows:   Commercial loans   Interbank loans are long-term and short-term loans made to other local or international banks, granted in Chilean pesos or foreign currencies, usually at a variable rate linked to LIBOR or other interbank rates. 111 Table of Contents Commercial loans are long-term and short-term loans, including checking overdraft lines for companies, granted in Chilean pesos, inflation linked, U.S.$ linked or denominated in U.S.$. The interest on these loans is fixed or variable and is used primarily to finance working capital or investments. General commercial loans also include factoring operations.   Foreign trade loans are fixed rate, short-term loans made in foreign currencies (principally U.S.$) to finance imports and exports.   Checking account debtors mainly include mortgage loans (fixed and variable rate) that are inflation-indexed long-term loans with monthly payments of principal and interest secured by a real property mortgage. These loans can be endorsed to a third party.   Factoring transactions mainly include short-term loans to companies with a fixed monthly nominal rate backed by a company invoice. Student loansmainly include long-term loans made to finance tertiary education mainly in fixed real rates (UF) some of which some are guaranteed by the state. These loans, per Chilean regulations, must be classified as commercial loans since they are guaranteed by the Chilean State under Law 20.027 through CORFO, the government’s development agency.   Leasing transactions are agreements for the financial leasing of capital equipment and other property.   Other loans and accounts receivable loans include other loans and accounts payable.   Mortgage loans   Mortgage mutual loans mainly include mortgage loans (fixed and variable rate) that are inflation-indexed long-term loans with monthly payments of principal and interest secured by a real property mortgage. These are financed by issuing mortgage bonds.   Mortgage finance bond backed loans are inflation-indexed, fixed or variable rate, long-term loans with monthly payments of principal and interest secured by a real property mortgage that are financed with mortgage finance bonds. At the time of approval, these types of mortgage loans cannot be more than 75.0% of the lower of the purchase price or the appraised value of the mortgaged property or such loan will be classified as a commercial loan. Mortgage bonds are our general obligations, and we are liable for all principal and accrued interest on such bonds. In addition, if the issuer of a mortgage finance bond becomes insolvent, the General Banking Law’s liquidation procedures provide that these types of mortgage loans with their corresponding mortgage bonds shall be auctioned as a unit and the acquirer must continue paying the mortgage finance bonds under the same conditions as the original issuer.   Other mortgage mutual loans mainly include mortgage loans (fixed and variable rate) that are inflation-indexed long-term loans with monthly payments of principal and interest secured by a real property mortgage. These are financed by our general borrowings.   Consumer loans   Installment consumer loans are loans to individuals, granted in Chilean pesos, generally on a fixed rate nominal basis, to finance the purchase of consumer goods or to pay for services. This includes auto loans originated through Santander Consumer Chile.   Consumer loans through lines of creditare checking overdraft lines to individuals, granted in Chilean pesos, generally on a fixed rate nominal basis and linked to an individual’s checking account.   Credit card loans include credit card balances subject to nominal fixed rate interest charges.   Consumer leasing contracts are agreements for the financial leasing of automobiles and other property to individuals.   Other loans and accounts receivable from customers include draft lines for individuals.   108 112 Table of Contents  Non-client loans   Interbank loans are fixed rate, short-term loans to financial institutions that operate in Chile.   Maturity and Interest Rate Sensitivity of Loans   The following table sets forth an analysis by type and time remaining to maturity of our loans at amortized cost as of December 31, 2016.2019.     Due in 1 year or less   Due after 1 year through 5 years   Due after 5 years   Total balance as of December 31, 2016   Due in 1 year or less   Due after 1 year through 5 years   Due after 5 years   Total balance as of December 31, 2019   (in millions of Ch$)       (in millions of Ch$)     General commercial loans(1)     4,922,702       3,372,234       2,284,443       10,579,379       5,132,026       3,867,358       2,723,655       11,723,039   Foreign trade loans     1,649,995       122,712       19,597       1,792,304       1,612,298       88,282       13,053       1,713,633   Leasing contracts     322,670       720,315       445,445       1,488,430       329,023       725,491       370,348       1,424,862   Other outstanding loans     7,352       —       —       7,352       928,418       37,891       34,482       1,000,791   Subtotal commercial loans     6,902,719       4,215,261       2,749,485       13,867,465       8,001,765       4,719,022       3,141,538       15,862,325   Residential loans backed by mortgage bonds     9,002       22,248       5,869       37,119       4,422       7,851       25       12,298   Other residential mortgage loans     457,192       1,605,301       6,519,744       8,582,237       597,478       2,224,287       8,428,932       11,250,697   Subtotal residential mortgage loans     466,194       1,627,549       6,525,613       8,619,356       601,900       2,232,138       8,428,957       11,262,995   Consumer loans     2,338,603       2,003,601       104,599       4,446,803       2,568,657       2,848,420       129,118       5,546,195   Subtotal     9,707,516       7,846,411       9,379,697       26,933,624   Interbank loans     272,807       —       —       272,807   Total loans     9,980,323       7,846,411       9,379,697       27,206,431   Total loans at amortized cost     11,172,322       9,799,580       11,699,613       32,671,515   (1) Interbank loans for December 31, 2019 are included within commercial loans in accordance with disclosures for IFRS 9. See “Note 9— Loans and Account Receivable at Amortized Cost – under IFRS 9” of the Audited Consolidated Financial Statements.   The following tables present the total amount of loans due after one year that have fixed and variable interest rates as of December 31, 2016.2019. See also “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Interest Rates.”       As of December 31, 20162019     (in millions of Ch$) Variable Rate     Ch$   659 - UF     641,7712,041,265   Foreign currencies     —–     Subtotal     642,4312,041,265   Fixed Rate         Ch$     4,310,3945,366,671   UF     11,434,51413,208,279   Foreign currencies     838,768882,978   Subtotal     16,583,67619,457,928   Total     17,226,10721,499,193     Loans by Economic Activity   The following table sets forth, at the dates indicated, an analysis of our client loan portfolio based on the borrower’s principal economic activity and geographic distribution. Loans to individuals for business purposes are allocated to their economic activity.   As of December 31, 2019 and 2018, loans by economic activity according to IFRS 9 are listed below: 109 113 Table of Contents      Domestic loans (*) as of December 31,    Foreign interbank loans (**) as of December 31,    Total loans at amortized cost            2016    2015    2014    2013    2012    2016    2015    2014    2013    2012  As of December 31, 2019   Stage 1    Stage 2    Stage 3    Total   % of Total Loans   (in millions of Ch$)   (in millions of Ch$)   Ch$ Million     Commercial loans                                                             Manufacturing     1,180,886       1,171,830       1,126,268       1,216,914       1,014,777       —       —       —       —       —       1,110,484       107,356       67,974       1,285,814       3.9 % Mining     340,554       510,467       428,847       464,865       292,217       —       —       —       —       —       280,297       123,005       3,739       407,041       1.2 % Electricity, gas and water     442,936       454,456       567,548       222,110       337,269       —       —       —       —       —   Electricity, gas, and water     309,941       22,907       8,196       341,044       1.0 % Agriculture and livestock     1,096,659       1,019,922       871,247       806,092       770,558       —       —       —       —       —       1,020,857       172,984       93,440       1,287,281       3.9 % Forestry     96,806       96,069       98,039       183,716       120,002       —       —       —       —       —   Forest     132,483       17,035       15,689       165,207       0.5 % Fishing     296,592       344,496       256,818       265,917       188,803       —       —       —       —       —       223,980       24,879       7,695       256,554       0.8 % Transport     787,510       876,329       758,339       721,931       511,407       —       —       —       —       —       665,570       64,115       34,192       763,877       2.3 % Communications     196,934       160,135       167,004       249,499       179,544       —       —       —       —       —       206,660       28,122       6,168       240,950       0.7 % Construction     1,792,485       1,462,535       1,365,841       1,337,791       1,130,194       —       —       —       —       —   Construction(*)     782,265       85,435       106,568       974,268       3.0 % Commerce     3,120,400       3,050,663       2,773,410       2,578,979       2,396,428       272,733       10,827       11,899       125,383       90,546       2,655,982       110,326       30,107       2,796,415       8.6 % Services     482,900       483,516       469,141       447,861       400,716       —       —       —       —       —       2,971,563       190,097       204,472       3,366,132       10.3 % Other     4,032,877       3,695,991       3,447,842       3,206,643       3,147,133       —       —       —       —       —       3,442,541       298,806       236,395       3,977,742       12.2 % Subtotals     13,867,539       13,326,409       12,330,344       11,702,318       10,489,048       272,733       10,827       11,899       125,383       90,546   Subtotal     13,802,623       1,245,067       814,635       15,862,325       48.6 %                                         Mortgage loans     8,619,356       7,812,850       6,632,031       5,625,812       5,271,581       —       —       —       —       —       10,275,966       457,948       529,081       11,262,995       34.5 %                                         Consumer loans     4,446,803       4,150,671       3,918,375       3,607,248       3,115,477       —       —       —       —       —       4,963,047       292,718       290,430       5,546,195       17.0 % Total     26,933,698       25,289,930       22,880,750       20,935,378       18,876,106       272,733       10,827       11,899       125,383       90,546                                                                                                                                                                                                           Total loans at amortized cost     29,041,636       1,995,733       1,634,146       32,671,515       100.0 %     Total loans at amortized cost          As of December 31, 2018   Stage 1    Stage 2    Stage 3    Total   % of Total Loans     Ch$ Million     Commercial loans                     Manufacturing     992,786       92,931       54,048       1,139,765       3.8 % Mining     182,342       21,821       4,585       208,748       0.7 % Electricity, gas, and water     384,288       22,365       2,279       408,932       1.4 % Agriculture and livestock     934,199       166,271       100,781       1,201,251       4.0 % Forest     120,371       9,402       14,115       143,888       0.5 % Fishing     238,348       11,104       3,569       253,021       0.8 % Transport     716,493       55,011       37,802       809,306       2.7 % Communications     178,215       30,407       7,222       215,844       0.7 % Construction(*)     723,600       88,691       93,747       906,038       3.0 % Commerce     2,950,517       189,623       199,924       3,340,064       11.1 % Services     1,771,595       81,159       12,915       1,865,669       6.2 % Other     4,120,052       331,471       242,094       4,693,617       15.5 % Subtotal     13,312,806       1,100,255       773,083       15,186,144       50.3 %                                           Mortgage loans     9,258,962       447,496       444,523       10,150,981       33.6 %                                           Consumer loans     4,341,740       249,039       285,510       4,876,289       16.1 %                                           Total loans at amortized cost     26,913,508       1,796,790       1,503,115       30,213,414       100.0 %   (*) In 2018, we improved the classification of our construction loans, reassigning loans for real estate investment companies to the Services category. 110 114 Table of Contents  As of December 31, 2017, 2016 and 2015 loans by economic activity is reported according to IAS 39.     Domestic loans (*) as of December 31,    Foreign interbank loans (**) as of December 31,      2017    2016    2015    2017    2016    2015      (in millions of Ch$) Commercial loans                         Manufacturing     1,218,232       1,180,886       1,171,830       –         –         –     Mining     302,037       340,554       510,467       –         –         –     Electricity, gas and water     336,048       442,936       454,456       –         –         –     Agriculture and livestock     1,114,597       1,096,659       1,019,922       –         –         –     Forestry     98,941       96,806       96,069       –         –         –     Fishing     215,994       296,592       344,496       –         –         –     Transport     697,948       787,510       876,329       –         –         –     Communications     168,744       196,934       160,135       –         –         –     Construction     1,977,417       1,792,485       1,462,535       –         –         –     Commerce     3,131,870       3,120,400       3,050,663       162,685       272,733       10,827   Services     467,747       482,900       483,516       –         –         –     Other     4,179,067       4,032,877       3,695,991       –         –         –     Subtotals     13,908,642       13,867,539       13,326,409       162,685       272,733       10,827   Mortgage loans     9,096,895       8,619,356       7,812,850       –         –         –     Consumer loans     4,557,692       4,446,803       4,150,671       –         –         –     Total     27,563,229       26,933,698       25,289,930       162,685       272,733       10,827         Total loans as of December 31,    % of total loans as of December 31,      2016    2015    2014    2013    2012    2016    2015    2014    2013    2012      (in millions of Ch$)   (in millions of Ch$) Commercial loans                                         Manufacturing     1,180,886       1,171,830       1,126,268       1,216,914       1,014,777       4.34 %     4.63 %     4.92 %     5.78 %     5.35 % Mining     340,554       510,467       428,847       464,865       292,217       1.25 %     2.02 %     1.87 %     2.21 %     1.54 % Electricity, gas and water     442,936       454,456       567,548       222,110       337,269       1.63 %     1.80 %     2.48 %     1.05 %     1.78 % Agriculture and livestock     1,096,659       1,019,922       871,247       806,092       770,558       4.03 %     4.03 %     3.81 %     3.83 %     4.06 % Forestry     96,806       96,069       98,039       183,716       120,002       0.36 %     0.38 %     0.43 %     0.87 %     0.63 % Fishing     296,592       344,496       256,818       265,917       188,803       1.09 %     1.36 %     1.12 %     1.26 %     1.00 % Transport     787,510       876,329       758,339       721,931       511,407       2.89 %     3.46 %     3.31 %     3.43 %     2.70 % Communications     196,934       160,135       167,004       249,499       179,544       0.72 %     0.63 %     0.73 %     1.18 %     0.95 % Construction     1,792,485       1,462,535       1,365,841       1,337,791       1,130,194       6.59 %     5.78 %     5.97 %     6.35 %     5.96 % Commerce     3,393,133       3,061,490       2,773,410       2,704,362       2,486,974       12.47 %     12.10 %     12.17 %     12.84 %     13.11 % Services     482,900       483,516       469,141       447,861       400,716       1.77 %     1.91 %     2.05 %     2.13 %     2.11 % Other     4,032,877       3,695,991       3,447,842       3,206,643       3,147,133       14.84 %     14.61 %     15.06 %     15.23 %     16.59 % Subtotals     14,140,272       13,337,236       12,330,344       11,827,701       10,579,594       51.98 %     52.71 %     53.92 %     56.16 %     55.78 % Mortgage loans     8,619,356       7,812,850       6,632,031       5,625,812       5,271,581       31.68 %     30.88 %     28.99 %     26.71 %     27.79 % Consumer loans     4,446,803       4,150,671       3,918,375       3,607,248       3,115,477       16.34 %     16.41 %     17.17 %     17.13 %     16.43 % Total     27,206,431       25,300,757       22,880,750       21,060,761       18,966,652       100.00 %     100.00 %     100.00 %     100.00 %     100.00 %   (*) Includes domestic interbank loans for Ch$74 million as of December 31, 2016 (Ch$50 million as of December 31, 2015), see Note 8 of the Audited Consolidated Financial Statements.loans.   (**) Includes foreign interbank loans for Ch$272,733 million as of December 31, 2016 (Ch$10,827 million as of December 31, 2015), see Note 8 of the Audited Consolidated Financial Statements.loans.   111  Table of Contents     Total loans as of December 31,   % of total loans as of December 31,     2017   2016   2015   2017   2016   2015     (in millions of Ch$) Commercial loans                         Manufacturing     1,218,232       1,180,886       1,171,830       4.4 %     4.3 %     4.6 % Mining     302,037       340,554       510,467       1.1 %     1.3 %     2.0 % Electricity, gas and water     336,048       442,936       454,456       1.2 %     1.6 %     1.8 % Agriculture and livestock     1,114,597       1,096,659       1,019,922       4.0 %     4.0 %     4.0 % Forestry     98,941       96,806       96,069       0.4 %     0.4 %     0.4 % Fishing     215,994       296,592       344,496       0.8 %     1.1 %     1.4 % Transport     697,948       787,510       876,329       2.5 %     2.9 %     3.5 % Communications     168,744       196,934       160,135       0.6 %     0.7 %     0.6 % Construction     1,977,417       1,792,485       1,462,535       7.1 %     6.6 %     5.8 % Commerce     3,294,555       3,393,133       3,061,490       11.9 %     12.5 %     12.1 % Services     467,747       482,900       483,516       1.7 %     1.8 %     1.9 % Other     4,179,067       4,032,877       3,695,991       15.1 %     14.8 %     14.6 % Subtotals     14,071,327       14,140,272       13,337,236       50.8 %     52.0 %     52.7 % Mortgage loans     9,096,895       8,619,356       7,812,850       32.8 %     31.7 %     30.9 % Consumer loans     4,557,692       4,446,803       4,150,671       16.4 %   �� 16.3 %     16.4 % Total     27,725,914       27,206,431       25,300,757       100.0 %     100.0 %     100.0 %    Foreign Assets and Loans   Santander-Chile’s Asset and Liability Committee, or ALCO, is responsible for determining the maximum foreign country exposure the Bank is permitted to have. The ALCO has determined that the total foreign country exposure cannot be greater than 1-time regulatory capital. To determine this, each country is classified using a ranking system from 1 to 6 based on the definition promulgated by the SBIF,FMC, in which the main consideration is the international rating of each country. The ALCO has also set a higher limit if the foreign exposure is to related parties. As of December 31, 2016,2019, the Bank’s foreign exposure, including the estimate of counterparty risk in our 115 Table of Contents derivatives portfolio, was U.S.$3,1212,309 million, or 5.9%3.4% of our assets. For more information please see Note 3739 of our Audited Consolidated Financial Statements.   Below, there are additional details regarding our exposure to countries in category 2 and 3,categories other than 1, the riskiest categories we have exposure to as of December 31, 2016,2019 considering fair value of derivative instruments. In this category ChinaMexico is the largest exposure and is also broke downas shown in the table below. We do not have sovereign exposure to Italy.   Country Classification(1)  Derivative Instruments (adjusted to market)  Deposits  Loans  Financial Investments USD Mn  Total Exposure USD Mn    Classification (1)   Derivative Instruments (adjusted to market)   Deposits   Loans   Financial Investments   Total Exposure   USD Mn          US$ Million China     2       –         –         7.23       –         7.23   Colombia 2 0.82 — 0.19 — 1.01     2       1.24       –         –         –         1.24   Italy 2 — 8.77 — — 8.77     2       –         1.36       0.32       –         1.68   China 2 — 348.99 — 348.99 México 2 — 0.09 0.32 — 0.41 Panamá 2 0.69 — — 0.69 Perú 2 2.82 — — 2.82 Mexico     2       9.42       0.04       –         –         9.46   Panama     2       1.50       –         –         –         1.50   Peru     2       2.20       –         –         –         2.20   Uruguay 2 — 0.68 — 0.68     2       –         –         0.10       –         0.10   Other 3 1.32 — — 1.32 Total   5.65 8.86 350.18 — 364.69             14.36       1.40       7.65       –         23.41       (1) Corresponds to country’s classification established in Chapter B-6 of the Compendium of Accounting Standards issued by the SBIF.FMC.   Our exposure to Grupo Santander Group is as follows:   Counterpart   Country   Classification   Derivative instruments (market adjusted) USD Mn   Deposits USD Mn   Loans USD Mn   Financial Investments USD Mn   Total Exposure USD Mn Country Classification Derivative instruments (market adjusted) Deposits Loans Financial Investments Total Exposure Banco Santander Spain*     Spain       1       —       280.9       —       —       280.9     US$ million Banco Santander Spain* Spain 1 319.0 54.8 0.4 - 374.2 Santander UK UK 1 24.0 2.0 - 26.0 Banco Santander Mexico Mexico 2 9.4 0.0 - 9.4 Santander Group   352.4 56.8 0.4 - 409.6     *      We have included our exposure to Santander branches in New York and Hong Kong as exposure to Spain. * We have included our exposure to Santander branches in New York and Hong Kong as exposure to Spain, as well as Santander Mexico.   The total amount of this exposure to derivative instruments must be compensated daily with collateral and, therefore, there is no credit exposure.   Furthermore, is additional detail regarding our exposure to the United States, which is the only country with more than 1% of exposure over total assets. Below we detail exposure to assets in the USA as of December 31, 2016, considering fair value of derivative instruments. 112  Table of Contents Country   Classification(1)    Derivative Instruments (adjusted to market) USD Mn   Deposits USD Mn   Loans USD Mn   Financial Investments USD Mn   Total Exposure USD Mn   USA       1       211.7       1,487.2       —       581.3       2,280.2   (1) Corresponds to country’s classification established in Chapter B-6 of the Compendium of Accounting Standards issued by the SBIF. As of December 31, 2016,2019, we had no applicable sovereign exposure, no unfunded exposure, no credit default protection and no current developments.   Classification of Loan Portfolio Credit Risk Governance The Risk Division, our credit analysis and risk management group, is largely independent of our Commercial Division. Risk evaluation teams interact regularly with our clients. For larger transactions, risk teams in our headquarters work directly with clients when evaluating credit risks and preparing credit applications. Various credit approval committees, all of which include Risk Division and Commercial Division personnel, must verify that the appropriate qualitative and quantitative parameters are met by each applicant. Each committee’s powers are defined by our Board of Directors. Santander-Chile’s governance rules establish an Integral Risk Committee. This committee is responsible for revising and following all risks that may affect us, including reputational risk, allowing for an integral risk management. This committee serves as the governing body through which the Board supervises all risk functions. It also evaluates the reasonability of the systems for measurement and control of risks. This Committee includes the Vice Chairman of the Board and five Board members. The Board has delegated the duty of credit risk management to the Integral Risk Committee, as well as to the Bank’s risk departments, whose roles are summarized below: · Formulate credit policies by consulting with the business units, meeting requirements of guarantees, credit evaluation, risk rating and submitting reports, documentation and legal procedures in compliance with the regulatory, legal and internal requirements of the Bank. · Establish the structure to approve and renew credit requests. The Bank structures credit risks by assigning limits to the concentration of credit risk in terms of individual debtor, debtor group, industry segment and country. Approval levels are assigned to the corresponding officials of the business unit (commercial, consumer, SMEs) to be exercised by that level of management. In addition, those limits are continually revised. Teams in charge of risk evaluation at the branch level interact on a regular basis with customers; however, for larger credit requests, the risk team from the head office and the Executive Risk Committee works directly with customers to assess credit risks and prepare risk requests. · Limit concentrations of exposure to customers or counterparties in geographic areas or industries (for accounts receivable or loans), and by issuer, credit rating and liquidity. · Develop and maintain the Bank’s credit risk classifications for the purpose of classifying risks according to the degree of exposure to financial loss that is exhibited by the respective financial instruments, with the aim of focusing risk management specifically on the associated risks. · Revise and evaluate credit risk. Management’s risk divisions are largely independent of the Bank’s commercial division and evaluate all credit risks in excess of the specified limits prior to loan approvals for customers or prior to the acquisition of specific investments. Credit renewal and reviews are subject to similar processes. 113  Table of Contents The following diagram illustrates the governance of our credit risk division including the committees with approval power:   (1)       Includes various approval committees for the Middle Market and high net worth clients. Role of Santander Spain’s Global Risk Department: Credit Risk In matters regarding Credit Risk, Santander Spain’s Global Risk Department has the following role: · All credit risks greater than U.S.$40 million (U.S.$60 million for financial institutions), after being approved locally, are reviewed by Santander Spain. This additional review ensures that no global exposure limit is being breached. · In standardized risks, the consumer and mortgage scoring models are developed locally but are reviewed and approved by Santander Spain’s Global Risk Department. · For each scoring model, a monthly Risk Report is prepared, which is reviewed locally and is also sent to Santander Spain’s Global Risk Department. This report includes the evolution of basic credit risk parameters such as: loan amounts, non-performance, charge-offs and provisions. · Monthly, the Controller of the Risk Department sends a report to Santander Spain’s Global Risk Department covering all the main indicators regarding credit risk and the evolution of credit risk as compared to the budgeted levels. Credit Approval: Loans approved on an individual basis In preparing a credit proposal for a corporate client whose loans are approved on an individual basis, Santander-Chile’s personnel verifies such parameters as debt servicing capacity (typically including projected cash flows), the company’s financial history and projections for the economic sector in which it operates. The Risk Division is closely involved in this process, and prepares the credit application for the client. All proposals contain an analysis of the client’s strengths and weaknesses, a rating and a recommendation. Credit limits are determined not on the basis of outstanding balances of individual clients, but on the direct and indirect credit risk of entire financial groups. For example, a corporation will be evaluated together with its subsidiaries and affiliates. 114  Table of Contents Credit Approval: Loans approved on a group basis The majority of loans to individuals and small and mid-sized companies are approved by the Standardized Risk Area through an automated credit scoring system. This system is decentralized, automated and based on multiple parameters, including demographic and information regarding credit behavior from external sources and the SBIF. Classification of Loan Portfolio Credit Risk Governance The Risk Division, our credit analysis and risk management group, is largely independent of our Commercial Division. Risk evaluation teams interact regularly with our clients. For larger transactions, risk teams in our headquarters work directly with clients when evaluating credit risks and preparing credit applications. Various credit approval committees, all of which include Risk Division and Commercial Division personnel, must verify that the appropriate qualitative and quantitative parameters are met by each applicant. Each committee’s powers are defined by our Board of Directors. 116 Table of Contents Santander-Chile’s governance rules have established the existence of the Risk Committee. This committee is responsible for revising and following all risks that may affect us, including reputational risk, allowing for an integral risk management. This committee serves as the governing body through which the Board supervises all risk functions. It also evaluates the reasonability of the systems for measurement and control of risks. This Committee includes five Board members. The Board has delegated the duty of credit risk management to the Board’s Risk Committee, as well as to the Bank’s risk departments, whose roles are summarized below: The following diagram illustrates the governance of our credit risk division including the committees with approval power: · Verify compliance with the strategic objectives of the group, depending on both assumed and potential risk, and alerting management to such risks. · Propose the primary metrics for risk appetite framework. · Review the level of compliance with regulatory provisions and recommendations issued by the Local and External Supervisors, ensuring their implementation on the stipulated dates. · Analyze with a comprehensive vision, the map of recommendations and incidents formulated by the different control instances (FMC, DAI and External Audit) in order to identify the main risks involved. · Review the risk benchmark analysis, and from its results, identify and propose “best practices” or corrective and preventive actions, ensuring their proper implementation. · Review the adequate management of risks by the management areas, formulating where appropriate, the mitigation actions in accordance with the policies approved by the Board. · Monitoring, analysis and control of the limits defined in the Risk Framework and the key credit risk indicators of each zone, segment or product, identifying possible sources of concern. · Analyze the relevant aspects of the risk (exogenous variables), which could eventually materialize in possible losses for the business (emerging risks). · Analyze and propose eventual changes in the policies and procedures used by the Bank for the administration, control and management of risks, when inconsistencies or vulnerabilities are verified. · Encourage compliance by the Bank with the best corporate governance practices in risk management. · Pre-review the documents of type 0 and 1 (Frames and Models) that were defined in the Approval Hierarchy model, which must then be approved by the Board. · Perform, according to the calendar proposed by the Risk Department or on request, the sectoral analyzes considered relevant. · Review of risks in terms of Risk Compliance and Reputational Risk · Any other task that the Board deems necessary. 117 Table of Contents The following diagram illustrates the governance of our credit risk division including the committees with approval power: Role of Santander Spain’s Global Risk Department: Credit Risk In matters regarding Credit Risk, Santander Spain’s Global Risk Department has the following role: · All credit risks greater than U.S.$80 million, after being approved locally, are reviewed by Santander Spain. This additional review ensures that no global exposure limit is being breached. · In standardized risks, the consumer and mortgage scoring models are developed locally but are reviewed and approved by Santander Spain’s Global Risk Department. · For each scoring model, a quarterly Risk Report is prepared, which is reviewed locally and is also sent to Santander Analytics (Santander Spain). This report includes the evolution of basic credit risk parameters such as loan amounts, non-performance, charge-offs and provisions. · Monthly, the Controller of the Risk Department sends a report to Santander Spain’s Global Risk Department covering all the main indicators regarding credit risk and the evolution of credit risk as compared to the budgeted levels. Credit Approval: Loans approved on an individual basis In preparing a credit proposal for a corporate client whose loans are approved on an individual basis, Santander-Chile’s personnel verifies such parameters as debt servicing capacity (typically including projected cash flows), the company’s financial history and projections for the economic sector in which it operates. The Risk Division is closely involved in this process, and prepares the credit application for the client. All proposals contain an analysis of the client, a rating and a recommendation. Credit limits are determined not on the basis of outstanding balances of individual clients, but on the direct and indirect credit risk of entire financial groups. For example, a corporation will be evaluated together with its subsidiaries and affiliates. 118 Table of Contents Credit Approval: Loans approved on a group basis The majority of loans to individuals and small and mid-sized companies are approved by the Standardized Risk Area through an automated credit scoring system. This system is decentralized, automated and based on multiple parameters, including demographic and information regarding credit behavior from external sources and the FMC. Classification of Loan Portfolio   Loans are divided into: (i) consumer loans (including loans granted to individuals for the purpose of financing the acquisition of consumer goods or payment of services); (ii) residential mortgage loans (including loans granted to individuals for the acquisition, construction or repair of residential real estate, in which the value of the property covers at least 100% of the amount of the loan); and (iii) commercial loans (including all loans other than consumer loans and residential mortgage loans). The models and methods used to classify our loan portfolio and establish credit loss allowances must follow the following guiding principles, which have been approved by our Board of Directors.   Impairment assessment (policy applicable from January 1, 2018) In accordance with the requirements of IFRS 9 the Bank has developed a new credit risk model, applicable from January 1, 2018. a. Definition of default and cure The Bank considers a financial instrument defaulted and therefore Stage 3 for ECL calculations in all cases when the borrower becomes 90 days past due on its contractual payments. As a part of a qualitative assessment of whether a customer is in default, the Bank also considers a variety of instances that may indicate unlikeliness to pay. Such events include: · Internal rating of the borrower indicating default or near-default; · The borrower requesting emergency funding from the Bank; · The borrower having past due liabilities to public creditors or employees; · The borrower is deceased; · A material decrease in the underlying collateral value where the recovery of the loan is expected from the sale of the collateral; · A material decrease in the borrower’s turnover or the loss of a major customer; · A covenant breach not waived by the Bank; · The debtor (or any legal entity within the debtor’s group) filing for bankruptcy application/protection; and/or · Debtor’s listed debt or equity suspended at the primary exchange because of rumors or facts about financial difficulties. It is the Bank’s policy to consider a financial instrument as “cured” and therefore re-classified out of Stage 3 when none of the default criteria have been present for at least twelve consecutive months (and 24 months for special vigilance operations). The decision whether to classify an asset as Stage 2 or Stage 1 once cured depends on the updated credit grade at the time of the cure, and whether this indicates there has been a significant increase in credit risk compared to initial recognition. 119 Table of Contents b. Internal rating and PD estimation The Bank’s Credit Risk Department operates internal rating models. The models incorporate both qualitative and quantitative information, in addition to borrower-specific information, utilize supplemental external information that could affect the borrower’s behavior. The internal credit grades are assigned based on our internal scoring policy. PDs are then adjusted for IFRS 9 ECL calculations to incorporate forward-looking information and the IFRS 9 Stage classification of the exposure. In relation to the credit quality of the investment portfolio, local regulations specify that banks are able to hold only local and foreign fixed–income securities with certain exceptions. Additionally, Banco Santander-Chile has internal policies to ensure that only securities approved by the Market Risk department, which are listed in an internal document entitled “APS” – Products and underlying Approval, are acquired. The Credit Risk Department sets the exposure limits to the approved securities. The APS is updated on a daily basis. As of December 31, 2019, 89% our total investment portfolio corresponds to securities issued by the Chilean Central Bank and US treasury notes. c. Exposure at default The exposure at default (EAD) represents the gross carrying amount of the financial instruments subject to the impairment calculation, addressing both the client’s ability to increase its exposure while approaching default and potential early repayments too. To calculate the EAD for a Stage 1 loan, the Bank assesses the possible default events within 12 months for the calculation of the 12mECL. However, if a Stage 1 loan that is expected to default in the 12 months from the balance sheet date and is also expected to cure and subsequently default again, then all linked default events are taken into account. For Stage 2, Stage 3 the exposure at default is considered for events over the lifetime of the instruments. d. Loss given default The credit risk assessment is based on a standardized LGD assessment framework that results in a certain LGD rate. These LGD rates take into account the expected EAD in comparison to the amount expected to be recovered or realized from any collateral held. The Bank segments its retail lending products into smaller homogeneous portfolios (evaluated collective), based on key characteristics that are relevant to the estimation of future cash flows. The applied data is based on historically collected loss data and involves a wider set of transaction characteristics (e.g., product type, wider range of collateral types) as well as borrower characteristics. Further recent data and forward-looking economic scenarios are used in order to determine the IFRS 9 LGD rate for each group of financial instruments. Under IFRS 9, LGD rates are estimated for the Stage 1, Stage 2, Stage 3 IFRS 9 segment of each asset class. The inputs for these LGD rates are estimated and, where possible, calibrated through back testing against recent recoveries. These are repeated for each economic scenario as appropriate. e. Significant increase in credit risk (SICR) The Bank continuously monitors all assets subject to ECLs. In order to determine whether an instrument or a portfolio of instruments is subject to a 12-month ECL or Lifetime ECL, the Bank assesses whether there has been a significant increase in credit risk since initial recognition. The Bank also applies a secondary qualitative method for triggering a significant increase in credit risk for an asset, such as moving a customer/facility to the watch list (Special vigilance). The Bank may also consider that events explained in letter a) above are a significant increase in credit risk as opposed to a default. Regardless of the change in credit grades, if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial recognition. When estimating ECLs on a collective basis for a group of similar assets, the Bank applies the same principles for assessing whether there has been a significant increase in credit risk since initial recognition. 120 Table of Contents Quantitative criteria for SICR Stage 2: The quantitative criteria is used to identify where an exposure has increased in credit risk and it is applied based on whether an increase in the lifetime PD since the recognition date exceeds the threshold set in absolute terms. The following formula is used to determine such threshold: Threshold = Lifetime PD (at reporting date) – Lifetime PD (at origination) Collectively assessed Individually assessed Mortgages Other loans Revolving (Credit cards) Collectively assessed SME Individually assessed SME Middle market Corporate and Investment Banking 45% 42% 42% 42% 60% 50% Santander Group criteria There is also a relative threshold of 100% of all portfolios with the exception of the Corporate and Investment Banking Portfolio. Qualitative criteria for SICR Stage 2: The qualitative criteria is based on the existence of evidence that leads to an automatic classification of financial instruments in Stage 2 - mainly 30 days overdue and restructured. Thresholds of SICR are calibrated based on the average ECL of exposures that are 30 days overdue or with a level of credit risk considered to be “significant”. Collectively assessed Individually assessed Mortgages Other loans Revolving (Credit cards) Collectively assessed SME Individually assessed SME Middle market Corporate and Investment Banking Irregular portfolio > 30 days Irregular portfolio > 30 days Irregular portfolio > 30 days Irregular portfolio > 30 days Irregular portfolio > 30 days Irregular portfolio > 30 days Irregular portfolio > 30 days Restructured marked for monitoring Restructured marked for monitoring Restructured marked for monitoring Restructured marked for monitoring Restructured marked for monitoring Restructured marked for monitoring Restructured marked for monitoring Clients that are considered to be substandard or in incompliance (pre-legal action) Clients that are considered to be substandard or in incompliance (pre-legal action) Clients that are considered to be substandard or in incompliance (pre-legal action) These thresholds are defined by the Model Committee and the Integral Risk Committee, and are evaluated annually with updates made depending on impacts and definitions of the risk models associated to each portfolio. f. Grouping financial assets measured on a collective basis The Bank calculates ECLs either on a collective or an individual basis. The Bank evaluates on an individual basis commercial loans that are greater than Ch$400 million (US$240,000), while smaller commercial loans, mortgage loans and consumer loans are grouped into homogeneous portfolios, based on a combination of internal and external characteristics. g. Modified loans When a loan measured at amortized cost has been renegotiated or modified but not derecognized, the Bank must recognize the resulting gains or losses as the difference between the carrying amount of the original loans, and modified contractual cash flows discounted using the EIR before modification. 121 Table of Contents If the modification does not result in derecognition, then the subsequent assessment of whether there is a significant increase in credit risk is made comparing the risk at the reporting date based on the modified contractual term and the risk at initial recognition based on the original, unmodified contractual term. If the modification results in derecognition, then the modified asset is considered to be a new asset. Accordingly, the date of modification is treated as the date of initial recognition for the purposes of the impairment requirements. h. Collateral and other credit enhancement The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral. The main types of collateral obtained are, as follows: · For securities lending and reverse repurchase transactions, cash or securities · For corporate and small business lending, charges over real estate properties, inventory and trade receivables and, in special circumstances, government guarantees · For retail lending, mortgages over residential properties According to the Bank’s policy when an asset (such as real estate) is repossessed it is transferred to assets held for sale at its fair value less cost to sell as a non-financial asset at the repossession date. Impairment assessment (under IAS 39) Loans analyzed on an individual basis   For loans that are greater than Ch$150400 million (U.S.$225,000)(US$648,455), the Bank uses internal models to assign a risk category level to each borrower and its respective loans. We consider the following risk factors: industry or sector of the borrower, the borrower’s competitive position in its markets, owners or managers of the borrower, the borrower’s financial situation, the borrower’s payment capacity and the borrower’s payment behavior to calculate the estimated incurred loan loss. Through these categories, we differentiate the normal loan portfolio from the impaired one.   These are our categories:   1. Debtors may be classified in risk categories A1, A2, A3 or B (if(A is applicable if they are current on their payment obligations and show no sign of deterioration in their credit quality).quality and B is different from the A categories by a certain history of late payments.payments). The A categories are distinguished by different PNPs (as defined below).   2. Debtors classified as C1, C2, C3, C4, D1 or D2 include debtors whose loans with us have been charged-offcharged off or administered by our Recovery Unit, or classified asPrecontenciosos (PRECO or deteriorated).   For loans classified as A1, A2, A3 and B, we assign a specific provision level on an individual basis to each borrower and, therefore, the amount of loan loss allowance is determined on a case by case basis.   Estimated Incurred Loan Loss = Loan Loss Allowance   The estimated incurred loss is obtained by multiplying all risk factors defined in the following equation:   EIL=IL= EXP x PNP x SEV   · EIL = Estimated Incurred Loan Loss. The estimated incurred loan loss is how much could be lost in the event a debtor does not perform the obligations under the loan.   · EXP = Exposure. This corresponds to the value of commercial loans.   122 Table of Contents · PNP = Probability of Non-Performance. This variable, expressed as a percentage, indicates the probability that a debtor will default. This percentage is associated with the internal rating that we give to each debtor, which is determined by analyzing such parameters as debt servicing capacity.   · SEV = Severity. This is the effective loss rate given default for debtors in the same segment, which is determined statistically based on the historical effective losses for us for each segment. 115  Table of Contents   Every year, models together with PNP and SEV assumptions, are tested by the Bank’s Credit Risk Department, to ensure that they are appropriate at each reporting date so as to make sure any difference between the estimated incurred losses and real losses is reduced.   These tests focus on the validation of the sufficiency of the Bank’s allowances, and consist of comparisons between actual write-offs to allowances established by the model, and the coverage of the total allowance to actual write-offs in the most current periods. Individual loan classification and improvements to any customer classification are also presented for approval to our Risk Committee.   Our internal policy requires us to update appraisals of the fair value of collateral every 24 months, which policy does not vary by loan product. The appraisal is required to be performed within a shorter period if market conditions in general or conditions in a specific sector or with respect to certain customers indicate that the fair value of the collateral may have changed and any updated fair value of the collateral is factored into our allowance for loan loss calculations. A change in fair value of the collateral may change the risk category or profile of a customer which could result in lower or higher allowance for loan losses. In accordance with such policy, every year we update appraisals of fair value of collateral before the end of the 24 month period for certain customers and such updated appraisals are considered in the calculation of the allowance for loan losses. The number of updated appraisals performed in 2013 was 113, in 2014 was 98, in 2015 wasas 43, and in 2016 was 142, in 2017 was 257 and such updated appraisals were performed mainly because of changes in customer conditions (renegotiation deterioration of financial situation increase in credit line).   For loans classified in the C and D categories, loan loss allowances are based mainly on the fair value of the collateral, adjusted for an estimate cost to sell, that each of these loans have. Allowance percentage for each category is then based on the fair value of the collateral, or the expected future cash flow from the loan for each individually evaluated non-performing loans. As of December 31, 2016, loans classified in the C and D risk categories had the following associated loan loss allowance levels: Classification Allowance C1 2% C2 10% C3 25% C4 40% D1 65% D2 90%   Loans analyzed on a groupcollective basis   The Bank uses the concept of estimated incurred loss to quantify the allowances levels over loan analyzed on a group basis. Incurred loss is the expected provision expense that will appear one year away from the balance date of the transaction’s credit risk, considering the counterpart risk and the collateral associated to each transaction.   Following the Bank’s definition, the Bank uses group evaluation to approach transactions that have similar credit risk features, which indicate the debtor’s payment capacity of the entire debt, capital and interests, pursuant to the contract’s terms. In addition, this allows us to assess a high number of transactions with low individual amounts, whether they belong to individuals or small sized companies. Therefore, debtors and loans with similar features are grouped together and each group has a risk level assigned to it. These models are meant to be used mainly to analyze loans granted to individuals (including consumer loans, credit lines, mortgage loans and commercial loans) and commercial loans to SMEs. 116  Table of Contents   Allowances are established using these models, taking into account the historical impairment and other known circumstances at the time of evaluation. After this, a historical loss rate is assigned to each portfolio profile constituting each segment. The method for assigning a profile is established based on a statistical building method, establishing a relation through a logistic regression various variables, such as payment behavior in the Bank, payment behavior outside the Bank, various socio-demographic data, among others, and a response variable that determines a client’s risk level, which in this case is 90 days of non-performance. Afterwards, common profiles are established related to a logical order and with differentiate default rates, applying the real historical loss the Bank has had with that portfolio.   Our models for loans analyzed on a group basis (consumer loans, residential mortgage loans and small-and-mid-sized commercial loans) are monitored on a monthly basis with respect to predictability and stability, using indices that seek to capture the underlying need to update the models for current loss trends. Therefore, the periods of historical net charge-offs used in the allowance model may be more than a year old as we only update the historical net charge-offs only when our assessment of predictability and stability indicators determine it is necessary.   123 Table of Contents The different risk categories are constructed and updated periodically based on the payment behavior of the client’s profile to which they belong, as well as his or her socio-demographic characteristics. Therefore, when a customer has past due balance or has missed some payments, the outcome is that the customer will move to a different segment with a higher loss rate, therefore capturing current trends for each risk profile. At the same time during September 2017, and as part of the normal process of updating the provisioning model for loans analyzed on a group basis, the Bank re-calibrated these models, incorporating a greater historical depth, including a recession period, thus strengthening the parameters of probability of default and loss given default. This update did not generate significant differences at the level of the total balance of loan loss allowances for credit risk, although it did imply an increase in the provisions associated with commercial and mortgage loans and a decrease in the provisions associated with consumer loans. These improvements, in accordance with IAS 8, are considered as a change in an estimate and its effect was therefore recorded in the Consolidated Statement of Income for the year. For a description of the impact this re-calibration had on provision expense related to our consumer loans, residential mortgage loans and commercial loans analyzed on a group basis, please see “Item 5. Operating and Financial Review and Prospects— A. Operating Results-Provision for loan losses”   Once the customers have been classified, the loan loss allowance is the product of three factors: Exposure (EXP), Probability of Non-Performance (PNP) and Severity (SEV).   EXP = Exposure. This corresponds to the value of commercial loans.   PNP = Probability of Non-Performing. This variable, expressed as a percentage, indicates the probability that a debtor will default. This percentage is associated with the internal score that we give to each debtor, which is determined by analyzing such parameters as debt servicing capacity (including, usually, projected cash flows), the company’s financial history, the solvency and capacity of shareholders and management, and projections for the economic sector in which it operates. The internal rating can be different from ratings obtained from external third parties.   SEV = Severity. This is the effective loss rate given default for debtors in the same segment, which is determined statistically based on the historical effective losses for us for each segment.   PNP and SEV are reviewed and updated every three years. Every year, models together with PNP and SEV assumptions, are tested by the Bank’s Credit Risk Department, to ensure that they are appropriate at each reporting date so as to make sure any difference between the estimated incurred losses and real losses is reduced. Our models for loans analyzed on a group basis (consumer loans, residential mortgage loans and small-and-mid- sized commercial loans) are monitored on a monthly basis with respect to predictability and stability, using indicators that seek to capture the underlying need to update the models for current loss trends. Therefore, the periods of historical net charge-offs used in the allowance model may be more than a year old as we only update the historical net charge-offs when our assessment of predictability and stability indicators determine it is necessary.   Allowances for consumer loans   The estimated incurred loss rates for consumer loans correspond to charge-offs net of recoveries. The methodology establishes the period in which the estimated incurred loss for each risk profile emerges. Once the loss has been considered to have been incurred, the estimated incurred loss rates are applied to the corresponding risk profile to obtain the net charge-off level associated with this period. The loss rates applied to each risk profile are based only on the historical net charge-off data for that specific profile within one of the four groups of consumer loans. No other statistical or other information other than net charge-offs is used to determine the loss rates.   117  Table of Contents During the second half of 2014, and as a response to the ongoing improvement of the allowances models for loans, the Bank updated its allowances model for consumer loans. The model was calibrated with the aim of improving the prediction of client behavior and maintaining statistical and management standards. Part of these improvements consisted of implementing more robust techniques of statistical processes and more historical information, resulting in stronger parameters for the Probability of Non-Performance (PNP) and the Severity (SEV) involved in the provision calculation. These changes resulted in the release of consumer provisions of Ch$26,563 million in 2014. As this is a change in estimation, the impact of this improvement was recognized under the "Provisions for loan losses" in the Consolidated Statement of Income for the year in accordance with IAS 8. The most important improvement was the development of a separate model for our Santander Select customers, which are higher income clients. This is in line with the Bank’s strategy of reducing exposure to the low-end of the consumer market and growing in less risky segments. The following diagrams set forth the allowances required by our current models for consumer loans:   Santander:    118 124 Table of Contents  Bank Loan type   Allowance Level(1) (Loss rate)                 Consumer Performing   New clients Existing clients Banefe (3)     0.53% -19.75% 0.05%-11.92% 0.13%-18.67%                 Renegotiated consumer loans which were less than 90 days past due at the time of renegotiation (2)   3.66%-30.40% 10.19%-43.71%                 Renegotiated consumer loans which were more than 90 days past due at the time of renegotiation (2)   41.50%-100% 51.11%-100%                 Non-performing Days Past Due New Clients Existing Clients Previously Renegotiated Bank Previously Renegotiated Banefe (3) 90-120 31.78% 31.78% 41.50% 51.11% 120-150 51.17% 51.17% 60.15% 66.65% 150-180 59.98% 59.98% 68.86% 78.50% >180   Charged-off                           Santander (excluding Santander Banefe): Bank (ex-Banefe) Loan type Allowance Level(1) (Loss rate)               Consumer Performing New clients Existing clients Santander Select     0.33%-19.40% 0.08%-15.55% 0.04%-7.46%                 Renegotiated consumer loans which were less than 90 days past due at the time of renegotiation (2) 6.49%-32.09%                 Renegotiated consumer loans which were more than 90 days past due at the time of renegotiation (2) 44.05%-100%                 Non-performing Days Past Due New Clients Existing Clients Select Previously Renegotiated 90-120 35.93% 35.93% 35.93% 44.05% 120-150 44.11% 44.11% 44.11% 50.38% 150-180 52.77% 52.77% 52.77% 57.48% >180 Charged-off   (1) Percentage of loans outstanding. (2) This category relates only to loans which were renegotiated and were less than 90 days past due at the time of renegotiation, migrating from such category as they reached 90 days past due since renegotiation. Santander Banefe:   Santander Banefe Loan type Allowance Level(1) (Loss rate)               Consumer Performing New clients Existing clients       1.17%-27.87% 0.16%-16.34%                   Renegotiated consumer loans which were less than 90 days past due at the time of renegotiation (2) 9.72%-34.37%                 Renegotiated consumer loans which were more than 90 days past due at the time of renegotiation (2) 45.47%-100%                 Non-performing consumer Days Past Due New Clients Existing Clients Previously Renegotiated   90-120 31.50% 31.50% 45.47%   120-150 35.78% 35.78% 51.57%   150-180 42.46% 42.46% 60.90%   >180 Charged-off   (1) Percentage of loans outstanding   (2) This category relates only to loans which were renegotiated and were less than 90 days past due at the time of renegotiation, migrating from such category as they reached 90 days past due since renegotiation.   (3) Banefe was the brand aimed at the lower end of the consumer market and for which there are still loans outstanding.   119  Table of Contents There are two renegotiated categories in our consumer loan portfolio:   1. Renegotiated Consumer which were less than 90 days past due at the time of renegotiation. The allowance for loan loss percentages (or loss rates) are assigned based on eight different risk profiles which are determined based on demographic and payment behavior variables.   2. Renegotiated Consumer which were more than 90 days past due at the time of renegotiationrenegotiation. The loss rates are assigned based on four different risk profiles which are determined based on the number of days overdue at the time of renegotiation:   Profile 1: 180 or more days past due   Profile 2: between 150 and 180 days past due   Profile 3: between 120 and 150 days past due   Profile 4: between 90 and 120 days past due Allowances for residential mortgage loans Our provision methodology for residential mortgage loans takes into consideration different factors in order to group customers with less the 90 days past due into different risk profiles. First we segregate our clients according to internal categories based on income and restructurings. For each of these categories additional factors are considered in order to develop risk profiles within each risk category, including payment behavior, non-performance less than 90 days, collateral levels, renegotiation history with the Bank, and historical amounts of net charge-offs, among others. The risk categories are such that when a customer’s payment behavior deteriorates, the outcome is that the customer will move to a different risk category with a higher loss rate, therefore capturing the current status of the customer. In April 2016, the risk profiles were recalibrated and separated into four groups based on loans to value, resulting in a decrease in mortgage loan allowance of approximately Ch$3,500 million. Previously residential mortgage loans with more than 90 days past due balances were assigned an average loss rate of around 12%. With the recalibration in April 2016, mortgage loans with more than 90 days past due balances are assigned a loss rate depending on the loan to value. We determined that 90 days is appropriate, since our historical analysis of customers’ behavior has shown that after 90 days, customers are likely to default on their obligations, and that, over succeeding periods, the loss incurred does not increase given the high fair value of collateral percentage to loan amount required under our credit policies for this type of loan. Also, we note that the Chilean economy’s stability over the last few years has not resulted in other than insignificant fluctuations in collateral fair values on residential mortgage loan properties. When the customer becomes current in its payments, such customer will migrate to a better profile. 120  Table of Contents The following table sets forth the required loan loss allowance for residential mortgage loans: Bank (incl-Banefe) Loan type Allowance Level(1) (Loss rate) Residential mortgage Performing Bank (excl Banefe and Select) Banefe Santander Select 0.00%-8.30% 0.04%-8.65% 0.00%-4.90% Renegotiated mortgage loans which were less than 90 days past due at the time of renegotiation (2) 0.32%-12.06% Renegotiated mortgage  loans which were more than 90 days past due at the time of renegotiation (2) 5.72%-20.81% Non-performing mortgage Loan to Value 0-60 5.72% 60-80 8.31% 80-90 11.60% >90 20.81% (1) Percentage of loans outstanding (2) This category relates only to loans which were renegotiated and were less than 90 days past due at the time of renegotiation, migrating from such category as they reached 90 days past due since renegotiation.   Small- and mid-sized commercial loans   To determine the estimated incurred loss for individuals (natural persons), small- and mid-sized commercial loans collectively evaluated for impairment, we mainly analyze the payment behavior of clients, particularly the payment behavior of clients with payments that are 90 days or more past-due, clients with other weaknesses, such as early non-performance (i.e., payments that are past-due, though by less than 90 days), clients with modified loans and clients with renegotiated loans, as well as success in recovery against these clients. We also consider whether the loan has underlying mortgage collateral.   The risk categories are such that when a customer has a past-due balance or has missed some payments, the outcome is that the customer will move to a different risk category with a higher loss rate, therefore capturing current trends of the customer and, in the aggregate, current trends in the market.   During the second half of 2014, and as a response to the ongoing improvement of the allowances models for loans, the Bank updated its allowances model for commercial loans. The model was calibrated with the aim of improving the prediction of client behavior and maintaining statistical and management standards. Part of these improvements consisted of implementing more robust statistical processes and more historical information, resulting in stronger parameters for the Probability of Non-Performance (PNP) and the Severity (SEV) involved in the provision calculation. These changes resulted in an increase in commercial provisions of Ch$45,141 million in 2014. Considering this impact and the reversal of Ch$26,563 million in the consumer loan provisioning model, the net increase of these improvements (Ch$18,578 million) was recognized under the “Provisions for loan losses” in the Consolidated Statement of Income for the year in accordance with IAS 8. 121  Table of Contents In order to calculate the estimated incurred loan loss for all commercial loans collectively evaluated for impairment, the Bank sub-divided the portfolio in the following way:   Loan type Allowance Level(1) (Loss rate)   Commercial loans analyzed on a group basis Performing Commercial loan to individuals w/o mortgage collateral Commercial loan to individuals with mortgage collateral Small Enterprise Mid-sized  Enterprise     3.72%-46.76% 0.02%-7.89% 0.20%-21.82% 0.11%-16.92                   Renegotiated commercial loans which were less than 90 days past due at the time of renegotiation (2) 5.22%-19.54%                   Renegotiated commercial loans which were more than 90 days past due at the time of renegotiation (2) Days Past Due when renegotiated Commercial loan to individuals w/o mortgage collateral Commercial loan to individuals with mortgage collateral Small Enterprise Mid-sized  Enterprise   90-179 50.76% 16.29% 30.07% 24.32%   180-359 51.89% 23.90% 44.00% 37.64%   360-719 56.04% 31.46% 50.27% 47.09%   >720 57.54% 36.69% 53.86% 52.63%                 Non-performing consumer Days Past Due Commercial loan to individuals w/o mortgage collateral Commercial loan to individuals with mortgage collateral Small Enterprise Mid-sized  Enterprise Previously renegotiated 90-179 50.76% 16.29% 30.07% 24.32% 24.32% 180-359 51.89% 23.90% 44.00% 37.64% 37.64% 360-719 56.04% 31.46% 50.27% 47.09% 47.09% >720 57.54% 36.69% 53.86% 52.63% 52.63%                   125 Table of Contents   Loan type Allowance Level(1) (Loss rate)   Commercial loans analyzed on a group basis Performing Commercial loan to individuals w/o mortgage collateral Commercial loan to individuals with mortgage collateral Small Enterprise Mid-sized Enterprise     0.87% -15.70% 0.03%-3.98% 0.21%-14.39% 0.14%-7.31                   Renegotiated commercial loans which were less than 90 days past due at the time of renegotiation (2) loan w/o mortgage collateral   2.93%-20.65%   loan with mortgage collateral   1.17%-8.25%                 Renegotiated commercial loans which were more than 90 days past due at the time of renegotiation (2) Days Past Due when renegotiated Commercial loan to individuals w/o mortgage collateral Commercial loan to individuals with mortgage collateral Small Enterprise Mid-sized Enterprise   90-179 41.69% 12.15% 30.95% 18.93%   180-359 67.31% 23.42% 64.47% 51.86%   360-719 75.69% 34.65% 70.15% 63.12%   >720 83.82% 46.25% 74.53% 72.87%                 Non-performing consumer Days Past Due Commercial loan to individuals w/o mortgage collateral Commercial loan to individuals with mortgage collateral Small Enterprise Mid-sized Enterprise Previously renegotiated 90-179 41.69% 12.15% 30.95% 18.93% 18.93% 180-359 67.31% 23.42% 64.47% 51.86% 51.86% 360-719 75.69% 34.65% 70.15% 63.12% 63.12% >720 83.82% 46.25% 74.53% 72.87% 72.87%                     (1) Percentage of loans outstanding   (2) This category relates only to loans which were renegotiated and were less than 90 days past due at the time of renegotiation, migrating from such category as they reached 90 days past due since renegotiation.   Allowances for residential mortgage loans The provision methodology for residential mortgage loans takes into consideration different factors in order to group customers with less the 90 days past due into seven different risk profiles. Factors considered are whether the customer is a new customer or has prior history with the Bank. For each of these main categories additional factors are considered in order to develop risk profiles within each risk category, including payment behavior, non-performance less than 90 days, collateral levels, renegotiation history with the Bank, and historical amounts of net charge-offs, among others. The explanation for the initial segregation into three categories, existing, new customer, is as follows: an existing customer is a customer for which there is a broader level of information and history of payment behavior with the Bank, while for a new customer the Bank has no history of payment behavior and only information from the banking system and credit bureaus is available. The risk categories are such that when a customer’s payment behavior deteriorates, the outcome is that the customer will move to a different risk category with a higher loss rate, therefore capturing the current status of the customer. Previous to 2016, mortgage loans with more than 90 days past due balances are assigned a loss rate of 11.01%. In 2016, mortgage loans more than 90 days past due balances are assigned a loss rate depending on the loan to value. We determined that 90 days is appropriate, since our historical analysis of customer’s behavior has shown that after 90 days, customers are likely to default on their obligations, and that, over succeeding periods, the loss incurred does not increase given the high fair value of collateral percentage to loan amount required under our credit policies for this type of loan. Also, we note that the Chilean economy’s stability over the last few years has not resulted in other than insignificant fluctuations in collateral fair values on residential mortgage loan properties.   122 126 Table of Contents  The following table sets forth the required loan loss allowance for residential mortgage loans:   Bank Loan type Allowance Level(1) (Loss rate) Residential mortgage Performing Bank (excluding Select) Santander Select 0.00%-5.18% 0.00%-3.88% Renegotiated mortgage loans which were less than 90 days past due at the time of renegotiation (2) 0.16%-8.37% Renegotiated mortgage loans which were more than 90 days past due at the time of renegotiation (2) 5.58%-26.25% Non-performing mortgage Loan to Value 0-60 5.58% 60-80 8.48% 80-90 11.93% >90 16.25% 1. Percentage of loans outstanding 2. This category relates only to loans which were renegotiated and were less than 90 days past due at the time of renegotiation, migrating from such category as they reached 90 days past due since renegotiation. Analysis of Santander-Chile’s Loan Classification   The following table shows classifications of our individually assessed loans and related provisions as of December 31, 2019 and 2018 according to IFRS 9.     As of December 31, 2019 Commercial   Stage 1   Stage 2   Stage 3   Total Individually Assessed   Percentage   Stage 1   Stage 2   Stage 3   Total ECL Allowance   Percentage     (in Ch$ millions)       %   (in Ch$ millions)       % A1     99,042       –         –         99,042       0.30       2       –                 2       0.00 % A2     907,659       37       –         907,696       2.78       443       –                 443       0.05 % A3     2,418,990       61       –         2,419,051       7.41       2,617       –                 2,617       0.29 % A4     3,262,671       7,184       –         3,269,855       10.01       4,399       22               4,421       0.49 % A5     2,188,717       22,163       –         2,210,880       6.77       7,618       515               8,133       0.91 % A6     1,086,401       47,157       487       1,134,045       3.47       6,461       1,410       20 /8     8,079       0.90 % B1     –         603,201       –         603,201       1.85       –         12,641       –         12,641       1.41 % B2     –         82,781       560       83,341       0.26       –         3,773       205       3,978       0.44 % B3     –         85,034       817       85,851       0.26       –         3,367       261       3,628       0.40 % B4     –         83,039       50,662       133,701       0.41       –         4,085       21,910       25,995       2.90 % C1     –         45,433       113,004       158,437       0.49       –         3,516       50,440       53,956       6.02 % C2     –         8,865       66,965       75,830       0.23       –         614       28,504       29,118       3.25 % C3     –         15,762       32,839       48,601       0.15       –         221       11,281       11,502       1.28 % C4     –         2,405       38,967       41,372       0.13       –         170       20,039       20,209       2.26 % C5     –         847       44,057       44,904       0.14       –         43       27,586       27,629       3.08 % C6     –         998       52,649       53,647       0.16       –         12       35,732       35,744       3.99 % Subtotal     9,963,480       1,004,967       401,007       11,369,454       34.80       21,540       30,389       196,166       249,095       27.69 %                                                                                   127 Table of Contents Commercial   Stage 1   Stage 2   Stage 3   Total Collectively Assessed   Percentage   Stage 1   Stage 2   Stage 3   Total ECL Allowance   Percentage     (in Ch$ millions)       %   (in Ch$ millions)       % Commercial     3,839,143       240,100       413,628       4,492,871       13.75       35,887       25,555       197,032       258,474       28.84 % Mortgage     10,275,966       457,948       529,081       11,262,995       34.47       8,446       14,509       78,104       101,059       11.28 % Consumer     4,963,047       292,718       290,430       5,546,195       16.98       67,396       50,808       170,263       288,467       32.19 % Subtotal     19,078,156       990,766       1,233,139       21,302,061       65.20       111,729       90,872       445,399       648,000       72.31 % Total     29,041,636       1,995,733       1,634,146       32,671,515       100.00       133,269       121,261       641,565       896,095       100.00 %     As of December 31, 2018 Commercial   Stage 1   Stage 2   Stage 3   Total Individually Assessed   Percentage   Stage 1   Stage 2   Stage 3   Total ECL Allowance   Percentage     (in Ch$ millions)       %   (in Ch$ millions)       % A1     29,998                       29,998       0.10 %     2       –         –         2       0.00 % A2     1,074,789                       1,074,789       3.56 %     525       –         –         525       0.06 % A3     2,699,684       309               2,699,993       8.94 %     2,526       –         –         2,526       0.29 % A4     3,200,608       16,546               3,217,154       10.65 %     8,865       323       –         9,188       1.04 % A5     1,755,259       26,141               1,781,400       5.90 %     11,296       453       –         11,749       1.33 % A6     935,499       45,671               981,170       3.25 %     6,975       2,213       –         9,188       1.04 % B1     –         494,915       187       495,102       1.64 %     –         14,107       79       14,186       1.61 % B2     –         81,955       156       82,111       0.27 %     –         2,786       66       2,852       0.32 % B3     –         67,089       614       67,703       0.22 %     –         3,841       233       4,074       0.46 % B4     –         47,653       45,480       93,133       0.31 %     –         2,488       19,688       22,176       2.51 % C1     –         46,383       108,325       154,708       0.51 %     –         2,548       48,147       50,695       5.75 % C2     –         15,678       39,246       54,924       0.18 %     –         1,261       18,171       19,432       2.20 % C3     –         19,655       26,204       45,859       0.15 %     –         733       10,803       11,536       1.31 % C4     –         3,560       32,445       36,005       0.12 %     –         246       17,077       17,323       1.96 % C5     –         703       64,762       65,465       0.22 %     –         32       40,541       40,573       4.60 % C6     –         1,525       69,510       71,035       0.22 %     –         35       43,310       43,345       4.91 % Subtotal     9,695,837       867,783       386,929       10,950,549       36.24 %     30,189       31,066       198,115       259,370       29.39 % Commercial   Stage 1   Stage 2   Stage 3   Total Collectively Assessed   Percentage   Stage 1   Stage 2   Stage 3   Total ECL Allowance   Percentage     (in Ch$ millions)       %   (in Ch$ millions)       % Commercial     3,616,969       232,472       386,154       4,235,595       14.02 %     43,541       24,574       179,317       247,432       28.04 % Mortgage     4,341,740       249,039       285,510       4,876,289       16.14 %     70,904       54,372       159,066       284,342       32.22 % Consumer     9,258,962       447,496       444,523       10,150,981       33.60 %     9,006       15,102       67,162       91,270       10.34 % Subtotal     17,217,671       929,007       1,116,187       19,262,865       63.76 %     123,451       94,048       405,545       623,044       70.61 % Total     26,913,508       1,796,790       1,503,116       30,213,414       100.00 %     153,640       125,114       603,660       882,414       100.00 % The following tables provide statistical data regarding the classification of our loans analyzed on an individual basis as of December 31, 2016, 2015 and 2014.2017 based on IAS 39.     As of December 31,    2016    2015    2014    As of December 31, 2017 Category   Individual    Percentage    Allowance    Percentage    Individual    Percentage    Allowance    Percentage    Individual    Percentage    Allowance    Percentage    Individual   Percentage   Allowance   Percentage   Ch$mn   %   Ch$mn   %   Ch$mn   %   Ch$mn   %   Ch$mn   %   Ch$mn   %   Ch$ million   %   Ch$ million   % Individualized business                                                                 A1     1,599,311       5.88       923       0.12       2,073,792       8.20       1,210       0.17       1,911,035       8.35       998       0.15       1,051,072       3.79       827       0.10   A2     6,437,930       23.67       23,757       3.00       5,898,065       23.32       17,353       2.28       5,564,372       24.30       16,334       2.39       5,957,305       21.49       18,514       2.34   A3     2,030,867       7.47       29,668       3.75       1,599,234       6.32       25,145       3.30       1,334,042       5.83       19,630       2.87       2,176,779       7.85       27,894       3.53   B     538,909       1.98       40,545       5.13       504,937       1.99       37,157       4.87       398,611       1.74       29,189       4.27       539,074       1.94       32,089       4.06   C1     121,893       0.45       2,176       0.28       81,767       0.32       1,635       0.21       79,148       0.35       1,583       0.23       145,033       0.52       2,604       0.33   C2     51,034       0.19       4,555       0.58       48,569       0.19       4,857       0.64       66,267       0.29       6,627       0.97       56,871       0.21       5,104       0.65   C3     49,901       0.18       11,136       1.41       37,663       0.15       9,416       1.24       16,742       0.07       4,185       0.61       39,825       0.14       8,935       1.13   C4     64,118       0.24       22,894       2.90       69,952       0.28       27,981       3.67       33,074       0.14       13,229       1.93       53,261       0.19       19,120       2.42   D1     73,462       0.27       42,625       5.39       76,157       0.30       49,503       6.49       59,585       0.26       38,730       5.66       71,896       0.26       41,941       5.30   D2     89,857       0.33       72,192       9.13       92,682       0.36       83,414       10.94       94,832       0.41       85,348       12.47       77,048       0.28       62,234       7.87   Total     11,057,282       40.66       250,471       31.69       10,482,818       41.43       257,671       33.81       9,557,708       41.74       215,853       31.55       10,168,164       36.67       219,262       27.73     Classification 128 Table of Loan Portfolio Based on the Borrower’s Payment PerformanceContents Non-performing loans include the aggregate principal and accrued but unpaid interest of any loan with one installment that is at least 90 days past-due, and do not accrue interest. Impaired loans include: (a) for loans individually evaluated for impairment: (i) the carrying amount of all loans to clients that are rated C1 through C4, D1 and D2 and (ii) the carrying amount of all loans to an individual client with at least one non-performing loan (which is not a residential mortgage loan past due less than 90 days), regardless of category; and (b) for loans collectively evaluated for impairment, the carrying amount of all loans to a client, when at least one loan to that client is not performing or has been renegotiated. See “Note 9—Loans and Accounts Receivables from Customers” of the Audited Consolidated Financial Statements. Renegotiated loans, on which payments are not past-due, are not ordinarily classified as non-performing loans, but do not accrue interest. Charge-offsWrite-offs   As a general rule, charge-offs should be done when all collection efforts have been exhausted. These charge-offscharge- offs consist of derecognitionde-recognition from the Consolidated Statements of Financial Position of the corresponding loans operations in its entirety, and, therefore, include portions not past-due of a loan in the case of installments loans or leasing operations (no partial charge-offs exists). Subsequent payments obtained from charged-off loans will be recognized in the Consolidated Statement of Income as a recovery of loans previously charged-off. Loan and accounts receivable charge-offs are recorded for overdue, past due, and current installments based on the time periods expired since reaching overdue status, as described below:   Type of contract Term Consumer loans with or without collateral 6 months Other transactions without collateral 24 months Commercial loans with collateral 36 months Mortgage loans 48 months Consumer leasing 6 months Other non-mortgage leasing transactions 12 months Mortgage leasing (household and business) 36 months   Any payment agreement of an already charged-off loan will not give rise to income-as long as the operation is still in an impaired status-and the effective payments received are accounted for as a recovery from loans previously charged-off. In general, legal collection proceedings are commenced with respect to consumer loans once they are past-due for at least 90 days and, with respect to mortgage loans, once they are past-due for at least 120 days. Legal collection proceedings are always commenced within one year of such loans becoming past-due, unless we determine that the size of the past-due amount does not warrant such proceedings. In addition, the majority of our 123  Table of Contents commercial loans are short-term, with single payments at maturity. Past-due loans are required to be covered by individual loan loss reserves equivalent to 100.0% of any unsecured portion thereof.   The following table sets forth all of our non-performing loans and impaired loans as of December 31, 2016, 2015, 2014, 2013 and 2012.     2016   2015   2014   2013   2012     (in millions of Ch$, except percentages) Non-performing loans (1)     564,131       643,468       644,327       613,301       597,767   Impaired loans (2)     1,615,441       1,669,340       1,617,251       1,477,701       1,338,137   Allowance for loan losses (3)     790,605       762,301       684,317       614,933       550,048   Total loans (4)     27,206,431       25,300,757       22,892,649       21,060,761       18,966,652   Allowance for loan losses / loans     2.89 %     3.01 %     2.99 %     2.92 %     2.90 % Non-performing loans as a percentage of total loans     2.07 %     2.54 %     2.81 %     2.91 %     3.15 % Loan loss allowance as a percentage of non-performing loans     140.15 %     118.47 %     106.21 %     100.27 %     92.02 % (1) Non-performing loans include the aggregate principal and accrued but unpaid interest of any loan with one installment that is at least 90 days past-due, and do not accrue interest. (2) Impaired loans include: (a) for loans individually evaluated for impairment: (i) the carrying amount of all loans to clients that are rated C1 through C4, D1 and D2 and (ii) the carrying amount of all loans to an individual client with at least one non-performing loan (which is not a residential mortgage loan past due less than 90 days), regardless of category; and (b) for loans collectively evaluated for impairment, the carrying amount of all loans to a client, when at least one loan to that client is not performing or has been renegotiated. See “Note 9—Loans and Accounts Receivables from Customers” of the Audited Consolidated Financial Statements. Renegotiated loans, on which payments are not past-due, are not ordinarily classified as non-performing loans, but do not accrue interest. (3) Includes allowance for interbank loans. (4) Includes interbank loans. We suspend the accrual of interest and readjustments on all past-due loans. Interest revenue and expense are recorded on an accrual basis using the effective interest method. However, when a loan is past-due by 90 days or more, when an obligation originated from a refinancing or renegotiation or when the Bank believes that the debtor poses a high risk of default, the interest pertaining to these is not recorded directly in the Consolidated Statement of Income unless it has been actually received. See “Note 1—Summary of Significant Accounting Principles—(h) Valuation of financial assets and liabilities and recognition of fair value changes” and “Note 25—Interest and Adjustments” of the Audited Consolidated Financial Statements. These interest and adjustments balances are generally referred to as “suspended” and are recorded in suspense accounts which are not part of the Consolidated Statements of Financial Position. Instead, they are reported as part of the complementary information thereto. See “Note 25—Interest and Adjustments” of the Audited Consolidated Financial Statements. This interest is recognized as income, when collected, and as a reversal of the related impairment losses. The Bank ceases accruing interest on the basis of contractual terms on the principal amount of any asset that is classified as an impaired asset. Thereafter, the Bank recognizes as interest income the accretion of the net present value of the written down amount of the loan due to the passage of time based on the original effective interest rate of the loan. On the other hand, any collected interest for any assets classified as impaired are accounted for on a cash basis. At the period end, the detail of income from suspended interest is as follows:     Year ended December 31,     2016   2015   2014   2013   2012 Suspended interest     Ch$ million                                   Commercial loans     22,089       23,310       24,753       21,645       20,595   Mortgage loans     5,271       13,268       12,454       8,484       8,844   Consumer loans     9,559       6,224       6,336       6,753       8,742   Totals     36,919       42,802       43,543       36,882       38,181   124 129 Table of Contents  Analysis of Stage 1, Stage 2 and Stage 3 loans Commercial loans at amortized cost In 2019, commercial loans grew 4.2% or Ch$676,180 million with growth mainly coming from our Middle-market segment. In 2019, there was a rise in commercial loans transferred to Stage 3 and an increase in write-offs due: (i) to the slower economic growth, which affected mainly loans in the SME segment as a result of the social unrest, and (ii) an increase in write-off of commercial loans in the Middle-market segment as a result of an acceleration of legal and collection proceedings for various specific lenders, which permitted the Bank to accelerate the charge-off period for these clients. In 2019, the Bank continued to remain selective in the SME loan book included in the retail banking segment and originated few new assets among this sub-segment, so as this loan book aged, it represented the bulk of increase and transfers to Stage 2 and Stage 3 loans.     Stage 1   Stage 2   Stage 3   Total Commercial loans   Individual   Collective   Individual   Collective   Individual   Collective         (In millions of Ch$) Gross carrying amount at January 1, 2019   9,695,837   3,644,407    867,783   235,239   386,929   387,265   15,217,460 Transfers                             Transfers to stage 2     (518,990 )     (347,678 )     518,990       347,678       –         –         –     Transfers to stage 3     –         (41,696 )     –         –         –         41,696       –     Transfers to stage 3     –         –         (132,136 )     (230,125 )     132,136       230,125       –     Transfers to stage 1     158,935       159,009       (158,935 )     (159,009 )     –         –         –     Transfers to stage 2     –         –         11,229       120,293       (11,229 )     (120,293 )     –     Transfers to stage 1     –         1,134       –         –         –         (1,134 )     –     Net changes of financial assets     542,311       415,524       (119,884 )     (68,960 )     (24,788 )     (31,945 )     712,258   Write-off     –         –         –         –         (83,845 )     (94,004 )     (177,849 ) Foreign Exchange adjustments and others     330,171       (236,341 )     17,920       (5,016 )     1,804       1,918       110,456   At December 31, 2019     10,208,264       3,594,359       1,004,967       240,100       401,007       413,628       15,862,325   Mortgage loans at amortized cost In 2019, mortgage loans grew 11.0% or Ch$1,112,014 million, as the lower long-term interest rates drove clients to take out more mortgages. Mortgage loans classified in Stage 3 increased 19%, due to overall loan growth in this product and greater transfers from Stage 2 to Stage 3 as a result of the deceleration of economic growth in the fourth quarter as a result of the social unrest, which resulted in a rise in early non-performance.       Stage 1   Stage 2   Stage 3     Mortgage loans   Collective   Collective   Collective   Total     (in millions of Ch$) Gross carrying amount at January 1, 2019     9,258,962       447,496       444,523        10,150,981   Transfers                    Transfers to stage 2     (481,646 )     481,646       –         –        Transfers to stage 3     (60,329 )     –         60,329       –        Transfers to stage 3     –         (333,706 )     333,706       –        Transfers to stage 1     361,293       (361,293 )     –         –        Transfers to stage 2     –         250,896       (250,896 )     –        Transfers to stage 1     2,338       –         (2,338 )     –     Net changes on financial assets     1,131,941       (35,200 )     (24,539 )     1,072,202   Write-off     –         –         (34,184 )     (34,184 ) Foreign exchange adjustments and others     63,407       8,109       2,480       73,996   At December 31, 2019     10,275,966       457,948       529,081       11,262,995   130 Table of Contents Consumer loans at amortized cost In 2019, consumer loans grew 13.7% or Ch$ 669,906 million with growth mainly coming from our high-income earners, the acquisition of Santander Consumer Finance Chile and a continued decrease of loans among low income earners. The latter also explains the reduction in Stage 3 consumer loans as assets repaid or written off in Stage 3 outpaced the new assets originated or transferred to these stages. This trend began to reverse at year-end 2019 during the period of social unrest.     Stage 1   Stage 2   Stage 3     Consumer loans   Collective   Collective   Collective   Total     (In millions of Ch$) Gross carrying amount at January 1, 2019     4,727,464       295,132       300,193       5,322,789   Transfers                                 Transfers to stage 2     (358,403 )     358,403       –         –     Transfers to stage 3     (25,210 )     –         25,210       –     Transfers to stage 3     –         (248,494 )     248,494       –     Transfers to stage 1     130,611       (130,611 )     –         –     Transfers to stage 2     –         56,489       (56,489 )     –     Transfers to stage 1     514       –         (514 )     –     Net changes on financial assets     430,777       (45,093 )     (3,605 )     382,079   Write-off     –         –         (223,919 )     (223,919 ) Foreign Exchange adjustments     57,294       6,892       1,060       65,246   At December 31, 2019     4,963,047       292,718       290,430       5,546,195   Analysis and Classification of Impaired and Non-Performing LoansLoan Portfolio Based on the Borrower’s Payment Performance   The following table analyzes our non-performing and impaired loans. ImpairedNon-performing loans include the aggregate principal and accrued but unpaid interest of any loan with one installment that is at least 90 days past-due, and do not accrue interest. For 2019 and 2018 impaired loans include all loans classified as Stage 3 according to IFRS 9. Prior to January 1, 2018, impaired loans include: (i) all loans to a single client that are evaluated on a group basis, including performing loans, that have a loan classified as non-performing, (ii) all renegotiated consumer loans and (iii) all commercial loans at risk of default. See “Note 9—Loans and Accounts Receivables from Customers—(a) Loans and accounts receivable from customers” in the Audited Consolidated Financial Statements.     2016   2015   2014   2013   2012   2019 (1)   2018 (1)   2017   2016   2015   (Ch$ million)   (Ch$ million) Total loans     27,206,431       25,300,757       22,892,649       21,060,761       18,966,652       32,671,515       30,213,414       27,725,914       27,206,431       25,300,757   Allowance for loan losses     790,605       762,301       684,317       614,933       550,048       896,095       882,414       791,157       790,605       762,301   Impaired loans(1)(2)     1,615,441       1,669,340       1,617,251       1,477,701       1,338,137       1,634,146       1,503,116       1,803,173       1,615,441       1,669,340   Impaired loans as a percentage of total loans     5.94 %     6.60 %     7.06 %     7.02 %     7.06 %     5.00 %     4.97 %     6.50 %     5.94 %     6.60 % Amounts non-performing     564,131       643,468       644,327       613,301       597,767       671,336       631,649       633,461       564,131       643,468   To the extent secured(2)     298,537       283,731       296,899       295,503       306,782   To the extent secured(3)     375,052       323,095       318,218       298,537       283,731   To the extent unsecured     265,594       359,737       347,428       317,798       290,985       296,284       308,554       315,243       265,594       359,737   Amounts non-performing as a percentage of total loans     2.07 %     2.54 %     2.81 %     2.91 %     3.15 %     2.05 %     2.09 %     2.28 %     2.07 %     2.54 % To the extent secured(2)     1.10 %     1.12 %     1.30 %     1.40 %     1.62 % To the extent secured(3)     1.15 %     1.07 %     1.15 %     1.10 %     1.12 % To the extent unsecured     0.98 %     1.42 %     1.52 %     1.51 %     1.53 %     0.91 %     1.02 %     1.14 %     0.98 %     1.42 % Loans loss allowances as a percentage of:                                                                                 Total loans     2.91 %     3.01 %     2.99 %     2.92 %     2.90 %     2.74 %     2.92 %     2.85 %     2.91 %     3.01 % Total amounts non-performing     140.15 %     118.47 %     106.21 %     100.27 %     92.02 %     133.48 %     139.70 %     124.89 %     140.15 %     118.47 % Total amounts non-performing-unsecured     297.67 %     211.91 %     196.97 %     193.50 %     189.03 % Total amounts non-performing- unsecured     302.44 %     285.98 %     250.97 %     297.67 %     211.91 %     (1) ImpairedFor 2019 and 2018, loan information corresponds to loans include:at amortized cost in accordance with IFRS 9. See “Note 9— Loans and Account Receivable at Amortized Cost - under IFRS 9” of the Audited Consolidated Financial Statements. (2) For 2018 and 2019 impaired loans include all loans classified as Stage 3 according to IFRS 9. See “Note 9— Loans and Account Receivable at Amortized Cost - under IFRS 9” of the Audited Consolidated Financial Statements. Prior to January 1, 2018, impaired loans include (a) for loans individually evaluated for impairment: (i) the carrying amount of all loans to clients that are rated C1 through C4, D1 and D2 and (ii) the carrying amount of all loans to an individual client with at least one non-performing loan (which is not a residential mortgage loan past due less than 90 days), regardless of category; and (b) for loans collectively evaluated for impairment, the carrying amount of all loans to a client, when at least one loan to that client is not performing or has been renegotiated. See “Note 9—Loans and Accounts Receivables from Customers” in the Audited Consolidated Financial Statements. Renegotiated loans, on which payments are not past-due, are not ordinarily classified as non-performing loans, but do not accrue interest. 131 Table of Contents mortgage loan past due less than 90 days), regardless of category; and (b) for loans collectively evaluated for impairment, the carrying amount of all loans to a client, when at least one loan to that client is not performing or has been renegotiated. Renegotiated loans on which payments are not past-due are not ordinarily classified as non-performing loans, but do not accrue interest.   (2)(3) Security generally consists of mortgages on real estate, pledges of marketable securities, letters of credit or cash.   A break-down of the loans included in the previous table which have been classified as impaired, including renegotiated loans, is as follows:   As of December 31, 2016 Impaired loans   Commercial   Residential mortgage   Consumer   Total     (in millions of Ch$) Non-performing loans     316,838       147,572       99,721       564,131   Commercial loans at risk of default (1)     439,707       —       —       439,707   Other impaired loans consisting mainly of renegotiated loans (2)     172,624       250,116       188,863       611,603   Total     929,169       397,688       288,584       1,615,441       As of December 31, 2015 Impaired loans     Commercial       Residential mortgage        Consumer        Total          (in millions of Ch$)   Non-performing loans     346,868       183,133       113,467       643,468   Commercial loans at risk of default (1)     486,685       —       —       486,685   Other impaired loans consisting mainly of renegotiated loans (2)     108,330       213,014       217,843       539,187   Total     941,883       396,147       331,310       1,669,340       As of December 31, 2019 Impaired loans at amortized cost   Commercial   Residential mortgage   Consumer   Total     (in millions of Ch$) Total impaired loans at amortized cost     814,635       529,081       290,430       1,634,146     In particular, in 20162019, we renegotiated withcajas de compensación with regard to our commercial portfolio and saw an increase in renegotiations withimpaired loans (Stage 3) in our clients with mortgage loans. However comparedportfolio due to the effects of the social unrest in the latter part of the year.     As of December 31, 2018 Impaired loans at amortized cost   Commercial   Residential mortgage   Consumer   Total     (in millions of Ch$) Total impaired loans at amortized cost     773,083       444,523       285,510       1,503,116   In 2018, we saw a decrease in impaired loans (Stage 3) in our total mortgage loans,portfolio despite a strong increase in loan volumes during the year. Apart from the adoption of IFRS 9 criteria, this proportion decreased from 5.1%was due to an improvement in 2015 to 4.6% in 2016. Our consumer loans showed signsmanagement of improvement with less renegotiated loansclient risk and non-performing loans.risk appetite.     As of December 31, 2017 Impaired loans   Commercial   Residential mortgage   Consumer   Total     (in millions of Ch$) Non-performing loans     368,522       161,768       103,171       633,461   Commercial loans at risk of default (1)     427,890       –         –         427,890   Other impaired loans consisting mainly of renegotiated loans (2)     217,091       300,776       223,955       741,822   Total     1,013,503       462,544       327,126       1,803,173       As of December 31, 2016 Impaired loans   Commercial   Residential mortgage   Consumer   Total     (in millions of Ch$) Non-performing loans     316,838       147,572       99,721       564,131   Commercial loans at risk of default (1)     439,707       –         –         439,707   Other impaired loans consisting mainly of renegotiated loans (2)     172,624       250,116       188,863       611,603   Total     929,169       397,688       288,584       1,615,441     125 132 Table of Contents    As of December 31, 2014   As of December 31, 2015 Impaired loans   Commercial   Residential mortgage   Consumer   Total   Commercial   Residential mortgage   Consumer   Total   (in millions of Ch$)   (in millions of Ch$) Non-performing loans     367,791       179,417       97,119       644,327       346,868       183,133       113,467       643,468   Commercial loans at risk of default (1)     420,038       —       —       420,038       486,685       –         –         486,685   Other impaired loans consisting mainly of renegotiated loans (2)     95,335       191,186       266,365       552,886       108,330       213,014       217,843       539,187   Total     883,164       370,603       363,484       1,617,251       941,883       396,147       331,310       1,669,340     As of December 31, 2013 Impaired loans   Commercial   Residential mortgage   Consumer   Total     (in millions of Ch$) Non-performing loans     364,890       155,688       92,723       613,301   Commercial loans at risk of default (1)     317,534       —       —       317,534   Other impaired loans consisting mainly of renegotiated loans (2)     122,464       167,713       256,689       546,866   Total     804,888       323,401       349,412       1,477,701                                     As of December 31, 2012 Impaired loans   Commercial   Residential mortgage   Consumer   Total     (in millions of Ch$) Non-performing loans     320,461       159,802       117,504       597,767   Commercial loans at risk of default (1)     298,868       —       —       298,868   Other impaired loans consisting mainly of renegotiated loans (2)     96,793       69,228       275,481       441,502   Total     716,122       229,030       392,985       1,338,137                                       (1) Total loans to a debtor, whose allowance level is determined on an individual basis with a risk of defaulting.   (2) Renegotiated loans for loans whose loan loss allowance is analyzed on a group basis.   Renegotiated LoansAs of December 31, 2019 and 2018 under IFRS 9 Modified loans When a loan measured at amortized cost has been renegotiated or modified but not derecognized, the Bank must recognize the resulting gains or losses as the difference between the carrying amount of the original loans, and modified contractual cash flows discounted using the EIR before modification. If the modification does not result in derecognition, then the subsequent assessment of whether there is a significant increase in credit risk is made by comparing the risk at the reporting date based on the modified contractual term and the risk at initial recognition based on the original, unmodified contractual term. If the modification results in derecognition, then the modified asset is considered to be a new asset. Accordingly, the date of modification is treated as the date of initial recognition for the purposes of the impairment requirements.     As of December 31, 2019      Stage 1    Stage 2    Stage 3    Total      (in millions of Ch$) Gross carrying amount     29,041,636       1,995,733       1,634,146       32,671,515   Modified loans     –         512,529       611,316       1,123,845   %   –         25.7 %     37.4 %     3.4 %                                   ECL allowance     133,269       121,261       641,565       896,095   Modified loans     –         36,329       242,649       278,978   %     –         30.0 %     37.8 %     31.1 %     As of December 31, 2018      Stage 1    Stage 2    Stage 3    Total      (in millions of Ch$) Gross carrying amount     26,913,508       1,796,790       1,503,116       30,213,414   Modified loans     –         582,513       815,094       1,397,607   %             32.4 %     54.2 %     4.6 %                                   ECL allowance     153,640       125,114       603,660       882,414   Modified loans     –         44,099       323,802       367,901   %     –         35.3 %     53.6 %     41.7 % The following table shows the success rate of renegotiated consumer and residential loans used for management purposes, for the periods indicated. The success rate for consumer loans is defined for each reported period as: (i) the total amount of loans renegotiated in that period minus the amount of such renegotiated loans that are classified as non-performing loans as of December 31, 2019, minus the amount of such renegotiated loans that have been 133 Table of Contents charged off as of December 31, 2019, divided by (ii) the total amount of such renegotiated loans. The success rate for residential mortgage loans is defined for each reported period as: (i) the total amount of loans renegotiated in that period minus the amount of such renegotiated loans that are classified as non-performing loans as of December 31, 2019, divided by (ii) the total amount of such renegotiated loans. A charge-off of a residential mortgage loan is not generally included in measuring the success rate of mortgage renegotiations since the period to charge-off a mortgage loan is 48 months after an installment is past-due. Period of Renegotiation   Success Rate Consumer Loans at December 31, 2019   Residential Mortgage Loans at December 31, 2019 First Quarter 2018     44.9 %     74.3 % Second Quarter 2018     46.4 %     78.0 % Third Quarter 2018     49.3 %     76.8 % Fourth Quarter 2018     55.9 %     77.4 % First Quarter 2019     65.3 %     79.4 % Second Quarter 2019     75.7 %     92.3 % Third Quarter 2019     93.4 %     83.5 % Fourth Quarter 2019     98.8 %     78.5 % For periods prior to January 1, 2018   In certain instances, we renegotiate loans that have one or more principal or interest payments past-due. The type of concession we most often afford when renegotiating a loan is a reduction in interest payment or, on rare occasions, forgiveness of principal. We estimate that less than 0.5% of renegotiated loans relate to the forgiveness of principal, and the remaining 99.5% relates to reduction of interest payments. Any amount of principal forgiven is charged off directly to income as of the date the loan is renegotiated, if not already covered by an allowance for loan loss. Renegotiated loans, on which payments are not past-due, are not ordinarily classified as non-performing, but do not accrue interest, and they are considered to be impaired for the life of the loan, both for disclosure purposes and in our determination of our allowances for loan losses, and never moved out of renegotiated status. The effects of the amount of interest to be accrued were not material to “Loans and receivables from customers, net” on our Consolidated Statement of Financial Position.   126  Table of Contents Modified loans(1) 2017 (In millions of Ch$) Commercial loans collectively evaluated for impairment 111,963 Residential mortgage loans 120,109 Consumer loans 187,967 Total modified loans 420,039   The following table shows the success rate, for the periods indicated, for renegotiated consumer and residential mortgage loans. The success rate for consumer loans is defined for each reported period as: (i) the total amount of loans renegotiated in that period minus the amount of such renegotiated loans that are classified as non-performing loans as of December 31, 2015 or 2016, as applicable, minus the amount of such renegotiated loans that have been charged off as of December 31, 2015 or 2016, as applicable, divided by (ii) the total amount of such renegotiated loans. The success rate for residential mortgage loans is defined for each reported period as: (i) the total amount of loans renegotiated in that period minus the amount of such renegotiated loans that are classified as non-performing loans as of December 31, 2015 or 2016, as applicable, divided by (ii) the total amount of such renegotiated loans. A charge-off of a residential mortgage loan is not generally included in measuring the success rate of mortgage renegotiations since the period to charge-off a mortgage loan is 48 months after an installment is past-due. Period of renegotiation  Success rate Consumer Loans  Success rate Residential mortgage loans  1Q 2015 55.3% 80.2% 2Q 2015 57.2% 79.3% 3Q 2015 49.9% 82.0% 4Q 2015 64.8% 88.3% 1Q 2016 71.9% 87.3% 2Q 2016 77.3% 91.7% 3Q 2016 95.8% 95.6% 4Q 2016 99.6% 99.6% From time to time, we modify loans that are not classified as non-performing if a client is confronting a financial difficulty, such as unemployment or another temporary situation. These loans are not classified as renegotiated for disclosure purposes, but are considered as renegotiated for our provisioning models. The following table provides information regarding loans collectively evaluated for impairment that are classified as “modified:” Modified loans(1) (Ch$mn)   2016   2015   2014 Commercial loans collectively evaluated for impairment     117,002       156,055       169,725   Residential mortgage loans     157,239       223,645       228,856   Consumer loans     214,344       178,244       243,441   Total modified loans     488,585       557,944       642,022     (1) Modified loans include loans collectively evaluated for impairment that were not classified as non-performing in which certain concessions were made to the client. The main type of concession given by the Bank is a reduction of interest, with forgiveness of principal occurring on rare occasions.   The modified loans included in the table above represent the full balance of all modified loans regardless of the date of modification. When a loan is marked as modified, we do not remove it from this status until paid in full. Our provisioning models currently consider a modified loan to be renegotiated for the life of the loan. Modified loans are included in the same pool of loans together with renegotiated loans for the life of the loans.   134 Table of Contents Analysis of Loan Loss Allowances   The following tables show for 2019 the movement of provisions for expected credit losses for loans at amortized cost according to IFRS 9: Commercial loans     Stage 1    Stage 2    Stage 3          Individual    Collective    Individual    Collective    Individual    Collective    Total     (In millions of Ch$) ECL allowance at January 1, 2019(*)     30,189       44,104       31,066       24,945       198,115       179,771       508,190   Transfers                                                         Transfers to stage 2     (7,786 )     (20,058 )     17,237       68,705       –         –         58,098   Transfers to stage 3     –         (2,666 )     –         –         –         16,087       13,421   Transfers to stage 3     –         –         (8,567 )     (42,601 )     44,203       71,200       64,235   Transfers to stage 1     1,576       4,838       (7,525 )     (22,278 )     –         –         (23,389 ) Transfers to stage 2     –         –         685       9,667       (3,867 )     (27,482 )     (20,997 ) Transfers to stage 1     –         88       –         –         –         (242 )     (154 ) Net changes of the exposure and modifications in credit risk     (6,948 )     14,199       (3,151 )     (12,533 )     41,365       54,962       87,894   Write-off     –         –         –         –         (83,844 )     (94,014 )     (177,858 ) Foreign exchange adjustments and others     4,508       (4,617 )     644       (350 )     193       (3,249 )     (2,871 ) At  December 31, 2019     21,539       35,888       30,389       25,555       196,165       197,033       506,569   (*)       Include loans and ECL balances of the acquired Santander Consumer Chile S.A. Mortgage loans     Stage 1    Stage 2    Stage 3          Collective    Collective    Collective    Total     (in millions of Ch$) ECL allowance at January 1, 2019   9,006       15,102        67,162       91,270   Transfers                 Transfers to stage 2     (3,318 )     20,509       –         17,191   Transfers to stage 3     (311 )     –         5,994       5,683   Transfers to stage 3     –         (12,598 )     31,654       19,056   Transfers to stage 1     1,374       (13,849 )     –         (12,475 ) Transfers to stage 2     –         8,341       (29,303 )     (20,962 ) Transfers to stage 1     6       –         (193 )     (187 ) Net changes of the exposure and modifications in credit risk     1,655       (3,054 )     32,561       31,162   Write-off     –         –         (34,184 )     (34,184 ) Foreign exchange adjustments and others     34       58       4,413       4,505   At December 31, 2019     8,446       14,509       78,104       101,059   135 Table of Contents Consumer loans     Stage 1   Stage 2   Stage 3       Collective   Collective   Collective   Total     (in millions of Ch$) ECL allowance at January 1, 2019 (*)     75,495       60,467       165,052       301,014   Transfers                                 Transfers to stage 2     (28,717 )     109,916       –         81,199   Transfers to stage 3     (1,633 )     –         11,699       10,066   Transfers to stage 3     –         (78,909 )     111,334       32,425   Transfers to stage 1     7,941       (32,506 )     –         (24,565 ) Transfers to stage 2     –         17,002       (31,914 )     (14,912 ) Transfers to stage 1     47       –         (233 )     (186 ) Net changes of the exposure and modifications in the credit risk     15,641       (25,712 )     135,298       125,227   Write-off     –         –         (223,919 )     (223,919 ) Foreign Exchange adjustments     (1,378 )     550       2,946       2,118   At December 31, 2019     67,396       50,808       170,263       288,467   (*) Include loans and ECL balances of the acquired Santander Consumer Chile S.A. The following tables show for 2018 the movement of provisions for expected credit losses for loans at amortized cost according to IFRS 9: Commercial loans     Stage 1   Stage 2   Stage 3         Individual   Collective   Individual   Collective   Individual   Collective   Total     (in millions of Ch$) ECL allowance at January 1, 2018   29,797      50,014     28,282      23,041      191,397      160,182      482,713    Transfers   Transfers to stage 2     (2,719 )     (1,525 )     8,005       8,169       –         –         11,930   Transfers to stage 3     (241 )     (2,697 )     –         –         6,612       29,839       33,513   Transfers to stage 3     –         –         (5,541 )     (6,776 )     22,705       17,475       27,863   Transfers to stage 1     167       553       (411 )     (3,402 )     –                 (3,093 ) Transfers to stage 2     –                 330       1,854       (1,704 )     (6,776 )     (6,296 ) Transfers to stage 1     –         22       –         –         –         (72 )     (50 ) Net changes of the exposure and modifications in the credit risk     4,105       3,770       2,740       2,855       1,251       29,253       43,974   Write-off     –         –         –                 (37,439 )     (58,510 )     (95,949 ) Foreign Exchange adjustments     (920 )     (6,696 )     (2,339 )     (1,167 )     15,293       7,926       12,197   At December 31, 2018     30,189       43,541       31,066       24,574       198,115       179,317       506,802   Mortgage loans     Stage 1   Stage 2   Stage 3         Collective   Collective   Collective   Total     (in millions of Ch$) ECL allowance at January 1, 2018   14,602     20,227     73,190      108,019    Transfers   Transfers to stage 2     (516 )     3,846       –         3,330   Transfers to stage 3     (383 )     –         9,060       8,677   Transfers to stage 3     –         (2,518 )     8,056       5,538   Transfers to stage 1     263       (6,255 )     –         (5,992 ) Transfers to stage 2     –         2,296       (10,185 )     (7,889 ) Transfers to stage 1     232       –         (232 )     –     Net changes of the exposure and modifications in the credit risk     1,601       575       (1,784 )     392   Write-off     –         –         (13,548 )     (13,548 ) Foreign Exchange adjustments     (6,793 )     (3,069 )     2,605       (7,257 ) At December 31, 2018     9,006       15,102       67,162       91,270   136 Table of Contents Consumer loans     Stage 1   Stage 2   Stage 3         Collective   Collective   Collective   Total     (in millions of Ch$) ECL allowance at January 1, 2018     72,712       54,557       170,090       297,359   Transfers                                 Transfers to stage 2     (2,117 )     14,655       –         12,538   Transfers to stage 3     (1,431 )     –         16,311       14,880   Transfers to stage 3     –         (3,913 )     10,721       6,808   Transfers to stage 1     1,320       (4,890 )     –         (3,570 ) Transfers to stage 2     –         2,943       (9,107 )     (6,164 ) Transfers to stage 1     18       –         (18 )     –     Net changes of the exposure and modifications in the credit risk     3,782       (8,572 )     42,194       37,404   Write-off     –         –         (64,506 )     (64,506 ) Foreign Exchange adjustments     (3,380 )     (408 )     (6,619 )     (10,407 ) At December 31, 2018     70,904       54,372       159,066       284,342   As of January 1, 2018, the Bank has adopted IFRS 9. The following table reconciles the prior period’s closing impairment allowance measured in accordance with the IAS 39 incurred loss model to the new expected loss impairment model according to IFRS 9.     Loans loss allowance under IAS 39   Reclassification   Remeasurement   Loans loss allowance under IFRS 9     (in millions of Ch$) Loans and receivable (IAS 39)/ Financial assets at amortised cost (IFRS 9)         Interbank loans     472       (472 )     –         –     Loans and account receivable from customers     790,685       84       97,322       888,091   Total loans and account receivable at amortised cost     791,157       (388 )     97,322       888,091   137 Table of Contents The following table provides the details of the roll-forwards in 2017, 2016 2015, 2014, 2013 and 20122015 of our allowance for loan losses under IAS 39, including decrease of allowances due to charge-offs, allowances established, allowances released, gross provision expense and opening and closing balance:   127  Table of Contents     Commercial loans   Mortgage loans   Consumer loans         Activity during 2017    Individual    Group    Group    Group    Interbank loan   Total     (in millions of Ch$) Balances as of December 31, 2016     246,336       183,106       57,009       300,019       4,135       790,605   Allowances established (1)     64,658       148,681       43,621       252,038       307       509,305   Allowances released (2)     (55,925 )     (20,491 )     (11,427 )     (46,089 )     (3,970 )     (137,902 ) Released allowances by charge- off (3)     (36,279 )     (92,223 )     (20,137 )     (222,212 )     –         (370,851 ) Balances as of December 31, 2017     218,790       219,073       69,066       283,756       472       791,157       Commercial loans    Mortgage loans    Consumer loans    Interbank loan      Activity during 2016    Individual    Group    Group    Group        Total    (in millions of Ch$)     Balances as of December 31, 2015     256,505       174,696       62,427       267,507       1,166       762,301   Allowances established (1)     61,002       133,855       50,892       280,544       3,052       529,345   Allowances released (2)     (43,183 )     (14,432 )     (34,246 )     (30,790 )     (83 )     (122,734 ) Released allowances by charge-off (3)     (54,924 )     (104,868 )     (10,911 )     (207,604 )     —       (378,307 ) Balances as of December 31, 2016     219,400       189,251       68,162       309,657       4,135       790,605       Commercial loans    Mortgage loans    Consumer loans    Interbank loan        Commercial loans    Mortgage loans    Consumer loans          Activity during 2015   Individual    Group    Group    Group        Total  Activity during 2016   Individual    Group    Group    Group    Interbank loan   Total   (in millions of Ch$)       (in millions of Ch$) Balances as of December 31, 2014     215,852       165,697       48,744       254,023       1       684,317   Balances as of December 31, 2015     256,505       174,696       62,427       267,507       1,166       762,301   Allowances established (1)     124,968       136,778       34,373       248,937       1,357       546,413       61,002       133,855       50,892       280,544       3,052       529,345   Allowances released (2)     (46,614 )     (17,885 )     (7,205 )     (18,126 )     (192 )     (90,022 )     (43,183 )     (14,432 )     (34,246 )     (30,790 )     (83 )     (122,734 ) Released allowances by charge-off (3)     (37,701 )     (109,894 )     (13,485 )     (217,327 )     —       (378,407 ) Balances as of December 31, 2015     256,505       174,696       62,427       267,507       1,166       762,301   Released allowances by charge- off (3)     (27,988 )     (111,013 )     (22,064 )     (217,242 )     –         (378,307 ) Balances as of December 31, 2016     246,336       183,106       57,009       300,019       4,135       790,605         Commercial loans   Mortgage loans   Consumer loans   Interbank loan     Activity during 2014   Individual   Group   Group   Group       Total       (in millions of Ch$)           Balance as of December 31, 2013     206,377       100,170       43,306       264,585       495       614,933   Allowances established (1)     52,240       174,244       24,907       218,941       60       470,392   Allowances released (2)     (15,903 )     (7,127 )     (6,561 )     (38,275 )     (554 )     (68,420 ) Released allowances by charge-off (3)     (26,862 )     (101,590 )     (12,908 )     (191,228 )     —       (322,588 ) Balances as of December 31, 2014     215,852       165,697       48,744       254,023       1       684,317       Commercial loans   Mortgage loans   Consumer loans   Interbank loan     Activity during 2013   Individual   Group   Group   Group       Total     (in millions of Ch$)     Balance as of December 31, 2012     154,702       95,938       35,990       263,259       159       550,048   Allowances established (1)     92,008       98,715       42,487       258,446       455       492,111   Allowances released (2)     (22,014 )     (11,151 )     (9,216 )     (35,482 )     (119 )     (77,982 ) Released allowances by charge-off (3)     (18,319 )     (83,332 )     (25,955 )     (221,638 )     —       (349,244 ) Balances as of December 31, 2013     206,377       100,170       43,306       264,585       495       614,933       Commercial loans   Mortgage loans   Consumer loans   Interbank loan     Activity during 2012   Individual   Group   Group   Group       Total     (in millions of Ch$     Balances as of December 31, 2011     112,687       97,115       35,633       243,022       11       488,468   Allowances established (1)     83,742       83,181       25,314       318,565       548       511,350   Allowances released (2)     (20,716 )     (16,624 )     (7,449 )     (38,471 )     (400 )     (83,660 ) Charge-off released allowances (3)     (21,011 )     (67,734 )     (17,508 )     (259,857 )     —       (366,110 ) Balances as of December 31, 2012     154,702       95,938       35,990       263,259       159       550,048       Commercial loans    Mortgage loans    Consumer loans          Activity during 2015    Individual    Group    Group    Group    Interbank loan   Total     (in millions of Ch$) Balances as of December 31, 2015     215,852       165,697       48,744       254,023       1       684,317   Allowances established (1)     124,968       136,778       34,373       248,937       1,357       546,413   Allowances released (2)     (46,614 )     (17,885 )     (7,205 )     (18,126 )     (192 )     (90,022 ) Released allowances by charge- off (3)     (37,701 )     (109,894 )     (13,485 )     (217,327 )     –         (378,407 ) Balances as of December 31, 2015     256,505       174,696       62,427       267,507       1,166       762,301       (1) Represents gross allowances made in respect of increased risk of loss during the period and loan growth.   (2) Represents the gross amount of loan loss allowances released during the year as a consequence of reduction in the level of risk existing in the loan portfolio, including as a result of improvement in the credit risk classification of borrowers and loans paid.   (3) Represents the gross amount of loan loss allowances removed due to charge-off.   128 138 Table of Contents  The following table shows recoveries by type of loan:     Year ended December 31,     2016   2015   2014   2013   2012     (in millions of Ch$) Recovery of loans previously charged-off                     Consumer loans     41,072       35,565       36,908       36,004       22,015   Residential mortgage loans     10,041       6,543       5,122       4,735       2,305   Commercial loans     27,185       26,032       16,947       14,545       8,695   Total recoveries     78,298       68,140       58,977       55,284       33,015   Allocation of the Loan Loss Allowances   The following tables set forth, as of December 31, of each of2019 and 2018 according to IFRS 9 and for the fiveprevious four years listed below,under IAS 39, the proportions of our required loan loss allowances that were attributable to our commercial, consumer and residential mortgage loans at each such date.       As of December 31, 2019      Total ECL Allowance    Allowance amount as a percentage of loans in category    Allowance amount as a percentage of total loans at amortized cost    Allowance amount as a percentage of total allowances for loans at amortized cost      Ch$ million Commercial loans                 Interbank loans     1       0.0 %     0.0 %     0.0 % Commercial loans     384,124       3.3 %     1.2 %     42.9 % Foreign trade loans     28,387       1.7 %     0.1 %     3.2 % Checking accounts debtors     11,900       6.0 %     0.0 %     1.3 % Factoring transactions     3,296       0.7 %     0.0 %     0.4 % Student loans     9,319       13.1 %     0.0 %     1.0 % Leasing transactions     44,645       3.1 %     0.1 %     5.0 % Other loans and accounts receivable     24,615       10.1 %     0.1 %     2.7 % Subtotals     506,569       3.2 %     1.6 %     56.5 % Residential mortgage loans                                 Loans with mortgage finance bonds     137       1.1 %     0.0 %     0.0 % Mortgage mutual loans     816       0.8 %     0.0 %     0.1 % Other mortgage mutual loans     100,106       0.9 %     0.3 %     11.2 % Subtotals     101,059       0.9 %     0.3 %     11.3 % Consumer loans                                 Installment consumer loans     255,061       6.5 %     0.8 %     28.5 % Credit card balances     27,337       2.0 %     0.1 %     3.1 % Consumer leasing contracts     122       3.1 %     0.0 %     0.0 % Other consumer loans     5,947       2.4 %     0.0 %     0.7 % Subtotals     288,467       5.2 %     0.9 %     32.2 % Totals loans to clients     896,095       2.7 %     2.7 %     100.0 %   129 139 Table of Contents      As of December 31, 2018      Total ECL Allowance    Allowance amount as a percentage of loans in category    Allowance amount as a percentage of total loans at amortized cost    Allowance amount as a percentage of total allowances for loans at amortized cost      Ch$ million Commercial loans                 Interbank loans     10       0.1 %     0.0 %     0.0 % Commercial loans     368,786       3.3 %     1.2 %     41.8 % Foreign trade loans     39,917       2.3 %     0.1 %     4.5 % Checking accounts debtors     13,784       6.4 %     0.0 %     1.6 % Factoring transactions     4,353       1.1 %     0.0 %     0.5 % Student loans     11,190       14.0 %     0.0 %     1.3 % Leasing transactions     38,800       2.7 %     0.1 %     4.4 % Other loans and accounts receivable     29,962       18.2 %     0.1 %     3.4 % Subtotals     506,802       3.3 %     1.7 %     57.4 % Residential mortgage loans                                 Loans with mortgage finance bonds     177       1.0 %     0.0 %     0.0 % Mortgage mutual loans     805       0.7 %     0.0 %     0.1 % Other mortgage mutual loans     90,288       0.9 %     0.3 %     10.2 % Subtotals     91,270       0.9 %     0.3 %     10.3 % Consumer loans                                 Installment consumer loans     247,387       7.8 %     0.8 %     28.0 % Credit card balances     28,788       2.0 %     0.1 %     3.3 % Consumer leasing contracts     127       3.1 %     0.0 %     0.0 % Other consumer loans     8,040       3.0 %     0.0 %     0.9 % Subtotals     284,342       5.8 %     0.9 %     32.2 % Totals loans to clients     882,414       2.9 %     2.9 %     100.0 %     As of December 31, 2017   As of December 31, 2016     Total Allowance   Allowance amount as a percentage of loans in category   Allowance amount as a percentage of total loans   Allowance amount as a percentage of total allowances   Total Allowance   Allowance amount as a percentage of loans in category   Allowance amount as a percentage of total loans   Allowance amount as a percentage of total allowances     Ch$ Million Commercial loans Commercial loans     301,990       3.0 %     1.1 %     38.2 %     308,166       3.1 %     1.1 %     39.0 % Foreign trade loans     50,470       3.2 %     0.2 %     6.4 %     57,820       3.2 %     0.2 %     7.3 % Checking accounts debtors     14,466       7.4 %     0.1 %     1.8 %     9,648       5.4 %             1.2 % Factoring transactions     5,995       1.3 %     –         0.8 %     5,407       1.8 %     –         0.7 % Leasing transactions     30,322       2.1 %     0.1 %     3.8 %     23,139       1.6 %     0.1 %     2.9 % Other loans and accounts receivable     34,620       14.4 %     0.1 %     4.4 %     25,262       11.4 %     0.1 %     3.2 % Subtotals     437,863       3.1 %     1.6 %     55.3 %     429,442       3.1 %     1.6 %     54.3 % Residential mortgage loans                                                                 Loans with mortgage finance bonds     123       0.5 %     –         –         16       –         –         –     Mortgage mutual loans     594       0.5 %     –         0.1 %     190       0.2 %     –         –     Other mortgage mutual loans     68,349       0.8 %     0.2 %     8.6 %     56,803       0.7 %     0.2 %     7.2 % Subtotals     69,066       0.8 %     0.2 %     8.7 %     57,009       0.7 %     0.2 %     7.2 % 140 Table of Contents       As of December 31, 2016    As of December 31, 2015    As of December 31, 2014      Total Allowance    Allowance amount as a percentage of loans in category    Allowance amount as a percentage of total loans    Allowance amount as a percentage of total allowances    Total Allowance    Allowance amount as a percentage of loans in category    Allowance amount as a percentage of total loans    Allowance amount as a percentage of total allowances    Total Allowance    Allowance amount as a percentage of loans in category    Allowance amount as a percentage of total loans    Allowance amount as a percentage of total allowances        Ch$ million     Ch$ million             Ch$ million Commercial loans                                                                                                 Commercial loans     308,166       3.1 %     1.1 %     39.0 %     305,465       3.4 %     1.2 %     40.1 %     269,185       3.2 %     1.2 %     39.3 % Foreign trade loans     57,820       3.2 %     0.2 %     7.3 %     67,104       3.1 %     0.3 %     8.8 %     56,800       3.2 %     0.2 %     8.3 % Checking accounts debtors     9,648       5.4 %     —       1.2 %     9,869       4.2 %     —       1.3 %     10,009       3.8 %     —       1.4 % Factoring transactions     5,407       1.8 %     —       0.7 %     5,955       2.2 %     —       0.8 %     4,868       1.5 %     —       0.7 % Leasing transactions     23,139       1.6 %     0.1 %     2.9 %     25,437       1.7 %     0.1 %     3.3 %     23,734       1.6 %     0.1 %     3.5 % Other loans and accounts receivable     25,262       11.4 %     0.1 %     3.2 %     17,371       12.1 %     0.1 %     2.3 %     16,953       12.5 %     0.1 %     2.5 % Subtotals     429,442       3.1 %     1.6 %     54.3 %     431,201       3.2 %     1.7 %     56.6 %     381,549       3.1 %     1.6 %     55.7 % Residential mortgage loans                                                                                                 Loans with mortgage finance bonds     16       —       —       —       336       0.8 %     —       —       353       0.6 %     —       0.1 % Mortgage mutual loans     190       0.2 %     —       —       848       0.6 %     —       0.1 %     552       0.5 %     —       0.1 % Other mortgage mutual loans     56,803       0.7 %     0.2 %     7.2 %     61,243       0.8 %     0.2 %     8.0 %     47,839       0.7 %     0.2 %     7.0 % Subtotals     57,009       0.7 %     0.2 %     7.2 %     62,427       0.8 %     0.2 %     8.1 %     48,744       0.7 %     0.2 %     7.2 % Consumer loans                                                                                                 Installment consumer loans     249,545       9.2 %     0.9 %     31.6 %     215,914       8.7 %     0.9 %     28.3 %     201,931       8.7 %     0.9 %     29.5 % Credit card balances     41,063       2.8 %     0.2 %     5.2 %     43,159       3.0 %     0.2 %     5.7 %     44,050       3.2 %     0.2 %     6.4 % Consumer leasing contracts     72       1.4 %     —       —       79       1.4 %     —       —       80       1.5 %     —       —   Other consumer loans     9,339       3.4 %     —       1.2 %     8,355       3.5 %     —       1.1 %     7,962       3.5 %     —       1.2 % Subtotals     300,019       6.7 %     1.1 %     37.9 %     267,507       6.4 %     1.1 %     35.1 %     254,023       6.5 %     1.1 %     37.1 % Totals loans to clients     786,470       2.9 %     2.9 %     99.5 %     761,135       3.0 %     3.0 %     99.8 %     648,316       3.11 %     2.9 %     100.0 % Interbank loans     4,135       1.5 %     —       0.5 %     1,166       10.7 %     —       0.2 %     1       —       —       —   Totals     790,605       2.9 %     2.9 %     100.0 %     762,301       3.0 %     3.0 %     100.0 %     648,317       3.0 %     2.9 %     100.0 %     As of December 31, 2017   As of December 31, 2016     Total Allowance   Allowance amount as a percentage of loans in category   Allowance amount as a percentage of total loans   Allowance amount as a percentage of total allowances   Total Allowance   Allowance amount as a percentage of loans in category   Allowance amount as a percentage of total loans   Allowance amount as a percentage of total allowances     Ch$ Million Consumer loans Installment consumer loans     240,962       8.3 %     0.9 %     30.5 %     249,545       9.2 %     0.9 %     31.6 % Credit card balances     33,401       2.4 %     0.1 %     4.2 %     41,063       2.8 %     0.2 %     5.2 % Consumer leasing contracts     62       1.3 %     –         –         72       1.4 %     –         –     Other consumer loans     9,331       3.4 %     –         1.2 %     9,339       3.4 %     –         1.2 % Subtotals     283,756       6.2 %     1.0 %     35.9 %     300,019       6.7 %     1.1 %     37.9 % Totals loans to clients     790,685       2.9 %     2.9 %     99.9 %     786,470       2.9 %     2.9 %     99.5 % Interbank loans     472       0.3 %     –         0.1 %     4,135       1.5 %     –         0.5 % Totals     791,157       2.9 %     2.9 %     100.0 %     790,605       2.9 %     2.9 %     100.0 %   130  Table of Contents     As of December 31, 2015     Total Allowance   Allowance amount as a percentage of loans in category   Allowance amount as a percentage of total loans   Allowance amount as a percentage of total allowances     Ch$ Million Commercial loans                 Commercial loans     305,465       3.4 %     1.2 %     40.1 % Foreign trade loans     67,104       3.1 %     0.3 %     8.8 % Draft loans     9,869       4.2 %     –         1.3 % Factoring transactions     5,955       2.2 %     –         0.8 % Leasing transactions     25,437       1.7 %     0.1 %     3.3 % Other loans and accounts receivable     17,371       12.1 %     0.1 %     2.3 % Subtotals     431,201       3.2 %     1.7 %     56.6 % Residential mortgage loans                                 Loans with letters of credit     336       0.8 %     –         –     Mortgage mutual loans     848       0.6 %     –         0.1 % Other mortgage mutual loans     61,243       0.8 %     0.2 %     8.0 % Subtotals     62,427       0.8 %     0.2 %     8.1 % Consumer loans                                 Installment consumer loans     215,914       8.7 %     0.9 %     28.3 % Credit card balance     43,159       3.0 %     0.2 %     5.7 % Consumer leasing contracts     79       1.4 %     –         –     Other consumer loans     8,355       3.5 %     –         1.1 % Subtotals     267,507       6.4 %     1.1 %     35.1 % Totals loans to clients     761,135       3.0 %     3.0 %     99.8 % Interbank     1,166       10.7 %     –         0.2 % Totals     762,301       3.0 %     3.0 %     100.0 %       As of December 31, 2013    As of December 31, 2012      Total Allowance    Allowance amount as a percentage of loans in category    Allowance amount as a percentage of total loans    Allowance amount as a percentage of total allowances    Total Allowance    Allowance amount as a percentage of loans in category    Allowance amount as a percentage of total loans    Allowance amount as a percentage of total allowances        Ch$ million                               Ch$ million                           Commercial loans                                                                 Commercial loans     208,619       2.7 %     1.0 %     33.9 %     199,841       2.7 %     1.1 %     36.3 % Foreign trade loans     53,005       2.9 %     0.3 %     8.6 %     18,535       1.5 %     0.1 %     3.4 % Draft loans     8,376       3.0 %     —       1.3 %     3,033       1.5 %     —       0.6 % Factoring transactions     5,054       1.6 %     —       0.8 %     3,683       1.1 %     —       0.7 % Leasing transactions     19,177       1.4 %     0.1 %     3.1 %     23,426       1.8 %     0.1 %     4.3 % Other loans and accounts receivable     12,316       10.4 %     0.1 %     2.0 %     2,122       2.2 %     —       0.4 % Subtotals     306,547       2.6 %     1.5 %     49.7 %     250,640       2.4 %     1.3 %     45.7 % Residential mortgage loans                                                                 Loans with letters of credit     470       0.7 %     —       0.1 %     493       0.5 %     —       0.1 % Mortgage mutual loans     380       0.5 %     —       0.1 %     936       2.0 %     —       0.2 % Other mortgage mutual loans     42,456       0.8 %     0.2 %     6.9 %     34,561       0.7 %     0.2 %     6.3 % Subtotals     43,306       0.8 %     0.2 %     7.1 %     35,990       0.7 %     0.2 %     6.6 % Consumer loans                                                                 Installment consumer loans     221,723       10.2 %     1.1 %     36.1 %     218,474       11.8 %     1.2 %     39.7 % Credit card balances     37,300       3.0 %     0.2 %     6.1 %     38,719       3.7 %     0.2 %     7.0 % Consumer leasing contracts     68       2.0 %     —       —       160       4.3 %     —       —   Other consumer loans     5,494       2.7 %     —       0.9 %     5,906       3.0 %     —       1.0 % Subtotals     264,585       7.3 %     1.3 %     43.1 %     263,259       8.5 %     1.4 %     47.7 % Totals loans to clients     614,438       2.9 %     3.0 %     99.9 %     549,889       2.9 %     2.9 %     100.0 % Interbank     495       0.4 %     —       0.1 %     159       0.2 %     —       —   Totals     614,933       2.9 %     3.0 %     100.0 %     550,048       2.9 %     2.9 %     100.0 % Based on information available regarding our borrowers, we believe that our loan loss allowances are sufficient to cover known potential losses and losses inherent in a loan portfolio of the size and nature of our loan portfolio.   131 141 Table of Contents  ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES   A. Directors and Senior Management Directors   We are managed by our Board of Directors, which, in accordance with our by-laws, consists of 119 directors and two alternates who are elected at our ordinary shareholders’ meetings. Except as noted below, the current members of the Board of Directors were elected by the shareholders in the ordinary shareholders’ meeting held on April 26, 2014.2017. Members of the Board of Directors are elected for three-year terms. The term of the current Board members expires in April of 2017. On October 27, 2016, the SBIF authorized a reduction in the number of Board members from 11 to nine. This reduction and the corresponding amendment to Article 14 of the by-laws was approved by the shareholders at an Extraordinary Shareholders’ Meeting held on January 9, 2017 and will enter into force on the date of the Bank’s next Ordinary Shareholders’ Meeting, which will take place on April 26, 2017. The current principal and alternate directors will remain in office until such date.2020.   Cumulative voting is permitted for the election of directors. The Board of Directors may appoint replacements to fill any vacancies that occur during periods between elections. If any member of the Board of Directors resigns before his or her term has ended, and no other alternate director is available to take the position at the next annual ordinary shareholders’ meeting a new replacing member will be elected. Our executive officers are appointed by the Board of Directors and hold office at its discretion. Scheduled meetings of the Board of Directors are held monthly. Extraordinary meetings can be held when called in one of three ways: by the Chairman of the Board of Directors, by three directors with the consent of the Chairman of the Board of Directors or by the majority of directors. None of the members of our Board of Directors has a service contract which entitles any Director to any benefits upon termination of employment with Santander-Chile.   Our current directors are as follows:   Directors Position Committees Term Expires Vittorio Corbo LioiClaudio Melandri Hinojosa President Asset and Liability Committee (President) Apr-17 Human Resources Committee (President) Market Committee (President) Strategy Committee (President) Market Committee Remuneration Committee Apr-20 Oscar von Chrismar Carvajal Rodrigo Vergara Montes First Vice President Market Committee Audit Committee Asset and Liability Committee (First Vice President)(President) Strategy Committee Apr-17Apr-20 Human Resources Committee Market Committee (First Vice President) Integral Risk Committee (President) Strategy Committee Roberto Méndez TorresOrlando Poblete Iturrate Second Vice President Remuneration Committee (President) Audit Committee (President) Apr-20 Felix de Vicente Mingo Director Asset and Liability Committee Audit Committee Integral Risk Committee Strategy Committee Management Appointment Committee (President) Apr-20 Alfonso Gómez Morales Director Integral Risk Committee (Second Vice President)(President) Strategy Committee Remuneration Committee Market Committee Asset and Liability Committee Apr-17Apr-20 Ana Dorrego Director – Apr-20 Rodrigo Echenique Gordillo Director – Apr-20 Lucia Santa Cruz Sutil Director Strategy Committee (Vice President) Analysis and Resolution Committee Market committee Apr-20 142 Table of Contents Directors Position Committees Term Expires Juan Pedro Santa Maria Perez Director Audit Committee (Secretary) Analysis and Resolution Committee (President) Apr-17 Integral Risk Committee (First Vice President) Marco Colodro Hadjes Director Audit Committee (President) Apr-17 Asset and Liability Committee Market Committee Mauricio Larraín Garcés Director Audit Committee (Vice President and Financial Expert) Apr-17 Human Resources Committee (First Vice President) 132  Table of Contents Roberto Zahler Mayanz Director Asset and Liability Committee (Second Vice President) Apr-17 Integral Risk Committee Market Committee (Second Vice President)Apr-20 Lucía Santa Cruz Sutil Director Strategy Committee Apr-17 Orlando Poblete Iturrate Director Audit Committee (Second Vice President) Apr-17 Andreu Plaza Director  — Apr-17 Ana Dorrego Director  — Apr-17 Blanca Bustamante Bravo Alternate Director Human ResourcesIntegral Risk Committee Strategy Committee Management Appointment Committee Apr-17Apr-20 Raimundo Monge Zegers Oscar von Chrismar Carvajal Alternate Director Integral Risk Committee Apr-17 Market Committee (President) Strategy Committee (Secretary) Management Appointment Committee Asset and Liability Committee Analysis and Resolution Committee (First Vice President) Apr-20 (1) Rodrigo Echenique became a director on March 26, 2019, filling the vacancy left by the resignation of Andreu Plaza on March 12, 2019.   Vittorio Corbo LioiClaudio Melandri Hinojosa became the Executive Chairman on February 27, 2018 and is country head of Grupo Santander in Chile. He is also President of Santander Chile Holding S.A. and Vice President of Universia Chile S.A.. He has beenmore than 30 years of experience in the financial industry and was Chief Executive Officer of Santander Chile from January 2010 to March 2018. He started his career in Banco Concepción and joined Grupo Santander in 1990, where he has held various positions of responsibility, including Regional Manager of the branch network, Human Resources Manager and Manager of Commercial Banking. He was also a Vice President at Banco Santander Venezuela for three years in the commercial area of this country. Mr. Melandri has degrees in Business and Accounting and holds a Master of Business Administration from the Universidad Adolfo Ibañez. Rodrigo Vergara became a director and First Vice President of the Board since April 2014.on July 12, 2018. He is one of Chile's leading economists. From 2003 to 2007, Mr. Corbo was the President of Chile'sthe Central Bank. Since the endBank of his tenure there, Mr. Corbo has beenChile between 2011 and 2016 and was a Senior Research Associate at the Centro de Estudios Públicos (CEP), a local think tank. Mr. Corbo is also member of the boardsCentral Bank of Banco Santander Mexico, CCUChile between 2009 and 2011. Mr. Vergara is an associate researcher at the Centre of Public Studies (CEP) and Harvard’s Mossavar-Rahmani Center for Business and Government (Kennedy School). He is a professor of Economics at Pontificia Universidad Católica de Chile and also an economic consultant and board member for various companies. He graduated with an Economics Degree from the Pontificia Universidad Católica de Chile in 1985 and earned a Doctorate Degree in Economics from Harvard University in 1991. Between 1985 and 1995, he worked at the Central Bank of Chile where he was promoted to several large corporationsChief Economist in Chile1992. He has been an economic consultant for central banks and abroad.governments within Latin America, Eastern Europe, Asia and Africa. He served in senior managerial positions athas also been an external consultant for the World Bank, the International Monetary Fund, the Inter-American Development Bank and the United Nations. He has served as a Presidential Advisor regarding Work and Equality, Advisor on the Free Trade Agreement between Chile and the US, the National Savings Commission and the National Foundation of Science and Technology Development (Conicyt). He is a member of the editorial council for the journal of Public Studies. Mr. Vergara is the author of numerous articles published in Washington, DC (1984-1991)professional, specialized journals and edited various books. Orlando Poblete Iturrate is the Second Vice President and has served on the Board since April 22, 2014. Since 1991, Mr. Poblete has been a professor at the Universidad de los Andes. Between 1997 and 2004, he was Dean of economics in Canada, the USALaw School at the Universidad de los Andes and Chile. Between 1991 and 1995, Mr. Corbo was an economic advisor tosince 2014 he has served as Chancellor. He is also a partner at the Bank, andlaw firm Orlando Poblete & Company. He is a member of its Boardthe Counsel of Directorsthe Arbitration and Mediation of Santiago of the Chamber of Commerce of Santiago. Previously, between 19951979 and 2003.1991, he was a professor of Procedural Law at the Universidad de Chile. Mr. Poblete is a lawyer from the University of Chile and has a Masters in Law from the same university. He is also a graduate of the Directive Management of Companies Program (PADE) of ESE Business School of the Universidad de los Andes. Félix de Vicente Mingo became a director on March 27, 2018. He has a Commercial Engineering degree with mention in Economics from the Universidad de Chile. Between 20112013 and 2014, he was Minister of Economy, Development and Tourism. Before this, he was a director of ProChile, the institution of the Ministry of Foreign 143 Table of Contents Affairs that promotes Chilean exports. His first position was in a fruit export company in the O’Higgins region of Chile and then Manager of Administration and Finance of Telemercados Europa, as well as being president and partner of various companies in Chile and abroad. Alfonso Gómez became a director on March 27, 2018. He has Civil Engineering degree from the Universidad Católica de Chile, a Ph.D. of the Royal College of Art of London and he is an advisor to the Innovation Center UC Anacleto Angelini. He started his career in the Industrial and System Engineering Department of Universidad Católica de Chile. He was founder of various companies, such as Apple Chile, Unlimited and Virtualia, the first social network developed in Latin America. He has been a director of numerous companies and institutions such as National Council of Culture and the Arts and Fundación País Digital, and the National Council of Innovation. He was Dean of the Faculty of Engineering and later Dean of the Business School of the Adolfo Ibáñez University. Ana Dorrego became a director on March 15, 2015. She has been working at the Santander Group since 2005, mainly in the Financial Planning and Corporate Development department, coordinating the Group’s planning processes and following up on the different Santander Group units and projects. She was director of E-business development director for the Santander Group and previously she was a corporate client relationship manager and commercial director of transactional banking at Bankinter. Ms. Dorrego holds a degree in Business Administration from the Universidad Pontificia de Comillas ICAI-ICADE, and a Master’s degrees in Business Administration from Deusto University – Bilbao, Spain, and Adolfo Ibañez, Miami/Chile. Rodrigo Echenique Gordillobecame a director on March 26, 2019. He has a law degree from the Universidad Complutense de Madrid. He is Vice President and executive director of the Santander Group and is a member of the board of directors of Santander Mexico. Mr. Echenique has important and vast experience in international banking. In 1976 he joined Banco Exterior de España as Deputy General Manager and head of legal services. He was later promoted to Deputy General Manager and member of the Executive Commission- and he was an Executive Director of Banco Santander S.A. between 1988 and 1994. He was a board member for various industrial and financial companies such as Ebro Azúcares y Alcoholes, S.A., e Industrias Agrícolas, S.A., and chaired the advisory council of Accenture S.A. He was also a non-executive president of NH Hotels Group, S.A., Vocento, S.A., Vallehermoso, S.A. and Merlin Properties, SOCIMI, S.A. Lucía Santa Cruz Sutil became a director on August 19, 2003. She is a Member of the Board of the Universidad Adolfo Ibañez. She is director of Compañía de Seguros Generales y de Vida La Chilena Consolidada (Zurich) and member of the Advisory Board of Nestle Chile. She is a member of the Self-Regulation Committee for Insurance Companies in Chile. Ms. Santa Cruz holds a degree in History from King’s College, London University and an M.Phil. in History from Oxford University and holds a Doctor Honoris Causa degree from King’s College. Juan Pedro Santa María Pérezbecame a director on July 24, 2012 after having served as Corporate Legal Director for Grupo Santander Chile, Legal Counsel for Santander-Chile, Banco Santander SA in Spain. Mr. Corbo is theO’Higgins and Banco Santiago. He has been President of the AssetLegal Committee of the Asociación de Bancos e Instituciones Financieras de Chile for over 20 years and LiabilityPresident Pro-Tempore of the Financial Law Committee of the Market Committee,Federación Latinoamericana de Bancos (FELABAN). He is a member of the Strategy CommitteeCounsel of Arbitrage and Mediation of the Human Resources Committee.Chamber of Commerce of Santiago. Mr. CorboSanta María holds a degree in Law from the Pontificia Universidad Católica de Chile. Blanca Bustamante Bravo became an alternate director on April 28, 2015. She holds a commercial engineering degree (with highest distinction) from the Universidad de Chile and a Ph.D.with mention in economics from MIT.Universidad Católica de Chile. Her professional experience includes the role of economic analyst for the Central Bank of Chile and research analyst for Oppenheimer & Co. in New York and IM Trust. In 1998, she joined Viña Concha y Toro as Head of Investor Relations, a position held until 2010. In 2001, she also became deputy manager of Corporate Communications. Currently she holds the position of Director of Corporative Affairs with responsibilities covering corporate communication and investor relations. Since 2013, she has been a director in the Center for Research & Innovation for Concha y Toro.   Oscar von Chrismar Carvajal became Vice President ofjoined the Board on January 1, 2010, after having servedDecember 22, 2009 and is currently an alternate director. Mr. von Chrismar holds a Civil Engineering degree from the Universidad de Santiago de Chile with specialist studies in the US and Europe. He is a director of Sinacofi and the Stock Exchange since April 2012. He joined Banco Santander in 1990 as the Chief Executive Officer of Santander-Chile since August 2003. Mr. Von Chrismar is First Vice Presidenta manager of the Assetfinance division. Between 1995 and Liability Committee, the Market Committee and the Integral Risk Committee. He is also a member of the Human Resources Committee and the Strategy Committee. Prior to assuming the Chief Executive officer post,1996 he was the Manager of Global Banking. Prior to the merger, he was the former Chief Executive Officer of Old Santander-Chile since September 1997, after being General Manager of Banco Santander-Peru since September 1995.Santander Peru. In 1997, he became the General Manager of Santander Chile, a position he held until December 2009 when he joined the Board of Directors. Mr. von Chrismar is also a board member of Banco Santander Argentina and Banco Santander Peru. He is also the President of Santander Consumer Chile S.A. Prior to that, Mr. von Chrismar was the manager of the Finance Division of Santander-Chile, a position that he had held since joining Santander-Chile in 1990. Mr. von Chrismar holds an Engineering degree from the Universidad de Santiago de Chile.   Roberto Méndez Torres is Second Vice President of the Board. He is a former member of the Board of Old Santander-Chile, to which he was appointed in 1996. He is Second Vice President of the Integral Risk Committee and the Strategy Committee. He is a professor of Economics at Universidad Católica de Chile. He has been Advisor to Grupo Santander-Chile since 1989. Mr. Méndez is President and Director of Adimark Chile Gfk and on the Board of the Chilean and German Chamber of Commerce. He is also a Director of Enex S.A. and President of Universia Chile S.A. Mr. Méndez is also a member of the Council of Paz Ciudadana and was a former President of ICARE. He graduated with a degree in Business Administration from Universidad Católica de Chile, and holds an MBA and a Ph.D. from the Graduate School of Business at Stanford University. Juan Pedro Santa María Pérezbecame a Director on July 24, 2012 after having served as Corporate Legal Director for Grupo Santander Chile and Legal Counsel for Santander-Chile. Mr. Santa María is President of the Analysis and Resolution Committee and First Vice President of the Integral Risk Committee. Mr. Santa María joined Santander-Chile in 2002, after the merger with Banco Santiago. Previous to that he was Legal Counsel for Banco Santiago and Banco O’Higgins. He has also been President of the Legal Committee of the Asociación de 133 144 Table of Contents  Bancos e Instituciones Financieras de Chile for over 20 yearsArgentina and President Pro-Tempore of the Financial Law Committee of the Federación Latinoamericana de Bancos (FELABAN). Mr. Santa María holds a degree in Law from the Pontificia Universidad Católica de Chile. Marco Colodro Hadjes became a Director on April 19, 2005. Mr. Colodro is President of the Audit Committee and is a member of the Asset and Liability CommitteePeru and the Market Committee. He is a director of the Board of Telefónica Chile and a former director of Codelco. He is the former chairman of TVN (National Television Network) and the former vice chairman of Banco del Estado de Chile (State Bank of Chile). Prior to that, he was Foreign Trade Director at the Central Bank of Chile. Mr. Colodro holds a degree in Economics from the Universidad de Chile, and has done post-graduate studies at the École Pratique des Hautes Etudes of the University of Paris. Mauricio Larraín Garcésbecame a Director in April 2014. Previously, he was President of the Board of Santander-Chile for more than two decades. He is Vice President and Financial Expert of the Audit Committee. He is also First Vice President of the Human Resources Committee. He is a member of the board of the Institute for Religious Works (IOR) in the Vatican City State. Mr. Larraín began working at Santander-Chile in 1989. Previously, he was Deputy Superintendent of Banks, Manager of External Debt at the Central Bank of Chile, and Senior Finance Specialist at the World Bank, in Washington D.C. He holds law degrees from the Pontifical Catholic University of Chile and from Harvard University. Roberto Zahlerbecame a Director in 2002. He is Second Vice President of the Asset and Liability Committee and the Market Committee. He is also a member of the Integral Risk Committee. Currently, he is President of the consultancy firm Zahler & Co. and serves as a consultant for the World Bank, IADB, IMF and BIS. He has been a member of the High Level Consulting Group to the IADB President, of LASFRC (Latin-American Shadow Financial Regulatory Committee) and of the Emerging Market Economies Eminent Persons Group (EMEEPG). He was President of the Board of Siemens-Chile and Director of Air Liquide-Chile and of Banco Santiago. He was also a visiting professor at the IMF’s Research Department. Between 1991 and 1996, he was President of the Central Bank of Chile and Vice President from 1989 to 1991. Prior to that he served as Chief Regional Adviser in Monetary and Financial Policy of the UN Economic Commission for Latin America and the Caribbean and was Lecturer and Researcher at the University of Chile’s School of Economics. Mr. Zahler has provided technical assistance to the central banks and finance ministries of Indonesia, Kosovo and most countries in Latin America. Mr. Zahler holds a degree in Economics from the Universidad de Chile and a Masters in Economics from the University of Chicago. Lucía Santa Cruz Sutil became a Director on August 19, 2003. Ms. Santa Cruz is a member of the Strategy Committee. Ms. Santa Cruz holds a degree in History from King’s College, London University and an M.Phil. in History from Oxford University and holds a Doctor Honoris Causa degree from King’s College. She is a Member of the Board of the Universidad Adolfo Ibañez. Ms. Santa Cruz is also Second Vice President of Universia Chile S.A. She is Vice President of the Board of Compañía de Seguros Generales y de Vida La Chilena Consolidada,(Zurich) and member of the Advisory Board of Nestle Chile She sits on the board of non-profit cultural organizations and is also a member of the Self-Regulation Committee for Insurance Companies in Chile. She is a Member of the Academy of Social, Political and Moral Sciences of the Institute of Chile. Orlando Poblete Iturrate became a Director on April 25, 2015. He is the Second Vice President of the Audit Committee. He previously became an Alternate Director on April 22, 2014. Since 1991 Mr. Poblete has been a professor at the Universidad Los Andes. Between 1997 and 2004, he was Dean of the Law School and since 2014 he has been Chancellor of the university. He is also a partner at the law firm Orlando Poblete & Company. He is an arbitrator of the Centro de Arbitraje y Mediación de la Cámara de Comercio de Santiago. Between 2012 and 2014, he was Chairman of Clínica Universidad de los Andes and is currently Member of the Board of the University of the Andes. He has also been a Professor of Law at the University of Chile. Mr. Poblete is a lawyer from the University of Chile and has masters from the same university. Andreu Plazabecame a Director in March 2016. Mr. Plaza was appointed as senior executive vice president of T&O Division in Santander Group on January 2015. He is Santander’s Chief Technology Officer and a member of the management committee. Mr. Plaza joined the Group in 2012 as the technology and operations director for the retail and business banking segments in Santander UK.  He has been a senior executive vice president and member of the Management Committee of Caixa Catalunya since 1998 and has also been a member of the boards of Servired and Aula Escola Europea.  He has a graduate in Mathematics from the Universitat Autónoma de Barcelona. He also has various Master’s degrees in Finance and Banking from Stanford University, Insead, The Wharton School and ESADE. 134  Table of Contents Ana Dorrego became a Director in March 2016. She has been working at the Santander Group in the Financial Planning and Corporate Development department for the last 11 years, coordinating the Group planning processes. In this role, she has also been involved in following up on the different Santander Group units and projects. She is a board member of Santander Securities Services, S.A. She has also participated in acquisition, sales and integration projects during her time with the Group (ABN, SEB, US, Banesto, Spanish Cajas and Banif Portugal among others) and spent two years as e-business development director for the Santander Group.Santiago Stock Exchange. Prior to joining the Santander Group shehe was a corporate clients relationship managerManager of the Finance Division for Morgan Bank and commercial directorManager of transactionalFinance of ING Bank. He has more than 25 years of experience in the banking at Bankinter. Ms. Dorrego holds a degree in Business Administration from the University Pontificia de Comillas ICAI-ICADE, a degree in General Management from IESE and Master’s degrees in Business Administration from Deusto University – Bilbao, Spain, and Adolfo Ibañez, Miami/Chile.industry.   Blanca Bustamante Bravo became an Alternate Director on April 28, 2015. She is also a member of the Human Resources Committee. In 1998, she joined Viña Concha y Toro as Head of Investor Relations with the responsibility to present business strategy and achievements of the company to the financial community, a position held until 2010. In parallel, in May 2001, she became Assistant Manager of Corporate Communications. In 2011, she became responsible for relations with the community in order to focus the efforts of the company in projects that create value for the community and the environment in which it operates. Since 2013, she is a director in the Center for Research & Innovation for Concha y Toro which focus is to develop technology and knowledge transfer to the industry. She holds a degree in business from Universidad Católica de Chile. Raimundo Monge Zegers became an Alternate Director on April 29, 2003. Mr. Monge is Corporate Director of Strategic Planning for Grupo Santander-Chile and is CEO of Santander Chile Holding S.A. He is First Vice President of the Analysis and Resolution Committee. He is also currently a member of the Asset and Liability Committee, the Integral Risk Committee and Secretary of the Strategy Committee. He is also President of Santander Inversiones S.A., Santander S.A. Sociedad Securitizadora and Santander Factoring S.A. He is a Director of Teatinos Siglo XXI Inversiones S.A. and Bansa Santander S.A. Mr. Monge has a degree in business from the Universidad Católica de Chile and an MBA from the University of California, Los Angeles. 135  Table of Contents Senior Management   Our senior managers are as follows:   Senior Manager Position Date Appointed  Claudio MelandriMiguel Mata Chief Executive Officer Jan-10 Miguel Mata Deputy General Manager Apr-16Mar-18 Matias SanchezSánchez Director of Retail Banking Mar-16 Fred Meller Director of Global Corporate and Investment Banking Jan-11 Jose Manuel Manzano Director of Middle-Market Apr-16 Emiliano Muratore Chief Financial Officer Apr-16 Guillermo Sabater Financial Controller Nov-15 Franco Rizza Director of Risk Feb-14 Ricardo Bartel Director of Technology and Operations Oct-14Jun-15 María Eugenia de la Fuente Director of Human Resources Jun-15 Sergio Avila Director of Administration and Costs Mar-15 Felipe ContrerasJonathan Covarrubias Chief Accounting Officer Oct-08May-19 Carlos Volante Manager Clients and Service Quality Jan-14 Cristian Florence General Counsel Sep-12 Ricardo MartinezOscar Gomez Director of Internal Audit Sep-13Jan-20 Cristian Peirano Director of Corporate Products Apr-19 Claudio Melandri became the Chief Executive Officer of Santander-Chile in January 2010 after being our Retail Banking Manager since February 21, 2008. He started his career at Santander-Chile in 1990 becoming a regional branch manager and manager of Santander-Chile’s branch network. He was also a Vice President at Banco Santander Venezuela from 2005 to 2007. In 2007, he was appointed Corporate Director of Human Resources of Banco Santander-Chile. He is also President of Santander Chile Holding S.A. and First Vice President of Universia Chile S.A. Mr. Melandri has a Business Degree from the Universidad Tecnológica Metropolitana in Chile and holds a Master’s degree in Business Administration from the Universidad Adolfo Ibañez.   Miguel Mata became the Chief Executive Officer in March 2018. Previously, he was Deputy General Manager for Santander-Chile on April 2016. Previously, between 2011 and 2016, he was the Chief Financial Officer for Santander-Chile. Prior to that, he served in several staff positionsamong other diverse roles related to the business strategy.strategy of Santander-Chile. Mr. Mata joined Santander-Chile in 2002 when Santander-Chile merged with Banco Santiago. Previously he wasHe previously served as the Financial Controller of Banco Santiago. Mr. Mata is also a Director of Santander Consumer Chile S.A., Teatinos Siglo XXI Inversiones S.A. and Santander Chile Holding S.A. He has been working in the banking industry since 1990, when he joined Banco O’Higgins, one of the predecessors to Banco Santiago. He is also a Director of Santander Consumer Chile S.A. and was president of Santander Asset Management S.A., as well as a director of Redbanc and Transbank, representing Banco Santander. Mr. Mata holds a degree in Engineering from Universidad Católica de Chile.   Matias SanchezSánchez became DirectorManager of Retail Banking in March 2016. He previously was the manager of CorporationsCompanies and Institutions between 2013 and 2016. He joined Banco2016 at Santander Chile. Previously, he worked for 18 years in 1997Banesto, part of Grupo Santander as the deputy general director of Commercial Banking, and had different roles there, including agent, Regional Manager, Deputy General Manageras Chief Executive Officer of Gescoban Soluciones S.A.. Mr. Sánchez is an Economist of the Alicante University (Spain), with post-graduate studies in Retail and General Manager in Retail Banking. Mr. Sanchez holds a Master’s degree in Business Administration from the Instituto de Empresa and IESE, both in Spain and various other post graduate degrees.Madrid. He also has a diploma in Leadership from Harvard Business School.   Fred Meller became Manager of GlobalSantander Corporate and Investment Banking & Market in January 2011. Prior to that, he was Manager of Market MakingMarkets for Europe and UK for Santander Spain. Previously, he served as Treasurer and was a responsible for Santander-Chile since 2008.the Finance Division of Santander Chile. He was also General Manager of Santander Agente de Valores and Directoris currently a director of Deposito Central de Valores Chile. Mr. MellerChile and is also President of Santander S.A. Corredores de Bolsa. Mr. Meller holds a commercial engineering degree in Business Administration from Universidad Central de Chile.   José Manuel Manzano became DirectorManager of our Middle-market banking segment on April 1, 2016. Prior to that, he was Manager of Personnel, Organization and CostCosts of Banco Santander Chile since September 2013. Prior to that heHe was Corporate Director of Risk since JulySeptember 2007, and Corporate Director of Human Resources for Santander-Chile since October 31, 2002. Previously, he served as Manager of Human Resources for Old Santander-Chile since 1999. He was also General Manager of Santander Fund ManagementAdministradora General de Fondos and Managing Director of Bancassurance.Santander AFAP in Uruguay. He is alsocurrently a Directordirector of Teatinos Siglo XXI Inversiones S.A., Santander Chile Holding S.A., Santander Asset Management S.A. and Zurich Santander Factoring S.A. Mr. Manzano holds an MBAa Master of Business Administration and a commercial engineering degree in Business from Universidad Católica de Chile. 136  Table of Contents   Emiliano Muratore became the Chief Financial Officer for Santander-Chile in April 2016. Before becoming Chief Financial Officer,From Buenos Aires, Argentina, he spent eighthas more than 17 years asof experience in the head ofSantander Group. He joined Santander Rio (Argentina) in 1999 and after four years he was moved to the ALM division. Prior to joining Santander Chile in 2006, Mr. Muratore worked at Santander’sGroup headquarters in Madrid for 4 years and, before that, at Santander’s unitas part of the Future Directors 145 Table of Contents Program, where he started his experience in Argentina for 4 years. He is also a Director ofthe finance division. In 2006, he moved to Santander Chile Holding S.A. and Santander Factoring S.A.where, in 2008, he was made Manager of the Financial Division, bearing responsibility for the management of structural financial risks. After eight years, he was promoted to Chief Financial Officer. Mr. Muratore has a degree in business from Universidad Católica Argentina in Buenos Aires and a postgraduate degree in finance from Universidad de San Andrés in Buenos Aires. Currently, he is chairman of the Finance Committeefinancial management and infrastructure committee at Chile’s Banking Association.   Guillermo Sabaterwas appointedis the Financial Controller of Santander-Chile in November 2015 and has been working for Santander Spain and its affiliates for 23 years. Between 2009 and 2015, he was Executive Vice President of Santander in the US and CFO and Controller of Sovereign Bank and Santander Holdings USA. Before that, he was the financial controller of Banco Santander Chile, between 2006 and 2009. He also served for three years, between 2003-20062003 and 2006, as controller of the Consumer Finance Division in Madrid, Spain. Mr. Sabater also served as an internal auditor during his first ten years at the company,company. He has a degree in Economics and Business Administration from the University College of Financial Studies at the University Complutense de Madrid and a completed thea Program in Executive Development at the Institute of Business and has completed various courses and participation inat institutions such as Babson College and Boston University.   Franco Rizzabecame DirectorManager of Risk in February 2014. Previously, he was director of Global Collections & Recoveries in the Madrid headquarters, covering all countries where the Group has commercial banking activities outside Spain. Between 2010 and 2013, he was the Chief Risk Officer of Banco Santander Risk in Uruguay. He joined the Group in 1989 in Argentina, where he held various positions, including Regional Manager, Product Manager and Retail Credit Risk Manager. He is also a Director of Santander Consumer Chile S.A.S.A.. He has completed studies in Business and Risk Management in Argentina and SpainSpain.   Ricardo Bartelbecame the DirectorManager of Technology and operationOperation in June 2015 after joining Santander Chile in October 2014. His2014 as Manager of Operational Services of the same division. Mr. Bartel has both a Civil Engineering degree and a Master of Business Administration from Universidad Católica de Chile. He is also Directora graduate of Isban Chile S.A. Prior to working at the Bank heDirective Management of Companies Program (PADE) of ESE Business School of the Universidad de los Andes. He has previously held various management positions at CCU including CFO between 1990in product and 2005. He was also CFOservice companies such as Chief Financial Officer at Madeco, form 2005-2006. Between 2007Logistics and 2008 he was CommercialDistribution Manager and Chief Financial Officer of Viña San Pedro. Following that he was CEOCCU SA. and Chief Executive Officer of Empresas Relsa S.A. and CEO of Laboratorio Mayer between 2011 and 2013. Mr. Bartel has a Civil Engineer degree from Universidad Católica de Chile with an MBA from the same university.Maver.   María Eugenia de la Fuentebecameis the Director of Human Resources in June 2015. Prior to working for the Bank,and Communications. Ms. de la Fuente held different postshas a commercial engineering degree from the Universidad de Chile and a Master’s degree in tax planning from the Universidad Adolfo Ibañez. She has more than 25 years of experience in strategic planning and human resources.resource management for both private and public companies. From March 2010 to 2013,February 2012, she was the Undersecretary to the Chief of Staff for the first government of President Sebastian Piñera. From 2013 to 2015, she was Managing Director of Transparency and Client Services for Corpbanca and Chief Executive Officer of BZD Consultores. Ms. de la Fuente has a degreeShe assumed her current role at Santander-Chile in business from the Universidad de Chile and a Master’s degree in tax planning from the Universidad Adolfo Ibañez.June 2015.   Sergio Avilais DirectorManager of Administration and Costs. He has worked at Banco Santander Chile for 19 years in Asset Management, Corporate Finance, Retail banking, Middle-market and Risks. Mr. Avila is also Director of Santander S.A. Sociedad Securitizadora. Mr. Avila has a BSBachelor of Science and MSMaster of Science in Civil Engineering Degree from the Universidad Católica.lica de Chile.   Felipe Contreraswas named Chief Accounting Officer of Santander-Chile in October 2008. He has worked for 14 years in our Accounting Department, most recently as Manager of the Consolidation and Reporting Departments, overseeing our Chilean, U.S. and Spanish GAAP reporting requirements. He is also General Manager of Gesban Santander Servicios Profesionales Contables Ltda. Mr. Contreras is a Public Accountant from the University of Santiago and is currently a candidate to a Masters in Advanced Finance from the Universidad Adolfo Ibáñez. Carlos Volante became manager Customers and Quality of Banco Santander in January 2014. JoinedHe joined the Santander Group in 1990, holding various responsibilities within the organization, including manager of the Branch Network, general manager of the Administrator of Mutual Funds, , Mortgage manager,Manager, Product Manager and Monitoring Commercial Banking. He was also Executive Vice President of Commercial Banking at Banco de Venezuela Grupo Santander. Between 2012 and 2013, he was general manager of the Company Corona Commercial Credit Group. CarlosMr. Volante is an accountant auditor from the University of Talca and attended the DPA and has an MBA from the Universidad Adolfo Ibáñez and participatesparticipated in the PADE program at the Universidad de los Andes.   137  Table of Contents Cristian Florenceis our General Counsel, a position he has held since September 2012. Prior to that he served as Chief Lawyer at Santander-Chile. Mr. Florence joined Santander-Chile in 2002 when Santander-Chile merged with Banco Santiago. He started working in the banking industry in 1991, when he joined Centrobanco, a predecessor of Banco O’Higgins and Banco Santiago serving at several positions in the law departments. Mr. Florence is also a Director of Administrador FinancieroZurich Santander Seguros Generales Chile S.A., Zurich Santander Seguros de TransantiagoVida 146 Table of Contents Chile S.A. and Santander Asset Management S.A. Administradora General de Fondos. He has a degree in Law from the Universidad Gabriela Mistral and a Master of Laws (LLM) from the same university.university and is a professor of Civil Law.   Ricardo MartinezOscar Gómezis the Corporate Director of Internal Auditing,Audit a position he has held since September 1, 2013.January 2020. He has worked for Grupo Santander since 19981997 in different positionpositions in the Internal Audit Division, including serving as the InternalCorporate Director of Accounting, Audit Manager of Insurance and Asset Management and head auditor offor Financial Risks.Risk Information. Mr. MartinezGómez has a degree in Economic Sciences and Business Science from Universidad de Cantabria and is certified by the IIA (Institute of Internal Auditors) as CIA (Certified Internal Auditor) and CRMA (Certification in Risk Management Assurance). He has also completed post graduate studies at Instituto de Empresa (Spain) and INSEAD (France). Cristian Peirano became the manager of Corporate Products in April 2019, date on which he reintegrated to the Bank. He has more than 30 years of experience in the banking industry. He previously held the positions of manager of real estate and construction banking for 10 years at another institution and manager of corporate products. Between 1986 and 1999 he was responsible for the areas and divisions of Research, Commercial Corporates and Risk at Banco O-Higgins and Banco Santiago, as well as director of subsidiaries in Chile and abroad. Furthermore, between 1999 and 2009 he worked in Banco Santander, which merged with Banco Santiago, as manager of Middle-market Banking and manager of Leasing, Factoring and Confirming. He has a business degree from Universidad Católica de Chile. Jonathan Covarrubias was named Chief Accounting Officer of Santander-Chile in May 2019. He has over 18 years of experience in the banking industry, having started at Santander Chile in 2001. Previously he has held managerial positions related to the Consolidation and Reporting Departments, overseeing our Chilean, U.S. and Spanish GAAP reporting requirements. Mr. Covarrubias is a public accountant from the Universidad ComplutenseUniversity of Madrid andSantiago. He has a Master’sMasters in BusinessInternational Management of Companies’ Administration from the CIFFUniversity of Zaragoza and has participated in the Universidad de Alcalá de Henares.ESE Business School Advanced Management Program.   B. Compensation   For the year ended December 31, 2016,2019, the aggregate amount of compensation paid by us to all of our directors, executive officers and management members was Ch$37,32837,377 million (U.S.$56.150.0 million). For the year ended December 31, 2016,2019, the aggregate amount of compensation paid by us to all of our directors was Ch$1,2691,358 million (U.S.$1.91.8 million), in monthly stipends. At our annual shareholder meeting held on April 26, 2016,23, 2019, shareholders were askedagreed to approvemaintain the remunerations approved in the previous shareholders’ meeting in 2018. Therefore it was agreed a monthly stipend per director of UF 230250 (U.S.$9,099) 9,470), UF 460500 (U.S.$18,198)18,940) for the Chairman of the Board and UF 345375 (U.S.$13,649)14,205) for the Vice-Chairman of the Board. This amount will be increased by UF 30 per month (U.S.$1,187)1,136) if a Board member is named to one or more committees of the Board. The additional amount will be UF 60 (U.S.$2,374) 2,273) for the President of a committee andcommittee. In the case of the Integral Risk Committee, which holds sessions twice a month, the remuneration received by a regular board member is UF 4515 (U.S.$1,780) for568) with the Vice President of a committee.this committee receiving 30 UF (U.S.$1,136) per session. Shareholders were also asked to approve the Audit Committee 2015 remuneration for its members. The remuneration is a 33% additional compensation over the monthly stipend received by a regular board member oris UF 77115 (U.S.$3,046), totaling a monthly stipend4,356) with the President of this committee receiving 230 UF 307 (U.S.$12,145)8,712). This remuneration is in line with the new Chilean corporate governance law. In addition, we pay certain directors professional service fees for the consulting services that they render to us in their fields of expertise. For the year ended December 31, 2016,2019, we did not make any such payments to our directors for consulting fees totaled Ch$703 million (U.S.$1.1 million).directors.   Santander-Chile and its affiliates have designed variable-compensation plans for their employees, based on performance targets and objectives, the achievement of which are evaluated and paid on a quarterly and/or annual basis.   Share-based compensation (settled in cash)   In accordance with IFRS 2, equity instruments settled in cash are allocated to executives of the Bank and its Subsidiaries as a form of compensation for their services. The Bank measures the services received and the cash obligation at fair value at the end of each reporting period and on the settlement date, recognizing any change in fair 147 Table of Contents value in the income statement for the period. For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, share-based compensation amounted to Ch$331 (315) million, Ch$66 (337) million and Ch$3102,752 million.   Pension Plans:Plans   The Bank has an additional benefit available to its principal executives, consisting of a pension plan. The purpose of the pension plan is to endow the executives with funds for a better supplementary pension upon their retirement. For this purpose, the Bank will match the voluntary contributions made by the beneficiaries for their future pensions with an equivalent contribution. The executives will be entitled to receive this benefit only when they fulfill the following conditions:   a. Aimed at the Bank’s management.   b. The general requisite to apply for this benefit is that the employee must be carrying out his/her duties when turning 60 years old.   c. The Bank will create a pension fund, with life insurance, for each beneficiary in the plan. Periodic contributions into this fund are made by the manager and matched by the Bank.   d. The Bank will be responsible for granting the benefits directly.   138  Table of Contents If the working relationship between the manager and the respective company ends, before s/he fulfills the abovementioned requirements, s/he will have no rights under this benefit plan. In the event of the executive’s death or total or partial disability, s/he will be entitled to receive this benefit. The Bank will make contributions to this benefit plan on the basis of mixed collective insurance policies whose beneficiary is the Bank. The life insurance company with whom such policies are executed is not an entity linked or related to the Bank or any other Santander Group company. Plan Assets owned by the Bank at the end of 20162019 totaled Ch$6,6127,195 million (Ch$6,9456,804 million in 2015).The2018). The amount of the defined benefit plans has been quantified by the Bank, based on the following criteria:   Calculation method:method   Use of the projected unit credit method which considers each working year as generating an additional amount of rights over benefits and values each unit separately. It is calculated based primarily on fund contributions, as well as other factors such as the legal annual pension limit, seniority, age and yearly income for each unit valued individually.   Actuarial hypothesis assumptions:assumptions   Actuarial assumptions with respect to demographic and financial variables are non-biased and mutually compatible with each other. The most significant actuarial hypotheses considered in the calculations were:     Plans   post-employment   Plans post-employment   2016   2015 Plans post-employment 2019 Plans post-employment 2018           Mortality chart     RV-2014/CB-2014       RV-2009   RV-2014 Termination of contract rates     5.0 %     5.0 % 5.0% Impairment chart     PDT 1985       PDT 1985   PDT 1985   Assets related to the pension fund contributed by the Bank into the Seguros EuroaméricaEuroamerica insurance company with respect to defined benefit plans are presented as net of associated commitments. Activity for post-employment benefits is as follows:       As of December 31,     2016   2015     Ch$mn Plan assets     6,612       6,945   Commitments for defined-benefit plans                 For active personnel     (4,975 )     (5,070 ) Incurred by inactive personnel     —       —   Minus:                 Unrealized actuarial (gain) losses     —       —   Balances at year end     1,637       1,875       As of December 31,     2019   2018     (In millions of Ch$) Plan assets     7,195       6,804   Commitments for defined-benefit plans     –         –       139 148 Table of Contents      As of December 31,     2019   2018     (In millions of Ch$) For active personnel     (6,525 )     (5,958 ) Incurred by inactive personnel     –         –     Minus:                 Unrealized actuarial (gain) losses     –         –     Balances at year end     670       846   Year’s cash flow for post-employment benefits is as follows:     For the years ended December 31,   2016   2015   2014   For the years ended December 31,   Ch$mn   2019   2018   2017               (In millions of Ch$) a) Fair value of plan assets                         Opening balance     6,945       6,495       5,171       6,804       7,919       6,612   Expected yield of insurance contracts     335       432       446       333       353       307   Employer contributions     886       18       878       859       836       1,931   Actuarial (gain) losses     —       —       —       –         –         –     Premiums paid     —       —       —       (801 )     (2,304 )     –     Benefits paid     (1,554 )     —       —       –         –         (931 ) Fair value of plan assets at year end     6,612       6,945       6,495       7,195       6,804       7,919   b) Present value of obligations                                                 Present value of obligations opening balance     (5,070 )     (4,639 )     (3,244 ) Opening balance     (5,958 )     (6,998 )     (4,975 ) Net incorporation of Group companies     —       —       —       –         –         –     Service cost     150       (431 )     (1,395 )     (566 )     (1,069 )     (2,039 ) Interest cost     —       —       —       –         –         –     Curtailment/settlement effect     —       —       —       –         –         –     Benefits paid     —       —       —       –         –         –     Past service cost     —       —       —       –         –         –     Actuarial (gain) losses     —       —       —       –         –         –     Other     (55 )     —       —       –         2,109       16   Present value of obligations at year end     (4,975 )     (5,070 )     (4,639 )     (6,525 )     (5,958 )     (6,998 ) Net balance at year end     1,637       1,875       1,856       670       846       921     Plan expected profit:   As of December 31,  As of December 31, 2016  2015  2014  2019 2018 2017 Type of expected yield from the plan’s assets UF + 2.50% annual UF + 2.50% annual Type of yield expected from the reimbursement rights UF + 2.50% annual UF + 2.50% annual   Plan associated expenses:     For the years ended December 31,   2016   2015   2014   For the years ended December 31,   (in millions of Ch$)   2019   2018   2017               (in millions of Ch$) Current period service expenses     (150 )     431       1,395       566       1,069       2,039   Interest cost     —       —       —       –         –         –     Expected yield from plan’s assets     (335 )     (432 )     (446 )     (333 )     (353 )     (307 ) Expected yield of insurance contracts linked to the Plan:     —       —               –         –         –     Extraordinary allocations     —       —       —       –         –         –     Actuarial (gain)/ losses recorded in the period     —       —       —       –         –         –     Past service cost     —       —       —       –         –         –     Other     —       —       —       –         –         –     Total     (485 )     (1 )     949       223       716       1,732     140 149 Table of Contents  C. Board Practices Audit Committee   Board member Position in Committee Marco Colodro President Mauricio Larraín Garcés First Vice President and Financial Expert Orlando Poblete Second Vice President Felix de Vicente Member Rodrigo Vergara Member Juan Pedro Santa María Secretary   The Audit Committee (Comité de Directores y Auditoría) is comprised of three members of the Board of Directors. TheDirectors and the Committee Secretary is Juan Pedro Santa María.Maria. The Chief Executive Officer, General Counsel, General Auditor and other persons from the Bank can be invited to the meetings if necessary and are present on specific matters. This Committee’s primary responsibility is to support the Board of Directors in the continuous improvement of our system of internal controls, which includes reviewing the work of both the independent registered public accounting firm and the Internal Audit Department. The committee is also responsible for analyzing observations made by regulatory entities of the Chilean financial system about us and for recommending measures to be taken by our management in response. The external auditors are recommended by this committee to our Board of Directors and appointed by our shareholders at the annual shareholders’ meeting.   This committee is also responsible for:   · Presenting to the Board of Directors a list of candidates for the selection of an external auditor.auditor to be proposed at the Annual Shareholders’ Meeting.   · Presenting to the Board of Directors a list of candidates for the selection of rating agencies.   · Overseeing and analyzing the results of the external audit and the internal reviews. · Coordinating the activities of internal auditing with the external auditors’ review.   · Overseeing and coordinating the Bank’s operational risk policies.   · Analyzing the interim and year-end financial statements and reporting the results to the Board of Directors.   · Analyzing the external auditors’ reports and their content, procedures and scope.   · Analyzing the rating agencies’ reports and their content, procedures and scope.   · Obtaining information regarding the effectiveness and reliability of the internal control systems and procedures.   · Analyzing the information systems performance, and its sufficiency, reliability and use in connection with decision-making processes.   · Obtaining information regarding compliance with the company’s policies regarding the due observance of laws, regulations and internal rules to which the company is subject.   · Investigating suspicious and fraudulent activities (including conflicts).   · Analyzing the reports of the inspection visits, instructions and presentations of the SBIF.   · Obtaining information, analyzing and verifying the company’s compliance with the annual audit program prepared by the internal audit department.   · Informing the Board of Directors of accounting changes and their effects.   141 150 Table of Contents  Integral Risk Committee   Board member  Position in Committee  Oscar von Chrismar President Juan Pedro Santa María First Vice President Roberto Méndez Second Vice President Raimundo Monge Member Roberto Zahler Member TheIntegral Risk Committee of the Board is responsible for reviewing and monitoring all risks that may affect us, including reputational risk, allowing for an integral risk management. This committee serves as the governing body through which the Board supervises all risk functions and defines risk appetite levels. The committeein general. It also evaluates the adequacyreasonability of ourthe systems for measurement and control of risks. This Committee includes the Vice President of the Board and fivesix Board members. This committee also includes the Chief Executive Officer, the Director of Risk and other senior level executives from the commercial side of our business: The Board members of this committee are: Board member Position in Committee Alfonso Gomez President Oscar von Chrismar Member Felix de Vicente Member Blanca Bustamante Member Juan Pedro Santa Maria Perez Member   Asset and Liability Committee (ALCO)   The ALCO includes the Vice President of the Board and fourthree additional members of the Board, the Deputy Chief Executive Officer, the Chief Financial Officer, the Corporate Financial Controller, the Manager of the Financial Management Division, the Manager of Market Risk, the Manager of the Treasury Division, and other senior members of management. The ALCO meets monthly. All limits reviewed by the ALCO are measured and prepared by the Market Risk Department. The non-Board members of the ALCO meet weekly to review liquidity, funding, capital and market risk related matters.   Board member Position in Committee Vittorio CorboRodrigo Vergara President Claudio Melandri Member Oscar von Chrismar First Vice PresidentMember Roberto Zahler Second Vice President Marco ColodroFelix de Vicente Mingo Member Raimundo MongeAlfonso Gomez Member   The main functions of the ALCO are:   · Making the most important decisions, approving the risk appetite and limits regarding our exposure to inflation, risk and exposure, interest rate risk, inflation risk, funding, capital and liquidity levels.   · Review of the evolution of the most relevant local and international markets and monetary policies.   AnalysisThe main limits set and Prevention of Money Laundering Committee Board member  Position in Committee  Juan Pedro Santa María President Raimundo Monge First Vice President This Committee defines and controlsmonitored by the policies regarding anti-money laundering and financing of terrorism in line with Chilean law and Grupo Santander’s governance. In addition to Mr. Santa María and Raimundo Monge, members of senior management fromALCO (and measured by the legal, risk and compliance departments, among others, are also a part of this committee. This committee also interacts with government agencies involved in the analysis and prevention of money laundering and financing of terrorism.Market Risk Department) are:   Risk Measure Interest rates Sensitivity Capital Sensitivity NIM Regulatory limit 30 Days Regulatory limit 90 Days Inflation GAP Liquidity Liquidity coverage ratio Net stable funding ratio Stress tests Structural liquidity limit Wholesale funding limits Deposit concentration Asset encumbrance Capital Leverage ratio Core capital ratio BIS ratio ROE - COE RORAC- COE Foreign exposures Intergroup exposure: derivatives, deposits and loans. Foreign assets: derivatives, deposits and loans. 142 151 Table of Contents  Market Committee   The Market Committee includes the Vice PresidentChairman of the Board, threethe Vice Chairman of the Board, two additional members of the Board, the Chief Executive Officer, the Deputy Chief Executive Officer, the Director of Global Corporate Investment Banking, the Chief Financial Officer, the Manager of the Treasury Division, the Manager of the Financial Management Division, the Manager of Market Risk, the Financial Controller and other senior members of management.   Board member Position in Committee Vittorio Corbo President Oscar von Chrismar Vice President Roberto ZahlerRodrigo Vergara Second Vice PresidentMember Marco ColodroLucía Santa Cruz Member Claudio Melandri Member Alfonso Gomez Member   The Market Committee is responsible for:   · Establishing a strategy for the Bank’s trading portfolio and risk appetite. · Net exposure to foreign currencyinvestment portfolio.   · Establishing the Bank’s policies, procedures and limits with respect to its trading portfolio. The Bank’s Market Risk Department measures all risks and limits and reports these to the Market Committee.   · Reviewing the net foreign exchange exposure and limit. · Reviewing the results of the Bank’s client treasury business · Reviewing the evolution of the most relevant local and international markets and monetary policies.   Strategy Committee   Board member Position in Committee Vittorio CorboClaudio Melandri President Roberto MéndezRodrigo Vergara Vice PresidentMember Felix de Vicente Member Alfonso Gomez Member Lucia Santa Cruz Member Blanca Bustamante Member Oscar von Chrismar Member Lucía Santa Cruz Member Raimundo Monge Secretary   The Strategy Committee is in charge of our strategic planning process and follow-up, as well as the identification of broad business opportunities and threats. The Strategy Committee is comprised of the President of the Board and four additional Board members.   Human ResourcesAnalysis and Resolution Committee   Board member Position in Committee Vittorio CorboJuan Pedro Santa María Pérez President Mauricio LarraínOscar von Chrismar Vice PresidentMember Oscar Von-ChrismarLucía Santa Cruz Member The Analysis and Resolution Committee defines and controls the compliance of policies, regulations and general and specific objectives regarding the prevention of money laundering and the financing of terrorism, in accordance with local rules and regulations as well as with the Santander Group. 152 Table of Contents Management Appointment Committee Board member Position in Committee Félix de Vicente President Blanca Bustamante Member Oscar von Chrismar Member   The Human ResourcesManagement Appointment Committee is led by the Presidentin charge of the Boardrevision and three additional Board members,application of policies and procedures of roles defined as “key positions” and also the Chief Executive Officer,review of other positions within the Deputy Chief Executive Officer,organization in general. Remuneration Committee Board member Position in Committee Orlando Poblete President Alfonso Gómez Member Claudio Melandri Member The Remuneration Committee reviews the Directordocumentation referring to the evaluation and remuneration of Human Resourcesroles defined as “key positions” and other senior managers. The Human Resources Committee dictates guidelines on management and general human resources policies, including incentive, selection, promotion and training policies. 143  Tablemember of Contents the organization in general.   D. Employees   As of December 31, 2016,2019, on a consolidated basis, we had 11,35411,200 employees, 10,86510,445 of whom were bank employees, 86295 of whom were employees of our subsidiaries and 656460 were employees of entities controlled by the Bank through other considerations. We have traditionally enjoyed good relations with our employees and their unions. Of the total headcount of us and our subsidiaries, 8,1928,413 or 72.2%75.1% were unionized. In May 2014,February 2018, a new collective bargaining agreement was signed with the main unions, which wentcame into effect on JanuarySeptember 1, 20142018 and which expires on DecemberAugust 31, 2018,2021, though it may be renegotiated ahead of schedule with the consent of management and the union. We generally apply the terms of our collective bargaining agreement to unionized and non-unionized employees. The following chart summarizes the number of employees employed by the bank.   Employees As of December 31, 2016  2019 Executives 710 256 Supervisors 1,342 Professionals 5,878 6,025 Administrative 4,766 3,577 Total 11,354 11,200   E. Share Ownership   No director or executive officer owns more than 1% of the shares of Santander-Chile. AsSantander-Chile as of December 31, 2016, the following directors and executives held shares in Santander-Chile: Directors  Shares  Mauricio Larraín Garcés 568 2019. Santander-Chile currently does not have any arrangements for involving employees in its capital and there is no systematic arrangement for grant of options or shares or securities of Santander-Chile to them. In accordance with IFRS 2, equity instruments settled in cash are allocated to executives of the Bank and its Subsidiaries as a form of compensation for their services. See “Item 6—Directors, Senior Management and Employees—Compensation” for more details.   ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   A. Major Shareholders   Santander Spain controls Santander-Chile through its holdings in Teatinos Siglo XXI Inversiones S.A. and Santander Chile Holding S.A., which are controlled subsidiaries. Santander Spain has control over 67.18% of our shares and actual participation, excluding non-controlling shareholders that participate in Santander Chile Holding, S.A. of 67.06%67.12%.   153 Table of Contents Shareholder   Number of Shares   Percentage Santander Chile Holding S.A.     66,822,519,695       35.46 % Teatinos Siglo XXI Inversiones S.A.     59,770,481,573       31.72 %   Santander Spain is in a position to cause the election of a majority of the members of Santander-Chile’s Board of Directors, to determine its dividend and other policies and to determine substantially all matters to be decided by a vote of shareholders. Santander Spain holds ordinary shares to which no special voting rights are attached. Each share represents one vote and there are no shareholders with different voting rights.   144  Table of Contents The number of outstanding shares of Santander-Chile (of which there is only one class, being ordinary shares) at December 31, 2016,2019, was 188,446,126,794 shares, without par value. Santander-Chile’s shares are listed for trading on the Chilean Stock ExchangesExchange and on the NYSE in connection with the registration of ADRs. The market capitalization of Santander-Chile at December 31, 20162019 on the Chilean stock exchangeStock Exchange was Ch$7,021,5038,383,968 million and U.S.$10,30311,180 million on the NYSE. At December 31, 2016,2019, Santander-Chile had 11,59211,424 holders of its ordinary shares registered in Chile, including The Bank of New York Mellon as Depositary (the “Depositary”) of Santander-Chile’s ADS Program. Other than the information disclosed in this section, there are no arrangements to the knowledge of Santander-Chile that can result in a change of control of Santander-Chile. As of December 31, 2016,2019, there were a total of 2530 ADR holders on record. Since some of these ADRs are held by nominees, the number of record holders may not be representative of the number of beneficial holders.   B. Related Party Transactions   The Chilean Companies Law requires that our transactions with related parties be on a market basis, that is, on similar terms to those customarily prevailing in the market. We are required to compare the terms of any such transaction to those prevailing in the market at the date the transaction is to be entered into. Directors of companies that violate this provision are liable for losses resulting from such violations.   In addition, under the Chilean Companies Law, a company may not enter into a transaction with related parties unless (i) such transaction has received the prior approval of the company’s Board of Directors and (ii) the terms of such transaction are consistent with the terms of transactions of a similar type prevailing in the market. If it is not possible to make this determination, the board may appoint two independent evaluators. The evaluators’ final conclusions must be made available to shareholders and directors for a period of 20 business days, during which shareholders representing 5% or more of the issued voting shares may request the board to call a shareholders’ meeting to resolve the matter, with the agreement of two thirds of the issued voting shares required for approval. For purposes of this regulation, the law considers the amount of a proposed transaction to be material if (1) it exceeds 1% of the company’s net worth (provided that it also exceeds 20,000UF)UF20,000) or (2) it exceeds 20,000 UF.UF20,000.   All resolutions approving such transactions must be reported to the company’s shareholders at the annual shareholders’ meeting. Violations of this provision may result in administrative or civil liability to the corporation, the shareholders and/or third parties who suffer losses as a result of such violation.   Loans granted to related parties   In addition to subsidiaries and associated entities, the Bank’s “related parties” include the “key personnel” of the Bank’s executive staff (members of the Bank’s Board of Directors and the Senior Managers of Santander-Chile and its subsidiaries, together with their close relatives), as well as the entities over which the key personnel could exert significant influence or control.   145  Table of Contents heThe Bank also considers the companies that are part of the Santander Group worldwide as related parties, given that all of them have a common parent,i.e., Santander Spain. The table below shows loans and accounts receivable and contingent loans with related parties. For more information, see “Note 34—36—Transactions with Related Parties” in our Audited Consolidated Financial Statements appearing elsewhere in this Annual Report:       As of December 31,     2016   2015   2014     Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other     Ch$mn   Ch$mn   Ch$mn   Ch$mn   Ch$mn   Ch$mn   Ch$mn   Ch$mn   Ch$mn   Ch$mn   Ch$mn   Ch$mn                                                   Commercial loans     81,687       533       4,595       7,100       77,388       565       5,841       1,963       51,647       9,614       4,348       8,743   Mortgage loans     —       —       18,046       —       —       —       20,559       —       —       —       19,941       —   Consumer loans     —       —       3,783       —       —       —       2,274       —       —       —       2,798       —   Loans and accounts receivables     81,687       533       26,424       7,100       77,388       565       28,674       1,963       51,647       9,614       27,087       8,743   Allowance for loan losses     (209 )     (35 )     (87 )     (34 )     (213 )     (190 )     (62 )     (20 )     (139 )     (10 )     (46 )     (18 ) Net loans     81,478       498       26,337       7,066       77,175       375       28,612       1,943       51,508       9,604       27,041       8,725   Guarantees     434,414       —       23,636       5,486       499,803       —       25,493       1,632       409,339       —       23,896       1,289   Contingent loans                                                                                                 Personal guarantees     —       —       —       —       —       —       —       —       —       —       —       —   Letters of credit     27,268       —       —       —       29,275       —       —       —       16,000       —       —       11   Guarantees     437,101       —       —       —       510,309       —       —       2       432,802       —       —       762   Contingent loans     464,369       —       —       —       539,584       —       —       2       448,802       —       —       773   Allowance for contingent loans     (5 )     —       —       —       (11 )     —       —       —       (12 )     —       —       —   Net contingent loans     464,364       —       —       —       539,573       —       —       2       448,790       —       —       773   154 Table of Contents     As of December 31,     2019   2018   2017     Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other     (in millions of Ch$) Loans and accounts receivable:                                                 Commercial loans     246,868       375       2,986       685       122,289       459       4,299       233       80,076       771       3,947       7,793   Mortgage loans     –         –         20,473       –         –         –         18,814       –         –         –         18,796       –     Consumer loans     –         –         5,781       –         –         –         5,335       –         –         –         4,310       –     Loans and accounts receivable:     246,868       375       29,240       685       122,289       459       28,448       233       80,076       771       27,053       7,793   Allowance for loan losses     (122 )     (182 )     (179 )     (10 )     (308 )     (9 )     (116 )     (5 )     (209 )     (9 )     (177 )     (18 ) Net loans     246,746       192       29,061       675       121,981       450       28,332       228       79,867       762       26,876       7,775                                                                                                     Guarantees     462,513       –         23,918       288       442,854       –         22,893       7,171       361,452       –         23,868       7,164   Contingent loans:                                                                                                 Personal guarantees     –         –         –         –         –         –         –         –         –         –         –         –     Letters of credit     4,112       –         –         63       5,392       –         2,060       44       19,251       –         –         33   Guarantees     464,691       –         –         –         445,064       –         3,364       –         377,578       –         –         –     Contingent loans:     468,803       –         –         63       450,456       –         5,424       44       396,829       –         –         33   Allowance for contingent loans     (835 )     –         –         –         (1 )     –         (18 )     –         (4 )     –         –         1   Net contingent loans     467,968       –         –         63       450,455               5,406       44       396,825       –         –         34     Loans (a) were made in the ordinary course of business, (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons, and (c) did not involve more than the normal collection risk.   146  Table of Contents Under the Chilean General Banking Law, Chilean banks are subject to certain lending limits, including the following:   · a bank may not extend to any person or legal entity (or group of related entities), directly or indirectly, unsecured loans in an amount that exceeds 5.0% of the bank’s regulatory capital, or secured loans in an amount that exceeds 25.0% of its regulatory capital. In the case of foreign export trade finance, this 5.0% ceiling is raised to: 10.0% for unsecured financing, 30.0% for secured financing. This ceiling is raised to 15.0% for loans granted to finance public works under the concessions system contemplated in the Decree with Force of Law 164 of 1991, of the Ministry of Public Works, provided that either the loan is secured on the concession, or the loan is granted as part of a loan syndication;   · a bank may not grant loans bearing more favorable terms than those generally offered by banks in the same community to any entity (or group of related entities) that is directly or indirectly related to its owners or management;   · a bank may not extend loans to another bank in an aggregate amount exceeding 30.0% of its regulatory capital;   · a bank may not directly or indirectly grant a loan, the purpose of which is to allow the borrower to acquire shares in the lending bank;   · a bank may not lend, directly or indirectly, to a Director or any other person who has the power to act on behalf of the bank, or to certain related parties; and   · a bank may not grant loans to individuals or legal entities involved in the ownership or management of the bank, whether directly or indirectly (including holders of 1.0% or more of its shares), on more favorable terms than those generally offered to non-related parties. Loans may not be extended to senior executives and to companies in which such individuals have a participation of 5.0% or more of the equity or net earnings in such companies. The aggregate amount of loans to related parties may not exceed a bank’s regulatory capital.   155 Table of Contents We are not aware of any loans to any related parties exceeding the above lending limits.   The largest related party loan, which matures on July 30, 2018 and has an annual rate of U.S.$ + 0.0%, by the Bank is to Banco Santander Spain S.A., corresponds to a performance bond (boleta de garantía) and had an amount outstanding of U.S.$28 million, which was guaranteeing a corporate foreign trade loan. As this operation is a contingent loan, the Bank charges a fee which was 0.25% per quarter. 147  Table of Contents The table below shows all other assets and liabilities with related parties:       As of December 31,     2016   2015   2014     Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other     (in millions of Ch$)                                                   Assets                                                 Cash and deposits in banks     187,701       —       —       —       23,578       —       —       —       193,377       —       —       —   Trading investments     —       —       —       —       —       —       —       —       —       —       —       —   Obligations under repurchase agreements     —       —       —       —       —       —       —       —       —       —       —       —   Financial derivative contracts     742,851       33,433       —       —       771,774       24,773       —       —       995,468       —       —       —   Available-for-sale investments     —       —       —       —       —       —       —       —       —       —       —       —   Other assets     4,711       67,454       —       —       3,218       19,101       —       —       2,776       —       —       —   Liabilities                                                                                                 Deposits and other demand liabilities     6,988       7,141       2,883       630       9,987       8,535       2,454       1,373       5,061       1,168       2,403       4,602   Obligations under repurchase agreements     56,167       —       —       —       12,006       —       —       —       47,010       —       —       —   Time deposits and other time liabilities     1,545,771       621       2,365       1,984       1,360,572       234       2,728       898       269,381       2,320       81,079       81,079   Financial derivative contracts     954,575       54,691       —       —       1,323,996       23,326       —       —       1,395,507       —       —       —   Issued debt instruments     484,548       —       —       —       398,565       —       —       —       336,323       —       —       —   Other financial liabilities     8,970       —       —       —       2,409       —       —       —       846       —       —       —   Other liabilities     446       44,329       —       —       376       19,541       —       —       771       —       —       —       As of December 31,     2019   2018   2017     Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other     (in millions of Ch$) Assets                                                 Cash and deposits in banks     171,816       –         –         –         189,803       –         –         –         74,949       –         –         –     Trading investments     –         –         –         –         –         –         –         –         –         –         –         –     Obligations under repurchase agreements     –         –         –         –         –         –         –         –         –         –         –         –     Financial derivative contracts     2,058,715       218,610       –         55       748,632       105,358       –         9       545,028       86,011       –         –     Available-for-sale investments     –         –         –         –         –         –         –         –         –         –         –         –     Other assets     185,317       210,579       –         –         38,960       51,842       –         –         8,480       118,136       –         –     Liabilities                                                                                                 Deposits and other demand liabilities     25,261       93,761       4,624       566       27,515       (21,577 )     2,493       (480 )     24,776       25,805       2,470       221   Obligations under repurchase agreements     138,498       5,000       270       80       6,501       –         329       68       50,945       –         –         –     Time deposits and other time liabilities     1,183,235       282,171       4,246       2,204       2,585,337       –         3,189       (838 )     785,988       27,968       3,703       3,504   Financial derivative contracts     2,159,660       288,013       –         3       770,624       112,523       –         –         418,647       142,750       –         7,190   Interbank borrowings     –         –         –         –         –         –         –         –         –         –         –         –     Issued debt instruments     363,154       –         –         –         335,443       –         –         –         482,626       –         –         –     Other financial liabilities     6,231       –         –         –         6,807       –         –         –         4,919       –         –         –     Other liabilities     8,130       146,164       –         –         60,884       89,817       –         –         164,303       58,168       –         –       148  Table of Contents Other transactions with related parties   During the years ended December 31, 2016, 2015,2019, 2018 and 2014,2017, the Bank had the following significant income (expenses) from services provided to (by) related parties:     For the years ended December 31,    As of December 31,   2016    2015    2014    2019   2018   2017   Companies of the Group    Associated Companies    Key personnel    Other    Companies of the Group    Associated companies    Key personnel    Other    Companies of the Group    Associated Companies    Key personnel    Other    Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other   (in millions of Ch$)   (in millions of Ch$) Interest income and inflation-indexation adjustments     (39,279 )     40       1,164       115       (10,986 )     —       1,664       116       (11,130 )     25       1,963       (2,509 )     (41,181 )     (5,235 )     1,151       26       (53,256 )     (156 )     1,252       508       (43,892 )     –         1,051       –     Fee and commission income and expenses     38,167       45       204       20       35,955       77       208       39       30,591       84       230       167       28,274       14,499       232       28       91,178       7,826       305       22       72,273       15,404       224       1   Net income (expense) from financial operations and net foreign exchange gain (loss) (*)     (343,963 )     (48,373 )     (88 )     2       (321,985 )     (16,845 )     15       6       (315,918 )     —       20       (10,051 ) Net income (expense) from financial operations and net foreign exchange gain (loss)(1)     (586,318 )     (84,236 )     –         –         (566,677 )     65,727       27       (12 )     363,108       (48,453 )     (3 )     19   Other operating income and expenses     931       (2,239 )     —       —       955       (1,027 )     —       —       1,158       —       —       —       406       (2,026 )     –         –         42       1,388       –         –         21,610       (1,454 )     –         –     Key personnel compensation and expenses     —       —       (37,328 )     —       —       —       (39,323 )     —       —       —       (31,361 )     —       –         –         (9,548 )     –         –         –         (11,761 )     –         –         –         (43,037 )     –     Administrative and other expenses     (35,554 )     (43,115 )     —       —       (30,591 )     (41,691 )     —       —       (30,342 )     (33,961 )     —       —       (11,877 )     (47,757 )     –         –         (43,035 )     (50,764 )     –         –         (48,246 )     (47,220 )     –         –     Total     (379,698 )     (93,642 )     (36,048 )     137       (326,652 )     (59,486 )     (37,436 )     161       (325,641 )     (33,852 )     (29,148 )     (12,393 )     (610,696 )     (124,755 )     (8,165 )     54       (571,748 )     24,021       (10,177 )     518       364,913       (81,723 )     (41,765 )     20                                                                                                       (*)(1) Primarily relates to derivative contracts used to financially cover exchange risk of assets and liabilities that cover positions of the Bank and its subsidiaries.   156 Table of Contents Only transactions with related parties equal to or greater than UF 5,000UF5,000 (Ch$132142 million) are included individually in the table above. Transactions with related parties between UF 1,000UF1,000 (Ch$28 million) and up to UF 5,000UF5,000 are included in other transactions with related parties. All transactions were conducted at arm’s length.   149  TableC. Interests of Contents Experts and Counsel C. Interests of Experts and Counsel   Not applicable.   ITEM 8. FINANCIAL INFORMATION   A. Consolidated Statements and Other Financial Information A. Consolidated Statements and Other Financial Information   Financial Information   See “Item 18. Financial Statements.Statements.”   Legal Proceedings   We are subject to certain claims and are party to certain legal and arbitration proceedings in the normal course of our business, including claims for alleged operational errors. We do not believe that the liabilities related to such claims and proceedings are likely to have, in the aggregate, a material adverse effect on our consolidated financial condition or results of operations. For the year ended December 31, 2016, the Disclosure Committee of Santander-Chile has defined a significant legal proceeding as that implying an estimated incurred loss greater than 0.18% of the average of pre-tax net income in the last three years. As of December 31, 2016, this cut-off totaled Ch$1,027 million (U.S.$1.5 million). As of December 31, 2016, there were no legal proceedings exceeding that amount. There are no material proceedings in which any of our directors, any members of our senior management, or any of our affiliates is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.   Upon the recommendation of our legal advisors, we estimate that our aggregate liability if all legal proceedings were determined adversely to us could result in significant losses not estimated by us. As of the date of the Audited Consolidated Financial Statements, the Bank and its affiliates were subject to certain legal actions in the normal course of their business. As of December 31, 2016,2019, the Bank and its subsidiaries havehas provisions for these legal actions of Ch$1,1941,274 million and Ch$48 million, respectively (Ch$1,803 million and Ch$118923 million as of December 31, 2015)2018), which are included in “Provisions” in the Audited Consolidated Statements of Financial Position as provisions for contingencies.   Dividends and dividend policy   See “Item 3. Key Information—A. Selected Financial Data—Dividends.”   B. Significant Changes B. Significant Changes   None.   150  Table of Contents ITEM 9. THE OFFER AND LISTING   A. Historical Trading Information The table below shows, for the periods indicated, the annual, quarterly and monthly high and low closing prices (in nominal Chilean pesos)A. Plan of the shares of our common stock on the Santiago Stock Exchange and the annual, quarterly and monthly high and low closing prices (in U.S. dollars) as reported by the NYSE.Distribution     Santiago Stock Exchange   NYSE     Common Stock   ADS     High   Low   High   Low     (Ch$ per share)   (U.S.$ per ADS) Annual Price History                 2012       41.01       31.40       33.96       26.10   2013       36.23       27.62       30.59       21.38   2014       37.32       26.81       26.91       19.19   2015       34.77       29.52       22.61       17.38   2016       38.05       29.10       23.48       15.98   Quarterly Price History                                   2015                                   1st Quarter       33.98       29.52       21.71       19.02   2nd Quarter       34.77       31.71       22.61       20.02   3rd Quarter       34.51       31.44       21.04       17.88   4th Quarter       33.96       30.33       20.23       17.38   2016                                   1st Quarter       33.47       29.10       19.74       15.98   2nd Quarter       33.89       30.84       20.24       17.99   3rd Quarter       36.47       31.62       22.51       19.18   4th Quarter       38.05       34.09       23.48       20.52   Monthly Price History                                   Oct-16       36.55       34.09       22.85       20.52   Nov-16       38.05       36.50       23.00       21.66   Dec-16       38.05       35.45       23.48       21.07   Jan-17       37.19       35.11       22.21       21.59   Feb-17       35.76       34.65       22.15       21.36   Mar-17 (through March 22, 2017)       40.02       36.88       24.11       22.41                                       B. Plan of Distribution   Not applicable   C. Nature of Trading Market B. Nature of Trading Market   Nature of Trading Market   Shares of our common stock are traded on the Chilean Stock Exchanges.Exchange. Each ADS represents 400 shares of common stock. ADRs have been issued pursuant to the amended and restated deposit agreement dated as of August 4, 2015. As of December 31, 2016, 87,002,3342019, 62,055,103 ADSs were outstanding (equivalent to 34,800,933,67124,822,041,271 shares of common stock or 18.47%13.17% of the total number of issued shares of common stock).   D. Selling Shareholders C. Selling Shareholders Not applicable. 157 Table of Contents D. Dilution   Not applicable.   151  TableE. Expenses of Contents the Issue E. Dilution Not applicable. F. Expenses of the Issue   Not applicable.   ITEM 10. ADDITIONAL INFORMATION   A. Share Capital A. Share Capital   Not applicable.   B. Memorandum and Articles of Association B. Memorandum and Articles of Association   The legal predecessor of Santander-Chile was Banco Santiago (Santiago)(“Santiago”). Santiago was incorporated by public deed dated September 7, 1977 granted at the Notary Office of Alfredo Astaburuaga Gálvez. Santiago received its permission to incorporate and function as a bank by Resolution No. 118 of the SBIF on October 27, 1977. The Bank’s by-laws were approved by Resolution No. 103 of the SBIF on September 22, 1977. In January 1997, Santiago merged with Banco O’Higgins’O’Higgins, with Santiago as the surviving entity. In 1999, Santiago became a controlled subsidiary of Santander Spain. On January 9, 2017 in an Extraordinary Shareholder Meeting, the shareholders’ approved an amendment of the Bank’s Articles of Incorporation.   Our official name is Banco Santander-Chile and Banco Santander and Santander can also be used (formerly:(formerly Banco Santander Santiago, Santander Santiago could also be used, but these names were eliminated in the new Articles of Incorporation).   The Bank has a single series of capital stock, which amounts to Ch$891,302,881,691, divided into 188,446,126,794 registered shares with no par value. The capital stock is fully subscribed for, deposited, and paid up. Each share represents one vote and there are no special classes of shares with different rights. Our by-laws do not include any condition that is more significant than required by law to change the right of shareholders.   Shareholder rights in a Chilean bank that is also an open stock (public) corporation are governed by (1) the corporation’sestatutos, which effectively serve the purpose of both the articles or certificate of incorporation and the by-laws of a company incorporated in the United States, (2) the General Banking Law and (3) to the extent not inconsistent with the General Banking Law, by the provisions of Chilean Companies Law applicable to open stock corporations, except for certain provisions that are expressly excluded. Article 137 of the Chilean Companies Law provides that all provisions of the Chilean Companies Law take precedence over any contrary provision in a corporation’sestatutos. Both the Chilean Companies Law and ourestatutos provide that legal actions by shareholders against us (or our officers or directors) to enforce their rights as shareholders or by one shareholder against another in their capacity as such are to be brought in Chile in arbitration proceedings, notwithstanding the plaintiff’s right to submit the action to the ordinary courts of Chile.proceedings.   The Chilean securities markets are principally regulated by the Superintendency of Securities and InsuranceFMC under the Chilean Securities Market Law and the Chilean Companies Law. In the case of banks, compliance with these laws is supervised by the SBIF. These two laws provide for disclosure requirements, restrictions on insider trading and price manipulation and protection of non-controlling investors. The Chilean Securities Market Law sets forth requirements relating to public offerings, stock exchanges and brokers, and outlines disclosure requirements for companies that issue publicly offered securities. The Chilean Companies Law sets forth the rules and requirements for establishing open stock corporations while eliminating government supervision of closed (closely-held) corporations. Open stock (public) corporations are those with 500 or more shareholders, or companies in which 100 or more shareholders own at least 10.0% of the subscribed capital (excluding those whose individual holdings exceed 10.0%), and all other companies that are registered in the Securities Registry of the Superintendency of Securities and Insurance.FMC.   Santander-Chile is a bank providing a broad range of commercial and retail banking services, as well as a variety of financial services. Our objects and purposes can be found in Article 4 of our by-laws.   152 158 Table of Contents  Board of Directors and Managers   Currently, the Board of Directors has 11 regular membersconsists of nine directors and two alternate members,alternates, elected by shareholder vote at Ordinary Shareholders’ Meetings. The directors may be either shareholders or non-shareholders of the Company. There is no age limit for directors. On October 27, 2016, the SBIF authorized a reduction in the number of Board members from 11 to nine. This reduction and the corresponding amendment to Article 14 of the by-laws was approved by the shareholders at an Extraordinary Shareholders’ Meeting held on January 9, 2017 and will enter into force on the date of the Bank’s next Ordinary Shareholders’ Meeting, which will take place on April 26, 2017. The current principal and alternate directors will remain in office until such date. The directors may be shareholders or persons who are not members of the company.   The directors shall hold office for three years and may be indefinitely re-elected, and their terms of office shall be renewed in their entirety at the conclusion of each term of office. If the Ordinary Shareholders’ Meeting at which periodic elections of directors occur is not held at the stipulated time for any reason, the incumbency of those who have completed their terms shall be understood to be extended until their replacements are appointed, and the Board shall be obligated to summon a Shareholders’ Meeting to make said appointments within thirty days.   The directors shall be compensated for their service. The amount of their compensation shall be fixed annually at the Ordinary Shareholders’ Meeting. Such compensation shall be in addition to any salaries, fees, travel expenses, representation expenses, payments due as delegates of the Board, or other stipends in money, kind, or royalties of any class, whether assigned to particular directors at the Ordinary Shareholders’ Meeting or by Board approval, for specific functions or work above and beyond their obligations as directors which have been entrusted to them precisely at the Ordinary Shareholders’ Meeting or by the Board. A detailed and separate record of these special compensations must be made in the Annual Report, indicating the full name of each director who has received them.   Without prejudice to other legal disqualifications or conflicts of interest, the following persons cannot serve as directors: (a) a person who has been convicted or is on trial for crimes penalized with a principal or accessory penalty of temporary suspension or permanent disqualification to hold public positions or offices; (b) a debtor subject to a pending insolvency procedure for liquidation, (c) legislators; (d) directors or employees of any other financial institution; (e) employees of the Office of the President of the RepublicChile or employees or officials of the Treasury or of the Services, Fiscal or Semi-Fiscal Institutions, Autonomous Agencies, State-Owned Enterprises, and generally all the Public Services created by law, as well as those of companies, partnerships, or public or private entities to which the State or its companies, partnerships, or centralized or decentralized institutions have contributed the majority capital or a proportion equal thereto, or have a similar representation or participation, provided that the limitation prescribed in this letter (e) shall not apply to persons who hold teaching positions; and (f) Bank employees.   In the elections of directors, each shareholder shall have one vote per share held or represented, and may cast all such votes in favor a single candidate or distribute them as deemed convenient; those who receive the largest number of votes in an election shall be proclaimed as elected, until the number of persons to be elected is reached. Elections of principal and alternate directors must be held separately. To proceed to a vote, the Chairman and the Secretary, jointly with the persons who have previously been designated at the Ordinary Shareholders’ Meeting to sign the minutes thereof, must make a documentary record of the votes which are cast through voice vote by the shareholders present, according to the list of attendance. However, any shareholder shall be entitled to vote on a ballot signed by him, stating whether he signs on his own behalf or as a proxy. In any event, to facilitate the casting or speed of a vote, the Chairman of the Bank or the Superintendency,FMC, if applicable, may order an alternative procedure or permit either a voice vote or a ballot vote, or any other procedure stipulated as adequate for the purpose. In counting the results, the Chairman shall read out the votes cast aloud so that all the persons present can count the votes themselves and the truthfulness of the result can be verified. The Secretary shall add up the votes and the Chairman shall announce the candidates that receive the largest majorities and proclaim them thereby elected, until the number of persons to be elected is reached. The Secretary shall place the document reflecting the vote count, signed by the persons responsible for taking note of the votes cast, as well as the ballots delivered by the shareholders who did not vote by voice, in an envelope which shall be closed and sealed with the corporate seal, and shall be kept on file at the Bank for at least two years.   153  Table of Contents Every election to the Board, or every change to the composition of the Board, must be recorded in a public deed executed before a Notary, published in a Santiago newspaper, and reported to the SBIFFMC by sending an authorized copy of the respective public deed. The appointments of the General Manager and Assistant Deputy Manager must likewise be reported and converted into a public deed.   159 Table of Contents Vacancies that arise when a director ceases to be able to perform his or her duties, either because he becomes subject to any conflict of interest, limitation, or legal disqualification or because he is subject to a pending insolvency procedure for liquidation, or due to impossibility of serving, unjustified absence, death, resignation, or for another legal cause, shall be filled in the following manner: (a) vacancies of principal directors by alternate directors; and (b) in case of vacancies of alternate directors because of the application or circumstances not provided for in letter (a) above, or vacancies of principal directors which could not be filled as provided for in this letter because the alternate directors have become principal directors, the appropriate replacements shall be appointed at the first Ordinary Shareholders’ Meetingboard of directors meeting to be held. The directors so designated shall remain in office until the next Ordinary Shareholders’ Meeting, at which the definitive appointments shall be made for the time remaining to complete the replaced directors’ terms.   The alternate directors may always take part in a Board meetings and have the right to speak at any such meeting. However, they shall have the right to vote only when they replace a principal director.   The Board shall separately elect a Chairman, a First Vice Chairman, and a Second Vice Chairman from among its members at the first meeting held after the Shareholders’ Meeting has appointed it or at its first meeting held after the persons in question have ceased to hold the position for any reason. In case of a tie vote, the person who chairs the meeting shall have the tie-breaking vote. The Board shall appoint a General Manager who is responsible for the management of the Bank’s business and represents the Bank in all its offices. The General Manager has the right to participate in discussions at Board meetings but may not vote at such meetings. The Board shall also appoint one or more Managers who are responsible for the transactions and business of the Bank at the offices, branch offices, divisions and services placed under their management. The Directors, Managers and other employees of the Bank shall be personally responsible for non-compliance with the Bank’s by-laws and other legal or regulatory provisions arising from the performance of their duties, and liable for such infringements which are effected with their knowledge.   The Board meetings shall be held at the company’s domicile unless the directors unanimously resolve to hold a particular session at a different location or all the directors participate in any such meeting held at a different location. The Board shall meet in ordinary session at least once a month, on the days and at the times the Board designates, and additionally, in extraordinary sessions from time to time when summoned by the Chairman at his or her own initiative or at the request of three or more directors, following the Chairman’s determination of the need for a meeting, unless it is requested by an absolute majority of the incumbent directors, in which case the meeting must necessarily be held without the need for a prior determination. Only the topics specifically stated in the notice of meeting may be addressed at extraordinary meetings, unless all the incumbent directors are present and they unanimously agree otherwise. Summonses to extraordinary meetings shall be made in accordance with and in the form prescribed by law.   The quorum for Board meetings shall be the absolute majority of the number of directors entitled to vote as prescribed in our by-laws. Resolutions shall be adopted by the absolute majority of the directors present who are entitled to vote. In case of a tie vote, the person who chairs the meeting shall have the tie-breaking vote. Directors who, though not present, are in simultaneous and permanent communication through technological means which have been authorized by the SBIFFMC shall be understood to participate in the meetings.   Directors who have an interest in a business dealing, legal act, contract, or operation or transaction not specifically of a banking nature, or as representatives of another person, must inform the other directors thereof. The respective resolutions shall be approved by the Board and must be in accordance with conditions of equity similar to those customarily prevailing in the market;market and they shall be disclosed at the next Ordinary Shareholders’ Meeting by the person who chairs such meeting.   A record of the Board’s deliberations and resolutions shall be made in a special minute book to be kept by the Secretary. The minutes must be consecutively numbered, with one numbering sequence assigned to ordinary meetings and another to extraordinary meetings, and they must be signed by the directors who took part in the meeting and the Secretary or the person who performs his or her functions. A director who believes certain minutes contain inaccuracies or omissions is entitled to record his or her reservations prior to signing them. Resolutions may be carried out without the need to approve the minutes at a subsequent meeting. If any of the persons present dies, 160 Table of Contents refuses to sign the minutes, or is prevented from doing so for any reason, a record of said impediment shall be made at the foot thereof. 154  Table of Contents   The directors shall be personally responsible or liable for all the legal acts they execute in the performance of their functions. A director who wishes to avoid responsibility or liability for any legal act or resolution of the Board must make a record of his or her opposition in the minutes and the Chairman shall be informed thereof at the next Ordinary Shareholders’ Meeting.   The Board shall represent the Bank judicially and extra-judicially and for the pursuit of its corporate purpose, which need not be demonstrated to third parties in any manner; it shall be vested with all the authorities and powers of administration that the law or the by-laws do not define as pertaining exclusively to Shareholders’ Meetings, without the need to confer any special power of attorney whatsoever, even for legal acts or contracts for which the laws so require. The foregoing does not impair the Bank’s judicial representation by the General Manager. The Board may delegate part of its powers to the General Manager, to one or more managers, assistant managers, or attorneys of the Bank, to a director, or to a committee of Directors, as well as to other persons for specific purposes.   The Board shall designate three Directors from among its members to serve on a committee of DirectorsComité de Directores (Audit Committee) which shall be governed by the provisions of articleArticle 50bis of the Corporations Act.Chilean Companies Law.   The Chairman/President   The Chairman of the Board shall likewise be the president of the company and the chairman of the Shareholders’ Meetings. He shall have the following obligations and authorities, in addition to those prescribed in the pertinent legal and regulatory provisions, in our by-laws, or by the Board: (a) chair the Board and Shareholders’ Meetings; (b) enforce strict compliance with the by-laws, the Board’s resolutions, and the resolutions of the Shareholders’ Meetings; (c) summon the Board meetings; and (d) sign the annual reports and the resolutions and communications of the Board and the Shareholders’ Meetings. In the absence or temporary impediment of the Chairman/President, the First Vice Chairman/First Vice President shall act in his or her stead, and in the latter’s absence, the Second Vice Chairman/Second Vice President shall act, or finally, the person designated by the Board from among its members or the shareholder designated at the Shareholders’ Meeting, as the case may be. Replacement is an internal company procedure that shall not require any formality, and it shall not be necessary to demonstrate its validity to third parties in order to assure the validity of the replacement’s actions; the sole fact of its occurrence suffices to make said actions effective.   Meetings and Voting Rights   The shareholders shall meet in Ordinary or Extraordinary Shareholders’ Meetings held in Santiago. The resolutions adopted at a validly summoned and convened Shareholders’ Meeting, in conformity with the by-laws, shall be binding on all of the shareholders.   The Ordinary Shareholders’ Meetings shall be held annually on the dates determined by the Board within the first four months following the date of the annual balance sheet. There shall be an Extraordinary Shareholders’ Meeting whenever the company’s needs so require. The meetings shall be summoned by the Board at its own initiative or at the request of shareholders representing at least 10% of the issued shares having a legal right to vote. If in this circumstance, the Board, and through it the Chairman, refuses to issue a summons, the Superintendent of Banks and Financial InstitutionsFMC may be requested to do so.   The summons to a Shareholders’ Meeting shall be given through a prominent notice to be published three times on different days in the Santiago newspaper which has been chosen at the Ordinary Shareholders’ Meeting, and in the absence of agreement or in the event of a suspension or disappearance of the designated newspaper’s circulation, in the Official Journal, at the time, in the form, and under the conditions stipulated by the Regulations of the Corporations Act.Chilean Companies Law. Summonses to Extraordinary Shareholders’ Meetings shall state the topics which will be submitted to them. The summons to a meeting shall likewise be announced through a letter sent to the shareholders a minimum of fifteen days in advance of the date set for the meeting, which must contain a reference to the topics to be addressed at it. Failure to send said letter shall not invalidate the summons, without prejudice to legal liabilities. On a date no later than that of the first notice of a summons for an Ordinary Shareholders’ Meeting, each shareholder must be sent a copy of the Bank’s Annual Report and Balance Sheet, including the auditors’ opinion and its respective notes.   A161 Table of Contents Quorum for Shareholders’ Meetings shall convene upon reaching a quorum, which shall be established by the presence of as many shareholders as represent, directly or by proxy, at least an absolute majority of the issued voting shares. If said quorum is not satisfied, a new summons shall be given, for a meeting which must be scheduled to be held in the 155  Table of Contents manner prescribed in Article 37 of our by-laws, indicating that it is a second summons and scheduling the new meeting to be held within the forty five days subsequent to the date scheduled for the meeting that was not held due to a lack of quorum. A meeting called by a second summons shall lawfully convene with the number of issued voting shares present or represented thereat.   In the absence of a special rule, a Shareholders’ Meeting resolution shall be adopted by an absolute majority of the voting shares present or represented.   The Ordinary Shareholders’ Meetings have the following responsibilities: (a) deliberate and resolve on the Annual Report and Balance Sheet which must be submitted by the Board; (b) annually designate an external auditing firm in conformity with the provisions of law to report on the balance sheet and comply with the legal requirements; (c) elect the members of the Board when appropriate pursuant to our by-laws; (d) resolve the distribution of the liquid profits or earnings for each fiscal year, and at the Board’s request, order the distribution of a dividend to the shareholders as of the end of each fiscal year, as prescribed in the by-laws; and (e) in general, deliberate and pass resolutions on any other topic of corporate interest which is not reserved to an Extraordinary Shareholders’ Meeting. The revocation of all the Board members elected by the shareholders and the designation of their replacements may be resolved at an Ordinary or Extraordinary Shareholders’ Meeting, but any individual or collective revocation of one or more Board members would accordingly be invalid.   The Extraordinary Shareholders’ Meetings are reserved for certain topics indicated by law or by our by-laws. Resolutions on the topics indicated in the notice of meeting may be adopted at Extraordinary Shareholders’ Meetings.   The shareholders may have themselves represented at Meetings by another person, whether a shareholder or not, as is stipulated in the Corporations Act.Chilean Companies Law.   A record of the deliberations and resolutions at any Shareholders’ Meeting shall be made in a special minute book to be kept by the Secretary, if any, or in his or her absence by the Bank’s General Manager. The minutes shall be signed by the Chairman or the person who performs his or her functions, by the Secretary and three shareholders elected by the Meeting, or by all the persons present if they number fewer than three. In the event of death, refusal, or impediment to signing the minutes on the part of any of the persons who must do so, a record of the impediment shall be made at the foot thereof. An extract of the minutes shall be made to record what happened at the meeting, and an official copy of the following data shall necessarily be made: the names of the shareholders present and the number of shares owned or represented by each of them (a brief summary of any objections may be omitted if it is attached to the same page or roll of attendance), a list of the proposals submitted for discussion and the results of the votes taken, and the list of the shareholders who voted for or against. Solely by the unanimous consent of the persons present may a record of any event occurring at the meeting that is related to the company’s interests be deleted from the minutes.   The persons present at any Shareholders’ Meetings shall sign a roll of attendance on which they shall indicate the number of shares the signatory holds, the number of shares he represents, and the name of the shareholder he represents.   In general, Chilean law does not require a Chilean open stock corporation to provide the level and type of information that U.S. securities laws require a reporting company to provide to its shareholders in connection with a solicitation of proxies. However, shareholders are entitled to examine the books of the bank within the 15-day period before the ordinary annual meeting. In addition to these requirements, we regularly provide, and management currently intends to continue to provide, together with the notice of shareholders’ meeting, a proposal for the final annual dividend.   Annual Report, Balance Sheet, and Distribution of Profits   A Balance Sheet shall be drawn up as of the thirty firstthirty-first day of December of each year, to be submitted to the Ordinary Shareholders’ Meeting for its consideration, jointly with the Annual Report. The Balance Sheet and Statement of Income shall be published in conformity with the currently applicable legal and regulatory provisions. The approval or rejection of such financial statements is entirely within our shareholders’ discretion. If our 162 Table of Contents shareholders reject our financial statements, our Board of Directors must submit new financial statements not later than 60 days from the date of such rejection. If our shareholders reject our new financial statements, our entire Board of Directors is deemed removed from office and a new Board of Directors is elected at the same meeting. Directors who individually approved such rejected financial statements are disqualified for re-election for the ensuing period. 156  Table of Contents   The profits attributable to shareholders reflected in the Balance Sheet shall be applied preferentially to absorb prior-year losses. The balance which is earned shall be allocated as may be resolved by the Shareholders’ Meeting, at the Board’s recommendation, to: (a) an increase of the effective capital, the formation of a fund for future capitalizations or dividends, or other special reserve funds; these uses shall receive the amounts the Meeting deems convenient, in conformity with the limits and obligations prescribed by law; and (b) the distribution of dividends to the shareholders in proportion to their shareholdings.   Under the Chilean Corporations Law, Chilean companies are generally required to distribute at least 30.0% of their earnings as dividends. No dividends of a bank above the legal minimum can be distributed if doing so would result in the bank exceeding its ratio of regulatory capital to risk-weighted assets and shareholders’ equity to regulatory capital or total assets.   Dividends that are declared but not paid by the date set for payment at the time of declaration are adjusted from the date set for payment to the date such dividends are actually paid, and they accrue interest.   We may declare a dividend in cash or in shares. When a share dividend is declared above the legal minimum (which minimum must be paid in cash), our shareholders must be given the option to elect to receive cash. Our ADS holders may, in the absence of an effective registration statement under the Securities Act or an available exemption from the registration requirement thereunder, effectively be required to receive a dividend in cash. See “Item 10. B.10.B.—Memorandum and Articles of Association—Preemptive Rights and Increases of Share Capital.” A dividend entitlement lapses after 5 years and the funds go to the Chilean Treasury.   Liquidation and Appraisal Rights   The Bank may be dissolved and liquidated if it is so resolved at an Extraordinary Shareholders’ Meeting, with the favorable vote of at least two thirds of the issued voting shares, and approved by the Superintendent of Banks and Financial Institutions.   Once the voluntary dissolution to which the preceding article refers has been resolved, the Shareholders’ Meeting at which it is resolved shall appoint a committee of three shareholders to proceed to the company’s liquidation. The liquidating committee so created shall act with the powers and obligations which the by-laws confer on the Board, and it shall keep the shareholders informed of the liquidation’s progress, shall summon Ordinary Shareholders’ Meetings on the dates scheduled for them, being authorized to likewise summon Extraordinary Shareholders’ Meetings. In all other respects the provisions of the Commercial Code, the applicable provisions of the Corporations Act,Chilean Companies Law, and the corporate regulations which govern the company shall be followed. In accordance with the General Banking Law, our shareholders do not have appraisal rights.   Arbitration   Any difficulty which may arise between the Bank and any of the shareholders or directors, or between such persons, in connection with the application of the by-laws or the recognition of the existence, nonexistence, validity, nullity, construction, performance or breach, dissolution, liquidation, or any other cause shall be submitted to resolution by two arbitrators at law and in equity, who shall rule without subsequent appeal, one of whom shall be appointed by each party. If they cannot reach agreement, the parties shall appoint a third arbitrator to resolve the discord. If there is no agreement for the third arbitrator’s appointment, the two previously appointed arbitrators shall make the designation. If either party refuses to participate in the appointment of arbitrators or, after they have been appointed, there is no agreement on the ruling and neither the parties nor the arbitrators have designated the third arbitrator to resolve the discord, the designation of said arbitrator, if any, or of the third participant in discord, shall be made by the Ordinary Court of Justice, and the person so designated must necessarily be one who has held or currently holds the position of attorney and member of the Honorable Supreme Court.   163 Table of Contents Capitalization   Under Chilean law, the shareholders of a company, acting at an extraordinary shareholders’ meeting, have the power to authorize an increase in such company’s capital. When an investor subscribes for issued shares, the shares are registered in such investor’s name, even if not paid for, and the investor is treated as a shareholder for all purposes except with regard to receipt of dividends and the return of capital, provided that the shareholders may, by 157  Table of Contents amending the by-laws, also grant the right to receive dividends or distributions of capital. The investor becomes eligible to receive dividends and returns of capital once it has paid for the shares (if it has paid for only a portion of such shares, it is entitled to reserve a corresponding pro-rata portion of the dividends declared and/or returns of capital with respect to such shares unless the company’s by-laws provide otherwise). If an investor does not pay for shares for which it has subscribed on or prior to the date agreed upon for payment, the company is entitled under Chilean law to auction the shares on the stock exchange and collect the difference, if any, between the subscription price and the auction proceeds. However, until such shares are sold at auction, the subscriber continues to exercise all the rights of a shareholder (except the right to receive dividends and return of capital).   Article 22 of the Chilean Corporations Law states that the purchaser of shares of a company implicitly accepts its by-laws and any agreements adopted at shareholders’ meetings.   Registrations and Transfers   We act as our own registrar and transfer agent, as is customary among Chilean companies. In the case of jointly owned shares, an attorney-in-fact must be appointed to represent the joint owners in dealings with us.   Ownership Restrictions   Under Article 12 of the Chilean Securities Market Law and the regulations of the SBIF,FMC, shareholders of open stock corporations are required to report the following to the Superintendency of Securities and InsuranceFMC and the Chilean Stock Exchanges:stock exchanges:   · any direct or indirect acquisition or sale of shares that results in the holder’s acquiring or disposing, directly or indirectly, 10.0% or more of an open stock corporation’s share capital; and   · any direct or indirect acquisition or sale of shares or options to buy or sell shares, in any amount, if made by a holder of 10.0% or more of an open stock corporation’s capital or if made by a director, liquidator, main officer, general manager or manager of such corporation.   In addition, majority shareholders must include in their report whether their purpose is to acquire control of the company or if they are making a financial investment. A beneficial owner of ADSs representing 10.0% or more of our share capital will be subject to these reporting requirements under Chilean law.   Under Article 54 of the Chilean Securities Market Law and the regulations of the Superintendency of Securities and Insurance,FMC, persons or entities intending to acquire control, directly or indirectly, of an open stock corporation, regardless of the acquisition vehicle or procedure, and including acquisitions made through direct subscriptions or private transactions, are also required to inform the public of such acquisition at least 10 business days before the date on which the transaction is to be completed, but in any case, as soon as negotiations regarding the change of control begin (i.e., when information and documents concerning the target are delivered to the potential acquirer) through a filing with the Superintendency of Securities and Insurance,FMC, the stock exchanges and the companies controlled by and that control the target and through a notice published in two Chilean newspapers, which notice must disclose, among other information, the person or entity purchasing or selling and the price and conditions of any negotiations.   Prior to such publication, a written communication to such effect must be sent to the target corporation, to the controlling corporation, to the corporations controlled by the target corporation, to the Superintendency of Securities and Insurance,FMC, and to the Chilean stock exchanges on which the securities are listed.   In addition to the foregoing, Article 54A of the Chilean Securities Market Law requires that within two business days of the completion of the transactions pursuant to which a person has acquired control of a publicly traded company, a notice shall be published in the same newspapers in which the notice referred to above was published and notices shall be sent to the same persons mentioned in the preceding paragraphs.   164 Table of Contents The provisions of the aforementioned articles do not apply whenever the acquisition is being made through a tender or exchange offer.   158  Table of Contents Title XXV of the Chilean Securities Market Law on tender offers and the regulations of the Superintendency of Securities and InsuranceFMC provide that the following transactions must be carried out through a tender offer:   · an offer which allows a person to take control of a publicly traded company, unless (i) the shares are being sold by a controlling shareholder of such company at a price in cash which is not substantially higher than the market price and the shares of such company are actively traded on a stock exchange and (ii) those shares are acquired (a) through a capital increase, (b) as a consequence of a merger, (c) by inheritance or (d) through a forced sale; and   · an offer for a controlling percentage of the shares of a listed company if such person intends to take control of the parent company (whether listed or not) of such listed company, to the extent that the listed company represents 75.0% or more of the consolidated net worth of the parent company.   In addition, Article 69bis199 of the CompaniesChilean Securities Market Law requires that whenever a controlling shareholder acquires two thirds of the voting shares of a listed company, such controlling shareholder must offer to purchase the remaining shares from the non-controlling shareholders in a tender offer.   Article 200 of the Chilean Securities Market Law prohibits any shareholder that has taken control of a publicly traded company to acquire, for a period of 12 months from the date of the transaction in which it gained control of the publicly traded company, a number of shares equal to or greater than 3.0% of the outstanding issued shares of the target without making a tender offer at a price per share not lower than the price paid at the time of taking control. Should the acquisition from the other shareholders of the company be made on a stock exchange and on a pro rata basis, the controlling shareholder may purchase a higher percentage of shares, if so permitted by the regulations of the stock exchange.   Title XV of the Chilean Securities Market Law sets forth the basis to determine what constitutes a controlling power, a direct holding and a related party. The Chilean Securities Market Law defines control as the power of a person or group of persons acting (either directly or through other entities or persons) pursuant to a joint action agreement, to direct the majority of the votes at the shareholders’ meetings of the corporation, to elect the majority of members of its Board of Directors, or to influence the management of the corporation significantly. Significant influence is deemed to exist in respect of the person or group of persons with an agreement to act jointly that holds, directly or indirectly, at least 25.0% of the voting share capital, unless:   · another person or group of persons acting pursuant to joint action agreement, directly or indirectly, controls a stake equal to or greater than the percentage controlled by such person or group of persons;   · the person or group does not control, directly or indirectly, more than 40.0% of the voting share capital and the percentage controlled is lower than the sum of the shares held by other shareholders holding more than 5.0% of the share capital (either directly or pursuant to a joint action agreement); or   · in cases where the Superintendency of Securities and Insurance (now the FMC) has ruled otherwise, based on the distribution or atomization of the overall shareholding.   According to the Chilean Securities Market Law, a joint action agreement is an agreement among two or more parties which, directly or indirectly, own shares in a corporation at the same time and whereby they agree to participate with the same interest in the management of the corporation or in taking control of the same. The law presumes that such an agreement exists between:   · a principal and its agents;   · spouses and relatives within certain degrees of kinship;   · entities within the same business group; and   · an entity and its controller or any of the members of the controller.   165 Table of Contents Likewise, the Superintendency of Securities and InsuranceFMC may determine that a joint action agreement exists between two or more entities considering, among other things, the number of companies in which they participate 159  Table of Contents and the frequency with which they vote identically in the election of directors, appointment of managers and other resolutions passed at extraordinary shareholders’ meetings.   According to Article 96 of the Chilean Securities Market Law, a business group is a group of entities with such ties in their ownership, management or credit liabilities that it may be assumed that the economic and financial action of such members is directed by, or subordinated to, the joint interests of the group, or that there are common credit risks in the credits granted to, or in the acquisition of securities issued by, them. According to the Chilean Securities Market Law, the following entities are part of the same business group:   · a company and its controller;   · all the companies with a common controller together with that controller;   · all the entities that the Superintendency of Securities and InsuranceFMC declares to be part of the business group due to one or more of the following reasons:   · a substantial part of the assets of the company is involved in the business group, whether as investments in securities, equity rights, loans or guaranties;   · the company has a significant level of indebtedness and the business group has a material participation as a lender or guarantor;   · any member of a group of controlling entities of a company mentioned in the first two bullets above and there are grounds to include it in the business group; or   · the company is controlled by a member of a group of controlling entities and there are grounds to include it in the business group.   Article 36 of the General Banking Law states that as a matter of public policy, no person or company may acquire, directly or indirectly, more than 10.0% of the shares of a bank without the prior authorization of the SBIF,FMC, which may not be unreasonably withheld. The prohibition would also apply to beneficial owners of ADSs. In the absence of such authorization, any person or group of persons acting in concert would not be permitted to exercise voting rights with respect to the shares or ADSs acquired. In determining whether or not to issue such an authorization, the SBIFFMC considers a number of factors enumerated in Article 28 of the General Banking Law, including, among others (i) the financial stability of the purchasing party and (ii) the legitimacy of the purchasing party.   According to Article 35bis of the General Banking Law, the prior authorization of the SBIFFMC is required for:   · the merger of two or more banks;   · the acquisition of all or a substantial portion of a banks’ assets and liabilities by another bank;   · the control by the same person, or controlling group, of two or more banks; or   · a substantial increase in the existing control of a bank by a controlling shareholder of that bank.   This priorThe FMC may deny its authorization with an accompanying resolution recording the specific reasons for denying the authorization and with the agreement of a majority of the Board of Directors of the Central Bank, provided there is only required when the acquiring bank or the resulting groupnotice of banks would own a significant market share in loans, defined by the SBIF to be more than 15.0% of all loans in the Chileansuch agreement within 10 banking system. The intended purchase, merger or expansionbusiness days (which may be denied by the SBIF; or, if the acquiring bank or resulting group would own a market share in loans determined to be more than 20.0% of all loans in the Chilean banking system, the purchase, merger, or expansion may be conditioned on one or more of the following: · the bank or banks maintaining regulatory capital higher than 8.0% and up to 14.0% of risk-weighted assets; · the technical reserve established in Article 65 of the General Banking Law being applicable when deposits exceed one and a half times the resulting bank’s paid-in capital and reserves; or · the margin for interbank loans be reduced to 20.0% of the resulting bank’s regulatory capital. 160  Table of Contents If the acquiring bank or resulting group would own a market share in loans determined by the SBIF to be more than 15.0% but less than 20.0%, the authorization will be conditioned on the bank or banks maintaining a regulatory capital not lower than 10.0% of their risks weighted assets for the period specified by the SBIF, which may not be less than one year. The calculation of the risk weighted assets is based on a five category risk classification system applied to a bank’s assets that is based on the Basel Committee recommendations.extended under Law 18,840).   According to the General Banking Law, a bank may not grant loans to related parties on terms more favorable than those generally offered to non-related parties. Article 84 No. 2 of the New General Banking Law andprovides that the regulations issuedFMC will determine, by the SBIF creates the presumption that natural personsmeans of a general rule, who are holders of shares and who beneficially own more than 1.0%must be considered a related party of the shares arebank. In addition, the FMC will establish rules to determine if certain persons constitute a group of related parties in one or more of the 166 Table of Contents following circumstances: (i) business or administrative relationships that allow a person to exercise relevant and permanent influence over another’s decisions; (ii) an assumption will be made that the bank and imposes certain restrictions on the amounts and terms of loans made by banksgranted to related parties. This presumption would also apply to beneficial owners of ADSs representing more than 1.0%one person will be used in benefit of the shares.other; and (iii) an assumption will be made that diverse persons maintain relationships that create a unit of economic interests. Finally, according to the regulations of the SBIF,FMC, Chilean banks that issue ADSs are required to inform the SBIFFMC if any person, directly or indirectly, acquires ADSs representing 5.0% or more of the total amount of shares of capital stock issued by such bank.   Article 16bis of the General Banking Law provides that the individuals or legal entities that, individually or with other people, directly control a bank and who individually own more than 10.0% of its shares must send to the SBIFFMC reliable information on their financial situation inwith the formcontent and in the opportunity set forth in Resolution No. 3,156 ofa general rule issued by the SBIF.FMC, which will not exceed the information required for open-stock corporations (sociedad anónima abierta).   There are no limitations for non-resident or foreign shareholders to hold or exercise voting rights on the securities.   Preemptive Rights and Increases of Share Capital   The Chilean Corporations Law provides that whenever a Chilean company issues new shares for cash, it must offer its existing shareholders the right to purchase a number of shares sufficient to maintain their existing ownership percentages in the company. According to our by-laws, options for subscription of capital increases must be offered on a preemptive basis to the shareholders, in proportion to the number of shares each shareholder owns, and the released shares which are issued shall be distributed in the same proportion.   Pursuant to this requirement, preemptive rights in connection with any future issue of shares will be offered by us to the Depositary as the registered owner of the shares underlying the ADRs. However, the Depositary will not be able to make such preemptive rights available to holders of ADSs unless a registration statement under the Securities Act is effective with respect to the underlying shares or an exemption from the registration requirements thereunder is available.   We intend to evaluate, at the time of any preemptive rights offering, the practicality under Chilean law and Central Bank regulations in effect at the time of making such rights available to our ADS holders, as well as the costs and potential liabilities associated with registration of such rights and the related shares of common stock under the Securities Act, and the indirect benefits to us of thereby enabling the exercise by all or certain holders of ADSs of their preemptive rights and any other factors we consider appropriate at the time, and then to make a decision as to whether to file such registration statement. We cannot assure you that any registration statement would be filed. If we do not file a registration statement and no exemption from the registration requirements under the Securities Act is available, the Depositary will sell such holders’ preemptive rights and distribute the proceeds thereof if a premium can be recognized over the cost of such sale. In the event that the Depositary is not able, or determines that it is not feasible, to sell such rights at a premium over the cost of any such sale, all or certain holders of ADSs may receive no value for such rights. Non-U.S. holders of ADSs may be able to exercise their preemptive rights regardless of whether a registration statement is filed. The inability of all or certain holders of ADSs to exercise preemptive rights in respect of shares of common stock underlying such ADSs could result in such holders not maintaining their percentage ownership of the common stock following such preemptive rights offering unless such holder made additional market purchases of ADSs or shares of common stock.   Under Chilean law, preemptive rights are exercisable or freely transferable by shareholders during a period that cannot be less than 30 days following the grant of such rights. During such period, and for an additional 30-day period thereafter, a Chilean corporation is not permitted to offer any unsubscribed shares for sale to third parties on terms which are more favorable than those offered to its shareholders. At the end of such additional 30-day period, a Chilean open stock corporation is authorized to sell unsubscribed shares to third parties on any terms, provided they 161  Table of Contents are sold on a Chilean stock exchange. Unsubscribed shares that are not sold on a Chilean stock exchange can be sold to third parties only on terms no more favorable for the purchaser than those offered to shareholders.   C. Material Contracts   During the past two years, we were not a party to any material contract outside the ordinary course of business.   167 Table of Contents D. Exchange Controls   The Central Bank is responsible for, among other things, monetary policies and exchange controls in Chile. Appropriate registration of a foreign investment in Chile grants the investor access to the Formal Exchange Market. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates.” Foreign investments can be registered with the Foreign Investment Committee under Decree Law No. 600 or can be registered with the Central Bank under the Central Bank Act. The Central Bank Act is an organic constitutional law requiring a “special majority” vote of the Chilean Congress to be amended. Since April 18, 2001, all exchange controls in Chile have been eliminated.   Previously, Chilean law mandated that holders of shares of Chilean companies that were not residents of Chile register as foreign investors under one of the foreign investment regimes contemplated by Chilean law in order to receive dividends, sale proceeds or other amounts with respect to their shares remitted outside Chile through the Formal Exchange Market. Under the Foreign Investment Contract (as defined herein), the Depositary, on behalf of ADS holders, is granted access to the Formal Exchange Market to convert cash dividends from Chilean pesos to U.S. dollars and to pay such U.S. dollars to ADS holders outside Chile, net of taxes, and no separate registration by ADR holders is required. As of April 19, 2001, the Central Bank deregulated the Exchange Market, eliminating the need to obtain approval from the Central Bank in order to remit dividends, but at the same time eliminating the possibility of guaranteeing access to the Formal Exchange Market. However, this did not affect the current Foreign Investment Contract, which was signed prior to April 19, 2001, and which still permits access to the Formal Exchange Market based on the prior approval of the Central Bank. Therefore the holders of ADRs of Santander-Chile are still subject to the Foreign Investment Contract, including its clauses referring to the prior exchange rules including the now extinct Chapter XXVI of the Compendium.   E. Taxation   The following discussion summarizes certain Chilean tax and United States federal income tax consequences to beneficial owners arising from the ownership and disposition of our common stock or ADSs. The summary does not purport to be a comprehensive description of all potential Chilean and United States federal income tax considerations that may be relevant to a decision to own or dispose of our common stock or ADSs and is not intended as tax advice to any particular investor. This summary does not describe any tax consequences arising under the laws of any state, locality or other taxing jurisdiction other than Chile and the United States. There is currently no income tax treaty between the United States and Chile. However, the U.S. government and the government of Chile signed on February 4, 2010 the Proposed Income Tax Treaty between the United States of America and the Republic of Chile (the “Proposed U.S.-Chile Treaty”), which is now subject to ratification by the U.S. Senate and Chilean Congress. If the Proposed U.S.-Chile Treaty becomes effective, U.S. investors should consult their tax advisers as to the applicability of the treaty in their particular circumstances.   Material Tax Consequences of Owning Shares of Our Common Stock or ADSs   Chilean Taxation   The following is a summary of certain Chilean tax consequences of the ownership and disposition of shares of our common stock or of ADSs evidenced by ADRs by Foreign Holders (as defined herein). The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to own or dispose shares of our common stock or ADSs and does not purport to address the tax consequences applicable to all categories of investors, some of whom may be subject to special rules. Holders of shares of our common stock or ADSs are advised to consult their tax advisers concerning the Chilean and other tax consequences of the ownership and disposition of shares of our common stock or of ADSs evidenced by ADRs.   The description of Chilean tax laws set forth below is based on Chilean laws in force as of the date of this Annual Report and can be subject to any changes in such laws occurring after the date of this Annual Report. These 162  Table of Contents Although it is uncommon, legal changes can be made on a retroactive basis, butbasis. However, changes in regulations or interpretations held by the Chilean tax authorities may not be used retroactively against taxpayers who acted in good faith relying on such modified regulations or interpretations that were in force at that moment.interpretations.   For purposes of this summary, the term “Foreign Holder” means either (1) in the case of an individual, a person who is not resident or domiciled in Chile; or (2) in the case of a legal entity, a legal entity that is not organized under the laws of Chile, unless the shares of our common stock or ADSs are assigned to a branch or a permanent 168 Table of Contents establishment of such entity in Chile. For purposes of Chilean taxation, (a) an individual holder is resident in Chile if he or she has remained in Chile for more than six months in one calendar year, or a total of more than six months in two consecutive fiscal years, and (b) an individual is domiciled in Chile if he or she resides in Chile with the actual or presumptive intent of staying in Chile (intention that can be evidenced by circumstances such as the acceptance of an employment in Chile or the relocation to Chile of his or her family).   The Income Tax Law provides that a Foreign Holder is subject to income taxes on his or her Chilean-sourced income. For these purposes, Chilean source income means earnings from activities performed within Chilean territory or from sale, disposition or other transactions in connection with assets or goods located in Chile. Indirect sale regulations may also attribute Chilean sourced Chilean income.   Taxation of Dividends   Cash dividends paid by us with respect to shares of our common stock held by a Foreign Holder, including shares represented by ADSs, will be subject to a 35% Chilean Withholding Tax (“WHT”), which is withheld and paid over by us (the “Withholding Tax”). us. If we have paid Corporate Income Tax (the “First Category Tax”(“CIT”) on the income from which the dividend is paid, a credit for the First Category TaxCIT (reduced, in certain circumstances by a related fiscal debit, as described below) effectively reduces the rate of Withholding Tax. WHT. When a credit is available, the Withholding TaxWHT is computed by applying the 35% rate to the pre-tax amount needed to fund the dividend and then subtracting from the tentative withholding taxWHT so determined the amount of First Category TaxCIT actually paid on the pre-tax income. For determining the pre-tax amount of the dividend, the First Category TaxCIT credit will depend on the amounts accumulated in the Accumulated Credit Balance (SAC), at the date of withdrawal or distribution.   In general, 35% of CIT paid on the income from which a dividend is paid gives rise to a fiscal debit owed to the Chilean Treasury at the time the dividend distribution is made to a Foreign Holder. Accordingly, a Foreign Holder generally may apply a net credit equal to only 65% of the CIT to reduce WHT. However, if the Foreign Holder is a resident of a country with which Chile has a Double Tax Treaty in force, the Foreign Holder may be entitled to apply the entire CIT against WHT otherwise due. Moreover, if the Foreign Holder is a resident of a country with a signed Double Tax Treaty that has not entered into force on January 1, 2017, (as in the case of United States) the Foreign Holder would also be entitled to a 100% CIT credit, without reduction by any related fiscal debit, until December 31, 2021. If at such date the treaty has not entered into force, the Foreign Holder will be subject to the general rules, and hence entitled only to a net credit of 65% of the CIT as described above. It should be mentioned that, on January 29, Chilean Congress approved a revised draft of the “Modernization Tax Bill” after a year and a half of discussion. The original bill went through substantial amendments both in the Chamber of Deputies and in the Senate, incorporating the amendments agreed back in “Tax Agreement” between the Senate’s Finance Commission and the Government. One of the modifications that would be incorporated in the “Modernization Tax Bill” is for foreign holders that reside in a country with a signed Double Tax Treaty that has not entered into force as of January 1, 2019, (such as in the case of United States) the foreign holder would be entitled to a 100% CIT credit, without deduction, until December 31, 2026. It is expected that this law will become effective in April. To prove residency in a country with which Chile has a Double Tax Treaty, whether signed or in force, a Foreign Holder must produce a government-issued residence certificate, recognizing the taxpayer as a resident of the corresponding country. Foreign Holders are urged to consult with their tax advisers regarding all requirements to be entitled to the 100% CIT credit. The effective rate of Withholding Tax to be imposedWHT on dividends paid by us will vary depending upon the amountrate of First Category Tax paid by us onCIT. In order to determine the earnings underlying the dividends. The statutory rate for the First Category Tax attributed toCIT credit available upon dividend distributions, earnings generated during the years 2008, 2009 and 2010 was 17.0%. For years 2011, 2012 and 2013, it was 20.0%, for 2014 it was 21.0%, for 2015 it was 22.5% and for 2016 it was 24.0%. For the current year should be allocated first (at the statutory rate forin force during the First Category Tax for our company is 25.5%year). Distributions made in excess of current year earnings would be entitled to use as CIT credit the average rate applied to the accumulated earnings generated from January 1, 2017. 169 Table of Contents The example below illustrates the effective Chilean Withholding TaxWHT burden on a cash dividend received by a Foreign Holder, assuming a Withholding TaxWHT rate of 35.0%, a statutory First Category TaxCIT rate of 25.5%27.0% and a distribution of all of the net proceeds available after payment of the First Category Tax.CIT.   Taxable income100% Credit available   Taxable income U.S.$100 First Category Tax (25.5%CIT (27.0% of U.S.$100) (25.5 )(27.0) Net proceeds available 74.5 73.0 Dividend payment 74.5 73.0 Withholding Tax (35.0% of the sum of the dividend (U.S.$74.5)73.0) and the available First Category TaxCIT credit (U.S.$25.5) 27.0)) 35.0 First Category TaxCIT credit (25.5 )(27.0) Payable Withholding TaxWHT 9.5 8.0 Net dividend received 65 (73.0-8.0)   65 (74.5-9.5) 11.0% Effective dividend withholding tax rate (8.0/73.0) 65% Credit available   12.8 Taxable income % U.S.$100 CIT (27.0% of U.S.$100) (27.0) Net proceeds available 73.0 Dividend payment 73.0 Withholding Tax (35.0% of the sum of the dividend (U.S.$73.0) and the available CIT credit (U.S.$27.55)) 35.0 CIT credit (27.00) CIT debt 9.45 Payable WHT 17.45 Net dividend received 55.55 (73.0-17.45)   24.0% Effective dividend withholding tax rate (9.5/74.5 ) (17.45/73.0)   Dividend distributions made in kind would be subject to the same Chilean tax rules as cash dividends. Stock dividends received by the Foreign Holder are not subject to Chilean taxation. The distributions of preemptive rights relating to shares of common stock will not be subject to Chilean taxation. If the Proposed U.S.-Chile Treaty becomes effective, U.S. investors should consult their tax advisers as to the applicability of the treaty infor their particularown circumstances.   163  Table of Contents Taxation of Capital Gains   Gain realized on the sale, exchange or other disposition by a Foreign Holder of ADSs will not be subject to Chilean taxation, provided that such sale or disposition occurs outside Chile or that it is performed under the rules of Title XXIV of the Chilean Securities Market Law, as amended by Law No. 19,601, dated January 18, 1999. The deposit and withdrawal of shares of common stock in exchange for ADSs will not be subject to any Chilean taxes.   Gain recognized on a sale or exchange of shares of common stock (as distinguished from sales or exchanges of ADSs representing such shares of common stock) by a Foreign Holder will be subject both to First Category Tax (currently imposed at a rate of 25.5%) and Withholding Tax (the first can be used as credit against the second) if (1) the Foreign Holder has held such shares of common stock for less than one year since exchanging ADSs for the shares of common stock, (2) the Foreign Holder acquired and disposed of the shares of common stock in the ordinary course of its business or as a regular trader of stock or (3) the sale is made to a company in which the Foreign Holder holds an interest. In certain other cases where the Foreign Holder of shares of common stock has some connection with Chile, gain on the disposition of shares of common stock will be subject only to First Category Tax as a single tax (currently imposed at a rate of 25.5%). The sale of shares of common stock by a Foreign Holder to an individual or entity non-residentthat is not resident or domiciled in Chile iswill be subject to a provisional withholding. Such a provisional withholding willWHT. This tax must be equal to (i)withheld by the purchaser, with an interim rate of 10.0% of the total amount to remit,price without any deduction, paid to, credited to or putted at the disposal of the Foreign Holder unless the gain subject to taxation can be determined, in which case the withholding will be equal to a 35.0% onof the gain. Notwithstanding the above, if the seller evidences that no capital gain was generated, the WHT would not be applicable. For income tax purposes, the capital gain shall be the difference between the sales price and the acquisition cost of the stock. 170 Table of Contents The tax basis of shares of common stock received in exchange for ADSs will be the acquisition value of such shares. The valuation procedure set forth in the deposit agreement which values shares of common stockstates that are being exchanged at the highest price at which they tradeshares of common stock were exchanged on the Santiago Stock Exchange on the date of the exchange generally will determine the acquisition value for this purpose. Consequently, the conversion of ADSs into shares of common stock and sale of such shares of common stock for the value established under the deposit agreement made on the date of the exchange will not generate a capital gain subject to taxation in Chile. In the case where ADSs were exchanged for shares and the subsequent sale of the shares is made on a different day that is different thanfrom the dateone on which the exchange is recorded in the shareholders’ registry of the issuer, capital gains subject to taxation in Chile may be generated. generated, depending on the difference between the acquisition value and the sale price. On October 1, 1999, the Chilean Internal Revenue Service issued Ruling N°3,708 whereby it allowed Chilean issuers of ADSs to amend the Deposit Agreements in which they are parties in order to include a clause that states that, in the case that the exchanged shares are sold by the ADSs’ holder on a Chilean Stock Exchange,stock exchange, either on the same day on which the exchange is recorded in the shareholders’ registry of the issuer or within the two prior business days to such date, the acquisition price of such exchanged shares shall be the price registered in the invoice issued by the stock broker that participated in the sale transaction. Consequently, as we have included this clause in the form of ADRs attached to the deposit agreement, the capital gain that maymight be generated if the shares received in exchange for ADSs were sold within two days prior to the date on which the exchange is recorded in the shareholders’ registry of the issuer, will not be subject to Chilean taxation. The distribution Distribution and exercise of preemptive rights relating to the shares of common stock will not be subject to Chilean taxation. Cash amounts received in exchange for the shares or assignment of preemptive rights relating to the shares will be subject to both the First Category TaxCIT and the Withholding TaxWHT (the former being creditable against the latter to the extent described above). In certain cases and provided certain requirements are met, capital gains realized on the sale of actively traded stock of Chilean public companies may be exempt from Chilean income taxes. Our stock is currently considered to be an actively traded stock in the Santiago Stock Exchange, and Foreign Holders of the stock may qualify for an income tax exemption. Foreign Holders are urged to consult with their own tax advisers to determine whether an exemption applies to them.   If the Proposed U.S.-Chile Double Tax Treaty becomes effective, it may further restrict the amount of Chilean tax, if any, imposed on gains derived from the sale or exchange of shares of common stock by U.S. residents eligible for the benefits of the treaty. If the Proposed Tax Treaty becomes effective, U.S. investors should consult their tax advisers as to the applicability of the treaty in their particular circumstances. 164  Table of Contents   Other Chilean Taxes   No Chilean inheritance, donation or succession taxes apply to the transfer or disposition of the ADSs by a Foreign Holder, but such taxes generally will apply to the transfer at death or by donation of shares of our common stock by a Foreign Holder. No Chilean stamp, issue, registration or similar taxes or duties apply to Foreign Holders of shares or ADSs.   Withholding Tax Certificates   Upon request, we will provide to Foreign Holders appropriate documentation evidencing the payment of Withholding Taxes. For further information, the investor should contact: Robert Moreno,robert.moreno@santander.cirelations@santander.cll. Dividends payable to holders of ADSs are net of foreign currency conversion expenses of the Depositary and will be subject to the Withholding Tax currently at the rate of 35% (subject to credits in certain cases as described above). Impact of Chilean Tax Reform On September 29, 2014, the Law No. 20,780 containing the Tax Reform was published in the Official Gazette. The Tax Reform introduced significant changes to the Chilean taxation system and strengthened the powers of the Chilean Tax Authority to control and prevent tax avoidance. The Tax Reform contemplates, among other reforms, changes to the Corporate Tax regime to create two different tax regimes: the Attributed Income Regime (Sistema de Renta Atribuida) and the Semi-Integrated Regime (Sistema Parcialmente Integrado). On February 8, 2016, Law No. 20,899 (that simplifies the taxation systems introduced by the Tax Reform Law) was published, which introduced changes that are intended to simplify certain provisions of the Tax Reform. The amendments applied the Semi-Integrated Regime (Sistema Parcialmente Integrado) to corporations, limited joint-stock companies and any other entity with at least one non-final taxpayer owner. In addition, the amendments limited the Attributed Income Regime (Sistema de Renta Atribuida) to use by individuals, personal holding companies with limited liability, communities, non-residents that have any kind of permanent establishment in Chile and limited liability companies. Certain taxpayers in the Attributed Income Regime can opt into the Semi-Integrated regime. Under the Attributed Income Regime, shareholders will be taxed on an accrual basis. The regime imposes a First Category Tax of 25% imposed at the level of the operating entity, plus a global complementary tax at progressive rates for resident individuals or an additional withholding income tax (withholding tax) of 35% for nonresident shareholders (the First Category Tax being 100% creditable), resulting in an overall income tax charge of 35% for nonresidents. Under this regime, profits would be required to be attributed to the owners, irrespective of whether a distribution actually is made. Under the Semi-integrated Regime, shareholders would be taxed on a cash basis (when profits are distributed). The regime imposes a First Category Tax of 25.5% for 2017 (and 27.0% as from 2018) at the level of the operating entity, plus a global complementary tax at progressive rates for resident individuals or an additional withholding income tax (Withholding Tax) of 35.0% for nonresident shareholders. The First Category Tax still would be creditable against the 35.0% Withholding Tax under that regime, but 35.0% of the credit shall be paid to the Treasury, so, in practice, only 65.0% of the First Category Tax would be creditable. Thus, taxpayers would pay for the ability to defer shareholder taxation until profits actually are distributed with a higher overall income tax rate than under the Attributed Income Regime. However, the Tax Reform (as supplemented by Law No. 20,899 that simplifies the taxation systems introduced by the Tax Reform Law) considered that investors from countries with which Chile has signed a Double Tax Treaty, a convention for the avoidance of double taxation and the prevention of fiscal evasion, as of January 1, 2017 would be entitled to use the 100.0% of the First Category Tax credit, even if at that time the agreement was not yet in force. Under such circumstances, the full tax credit would be applicable until December 31, 2019 if at that time the relevant Double Tax Treaty had not yet entered into force. Thus, investors from such treaty countries would enjoy the advantage of deferring shareholder taxation until profits were distributed, and yet retain the benefit of the overall 35.0% income tax charge. 165  Table of Contents For banking enterprises, the default regime is the Semi-integrated Regime. Year  Rate  2014 21.0% 2015 22.5% 2016 24.0% 2017 25.0% (Attributed Income Regime) /   25.5% (Semi-Integrated Regime) 2018 25.0% (Attributed Income Regime) /   27.0% (Semi-Integrated Regime)   U.S. Federal Income Tax Considerations   The following is a discussion of material U.S. federal income tax consequences of owning and disposing of shares of our common stock or ADSs to U.S. holders described below, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to hold such common stock or ADSs. The discussion applies only if you are a U.S. holder holding shares of our common stock or ADSs as capital assets for U.S. federal income tax purposes. It does not address all aspects of U.S. federal income 171 Table of Contents taxation that may be relevant to you in light of your particular circumstances, including the alternative minimum tax and the Medicare contribution tax, nor does it describe all tax consequences that may be relevant to U.S. holders subject to special rules, such as:   · certain financial institutions;   · insurance companies;   · dealers and traders in securities who use a mark-to-market method of tax accounting;   · persons holding shares or ADSs as part of a hedge, “straddle,” conversion transaction, integrated transaction or similar transaction;   · persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;   · partnerships or other entities classified as partnerships for U.S. federal income tax purposes;   · tax-exempt entities, including “individual retirement accounts” or “Roth IRAs”;   · persons holding shares of our common stock or ADSs that own or are deemed to own ten percent or more of the voting power or value of our voting stock;   · persons who acquired shares of our common stock or ADSs pursuant to the exercise of any employee stock option plan or otherwise as compensation; or   · persons whose shares or ADSs are held in connection with a trade or business conducted outside the United States.   If an entity that is classified as a partnership for U.S. federal income tax purposes owns shares of our common stock or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. Partnerships owning shares of our common stock or ADSs and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of owning and disposing of the shares of our common stock or ADSs.   This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. It is also based in part on representations by the Depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms. In addition, this discussion does not address U.S. state, local and non-U.S. tax consequences. Please consult your tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of shares or ADSs in your particular circumstances.   166  Table of Contents As used herein, a “U.S. holder” is a person that for U.S. federal income tax purposes is a beneficial owner of shares of our common stock or ADSs and is:   · a citizen or individual resident of the United States;   · a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, a state thereof or the District of Columbia; or   · an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.   In general, if you own ADSs, you will be treated as the owner of the underlying shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if you exchange ADSs for the underlying shares represented by those ADSs.   The U.S. Treasury has expressed concerns that parties to whom American Depositary Shares are released prior to delivery of shares to the Depositary (“pre-release”) or intermediaries in the chain of ownership between U.S. 172 Table of Contents holders of American Depositary Shares and the issuer of the security underlying the American Depositary Shares may be taking actions that are inconsistent with the claiming of foreign tax credits for holders of American Depositary Shares. These actions would also be inconsistent with the claiming of the favorable tax rates, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the creditability of Chilean taxes and the availability of the favorable tax rates for dividends received by certain non-corporate holders, each described below, could be affected by actions that may be taken by such parties or intermediaries.   This discussion assumes that we are not, and will not become, a passive foreign investment company, as described below.   Taxation of Distributions   Distributions paid on shares of our common stock or ADSs, other than certain pro rata distributions of common shares or rights, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. holders as dividends. Subject to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury, certain dividends paid by “qualified foreign corporations” to certain non-corporate U.S. holders may be taxable at rates applicable to long-term capital gains. A foreign corporation is treated as a qualified foreign corporation with respect to dividends paid on stock that is readily tradable on a securities market in the United States, such as the NYSE where our ADSs are traded. You should consult your tax advisers to determine whether the favorable rates may apply to dividends you receive and whether you are subject to any special rules that limit your ability to be taxed at the favorable rates. The amount of the dividend will include any amounts withheld by us or our paying agent in respect of Chilean taxes at the effective rate (after credit for First Category Taxes)CIT) as described above under “ — Material Tax Consequences of Owning Shares of Our Common Stock or ADSs—Taxation of Dividends.” You should consult with your tax adviser to determine the amount considered withheld with respect to a distribution if you are subject to the Attributed Income Regime for Chilean tax purposes starting in 2017, as described above under “—Material Tax Consequences of Owning Shares of Our Common Stock or ADSs—Impact of Chilean Tax Reform.” The amount of the dividend will be treated as foreign-source dividend income to you and will not be eligible for the dividends-received deduction generally allowed to U.S. corporations under the Code.   Dividends will be included in your income on the date of your (or in the case of ADSs, the Depositary’s) receipt of the dividend. The amount of any dividend income paid in Chilean pesos will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, you should not be required to recognize foreign currency gain or loss in respect of the dividend income. You may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.   167  Table of Contents Subject to applicable limitations that may vary depending upon your circumstances and the discussion above regarding concerns expressed by the U.S. Treasury, Chilean taxes withheld from cash dividends on shares of our common stock or ADSs, reduced by the credit for any First Category Tax,CIT, as described above under “—Chilean Taxation—Taxation of Dividends,” generally will be creditable against your U.S. federal income tax liability. Starting in 2017, if you are subject to the Attributed Income Regime, as described above under “—Material Tax Consequences of Owning Shares of Our Common Stock or ADSs—Impact of Chilean Tax Reform,” amounts paid by you or withheld by us, reduced by the credit for any First Category Tax, may be creditable for U.S. tax purposes. If creditable, it is uncertain whether such tax would be creditable in the year the Chilean tax is imposed, irrespective of whether a distribution is actually made. You should consult your tax adviser concerning the creditability and timing issues pertaining to such tax. If, however, the Proposed U.S.-Chile Treaty becomes effective, any Chilean income taxes withheld from dividends on shares or ADSs in excess of the rate provided by the treaty will not be creditable by a U.S. holder who is eligible for the benefits of the treaty. The rules governing foreign tax credits are complex and you should consult your tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits. Instead of claiming a credit, you may, at your election, deduct such Chilean taxes in computing your taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all foreign taxes paid or accrued in the taxable year.   Sale or Other Disposition of Shares or ADSs   For U.S. federal income tax purposes, gain or loss you realize on the sale or other disposition of shares of our common stock or ADSs generally will be capital gain or loss, and will be long-term capital gain or loss if you held the shares of our common stock or ADSs for more than one year. The amount of your gain or loss will be equal to the difference between your tax basis in the shares of our common stock or ADSs disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. If a Chilean tax is withheld on the sale or disposition of the shares of our common stock or ADSs, your amount realized will include the gross amount of the proceeds of such sale or disposition before deduction of the Chilean tax. See “—Chilean Taxation—Taxation of Capital Gains” for a description of when a disposition may be subject to taxation by Chile. Such gain or loss 173 Table of Contents generally will be U.S.-source gain or loss for foreign tax credit purposes. Consequently, you may not be able to credit any Chilean tax imposed on the disposition of shares of our common stock or ADSs against your taxable income unless you have other foreign-source income in the appropriate foreign tax credit category. If the Proposed U.S.-Chile Treaty becomes effective, however, a U.S. holder who is eligible for the benefits of the treaty and whose gain from the sale of shares is not exempt from Chilean tax under such treaty may elect to treat disposition gain that is subject to Chilean tax as foreign-source gain and claim a credit in respect of the tax. You should consult your tax advisers as to whether the Chilean tax on gains may be creditable against your U.S. federal income tax on foreign-source income from other sources. Alternatively, instead of claiming a credit, you may elect to deduct otherwise creditable taxes in computing your income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all foreign taxes paid or accrued in the taxable year.   Passive Foreign Investment Company Rules   Based on proposed Treasury regulations (the “Proposed Regulations”), including those which are proposed to be effective for taxable years beginning after December 31, 1994, we believe that we were not a “passive foreign investment company” (a “PFIC”) for U.S. federal income tax purposes for the year ended December 31, 2016.2019. However, since the Proposed Regulations may not be finalized in their current form and since PFIC status depends upon the composition of a company’s income and assets and the market value of its assets (including, among others, less than 25 percent owned equity investments) from time to time, there can be no assurance that we will not be a PFIC for any taxable year. If we were a PFIC for any taxable year during which you held an ADS or a share of our common stock, certain adverse tax consequences could apply to you.   If we were a PFIC for any taxable year during which you held shares of our common stock or ADSs, gain recognized by you on a sale or other disposition (including certain pledges) of a share of our common stock or an ADS would generally be allocated ratably over your holding period for the share of our common stock or ADS. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the resulting tax liability for that taxable year. Similar rules would apply to any distribution in 168  Table of Contents respect of shares of our common stock or ADSs that exceeds 125% of the average of the annual distributions on shares of our common stock or ADSs received by you during the preceding three years or your holding period, whichever is shorter. Certain elections may be available that would result in alternative treatments of the shares of our common stock or ADSs (including, with respect to our ADSs, a mark-to-market election). In addition, if we were a PFIC for a taxable year in which we pay a dividend or the prior taxable year, the favorable rates discussed above with respect to dividends paid to non-corporate holders would not apply.   If we were to be treated as a PFIC in any taxable year, a U.S. holder may be required to file reports with the Internal Revenue Service containing such information as the Treasury Department may require.   Information Reporting and Backup Withholding   Payment of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and may be subject to backup withholding, unless you are a corporation or other exempt recipient or in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are not subject to backup withholding.   The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished to the Internal Revenue Service.   Certain U.S. holders may be required to report information relating to stock of a non-U.S. person, subject to certain exceptions (including an exception for stock held in custodial accounts maintained by a U.S. financial institution). You should consult your tax advisers regarding any reporting obligations you may have with respect to shares of our common stock or ADSs.   F. Dividends and Paying Agents 174 Table of Contents F. Dividends and Paying Agents   Not applicable.   G. Statement by Experts G. Statement by Experts   Not applicable.   H. Documents on Display H. Documents on Display   The documents concerning us which are referred to in this Annual Report may be inspected at our offices at Bandera 140, 20thfloor, Santiago, Chile. We are subject to the information reporting requirements of the Exchange Act, except that, as a foreign issuer, we are not subject to the proxy rules or the short-swing profit and disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by us with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material may be obtained by mail from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the Public Reference Section by calling the SEC at 1-800-732-0330. The SEC maintains a website on the Internet at http://www.sec.gov that contains reports and information statements and other information regardingabout us. The reports and information statements and other information about us can be downloaded from the SEC’s website or our investor relations websitewww.santandercl.gcs-web.comand can also be inspected and copied at the offices of the NYSE, Inc., 20 Broad Street, New York, New York 10005. None of the information contained on our website is incorporated by reference into, or forms part of, this Annual Report.   I. Subsidiary Information I. Subsidiary Information   Not applicable.   169  Table of Contents ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   Introduction   The principal types of risk inherent in Santander-Chile’s business are market, liquidity, operational and credit risks. The effectiveness with which we are able to manage the balance between risk and reward is a significant factor in our ability to generate long term, stable earnings growth. Toward that end, our Board and senior management places great emphasis on risk management.   A. Integral Risk Committee A. Integral Risk Committee   The Integral Risk Committee of the Board is responsible for reviewing and monitoring all risks that may affect us, including reputation risk, allowing for an integral risk management. This committee serves as the governing body through which the Board supervises risk in general. It also evaluates the reasonability of the systems for measurement and control of risks.   · Credit risk · Market risk · Operational risk · Cybersecurity · Solvency risk (BIS) · Legal risks · Compliance risks 175 Table of Contents · Reputational risks   This Committee includes the Vice Chairman of the Board and five5 Board members. This committee also includes the CEO, the Director of Risk and other senior level executives from the commercial side of our business: The Board members of this committee are:   Board member Position in Committee Alfonso Gomez Morales President Oscar von Chrismar Carvajal ChairmanMember Félix de Vicente Member Blanca Bustamante Bravo Member Juan Pedro Santa María First Vice Chairman Roberto Méndez Second Vice Chairman Roberto Zahler Pérez Member Raimundo Monge Member B. Audit Committee B. Audit Committee   Board member Position in Committee Marco Colodro Chairman Mauricio Larrain First Vice Chairman and Financial Expert Orlando Poblete Iturrate Second Vice ChairmanPresident Felix de Vicente Mingo Member Rodrigo Vergara Montes Member Juan Pedro Santa María Pérez Secretary   The Audit Committee (Comité de Directores y Auditoría) is comprised of three members of the Board of Directors. TheDirectors and the Committee Secretary is Juan Pedro Santa María. The Chief Executive Officer, General Counsel, General Auditor and other persons from the Bank can be invited to the meetings if necessary and are present on specific matters. This Committee’s primary responsibility is to support the Board of Directors in the continuous improvement of our system of internal controls, which includes reviewing the work of both the external auditorsindependent registered public accounting firm and the Internal Audit Department. The committee is also responsible for analyzing observations made by regulatory entities of the Chilean financial system about us and for recommending measures to be taken by our management in response. The external auditors are recommended by this committee to our Board of Directors and appointed by our shareholders at the annual shareholders’ meeting.   C. Asset and Liability Committee 170  Table of Contents C. Asset and Liability Committee   The ALCO includes the ChairmanVice-President of the Board and fivethree additional members of the Board, the Chief Executive Officer, the Chief Financial Officer, the Corporate Financial Controller, the Manager of the Financial Management Division, the Manager of Market Risk, the Manager of the Treasury Division, and other senior members of management. The ALCO meets monthly. All limits reviewed by the ALCO are measured and prepared by the Market Risk Department. The non-Board members of the ALCO meet weekly to review liquidity, funding, capital and market risk related matters.   Board member Position in Committee Rodrigo Vergara Montes Vittorio Corbo Chairman President Claudio Melandri Mauricio Larraín Vice-Chairman Member Oscar von Chrismar Carvajal Second Vice-Chairman Member Marco ColodroFelix de Vicente Member Roberto ZahlerAlfonso Gomez Morales Member Raimundo Monge Member   The main functions of the ALCO are:   · Making the most important decisions, approving the risk appetite and limits regarding our exposure to inflation, interest rate risk, inflation risk, funding, capital and liquidity levels. The main limits set and monitored by the ALCO (and measured by the Market Risk Department) are: Risk Measure Interest rates Sensitivity Capital Sensitivity NIM Liquidity Regulatory limit 30 Days Regulatory limit 90 Days Liquidity coverage ratio Net stable funding ratio Structural liquidity limit Capital Core capital ratio BIS ratio BIS ratio with market risk BIS ratio with market and operational risk Foreign exposures Intergroup exposure: Derivatives, deposits, loans Foreign assets: Derivatives, Deposits, Loans · Review of the Bank’s inflation gap.   · Review of the evolution of the most relevant local and international markets and monetary policies.   176 Table of Contents The main limits set and monitored by the ALCO (and measured by the Market Risk Department) are: Risk D. Measure Interest rates Market CommitteeSensitivity Capital Sensitivity NIM Regulatory limit 30 Days Regulatory limit 90 Days Inflation GAP Liquidity Liquidity coverage ratio Net stable funding ratio Stress tests Structural liquidity limit Wholesale funding limits Deposit concentration Asset encumbrance Capital Leverage ratio Core capital ratio BIS ratio ROE - COE RORAC - COE Foreign exposures Intergroup exposure: Derivatives, deposits, loans Foreign assets: Derivatives, Deposits, Loans D. Market Committee   The Market Committee includes the Vice-ChairmanChairman of the Board, threethe Vice Chairman of the Board, two additional members of the Board, the Chief Executive Officer, the ManagerDirector of GlobalCorporate Investment Banking, and Markets,the Chief Financial Officer, the Manager of the Treasury Division, the Manager of the Financial Management Division, the Manager of Market Risk, the Financial Controller and other senior members of management.   Board member Position in Committee Vittorio Corbo Chairman Oscar von Chrismar Carvajal Vice-ChairmanPresident Roberto ZahlerRodrigo Vergara Montes Second Vice-ChairmanMember Marco ColodroLucía Santa Cruz Member Claudio Melandri Hinojosa Member Alfonso Gomez Morales Member 171  Table of Contents   The Market Committee is responsible for:   · Establishing a strategy for the Bank’s trading investment portfolio.   · Establishing the Bank’s policies, procedures and limits with respect to its trading portfolio. The Bank’s Market Risk Department measures all risks and limits and reports these to the Market Committee.   · Reviewing the net foreign exchange exposure and limitlimit. · Reviewing the results of the Bank’s client treasury business   · Reviewing the evolution of the most relevant local and international markets and monetary policies.   177 Table of Contents E. Risk Department   All issues regarding risk in the Bank are the responsibility of the Bank’s Risk Department. The Risk Department reports to the CEO but has full independence, and no risk decisions can be made without its approval. The following diagram illustrates the governance of our risk division including the committees with approval power: (1) Includes various approval committees for the Middle Market and high net worth clients. 178 Table of Contents Below is an organizational chart of the Risk Department:   1. Credit risk Credit risk   See “Item 5—Selected Statistical Information—Classification of Loan Portfolio for a complete description of credit risk management.” 1. Credit Risk Credit Risk Governance The Risk Division, our credit analysis and risk management group, is largely independent of our business areas. Risk evaluation teams interact regularly with our clients. For larger transactions, risk teams in our headquarters work directly with clients when evaluating credit risks and preparing credit applications. Various credit approval committees, all of which include Risk Division and Commercial Division personnel, must verify that the appropriate qualitative and quantitative parameters are met by each applicant. Each committee’s powers are defined by our Board of Directors. Santander-Chile’s governance rules establish an Integral Risk Committee. This committee is responsible for revising and following all risks that may affect us, including reputational risk, allowing for an integral risk management. This committee serves as the governing body through which the Board supervises all risk functions. It also evaluates the reasonability of the systems for measurement and control of risks. This Committee includes the Vice Chairman of the Board and five Board members. The Board has delegated the duty of credit risk management to the Risk Committee, as well as to the Bank’s risk departments, whose roles are summarized below:   2.· Non-financial risksFormulate credit policies by consulting with the business units, meeting requirements of guarantees, credit evaluation, risk rating and submitting reports, documentation and legal procedures in compliance with the regulatory, legal and internal requirements of the Bank.   All issues regarding operational risks in the Bank fall under the Non-Financial Risk Department that reports to the Risk Department. Below is an organization chart of this department.   All operational risks are measured in this Department and reported simultaneously to local management and the Board through various channels.   172 179 Table of Contents  · Establish the structure to approve and renew credit requests. The Bank structures credit risks by assigning limits to the concentration of credit risk in terms of individual debtor, debtor group, industry segment and country. Approval levels are assigned to the corresponding officials of the business unit (commercial, consumer, SMEs) to be exercised by that level of management. In addition, those limits are continually revised. Teams in charge of risk evaluation at the branch level interact on a regular basis with customers; however, for larger credit requests, the risk team from the head office and the Executive Risk Committee works directly with customers to assess credit risks and prepare risk requests. · Limit concentrations of exposure to customers or counterparties in geographic areas or industries (for accounts receivable or loans), and by issuer, credit rating and liquidity. · Develop and maintain the Bank’s credit risk classifications for the purpose of classifying risks according to the degree of exposure to financial loss that is exhibited by the respective financial instruments, with the aim of focusing risk management specifically on the associated risks. · Revise and evaluate credit risk. Management’s risk divisions are largely independent of the Bank’s commercial division and evaluate all credit risks in excess of the specified limits prior to loan approvals for customers or prior to the acquisition of specific investments. Credit renewal and reviews are subject to similar processes. 2. Non-financial risks   Following the Basel framework, the Bank defines operational risk as the risk of losses arising from defects or failures in its internal processes, people, systems or external events, thus covering risk categories such as fraud, technological, cyber, legal and conduct risk. Operational risk is inherent to all products, activities, processes and systems and is generated in all business and support areas. For this reason, all employees are responsible for managing and controlling the operational risks generated in their sphere of action. The Bank’s goal in terms of operational risk management and control is focused on identifying, evaluating and mitigating sources of risk, regardless of whether they have materialized or not. The analysis of operational risk exposure contributes to the establishment of risk management priorities. Risk identification, measurement and assessment model A series of quantitative and qualitative techniques and tools have been defined by the Bank to identify, measure and assess operational risk. The quantitative analysis of this risk assessment is carried out mainly with tools that record and quantify the level of potential losses associated with operational risk events. The qualitative analysis seek to assess aspects of exposure and hedging (including the control environment). The most important operational risk tools used by Santander Chile are an internal events database, operational risk control self-assessment, analysis of operational risk scenarios, appetite of corporate and local indicators, internal audit and regulatory recommendations, among others. Operational risk management To accomplish our operational risk objectives, we have established a risk model based on three lines of defense, with the objective of continuously improving and developing our management and control of operational risks. The defense lines consist of: (i) the business and support areas (first line of defense), responsible for managing the risks related to their processes; (ii) the non-financial risk area (second line of defense), in charge of supporting the first line of defense in relation to the fulfillment of its direct responsibilities and; (iii) the internal audit function (third line of defense) responsible for verifying, independently and periodically, the adequacy of the risk identification and 180 Table of Contents management processes and procedures, in accordance with the guidelines established in the Internal Audit Policy and submitting the results of its recommendations for improvement to the Audit Committee. Our methodology consists of the evaluation of the risks and controls of a business from a broad perspective and includes a plan to monitor the effectiveness of such controls and the identification of eventual weaknesses. The main objectives of the Bank and its subsidiaries in terms of operational risk management are the following: • Identify, evaluate, inform, manage and monitor the operational risk in connection with activities, products, and processes carried out or commercialized by the Bank and its subsidiaries; • Build a strong culture of operational risk management and internal controls, with clearly defined and adequately segregated responsibilities between business and support functions, whether these are internally-developed or outsourced to third parties; • Generate effective internal reports in connection with issues related to operational risk management, with a clearly defined escalation protocol; and • Control the design and application of effective plans to deal with contingencies that ensure business continuity and losses control. Cyber-security and data security plans   Throughout 2016, theThe Bank maintained its focus oncontinuously monitors cyber-security risks, and has implemented additional preventative measures to be prepared for any attack of this kind. The Bank has evolved its internal cyber-security model to reflect international standards, incorporating concepts which can be used to assess the degree of maturity in deployment. Based on this new assessment model, individual in-situ analyses have been carried out to identify deficiencies and steps to remedy any such deficiencies have been identified in our cyber-security defense plans.   The Bank’s organizationalBank has a Cybersecurity Framework which defines the governance and governance structurepolicies on preventing and confronting cybercrime. The Chief of Cybersecurity or CISO (Chief Information Security Officer) has been defined as the officer responsible for cybersecurity, a function performed by the managementManager of Technology and control of cyber-security risk has also been strengthened. Specific committees have been set up and cyber-security metrics have been included in the Bank’s risk appetite.Operational Risk. Embedded in the Bank’s Technology and Operations division is the TechnologyCyber and OperationsTechnology Risk Department, which is the front line of defense against cyber-security threats and data security. In addition, the Non-Financial Risk Department through the TechnologicalCyber Risk area(a specialized area) enforces the policies and controls that the different areas must follow regarding technology and cyber-security risks. Both areasIn turn, there is a group of supervisory bodies that include the Cybersecurity Committee, the Non-Financial Risk Committee, the Chief Executive Officer’s Management Committee and the Board’s Integral Risk Committee. We also coordinate throughwith Santander Spain’s headquarters and units in other countries regarding strategy, best practices and experience-sharing. All this architecture has been created with the various operational risk committees shownaim of identifying cyber risks, the development of a culture and education in cybersecurity, the diagram above.creation of cyber scenarios to anticipate potential threats, and the fulfillment of the regulatory framework set by the authorities.   Finally, the intelligence and analysis function has also been reinforced by contracting bank threat monitoringa threat-monitoring service, and progress has been made in the incident registration, notification and escalation mechanisms for internal reporting and reporting to supervisors. In addition, observation and analytical assessment of the events in the sector and in other industries enablesenable us to update and adapt our models for emerging threats. We also coordinate with Santander Spain’s headquarters and units in other countries regarding strategy, best practices and communicatingexperience-sharing. Among other things, we have implemented, or are currently in the process of experiences.implementing, the following controls to limit cybersecurity threats: · Contracting a Tier IV data center. · Reducing the technological obsolescence of our databases, operating systems, end points, network devices, virtual servers and ATMs. · Establishing a two-factor authentication for certain wire instructions to verify significant wire transactions. 181 Table of Contents · Developing employee education, including mandatory training on cybersecurity risks and phishing and subsequent testing through ethical phishing. · Constantly monitoring the web and blocking Internet domains that are similar to the company’s actual domain name. · Establishing law enforcement contacts and legal procedures to prosecute cybercrime. · Obtaining insurance coverage to cover potential losses. · Continuously checking for updates on the latest business email compromise scams. · Building a media room to monitor cybersecurity events globally. · Replacing all of our client’s credit cards that do not have a chip to reduce fraud. · Installing anti-malware advanced tools. · Increasing the segregation of IT networks. · Improving access control to our installations. · Prohibiting trading of the Bank’s securities if a material cybersecurity event occurs. During 2019, the Bank did not face a material loss due to cybersecurity breaches. However, even though we have thorough cybersecurity practices and governance in place, we cannot assure that in the future a material event will not occur.   Business Continuity Management: Ensuring the realization of critical process during contingencies The Bank has a Business Continuity Management System, which covers the entire organization in order to ensure the execution of the activities that may cause significant negative impacts (operational, reputation, consumer services, legal and operational losses) to the organization. The Non-financial Risk Department, through the Technological Risk department (BCM specialized area, as part of the second line of defense), leads the control and implementation of the model and policies defining the roles and responsabilities of each line of defense, where the first line of defense has a main role that involves the identification of their process, the business impact analysis of each risk according to the methodology, the preparation of business continuity plans and strategies to respond to each contingency scenario and ensure the realization of the critical processes, the testing and continuous updating of the information to secure the resources needed (at least annually). The Bank is constantly facing different types of contingencies (mainly natural disasters, but more recently, social movements and protests), which has proven to be effective in order to maintain and ensure the business continuity of the organization. We are constantly detecting new opportunities to improve the current mitigation actions and contingency plans allowing the critical departments to recover after the events that may occur in the future. Governance The risk management program contemplates that all relevant risk issues must be reported to the Board of Directors, the Integral Risk Committee and the Non-Financial Risk Committee. Role of Santander Spain’sGroup’s Global Risk Division: Operational Risk   In matters regarding operational risk, Santander Spain’s Global Risk Department’s role is to define certain global policies, guidelines and procedures regarding operational risk. The Corporate Operational Risk Committee is the main body in which the different units of Santander discuss and review the major operational risk events and policies.   3. Market Risks 182 Table of Contents 3. Market Risks   This section describes the market risks that we are exposed to, the tools and methodology used to control these risks, the portfolios over which these market risk methods were applied and quantitative disclosure that demonstrate the level of exposure to market risk that we are assuming. This section also discloses the derivative instruments that we use to hedge exposures and offer to our clients.   Market risk is the risk of losses due to unexpected changes in interest rates, foreign exchange rates, inflation rates and other rates or prices. We are exposed to market risk mainly as a result of the following activities:   · trading in financial instruments, which exposes us to interest rate and foreign exchange rate risk;   · engaging in banking activities, which subjects us to interest rate risk, since a change in interest rates affected gross interest income, gross interest expense and customer behavior;   · engaging in banking activities, which exposes us to inflation rate risk, since a change in expected inflation affects gross interest income, gross interest expense and customer behavior;   · trading in the local equity market, which subjects us to potential losses caused by fluctuations of the stock market; and   · investing in assets whose returns or accounts are denominated in currencies other than the Chilean peso, which subjects us to foreign exchange risk between the Chilean peso and such other currencies.   173  Table of Contents The main decisions that relate to market risk for the Bank and the limits regarding market risk are made in the Asset and Liability Committee and the Market Committee. The measurement and oversight of market risks is performed by the Market Risk Department. Below is a list of the main reports produced by the Market Risk Department and who they are addressed to: Report  Unit  Objective  Addressed to:  Periodicity  Daily Global Report Market risks Give a global vision of the market, positions, risks, sensitivity, vision and alerts of the trading and non-trading positions Market Risk (local and global), Senior Management, Internal Auditors Daily Stress Test Market risks Stress test report over the Bank's trading and ALCO books Market Risk (local and global), Senior Management, Internal Auditors Monthly Sensitivity Analysis Market risks Sensitivity analysis of the ALCO book Market Risk (local and global), Senior Management, Internal Auditors Daily Fixed income positions Market risks Fixed income positions and general information Market Risk (local and global), Senior Management, Internal Auditors Daily Interest rate gap Market risks Interest rate gap sensitivity and limit levels Market Risk (local and global), Senior Management, Internal Auditors Monthly Liquidity gap Market risks Liquidity levels and limits Market Risk (local and global), Senior Management, Internal Auditors Monthly Market report Market risks Main market indicators and evolution Market Risk (local and global), Senior Management, Internal Auditors Daily VaR Market risks VaR position and limits - Market risk (local and global) and Senior Management Daily Trading Portfolio Limits Market risks Trading book evolution, instruments and limits Market Risk (local and global), Senior Management, Internal Auditors Daily Largest depositors Market risks Largest 20 and largest 50 depositors - Market risk (local and global) and Senior Management Weekly Follow-up report Market risks Summary of Market risk information for Senior Management Market Risk (local and global), Senior Management (local and global), Internal Auditors Monthly Liquidity stress-test Market risks Liquidity stress test simulation Market Risk (local and global), Senior Management, Internal Auditors Quarterly Interest rate risk Market risks Interest rate risk report, limits and estimates of results from interest rate risk - Market risk (local and global), Manager of Global banking and markets, Manager of Treasury, Manager of Market Making and Prop Trading Daily Backtesting Market risks Backtesting of VaR estimates to actual results Market Risk (local and global), Senior Management, Internal Auditors Weekly PNL Treasury Market risks Treasury income statement - Market risk (local and global), Manager of Global banking and markets, Manager of Treasury, Manager of Market Making and Prop Trading Daily Santander-Chile’s governance rules have established the existence of two high-level committees that, among other things, function to monitor and control market risks: the Asset and Liability Committee and the Market Committee.   Role of Santander Spain’sGroup’s Global Risk Division: Market Risk   In matters regarding Market Risk, the role of Santander Spain’s Global Risk Department is to define certain global policies, guidelines and procedures regarding market risk. The information produced by our local Market Risk Department is standardized for the whole group in order to facilitate a consolidation of risks being taken on a global basis. They review daily the consumption of limits and provide valuable input on the evolution of markets, especially regarding the Eurozone.   4. Market Risk: Quantitative Disclosure 174  Table of Contents 4. Market Risk: Quantitative Disclosure   Impact of inflationInflation   Our assets and liabilities are denominated in Chilean pesos, Unidades de Fomento (UF) and foreign currencies. The Bank no longer recognizes inflation accounting and has eliminated price-level restatement in line with IFRS, but inflationInflation impacts our results of operations as some loan and deposit and other liabilitiesproducts are contracted in UF. The UF is revalued in monthly cycles. Each day in the period beginning on the tenth day of the current month through the ninth day of the succeeding month, the nominal peso value of the UF is indexed up (or down in the event of deflation) in order to reflect a proportionate amount of the change in the Chilean Consumer Price Index during the prior calendar month. One UF equaled Ch$26,347.9828,309.94 at December 31, 2016,2019, Ch$25,629.0927,565.79 at December 31, 2015,2018 and Ch$24,627.1026,798.14 at December 31, 2014.2017. High levels of inflation in Chile could adversely affect the Chilean economy and could have an adverse effect on our business, financial condition and results of operations. Negative inflation rates also negatively impact our results. Inflation measured as the annual variation of the UF was 2.8%2.7% in 2016, 4.1%2019, 2.9% in 20152018 and 5.7%1.7% in 2014.2017. There can be no assurance that Chilean inflation will not change significantly from the current level. Although we currently benefit from moderate levels of inflation, due to the current structure of our assets and liabilities (i.e., a significant portion of our loans are indexed to the inflation rate, but there are no correspondingsignificantly less features in deposits orand other funding sources that would increase the size of our funding base), there can be no assurance that our business, financial condition and result of operations in the future will not be adversely affected by changing levels of inflation. In summary:   183 Table of Contents · UF-denominated assets and liabilitiesliabilities.. The effect of any changes in the nominal peso value of our UF-denominated interest earning assets and interest bearinginterest-bearing liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest income and expense, respectively. Our net interest income will be positively affected by an inflationary environment to the extent that our average UF-denominated interest earning assets exceed our average UF-denominated interest bearinginterest-bearing liabilities. Our net interest income will be positively affected by deflation in any period in which our average UF-denominated interest bearinginterest-bearing liabilities exceed our average UF-denominated interest earning assets. Our net interest income will be negatively affected in a deflationary environment if our average UF-denominated interest earning assets exceed our average UF-denominated interest bearinginterest-bearing liabilities.   · Inflation and interest rate hedgehedge.. A key component of our asset and liability policy is the management of interest rate risk. The Bank’s assets generally have a longer maturity than our liabilities. As the Bank’s mortgage portfolio grows, the maturity gap tends to rise as these loans, which are contracted in UF, have a longer maturity than the average maturity of our funding base. As most of our long termlong-term financial instruments and mortgage loans are contracted in UF and most of our deposits are in nominal pesos, the rise in mortgage lending increases the Bank’s exposure to inflation and to interest rate risk. The size of this gap is limited by internal and regulatory guidelines in order to avoid excessive potential losses due to strong shifts in interest rates. In order to keep this duration gap below regulatory limits, the Bank issues long term bonds denominated in UF or interest rate swaps. The financial cost of the bonds and the efficient part of these hedges is recorded as net interest income. In 2016,2019, the loss from the swaps taken in order to hedge mainly for inflation and interest rate risk and included in net interest income totaled a loss of Ch$42,42031,346 million compared to a loss of Ch$107,86718,799 million in 20152018 and a lossgain of Ch$130,25415,408 million in 2014.2017. The average gap between our interest earnings assets and total liabilities linked to the inflation, including hedging, was Ch$4,534,6654,279,082 million in 2016,2019, Ch$3,507,2504,537,476 million in 20152018 and Ch$4,193,7014,340,626 million in 2014.2017. Therefore, our sensitivity to a 100 basis point shift in UF inflation considering our year end gap would be approximately Ch$42 billion. 175  Table of Contents   · The financial impact of the gap between our interest earning assets and liabilities denominated in UFs including hedges was Ch$133,702114,340 million in 2016,2019, Ch$130,666126,260 million in 20152018 and Ch$229,94673,050 million in 2014.2017. The 2.3% rise9.4% decrease in thethese results from our UF gap was due to the higher gap in 2016 compared to 2015, which was partially offset by thea lower UF inflation rate in 20162019 compared to 2015.2018.       As of December 31,   % Change   % Change Impact of inflation on net interest income   2016   2015   2014   2016/2015   2015/2014     (in millions of Ch$) Results from UF GAP (1)     133,702       130,666       229,946       2.3 %     (43.2 %) Annual  UF inflation     2.8 %     4.1 %     5.7 %                     As of December 31,   % Change Impact of inflation on net interest income   2019   2018   2017   2019/2018   2018/2017     (in millions of Ch$) Results from UF GAP(1)     114,340       126,260       73,050       (9.4 %)     72.8 % Annual UF inflation     2.7 %     2.9 %     1.7 %                     (1) UF GAP is net interest income from asset and liabilities denominated in UFs and include the results from hedging the size of this gap via interest rate swaps.   · Peso-denominated assets and liabilities. Interest rates prevailing in Chile during any period primarily reflect the inflation rate during the period and the expectations of future inflation. The sensitivity of our peso-denominated interest earning assets and interest bearinginterest-bearing liabilities to changes to such prevailing rates varies. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Interest Rates.” We maintain a substantial amount of non-interest bearingnon-interest-bearing peso-denominated demand deposits. Because such deposits are not sensitive to inflation, any decline in the rate of inflation would adversely affect our net interest margin on inflation indexed assets funded with such deposits, and any increase in the rate of inflation would increase the net interest margin on such assets. The ratio of the average of such demand deposits and average shareholder’s equity to average interest-earning assets was 29.0%30.5%, 29.9%,30.6% and 30.2%29.8%, for the years ended December 31, 2016, 2015,2019, 2018 and 2014,2017, respectively.   Interest rate sensitivityRates   Interest rates earned and paid on our assets and liabilities reflect, to a certain degree, inflation, expectations regarding inflation, changes in short term interest rates set by the Central Bank and movements in long term real rates. The Central Bank manages short term interest rates based on its objectives of balancing low inflation and economic growth. Because our liabilities are generally re-priced sooner than our assets, changes in the rate of 184 Table of Contents inflation or short termshort-term rates in the economy are reflected in the rates of interest paid by us on our liabilities before such changes are reflected in the rates of interest earned by us on our assets. Therefore, when short term interest rates fall, our net interest margin is positively impacted, but when short term rates increase, our interest margin is negatively affected. At the same time, our net interest margin tends to be adversely affected in the short term by a decrease in inflation rates since generally our UF-denominated assets exceed our UF-denominated liabilities. (SeeSee “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Impact of Inflation—Peso-denominated assets and liabilities”).liabilities.” An increase in long term rates has a positive effect on our net interest margin, because our interest earning assets generally have longer terms than our interest bearinginterest-bearing liabilities. A flattening of the yield curve, i.e. long-term rates falling quicker than short-term rates, negatively affects our margins by lowering loan yields at a greater pace than deposits costs. In addition, because our peso-denominated liabilities have relatively short re-pricing periods, they are generally more responsive to changes in inflation or short termshort-term rates than our UF-denominated liabilities. As a result, during periods when current inflation or expected inflation exceeds the previous period’s inflation, customers often switch funds from UF-denominated deposits to peso-denominated deposits, which generally bear higher interest rates, thereby adversely affecting our net interest margin.   176  Table of Contents As of December 31, 2016,2019, the breakdowndetail of the maturities of assets and liabilities is as follows:   As of December 31, 2016   Demand    Up to 1 month    Between 1 and 3 months    Between 3 and 12 months    Subtotal up to 1 year    Between 1 and 5 years    More than 5 years    Subtotal More than 1 year    Total  Assets                                     Cash and deposits in banks     2,279,389       —       —       —       2,279,389       —       —       —       2,279,389   Cash items in process of collection     495,283       —       —       —       495,283       —       —       —       495,283   Trading investments     —       52,443       13,252       118,845       184,540       182,186       30,261       212,447       396,987   Investments under resale agreements     —       6,736       —       —       6,736       —       —       —       6,736   Financial derivative contracts     —       82,243       120,653       292,801       495,697       888,927       1,116,158       2,005,085       2,500,782   Interbank loans (*)     —       12,859       135,756       124,143       272,758       44       5       49       272,807   Loans and accounts receivables from customers (**)     717,306       2,393,216       2,108,001       4,488,993       9,707,516       7,846,411       9,379,697       17,226,108       26,933,624   Available-for-sale investments     —       1,581,682       250,222       314,842       2,146,746       417,950       824,210       1,242,160       3,388,906   Guarantee deposits (threshold)     396,289       —       —       —       396,289       —       —       —       396,289   Total assets     3,888,267       4,129,179       2,627,884       5,339,624       15,984,954       9,335,518       11,350,331       20,685,849       36,670,803   Liabilities                                                                         Deposits and other demand liabilities     7,539,315       —       —       —       7,539,315       —       —       —       7,539,315   Cash items in process of being cleared     288,473       —       —       —       288,473       —       —       —       288,473   Obligations under repurchase agreements     —       212,437       —       —       212,437       —       —       —       212,437   Time deposits and other time liabilities     121,527       6,105,767       4,193,906       2,537,299       12,958,499       132,014       61,196       193,210       13,151,709   Financial derivative contracts     —       92,335       122,565       263,893       478,793       841,487       971,881       1,813,368       2,292,161   Interbank borrowings     4,557       373,423       115,769       1,154,063       1,647,812       268,556       —       268,556       1,916,368   Issued debt instruments     —       43,141       185,425       922,705       1,151,271       2,612,710       3,562,391       6,175,101       7,326,372   Other financial liabilities     153,049       1,461       1,161       2,817       158,488       66,407       15,121       81,528       240,016   Guarantees received (threshold)     480,926       —       —       —       480,926       —       —       —       480,926   Total liabilities     8,587,847       6,828,564       4,618,826       4,880,777       24,916,014       3,921,174       4,610,589       8,531,762       33,447,777   185 Table of Contents     As of December 31, 2019     Demand   Up to 1 month   Between 1 and 3 months   Between 3 and 12 months   Subtotal up to 1 year   Between 1 and 3 years   Between 3 and 5 years   More than 5 years   Subtotal More than 1 year   Total     (in millions Ch$) Financial assets                                         Cash and deposits in banks     3,554,520       –         –         –         3,554,520       –         –         –         –         3,554,520   Cash items in process of collection     355,062       –         –         –         355,062       –         –         –         –         355,062   Financial assets held for trading     –         38,644       –         645       39,289       181,705       37,659       11,551       230,915       270,204   Investments under resale agreement     –         –         –         –         –         –         –         –         –         –     Financial derivative contracts     –         371,775       400,196       1,543,446       2,315,417       1,383,493       1,346,329       3,103,369       5,833,191       8,148,608   Loans and accounts receivables at amortised cost (*)     296,461       2,963,578       2,400,909       5,511,374       11,172,322       5,706,433       4,093,147       11,699,613       21,499,193       32,671,515   Loans and account receivable at FVOCI (**)     –         –         –         5,953       5,953       –         –         60,213       60,213       66,166   Debt instruments at FVOCI     –         1,131,501       3,753       52,131       1,187,385       508,596       725,419       1,588,875       2,822,890       4,010,272   Equity instruments at FVOCI     –         –         –         –         –         –         –         482       482       482   Guarantee deposits (margin accounts)     314,616       –         –         –         314,616       –         –         –         –         314,616   Total financial assets     4,520,659       4,505,498       2,804,858       7,113,549       18,944,564       7,780,227       6,202,554       16,464,103       30,446,884       49,391,445                                                                                     Financial liabilities                                                                                 Deposits and other demand liabilities     10,297,432       –         –         –         10,297,432       –         –         –         –         10,297,432   Cash items in process of being cleared     198,248       –         –         –         198,248       –         –         –         –         198,248   Obligations under repurchase agreements     –         380,055       –         –         380,055       –         –         –         –         380,055   Time deposits and other time liabilities     142,273       5,184,567       4,905,414       2,417,703       12,649,957       357,856       163,121       21,883       542,860       13,192,817   Financial derivative contracts     –         422,749       427,825       951,684       1,802,258       1,253,280       1,180,948       3,154,168       5,588,396       7,390,654   Interbank borrowings     94       363,560       624,167       1,141,824       2,129,645       387,936       2,237       –         390,173       2,519,818   Issued debt instruments     –         285,159       759,519       1,044,674       2,089,352       2,394,850       2,042,292       2,974,229       7,411,371       9,500,723   Lease liabilities     –         –         –         26,061       26,061       45,978       36,393       50,062       132,433       158,494   Other financial liabilities     161,021       5,155       30,969       28,888       226,033       83       99       143       325       226,358   Guarantees received (margin accounts)     994,714       –         –         –         994,714       –         –         –         –         994,714   Total financial liabilities     11,793,782       6,641,245       6,747,894       5,610,834       30,793,755       4,439,983       3,425,090       6,200,485       14,065,558       44,859,313     (*) Interbank loansLoans and accounts receivables at amortized cost are presented on a gross basis. The amount of allowance is Ch$4,135896,095 million.   (**) Loans and accounts receivables from customersat FVOCI are presented on a gross basis. Provisions amounts according to typeThe amount of loan are detailed as follows: Commercial loansallowance is Ch$429,442 million, Mortgage loans Ch$57,009 million, and Consumer loans Ch$300,019101 million.   177  Table of Contents The following table sets forth our average daily balance of liabilities for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, in each case together with the related average nominal interest rates paid thereon.       2016    2015    2014      Average Balance    % of Total Average Liabilities    Average Nominal Rate    Average Balance    % of Total Average Liabilities    Average Nominal Rate    Average Balance    % of Total Average Liabilities    Average Nominal Rate      (in millions of Ch$, except percentages) Interest-bearing liabilities                                     Savings accounts     116,339       0.3 %     2.5 %     114,330       0.3 %     3.4 %     108,185       0.3 %     5.0 % Time deposits     13,620,848       38.6 %     3.3 %     12,685,504       36.7 %     3.2 %     11,952,994       36.6 %     3.4 % Central Bank borrowings     871       0.0 %     3.4 %     4,891       —%       1.0 %     6,906       0.0 %     0.2 % Repurchase agreements     121,875       0.3 %     2.4 %     228,050       0.7 %     3.1 %     413,263       1.3 %     2.0 % Mortgage finance bonds     52,414       0.1 %     8.1 %     63,061       0.2 %     10.2 %     81,805       0.2 %     11.9 % Other interest bearing liabilities     7,856,201       22.3 %     5.0 %     7,500,408       21.7 %     5.5 %     6,865,084       21.0 %     6.9 % Subtotal interest-bearing liabilities     21,768,547       61.8 %     3.7 %     20,596,244       59.6 %     4.0 %     19,428,237       59.4 %     4.6 %                                                                           Non-interest bearing liabilities                                                                         Non-interest bearing deposits     5,753,622       16.3 %             5,719,889       16.6 %             5,386,272       16.5 %         Derivatives     2,724,994       7.7 %             2,958,942       8.6 %             2,719,386       8.3 %         Other non-interest bearing liabilities     2,156,015       6.1 %             2,454,037       7.1 %             2,501,651       7.6 %         Shareholders’ equity     2,840,843       8.1 %             2,816,116       8.2 %             2,689,037       8.2 %         Subtotal non-interest bearing liabilities     13,475,473       38.2 %             13,948,984       40.4 %             13,296,346       40.6 %         Total liabilities     35,244,021       100.0 %             34,545,228       100.0 %             32,724,383       100.0 %         186 Table of Contents     2019   2018   2017     Average Balance   % of Total Average Liabilities   Average Nominal Rate   Average Balance   % of Total Average Liabilities   Average Nominal Rate   Average Balance   % of Total Average Liabilities   Average Nominal Rate                                       Interest-bearing liabilities                                     Savings accounts     120,896       0.28 %     2.5 %     117,885       0.3 %     2.7 %     117,305       0.3 %     1.6 % Time deposits     13,779,534       31.87 %     2.6 %     13,154,916       35.3 %     2.8 %     13,146,520       37.0 %     2.9 % Central Bank borrowings     –         0.00 %     0.0 %     4       0.0 %     6.0 %     6       0.0 %     2.2 % Repurchase agreements     414,951       0.96 %     2.5 %     291,913       0.8 %     2.3 %     294,368       0.8 %     2.3 % Mortgage finance bonds     20,923       0.05 %     7.7 %     28,685       0.1 %     8.0 %     38,714       0.1 %     7.0 % Other interest bearing liabilities     11,261,529       26.05 %     4.8 %     9,401,475       25.3 %     4.8 %     8,632,128       24.3 %     4.0 % Subtotal interest-bearing liabilities     25,597,833       59.21 %     3.5 %     22,994,878       61.8 %     3.6 %     22,229,041       62.6 %     3.3 %                                                                           Non-interest bearing liabilities                                                                         Non-interest bearing deposits     7,466,991       17.27 %             6,763,546       18.2 %             6,117,644       17.2 %         Derivatives     4,165,330       9.64 %             2,020,857       5.4 %             2,175,063       6.1 %         Other non-interest bearing liabilities     2,549,130       5.90 %             2,170,906       5.8 %             1,997,799       5.6 %         Shareholders’ equity     3,450,729       7.98 %             3,263,155       8.8 %             3,001,680       8.5 %         Subtotal non-interest bearing liabilities and equity     17,632,180       40.79 %             14,218,464       38.2 %             13,292,186       37.4 %         Total liabilities     43,230,013       100.00 %             37,213,342       100.0 %             35,521,228       100.0 %         Foreign exchange fluctuations   The Chilean government’s economic policies and any future changes in the value of the Chilean peso against the U.S. dollar could adversely affect our financial condition and results of operations. The Chilean peso has been subject to significant devaluation in the past and may be subject to significant fluctuations in the future. The Central Bank exchange rate appreciated 5.7%depreciated 7.0% in 20162019 and depreciated 16.5%13.1% in 2015. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates.”2018.   A significant portion of our assets and liabilities are denominated in foreign currencies, principally the U.S. dollar, and we historically have maintained, and may continue to maintain, material gaps between the balances of such assets and liabilities. Because such assets and liabilities, as well as interest earned or paid on such assets and liabilities, and gains and losses realized upon the sale of such assets, are translated to Chilean pesos in preparing our financial statements, our reported income is affected by changes in the value of the Chilean peso relative to foreign currencies (principally the U.S. dollar).   Our current strategy is not to maintain a significant difference between the balances of our assets and liabilities in foreign currencies. In 2016, 20152019, the spot position in foreign currency held more assets than liabilities, mainly U.S. dollars as a result of higher dollar liquidity held overnight by the Bank during the period of social unrest. In 2018 and 2014,2017, the Bank’s spot position in foreign currency held more liabilities than assets in foreign currencies, mainly U.S. dollars as a result of an ample supply of U.S.$ deposits from companies that receive export revenues, foreign correspondent bank loans and bonds issued abroad. This difference is usually hedged using forwards and cross-currency swaps. In general, the Bank is not permitted, due to guidelines set by the ALCO and the Market Committee, to open a meaningful gap in foreign currency. Therefore, all foreign currency risk is included in the trading portfolio and is measured using VaR. The average VAR of our foreign currency position was U.S.$1.911.6 million in 2016.2019. The translation gain or loss over assets and liabilities (excluding derivatives held for trading) is included as foreign exchange transactions in the income statement. The translation and mark-to-market of foreign currency derivatives held for trading is recognized as a gain or loss in the net results from mark-to-market and trading. As of December 31, 2016, the net difference between assets and liabilities in foreign currency was a net asset position of U.S.105.4 million. The average gap, be it a net asset or liability position in foreign currency, in 2016 was U.S.$121.6 million or 0.2% of our total assets. Both figures include derivatives used to hedge foreign currency risk. Below is a graph that illustrates the net daily foreign currency position in 2016. 178  Table of Contents   We also set an absolute limit on the size of Santander-Chile’s consolidated net foreign currency trading position, which is equivalent to the maximum differential allowed between assets and liabilities in foreign currencies, including hedging of this gap. The limit on the size of the net foreign currency position is determined by the Market Committee and is calculated and monitored by the Market Risk Department. At December 31, 2016,2019, this was equal to U.S.$350 million. This limit in various other currencies is as follows:   187 Table of Contents Currency Limit (in (in millions of U.S.$) U.S. dollars 350 Euros 100 110 Yen 23 27 RealBritish pound 15 20 Mexican peso 15 30 Brazilian real 30 Colombian peso 15 30 Peruvian Sol 20 Other European currencies 15 30 Other Latin American currencies 15 30 Other currencies 15 47.5 Total Limit 350 As of December 31, 2019, the net difference between assets and liabilities in foreign currency was a net asset position of U.S.$151.6million. The average gap, be it a net asset or liability position in foreign currency, in 2019 was U.S.$ 49.4 million or 0.1% of our total assets. Both figures include derivatives used to hedge foreign currency risk. Liquidity risk management   The Financial Management Division receives information from all the business units on the liquidity profile of their financial assets and liabilities, as well as breakdowns of other projected cash flows stemming from future businesses. On the basis of that information, the Financial Management Division maintains a portfolio of liquid short–term assets, comprised mainly of liquid investments, loans and advances to other banks, to make sure the Bank has sufficient liquidity. The business units’ liquidity needs are met through short–term transfers from the Financial Management Division to cover any short–term fluctuations and long–term financing to address all the structural liquidity requirements.   The Bank monitors its liquidity position every day, determining the future flows of its outlays and revenues. In addition, stress tests are performed at the close of each month, for which a variety of scenarios encompassing both normal market conditions and conditions of market fluctuation are used. The liquidity policy and procedures are subject to review and approval by the Bank’s Board. Periodic reports are generated by the Market Risk Department, providing a breakdown of the liquidity position of the Bank and its subsidiaries, including any exceptions and the corrective measures adopted, which are regularly submitted to the ALCO for review.   179  Table of Contents The Bank relies on demand deposits from Retail, Middle-Market and Corporates, obligations to banks, debt instruments, and time deposits as its main sources of funding. Although most obligations to banks, debt instruments and time deposits mature in over a year, customer (retail) and institutional deposits tend to have shorter maturities and a large proportion of them are payable within 90 days. The short–term nature of these deposits increases the Bank’s liquidity risk, and hence, the Bank actively manages this risk by continual supervision of the market trends and price management.   Liquidity risk management seeks to ensure that, even under adverse conditions, we have access to the funds necessary to cover client needs, maturing liabilities and capital requirements. Liquidity risk arises in the general funding for our financing, trading and investment activities. It includes the risk of unexpected increases in the cost of funding the portfolio of assets at appropriate maturities and rates, the risk of being unable to liquidate a position in a timely manner at a reasonable price and the risk that we will be required to repay liabilities earlier than anticipated. The following table sets forth the balance of our liquidity portfolio managed by our Financial Management Division in the manner in which it is presented to the Asset and Liability Committee (ALCO) and the Board. The ALCO has determined that our liquidity portfolio must be comprised of cash plus assets that can be readily convertible into cash either through the Chilean Central Bank window, overnight deposits or instruments or the local secondary market. The management of the Bank’s liquidity portfolio is performed by the Financial Management Division under rules determined by the ALCO.ALCO and based on classifications by the FMC and the Bank’s management.       December 31, 2016   December 31, 2015     Ch$ million Balance as of:         Financial investments for trading     396,987       324,271   Available-for-sale investments     3,388,906       2,044,411   Encumbered assets (net) (1)     (205,703 )     (77,647 ) Net cash (2)     16,259       (315,415 ) Net interbank deposits (3)     1,335,017       1,683,208   Total liquidity portfolio     4,931,466       3,658,829   188 Table of Contents       December 31, 2016   December 31, 2015     Ch$ million Average balance as of:         Financial investments for trading     277,775       405,352   Available-for-sale investments     2,455,220       1,902,050   Encumbered assets (net) (1)     (90,460 )     (74,664 ) Net cash (2)     (202,771 )     (244,186 ) Net interbank deposits (3)     1,263,768       1,197,325   Total liquidity portfolio     3,703,533       3,185,876         December 31, 2019   December 31, 2018     (Ch$ million) Balance as of:         Financial investments for trading     270,204       77,041   Available-for-sale investments     4,010,272       2,394,323   Encumbered assets (net) (1)     (380,055 )     (48,843 ) Net cash (2)     2,384,323       149,321   Net interbank deposits (3)     (271,620 )     967,095   Total liquidity portfolio     6,013,124       3,538,937       December 31, 2019   December 31, 2018     (Ch$ million) Average Balance as of:         Financial investments for trading     170,795       259,654   Available-for-sale investments     2,988,746       2,690,184   Encumbered assets (net) (1)     (234,444 )     (134,408 ) Net cash (2)     977,177       109,757   Net interbank deposits (3)     (7,151 )     613,259   Total liquidity portfolio     3,895,123       3,538,446     (1) Assets encumbered through repurchase agreements are deducted from the liquidity portfolioportfolio.   (2) Total cash minus reserve requirement of the Central BankBank.   (3) Includes overnight deposits in the Central Bank, domestic banks and foreign banksbanks.   The Central Bank also requires us to comply with the following liquidity limits:   · The sum of the liabilities with a maturity of less than 30 days may not exceed the sum of the assets with a maturity of less than 30 days by an amount greater than our capital. This limit must be calculated in local currency and foreign currencies together as one gap. At December 31, 20162019 the percentage of (i) our liabilities with a maturity of less than 30 days in excess of our assets with a maturity of less than 30 days to (ii) our capital and reserves was 15.0%63%, thus resulting in our compliance.   · The sum of the liabilities in foreign currency with a maturity of less than 30 days may not exceed the sum of the assets in foreign currency with a maturity of less than 30 days by more than an amount greater than our capital. At December 31, 20162019 the percentage of (i) our liabilities with a maturity of less than 30 days in foreign currency in excess of our assets in foreign currency with a maturity of less than 30 days to (ii) our capital and reserves was 0%11%, as the Bank had more foreign currency assets than liabilities for the calculation of this limit.limit, thus resulting in our compliance. 180  Table of Contents   · The sum of the liabilities with a maturity of less than 90 days may not exceed the sum of the assets with a maturity of less than 90 days by more than 2 times our capital. This limit must be calculated in local currency and foreign currencies together as one gap. At December 31, 20162019 the percentage of (i) our liabilities with a maturity of less than 90 days in excess of our assets with a maturity of less than 90 days to (ii) two times our capital and reserves was 37.0%79%, thus resulting in our compliance.   New liquidity requirements in line with BIS III   The SBIFFMC and the Chilean Central Bank published new liquidity corporate governance standards and ratios that must be implemented and calculated by all banks. These will eventually replace the current regulatory limits imposed by the SBIFFMC and the Central Bank described above. These new liquidity standards are in line with those established in BIS III. The most important liquidity ratios that will eventually be adopted by Chilean banks are:   · Liquid assets. The Bank’s must inform the liquid assets according to BIS III liquid levels. As of December 31, 20162019 the breakdown of the Bank’s liquid assets by levels was the following:   189 Table of Contents   December 31, 2016  2019   (Ch$ millionmillion) Balance as of:   Cash and cash equivalent 1,337,208 1,305,534 Level 1 liquid assets (1) 2,676,995 2,452,599 Level 2 liquid assets (2) 19,004 15,105 Total liquid assets 4,033,207 3,773,238     (1)       Includes instruments issued by the Central Bank of Chile or other central banks with a AAA rating, instruments issued by the Chilean government or other sovereign with a AAA rating and instruments issued by development banks with a AAA rating.   (2)       Includes instruments issued by governments, central banks and development banks of foreign countries with a risk rating of A- to AA+ and mortgage bonds issued by Chilean banks that are acceptable at the Chilean Central Bank’s repo window. (1) Includes instruments issued by the Central Bank of Chile or other central banks with a AAA rating, instruments issued by the Chilean government or other sovereign with a AAA rating and instruments issued by development banks with a AAA rating. (2) Includes instruments issued by governments, central banks and development banks of foreign countries with a risk rating of A- to AA+ and mortgage bonds issued by Chilean banks that are acceptable at the Chilean Central Bank’s repo window.   · Liquidity coverage ratio (LCR), which measures the percentage of Liquid Assets over Net Cash Outflows. As of April 2019, Chilean banks began reporting their local LCR figures with a minimum level of 60%. This minimum will gradually rise to 100% by 2020. As of December 31, 20162019 this indicator for Banco Santander Chile was 185.1%143%.   · Net Stable Funding Ratio (NSFR) which will measure a bank’s stable funding sources over required stables needs both concepts also defined in the new regulations. As of December 31, 20162019 this was 96.3%.108% according to our internal liquidity model. The Central Bank and the FMC are still making adjustments to the methodology for calculating this ratio and the initial limits banks must meet in order to comply with these new ratios have not been published yet. For this reason, and even though the Bank has advanced liquidity management models, we cannot assure that the implementation of this model will not have a material effect on our business and that the figure presented above may change.   The Central Bank and the SBIF are still making adjustments to the methodology for calculating these ratios and the initial limits banks must meet in order to comply with these new ratios have not been published yet. For this reason, and even though the Bank has advanced liquidity management models, we cannot assure that the implementation of these models will not have a material effect on our business and that the figures presented above may change. Market risk management   The Bank’s internal management of market risk is based chiefly on the procedures and standards of Santander Spain, which are in turn based on analysis of management in three principal components:   · trading portfolio;   · local financial management portfolio; and   · foreign financial management portfolio. 181  Table of Contents   The trading portfolio is comprised chiefly of investments valued at fair market value and free of any restriction on their immediate sale, which are often bought and sold by the Bank with the intention of selling them in the short term to benefit from short–term price fluctuations. The trading portfolio also includes the Bank’s exposure to foreign currency. The financial management portfolios include all the financial investments not considered to be part of trading portfolio.   Market risk – management of trading portfolio   The Bank applies VaR methodologies to measure the market risk of its trading portfolio. The Bank has a consolidated commercial position comprised of fixed–income investments and foreign currency trading. This portfolio is comprised mostly of Central Bank of Chile bonds, mortgage bonds, locally issued, low–risk corporate bonds and foreign currencies, mainly U.S. dollars. At the end of each year, the trading portfolio included no stock portfolio investments.   For the Bank, the VaR estimate is made under the historical simulation methodology, which consists of observing the behavior of the profits and losses that would have occurred in the current portfolio if the market conditions for a given historical period had been in force, in order to infer the maximum loss on the basis of that information, with a given degree of confidence. The methodology has the advantage of precisely reflecting the 190 Table of Contents historical distribution of the market variables and not requiring any assumptions regarding the distribution of specific probabilities. All the VaR measures are intended to determine the distribution function for a change in the value of a given portfolio, and once that distribution is known, to calculate the percentile related to the necessary degree of confidence, which will be equal to the value at risk by virtue of those parameters. As calculated by the Bank, the VaR is an estimate of the maximum expected loss of market value for a given portfolio over a 1–day horizon, with a 99.00% confidence level. It is the maximum 1–day loss that the Bank could expect to experience in a given portfolio, with a 99.00% confidence level. In other words, it is the loss that the Bank would expect to experience only 1.0% of the time. The VaR provides a single estimate of market risk which is not comparable from one market risk to another. Returns are calculated through the use of a 2–year time window or at least 520 data points obtained since the last reference date for calculation of the VaR going backward in time.   We do not calculate three separate VaRs. We calculate a single VaR for the entire trading portfolio, which in addition is segregated by risk type. The VaR software performs a historical simulation and calculates a Profit and Loss Statement (P&L) for 520 data points (days) for each risk factor (fixed income, foreign currency and variable income.) The P&L of each risk factor is added together and a consolidated VaR is calculated with 520 points or days of data. At the same time a VaR is calculated for each risk factor based on the individual P&L calculated for each individual risk factor .factor. Furthermore, a weighted VaR is calculated in the manner described above, but which gives a greater weighting to the 30 most recent data points. The larger of the two VaRs is the one that is reported. In 2016, 20152019, 2018 and 2014,2017, we used the same VaR model and there has been no change in methodology or assumptions for subsequent periods.   The Bank uses the VaR estimates to provide a warning when the statistically estimated incurred losses in its trading portfolio would exceed prudent levels, and hence, there are certain predetermined limits.   Limitations of the VaR model   When applying a calculation methodology, no assumptions are made regarding the probability distribution of the changes in the risk factors; the historically observed changes are used for the risk factors on which each position in the portfolio will be valued.   It is necessary to define a valuation function fj(xi) for each instrument j, preferably the same one used to calculate the market value and income of the daily position. This valuation function will be applied in each scenario to generate simulated prices for all the instruments in each scenario.   182  Table of Contents In addition, the VaR methodology is subject to the following limitations:   · Changes in market rates and prices may not be independent and identically distributed random variables, and may not have a normal distribution; Inin particular, the assumption of normal distribution may underestimate the probability of extreme market movements;   · The historical data used by the Bank may not provide the best estimate of the joint distribution of changes in the risk factors in the future, and any modification of the data may be inadequate; In particular, the use of historical data may fail to capture the risk of potential extreme and adverse market fluctuations, regardless of the time period used;   · A 1–day time horizon may not fully capture the market risk positions which cannot be liquidated or covered in a single day; Itit would not be possible to liquidate or cover all the positions in a single day;   · The VaR is calculated at the close of business, but trading positions may change substantially in the course of the trading day;   · The use of a 99% degree of confidence does not take account of, or make any statement about, the losses that could occur outside of that degree of confidence; and   · A model such as the VaR does not capture all the complex effects of the risk factors over the value of the positions or portfolios, and accordingly, it could underestimate potential losses.   183 191 Table of Contents  At no time in 2016, 2015 and 2014 did the Bank exceed the VaR limits in respect of the three components which comprise the trading portfolio: fixed–income investments, variable–income investments and foreign currency investments. We perform back-testing daily and generally find that trading losses exceed our VaR estimate approximately one out of every 100 trading days. At the same time, we set a limit to the maximum VaR that we are willing to accept over our trading portfolio. In 2016,Also, a maximum VaR limit was established that can be applied over the Banktrading portfolio. During the first nine months of the year, the VaR remained withinat low levels.However as of October 2019 there was more market volatility as a consequence of the maximum limitsocial crisis the country faced and there were temporary VaR excesses given the increase in market volatility. The strategy to correct it had setwas to decrease the foreign exchange and interest rate positions, which, in addition with a decrease in market volatility, caused the VaR for VaR, including those instances in whichDecember 31, 2019 to be USD 4.7 million, below the actual VaR exceeded the estimate.total limit.   The high, low, and average levels for each component and each year below were as follows:   Consolidated 2016  2015  2014    2019   2018   2017 (in millions of U.S.$)   (in millions of U.S.$) VaR:   VaR             High 3.95 3.61 3.77     15.78       5.23       5.71   Low 1.08 0.62 1.06     1.33       1.21       1.56   Average 2.25 1.38 1.91     3.06       2.01       3.01   Fixed–income investments:                             Fixed-income investments                         High 2.71 3.13 3.99     9.77       2.54       5.51   Low 0.55 0.61 1.06     1.18       1.19       1.15   Average 1.33 1.23 1.78     2.33       1.71       2.36   Variable–income investments:                             Variable-income investments                         High 0.03 0.19 0.15     0.00       0.01       0.01   Low 0.00 0.00     0.01       0.00       0.00   Average 0.00 0.00     0.00       0.00       0.00   Foreign currency investments:                             Foreign currency investments                         High 3.83 3.43 2.39     6.05       4.29       4.21   Low 0.61 0.04 0.06     0.10       0.09       0.53   Average 1.91 0.64 0.58     1.60       1.14       1.71   192 Table of Contents Below is a graph that illustrates the daily VaR levels at 99% over a one day horizon in 2018 and 2019.   Market risk – local and foreign financial management   The Bank’s financial management portfolio includes most of the Bank’s non–trading assets and liabilities, including the credit/loan portfolio. For these portfolios, investment and financing decisions are strongly influenced by the Bank’s commercial strategies.   The Bank uses a sensitivity analysis to measure the market risk of local and foreign currency (not included in the trading portfolio). The Bank performs a simulation of scenarios, which will be calculated as the difference between the present value of the flows in the chosen scenario (a curve with a parallel movement of 100 bpbps in all its segments) and their value in the base scenario (current market). All the inflation–indexed local currency (UF) positions are adjusted by a sensitivity factor of 0.57, which represents a 57 basis point change in the rate curve for the real rates and a 100 basis point change for the nominal rates. The same scenario is performed for the net foreign currency positions and the interest rates in U.S. dollars. The Bank has also established limits in regard to the maximum loss which these interest rate movements could impose on the capital and net financial income budgeted for the year.   Limitations of the sensitivity models   The most important assumption is the use of a 100 basis point change in the yield curve (57 basis points for the real rates). The Bank uses a 100 basis point change because sudden changes of that magnitude are considered realistic. The Santander Spain Global Risk Department has established comparable limits by country, to be able to compare, monitor and consolidate the market risk by country in a realistic and orderly way. In addition, the sensitivity simulation methodology should be interpreted with consideration for the following limitations:   · The simulation of scenarios assumes that the volumes remain in the Bank’s Consolidated General Balance Sheet and are always renewed at maturity, thereby omitting the fact that certain credit risk and prepayment considerations may affect the maturity of certain positions.   · This model assumes an identical change along the entire length of the yield curve and takes no account of the different movements for different maturities.   184  Table of Contents · The model takes no account of the sensitivity of volumes which results from interest rate changes.   193 Table of Contents · The limits to losses of budgeted financial income are calculated on the basis of the financial income foreseen for the year, which may not be actually earned, meaning that the real percentage of financial income at risk may be higher than the expected one.   Market Risk – Financial management portfolio – December 31, 2016, 20152019, 2018 and 20142017     2016   2015   2014   2019   2018   2017   Effect on net interest income   Effect on equity   Effect on net interest income   Effect on equity   Effect on net interest income   Effect on equity   Effect on net interest income   Effect on equity   Effect on net interest income   Effect on equity   Effect on net interest income   Effect on equity Financial management portfolio – local currency (in millions of Ch$)                                                 Loss limit     48,000       175,000       32,500       150,000       38,150       192,660       100,000       275,000       48,000       192,001       48,000       175,000   High     30,853       146,208       29,721       103,091       27,707       112,133       32,719       273,473       43,742       189,725       (37,148 )     (141,287 ) Low     21,978       108,249       13,882       72,104       16,904       77,231       12,686       145,338       27,854       170,450       (22,958 )     (112,818 ) Average     26,119       120,159       22,695       88,394       21,077       92,809       24,719       228,772       37,569       180,972       (29,110 )     (128,506 )                                                 Financial management portfolio – foreign currency (in millions of U.S.$)                                                                                                 Loss limit     30.0       75.0       30.0       70.0       40.0       70.0       30       75       30       75       30       75   High     14.0       35.0       9.0       15.0       16.0       39.0       20       35       12       38       16       42   Low     6.0       13.0       —       5.0       —       10.0       5       1       4       (10 )     4       15   Average     10.0       26.0       2.0       12.0       10.0       28.0       12       12       9       22       10       23                                                   Financial management portfolio – consolidated (in millions of Ch$)                                                                                                 Loss limit     48,000       175,000       34,500       150,000       40,650       172,390       100,000       275,000       48,000       192,002       48,000       175,000   High     31,764       145,566       29,232       102,002       27,949       112,364       34,462       271,989       45,492       192,848       (38,249 )     (142,442 ) Low     23,088       107,959       14,129       70,741       17,441       77,848       15,236       143,836       29,167       168,766       (23,571 )     (112,277 ) Average     27,390       119,632       22,390       87,095       21,404       93,245       27,918       227,303       38,908       182,557       (29,948 )     (128,360 )   Market risk –Regulatory method   The following table illustrates our market risk exposure according to the Chilean regulatory method, as of December 31, 2016.2019. This information is sent to the SBIFFMC on a quarterly basis. Our maximum exposure to long-term interest rate fluctuations is set at 35% of regulatory capital and is approved by the Board of Directors.   Regulatory Market Risk As of December 31, 2016  2019   (Ch$ million) Market risk of trading portfolio (EMR)   Interest rate risk of trading portfolio 153,513 315,089 Foreign currency risk of trading portfolio 1,811 11,327 Risk from interest rate options 59,362 41,647 Risk from foreign currency options 35 2 Total market risk of trading portfolio 214,721 368,065 10% x Risk-weighted assets 2,751,200 3,427,028 Subtotal 2,965,921 3,795,093 Limit = Regulatory Capital 3,635,426 4,244,662 Available margin 669,505 449,569 Non-trading portfolio market risk   Short-term interest rate risk 79,029 93,873 Inflation risk 94,661 96,432 Long-term interest rate risk 884,774 1,061,234 Total market risk of non-trading portfolio 1,058,464 1,251,539 194 Table of Contents Regulatory Market Risk As of December 31, 2019 (Ch$ million) Regulatory limit of exposure to short-term interest rate and inflation risk   Short-term exposure to interest rate risk 79,029 93,873 Exposure to inflation risk 94,661 96,432 Limit: 22% of (net interest income + net fee income sensitive to interest rates) 280,565 309,185 Available margin 106,875 118,880 Regulatory limit of exposure to long-term interest rate risk   Long-term exposure to interest rate risk 884,774 1,061,234 35% of regulatory capital 1,272,399 1,485,632 Available margin 387,625 424,398 185  Table of Contents Derivative activities   At December 31, 2016, 20152019, 2018 and 2014,2017, derivatives are valued at market price on the balance sheet and the net unrealized gain (loss) on derivatives is classified as a separate line item on the income statement. Notional amounts are not recorded on the balance sheet. Banks must mark to market derivatives. A derivative financial instrument held for trading purposes must be marked to market and the unrealized gain or loss recognized in the income statement. The SBIFFMC recognizes three kinds of hedge accounting: (i) cash flow hedges, (ii) fair value hedges and (iii) hedging of foreign investments.   · When a cash flow hedge exists, the fair value movements on the part of the hedging instrument that is effective are recognized in equity. Any ineffective portion of the fair value movement on the hedging instrument is recognized in the income statement.   · When a fair value hedge exists, the fair value movements on the hedging instrument and the corresponding fair value movements on the hedged item are recognized in the income statement. Hedged items in the balance sheet are presented at their market value.   · When a hedge of foreign investment exposure exists (i.e. investment in a foreign branch), the fair value movements on the part of the hedging instrument that is effective are recognized in equity. Any ineffective portion of the fair value movement on the hedging instrument is recognized in the income statement.   In order to reduce the credit risk in its derivative contracts, the Bank has entered into Credit Support Annex (CSA) agreements with the majority of its counterparties, which include obligations to post daily cash collateral. The majority of the agreements include an obligation to post collateral with a threshold amount of zero. In the table below we identify those contracts with CSA and breakdown the fair value of our derivative portfolio by collateral threshold requirements for 20162019 and 2015.2018.   Fair value of derivative contracts   2016   2015   Fair value of derivative contracts   Asset   Liabilities   Asset   Liability   2019   2018                   Assets   Liabilities   Assets   Liabilities Derivative contracts with zero threshold collateral amount in CSA     2,134,917       1,986,345       2,613,217       2,410,696       7,478,837       6,748,219       2,639,835       2,133,149   Derivative contracts with threshold collateral amounts in CSA that are greater than zero     233,945       238,450       388,677       311,056       532,298       517,814       344,520       262,683   Derivative contracts without CSA agreements     131,920       67,366       204,032       140,854       137,472       124,621       116,280       121,896   Total     2,500,782       2,292,161       3,205,926       2,862,606       8,148,607       7,390,654       3,100,635       2,517,728     We classify some of our derivative financial instruments as being financial assets held for trading, due to the guidelines from the SBIF.FMC. We enter into derivative contracts with some clients who seek hedging instruments. However, substantially all of our derivatives are not actually used for speculative purposes or trading. We also use 195 Table of Contents derivatives to hedge our exposure to foreign exchange, interest rate and inflation risks. We had the following derivative financial instruments portfolio as of December 31, 2016, 20152019, 2018 and 2014:2017:     Derivative financial instruments portfolio     As of December 31, 2019     Notional amounts   Fair Value     Up to 3 months   More than 3 months to one year   More than one year   Assets   Liabilities             (Ch$ million)         Fair value hedge derivative instruments                     Interest rate swaps     381,638       317,610       1,847,138       39,460       34,264   Cross currency swaps     407,008       863,984       13,357,058       226,870       295,281   Subtotal     788,646       1,181,594       15,204,196       266,330       329,545                                             Cash Flow hedge derivative instruments                                         Currency forwards     99,105       1,018,656       768,256       4,131        3,505    Cross currency swaps     2,266,907       1,938,222       10,848,233       106,413       43,183   Subtotal     2,366,012       2,956,878       11,616,489       110,544       46,688                                             Derivative instruments for trading                                         Currency forwards     28,472,586       18,508,702       7,679,464       1,023,684       1,137,496   Interest rate swaps     16,678,487       40,892,909       89,109,046       2,465,235       2,270,686   Cross currency swaps     7,726,724       20,457,463       113,206,678       4,277,450       3,605,516   Call currency options     17,971       47,012       81,804       5,176       240   Call interest rate options     –         –         –         –         –     Put currency options     16,409       41,872       80,655       190       483   Subtotal     52,912,177       79,947,958       210,157,647       7,771,735       7,014,421   Total     56,066,835       84,086,430       236,978,332       8,148,609       7,390,655       Derivative financial instruments portfolio     As of December 31, 2018     Notional amounts   Fair Value     Up to 3 months   More than 3 months to one year   More than one year   Assets   Liabilities             (Ch$ million)         Fair value hedge derivative instruments                     Interest rate swaps     80,000       491,600       1,191,012       14,789       9,188   Cross currency swaps     –         1,276,909       6,706,197       96,357       36,708   Subtotal     80,000       1,768,509       7,897,209       111,146       45,896                                             Cash Flow hedge derivative instruments                                         Currency forwards     205,750       168,151       –         –         8,013   Cross currency swaps     1,920,900       1,970,412       9,191,209       79,859       32,712   Subtotal     2,126,650       2,138,563       9,191,209       79,859       40,725                                             Derivative instruments for trading                                         Currency forwards     15,301,943       13,080,875       6,062,183       613,063       466,741   Interest rate swaps     12,024,095       22,064,681       69,453,618       723,870       577,835   Cross currency swaps     2,173,111       8,853,306       68,976,339       1,568,365       1,385,314   Call currency options     26,731       60,235       57,579       4,332       854   Call interest rate options     –         –         –         –         –       186 196 Table of Contents        As of December 31, 2016     Notional amounts   Fair Value     Up to 3 months   More than 3 months to one year   More than one year   Assets   Liabilities     (Ch$ million) Fair value hedge derivative instruments                     Interest rate swaps     74,086       514,454       1,402,870       38,977       211   Cross currency swaps     424,086       505,902       1,239,490       32,640       32,868   Subtotal     498,172       1,020,356       2,642,360       71,617       33,079   Cash Flow hedge derivative instruments                                         Currency forwards     915,879       639,939       —       10,216       3,441   Cross currency swaps     897,480       2,613,706       4,260,194       43,591       68,894   Subtotal     1,813,359       3,253,645       4,260,194       53,807       72,335   Derivative instruments for trading                                         Currency forwards     15,840,731       11,240,251       3,358,765       185,618       209,955   Interest rate swaps     6,889,665       12,512,285       49,747,459       627,047       526,695   Cross currency swaps     3,966,443       7,589,201       53,148,109       1,562,068       1,449,549   Call currency options     73,943       20,994       2,664       521       5   Call interest rate options     —       —       —       —       —   Put currency options     52,143       7,892       2,664       104       542   Subtotal     26,822,925       31,370,623       106,259,661       2,375,358       2,186,746   Total     29,134,456       35,644,624       113,162,215       2,500,782       2,292,161       Derivative financial instruments portfolio     As of December 31, 2018     Notional amounts   Fair Value     Up to 3 months   More than 3 months to one year   More than one year   Assets   Liabilities             (Ch$ million)         Put currency options     23,411       50,445       56,392       –         363   Subtotal     29,549,291       44,109,542       144,606,111       2,909,630       2,431,107   Total     31,755,941       48,016,614       161,694,529       3,100,635       2,517,728         Derivative financial instruments portfolio     As of December 31, 2017     Notional amounts   Fair Value     Up to 3 months   More than 3 months to one year   More than one year   Assets   Liabilities             (Ch$ million)         Fair value hedge derivative instruments                     Interest rate swaps     –         162,985       1,554,171       23,003       1,424   Cross currency swaps     –         715,701       5,362,772       15,085       65,724   Subtotal     –         878,686       6,916,943       38,088       67,148                                             Cash Flow hedge derivative instruments                                         Currency forwards     801,093       218,982       –         39,233       59   Cross currency swaps     421,428       1,637,604       6,672,566       36,403       128,355   Subtotal     1,222,521       1,856,586       6,672,566       75,636       128,414                                             Derivative instruments for trading                                         Currency forwards     17,976,683       10,679,327       3,091,393       412,994       502,555   Interest rate swaps     9,069,964       14,389,389       46,342,779       467,188       392,366   Cross currency swaps     2,963,641       7,503,144       47,111,371       1,241,632       1,042,120   Call currency options     190,386       37,099       49,853       1,322       1,950   Call interest rate options     –         –         –         –         –     Put currency options     192,722       28,616       50,470       1,787       4,935   Subtotal     30,393,396       32,637,575       96,645,866       2,124,923       1,943,926   Total     31,615,917       35,372,847       110,235,375       2,238,647       2,139,488     187  Table of Contents     As of December 31, 2015     Notional amounts   Fair Value     Up to 3 months   More than 3 months to one year   More than one year   Assets   Liabilities     (Ch$ million) Fair value hedge derivative instruments                     Interest rate swaps     327,955       1,184,795       630,970       5,480       6,364   Cross currency swaps     9,441       30,040       1,842,421       181,557       1,483   Subtotal     337,396       1,214,835       2,473,391       187,037       7,847   Cash Flow hedge derivative instruments                                         Interest rate swaps     —       —       —       —       —   Cross currency swaps     7,281,184       4,445,006       2,720,520       273,291       69,716   Subtotal     7,281,184       4,445,006       2,720,520       273,291       69,716   Derivative instruments for trading                                         Currency forwards     18,731,575       13,328,727       3,459,386       341,236       318,416   Interest rate swaps     7,272,523       15,677,393       56,140,894       533,416       540,011   Cross currency swaps     5,881,627       5,898,094       44,921,355       1,826,977       1,883,185   Call currency options     49,067       60,380       477,057       42,325       41,451   Call interest rate options     —       —       264,473       1,148       1,253   Put currency options     48,958       52,682       —       422       684   Other Derivatives     125,258       —       —       74       43   Subtotal     32,109,008       35,017,276       105,263,165       2,745,598       2,785,043   Total     39,727,588       40,677,117       110,457,076       3,205,926       2,862,606   188  Table of Contents     As of December 31, 2014     Notional amount   Fair value     Up to 3 months   More than 3 months to 1 year   More than 1 year   Assets   Liabilities     Ch$mn Fair value hedge derivatives                     Interest rate swaps     97,812       846,168       668,166       9,821       2,540   Cross currency swaps     —       193,704       694,852       110,448       7,997   Subtotal     97,812       1,039,872       1,363,018       120,269       10,537   Cash flow hedge derivatives                                         Interest rate swaps     —       —       —       —       —   Cross currency swaps     11,329       850,555       1,727,283       131,880       21,996   Subtotal     11,329       850,555       1,727,283       131,880       21,996   Trading derivatives                                         Currency forwards     8,740,802       20,156,612       2,155,381       342,726       277,789   Interest rate swaps     1,675,560       16,147,587       37,838,280       518,392       485,798   Cross currency swaps     524,274       4,395,731       19,028,968       1,609,197       1,761,196   Call currency options     160,560       89,701       —       1,587       2,597   Call interest rate options     —       —       103,474       795       633   Put currency options     153,999       157,757       34,491       2,575       485   Other derivatives     258,425       —       —       142       353   Subtotal     11,513,620       40,947,388       59,160,594       2,475,414       2,528,851   Total     11,622,761       42,837,815       62,250,895       2,727,563       2,561,384                                             189  Table of Contents ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES   A. Debt Securities A. Debt Securities   Not applicable.   B. Warrants and Right B. Warrants and Right   Not applicable.   C. Other Securities C. Other Securities   Not applicable.   D. American Depositary Shares D. American Depositary Shares   Our Depositary is The Bank of New York Mellon, with its principal executive office located at One Wall Street, New York, N.Y. 10286.   197 Table of Contents Each ADS represents the right to receive 400 shares of Common Stock without par value.   Persons depositing or withdrawing shares or ADS holders must pay: $5.00 (or less) per 100 ADSs Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if the Deposit Agreement terminates $.05 (or less) per ADS (or a portion thereof) Any cash distribution to ADS holders A fee equivalent to the fee that would be payable if securities distributed to you had been deposited with the Depositary Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the Depositary to ADS holders $.05 (or less) per ADS (or a portion thereof) per calendar year Depositary services Registration and transfer fees Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares Expenses of the Depositary Cable (including SWIFT), telex and facsimile transmissions (when expressly provided in the Deposit Agreement)   Converting foreign currency to U.S. dollars Taxes and other governmental charges the Depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes As necessary Any other charges incurred by the Depositary or its agents for servicing the shares or other deposited securities As necessary   The Depositary may collect any of its fees by deducting those fees from any cash distributions payable to owners, or by selling a portion of distributable property to pay the fees. The Depositary may also collect its annual fee for Depositary services and its fees for any other charges incurred by deducting those fees from any cash distributions or by directly billing ADS holders.   190  Table of Contents The Depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the Deposit Agreement and the rate that the Depositary or its affiliate receives when buying or selling foreign currency for its own account. The Depositary makes no representation that the exchange rate used or obtained in any currency conversion under the Deposit Agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be the most favorable to ADS holders, subject to the Depositary’s obligations under the Deposit Agreement. The methodology used to determine exchange rates used in currency conversions is available upon request.   In performing its duties under the Deposit Agreement, the Depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliated with the Depositary and that may earn or share fees, spreads or commissions.   198 Table of Contents Direct and Indirect Payments   The Depositary has agreed to make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the Depositary or share revenue from the fees collected from ADS holders from time to time. Under certain circumstances, including termination of the program, we are required to repay to the Depositary amounts reimbursed in prior periods.   The reimbursements include direct payments (legal and accounting fees incurred in connection with preparation of Form 20-F and ongoing SEC compliance and listing requirements, listing fees, investor relations expenses, advertising and public relations expenses and fees payable to service providers for the distribution of hard copy materials to beneficial ADR holders in the Depositary Trust Company, such as information related to shareholders’ meetings and related voting instruction cards); and indirect payments (third-party expenses paid directly and fees waived).   In 2016,2019, the Depositary made direct payments and reimbursements to us in the gross amount of U.S. 947,793$968,703.48 for expenses related to investor relations of which 30%28.2% was withheld for tax purposes in the U.S.   191  Table of Contents PART II   ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES   Not applicable.   ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS   Not applicable.   ITEM 15. CONTROLS AND PROCEDURES   Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures   As of December 31, 2016,2019, the Bank, under the supervision and with the participation of the Bank’s management, including its Disclosure Committee, the Chief Executive Officer, the Chief Financial Officer and the Financial Controller, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). There are, as described below, inherent limitations to the effectiveness of any control system, including disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.   Based on such evaluation, the Bank’s Disclosure Committee, the Chief Executive Officer, the Chief Financial Officer and the Financial Controller concluded that the Bank’s disclosure controls and procedures were effective in ensuring that information relating to the Bank, including its consolidated subsidiaries, required to be disclosed in the reports it files under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to the Bank’s management, including its Disclosure Committee and principal financial officers as appropriate to allow timely decisions regarding required disclosure.   Management’s Report on Internal Control Over Financial Reporting   The Bank’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. The Bank’s internal control over financial reporting is a process designed by, or under the supervision of, the Bank’s principal executive and principal financial officers and effected by the Bank’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS-IASB and includes those policies and procedures that:   199 Table of Contents · Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Bank;   · Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS-IASB, and that our receipts and expenditures are being made only in accordance with authorizations of the Bank’s management and directors; and   · Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.   Because of its inherent limitations, internal control over financial reporting, no matter how well designed may not prevent or detect misstatements, due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   192  Table of Contents We have adapted our internal control over financial reporting to international standards and comply with the guidelines set by the Committee of Sponsoring Organizations of the Treadway Commission in itsInternal Control―Integrated Framework (2013). The general framework assigns to management specific responsibilities regarding the structure and effectiveness of the processes related directly and indirectly with the production of consolidated financial statements, as well as the controls needed to mitigate the risks inherent in these processes.   Under the supervision and with the participation of the Bank’s management, including the Disclosure Committee, the Chief Executive Officer, the Chief Financial Officer and the Financial Controller, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).   As permitted by the relevant rules and regulations, Banco Santander Chile’s management excluded Santander Consumer Chile S.A. from the scope of the internal control over financial reporting assessment, as it began to control the company on November 27, 2019 (see Note 3 to our Audited Consolidated Financial Statements). Total assets, net interest income and net income attributable to the parent subject to Santander Consumer Chile S.A.’s internal control over financial reporting represented 1.0%, 0.5% and 0.3% of Banco Santander Chile S.A. consolidated total assets, net interest income and the profits attributable to the consolidated parent as of and for the year ended December 31, 2019, respectively. Based on this assessment, our management concluded that, as of December 31, 2016,2019, our internal control over financial reporting was effective based on those criteria.   Changes in Internal Control Over Financial Reporting   There has been no change in the Bank’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.   Our internal control over financial reporting as of December 31, 20162019 has been audited by an independent registered public accounting firm, as stated in its report, which follows below.is referenced below   Report of Independent Registered Public Accounting Firm   For the report of PricewaterhouseCoopers Consultores Auditores y Compañía,SpA, independent registered public accounting firm, dated March 24, 2017,6, 2020, on the effectiveness of our internal control over financial reporting as of December 31, 2016,2019, see page F-2 of our Audited Consolidated Financial Statements.   193 200 Table of Contents  ITEM 16. [RESERVED]   ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT   Our Board of Directors has determined that one of the members of our Audit Committee, Mauricio Larraín, meetsRodrigo Vergara, met the requirements of an “audit committee financial expert” in accordance with SEC rules and regulations, in that he has an understanding of IFRS-IASB and financial statements, the ability to assess the general application of IFRS-IASB in connection with the accounting for estimates, accruals and reserves, experience analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our consolidated financial statements, an understanding of internal controls over financial reporting, and an understanding of audit committee functions. All fourthree members of our Audit Committee have experience overseeing and assessing the performance of Santander-Chile and its consolidated subsidiaries and our external auditors with respect to the preparation, auditing and evaluation of our consolidated financial statements.   All three members of our Audit Committee are considered to be independent according to applicable NYSE criteria.   ITEM 16B. CODE OF ETHICS   The Bank has adopted a code of ethics that is applicable to all of the Bank’s employees and a copy is included as an exhibit hereto. We will provide to any person without charge, upon request, a copy of our code of ethics. Please email accionistas@santander.cl to request a copy. Our code of ethics is available on our website, which does not form part of this Annual Report on Form 20-F, at www.santander.cl under the heading “Información Corporativa”.http://www.santander.cl/accionistas/pdf/otros_documentos/codigo_general_de_conducta_banco-santander.pdf   ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES   Amounts paid to the auditors for statutory audit and other services were as follows:       2016   2015     (in millions of Ch$) Audit Fees         - Statutory audit     402       509   - Audit-related regulatory reporting     248       245   - Other audit-related fees     14       63   Tax Fees                 - Compliance     —       —   - Advisory Services     —       264   Total     664       1,081       2019   2018     (in millions of Ch$) Audit Fees         Statutory audit     441       420   Audit-related regulatory reporting     322       313   Other audit-related fees     223       112   Tax Fees                 Compliance     –         –     Advisory Services     –         –     Total     986       845     Statutory audit: Consists of fees billed for professional services rendered in connection with the audit of our consolidated financial statements that are provided by PricewaterhouseCoopers Consultores Auditores y Compañía LimitadaSpA in 20162019 and Deloitte Auditores y Consultores Limitada in 20152018 in connection with statutory and regulatory filings or engagements, and attest services.   Audit-related regulatory reporting: Consists of fees billed for assurance and related services that were specifically related to the performance of the audit and review of our filings under the Securities Act.   Tax fees: Consist of fees billed for related services that were specifically related to tax related matters such as assuring the Bank was in compliance with tax laws and other tax advisory services.   The Audit Committee is required to pre-approve the audit and non-audit services performed by the Bank auditors in order to assure that the provision of such services do not impair the audit firm’s independence.   194  Table of Contents In the first months of each year the Audit Committee proposes to the Board the appointment of the independent auditor. As a matter of policy, at that time, the Audit Committee pre-approves the audit and audit related services 201 Table of Contents that the appointed auditors will be required to carry out during the year to comply with the applicable regulation. These services will be included in the corresponding audit contracts of the Bank with its principal auditing firm.   In addition, under such policy, non-recurring audit or audit-related services and all non-audit services provided by the Bank principal auditing firm or other auditing firms are subject to case-by-case approval by the Audit Committee.   The Chief Accounting Officer is in charge of managing the process and must report monthly to the Audit Committee detailing all services to be provided by auditors, and others requiring individual approval.   All services provided by the Bank principal auditing firm in 20162019 detailed in the table above were approved by the Audit and Compliance Committee.   ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES   Not applicable.   ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS   In 2016,2019, neither Santander-Chile nor any of its affiliates purchased any of Santander-Chile’s equity securities.   ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT   Not applicable.   ITEM 16G. CORPORATE GOVERNANCE   Summary Comparison of Corporate Governance Standards and NYSE Listed Company Standards   Our corporate governance standards, dictated by Chilean corporate law, differ from the standards followed by U.S. companies under the New York Stock Exchange (NYSE) listing standards in a number of ways. Consequently, you will not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements. The following is a non-exhaustive summary of a few key differences:   · Whether a company’s executive officers may serve as its directors – the NYSE standards do not prohibit a U.S. company’s executive officer from also serving as a director, whereas our corporate governance standards prohibits this.   · Whether the shareholders must be given an opportunity to vote on equity-compensation plans – the NYSE standards require that shareholders be allowed to vote on all equity compensation plans of a U.S. company, whereas our corporate governance standards only require that shareholders be allowed to vote on director compensation.   · The adoption and disclosure of corporate governance guidelines – the NYSE standards require all U.S. companies listed on the NYSE to adopt the NYSE corporate governance guidelines, whereas we follow the corporate governance guidelines established under Chilean law.   As more than 50% of our voting power is held by another company, Santander Spain, we would be permitted to elect for certain exemptions under NYSE corporate governance standards if we were a U.S. company. Specifically, as a U.S. company, we could elect to be exempted from the requirements (i) that we have a majority of independent directors (as defined by the NYSE), (ii) that we have a nominating/corporate governance committee meeting certain conditions, and (iii) that we have a compensation committee meeting certain requirements. Because we would not be required to follow these standards if we were a U.S. company, we have not summarized the differences, if any, between these provisions and our own corporate governance procedures.   195 202 Table of Contents  Summary of Corporate Governance Standards   For a summary of our Board’s corporate governance practices please see “Item 6C—Board Practices,” and “Item 10B—Memorandum and Articles of Association” which describesdescribe in detail the governing standards of the board committees. Santander-Chile has also adopted diverse measures to promote good corporate governance. Among the measures adopted are: · Board of Directors mainly composed of professionals not related to Santander Spain, our parent company. · All personnel must subscribe to a code of ethics and good conduct. Those who interact directly with the capital markets must also subscribe to an additional code of conduct. · Segregation of functions in order to assure adequate management of risks. Commercial areas separated from back office areas. Risk management independent of commercial areas. Main credit decisions taken in committees. · Internal Auditing Area clearly independent from the Administration. · The Bank also has an Internal Compliance Division that oversees the fulfillment of the Bank’s codes of conduct. Santander-Chile has a commitment to transparency. This includes: · Equal treatment for all shareholders: one share equals to one vote. · Monthly publication of the Bank’s results by the SBIF. · Quarterly report of a detailed analysis of Bank results published by us at least 30 days after the close of each interim quarter and 40 days after close of the full year. · Quarterly conference call open to the public. · All information relevant to the public available immediately on the web page www.santander.cl. · Ample and periodic coverage of the Bank by international and local stock analysts. · The Bank has five credit risk ratings by five independent rating agencies, domestic and international. In addition, our corporate governance practices reflect the Santander Spain corporate governance framework described below. In December 2012, primarily in response to the requirements of the European Banking Authority, our controlling shareholder, Santander Spain, adopted a corporate governance framework (Marco de Gobierno Interno del Grupo Santander). The purpose of the framework is to organize and standardize the corporate governance practices of Santander Spain and its most significant subsidiaries, including us, in order to enhance the ability of Santander Spain to manage the risks arising from its operations around the world. The three pillars of the framework are (i) an organizational model based on functions subject to internal governance, (ii) terms of reference according to which Santander Spain exercises control and oversight over its subsidiaries and participates in specific decisions at the subsidiary level and (iii) corporate models establishing common guidelines for the management and control of Santander Spain’s subsidiaries, subject to local autonomy considerations. In general, the framework purports to implement organizational and procedural changes rather than mandating particular substantive outcomes. However, in some cases, and subject to the limitations set forth in the framework, the framework states that Santander Spain may require that its subsidiaries make substantive changes or take specific actions. The framework enables Santander Spain to participate in the decision-making processes of its subsidiaries by requiring its approval of certain decisions that may have a significant impact on the Santander Group as a whole due to their significance or potential risk, such as decisions relating to mergers and acquisitions, capital structure, dividends and risk appetite, among other things. The framework also requires that a single person at each subsidiary be in charge of each function subject to internal governance and gives Santander Spain the authority to participate in the appointment, evaluation and compensation of each such person. By its own terms, the framework as a whole is premised on the legal and financial autonomy of the subsidiaries and does not empower Santander Spain to supplant its subsidiaries’ decision-making processes. Moreover, each of the three pillars of the framework is explicitly made subject to local legal requirements. Our Board of Directors 196  Table of Contents approved the adoption of this corporate governance framework in April 2013, subject to certain overarching principles: · the precedence of applicable laws and regulations and orders of competent authorities over the framework to the extent they are in conflict; and · the disclosure of the adoption of the corporate governance framework to the public and to our employees and subsidiaries. As a result of the precedence given to local legal requirements in the framework itself and in our Board of Directors’ adopting resolutions, we do not expect that the adoption of the corporate governance framework will affect our ability to comply with applicable corporate governance regulations, including SEC and NYSE rules applicable to foreign private issuers. For example, although one provision of the framework states that we must obtain Santander Spain’s approval for our audit plan and that Santander Spain may request additional audits at its discretion, to the extent that this provision of the framework would prevent our Audit Committee from fulfilling any of the requirements of applicable SEC or NYSE rules (including, for example, the audit committee’s obligation to be directly responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged for the purpose of preparing an audit report), we understand that this provision would be limited so as not to conflict with such requirements due to the precedence given to local legal requirements in the framework and our adopting resolutions. Similarly, we understand that the authorities given to Santander Spain under the framework to approve certain decisions by us and to approve the compensation of certain persons in charge of functions subject to internal governance are limited by the framework and the adopting resolutions so as not to limit the ability of members of our Audit Committee to make independent decisions or take independent actions as required by the audit committee independence requirements of applicable SEC and NYSE rules.    ITEM 16H. MINE SAFETY DISCLOSURE   Not applicable.   197 203 Table of Contents  PART III   ITEM 17. FINANCIAL STATEMENTS   We have responded to Item 18 in lieu of this Item.   ITEM 18. FINANCIAL STATEMENTS   Reference is made to Item 19 for a list of all financial statements filed as part of this Annual Report.   ITEM 19. EXHIBITS   204 Table of Contents a)Index to Financial Statements   Report of PricewaterhouseCoopers Consultores Auditores y Compañía Limitada,SpA, independent registered public accounting firm F-2 Report of Deloitte Auditores y Consultores Limitada, independent registered public accounting firm F-3 Audited Consolidated Financial Statements   Consolidated Statements of Financial Position as of December 31, 20162019 and 20152018 F-5 Consolidated Statements of Income for each of the three years in the period ended December 31, 2016, 20152019, 2018 and 20142017 F-6 Consolidated Statements of Other Comprehensive Income for each of the three years in the period ended December 31, 2016, 20152019, 2018 and 20142017 F-7 Consolidated Statements of Changes in Equity for each of the three years in the period ended December 31, 2016, 20152019, 2018 and 20142017 F-8 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2016, 20152019, 2018 and 20142017 F-10 Notes to consolidated financial statements F-12   b) Index to Exhibits   Exhibit Number Description 1A.1 Restated Articles of Incorporation of Santander-Chile (Spanish Version) (incorporated by reference to exhibit 3(a) to our Registration Statement on Form F-4 (Registration No. 333-100975) filed with the Commission on December 12,9, 2002). 1A.2 Restated Articles of Incorporation of Santander-Chile (English Version) (incorporated by reference to exhibit 3(b) to our Registration Statement on Form F-4 (Registration No. 333-100975) filed with the Commission on December 12,9, 2002). 1B Amended and Restated By-Laws (estatutos)(estatutos) of Santander-Chile (English Version) (incorporated by reference to exhibit 99.1 to our Report on Form 6-K (File No. 001-14554) filed with the Commission on March 15, 2017). 2A.1 Form of Amended and Restated Deposit Agreement among Banco Santander-Chile, The Bank of New York Mellon (as depositary) and Owners and Holders of American Depositary Shares (incorporated by reference to our Registration Statement on Form F-6 (Registration No. 333-205890) filed with the Commission on July 27, 2015). 198  Table of Contents Exhibit Number2A.2 Description 2A.2 English translation of the Foreign Investment Contract among Banco Santander Chile, JPMorgan Chase Bank, N.A. and the Central Bank of Chile relating to the foreign exchange treatment of an investment in ADSs.ADSs (incorporated by reference to exhibit 2.A.2 to Banco Santander-Chile’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015 (File No. 1-14554) filed with the Commission on May 2, 2016). 2A.3 English translation of the Assignment of Rights under the Foreign Investment Contract from JPMorgan Chase Bank, N.A. to The Bank of New York Mellon.Mellon (incorporated by reference to exhibit 2.A.3 to Banco Santander-Chile’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015 (File No. 1-14554) filed with the Commission on May 2, 2016). 2A.4 Copy of the Central Bank Chapter XXVI Regulations Related to the Acquisition of Shares in Chilean Corporations and the Issuance of Instrument on Foreign Stock Exchanges or under Other Terms and Conditions of Issue (accompanied by an English translation) (incorporated by reference to OldBanco Santander-Chile’s Annual Report on Form 20-F for the fiscal year ended December 31, 1996 (File No. 1-13448) filed in paper with the Commission on June 30, 1997). 2B.1 Agreement for the Issuance of Bonds dated November 26, 1996 between Old Santander-Chile and Banco Security (accompanied by an English translation) (incorporated by reference to OldBanco Santander-Chile’s Annual Report for the fiscal year ended December 31, 1996 (File No. 1-13448) filed in paper with the Commission on June 30, 1997). 2B.2 Indenture dated December 9, 2004 between Santander-Chile and Deutsche Bank Trust Company Americas, as trustee, providing for issuance of securities in series (incorporated by reference to exhibit 2.B.2 to Banco Santiago’sSantander-Chile’s Annual Report on Form 20-F for the fiscal year ended December 31, 2005 (File No. 1-4554)1-14554) filed with the Commission on April 12, 2006). 2B.32C Indenture dated March 16, 2001, as amended on May 30, 2003, October 22, 2004, May 3, 2005, and September 20, 2005 between Santander-Chile and Banco de Chile, as trustee, relating to issuanceDescription of UF14 million senior notes (copy to be furnished upon request).Securities 8.1 List of Subsidiaries. 205 Table of Contents 12.1 Section 302 Certification by the Chief Executive Officer. 12.2 Section 302 Certification by the Chief Financial Officer. 12.3 Section 302 Certification by the Financial Controller. 13.1 Section 906 Certification.   We will furnish to the Securities and Exchange Commission, upon request, copies of any unfiled instruments that define the rights of holders of long-term debt of Banco Santander-Chile.   199 206 Table of Contents  SIGNATURES   The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.   BANCO SANTANDER-CHILE /s/ Cristian Florence Name: Cristian Florence Title: General Counsel Date: March 24, 2017 200  Table of Contents CONSOLIDATED FINANCIAL STATEMENTS 2016 Banco Santander Chile   Table of Contents CONTENT Consolidated Financial Statements CONSOLIDATED STATEMENTS OF FINANCIAL POSITION F-5 CONSOLIDATED STATEMENTS OF INCOME F-6 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME F-7 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY F-8 CONSOLIDATED STATEMENTS OF CASH FLOW F-10         Notes to the By: /s/ Cristian Florence Name: Cristian Florence Title: General Counsel Date: March 6, 2020   Table of Contents CONTENT Consolidated Financial Statements       CONSOLIDATED STATEMENTS OF FINANCIAL POSITION F-5 CONSOLIDATED STATEMENTS OF INCOME F-6 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME F-7 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY F-8 CONSOLIDATED STATEMENTS OF CASH FLOWS F-10 Notes to the Consolidated Financial Statements NOTE 01  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES F-12 NOTE 02  SIGNIFICANT EVENTSACCOUNTING CHANGES F-40 F-50 NOTE 03  REPORTING SEGMENTSSIGNIFICANT EVENTS F-44 F-55 NOTE 04  REPORTING SEGMENTS F-59 NOTE 05  CASH AND CASH EQUIVALENTS F-48 F-63 NOTE 0506  FINANCIAL ASSETS HELD FOR TRADING INVESTMENTS F-49 F-64 NOTE 0607  INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS F-50 F-65 NOTE 0708  DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING F-53 F-67 NOTE 08  INTERBANK LOANS F-60 NOTE 09  LOANS AND ACCOUNTSACCOUNT RECEIVABLE FROM CUSTOMERSAT AMORTISED COST F-61 F-73 NOTE 10  AVAILABLE FOR SALE INVESTMENTSLOANS AND ACCOUNTS RECEIVABLE AT FVOCI F-70 F-81 NOTE 11  DEBT INSTRUMENTS AT FVOCI F-83 NOTE 12  INVESTMENTS IN ASSOCIATES AND OTHER COMPANIES F-74 NOTE 12  INTANGIBLE ASSETS F-76F-88 NOTE 13  PROPERTY, PLANT, AND EQUIPMENTINTANGIBLE ASSETS F-78 F-90 NOTE 14  FIXED ASSETS AND RIGHT OF USE ASSETS AND OBLIGATION FOR LEASE CONTRACT F-92 NOTE 15  CURRENT AND DEFERRED TAXES F-81 F-97 NOTE 1516  OTHER ASSETS F-84 F-100 NOTE 1617  TIME DEPOSITS AND OTHER TIME LIABILITIES F-85 NOTE 17  INTERBANK BORROWINGS F-86F-101 NOTE 18  INTERBANK BORROWINGS F-102 NOTE 19  ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES F-89 F-105 NOTE 1920  MATURITY OF ASSETS AND LIABILITIES F-95 NOTE 20  PROVISIONS F-97F-113 NOTE 21  OTHER LIABILITIESPROVISIONS F-98 F-115 NOTE 22  OTHER LIABILITIES F-118 NOTE 23  CONTINGENCIES AND COMMITMENTS F-98 F-119 NOTE 2324  EQUITY F-100 F-121 NOTE 2425  NON-CONTROLLING INTEREST F-104 NOTE 25  INTEREST INCOME F-108F-124 NOTE 26  INTEREST INCOME F-127 NOTE 27  FEES AND COMMISSIONS F-110 F-129 NOTE 2728  NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS F-111 F-132 NOTE 2829  NET FOREIGN EXCHANGE GAIN (LOSS) F-111 F-133 NOTE 2930  PROVISION FOR LOAN LOSSES F-112 F-134 NOTE 3031  PERSONNEL SALARIES AND EXPENSES F-113 F-135 NOTE 3132  ADMINISTRATIVE EXPENSES F-114 F-136 NOTE 3233  DEPRECIATION, AMORTIZATION, AND IMPAIRMENT F-115 F-137 NOTE 3334  OTHER OPERATING INCOME AND EXPENSES F-115 F-138 NOTE 3435  TRANSACTIONS WITH RELATED PARTIES F-117 F-139 NOTE 3536  PENSION PLANS F-123 F-145 NOTE 3637  FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES F-126 F-148 NOTE 3738  RISK MANAGEMENT F-134 F-157 NOTE 3839  NON-CURRENT ASSETS HELD FOR SALE F-182 NOTE 40  SUBSEQUENT EVENTS F-157 F-183     F-1 Table of Contents  Report of Independent Registered Public Accounting Firm   To the Board of Directors and Shareholders of Banco Santander - Chile   In our opinion,Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated statementstatements of financial position of Banco Santander-Chile and its subsidiaries (“the Company”) as of December 31, 20162019 and 2018, and the related consolidated statements of income, comprehensive income, cash flows and changes in equity and cash flows for each of the year thenthree years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Banco Santander Chile and its subsidiaries atthe Company as of December 31, 2016,2019 and 2018, and the results of theirits operations and theirits cash flows for each of the year thenthree years in the period ended December 31, 2019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016,2019, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations ofCOSO. Change in Accounting Principles As discussed in Note 2 to the Treadway Commission (COSO). consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for financial instruments in 2018. Basis for Opinions The Company´sCompany's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management´sManagement’s Report on Internal Control over Financial Reporting appearing under Item 15 of this annual report.15. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements and on the Company´sCompany's internal control over financial reporting based on our integrated audit. audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our auditaudits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinions. F-2 Table of Contents As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Santander Consumer Chile S.A. from its assessment of internal control over financial reporting as of December 31, 2019 because it was acquired by the Company in a purchase business combination during 2019. We have also excluded Santander Consumer Chile S.A. from our audit of internal control over financial reporting. Santander Consumer Chile S.A. is a 51% owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 1% and 0.5%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2019. Definition and Limitations of Internal Control over Financial Reporting   A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.   F-2  Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-3 Table of Contents Expected Credit Loss Allowance for Commercial, Mortgage and Consumer Loans – Collective Basis As described in Note 1 and 9 to the consolidated financial statements, management assesses the adequacy of the collective basis expected credit loss allowance for commercial, mortgage and consumer loans losses using expected credit loss models. As of December 31, 2019, the collective basis expected credit loss allowance was Ch$ 648,002 million on total commercial, mortgage and consumer loans of Ch$ 21,057,277 million. As disclosed by management, the estimation of the collective basis expected credit loss allowance considers qualitative and quantitative information that may affect the increase in credit risk and the development of assumptions such as the probabilities of default and loss given default, including forward looking information, multi-factor analysis such as type of portfolio or transaction, macroeconomic factors, among others. Management subjectively assesses the adequacy of the qualitative information used to assess the increase in credit risk since initial recognition and the development of assumptions such as probabilities of default and loss given default. The principal considerations for our determination that performing procedures relating to the collective basis expected credit loss allowance for commercial, mortgage and consumer loans is a critical audit matter are (i) there was significant judgment by management in determining the collective basis expected credit loss allowance, which in turn led to a high degree ofauditor judgement, subjectivity, and effortin performing procedures and evaluating audit evidence obtained relating to the assumptions used such as the probabilities of default and loss given default, including forward looking information, multi-factor analysis such as type of portfolio or transaction and macroeconomic factors, including qualitative information; and (ii) The audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from these procedures. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the expected credit loss allowance estimation process, which included controls over the assumptions used in the estimation of the collective basis expected credit loss allowance, including qualitative information. These procedures also included, among others, testing the completeness, accuracy, and relevance of underlying data used in the model, the involvement of professionals with specialized skill and knowledge to assist in testing management’s process for estimating the collective basis expected credit loss allowance for commercial, mortgage and consumer loans, including evaluating the appropriateness of the methodologies and models, testing data used in the estimate and evaluating the reasonableness of significant assumptions such as the probabilities of default and loss given default, including forward looking information, multi-factor analysis such as type of portfolio or transaction and macroeconomic factors, including the qualitative information. /s/ PricewaterhouseCoopers Consultores Auditores y Compañía Limitada  PricewaterhouseCoopers Consultores, Auditores y Compañía LimitadaSpA   Santiago, Chile March 24, 2017 F-3  Table of Contents   Deloitte Auditores y Consultores Limitada Rosario Norte 407 Rut: 80.276.200-3 Las Condes, Santiago Chile Fono: (56) 227 297 000 Fax: (56) 223 749 177 deloittechile@deloitte.com www.deloitte.cl REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Banco Santander Chile6, 2020   We have auditedserved as the accompanying consolidated statement of financial position of Banco Santander Chile and subsidiaries (the “Bank”) as of December 31, 2015 and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the two years in the period ended December 31, 2015. These financial statements are the responsibility of the Bank´s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.Company’s auditor since 2016. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of 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 management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Banco Santander Chile and subsidiaries as of December 31, 2015 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2015 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”).   /s/ Deloitte Auditores y Consultores LimitadaF-4 Table of Contents   Santiago, Chile  May 1, 2016     Deloitte® se refiere a Deloitte Touche Tohmatsu Limited una compañía privada limitada por garantía, de Reino Unido, y a su red de firmas miembro, cada una de las cuales es una entidad legal separada e independiente. Por favor, vea en www.deloitte.com/cl/acercade la descripción detallada de la estructura legal de Deloitte Touche Tohmatsu Limited y sus firmas miembro. Deloitte Touche Tohmatsu Limited es una compañía privada limitada por garantía constituida en Inglaterra & Gales bajo el número 07271800, y su domicilio registrado: Hill House, 1 Little New Street, London, EC4A 3TR, Reino Unido.  F-4  Table of Contents Banco Santander ChileSantander-Chile and Subsidiaries CONSOLIDATED STATEMENTS OF FINANCIAL POSITION     As of December 31,     2016   2015       As of December 31,   NOTE   MCh$   MCh$       2019   2018               Note   MCh$   MCh$   ASSETS ASSETS                         Cash and deposits in banks 4   2,279,389   2,064,806 Cash items in process of collection 4   495,283   724,521 Trading investments 5   396,987   324,271 Investments under resale agreements 6   6,736   2,463 Financial derivative contracts 7   2,500,782   3,205,926 Interbank loans, net 8   268,672   9,711 Loans and accounts receivable from customers, net 9   26,147,154   24,528,745 Available for sale investments 10   3,388,906   2,044,411 Investments in associates and other companies 11   23,780   20,309 Intangible assets 12   58,085   51,137 Property, plant, and equipment 13   257,379   240,659 Deferred taxes 14   359,600   320,527 Other assets 15   847,272   1,100,174 Cash and deposits in banks   5   3,554,520   2,065,441   Cash items in process of collection   5   355,062   353,757   Financial derivative contracts   8   8,148,608   3,100,635   Financial assets held for trading   6   270,204   77,041   Loans and account receivable at amortised cost   9   31,775,420   29,331,001   Loans and account receivable at fair value through other comprehensive income   10   66,065   68,588   Debt instrument at fair value through other comprehensive income   11   4,010,272   2,394,323   Equity instruments at fair value through other comprehensive income   12   482   483   Investments in associates and other companies   12   10,177   32,003   Intangible assets   13   73,389   66,923   Property, plant, and equipment   14   252,346   253,586   Right of use assets   14   155,987   -   Current taxes   15   11,648   -   Deferred taxes   15   451,388   397,515   Other assets   16   1,439,146   991,216   TOTAL ASSETS TOTAL ASSETS     37,030,025   34,637,660       50,574,714   39,132,512         LIABILITIES LIABILITIES                   Deposits and other demand  liabilities 16   7,539,315   7,356,121 Cash items in process of being cleared 4   288,473   462,157 Obligations under repurchase agreements 6   212,437   143,689 Time deposits and other time liabilities 16   13,151,709   12,182,767 Financial derivative contracts 7   2,292,161   2,862,606 Interbank borrowings 17   1,916,368   1,307,574 Issued debt instruments 18   7,326,372   5,957,095 Other financial liabilities 18   240,016   220,527 Current taxes 14   29,294   17,796 Deferred taxes 14   7,686   3,906 Provisions 20   292,210   274,998 Other liabilities 21   795,785   1,045,869 Deposits and other demand liabilities   17   10,297,432   8,741,417   Cash items in process of being cleared   5   198,248   163,043   Obligations under repurchase agreements   7   380,055   48,545   Time deposits and other time liabilities   17   13,192,817   13,067,819   Financial derivative contracts   8   7,390,654   2,517,728   Interbank borrowings   18   2,519,818   1,788,626   Issued debt instruments   19   9,500,723   8,115,233   Other financial liabilities   19   226,358   215,400   Lease liabilities   14   158,494   - �� Current taxes   15   -   8,093   Deferred taxes   15   99,157   15,470   Provisions   21   326,130   305,271   Other liabilities   22   2,806,325   900,407   TOTAL LIABILITIES TOTAL LIABILITIES   34,091,826   31,835,105       47.096.211   35,887,052         EQUITY EQUITY                         Attributable to the equity holders of the Bank:   2,908,858   2,772,374 Capital 23   891,303   891,303 Reserves 23   1,640,112   1,527,893 Valuation adjustments 23   6,640   1,288 Retained earnings   370,803   351,890   Retained earnings from prior years       37,551   37,963   Income for the year   476,067   448,466   Minus:  Provision for mandatory dividends 23   (142,815)   (134,539) Non-controlling interest 24   29,341   30,181 Attributable to the shareholders of the Bank:       3.398.870   3,199,297   Capital   24   891,303   891,303   Reserves   24   2,122,742   1,923,022   Valuation adjustments   24   (8,856 )   11.353   Retained earnings       393,681   373,619   Retained earnings from prior years       (39,683 )   (43,114 ) Income for the year       619,091   595,333   Minus: Provision for mandatory dividends   24   (185,727 )   (178,600 ) Non-controlling interest   25   79,633   46,163   TOTAL EQUITY TOTAL EQUITY   2,938,199   2,802,555       3,478,503   3,245,460       TOTAL LIABILITIES AND EQUITY TOTAL LIABILITIES AND EQUITY     37,030,025   34,637,660       50,574,714   39,132,512     The accompanying notes form integral part of these consolidated financial statements.   F-5 Table of Contents  Banco Santander ChileSantander-Chile and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME For the years ended     December 31,     2016   2015   2014       December 31,   NOTE   MCh$   MCh$   MCh$       2019   2018   2017       Note   MCh$   MCh$   MCh$   OPERATING INCOME OPERATING INCOME                                         Interest income Interest income 25   2,137,044   2,085,988   2,227,018   26   2,321,381   2,244,317   2,058,446   Interest expense Interest expense 25   (855,678)   (830,782)   (909,914)   26   (904,417 )   (829,949 )   (731,755 )                     Net interest income Net interest income   1,281,366   1,255,206   1,317,104       1,416,964   1,414,368   1,326,691                       Fee and commission income Fee and commission income 26   431,184   402,900   366,729   27   498,658   484,463   455,558   Fee and commission expense Fee and commission expense 26   (176,760)   (165,273)   (139,446)   27   (211,572 )   (193,578 )   (176,495 )                     Net fee and commission income Net fee and commission income   254,424   237,627   227,283       287,086   290,885   279,063                       Net expense from financial operations 27   (367,034)   (457,897)   (159,647) Net income (expense) from financial operations   28   (78,165 )   53,174   2,796   Net foreign exchange gain Net foreign exchange gain 28   507,392   603,396   272,212   29   279,857   51,908   126,956   Other operating income Other operating income 33   6,427   6,439   6,545   34   13,001   23,129   62,016                       Net operating profit before provision for loan losses Net operating profit before provision for loan losses   1,682,575   1,644,771   1,663,497       1,918,743   1,833,464   1,797,522                       Provision for loan losses Provision for loan losses 29   (342,083)   (399,277)   (354,903)   30   (323,311 )   (317,408 )   (302,255 )                                   NET OPERATING PROFIT   1,340,492   1,245,494   1,308,594 NET OPERATING INCOME       1,595,432   1,516,056   1,495,267                       Personnel salaries and expenses Personnel salaries and expenses 30   (395,133)   (387,063)   (338,888)   31   (410,157 )   (397,564 )   (396,967 ) Administrative expenses Administrative expenses 31   (226,413)   (220,531)   (205,149)   32   (233,612 )   (245,089 )   (230,103 ) Depreciation and amortization Depreciation and amortization 32   (65,359)   (53,614)   (44,172)   33   (106,092 )   (79,280 )   (77,823 ) Impairment of property, plant, and equipment Impairment of property, plant, and equipment 32   (234)   (21)   (36,664)   33   (2,726 )   (39 )   (5,644 ) Other operating expenses Other operating expenses 33   (68,902)   (58,729)   (58,946)   34   (49,303 )   (32,342 )   (68,413 )                     Total operating expenses Total operating expenses   (756,041)   (719,958)   (683,819)       (801,890 )   (754,314 )   (778,950 )                     OPERATING INCOME OPERATING INCOME   584,451   525,536   624,775       793,542   761,742   716,317                       Income from investments in associates and other companies Income from investments in associates and other companies 11   3,012   2,588   2,165   12   1,146   1,324   1,144                       Income before tax   587,463   528,124   626,940 Income from continuing operations before tax       794,688   763,066   717,461                       Income tax expense Income tax expense 14   (109,031)   (76,395)   (51,050)   15   (175,074 )   (167,144 )   (145,031 )                     Result of continuing operations       619,614   595,922   572,430   Result of discontinued operations   39   1,699   3,771   2,819   NET INCOME FOR THE YEAR NET INCOME FOR THE YEAR   478,432   451,729   575,890       621,313   599,693   575,249                       Attributable to: Attributable to:                     Equity holders of the Bank   476,067   448,466   569,910 Shareholders of the Bank       619,091   595,333   562,801   Non-controlling interest Non-controlling interest 24   2,365   3,263   5,980   25   2,222   4,360   12,448   Earnings per share attributable to Equity holders of the Bank :                     Earnings per share from continued operations attributable to shareholders of the Bank:                   Basic earnings Basic earnings 23   2,526   2,380   3,024   24   3.276   3.139   2.975   Diluted earnings Diluted earnings 23   2,526   2,380   3,024   24   3.276   3.139   2.975                       Earnings per share from discontinued operations attributable to shareholders of the Bank:                   Basic earnings   24   0.009   0.020   0.015   Diluted earnings   24   0.009   0.020   0.015                     Earnings per share attributable to shareholders of the Bank :                   Basic earnings   24   3.285   3.159   2.987   Diluted earnings   24   3.285   3.159   2.987                     The accompanying notes form integral part of these consolidated financial statements F-6 Table of Contents  Banco Santander ChileSantander-Chile and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended       December 31,         2016   2015   2014   NOTE     MCh$   MCh$   MCh$                   NET INCOME FOR THE YEAR       478,432   451,729   575,890                   OTHER COMPREHENSIVE INCOME ITEMS WHICH MAY BE                 RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS                                      Available for sale investments 10     14,468   (28,777)   20,844    Cash flow hedge 23     (6,338)   (2,099)   18,982                   Other comprehensive income items which may be reclassified subsequently to profit or loss, before tax       8,130   (30,876)   39,826                   Income tax related to items which may be reclassified subsequently to profit or loss 14     (1,976)   6,462   (8,289)                   Other comprehensive income items which may be reclassified subsequently to profit or loss, net of tax       6,154   (24,414)   31,537 TOTAL COMPREHENSIVE INCOME FOR THE YEAR       484,586   427,315   607,427                       Attributable to:                       Equity holders of the Bank       481,419   424,154   601,474       Non-controlling interests 24     3,167   3,161   5,953         December 31,           2019     2018     2017       Note   MCh$     MCh$     MCh$   NET INCOME FOR THE YEAR       621,313     599,693     575,249                           Other comprehensive income that will not be reclassified to profit or loss                             Equity instruments at fair value through other comprehensive income         (1 )     (113 )     -   Income tax related to the above         -       31       -                                 Total items that will not be reclassified to the income statements         (1 )     (82 )     -                                 Other comprehensive income that will be reclassified to profit or loss                             Debt instruments at fair value through other comprehensive income   24     22,223       4,826       -   Available for sale financial assets   24     -       -       (5,520 ) Cash flow hedge   24     (50,238 )     13,365       (5,850 ) Income tax related to the  above         7,618       (4,903 )     2,754                                 Total items that will be reclassified to the income statements         (20,397 )     13,288       (8,616 ) Other comprehensive income for the year, net of tax         (20,398 )     13,206       (8,616 ) TOTAL COMPREHENSIVE INCOME FOR THE YEAR         600,915       612,899       566,633                                 Attributable to:                             Shareholders of the Bank         598,693       608,623       553,849   Non-controlling interests   25     2,222       4,276       12,784     The accompanying notes form integral part of these consolidated financial statements.   F-7 Table of Contents  Banco Santander ChileSantander-Chile and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the years ended December 31, 2016, 2015 and 2014     RESERVES VALUATION ADJUSTMENTS RETAINED EARNINGS         Capital Reserves and other retained earnings Effects of merger of companies under common control Available for sale investments Cash flow hedge Income tax effects Retained earnings of prior years Income for the year Provision for mandatory dividends Total attributable to equity holders of the Bank Non-controlling interest Total Equity   MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ Equity as of December 31, 2013 891,303 1,133,215 (2,224) 802 (8,257) 1,491 18,016 442,294 (132,688) 2,343,952 28,504 2,372,456 Distribution of income from previous period - - - - - - 442,294 (442,294) - - - - Equity as of January 1, 2014 891,303 1,133,215 (2,224) 802 (8,257) 1,491 460,310 - (132,688) 2,343,952 28,504 2,372,456 Increase or decrease of capital and reserves - - - - - - - - - - (1,374) (1,374) Dividends distributions/ withdrawals made - - - - - - (265,156) - 132,688 (132,468) - (132,468) Transfer of retained earnings to reserves - 176,770 - - - - (176,770) - - - - - Provision for mandatory dividends - - - - - - - - (170,973) (170,973) - (170,973) Subtotal - 176,770 - - - - (441,926) - (38,285) (303,441) (1,374) (304,815) Other comprehensive income - - - 20,878 18,982 (8,296) - - - 31,564 (27) 31,537 Income for the year - - - - - - - 569,910 - 569,910 5,980 575,890 Subtotal - - - 20,878 18,982 (8,296) - 569,910 - 601,474 5,953 607,427 Equity as of December 31, 2014 891,303 1,309,985 (2,224) 21,680 10,725 (6,805) 18,384 569,910 (170,973) 2,641,985 33,083 2,675,068 Distribution of income from previous period - - - - - - 569,910 (569,910) - - - - Equity as of January 1, 2015 891,303 1,309,985 (2,224) 21,680 10,725 (6,805) 588,294 - (170,973) 2,641,985 33,083 2,675,068 Dividends distributions/ withdrawals made - - - - - - (330,199) - 170,973 (159,226) - (159,226) Transfer of retained earnings to reserves - 220,132 - - - - (220,132) - - - (6,063) (6,063) Provision for mandatory dividends - - - - - - - - (134,539) (134,539) - (134,539) Subtotal - 220,132 - - - - (550,331) - 36,434 (293,765) (6,063) (299,828) Other comprehensive income - - - (28,645) (2,099) 6,432 - - - (24,312) (102) (24,414) Income for the year - - - - - - - 448,466 - 448,466 3,263 451,729 Subtotal - - - (28,645) (2,099) 6,432 - 448,466 - 424,154 3,161 427,315 Equity as of December 31, 2015 891,303 1,530,117 (2,224) (6,965) 8,626 (373) 37,963 448,466 (134,539) 2,772,374 30,181 2,802,555 Distribution of income from previous period - - - - - - 448,466 (448,466) - - - - Equity as of January 1, 2016 891,303 1,530,117 (2,224) (6,965) 8,626 (373) 486,429 - (134,539) 2,772,374 30,181 2,802,555 Dividends distributions/ withdrawals made - - - - - - (336,659) - 134,539 (202,120) (4,008) (206,128) Transfer of retained earnings to reserves - 112,219 - - - - (112,219) - - - - - Provision for mandatory dividends - - - - - - - - (142,815) (142,815) - (142,815) Subtotal - 112,219 - - - - (448,878) - (8,276) (344,935) (4,008) (348,943) Other comprehensive income - - - 13,414 (6,338) (1,724) - - - 5,352 803 6,155 Income for the year - - - - - - - 476,067 - 476,067 2,365 478,432 Subtotal - - - 13,414 (6,338) (1,724) - 476,067 - 481,419 3,168 484,587 Equity as of December 31, 2016 891,303 1,642,336 (2,224) 6,449 2,288 (2,097) 37,551 476,067 (142,815) 2,908,858 29,341 2,938,199 F-8  Table of Contents Banco Santander Chile and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the years ended December 31, 2016, 2015 and 2014 Period Total attributable to equity holders of the Bank   Allocated to reserves   Allocated to dividends   Percentage distributed   Number of shares   Dividend per share (in pesos)   MCh$   MCh$   MCh$   %                                 Year 2015 (Shareholders Meeting April  2016) 448,878   112,219   336,659   75   188,446,126,794   1.787                         Year 2014 (Shareholders Meeting April  2015) 550,331   220,132   330,199   60   188,446,126,794   1.752 F-9  Table of Contents Banco Santander Chile and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended           December 31,               2016   2015   2014   NOTE     MCh$   MCh$   MCh$                   A - CASH FLOWS FROM OPERATING ACTIVITIES                 NET INCOME FOR THE YEAR       478,432   451,729      575,890 Debits (credits) to income that do not represent cash flows       (1,082,975)   (927,591)   (1,022,091) Depreciation and amortization 32     65,359   53,614        44,127 Impairment of property, plant, and equipment 32     234   21        36,664 Provision for loan losses 29     420,381   467,417     413,880 Mark to market of trading investments       (2,682)   (3,001)   (11,285) Income from investments in associates and other companies 11     (3,012)   (2,588)   (2,165) Net gain on sale of assets received in lieu of payment 33     (1,663)   (2,455)   (2,811) Provision on assets received in lieu of payment 33     9,246   7,803     1,577 Net gain on sale of property, plant and equipment 33     (2,017)   (381)   (687) Net interest income 25     (1,281,366)   (1,255,206)   (1,317,104) Net fee and commission income 26     (254,424)   (237,627)   (227,283) Debits (credits) to income that do not represent cash flows       4,238   90,484      115,240 Changes  in deferred taxes 14     (37,269)   (45,672)   (72,244) Increase/decrease in operating assets and liabilities       1,340,697   1,163,658   728,624 (Increase) of loans and accounts receivables from customers, net       (1,643,744)   (2,083,854)   (1,674,156) (Increase) decrease of financial investments       (1,417,211)   (57,731)   (437,853) Decrease (increase) due to resale agreements (assets)       (4,273)   2,463        17,469 Decrease (increase) of interbank loans       (261,744)   (1,057)      113,477 Decrease of assets received or awarded in lieu of payment       18,238   4,157     4,431 Increase of debits in customers checking accounts       268,695   744,863      727,604 Increase of time deposits and other time liabilities       968,942   1,768,827      738,668 Increase (decrease) of obligations with domestic banks       365,436   (66,006)        65,506 Increase of other demand liabilities or time obligations       (85,502)   130,763      132,130 Increase (decrease) of obligations with foreign banks       243,355   142,069   (516,156) (Decrease) of obligations with Central Bank of Chile       3   (90)   (126) (Decrease) increase of obligations under repurchase agreements       68,748   (248,437)      183,154 Increase (decrease) in other financial liabilities       19,489   15,402   15,344 Net increase of other assets and liabilities       259,900   (1,286,057)       (805,865) Redemption of letters of credit       (16,606)   (26,720)   (29,668) Mortgage bond issuance       -   -        36,941 Senior bond issuances       3,537,855   878,389   1,196,273 Redemption of mortgage bonds and payments of interest       (5,492)   (5,343)   (4,195) Redemption of senior bonds and payments of interest       (2,499,271)   (231,972)   (574,507) Redemption of subordinated bonds and payments of interest       (12,128)   (10,397)   (8,886) Interest received       2,137,044   2,093,028   2,235,437 Interest paid       (855,678)   (836,544)   (913,800) Dividends received from investments in other companies 11     217   278        119 Fees and commissions received 26     431,184   402,900   366,729 Fees and commissions paid 26     (176,760)   (165,273)   (139,446) Total cash flow provided by (used in) operating activities       736,154   687,796   282,423                                   RESERVES     VALUATION ADJUSTMENTS     RETAINED EARNINGS                         Capital     Reserves and other retained earnings     Effects of merger of companies under common control     Fair value reserve     Cash flow hedge     Income tax effects     Retained earnings of prior years     Income for the year     Provision for mandatory dividends     Total attributable to shareholders of the Bank     Non-controlling interest     Total Equity       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$   Equity as of December 31, 2016     891,303       1,642,336       (2,224 )     6,449       2,288       (2,097 )     37,551       476,067       (142,815 )     2,908,858       29,341       2,938,199   Distribution of income from previous period     -       -       -       -       -       -       476,067       (476,067 )     -       -       -       -   Equity as of January 1, 2017     891,303       1,642,336       (2,224 )     6,449       2,288       (2,097 )     513,618       -       (142,815 )     2,908,858       29,341       2,938,199   Dividends distributions / withdrawals made     -       -       -       -       -       -       (330,645 )     -       142,815       (187,830 )     (242 )     (188,072 ) Transfer of retained earnings to reserves     -       141,706       -       -       -       -       (141,706 )     -       -       -       -       -   Provision for mandatory dividends     -       -       -       -       -       -       -       -       (168,840 )     (168,840 )     -       (168,840 ) Subtotal     -       141,706       -       -       -       -       (472,351 )     -       (26,025 )     (356,670 )     (242 )     (356,912 ) Other comprehensive income     -       -       -       (5,990 )     (5,850 )     2,888       -       -       -       (8,952 )     336       (8,616 ) Result of continuous operations     -       -       -       -       -       -       -       559.982       -       559.982       12,448       572.430   Result of discontinuous operations     -       -       -       -       -       -       -       2.819       -       2.819       -       2.819   Subtotal     -       -       -       (5,990 )     (5,850 )     2,888       -       562,801       -       553,849       12,784       566,633   Equity as of December 31, 2017     891,303       1,784,042       (2,224 )     459       (3,562 )     791       41,267       562,801       (168,840 )     3,106,037       41,883       3,147,920   Distribution of income from previous period     -       -       -       -       -       -       562,801       (562,801 )     -       -       -       -   Equity as of January 1, 2018     891,303       1,784,042       (2,224 )     459       (3,562 )     791       604,068       -       (168,840 )     3,106,037       41,883       3,147,920   Impact of adopting IFRS 9     -       -       -       394       -       (19 )     (82,367 )     -       -       (81,992 )     -       (81,992 ) Restated opening balance under IFRS 9     891,303       1,784,042       (2,224 )     853       (3,562 )     772       521,701       -       (168,840 )     3,024,045       41,883       3,065,928   Dividends distributions / withdrawals made     -       -       -       -       -       -       (423,611 )     -       168,840       (254,771 )     4       (254,767 ) Transfer of retained earnings to reserves     -       141,204       -       -       -       -       (141,204 )     -       -       -       -       -   Provision for mandatory dividends     -       -       -       -       -       -       -       -       (178,600 )     (178,600 )     -       (178,600 ) Subtotal     -       141,204       -       -       -       -       (564,815 )     -       (9,760 )     (433,371 )     4       (433,367 ) Other comprehensive income     -       -       -       4,799       13,365       (4,874 )     -       -       -       13,290       (84 )     13,206   Result of continuous operations     -       -       -       -       -       -       -       591.563       -       591.563       4,360       595.923   Result of discontinuous operations     -       -       -       -       -       -       -       3.770       -       3.770       -       3.770   Subtotal     -       -       -       4,799       13,365       (4,874 )     -       595,333       -       608.623       4,276       612,899   Equity as of December 31, 2018     891,303       1,925,246       (2,224 )     5,652       9,803       (4,102 )     (43,114 )     595,333       (178,600 )     3.199.297       46,163       3,245,460   Distribution of income from previous period     -       -       -       -       -       -       595,333       (595,333 )     -       -       -       -   Equity as of January 1, 2019     891,303       1,925,246       (2,224 )     5,652       9,803       (4,102 )     552,219       -       (178,600 )     3.199.297       46,163       3,245,460   Purchase of Santander Consumer S.A. (*)     -       (37,041 )     -       -       -       -       -       -       -       (37,041 )     31,437       (5,604 ) Dividends distributions / withdrawals made     -       -       -       -       -       -       (355,141 )     -       178,600       (176,541 )     -       (176,541 ) Transfer of retained earnings to reserves     -       236,761       -       -       -       -       (236,761 )     -       -       -       -       -   Provision for mandatory dividends     -       -       -       -       -       -       -       -       (185,727 )     (185,727 )     -       (185,727 ) Subtotal     -       199,720       -       -       -       -       (591,902 )     -       (7,127 )     (399,309 )     31,437       (367,872 ) Other comprehensive income     -       -       -       22,483       (50,238 )     7,546       -       -       -       (20,209 )     (189 )     (20,398 ) Result of continuous operations     -       -       -       -       -       -       -       617,392       -       617,392       2,222       619,614   Result of discontinuous operations     -       -       -       -       -       -       -       1,699       -       1,699       -       1,699   Subtotal     -       -       -       22,483       (50,238 )     7,546       -       619,091       -       598,882       2,033       600,915   Equity as of December 31, 2019     891,303       2,124,966       (2,224 )     28,135       (40,435 )     3,444       (39,683 )     619,091       (185,727 )     3,398,870       79,633       3,478,503   (*) The effect was generated by the acquisition of Santander Consumer S.A.. See Note 3 Significant Event F-10 F-8 Table of Contents  Banco Santander ChileSantander-Chile and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS CHANGES IN EQUITY For the years ended          December 31,           2016   2015   2014     NOTE       MCh$   MCh$   MCh$                         B - CASH FLOWS FROM INVESTMENT ACTIVITIES:                     Purchases of property, plant, and equipment 13       (62,356)   (65,111)   (59,088)   Sales of property, plant, and equipment 13       560   121        172   Purchases of investments in associates and other companies 11       (1,123)   (302)   (6,313)   Purchases of intangible assets 12       (27,281)   (27,573)   (27,437)   Total cash flow (used in) provided by investment activities         (90,200)   (92,865)   (92,666)                         C - CASH FLOW FROM FINANCING ACTIVITIES:                     From shareholders’ financing activities         (336,659)   (330,199)   (265,156)   Dividends paid         (336,659)   (330,199)   (265,156)   Total cash flow used in financing activities         (336,659)   (330,199)   (265,156)                         D – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE YEAR         309,295   264,732   (75,399)                         E – EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS         (150,266)   203,436        34,893                         F - INITIAL BALANCE OF CASH AND CASH EQUIVALENTS         2,327,170   1,859,002   1,899,508                         FINAL BALANCE OF CASH AND CASH EQUIVALENTS 4       2,486,199   2,327,170   1,859,002   Period   Total attributable to shareholders of the Bank     Allocated to reserves     Allocated to dividends     Percentage distributed     Number of     Dividend per share       MCh$     MCh$     MCh$     %     shares     (in pesos)   Year 2018 (Shareholders Meeting April 2019)     591,902       236,761       355,141       60       188,446,126,794       1.885   Year 2017 (Shareholders Meeting April 2018)     564,815       141,204       423,611       75       188,446,126,794       2.248   Year 2016 (Shareholders Meeting April 2017)     472,351       141,706       330,645       70       188,446,126,794       1.755   The accompanying notes form integral part of these consolidated financial statements.           December 31,   Reconciliation of provisions for the Consolidated Statement of Cash Flow for the year ended       2016   2015   2014         MCh$   MCh$   MCh$                   Provision for loan losses for cash flow purposes 29     420,381   467,417   413,880 Recovery of loans previously charged off 29     (78,298)   (68,140)    (58,977) Provision for loan losses – net       342,083   399,277   354,903                     F-9 Table of Contents Banco Santander-Chile and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS  For the years ended           December 31,           2019     2018     2017       NOTE   MCh$     MCh$     MCh$                           A - CASH FLOWS FROM OPERATING ACTIVITIES                             NET INCOME FOR THE YEAR         621,313       599,693       575,249   Adjustments for non-cash items included in net income         (1,119,126 )     (1,266,270 )     (1,198,330 ) Depreciation and amortization   33     106,092       79,280       77,823   Impairment of property, plant, and equipment   33     2,726       39       5,644   Provision for loan losses   30     406,024       405,889       385,782   Mark to market of trading investments         39,997       1,438       1,438   Income from investments in associates and other companies   12     (1,146 )     (5,095 )     (3,962 ) Net gain on sale of assets received in lieu of payment   34     (5,613 )     (7,106 )     (3,330 ) Provision on assets received in lieu of payment   34     1,809       816       3,912   Loss on sale of associate         126       -       -   Net gain on sale of property, plant and equipment   34     (2,456 )     (2,490 )     (23,229 ) Net interest income   26     (1,416,964 )     (1,414,368 )     (1,326,691 ) Net fee and commission income   27     (287,086 )     (290,885 )     (279,063 ) Other non-cash items         (67 )     (8,271 )     (29,903 ) Changes  in deferred taxes   15     37,432       (25,517 )     (6,751 ) Increase/decrease in operating assets and liabilities         2,346,978       1,689,069       206,725   (Increase) of loans and accounts receivables from customers, net         (2,449,954 )     (2,703,700 )     (629,605 ) Decrease (increase) of financial investments         (1,809,112 )     588,918       725,611   Decrease (increase) of interbank loans         232       147,534       110,036   Decrease of assets received or awarded in lieu of payment         (1,473 )     722       4,125   Increase of debits in customers checking accounts         1,298,976       521,476       127,968   (Decrease) increase of time deposits and other time liabilities         124,998       1,153,874       (1,237,764 ) Increase (decrease) of obligations with domestic banks         271,620       (480 )     (364,956 ) Increase (decrease) of other demand liabilities or time obligations         257,039       451,775       100,883   Increase of obligations with foreign banks         459,572       90,754       146,947   (Decrease) increase of obligations with Central Bank of Chile         -       (5 )     (2 ) (Decrease) increase of obligations under repurchase agreements         331,510       (219,516 )     55,624   Increase (decrease) in other financial liabilities         10,958       (26,630 )     2,014   (Decrease) increase of other assets and liabilities         982,760       (872,264 )     (151,544 ) Redemption of letters of credit         (6,988 )     (8,989 )     (11,772 ) Senior bond issuances         1,893,552       1,156,057       911,581   Redemption of mortgage bonds and payments of interest         (6,109 )     (5,911 )     (5,736 ) Redemption of senior bonds and payments of interest         (714,783 )     (289,837 )     (1,167,656 ) Redemption of subordinated bonds and payments of interest         -       -       (14,899 ) Interest received         2,321,381       2,244,317       2,058,446   Interest paid         (904,417 )     (829,949 )     (731,755 ) Dividends received from investments in other companies   12     130       38       116   Fees and commissions received   27     498,658       484,463       455,558   Fees and commissions paid   27     (211,572 )     (193,578 )     (176,495 ) Total cash flow (used in) provided by operating activities         1,849,165       1,022,492       (416,357 ) F-10 Table of Contents Banco Santander-Chile and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS  For the years ended           December 31,             2019     2018     2017       NOTE     MCh$     MCh$     MCh$                             B - CASH FLOWS FROM INVESTMENT ACTIVITIES:                               Purchases of property, plant, and equipment   14       (50,969 )     (68,329 )     (58,771 ) Sales of property, plant, and equipment   14       8,666       6,297       17,939   Sales of investments in associates           1,930       -       -   Purchases of investments in associates and other companies   12       (62,136 )     -       (3 ) Purchases of intangible assets   13       (32,860 )     (29,563 )     (32,624 ) Total cash flow used in investment activities           (135,369 )     (91,565 )     (73,459 )                                 C - CASH FLOW FROM FINANCING ACTIVITIES:                               From shareholders’ financing activities           (355,141 )     (423,611 )     (330,645 ) Dividends paid           (355,141 )     (423,611 )     (330,645 ) Lease obligation paid           (30,145 )     -       -   Total cash flow used in financing activities           (385,286 )     (423,611 )     (330,645 )                                 D – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE YEAR           1,328,510       507,316       (820,460 )                                 E – EFFECTS OF FOREIGN EXCHANGE RATE FLUCTUATIONS           126,669       114,498       (31,398 )                                 F - INITIAL BALANCE OF CASH AND CASH EQUIVALENTS           2,256,155       1,634,341       2,486,199                                   FINAL BALANCE OF CASH AND CASH EQUIVALENTS   5       3,711,334       2,256,155       1,634,341                                   Reconciliation of provisions for the Consolidated Statements of Cash Flow       December 31,   for the year ended       2019     2018     2017           MCh$     MCh$     MCh$                           Provision for loan losses for cash flow purposes   30     406,024       405,889       385,782   Recovery of loans previously charged off   30     (82,713 )     (88,481 )     (83,527 ) Provision for loan losses – net         323,311       317,408       302,255                   Changes not related to cash flows         Reconciliation of liabilities that arise from financing activities   31.12.2018 MCh$     Cash flow MCh$     Acquisition       Foreign currency exchange     UF Inflation effect     Fair value changes     31.12.2019  MCh$                                               Subordinated bonds     795,957       -       -       -       22,127                    -       818,084   Paid dividend     -       (355.141 )                -                -       -       -       (355.141 ) Other liabilities     -       (30,145 )     -       -       -       -       (30,145 ) Total liabilities related to financing activities     795.957       (385.286 )     -       -       22,127       -       432,798   The accompanying notes form integral part of these consolidated financial statements.       F-11 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017   NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   CORPORATE INFORMATION   Banco Santander Chile (formerly Banco Santiago)Santander-Chile is a banking corporation (limited company) operating under the laws of the Republic of Chile, headquartered at Bandera N°140, Santiago. The corporation provides a broad range of general banking services to its customers, ranging from individuals to major corporations. Banco Santander ChileSantander-Chile and its subsidiaries (collectively referred to herein as the “Bank” or “Banco Santander Chile”Santander-Chile”) offers commercial and consumer banking services, including (but not limited to) factoring, collection, leasing, securities and insurance brokering, mutual and investment fund management brokering, and investment banking. Banco Santander Spain controls Banco Santander-Chile through its holdings in Teatinos Siglo XXI Inversiones Ltda. and Santander-ChileSantander Chile Holding S.A., which are controlled subsidiaries of Banco Santander Spain. As of December 31, 20162019 Banco Santander Spain owns or controls directly and indirectly 99.5% of Santander-ChileSantander Chile Holding S.A. and 100% of Teatinos Siglo XXI Inversiones Ltda. This gives Banco Santander Spain,through its subsidiaries, has control over 67.18% of the Bank’s shares.   a)      Basis of preparation a) Basis of preparation   These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) (hereinafter referred to as IFRS).   For purposes of these financial statements we use certain terms and conventions. References to “US$”, “U.S. dollars” and “dollars” are to United States dollars, references to “EUR” are to European Economic Community Euro, references to “CNY” are to Chinese Yuan, reference to “JPY” are to Japanese Yuan, references to “CHF” are to Swiss franc, references to “Chilean pesos”, “pesos” or “Ch$” are to Chilean pesos, and references to “UF” are to Unidades de Fomento. The UF is an inflation-indexed Chilean monetary unit with a value in Chilean pesos that changes daily to reflect changes in the official Consumer Price Index (“CPI”) of the Instituto Nacional de Estadísticas (the Chilean National Institute of Statistics) for the previous month.   The UF is revalued in monthly cycles. Each day in the period beginning on the tenth day of the current month through the ninth day of the succeeding month, the nominal peso value of the UF is indexed up (or down in the event of deflation) in order to reflect a proportionate amount of the change in the Chilean Consumer Price Index during the prior calendar month. One UF is equaled to Ch$26,347.9828,309.94 as of December 31, 20162019 and Ch$25,629.0927,565.79 as of December 31, 2015.2018. In 2016,2019, UF inflation was 2.7% compared to 4.4%2.9% in 2015.2018. The effect of any changes in the nominal peso value of our UF-denominated interest earning assets and interest bearing liabilities is reflected in our results of operations as an increase (or decrease, in the event of deflation) in interest income and expense, respectively.   The Notes to the Consolidated Financial Statements contain additional information to support the figures submitted in the Consolidated StatementStatements of Financial Position, Consolidated StatementStatements of Income, Consolidated StatementStatements of Comprehensive Income, Consolidated StatementStatements of Changes in Equity and Consolidated StatementStatements of Cash Flows for the period.   b)      Basis of preparation for the Consolidated Financial Statements b) Basis of preparation for the Consolidated Financial Statements   The Consolidated Financial Statements as of December 31, 2015 and 2014 and for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, incorporate the financial statements of the entities over which the Bank has control (including structured entities); and includes the adjustments, reclassifications and eliminations needed to comply with the accounting and valuation criteria established by IFRS. Control is achieved when the Bank:   I. has power over the investee; II. is exposed, or has rights, to variable returns from its involvement with the investee; and III. has the ability to use its power to affect its returns. F-12 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. F-12  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued When the Bank has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities over the investee unilaterally. The Bank considers all relevant facts and circumstances in assessing whether or not the Bank’s voting rights in an investee are sufficient to give it power, including:   ·● the size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; ·● potential voting rights held by the Bank, other vote holders or other parties; ·● rights arising from other agreements; and ·● any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.   Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control over the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated StatementStatements of Income and in the Consolidated Statement of Comprehensive Income from the date the Bank gains control until the date when the Bank ceases to control the subsidiary.   Profit or loss and each component of other comprehensive income are attributed to the owners of the Bank and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit in certain circumstances.   When necessary, adjustments are made to the financial statements of the subsidiaries to ensure their accounting policies are consistent with the Bank’s accounting policies. All intragroup assets, liabilities, equity, income, expenses and cash flows relating to transactions between consolidated entities are eliminated in full on consolidation.   Changes in the consolidated entities ownership interests in subsidiaries that do not result in a loss of control over the subsidiaries are accounted for as equity transactions. The carrying values of the Bank’s equity and the non-controlling interests’ equity are adjusted to reflect the changes to their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognizedrecognised directly in equity and attributed to owners of the Bank.   In addition, third parties’ shares in the Bank’s consolidated equity are presented as “Non-controlling interests” in the Consolidated StatementStatements of Changes in Equity. Their share in the income for the year is presented as “Attributable to non-controlling interest” in the Consolidated StatementStatements of Income. F-13 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   The following companies are considered entities controlled by the Bank and are therefore within the scope of consolidation:   i. Entities controlled by the Bank through participation in equity Name of the Subsidiary     Percent ownership share     As of December 31,   Place of Incorporation and operation 2016   2015   2014   Direct Indirect Total   Direct Indirect Total   Direct Indirect Total Main Activity % % % % % %   % % %                             Santander Corredora de Seguros Limitada Insurance brokerage Santiago, Chile 99.75 0.01 99.76   99.75 0.01 99.76   99.75 0.01 99.76 Santander Corredores de Bolsa Limitada(*) Financial instruments brokerage Santiago, Chile 50.59 0.41 51.00   50.59 0.41 51.00   50.59 0.41 51.00 Santander Agente de Valores Limitada Securities brokerage Santiago, Chile 99.03 - 99.03   99.03 - 99.03   99.03 - 99.03 Santander S.A. Sociedad Securitizadora Purchase of credits and issuance of debt instruments Santiago, Chile 99.64 - 99.64   99.64 - 99.64   99.64 - 99.64 Santander Servicios de Recaudación y Pagos Limitada (**) Support society, making and receiving payment Santiago, Chile - - -   - - -   99.90 0.1 100.00 (*) On June 19, 2015, Santander Corredores de Bolsa Limitada, our stock broker company has changed its corporate structure to limited liability company. This situation was informed to SVS through an “essential fact” in accordance with the Law 18.045 articles 9° and 10°, and General Regulation (NCG) N°16 and N°30. (**) From May 1, 2014, this entity was absorbed by the Bank, previous authorization obtained from the SBIF on March 26, 2014.             Percent ownership share           Place of   As of December 31,           Incorporation   2019     2018     2017   Name of the   Main   and   Direct     Indirect     Total     Direct     Indirect     Total     Direct     Indirect     Total   Subsidiary   Activity   operation   %     %     %     %     %     %     %     %     %   Santander Corredora de Seguros Limitada   Insurance brokerage   Santiago, Chile     99.75       0.01       99.76       99.75       0.01       99.76       99.75       0.01       99.76   Santander Corredores de Bolsa Limitada   Financial instruments brokerage   Santiago, Chile     50.59       0.41       51.00       50.59       0.41       51.00       50.59       0.41       51.00   Santander Asesorias Financieras Limitada (1)   Securities brokerage   Santiago, Chile     99.03       -       99.03       99.03       -       99.03       99.03       -       99.03   Santander S.A. Sociedad Securitizadora   Purchase of credits and issuance of debt instruments   Santiago, Chile     99.64       -       99.64       99.64       -       99.64       99.64       -       99.64   Klare Corredora de Seguros S.A. (2)   Insurance brokerage   Santiago, Chile     50.10       -       50.10       -       -       -       -       -       -   Santander Consumer Chile S.A. (3)   Financing   Santiago, Chile     51.00       -       51.00       -       -       -       -       -       -     The detail of non-controlling participation on all the remaining subsidiaries can be seen in Note 24–25– Non-controlling interest.   F-13  Table of Contents (1) On December 18, 2019, Santander Agente de Valores Limitada changes its business name and the company’s object, to Santander Asesorías Financieras Limitada, and offering financial advice. (2) On October 19, 2019 Klare Corredora de Seguros S.A. was created as a digital insurance brokerage, and supporting banking business company and thus subject to banking regulations. The Banks owns the 50,10% of the company's capital share. (3) On November 15, 2019, Financial Market Commission (FMC) authorized Banco Santander to acquire the 51% of the Santander Consumer Chile S.A. capital share from SK Berge (49%) and Banco Santander S.A. (2%). The sale was completed on November 27, 2019.   NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued ii.Entities controlled by the Bank through other considerations ii. Entities controlled by the Bank through other considerations   The following companies have been consolidated based on the determination that the Bank has control as previously defined above and in accordance with IFRS 10,Consolidated Financial Statements:   - Santander Gestión de Recaudación y Cobranza Limitada (collection services) - Bansa Santander S.A. (management(financing revolving inventory lines to automotive dealers) (1) - Multiplica SpA (Development card incentive programs) (2) (1) Since December 2019, Bansa Santander S.A.(“Bansa”) modified it activity from management of repossessed assets and leasing of properties)properties to financing revolving inventory lines to automotive dealers. Accordingly, Consumer has started to guide relevant activities of Bansa, and therefore it has begun to consolidate. (2) On October 4, 2019 Multiplica Spa was created as a supporting banking business company. In accordance with IFRS 10 Consolidated Financial Statement, the Bank controls the entity, since the relevant activities are addressed by the Bank, and the Bank is exposed, or has rights, to variable returns from its involvement with the investee.    During 2015 Multinegocios S.A. (management of sales force), Servicios Administrativos y Financieros Limitada (management of sales force) and Multiservicios de Negocios Limitada (call center) have ceased rendering sales services to the Bank and the Bank no longer controls their relevant activities. Therefore as of June 30, 2015 these entities have been excluded from the consolidation perimeter.   As of August 1, 2014, Servicios de Cobranza Fiscalex Limitada was absorbed by Santander Gestión de Recaudación y Cobranza Limitada.   iii. AssociatesF-14 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued iii. Associates   An associate is an entity over which the Bank has significant influence. Significant influence, in this case, is defined as the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate.   The following companies are considered “Associates” in which the Bank accounts for its participation using the equity method:               Percentage of ownership share           Place of   As of December 31,           Incorporation and   2019     2018     2017   Associates   Main activity   operation   %     %     %   Redbanc S.A. (*)   ATM services   Santiago, Chile     -       33.43       33.43   Transbank S.A. (*)   Debit and credit card services   Santiago, Chile     -       25.00       25.00   Centro de Compensación Automatizado   Electronic fund transfer and compensation services   Santiago, Chile     33.33       33.33       33.33   Sociedad Interbancaria de Depósito de Valores S.A.   Delivery of securities on public offer   Santiago, Chile     29.29       29.29       29.29   Cámara Compensación de Alto Valor S.A.   Payments clearing   Santiago, Chile     15.00       15.00       15.00   Administrador Financiero del Transantiago S.A.   Administration of boarding passes to public transportation   Santiago, Chile     20.00       20.00       20.00   Sociedad Nexus S.A. (*)   Credit card processor   Santiago, Chile     -       12.90       12.90   Servicios de Infraestructura de Mercado OTC S.A.   Administration of the infrastructure for the financial market of derivative instruments   Santiago, Chile     12.48       12.48       12.48           Percentage of  ownership share         As of December 31,       Place of Incorporation and operation 2016   2015   2014   Associates Main activity %   %   %   Redbanc S.A. ATM services Santiago, Chile 33.43   33.43   33.43   Transbank S.A. Debit and credit card services Santiago, Chile 25.00   25.00   25.00   Centro de Compensación Automatizado Electronic fund transfer and compensation services Santiago, Chile 33.33   33.33   33.33   Sociedad Interbancaria de Depósito de Valores S.A. Delivery of securities on public offer Santiago, Chile 29.29   29.29   29.28   Cámara Compensación de Alto Valor S.A. Payments clearing Santiago, Chile 14.93   14.23   14.14   Administrador Financiero del Transantiago S.A. Administration of boarding passes to public transportation Santiago, Chile 20.00   20.00   20.00   Sociedad Nexus S.A. Credit card processor Santiago, Chile 12.90   12.90   12.90   Servicios de Infraestructura de Mercado OTC S.A. Administration of the infrastructure for the financial market of derivative instruments Santiago, Chile 12.07   11.11   11.11                       (*) The Bank is in process to sell its share participation on Redbanc S.A., Transbank S.A. and Nexus S.A., therefore it has applied IFRS 5 Non-current Assets Held for Sale and Discontinued Operations over its participations share. As of December 31, 2019, the Bank has sold 85% of its share participation in Nexus S.A. See Note N°39.   In the case of Sociedad Nexus S.A. and Cámara Compensación de Pagos Alto Valor S.A., Banco Santander ChileSantander-Chile has a representative on the Board of Directors. As per the definition of associates, the Bank has concluded that it exerts significant influence over those entities.   DuringIn the last quartercase of 2016, Banco Penta ceded to Banco Santander Chile a portion of its share in the companies "Sociedad Operadora de la Cámara de Compensación de pagos de Alto Valor S.A." and "ServiciosServicios de Infraestructura de Mercado OTC S.A.", wherewithS.A.The Bank participates, through its executives, actively in the Bank's shareadministration and in the process of organization, which is why the Administration has increased to 14.93% and 12.07% respectively.concluded that it exerts significant influence on it.   As of the ended of the third quarter of 2016, Deutsche Bank ceded to Banco Santander Chile a portion of its share in the companies "Sociedad Operadora de la Cámara de Compensación de pagos de Alto Valor S.A." and "Servicios de Infraestructura de Mercado OTC S.A.", wherewith the Bank's share has increased to 14.84% and 11.93% respectively. F-14  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued At the Extraordinary Shareholders meeting held in April 21, 2016, Transbank S.A. agreed to increase its capital by capitalizing the accumulated profits, through the issuance of shares redeemed for payment, and the placement of shares of payment for $4,000 million approximately. Banco Santander Chile participated proportionally to its participation (25%), reason why it subscribed and paid shares for approximately $1,000 million. Previously, Transbank agreed a capital increase at an Extraordinary Shareholders' Meeting held in April 2015, Banco Santander subscribed that agreement, maintaining its ownership. In October 2015, HSBC Bank Chile sold its ownership share in Camara de Compensación de Pagos de Alto Valor S.A. to Banco Santander Chile, increasing our participation to 14.23%. c)   Non-controlling interest c) Non-controlling interest   Non-controlling interest represents the portion of net income and net assets which the Bank does not own, either directly or indirectly. It is presented as “Attributable to non-controlling interest” separately in the Consolidated StatementStatements of Income, and separately from shareholders’ equity in the Consolidated StatementStatements of Financial Position.   In the case of entities controlled by the Bank through other considerations, income and equity are presented in full as non-controlling interest, since the Bank controls them, but does not have any ownership expressed as a percentage.   d)   Reporting segments d) Reporting segments   Operating segments with similar economic characteristics often exhibit similar long-term financial performance. are components of an entity: i. that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses from transactions with other components of the same entity); ii. whose operating results are regularly reviewed by the entity’s chief executive officer, who makes decisions about resources allocated to the segment and assess its performance; and iii. for which discrete financial information is available. F-15 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Two or more segments can be combined only if aggregation is consistent with International Financial Reporting Standard 8 “Operating Segments” (IFRS 8) and the segments have similar economic characteristics and are similar in each of the following respects:   i. the nature of the products and services; ii. the nature of the production processes; iii. the type or class of customers that use their products and services; iv. the methods used to distribute their products or services; and v. if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.   The Bank reports separately on each operating segment that exceeds any of the following quantitative thresholds:   i. its reported revenue, from both external customers and intersegment sales or transfers, is 10% or more of the combined internal and external revenue of all the operating segments. ii. the absolute amount of its reported profit or loss is 10% or more of the greater in absolute amount of: (i) the combined reported profit of all the operating segments that did not report a loss; (ii) the combined reported loss of all the operating segments that reported a loss. iii. its assets represent 10% or more of the combined assets of all the operating segments.   Operating segments that do not meet any of the quantitative threshold may be treated as segments to be reported, in which case the information must be disclosed separately if management believes it could be useful for the users of the Consolidated Financial Statements.   Information about other business activities of the operating segments not separately reported is combined and disclosed in the “Other segments” category.   F-15  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued According to the information presented, the Bank’s segments were determined under the following definitions: An operating segment is a component of an entity: i.e) that engages in business activities from which it may earn revenuesFunctional and incur expenses (including revenues and expenses from transactions with other components of the same entity);presentation currency ii. whose operating results are regularly reviewed by the entity’s chief executive officer, who makes decisions about resources allocated to the segment and assess its performance; and iii. for which discrete financial information is available. e)      Functional and presentation currency   According to International Accounting Standard (IAS) 21 “The Effects of Changes in Foreign Exchange Rates”, the Chilean peso, which is the currency of the primary economic environment in which the Bank operates and the currency which influences its costs and revenue structure, has been defined as the Bank’s functional and presentation currency.   Accordingly, all balances and transactions denominated in currencies other than the Chilean Peso are treated as “foreign currency”.   The Bank maintains its accounting records and prepares its financial statements in Chilean pesos. The US dollar amounts disclosed in the accompanying financial statements are presented solely for the convenience of the reader as of December 31, 2016 using the observed exchange rate of Ch$666.00 per US$1.00. Such translations should not be construed as representations that the (local currency) amounts represent, or have been or could be converted into, United States dollars at that or any other rate.   f)       Foreign currency transactions f) Foreign currency transactions   The Bank makes transactions in amounts denominated in foreign currencies, mainly the U.S. dollar. Assets and liabilities denominated in foreign currencies, held by the Bank are translated to Chilean pesos based on the market rate published by Reuters at 1:30 p.m. representative of the month end reported; the rate used was Ch$666.00747.37 per US$1 as of December 31, 20162019 (Ch$707.80697.76 per US$1 as of December, 2015)2018). F-16 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   The amounts of net foreign exchange gains and losses includes recognition of the effects that exchange rate variations have on assets and liabilities denominated in foreign currencies and the profits and losses on foreign exchange spot and forward transactions undertaken by the Bank.   g) Classification and measurement of financial instrument – under IFRS 9 g)      Definitions Financial instruments must be classified and measured in accordance with IFRS 9 starting from January 1, 2019, which established guidance for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows. I. Classification of financial instrument i) Classification of financial assets Financial assets are classified into a measurement category based on both the Bank’s business model for managing the financial asset and the contractual cash flow characteristics of the financial asset. Contractual cash flow assessment determine if the cash flows from the financial asset meet the SPPI (solely payment of principal and interest) criterion, i.e., whether the contractual terms of the financial asset give rise, on specific dates, to cash flows that are solely payments of principal and interest. Principal is the fair value of the financial assets at initial recognition, and interest is the consideration for the time value of money, the credit risk associated with the principal outstanding, and also may include liquidity risk, administrative cost and profit margin. For classification process the Bank perform the SPPI test, which assesses the contractual term to identify whether they meet SPI criterion, ie, the contract is a basic lending arrangement. The Bank applies judgement and considers relevant factors such as currency in which the financial asset is denominated, and period for which the interest rate is set. Business model refers to how the Bank manages its financial assets in order to generate cash flows. The Bank determined its business model on initial application of IFRS 9 at the level that best reflects how it manages groups of financial assets to achieve its business objective. The Banks’s business model is not assessed on an instrument-by- instrument basis, but at a higher level of aggregated portfolio and is based on observable factors such as: performance of the financial assets, the risk that affect the performance, and the expected frequency, value and timing of sales. In accordance with IFRS 9 the business models are: ● Held to collect business model (HTC) - financial assets that are held within a business model whose objective is to hold assets in order to collect contractual cash flows are managed to realise cash flows by collecting contractual payments over the life of the instrument, under this business model sales made when there is an increase in the credit risk, or to manage credit concentration risk are not inconsistent with a business model whose objective is to hold financial assets to collect contractual cash flows. ● Held to collect and sell (HTC&S) - financial assets under this business model achieve the objective by both collecting contractual cash flows and selling financial assets, then involve a greater frequency and value of sales than HTC business model. ● Other business model - financial assets held in this business has the objective of realising cash flows through the sale of the assets. The Bank makes decisions based on the assets’ fair values and manages the assets to realise those fair values. F-17 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued ii) Classification of financial liabilities The Bank classified all financial liabilities as subsequently measured at amortised cost, except for derivatives that are liabilities, which are measured at fair value through profit or loss. ii) Reclassification Reclassification of financial assets is required if, and only if, the objective of the Bank’s business model for managing those financial assets changes. Financial liabilities cannot be reclassified. II. Measurement of financial instruments   i) Initial measurement On initial recognition, financial assets and financial liabilities are measured at the transaction price, i.e. the fair value of the consideration given or received (IFRS 13). In the case of financial instruments not at fair value through profit or loss, transaction costs are directly attributable to the acquisition or issue of the financial asset or financial liability. ii) Subsequent measurement- financial assets After initial recognition, the Bank shall measure a financial asset at: (a) Amortised cost Financial assets that are held in a business model to collect the contractual cash flows and contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at amortised cost. The effective interest method is used in the calculation of the amortised cost of a financial asset or a financial liability and in the allocation and recognition of the interest revenue or interest expense in profit or loss over the relevant period. The effective interest rate (EIR) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability. (b) Fair value through other comprehensive income (FVOCI) Financial assets that are debt instruments held in a business model that is achieved by both collecting contractual cash flows and selling, and that contain contractual terms that give rise on specific dates to cash flows that are SPPI, are measured at FVOCI. They are subsequently remeasured at fair value and changes therein (except for those relating to impairment, interest income and foreign currency exchange gains and losses) are recognised in other comprehensive income, until the assets are sold. Upon disposal, the cumulative gain and losses in OCI are recognised in the income statements. (c) Fair value through profit or loss (FVTPL) Financial assets that do not contain contractual terms that give rise on specified dates to cash flows that are SPPI, or if the financial assets, or if the financial asset is not held in a business model that is either (i) a business model to collect the contractual cash flows or (ii) a business model that is achieved by both collecting contractual cash flows and selling. Financial assets held for trading are recognised at fair value through profit or loss, likewise derivatives contracts for trading purposes. (d) Equity instruments For certain equity instruments, the Bank may make an irrevocable election to present subsequent changes in the fair value of the instrument in other comprehensive income, except for dividend income which is recognised in profit or loss. Gains or losses on derecognition of these equity instruments are not transferred to profit or loss. F-18 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued iii) Subsequent measurement- financial liabilities After initial recognition, the Bank shall measure a financial liability at amortised cost. III. Derecognition of financial assets and liabilities Financial assets are derecognised when, and only when: i.● the contractual rights to the cash flows from the financial asset expire, or ● the Bank transfers substantially all the risks and rewards of ownership of the financial asset, and therefore the Bank derecognises the financial asset and recognise separately any rights and obligations created or retained in the transfer. In some cases, the Bank enters into transactions for which it retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows in an arrangement that meets all the conditions required, i.e. the Bank only transfers collected amounts from original assets, selling or pledging original assets is prohibited, and the Bank has the obligation to remit cash flows collected without material delay. When a financial asset is sold and the Bank simultaneously agrees to repurchase it (or an asset that is substantially the same) at a fixed price on a future date, the Bank continues to recognise the financial assets in their entirety in the statements of financial position because it retains substantially all of the risks and rewards of ownership. The cash consideration received is recognised as a financial asset and a financial liability is recognised for the obligation to pay the repurchase price. Financial liabilities are derecognised when, and only when,  they are extinguished, cancelled or expired. IV. Contingent loan The Bank issues contingent liabilities (including letters of credit, foreign letters of credit and performance guarantee) and loan commitments. Contingent liabilities and undrawn loan commitments are commitments under which, over the duration of the commitment, the Bank is required to provide a loan with pre-specified term to the customer. The nominal contractual loan value, when the loan agreed to be provided is on market terms, is not recorded in the statements of financial position. The related ECL allowances are disclosed in Note 22. V. Offsetting of financial instruments Financial asset and liability balances are offset, i.e., reported in the Consolidated Statements of Financial Position at their net amount, only if there is a legally enforceable right to offset the recorded amounts and the Bank intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously. As of December 31, 2019 and 2018 the Bank does not have balance offsetting of financial instruments. h) Definitions and classification of financial instruments – under IAS 39 i. Definitions   A “financial instrument” is any contract that gives rise to a financial asset of one entity, and a financial liability or equity instrument of another entity.   An “equity instrument” is a legal transaction that evidences a residual interest in the assets of an entity deducting all of its liabilities.   F-19 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued A “financial derivative” is a financial instrument whose value changes in response to the changes in an underlying observable market variable (such as an interest rate, a foreign exchange rate, a financial instrument’s price, or a market index, including credit ratings), whose initial investment is very small compared with other financial instruments having a similar response to changes in market factors, and which is generally settled at a future date.   “Hybrid financial instruments” are contracts that simultaneously include a non-derivative host contract together with a financial derivative, known as an embedded derivative, which is not separately transferable and has the effect that some of the cash flows of the hybrid contract vary in a way similar to a stand-alone derivative.   ii. Classification of financial assets for measurement purposes   Financial assets are classified into the following specified categories: financial assets trading investments at fair value through profit or loss (FVTPL), ‘held to maturity investments’, ‘available for sale investments (AFS)’ financial assets and ‘loans and accounts receivable from customers'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial asset are recognizedrecognised and derecognizedderecognised on a trade basis. F-16  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   Regular way purchases or sales of financial assets require delivery of the asset within the time frame established by regulation or convention in the marketplace. Financial assets are initially recognized at fair value plus, in the case of financial assets not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue.   Effective interest method   The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.   Income is recognised on an effective interest basis for loans and accounts receivables other than those financial assets classified as at fair value through profit or loss.   Financial assets FVTPL - Trading investments– trading investment   Financial assets are classified as FVTPL when the financial asset is either held for trading or it isthey are designated as at fair value through profit or loss.   A financial asset is classified as held for trading if:   · it has been acquired principally for the purpose of selling it in the near term; or · on initial recognition it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent actual pattern of short-term profit-taking; or · it is a derivative that is not designated and effective as a hedging instrument. A financial asset other than a financial asset held for trading may be designated as FVTPL upon initial recognition if:   · such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or · the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Bank's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or · it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as FVTPL. F-20 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘net income (expense) from financial operations' line item.   Held to maturity investments   Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Bank has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method less any impairment.   Available for sale investments (AFS investments)   AFS investments are non-derivatives that are either designated as AFS or are not classified as (a) loans and accounts receivable from customers, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss (trading investments). F-17  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   Financial instruments held by the Bank that are traded in an active market are classified as AFS and are stated at fair value at the end of each reporting period. The Bank also has investments in financial instruments that are not traded in an active market but that are also classified as AFS investments and stated at fair value at the end of each reporting period (because the Bank considers that fair value can be reliably measured). Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency rates, interest income calculated using the effective interest method and dividends on AFS equity investments are recognised in profit or loss. Other changes in the carrying amount of available for sale investments are recognised in other comprehensive income and accumulated under the heading of “Valuation Adjustment”. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.   Dividends on AFS equity instruments are recognised in profit or loss when the Bank's right to receive the dividends is established.   The fair value of AFS monetary financial assets denominated in a foreign currency is determined in that foreign currency and translated as the described in f) above. The foreign exchange gains and losses that are recognised in profit or loss are determined based on the amortised cost of the monetary asset.   Loans and accounts receivable from customers   Loans and accounts receivable from customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and accounts receivables from customers (including loans and accounts receivable from customers and interbank loans) are measured at amortised cost using the effective interest method, less any impairment.   Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.   iii. Classification of financial assets for presentation purposes   For presentation purposes, the financial assets are classified by their nature into the following line items in the Consolidated Financial Statements:   - Cash and deposits in banks: this line includes cash balances, checking accounts and on-demand deposits with the Central Bank of Chile and other domestic and foreign financial institutions. Amounts invested as overnight deposits are included in this item.   F-21 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued - Cash items in process of collection: this item represents domestic transactions in the process of transfer through a central domestic clearinghouse or international transactions which may be delayed in settlement due to timing differences, etc.differences.   - Trading investments: this item includes financial instruments held-for-tradingheld for trading and investments in mutual funds which must be adjusted to their fair value in the same way as instruments acquired for trading.   - Investments under resale agreements: includes balances of financial instruments purchased under resale agreement.   - Financial derivative contracts: financial derivative contracts with positive fair values are presented in this item. It includes both independent contracts as well as derivatives that should and can be separated from a host contract, whether they are for trading or accounted for as derivatives held for hedging, as shown in Note 7 to the Consolidated Financial Statements. · Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments. · Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments. - Interbank loans:loans : this item includes the balances of transactions with domestic and foreign banks, including the Central Bank of Chile, other than those reflected in certain other financial asset classifications listed above. F-18  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   - Loans and accounts receivables from customers: these loans are non-derivative financial assets for which fixed or determined amounts are charged, that are not listed on an active market and which the Bank does not intend to sell immediately or in the short term. When the Bank is the lessor in a lease, and it substantially transfers the risks and rewards incidental to the leased asset, the transaction is presented in loans and accounts receivable from customers while the leased asset is derecognizedderecognised in the Bank´s statementstatements of financial position.   - Investment instruments: are classified into two categories: held-to-maturity investments, and available-for-sale investments. The held-to-maturity investment classification includes only those instruments for which the Bank has the ability and intent to hold to maturity. The remaining investments are treated as available for sale.   iv. Classification of financial liabilities for measurement purposes   Financial liabilities are classified as eitherThe Bank classifies all financial liabilities FVTPL or other financial liabilities.as subsequently measured at amortised cost, except for:   Financial liabilities at FVTPL   FinancialAs of December 31, 2018 and 2017 the Bank does not maintain financial liabilities are classified as FVTPL when the financial liability is either held for trading or it is designated asat FVTPL. A financial liability is classified as held for trading if: · it has been incurred principally for the purpose of repurchasing it in the near term; or · on initial recognition it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent actual pattern of short-term profit-taking; or · it is a derivative that is not designated and effective as a hedging instrument. A financial liability other than a financial liability held for trading may be designated as FVTPL upon initial recognition if: · such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or · the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Bank's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or · it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as FVTPL. Financial liabilities FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ‘net income (expense) from financial operations' line item.   Other financial liabilities   Other financial liabilities (including interbank borrowings, and tradeissued debt instruments and other payables) are initially recorded at fair value and subsequently measured at amortised cost using the effective interest method.   The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. v. Classification of financial liabilities for presentation purposes   The financial liabilities are classified by their nature into the following line items in the consolidated statements of financial position:   - Deposits and other on- demand liabilities: this includes all on-demand obligations except for term savings accounts, which are not considered on-demand instruments in view of their special characteristics. Obligations whose payment may be required during the period are deemed to be on-demand obligations. Operations which become callable the day after the closing date are not treated as on-demand obligations.   F-19  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued - Cash items in process of being cleared: this represents domestic transactions in the process of transfer through a central domestic clearing house or international transactions which may be delayed in settlement due to timing differences, etc.   - Obligations under repurchase agreements: this includes the balances of sales of financial instruments under securities repurchase and loan agreements. The Bank does not record asin its own portfolio instruments acquired under repurchase agreements. F-22 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   - Time deposits and other time liabilities: this shows the balances of deposit transactions in which a term at the end of which they become callable has been stipulated. - Financial derivative contracts: this includes financial derivative contracts with negative fair values (i.e. a liability of the Bank), whether they are for trading or for hedge accounting, as set forth in Note 7. · Trading derivatives: includes the fair value of derivatives which do not qualify for hedge accounting, including embedded derivatives separated from hybrid financial instruments. · Hedging derivatives: includes the fair value of derivatives designated as being in a hedging relationship, including the embedded derivatives separated from the hybrid financial instruments.   - Interbank borrowings: this includes obligations due to other domestic banks, foreign banks, or the Central Bank of Chile, other than those reflected in certain other financial liability classifications listed above.   - Issued debt instruments: there are three types of instruments issued by the Bank: Obligations under letters of credit, Subordinated bonds and Senior bonds placed in the local and foreign market.   - Other financial liabilities: this item includes credit obligations to persons other than domestic banks, foreign banks, or the Central Bank of Chile, for financing purposes or operations in the normal course of business.   vi. Offsetting of financial instruments h)      Valuation Financial asset and liability balances are offset, i.e., reported in the Consolidated Statements of Financial Position at their net amount, only if there is a legally enforceable right to offset the recorded amounts and the Bank intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously. As of December 31, 2018 and 2017 the Bank does not have balance offsetting of financial instruments. vii. Derecognition of financial assets and liabilities The accounting treatment of transfers of financial assets is determined by the extent and the manner in which the risks and rewards associated with the transferred assets are transferred to third parties: i. If the Bank transfers substantially all the risks and rewards of ownership to third parties, as in the case of unconditional sales of financial assets, sales under repurchase agreements at fair value at the date of repurchase, sales of financial assets with a purchased call option or written put option deeply out of the money, utilization of assets in which the transferor does not retain subordinated debt nor grants any credit enhancement to the new holders, and other similar cases, the transferred financial asset is derecognised from the Consolidated Statements of Financial Position and any rights or obligations retained or created in the transfer are simultaneously recorded. ii. If the Bank retains substantially all the risks and rewards of ownership associated with the transferred financial asset, as in the case of sales of financial assets under repurchase agreements at a fixed price or at the sale price plus interest, securities lending agreements under which the borrower undertakes to return the same or similar assets, and other similar cases, the transferred financial asset is not derecognised from the Consolidated Statements of Financial Position and continues to be measured by the same criteria as those used before the transfer. However, the following items are recorded: - An associated financial liability for an amount equal to the consideration received; this liability is subsequently measured at amortised cost. - Both the income from the transferred (but not removed) financial asset as well as any expenses incurred due to the new financial liability. F-23 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued iii. If the Bank neither transfers nor substantially retains all the risks and rewards of ownership associated with the transferred financial asset—as in the case of sales of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases—the following distinction is made: a. If the transferor does not retain control of the transferred financial asset: the asset is derecognised from the Consolidated Statements of Financial Position and any rights or obligations retained or created in the transfer are recognised. b. If the transferor retains control of the transferred financial asset: it continues to be recognised in the Consolidated Statements of Financial Position for an amount equal to its exposure to changes in value and a financial liability associated with the transferred financial asset is recorded. The net carrying amount of the transferred asset and the associated liability is the amortised cost of the rights and obligations retained, if the transferred asset is measured at amortised cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value. Accordingly, financial assets are only derecognised from the Consolidated Statements of Financial Position when the rights over the cash flows they generate have terminated or when all the inherent risks and rewards of ownership have been substantially transferred to third parties. Similarly, financial liabilities are only derecognised from the Consolidated Statements of Financial Position when the obligations specified in the contract are discharged or cancelled or the contract has matured. i) Derivatives and hedging activities The Bank has elected to continue applying the hedge accounting requirements of IAS 39 on adoption of IFRS 9. The Bank has not provided comparative information for prior periods on the date of initial application of IFRS 9 for the new disclosures introduces by IFRS 9 as a consequential amendment to IFRS 7, as permitted by IFRS 7 paragraph 44z. F-24 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued A “financial derivative” is a financial instrument whose value changes in response to the changes in an underlying observable market variable (such as an interest rate, a foreign exchange rate, a financial instrument’s price, or a market index, including credit ratings), whose initial investment is very small compared with other financial instruments having a similar response to changes in market factors, and which is generally settled at a future date. For presentation purposes, derivatives are presented in accordance with its positive or negative fair value as assets or liabilities, respectively, and include trading and hedging instruments separately (see Note 8). Hedging transactions The bank has elected to continue applying the hedge accounting requirements in IAS 39 instead of the requirements of IFRS 9, thus the Bank uses financial derivatives for the following purposes: i. to sell to customers who request these instruments in the management of their market and credit risks; ii. to use these derivatives in the management of the risks of the Bank entities’ own positions and assets and liabilities (“hedging derivatives”), and iii. to obtain profits from changes in the price of these derivatives (trading derivatives). All financial derivatives that are not held for hedging purposes are accounted for as trading derivatives. A derivative qualifies for hedge accounting if all the following conditions are met: 1. The derivative hedges one of the following three types of exposure: a. Changes in the value of assets and liabilities due to fluctuations, among others, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”); b. Changes in the estimated cash flows arising from financial assets and liabilities, and highly probable forecasted transactions (“cash flow hedge”); c. The net investment in a foreign operation (“hedge of a net investment in a foreign operation”). 2. It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that: a. At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”). b. There is sufficient evidence that the hedge was actually effective during the life of the hedged item or position (“retrospective effectiveness”). 3. There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks. F-25 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued The changes in the value of financial instruments and recognitionqualifying for hedge accounting are recorded as follows: a. For fair value hedges, the gains or losses arising on both hedging instruments and the hedged items (attributable to the type of risk being hedged) are included as “Net income (expense) from financial operations” in the Consolidated Statements of Income. b. For fair value hedges of interest rate risk on a portfolio of financial instruments, gains or losses that arise in measuring hedging instruments within “Interest income and expense”, and other gains or losses due to changes in fair value of the underlying hedged item (attributable to the hedged risk) are recorded in the Consolidated Statements of Income under “Net income (expense) from financial operations”. c. For cash flow hedges, the change in fair value of the hedging instrument is included as “Cash flow hedge” in “Other comprehensive income”. d. The differences in valuation of the hedging instrument corresponding to the ineffective portion of the cash flow hedging transactions are recorded directly in the Consolidated Statements of Income under “Net income (expense) from financial operations”. If a derivative designated as a hedging instrument no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, hedge accounting treatment is discontinued. When “fair value hedging” is discontinued, the fair value changesadjustments to the carrying amount of the hedged item arising from the hedged risk are amortised to gain or loss from that date, where applicable. When cash flow hedges are discontinued, any cumulative gain or loss of the hedging instrument recognised under “Other comprehensive income” (from the period when the hedge was effective) remains recorded in equity until the hedged transaction occurs, at which time it is recorded in the Consolidated Statements of Income, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recorded immediately in the Consolidated Statements of Income. j) Fair value measurement   In general, financial assets and liabilities are initially recognizedrecognised at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments, other than those measured at fair value through profit or loss, are initially recognizedrecognised at fair value plus transaction costs. Subsequently, and at the end of each reporting period, financial instruments are measured pursuant to the following criteria:   i. Valuation of financial instruments   Financial assets are measured according to their fair value, gross of any transaction costs that may be incurred in the course of a sale, except for credit investmentsloans and held to maturity investments.accounts receivable from customers.   According to IFRS 13“Fair Value Measurement (effective date from January 1, 2013), “fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. When measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. F-26 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   The fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either: (a) in the principal market for the asset or liability, or (b) in the absence of a principal market, the most advantageous market for the asset or liability. Even when there is no observable market to provide pricing information in connection with the sale of an asset or the transfer of a liability at the measurement date, the fair value measurement shall assume that the transaction takes place, considered from the perspective of a potential market participant who intends to maximize value associated with the asset or liability. F-20  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   When using valuation techniques, the Bank shall maximize the use of relevant observable inputs and minimize the use of unobservable inputs as available. If an asset or a liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fair value regardless of where the input is categorized within the fair value hierarchy (i.e. Level 1, 2 or 3). IFRS 13 establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).   All derivatives are recorded in the Consolidated Statements of Financial Position at the fair value previously described. This value is compared to the valuation as at the trade date. If the fair value is subsequently measured positive, this is recorded as an asset. If the fair value is subsequently measured negative, this is recorded as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price. The changes in the fair value of derivatives from the trade date are recorded in “Net income (expense) from financial operations” in the Consolidated StatementStatements of Income.   Specifically, the fair value of financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price. If, for exceptional reasons, the quoted price cannot be determined on a given date, the fair value is determined using similar methods to those used to measure over the counter (OTC) derivatives. The fair value of OTC derivatives is the sum of the future cash flows resulting from the instrument, discounted to present value at the date of valuation (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV) and option pricing models, among other methods. Also, within the fair value of derivatives are included Credit Valuation Adjustment (CVA) and Debit Valuation Adjustment (DVA), all with the objective that the fair value of each instrument includes the credit risk of its counterparty and Bank´s own risk. The Credit valuation adjustment (CVA) is a valuation adjustment to OTC derivatives as a result of the risk associated with the credit exposure assumed by each counterparty. The CVA is calculated taking into account potential exposure to each counterparty in each future period. The debit valuation adjustment (DVA) is a valuation adjustment similar to the CVA but, in this case, it arises as a result of the Bank’s own risk assumed by its counterparties in OTC derivatives. As of December 31, 2016, CVA and DVA amounts to MCh$17,004 and MCh$15,002, respectively. “Loans and accounts receivable from customers” and Held-to-maturity instrument portfolio are measured at amortized cost using the effective interest method. Amortized cost is the acquisition cost of a financial asset or liability, plus or minus, as appropriate, prepayments of principal and the cumulative amortization (recorded in the consolidated income statement) of the difference between the initial cost and the maturity amount as calculated under the effective interest method. For financial assets, amortized cost also includes any reductions for impairment or uncollectibility. For loans and accounts receivable designated as hedged items in fair value hedges, the changes in their fair value related to the risk or risks being hedged are recorded in “Net income (expense) from financial operations”. The “effective interest rate” is the discount rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows over its remaining life. For fixed-rate financial instruments, the effective interest rate incorporates the contractual interest rate established on the acquisition date plus, where applicable, the fees and transaction costs that are a part of the financial return are included. For floating-rate financial instruments, the effective interest rate matches the current rate of return until the date of the next review of interest rates. Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives, whose underlying is an equity instrument that are settled by delivery of those instruments, are measured at acquisition cost adjusted for any related impairment loss. The amounts at which the financial assets are recorded represent the Bank’s maximum exposure to credit risk as at the reporting date. The Bank has also received collateral and other credit enhancements to mitigate its exposure to credit risk, which consist mainly of mortgage guarantees, equity instruments and personal securities, assets under leasing agreements, assets acquired under repurchase agreements, securities loans and derivatives.   ii. Valuation techniques   Financial instruments at fair value, determined on the basis of price quotations in active markets, include government debt securities, private sector debt securities, equity shares, short positions, and fixed-income securities issued.   In cases where price quotations cannot be observed in available markets, the Bank’s management determines a best estimate of the price that the market would set using its own internal models. In most cases, these models use data based on observable market parameters as significant inputs however for some valuations of financial instruments, significant inputs are unobservable in the market. To determine a value for those instruments, various techniques are employed to make these estimates, including the extrapolation of observable market data. F-21 F-27 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   The most reliable evidence of the fair value of a financial instrument on initial recognition usually is the transaction price, however due to lack of availability of market information, the value of the instrument may be derived from other market transactions performed with the same or similar instruments or may be measured by using a valuation technique in which the variables used include only observable market data, mainly interest rates.   The main techniques used as of December 31, 20162019 and 20152018 by the Bank’s internal models to determine the fair value of the financial instruments are as follows:   i. In the valuation of financial instruments permitting static hedging (mainly forwards and swaps), the present value method is used. Estimated future cash flows are discounted using the interest rate curves of the related currencies. The interest rate curves are generally observable market data.   ii. In the valuation of financial instruments requiring dynamic hedging (mainly structured options and other structured instruments), the Black-Scholes model is normally used. Where appropriate, observable market inputs are used to obtain factors such as the bid-offer spread, exchange rates, volatility, correlation indexes and market liquidity.   iii. In the valuation of certain financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors, the present value method (futures) and the Black-Scholes model (plain vanilla options) are used. The main inputs used in these models are observable market data, including the related interest rate curves, volatilities, correlations and exchange rates.   The fair value of the financial instruments calculated by the aforementioned internal models considers contractual terms and observable market data, which include interest rates, credit risk, exchange rates, quoted market price of shares, volatility and prepayments, among others. The Bank’s management considers that its valuation models are not significantly subjective, since these methodologies can be adjusted and evaluated, as appropriate, through the internal calculation of fair value and the subsequent comparison with the related actively traded price.   iii.k) Hedging transactions The Bank uses financial derivatives for the following purposes: i. to sell to customers who request these instruments in the management of their market and credit risks; ii. to use these derivatives in the management of the risks of the Bank entities’ own positions and assets and liabilities (“hedging derivatives”), and iii. to obtain profits from changes in the price of these derivatives (trading derivatives). All financial derivatives that are not held for hedging purposes are accounted for as trading derivatives. A derivative qualifies for hedge accounting if all the following conditions are met: 1. The derivative hedges one of the following three types of exposure: a. Changes in the value of assets and liabilities due to fluctuations, among others, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”); b. Changes in the estimated cash flows arising from financial assets and liabilities, and highly probable forecasted transactions (“cash flow hedge”); c.     The net investment in a foreign operation (“hedge of a net investment in a foreign operation”). F-22  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued 2. It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that: a. At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”). b. There is sufficient evidence that the hedge was actually effective during the life of the hedged item or position (“retrospective effectiveness”). 3. There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks. The changes in the value of financial instruments qualifying for hedge accounting are recorded as follows: a. For fair value hedges, the gains or losses arising on both hedging instruments and the hedged items (attributable to the type of risk being hedged) are included as “Net income (expense) from financial operations” in the Consolidated Statement of Income. b. For fair value hedges of interest rate risk on a portfolio of financial instruments, gains or losses that arise in measuring hedging instruments and other gains or losses due to changes in fair value of the underlying hedged item (attributable to the hedged risk) are recorded in the Consolidated Statement of Income under “Net income (expense ) from financial operations”. c. For cash flow hedges, the change in fair value of the hedging instrument is included as “Cash flow hedge” in “Other comprehensive income”, until the hedged transaction occurs, thereafter being reclassified to the Consolidated Statement of Income, unless the hedged transaction results in the recognition of non–financial assets or liabilities, in which case it is included in the cost of the non-financial asset or liability. d. The differences in valuation of the hedging instrument corresponding to the ineffective portion of the cash flow hedging transactions are recorded directly in the Consolidated Statement of Income under “Net income (expense) from financial operations”. If a derivative designated as a hedging instrument no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, hedge accounting treatment is discontinued. When “fair value hedging” is discontinued, the fair value adjustments to the carrying amount of the hedged item arising from the hedged risk are amortized to gain or loss from that date, where applicable. When cash flow hedges are discontinued, any cumulative gain or loss of the hedging instrument recognized under “Other comprehensive income” (from the period when the hedge was effective) remains recorded in equity until the hedged transaction occurs, at which time it is recorded in the Consolidated Statement of Income, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recorded immediately in the Consolidated Statement of Income. iv. Derivatives embedded in hybrid financial instruments Derivatives embedded in other financial instruments or in other hybrid contracts are accounted for separately as derivatives if 1) their risks and characteristics are not closely related to the host contracts, 2) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and 3) provided that the hybrid contracts are not classified as “Trading investments” or as other financial assets (liabilities) at fair value through profit or loss. v. Offsetting of financial instruments Financial asset and liability balances are offset, i.e., reported in the Consolidated Statements of Financial Position at their net amount, only if there is a legally enforceable right to offset the recorded amounts and the Bank intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously. F-23  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued vi. Derecognition of financial assets and liabilities The accounting treatment of transfers of financial assets is determined by the extent and the manner in which the risks and rewards associated with the transferred assets are transferred to third parties: i. If the Bank transfers substantially all the risks and rewards of ownership to third parties, as in the case of unconditional sales of financial assets, sales under repurchase agreements at fair value at the date of repurchase, sales of financial assets with a purchased call option or written put option deeply out of the money, utilization of assets in which the transferor does not retain subordinated debt nor grants any credit enhancement to the new holders, and other similar cases, the transferred financial asset is derecognized from the Consolidated Statement of Financial Position and any rights or obligations retained or created in the transfer are simultaneously recorded. ii. If the Bank retains substantially all the risks and rewards of ownership associated with the transferred financial asset, as in the case of sales of financial assets under repurchase agreements at a fixed price or at the sale price plus interest, securities lending agreements under which the borrower undertakes to return the same or similar assets, and other similar cases, the transferred financial asset is not derecognized from the Consolidated Statement of Financial Position and continues to be measured by the same criteria as those used before the transfer. However, the following items are recorded: - An associated financial liability for an amount equal to the consideration received; this liability is subsequently measured at amortized cost. - Both the income from the transferred (but not removed) financial asset as well as any expenses incurred due to the new financial liability. If the Bank neither transfers nor substantially retains all the risks and rewards of ownership associated with the transferred financial asset—as in the case of sales of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases—the following distinction is made: a. If the transferor does not retain control of the transferred financial asset: the asset is derecognized from the Consolidated Statement of Financial Position and any rights or obligations retained or created in the transfer are recognized. b. If the transferor retains control of the transferred financial asset: it continues to be recognized in the Consolidated Statement of Financial Position for an amount equal to its exposure to changes in value and a financial liability associated with the transferred financial asset is recorded. The net carrying amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value. Accordingly, financial assets are only derecognized from the Consolidated Statement of Financial Position when the rights over the cash flows they generate have terminated or when all the inherent risks and rewards of ownership have been substantially transferred to third parties. Similarly, financial liabilities are only derecognized from the Consolidated Statement of Financial Position when the obligations specified in the contract are discharged or cancelled or the contract has matured. i) RecognizingRecognising income and expenses   The most significant criteria used by the Bank to recognizerecognise its revenues and expenses are summarized as follows:   i. Interest revenue, interest expense, and similar items   Interest revenue and expense are recorded on an accrual basis usingincome is calculated by applying the effective interest method.rate to the gross carrying amount of financial assets, except for financial assets that have subsequently become credit-impaired (or ’stage 3’), for which interest revenue is calculated by applying the effective interest rate to their amortised cost (i.e. net of the ECL provision).   ii. Commissions, fees, and similar items   Fee and commission income and expenses are recognizedrecognised in the Consolidated StatementStatements of Income using criteria established in IFRS 15 “Revenue from contracts with customers”. See disclosure in Note 2 relating adoption and impact of IFRS 15. Under IFRS 15, the Bank recognises revenue when (or as) satisfied a performance obligations by transferring a service (i.e. an asset) to a customer; under this definition an asset is transferred when (or as) the customer obtains control of that varyasset. The Bank considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third-parties. F-28 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued The Bank transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, and/or the Bank satisfies the performance obligation at a point in time. The main revenues arising from commissions, fees and similar items correspond to: - Fees and commissions for lines of credits and overdrafts: includes accrued fees related to granting lines of credit and overdrafts in checking accounts. - Fees and commissions for guarantees and letters of credit: includes accrued fees in the period relating to granting of guarantee payment for current and contingent third party obligations. - Fees and commissions for card services: includes accrued and earned commissions in the period related to use of credit cards, debit cards and other cards - Fees and commissions for management of accounts: includes accrued commissions for the maintenance of checking, savings and other accounts - Fees and commissions for collections and payments: includes income arising from collections and payments services provided by the Bank. - Fees and commissions for intermediation and management of securities: includes income from brokerage, placements, administration and securities’ custody services. - Fees and commissions for insurance brokerage fees: includes income arising for insurances distribution. - Other fees and commissions: includes income arising from currency changes,financial advisory, cashier check issuance, placement of financial products and online banking services. The main expenses arising from commissions, fees and similar items correspond to: - Compensation for card operation: includes commission expenses for credit and debit card operations related to income commissions card services. - Fees and commissions for securities transactions: includes commissions expense for deposits, securities custody service and securities’ brokerage. - Other fees and commissions: includes mainly expenses generated from online services. The Bank has incorporated disaggregated revenue and expense disclosures and reportable segment relationship in Note 28. Additionally, the Bank maintains certain loyalty programs associated to its credit cards services, for which it has deferred a percentage of the consideration received in the statements of financial position to comply with its related performance obligation or has liquidated on a monthly basis as far they arise. Revenue recognition accounting and disclosures for the year 2017, is under IAS 18 “Revenue recognition”, fees and commission income and expense were recognised in according to their nature. The main criteria are:were:   - Fee and commission income and expenses on financial assets and liabilities are recognizedrecognised when they are earned. - Those arising from transactions or services that are performed over a period of time are recognizedrecognised over the life of these transactions or services. - Those relating to services provided in a single transaction are recognizedrecognised when the single transaction is performed. F-24  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   iii. Loan arrangement fees   Fees that arise as a result of the origination of a loan, mainly application and analysis-related fees, are deferred and charged to the Consolidated StatementStatements of Income over the term of the loan.   j)      Impairment F-29 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   i.k) Financial assets:Impairment of non-financial assets A financial asset, other than that at fair value through profit and loss, is evaluated on each financial statement filing date to determine whether objective evidence of impairment exists. A financial asset or group of financial assets will be impaired if, and only if, objective evidence of impairment exists as a result of one or more events that occurred after initial recognition of the asset (“event causing the loss”), and this event or events causing the loss have an impact on the estimated future cash flows of a financial asset or group of financial assets. An impairment loss relating to financial assets recorded at amortized cost is calculated as the difference between the recorded amount of the asset and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. Individually significant financial assets are individually tested to determine their impairment. The remaining financial assets are evaluated collectively in groups that share similar credit risk characteristics. All impairment losses are recorded in income. Any impairment loss relating to a financial asset available for sale previously recorded in equity is transferred to profit or loss. The reversal of an impairment loss occurs only if it can be objectively related to an event occurring after the initial impairment loss was recorded. The reversal of an impairment loss shall not exceed the carrying amount that would have been determined if no impairment loss has been recognized for the asset in prior years. The reversal is recorded in income with the exception of available for sale equity financial assets, in which case it is recorded in other comprehensive income. ii. Non-financial assets:   The Bank’s non-financial assets, are reviewed at the reporting date to determine whether they show signs of impairment (i.e. its carrying amount exceeds its recoverable amount). If any such evidence exists, the recoverable amount of the asset is estimated, in order to determine the extent of the impairment loss.   Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.   If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognizedrecognised immediately in profit or loss.   In connection with other assets, impairment losses recorded in prior periods are assessed at each reporting date to determine whether the loss has decreased and should be reversed. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognizedrecognised for the asset in prior years. Goodwill impairment is not reversed.   k)  Property, plant, and equipment l) Property, plant, and equipment   This category includes the amount of buildings, land, furniture, vehicles, computer hardware and other fixtures owned by the consolidated entities or acquired under finance leases. Assets are classified according to their use as follows:   F-25  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued i.       Property, plant and equipment for own use i. Property, plant and equipment for own use   Property, plant and equipment for own use includes but is not limited to tangible assets received by the consolidated entities in full or partial satisfaction of financial assets representing accounts receivable from third parties which are intended to be held for continuing own use and tangible assets acquired under finance leases. These assets are presented at acquisition cost less the related accumulated depreciation and, if applicable, any impairment losses (when net carrying amount was higher than recoverable amount).   Depreciation is calculated using the straight linestraight-line method over the acquisition cost of assets less their residual value, assuming that the land on which buildings and other structures stand has an indefinite life and, therefore, is not subject to depreciation.    F-30 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued The Bank applies the following useful lives for the tangible assets that comprise its assets:   ITEM   Useful life (Months)       Land   - Paintings and works of art   - Carpets and curtains   36 Computers and hardware   36 Vehicles   36 IT systems and software   36 ATMs   60 Other machines and equipment   60 Office furniture   60 Telephone and communication systems   60 Security systems     60 Rights over telephone lines   60 Air conditioning systems   84 Other installations   120 Buildings   1,200         The consolidated entities assess at each reporting date whether there is any indication that the carrying amount of any tangible asset exceeds its recoverable amount. If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in accordance with the revised carrying amount and to the new remaining useful life.   The estimated useful lives of the items of property, plant and equipment held for own use are reviewed at the end of each reporting period to detect significant changes. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recorded in the Consolidated StatementStatements of Income in future years on the basis of the new useful lives.   Maintenance expenses relating to tangible assets held for own use are recorded as an expense in the period in which they are incurred.   ii.      Assets leased out under operating leases ii. Assets leased out under operating leases   The criteria used to record the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives, and to record the impairment losses thereof, are consistent with those described in relation to property, plant and equipment held for own use.   l)      Leasing n) Leasing   i.      Finance leasesAs of January 1, 2019 the Bank has started to apply IFRS 16 “Leases”, using the modified retrospective method and therefore, no comparative information is required, and 2018 balances continue to be reported under IAS 17 “Leases”   Finance leases are leases that substantially transfer all the risks and rewards incidental to ownership of the leased asset to the lessee.   F-26 F-31 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   Policy applicable from January 1, 2019 At inception of a contract the Bank assesses whether a contract contains a lease. A contract contains a lease if the contracts conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Bank assesses whether: ● the contract involves the use of an identified asset – this may be specified explicitly or implicitly and should be physically distinct. If the supplier has a substantive substitution right, then the asset is not identified. ● the Bank has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use, and ● the Bank has the right to direct the use of the asset – this is decision-making purpose for which asset is use a. As a Lessee The Bank recognises a right-of-use asset and a lease liability at the lease commencement date in accordance within IFRS 16 “Leases”. The main contracts that the Bank has are offices and branches related, which are necessary to carry out its activities. At the beginning, the right-of-use asset is equal to the lease liability and is calculated as the present value of the lease payments discounted using the incremental interest rate at the commencement date, considering the lease term of each contract. The average incremental interest rate as of December 31, 2019 is 1.7%. After initial recognition, the right-of-use is subsequently depreciated using the straight-line method in accordance with the lease term of the contract, and the lease liability is amortised in accordance with the effective interest method. Financial interest is accounted as interest expense, and depreciation as depreciation expense in each period. The term of the lease comprises non-cancelable periods established within each contract, while for lease contracts with an indefinite useful life, the Bank has determined to assign a useful life equal to the longer non-cancelable period of its lease agreements. The Bank has elected not to recognise right-of-use assets and lease liabilities for short term leases that have a lease term of 12 months or less and leases of low-value assets. The Bank recognises lease payments associated with these leases as an expense on a straight-line basis over the lease term. Any modification in the terms or lease should be treated as a new measurement. Initially, the Bank measures the right-of-use asset at cost. The rent of the lease agreements is agreed in UF and paid in pesos. According to that, monthly variation in UF should be treated as a new measurement, and therefore, readjustments should be recognized as a modification to the obligation and the right-of-use asset. The Bank has not entered into lease agreements with residual value guarantee or variable lease payments. In applying IFRS 16 for the first time, the Bank has used the following practical expedients permitted by the standard: · accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases · excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application. The Bank has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Bank relied on its assessment made applying IAS 17 and Interpretation 4 Determining whether an Arrangement contains a Lease. b. As a lessor When the consolidated entities actBank acts as a lessor, it determines at the lessorbeginning if it corresponds to a financial or operating lease. To do this, it evaluates whether it has substantially transferred all the risks and benefits of an asset,the asset. In the affirmative case, it corresponds to a financial lease, otherwise it is a financial lease. The Bank recognizes the lease income on a straight-line basis over the lease term. F-32 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued c. Third party financing The Bank recognises the loans with third parties within “Loans and accounts receivable from customers” in the Consolidated Statements of Financial Position, the sum of the present value of the lease payments receivable from the lessee, including the exercise price of the lessee’s purchase option at the end of the lease term, which is equivalent to one additionalwhen at the inception of the lease payment and soit is reasonably certain that the lessee will exercise the option. The finance income and expenses arising from these contracts are recorded under “Interest income” and “Interest expense” respectively, in Consolidated Statements of Income to be exercised, is recognizedachieve constant return rate over the lease term. Policy applicable prior to January 1, 2019 Prior to effective date of IFRS 16, the Bank applied IAS 17 Leases. i. Finance leases Finance leases are leases that substantially transfer all the risks and rewards incidental to ownership of the leased asset to the lessee. The Bank recognised as lending to third parties and is therefore included under “Loans and accounts receivable from customers” in the Consolidated StatementStatements of Financial Position. When the consolidated entities act as lessees, they show the cost of the leased assets in the Consolidated Statement of Financial Position, based on the nature of the leased asset, and simultaneously record a liability for the same amount (which is the lower of the fair value of the leased asset and the sum of the present value of the lease payments payable toreceivable from the lessor plus, if appropriate,lessee, including the exercise price of the lessee’s purchase option at the end of the lease term, when at the inception of the lease it is reasonably certain that the lessee will exercise the option. When consolidated entities acts as lessees, the leased assets are classified based on their nature in the Consolidated Statements of Financial Position, and recognising an asset and liability at the same amount (the lower between the fair value of the leased property and the present value of the minimum lease payments, plus purchase option). The depreciation policy for theseThese assets is consistentare depreciated in accordance with that for property, plant and equipment for own use.use criterion.   In both cases, the finance income and finance expenses arising from these contracts are credited and debited, respectively, torecorded under “Interest income” and “Interest expense” respectively, in the Consolidated StatementStatements of Income so as to achieve a constant return rate of return over the lease term.   ii.      Operating leases ii. Operating leases   In operating leases, the ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor.   When the consolidated entities act as thea lessor, they present the acquisition cost of the leased assets are classified at their acquisition cost under "Property,“Property, plant and equipment”. The depreciation policycriterion for these assets is consistent with that for similar items of property, plant and equipment held for own use and revenues from operating leases isare recorded on a straight linestraight-line basis under “Other operating income” in the Consolidated StatementStatements of Income.   When the consolidated entities act as the lessees, the lease expenses, including any incentives granted by the lessor, are charged on a straight linestraight-line basis to “Administrative expenses” in the Consolidated StatementStatements of Income.   iii.     Sale and leaseback transactions iii. Sale and leaseback transactions   For sale at fair value and operating leasebacks, the profit or loss generated is recorded at the time of the sale except in the case of excess of proceeds over fair value, which difference is amortizedamortised over the period of use of the asset. In the case of finance leasebacks, the profit or loss generated is amortizedamortised over the lease term.   m)   Intangible assets F-33 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued o) Intangible assets   Intangible assets are identified as non-monetary assets (separately identifiable from other assets) without physical substance which arise as a result of legal or contractual rights or it is separable.rights. The Bank recognizes an intangible asset, whether purchased or self-created (at cost), when the cost of the asset can be measured reliably, and it is probable that the future economic benefits that are attributable to the asset will flow to the Bank.   Intangible assets are recorded initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortization and any accumulated impairment losses.   Internally developed computer software is recorded as an intangible asset if, among other requirements (basically the Bank’s ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated.   Intangible assets are amortized on a straight-line basis over theirusing the estimated useful life;life, which has been defined asby default in 36 months.months, and can be modified to the extent that it is demonstrated that the Bank will benefit from the use of the intangible for a different period mentioned above.   Expenditure on research activities is recorded as an expense in the year in which it is incurred and cannot be subsequently capitalized.   n)     Cash and cash equivalents p) Cash and cash equivalents   For the preparation of the cash flow statement,statements, the indirect method was used, starting with the Bank’s consolidated pre-tax income and incorporating non-cash transactions, as well as income and expenses associated with cash flows, which are classified as operating, investment or financing activities.   F-27  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued For the preparation of the cash flow statement,statements, the following items are considered:   i. Cash flows: Inflows and outflows of cash and cash equivalents, such as deposits with the Central Bank of Chile, deposits in domestic banks, and deposits in foreign banks.   ii. Operating activities: Principal revenue-producing activities performed by banks and other activities that cannot be classified as investing or financing activities.   The Bank’s activity of granting loans encompasses not only the activities with its debtors but also the related activities that provide the funding to the loans granted. Since the funding for granting such loans is provided by, among other sources, senior bonds, mortgage bonds and subordinated bonds, the Bank presents the related cash flows as operating activities. iii. Investing activities: The acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.   iv. Financing Activities: Activities that result in changes in the size and composition of the equity and liabilities that are not operating activities.   F-34 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued o)q) Allowances for loanExpected credit losses allowance – under IFRS 9 Starting from January 1, 2018, the Bank replaced the “incurred loss” model of IAS 39 with an “expected credit loss (ECL)” model established by IFRS 9. The new single impairment model applies to all financial assets measured at amortised cost and fair value through other comprehensive income (FVOCI), including commitment and contingent loans. Investments in equity are outside of the scope of the new impairment requirements. The Bank accounted ECL related to financial assets measured at amortised cost as a loss allowance in the statements of financial position, but the carrying amount of these assets is stated net of the loss allowance. ECL related to contingent loans is accounted as a provision in the statements of financial position. The Bank recognises in profit or loss, as an impairment gain or loss, the amount of ECL (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognised in accordance IFRS 9, for financial assets measured at amortised cost and contingent loans. The new model uses a dual measurement approach, under which the loss allowance is measured as either: - 12-month expected credit losses - Lifetime expected credit losses   The Bank has defined default on individual or collective basis: · Individual: when exposure is more than 89 days past due, it has been restructured, it is in judicial collection, it has been write-off, drag effect define as the entire outstanding amount on any loan which is 89 days or more past due. · Collective: when exposure is more than 89 days past due, it has been restructured, or has been identified as impaired by an internal risk committee). The measurement basis depends on whether there has been a significant increase in credit risk since initial recognition. Based on changes in credit quality since initial recognition, IFRS 9 outlines a “three-stage” model impairment in accordance with the following diagram: Change in credit quality since initial recognition Stage 1 Stage 2 Stage 3 Initial recognition Significant increase in credit risk since initial recognition Credit impaired assets 12-month expected credit losses Lifetime expected credit losses Lifetime expected credit losses The Bank, at the end of each reporting period, evaluated whether financial instrument’s credit risk has significantly increased since initial recognition or whether an asset is considered to be credit-impaired, and consequently classified financial instrument in the respective stage: · Stage 1: When loans are first recognised, the Bank recognises an allowance based on 12 months ECL. Stage 1 loans also include facilities where the credit risk has improved and the loan has been returned to Stage 1. F-35 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued · Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance for the lifetime ECL. Stage loans also include facilities, where the credit risk has improved and the loan has been returned to stage 2. · Stage 3: Loans considered credit impaired. The Bank records an allowance for the lifetime ECL, setting the PD at 100%. The Bank considers reasonable and supportable information that is available without undue cost or effort and that may affect the credit risk on a financial instrument, including forward looking information to determine a significant increase in credit risk since initial recognition. Forward looking information includes past events, current conditions and forecast or future economic conditions (macro-economic data). Credit risk assessment and forward-looking information (including macro-economic factors), includes quantitative and qualitative information based on the Bank’s historical experience, some examples are: a. Financial or economic conditions that are expected to cause a significant change in the borrower’s ability to meet its debt obligations b. An actual or expected internal credit rating downgrade for the borrower or decrease in behavioral scoring c. An actual or expected significant change in the operating results of the borrower. d. Significant increases in credit risk on other financial instruments of the same borrower. e. Significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements. f. Reductions in financial support from a parent entity or other affiliate. g. Expected changes in the loan documentation including an expected breach of contract that may lead to covenant waivers or amendments, interest payment holidays, interest rate step-ups, requiring additional collateral or guarantees, or other changes to the contractual framework of the instrument. The Bank has considered that if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial credit recognition but is not an absolute indicator. The bank did not rebut the backstop presumption of IFRS 9 relating to SICR or default. i. Expected credit loss measurement The ECL are the probability-weighted estimate of credit losses, i.e. the present value of all cash shortfalls. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. The three main components to measure the ECL are: PD: The Probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio. LGD: The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. F-36 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued EAD: The Exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdown on committed facilities, and accrued interest from missed payments. For measuring 12-month and lifetime ECL, cash shortfalls are identified as follow: - 12-month expected credit losses: the portion of lifetime expected credit losses that represents the expected credit losses that result from default events on the financial instruments that are possible within the 12 months after the reporting date. - Lifetime expected credit losses: the expected credit losses that result from all possible default events over the expected life of the financial instrument. The Bank considered a multi-factor analysis to perform credit risk analysis. The type of portfolio or transactions, and individual or collective evaluated. The Bank divides its portfolio as: i. Commercial loans, ii. Mortgage loans, and iii. Consumer loans. iv. Contingent loans The Bank evaluates individually whether objective evidence of impairment exists for loans that are individually significant, then collectively assesses loans that are not individually significant and loans which are significant but for which there is no objective evidence of impairment available under individually assessment. ii. Contingent loans The Bank enters into various irrevocable loan commitments and contingent liabilities. Even though these obligations may not be recognised on the statements of financial position, they contain credit risk and, therefore, form part of the overall risk of the Bank. When the Bank estimates the ECLfor contingent loans, it estimates the expected portion of the loan commitment that will be drawn down over its expected life. iii. Forward looking information The ECL model includes a broad range of forward-looking information as economic inputs, such as: · GDO growth · Unemployment rates · Central Banks interest rates · Real estate prices F-37 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued iv. Modifications of financial assets When loan measured at amortised cost has been renegotiated or modified but not derecognised, the Bank recognises the resulting gains or losses as the difference between the carrying amount of the original loans, and modified contractual cash flows discounted using the EIR before modification. For ECL estimation purposes on financial assets that have been modified, is required to distinguish between modification that result in derecognition from those that does not result in derecognition. If the modification does not result in derecognition, then the subsequent assessment of whether there is a significant increase in credit risk is made comparing the risk at the reporting date based on the modified contractual term and the risk at initial recognition based on the original, unmodified contractual term. If the modification results in derecognition, then the modified asset is considered to be a new asset. Accordingly, the date of modification is treated as the date of initial recognition for the purposes of the impairment requirements. v. Collateral The Banks seeks to use collateral to mitigate its credit risks on financial assets, where possible. Types of collateral are: cash, securities, letters of credit, real state and inventories.The Bank’s accounting policy for collateral assigned to it through its lending arrangements under IFRS 9 is the same is it was under IAS 39. Collateral, unless repossessed, is not recorded on the Bank’s statements of financial position. However, the fair value of collateral affects the calculation of ECLs. The main collateral associated to mortgage loans are real estate, which are valued based on data provided by specialized third parties. The estimation of ECL reflects the cash flows expected from collateral and other credit enhancement that are part of the contractual terms of the financial instruments. According to the Bank’s policy when an asset (real estate) is repossessed are transferred to assets held for sale at their fair value less cost to sell as non-financial assets at the repossession date. vi. Write-offs The gross carrying amount of a financial asset is reduced when there is no reasonable expectation of recovery. A write-off constitutes a derecognition event of the corresponding loan transaction in its entirety, and therefore, include portions not past-due for installments loans or leasing operation (no partial write-off). Subsequent recoveries of amounts previously written-off are credited to the income statements, as recovery of loans previously write-off,as a deduction from provisions for loan losses. Loan and accounts receivable write-offs are recorded for overdue and current installments based on the time periods expired since reaching overdue status, as described below: Type of loan Term Consumer loans with or without collateral 6 months Other transactions without collateral 24 months Commercial loans with collateral 36 months Mortgage loans 48 months Consumer leasing 6 months Other non-mortgage leasing transactions 12 months Mortgage leasing (household and business) 36 months F-38 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued r) Allowance for loan losses – under IAS 39 Prior to adoption of IFRS 9, the Bank established allowances to cover incurred losses on loans and account receivables from customers in accordance with its internal models and risk assessment as approved by the Board of Directors.   The Bank performsperformed an assessment of the risk associated with loans and accounts receivable from customers to determine their allowance for loan losses as described below:   - Individual assessment – represents cases where the Bank assesses a debtor as individually significant, or when he/she cannot be classified within a group of financial assets with similar credit risk characteristics, due to their size, complexity or level of exposure. - Group assessment - a group assessment is relevant for analyzing a large number of operations with small individual balances from individuals or small companies. The Bank groups debtors with similar credit risk characteristics giving to each group a default probability and recovery rate based on a historical analysis. - Individual assessment – represented cases where the Bank assesses a debtor as individually significant, or when he/she could not be classified within a group of financial assets with similar credit risk characteristics, due to their size, complexity or level of exposure. - Group assessment - a group assessment was relevant for analyzing a large number of transactions with small individual balances from individuals or small companies. The Bank grouped debtors with similar credit risk characteristics giving to each group a default probability and recovery rate based on a historical analysis.   The Bank models determinedetermined allowances and provisions for loan losses according to the type of portfolio or operations.transactions. Loans and accounts receivables from customers arewere divided into three categories:   i. Commercial loans, ii. Mortgage loans, and iii. Consumer loans.   The models used to determine credit risk allowances are described as follows:   I.Allowances for individual assessment I. Allowances for individual assessment   An individual assessment of commercial debtors iswas necessary in the case of companies which, due to their size, complexity or level of exposure regarding the entity, must be known and analyzed in detail.   For the purposes of establishing its provisions, the Bank assignsassigned a risk category to each debtor, their loans and contingent loans. The risk factors considered are:were: industry or economic sector of the borrower, owners or managers of the borrower, their financial situation and payment capacity, and payment behavior.   The Bank’s risk categories arewere as follows:   1. Debtors may be classified in risk categories A1, A2, A3 or B (if they are current on their payment obligations and show no sign of deterioration in their credit quality). B is different from the A categories by a certain history of late payments. The A and B categories are distinguished by different PNPs (as defined below). 1. Debtors may be classified in risk categories A1, A2, A3 or B (if they are current on their payment obligations and show no sign of impairment in their credit quality). B is different from the A categories by a certain history of late payments. The A and B categories were distinguished by different PNPs (as defined below).   2. Debtors classified as C1, C2, C3, C4, D1 or D2 include debtors whose loans with us have been charged off or administered by our Recovery Unit, or classified as Precontenciosos (PRECO or deteriorated). F-28  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued 2. Debtors classified as C1, C2, C3, C4, D1 or D2 included debtors whose loans with us have been charged off or administered by our Recovery Unit or identified as impaired by an internal risk committee.   For loans classified as A1, A2, A3 and B, we assignassigned a specific provision level on an individual basis to each borrower and, therefore, the amount of loan loss allowance is determined on a case by case basis.   F-39 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Estimated Incurred Loan Loss = Loan Loss Allowance.   The estimated incurred loss iswas obtained by multiplying all risk factors defined in the following equation:   EIL= EXP x PNP x SEV   EIL = Estimated Incurred Loan Loss. The estimated incurred loan loss is how much could be lost in the event a debtor does not perform the obligations under the loan.   EXP = Exposure. This corresponds to the value of commercial loans.   PNP = Probability of Non-Performance. This variable, expressed as a percentage, indicates the probability that a debtor will default. This percentage is associated with the internal rating that we give to each debtor, which is determined by analyzing such parameters as debt servicing capacity (including, usually, projected cash flows), the company’s financial history, the solvency and capacity of shareholders and management, and projections for the economic sector in which it operates.   SEV = Severity. This is the effective loss rate given default for debtors in the same segment, which is determined statistically based on the historical effective losses for each segment.   Every year, models together with PNP and SEV assumptions, arewere tested by the Bank’s Credit Risk Department, to ensure that they are appropriate at each reporting date so as to make sure any difference between the estimated incurred losses and actual losses is reduced.   These tests focusfocused on the validation of the sufficiency of the Bank’s allowances and consistconsisted of comparisons between actual write-offs to allowances established by the model, and the coverage of the total allowance to actual write-offs in the most current periods. Individual loan classification and improvements to any customer classification arewere also presented for approval to our Risk Committee.   For loans classified in the C and D categories, loan loss allowances arewere based mainly on the fair value of the collateral, adjusted for an estimated cost to sell, that each of these loans have. Allowance percentage for each category iswas then based on the fair value of the collateral, or the expected future cash flow from the loan for each individually evaluated non-performing loans.   II. Allowances for group assessments II. Allowances for group assessments   The Bank usesused the concept of estimation of incurred loss to quantify the allowances levels over the group-evaluated portfolios, considering the risk and the guarantees associated with each transaction.   Following the Bank’s definition, the Bank usesused group evaluation to approach transactions that have similar credit risk features, which indicateindicated the debtor’s payment capacity over the entire debt, principal and interests, pursuant to the contract’s terms. In addition, this allowsallowed us to assess a high number of transactions with low individual amounts, whether they belong to individuals or SMEs (small and medium sized companies). Therefore, debtors and loans with similar features arewere grouped together and each group has a risk level assigned to it.   These models arewere meant to be used mainly to analyze loans granted to individuals (including consumer loans, credit lines, mortgage loans and commercial loans) and commercial loans to small to middle-sized entities (SMEs).   F-40 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Allowances arewere established using these models, taking into account the historical Impairment and other known circumstances at the time of evaluation. After this, a historical loss rate iswas assigned to each portfolio profile constituting each evaluated group.   Allowances for group-evaluated loans arewere established based on the credit risk of the profile to which the loan belongs. The method for assigning a profile is establishedwas based on statistical building method, establishing a relation through logistic regression of various variables, such as payment behavior in the Bank, payment behavior outside the Bank, various sociodemographic data, among others, and a response variable that determinesdetermined a client’s risk level, which in this case iswas 90 days of non-performance (the chosen features are relevant when calculating future cash flows per group of assets). Afterwards, common profiles arewere established and with differentiated default rates, applying the real historical loss the Bank has had with that portfolio. F-29  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   The different risk categories arewere constructed and updated periodically based on the payment behavior of the client’s profile to which they belong, as well as his or her sociodemographic characteristics. Therefore, when a customer hashad past due balance or has missed some payments, the outcome iswas that the customer will move to a different segment with a higher loss rate, therefore capturing current trends for each risk profile.   Allowance quantification, once the customers have been classified, iswas the product of three factors: exposure (EXP), Probability of Non-Performance (PNP) and Severity (SEV), the same equation used for individual assessment mentioned above.   The estimated incurred loss rates for group-evaluated loans correspond to charge-offs net of recoveries. The methodology establishesestablished the period in which the estimated incurred loss for each risk profile emerges. Once the loss has been considered to have been incurred, the estimated incurred loss rates arewere applied to the corresponding risk profile to obtain the net charge-off level associated with this period. The loss rates applied to each risk profile are based only on the historical net charge-off data for that specific profile within one of the four groups of loans (consumer loans, credit lines, mortgage loans and commercial loans). No other statistical or other information other than net charge-offs iswas used to determine the loss rates.   To determine the estimated incurred loss for commercial and mortgage loans collectively evaluated for impairment, we mainly analyzeanalyzed the payment behavior of clients, particularly the payment behavior of clients with payments that are more than 90 days overdue, clients with other weaknesses, such as early non performancenonperformance (i.e., payments that are past-due, though by less than 90 days), clients with modified loans and clients with renegotiated loans, as well as success in recovery against these clients. We also taketook into account whether the loan is supported by collateral.   In connection with mortgage loans, historical net charge-offs arewere considered in the model to calculate loss rates for loans collectively evaluated for impairment. The risk categories arewere such that when a customer has a past-due balance or has missed some payments, the outcome iswas that the customer will move to a different risk category with a higher loss rate, therefore capturing current trends of the customer and, when aggregate, current trends in the market.   Our models for loans analyzed on a group basis (consumer loans, residential mortgage loans and small-and-mid- sized commercial loans) arewere monitored on a monthly basis with respect to predictability and stability, using indicators that seek to capture the underlying need to update the models for current loss trends. Therefore, the periods of historical net charge-offs used in the allowance model may bewere more than a year old as we only updateupdated the historical net charge-offs when our assessment of predictability and stability indicators determine it iswas necessary.   During the second semester of 2014, and as a response to the ongoing improvement of the allowances models for loans, the Bank recalibrated its allowances model for consumer loans and commercial loans. The models were recalibrated with the aim of improving the prediction of client behavior and maintaining statistical and management standards. Part of these improvements consisted of the advancement of the models’ governance allowing technical and defined approvals at different points of the approval process, better statistical techniques and the use of the entire extent of historical information, allowing more clarified definition of the Probability of Non-Performance (PNP) and the Severity (SEV) involved in the provision calculation. This model improvement resulted in the release of consumer provisions of Ch$26,563 million and an increase in commercial provisions of Ch$45,141 million. As this is a change in estimation, the net increase of these improvements (Ch$18,578 million) was recognized under the "Provisions for loan losses" in the Consolidated Statement of Income for the year in accordance with IAS 8 Accounting policies, changes in Accounting Estimates and Errors.   F-41 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 III.  Charge-offsNOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued III. Charge-offs   As a general rule, charge-offs should be done when all collection efforts have been exhausted. These charge-offs consistconsisted of derecognition from the Consolidated StatementStatements of Financial Position of the corresponding loans operationstransactions in its entirety, and, therefore, includeincluded portions not past-due of a loan in the case of installments loans or leasing operationstransactions (no partial charge-offs exist).   Subsequent payments obtained from charged-off loans will be recognizedwere recognised in the Consolidated StatementStatements of Income as a recovery of loans previously charged-off.   F-30  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Loan and accounts receivable charge-offs arewere recorded for overdue and current installments based on the time periods expired since reaching overdue status, as described below:   Type of loan   Term       Consumer loans with or without collateral   6 months Other transactions without collateral   24 months Commercial loans with collateral   36 months Mortgage loans   48 months Consumer leasing   6 months Other non-mortgage leasing transactions   12 months Mortgage leasing (household and business)   36 months   IV.   Recovery of loans previously charged off and accounts receivable from customers IV. Recovery of loans previously charged off and accounts receivable from customers   Any payment agreement of an already charged-off loan willdid not give rise to income—as long as the operation is stillwas in an impaired status—and the effective payments received arewere accounted for as a recovery from loans previously charged-off.   Recovery of previously charged-off loans and accounts receivable from customers, arewere recorded in the Consolidated StatementStatements of Income as a deduction from provisions for loan losses.   In accordance with our charge-off policy described in iii) above, we may subsequently recover a portion of the amount charged-off (at 100%). The allowance for loan losses on our collectively evaluated loans incorporates an expected recovery rate based on historical information. At the time we charge-offcharged-off the carrying amount of any loans which have been collectively evaluated for impairment, the allowance for loan losses on collectively evaluated loans iswas replenished to reflect incurred losses based on statistical models developed in compliance with IAS 39 on the remaining pool of loans. The amounts required for replenishment arewere recorded in the financial statements as provision established.   p)     Provisions, contingent assets, and contingent liabilities s) Provisions, contingent assets, and contingent liabilities   Provisions are liabilities of uncertain timing or amount. Provisions are recognizedrecognised in the Consolidated Statements of Financial Position when the Bank:   i. has a present obligation (legal or constructive) as a result of past events, and   ii. it is probable that an outflow of resources will be required to settle these obligations and the amount of these resources can be reliably measured.   F-42 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Contingent assets or contingent liabilities are any potential rights or obligations arising from past events whose existence will be confirmed only by the occurrence or non-occurrence if one or more uncertain future events that are not wholly within control of the Bank.   The Consolidated StatementStatements of Financial Position and annual accounts reflect all significant provisions for which it is estimated that it is probable an outflow of resources will be required to meet the obligation where the probability of having to meet the obligation is more likely than not. Provisions are quantified using the best available information on the consequences of the event giving rise to them and are reviewed and adjusted at the end of each year. Provisions must specify the liabilities for which they were originally recognized.recognised. Partial or total reversals are recognizedrecognised when such liabilities cease to exist or are reduced.   Provisions are classified according to the obligation covered as follows:   - Provision for employee salaries and expenses - Provision for mandatory dividends - Provision for contingent credit risks - Provisions for contingencies   F-31  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued q)     Deferred income taxes and other deferred taxes t) Deferred income taxes and other deferred taxes   The Bank records, when appropriate, deferred tax assets and liabilities for the estimated future tax effects attributable to differences between the carrying amount of assets and liabilities and their tax bases. The measurement of deferred tax assets and liabilities is based on the tax rate, in accordance with the applicable tax laws, using the tax rate that applies to the period when the deferred asset and liability will be settled. The future effects of changes in tax legislation or tax rates are recorded in deferred taxes beginning on the date on which the law is enacted or substantially enacted.   r)     Use of estimates u) Use of estimates   The preparation of the financial statements requires the Bank’s management to make estimates and assumptions that affect the application of the accounting policies and the reported balances of assets, liabilities, revenues and expenses. Actual results may differ from these estimates.   In certain cases, International Financial Reporting Standards (IFRS) require that assets or liabilities be recorded or disclosed at their fair values. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, quoted market prices in active markets have been used as the basis for measurement. When quoted market prices in active markets are not available, the Bank has estimated such values based on the best information available, including the use of modeling and other valuation techniques.   The Bank has established allowances to cover incurred losses to estimate allowances. These allowances must be regularly reviewed taking into consideration factors such as changes in the nature and volume of the loan portfolio, trends in forecasted portfolio quality, credit quality and economic conditions that may adversely affect the borrowers’ ability to pay. Increases in the allowances for loan losses are reflected as “Provision for loan losses” in the Consolidated StatementStatements of Income. Loans are charged-off when the Bank’s management determines that a loan or a portion thereof is impaired. Charge-offs are recorded as a reduction of the allowance for loan losses.   The relevant estimates and assumptions made to calculate provisions are regularly reviewed by the Bank’s Management to quantify certain assets, liabilities, revenues, expenses, and commitments.   F-43 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued These estimates, made on the basis of the best available information, mainly refer to:   - Allowances for loan losses (Notes 8, 9 and 29) - Impairment losses of certain assets (Notes 7, 8, 9, 10, and 32) - The useful lives of tangible and intangible assets (Notes 12, 13 and 32) - The fair value of assets and liabilities (Notes 5, 6, 7, 10 and 36) - Commitments and contingencies (Note 22) - Current and deferred taxes (Note 14) v) Non-current assets held for sale (in “Other Assets”)   s)      Non-currentThe Bank classified its investment held on Redbanc, Transbank and Nexus, previously classifed as associated, as assets held for sale (in “Other Assets”) Non-current assets (or a group holding assets and liabilities for disposal) expected to be recovered mainly through the sale of these items rather than through the continued use, are classified as held for sale. Immediately prior to this classification, assets (or elements of a disposable group) are re-measuredin Other Assets, in accordance with IFRS 5 “Non-current Assets held for sale and discontinued operations”, since its carrying amount will be recovered principally through a sale transaction rather through continuing use. To apply the Bank’s policies. mentioned treatment, the Bank has ensured to comply with related requirement established in IFRS 5, which include: · the assets are available for immediate sale in its present conditions and its sale must be highly probable. · for the sale to be highly probable, the appropriate level of management is committed to a plan to sell the asset, and an active program to locate a buyer and complete the plan. · In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification. The assets (or disposal group) areBank has measured their investment on the mentioned associated investment at their carrying amount since it represents the lower ofbetween carrying amount and fair value less cost to sell. Additionally, the Bank will recognise an impairment loss for any initial or subsequent write-down of the asset to fair value less costs to sell, to the extent that it has not been recognized. As of December 31, 2019, the Bank still maintains its investment on Transbank and Redbanc (classified as held for sale), while a main portion of Nexus was sold on October 2019, and we expect to complete the sale on January 2020.   Assets received or awarded in lieu of payment   Assets received or awarded in lieu of payment of loans and accounts receivable from clients are recognizedrecognised at their fair value (as determined by an independent appraisal). A price is agreed upon by the parties through negotiation or, when the parties do not reach an agreement, at the amount at which the Bank is awarded those assets at a judicial auction. In the both cases, an independent appraisal is performed. The excess of the outstanding loan balance over the fair value is charged to net income for the period, under “Provision for loan losses”. Any excess of the fair value over the outstanding loan balance, less costs to sell of the collateral, is returned to the client. These assets are subsequently adjusted to their net realizable value less cost to sale (assuming a forced sale). The difference between the carrying value of the asset and the estimated fair value less costs to sell is charged to net income for the period, under “Other operating expenses”. The result obtained in the sale of the asset is subsequently recorded under “Other operating income”.   F-32  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Independent appraisals are obtained at least every 18 months and fair values are adjusted accordingly. No adjustments have been made between appraisals with respect to the period covered by these financial statements considering the stability of the real estate market in Chile during past years and expected stability of the real estate market in the coming years.   F-44 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued At least once a year, the Bank performs the necessary analysis to update the “cost to sale” of assets received or awarded in lieu of payments. According to the Bank’s survey, as of December 31, 20162019 the average cost to sale was estimated at 5.1%3.1% of the appraisal value (5.0%(2.2% as of December 31, 2015)2018).   t)      Earnings per share w) Earnings per share   Basic earnings per share are determined by dividing the net income attributable to the equity holdersshareholders of the Bank for the reported period by the weighted average number of shares outstanding during the reported period.   Diluted earnings per share are determined in the same way as basic earnings, but the weighted average number of outstanding shares is adjusted to take into consideration the potential diluting effect of stock options, warrants, and convertible debt.   As of December 31, 20162019 and 20152018 the Bank did not have any instruments that generated dilution.   u)     Temporary acquisition (assignment) of assets and liabilities x) Temporary acquisition (assignment) of assets and liabilities   Purchases or sales of financial assets under non-optional repurchase agreements at a fixed price are recorded in the Consolidated Statements of Financial Position based on the nature of the debtor (creditor) under “Deposits in the Central Bank of Chile,” “Deposits in financial institutions” or “Loans and accounts receivable from customers” (“Central Bank of Chile deposits,” “Deposits from financial institutions” or “Customer deposits”), in Note 6.7.   Differences between the purchase and sale prices are recorded as financial interest over the term of the contract.   v)     Provision for mandatory dividends y) Provision for mandatory dividends   As of December 31, 20162019 and 20152018 the Bank recorded a provision for mandatory dividends. This provision is made pursuant to Article 79 of the Corporations Act, which is in accordance with the Bank’s internal policy, pursuant to which at least 30% of net income for the period is distributed, except in the case of a contrary resolution adopted at the respective shareholders’ meeting by unanimous vote of the outstanding shares. This provision is recorded, as a deducting item, under the “Retained earnings – provision for mandatory dividends” line of the Consolidated StatementStatements of Changes in Equity with offset to Provisions.   w)    Employee benefits i. Post-employment benefits – Defined Benefit Plan:   According to current collective labor agreements and other agreements, the Bank has an additional benefit available to its principal executives, consisting of a pension plan whose purpose is to endow them with funds for a better supplementary pension upon their retirement.   Features of the Plan:   The main features of the Post-Employment Benefits Plan promoted by the Banco Santander ChileSantander-Chile are:   a. Aimed at the Bank’s management. b. The general requirement to apply for this benefit is that the employee must be carrying out his/her duties when turning 60 years old. c. The Bank will create a pension fund, with life insurance, for each beneficiary in the plan. Periodic contributions into this fund are made by the manager and matched by the Bank. d. The Bank will be responsible for granting the benefits directly.   F-33 F-45 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   ToThe Bank uses the method of projected unit credit, to determine the present value of the defined benefit obligation and the current service cost, the method of projected unit credit is used.cost.   Components of defined benefit cost include:   - current service cost and any past service cost, which are recognizedrecognised in profit or loss for the period; - net interest on the liability (asset) for net defined benefit, which is recognizedrecognised in profit or loss for the period; - new liability (asset) remeasurements for net defined benefit include: (a) actuarial gains and losses; (b) the difference between the actual return on plan assets and the interest on plan assets included in the net interest component and; (c) changes in the effect of the asset ceiling.   The liability (asset) for net defined benefit is the deficit or surplus, determined as the difference between the present value of the defined benefit obligation less the fair value of plan assets.   Plan assets comprise the pension fund taken out by the Group with a third party that is not a related party. These assets are held by an entity legally separated from the Bank and exist solely to pay benefits to employees.   The Bank recognizesrecognises the present service cost and the net interest of the Personnel salaries and expenses on the Consolidated StatementStatements of Income.   The post-employment benefits liability, recognizedrecognised in the Consolidated StatementStatements of Financial Position represents the deficit or surplus in the defined benefit plans of the Bank. Any surplus resulting from the calculation is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions.   When employees leave the plan before meeting the requirements to be eligible for the benefit, contributions made ​​by the Bank are reduced.   ii.       Cash-settled share based compensation ii. Cash-settled share-based compensation   The Bank allocates cash-settled share basedshare-based compensation to executives of the Bank and its Subsidiaries in accordance with IFRS 2. The Bank measures the services received and the obligation incurred at fair value. Until the obligation is settled, the Bank determines the fair value at the end of each reporting period, as well as at the date of settlement, recognizingrecognising any change in fair value in the income statementstatements of the period.   x)     Application of new and revised International Financial Reporting Standards z) Application of new and revised International Financial Reporting Standards   i.1. New and revised standards effective in current year   The following new and revised IFRS have been adopted in these financial statements:   Accounting for Acquisitions of interests in Joint Operations (Amendments to IFRS 11) -issued on May 6, 2014 the IASB has issued “Accounting for Acquisitions of Interests in Joint Operations (amendments to IFRS 11)”, the amendments clarify the accounting for acquisitions of an interest in a joint operation when the operation constitutes a business. Amends IFRS 11 Joint Arrangements to require an acquirer of an interest in a joint operation in which the activity constitutes a business (as defined in IFRS 3 Business Combinations) to: · apply all of the business combinations accounting principles in IFRS 3 and other IFRSs, except for those principles that conflict with the guidance in IFRS 11; · disclose the information required by IFRS 3 and other IFRSs for business combinations. The amendments are effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted but corresponding disclosures are required. The amendments apply prospectively.The implementation of this amendment did not have material impact on the consolidated financial statement of the Bank. F-34  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Clarification of Acceptable Methods of Depreciation and Amortization (Amendments to IAS 16 and IAS 38) - issued on May 12, 2014 the IASB has published “Clarification of Acceptable Methods of depreciation and amortization (amendments to IAS 16 and IAS 38)”.The amendments provide additional guidance on how the depreciation or amortization of property, plant and equipment and intangible assets should be calculated. They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.The implementation of this amendment did not have material impact on the consolidated financial statement of the Bank. Equity Method in Separate Financial Statements (Amendments to IAS 27) - issued on August 12, 2014, the IASB has published “Equity Method in Separate Financial Statements (Amendments to IAS 27)”. The amendments reinstate the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity's separate financial statements. The amendments allow an entity to account for investments in subsidiaries, joint ventures and associates in its separate financial statements: · at cost, in accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments: Recognition and Measurement for entities that have not yet adopted IFRS 9), or · using the equity method as described in IAS 28 Investments in Associates and Joint Ventures. The accounting option must be applied by category of investments. In addition to the amendments to IAS 27, there are consequential amendments to IAS 28 to avoid a potential conflict with IFRS 10 Consolidated Financial Statements and to IFRS 1 First-time Adoption of International Financial Reporting Standards. The accounting option must be applied by category of investments. In addition to the amendments to IAS 27, there are consequential amendments to IAS 28 to avoid a potential conflict with IFRS 10 Consolidated Financial Statements and to IFRS 1 First-time Adoption of International Financial Reporting Standards. The amendments are effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted. The amendments are to be applied retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.The implementation of this amendment did not have material impact on the consolidated financial statement of the Bank. Disclosure initiative (Amendments to IAS 1) - issued on December 18, 2014 the IASB added an initiative on disclosure to its work program in 2013 to complement the work being done in the Conceptual Framework project. The initiative is made up of a number of smaller projects that aim at exploring opportunities to see how presentation and disclosure principles and requirements in existing Standards can be improved. They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.The implementation of this amendment did not have material impact on the consolidated financial statement of the Bank. Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28) - issued on December 18, 2014 the IASB has published 'Investment Entities: Applying the Consolidation Exception, Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates and Joint Ventures (2011) to address issues that have arisen in the context of applying the consolidation exception for investment entities. They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.The implementation of this amendment did not have material impact on the consolidated financial statement of the Bank. Annual Improvements 2012-2014 Cycle IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, Changes in methods of disposal - Adds specific guidance in IFRS 5 for cases in which an entity reclassify an asset from held for sale to held for distribution or vice versa and cases in which held-for-distribution accounting is discontinued. IFRS 7 Financial Instruments: Disclosures (with consequential amendments to IFRS 1), Servicing contracts - Adds additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of determining the disclosures required. IAS 19 Employee Benefits, Discount rate – Clarifies that the high quality corporate bonds used in estimating the discount rate for postemployment benefits should be denominated in the same currency as the benefits to be paid (thus, the depth of the market for high quality corporate bonds should be assessed at currency level). IAS 34 Interim Financial Reporting, Disclosure of information “elsewhere in the interim financial report” - Clarifies the meaning of 'elsewhere in the interim report' and requires a cross-reference. F-35  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued The improvements are effective for annual periods beginning on or after 1 July 2016, with earlier application being permitted.The implementation of this amendment did not have material impact on the consolidated financial statement of the Bank ii. New and revised IFRS issued but not effective IFRS 9 Financial Instruments (2014) (IFRS 9) - IFRS 9 (2014) – In July 2014, the International Accounting Standards Board (IASB) approved IFRS 9 to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’ . IFRS 9 sets out the requirements for recognition and measurement of financial instruments. The main new developments of the standard are discussed below. Classification and measurement of financial assets and financial liabilities: Under IFRS 9, financial assets are classified on the basis of the business model within which they are held and their contractual cash flow characteristics. These factors determine whether the financial assets are measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss. For many financial assets, the classification and measurement outcomes will be similar to IAS 39. However, under IFRS 9, embedded derivatives are not separated from host financial assets and equity securities are measured at fair value either through profit or loss or, in certain circumstances, an irrevocable election may be made to present fair value movements in other comprehensive income. The requirements for the classification and measurement of financial liabilities were carried forward unchanged from IAS 39, however, the requirements relating to the fair value option for financial liabilities were changed to address own credit risk and, in particular, the presentation of gains and losses within other comprehensive income. Impairment: IFRS 9 introduces fundamental changes to the impairment of financial assets measured at amortised cost or at fair value through other comprehensive income, lease receivables and certain commitments to extend credit and financial guarantee contracts. It is no longer necessary for losses to be incurred before credit losses are recognised. Instead, under IFRS 9, an entity always accounts for expected credit losses (ECLs), and any changes in those ECLs. The ECL approach must reflect both current and forecast changes in macroeconomic data over a horizon that extends from 12 months to the remaining life of the asset if a borrower’s credit risk is deemed to have deteriorated significantly at the reporting date compared to the origination date. The estimate of ECLs, should reflect an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes and considering reasonable and supportable information at the reporting date. Similar to the current incurred credit loss provisioning approach, management will exercise judgment as to whether additional adjustments are required in order to adequately reflect possible events or current conditions that could affect credit risk. For financial assets, an ECL is the current value of the difference between the contractual cash flows owed to the entity according to the contract and the cash flows which the entity expects to receive. For undrawn loan commitments, an ECL is the current value of the difference between the contractual cash flows owed to the entity and the cash flows which the entity expects to receive if the loan is drawn. An assessment of each facilities’ credit risk profile will determine whether they are to be allocated to one of three stages: -  Stage 1: when it is deemed there has been no significant increase in credit risk since initial recognition, a loss allowance equal to a 12-month ECL – i.e. the proportion of lifetime expected losses resulting from possible default events within the next 12-months - will be applied; - Stage 2: when it is deemed there has been a significant increase in credit risk since initial recognition, but no credit impairment has materialised, a loss allowance equal to the lifetime ECL – i.e. lifetime expected loss resulting from all possible defaults throughout the residual life of a facility – will be applied; and - Stage 3: when the facility is considered credit impaired, a loss allowance equal to the lifetime ECL will be applied. Similar to incurred losses under IAS 39, objective evidence of credit impairment is required. The assessment of whether a significant increase in credit risk has occurred since initial recognition involves the application of both quantitative measures and qualitative factors, requires management judgment and is a key aspect of the IFRS 9 methodology. Hedge accounting: The general hedge accounting requirements align more closely with risk management practices and establish a more principle-based approach thereby allowing hedge accounting to be applied to a wider variety of hedging instruments and risks. Macro hedge accounting is being dealt with as a separate project. Until such time as that project is complete, and to remove any potential conflict between any existing macro hedge accounting undertaken under IAS 39 and the new general hedge accounting requirements of IFRS 9, entities can choose to continue to apply the existing hedge accounting requirements in IAS 39. F-36  Table of Contents NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued The Bank has established a work stream with the aim of adapting its processes to the new classification standards for financial instruments, accounting of hedges and estimating credit risk impairment. Accordingly, the Bank is working towards defining an objective internal model and analyzing all the changes which are needed to adapt accounting classifications and credit risk impairment estimation models in force in each unit to the previous definitions. The governance structure currently implemented complies with the requirements set out in the new standards. The Bank during this exercise, has successfully completed the design phase of the implementation plan. The major milestones achieved include the identification of technological needs have been identified as well as the necessary adaptations to the existing control environment. The Bank is currently in the development and implementation phase of the models and requirements defined. The objective of the Bank at these stages is to develop an operational model adapted to the requirements of IFRS 9 and ensure the definition of functional requirements At the IT environment, an efficient implementation, optimizing its resources as well as the designs elaborated in the previous stages. Once the implementation phase is completed, the Bank will test the effective performance of the model through several simulations and ensuring that the transition to the new operating model meets the objectives established in the previous phases. This last stage includes the parallel execution of the provisions calculation. IFRS 15, Revenue from Contracts with Customers -issued on May 28, 2014, the IASB has published its new standard, IFRS 15 Revenue from contracts with customers. At the same time, the Financial Accounting Standards Board (FASB) has published its equivalent revenue standard, ASU 2014-09. The new standard provides a single, principles based five-step model to be applied to all contracts with customers, i) identify the contract with the customer, ii) identify the performance obligations in the contract, iii) determine the transaction price, iv) allocate the transaction price to the performance obligations in the contracts, v) recognize revenue when (or as) the entity satisfies a performance obligation. IFRS 15 must be applied in an entity’s first annual IFRS financial statements for periods beginning on or after 1 January 2018. Application of the Standard is mandatory and early adoption is permitted. An entity that chooses to apply IFRS 15 earlier than 1 January 2018 must disclose this fact.The Bank’s management is assessing the potential impact of the adoption of this standard on the consolidated financial statements of the Bank. Sale or Contributions of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) -Issued on September 11, 2014, the IASB has published 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)'. The amendments address a conflict between the requirements of IAS 28 'Investments in Associates and Joint Ventures' and IFRS 10 'Consolidated Financial Statements' and clarify the treatment of the sale or contribution of assets from an investor to its associate or joint venture, as follows: · require full recognition in the investor's financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations); · require the partial recognition of gains and losses where the assets do not constitute a business, i.e. a gain or loss is recognized only to the extent of the unrelated investors’ interests in that associate or joint venture. On December 17, 2015 the IASB has published final amendments to “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”. The amendments defer the effective date of the September 2014 amendments to these standards indefinitely until the research project on the equity method has been concluded.The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank. IFRS 16 Leases– issued on January 13, 2016, the IASB has published its new standard for leases, which replaces IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC15 Operating leases and SIC27 Evaluating the substance of transactions involving the legal form of a lease. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right toof use the underlying leased asset and a lease liability representing its obligation to make lease payment. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained.   F-37 F-46 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   For lease commitments that are in scope of the standard, the Bank recognised, as of January 1, 2019, the right of use assets of approximately MM$154,284 and lease liabilities for the same amount, since it has been elected to apply the simplified transition approach in which no comparative information is restated, instead, the cumulative effect of the application of the standard (if any) is recognised as an adjustment to the initial balance of retained earnings at the date of the initial application. IFRIC 23 Uncertainty over Income Tax Treatments –This standard issued on June 7, 2017, clarifies how the recognition and measurement requirements of IAS 12 apply when there is uncertainty about tax treatments. The standard applies to annual periods beginning on or after January 1, 2019, with early application permitted.The implementation of this standard did not have a material impact on the Bank’s financial statement. Amendments to IAS 28 long-term interest in Associates and Joint Ventures -This standard was issued in October 12, 2017 to clarify that an entity applies IFRS 169 including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted.The implementation of this standard did not have a material impact on the Bank’s financial statement. Annual Improvements to IFRS Standards 2015–2017 Cycle -These annual improvements issued in December 12, 2017, containing the following amendments: IFRS 3 Business Combination and IFRS 11 Joint Arrangements – The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interest in that business. IAS 12 Income taxes – The amendments clarify that all income tax consequences of dividends should be recognised in profit or loss, regardless of how the tax arises. IAS 23 Borrowing cost – The amendments clarify that if any specific borrowing remain outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings.The implementation of this standard did not have a material impact on the Bank’s financial statement. Amendments to IAS 19 Plan amendment, curtailment or settlement – issued on February 7, 2018, amendments are: · If a plan amendment, curtailment or settlement occurs, it is now mandatory that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement. · In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The amendments are effective for periods beginning on or after January 1, 2019, early application is permitted but must be disclosed.The implementation of this standard did not have a material impact on the Bank’s financial statement. 2. New and revised IFRS issued but not effective As of the closing date of these financial statements, new International Financial Reporting Standards had been published as well as interpretations of them, which were not mandatory as of December 31, 2019. Although in some cases the application is permitted by the IASB, the Bank has not made its application on that date. F-47 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Sale or Contributions of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) -Issued on September 11, 2014, the IASB has published ’Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)’. The amendments address a conflict between the requirements of IAS 28 ‘Investments in Associates and Joint Ventures’ and IFRS 10 ‘Consolidated Financial Statements’ and clarifies the treatment of the sale or contribution of assets from an investor to its associate or joint venture, as follows: ● requires full recognition in the investor’s financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations); ● requires the partial recognition of gains and losses where the assets do not constitute a business, i.e. a gain or loss is recognised only to the extent of the unrelated investors’ interests in that associate or joint venture. On December 17, 2015 the IASB has published final amendments to “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”. The amendments defer the effective date of the September 2014 amendments to these standards indefinitely until the research project on the equity method has been concluded.The Bank’s management has considered that these amendments will not have a material impact on the consolidated financial statements of the Bank. IFRS 17 Insurance Contracts – Issued on May 18, 2017, this standard establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts. The objective is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a bases for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows. This standard supersedes IFRS 4. The standard is effective for periods beginning on or after January 1, 2019, with earlier adoption2022, early application is permitted if both IFRS 15 “RevenueRevenue from Contractscontracts with Customer” hascustomers and IFRS 9 Financial Instruments have also been applied.The Bank has initially determined the operating lease contract inventory (lessee) and beginning its review to determineBank’s management is evaluating the potential impact it will haveof this standards on the consolidated financial statementstatements of the Bank.   RecognitionConceptual Framework for Financial Reporting 2018 – Issued on March 29, 2018, the purpose of Deferred Tax Assets for Unrealized Losses (Amendmentsthis framework is to IAS 12)- On January 19, 2016,assist the IASB published final amendmentsin developing and revising IFRSs that are based on consistent concepts, helps preparers to IAS 12 “Income Taxes”.develop consistent accounting policies for areas that are not covered by a standard or where there is choice of accounting policy, and to assist all parties to understand and interpret IFRS. This framework in not a standard and does not override any specific IFRS.The implementation of this standard does not have a material impact on the Bank’s financial statement. Amendments to IFRS 3 – Definition of a Business –Issued on October 22, 2018, this amendment aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments clarify the following aspects:include:   ·● Unrealized lossesclarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs; ● narrow the definitions of a business and of outputs by focusing on debt instruments measured at fair valuegoods and measured at cost for tax purposes give riseservices provided to customers and by removing the reference to an ability to reduce costs; ● add guidance and illustrative examples to help entities assess whether a deductible temporary difference regardlesssubstantive process has been acquired; ● remove the assessment of whether the debt instrument’s holder expectsmarket participants are capable of replacing any missing inputs or processes and continuing to recover the carrying amount of the debt instrument by sale or by use.produce outputs; and ·● The carrying amountadd an optional concentration test that permits a simplified assessment of whether an asset doesacquired set of activities and assets is not limit the estimation of probable future taxable profits.a business. F-48 Table of Contents · Estimated for future taxable profits exclude tax deductions resulting from Banco Santander-Chile and Subsidiaries Notes to the reversal of deductible temporary differences.Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 01 · An entity asses a deferred tax asset in combination with other deferred tax assets. Where tax law restricts the utilization of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the same type. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued   The amendments are effective for business combination for which the acquisition date is on or after the periods beginning of the first annual reporting period beginning on or after January 1, 2020, and to asset acquisitions that occur on or after the beginning of that report. Early application is permitted.The implementation of this standard does not have a material impact on the Bank’s financial statement. Amendments to IAS 1 and IAS 8- Definition of material – Issued on October 31, 2018, the purpose of this amendment is to clarify the definition of material and to align the definition used in the Conceptual Frameworks and the IFRSs The new definition of material and the accompanying explanatory paragraphs are contained in IAS 1 Presentation of Financial Statements. The definition of material in IAS 8 Accounting policies, Changes in Accounting estimates and Errors has been replaced with a reference to IAS 1. The standard is effective for periods beginning on or after January 1, 2017. Earlier2020, early application is permitted.The implementation of this standard does not have a material impact on the Bank’s financial statement. Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest Rate benchmark Reform – Issued on September 26, 2019, this amendment deal with issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative interest rate and address the implications for specific hedge accounting requirements in IFRS 9 Financial Instruments, which require forward-looking analysis. The amendments are effective for period beginning on or after January 1, 2020 and must be applied retrospectively. Early application is permitted.The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank. Disclosure Initiative (Amendments to IAS 7)-The amendments are part of the IASB’s Disclosure initiative project and introduce additional disclosure requirements intended to address investors’ concerns that financial statements do not currently enable them to understand the entity’s cash flows; particularly in respect of the management of financing activities. The amendments require disclosure of information enabling users of financial statements to evaluate changes in liabilities arising from financial activities. Although there is no specific format required to comply with the new requirements, the amendments include illustrative examples to show how an entity can meet the objective of these amendments. The amendments are effective for annual periods beginning on or after January 1, 2017. Earlier application is permitted.The Bank’s management has considered that these amendments will not havea material impact on the consolidated financial statements of the Bank.   Clarifications to IFRS 15 Revenue from Contracts with Customers-The amendments were published on April 12, 2016 and do not change the underlying principles of the Standard. They just clarify and provide alternatives for the transition. The amendment clarifies identification of performance obligations, determination of principal and agent licenses.   These modifications are applicable from January 1, 2018, with early application permitted.Management is assessing the potential impactF-49 Table of applying this standard.Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 02 Amendments to IFRS 2 Classification and measurement of share-based payment transactions– These amendments were published June 20, 2016, to address issues with:ACCOUNTING CHANGES   ·A. The accounting of share- based payment transactions paid in cash that include a performance condition · The classification of share-based transactions · Accounting for modifications of share-based payment transactions from cash-settled to equity-settled.IFRS 16 ADOPTION   This standard is applicable fromOn January 1, 2018,2019, IFRS 16 Leases has become effective; this standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with early application permitted.Managementa term of more than 12 months, thus a lessee is assessingrequired to recognise a right-of-use asset representing its right of use the potential impact of applying this standard.underlying leased asset and a lease liability representing its obligation to make lease payments.   Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS16 supersedes IAS 17 Leases, IFRIC 4 Insurance Contracts- The amendments are intended to address concerns aboutDetermining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the different effective datesSubstance of IFRS 9 andTransactions Involving the forthcoming new insurance contracts standard (expected as IFRS 17 within the next six months). The amendments provide two options for entities that issue insurance contracts within the scopeLegal Form of IFRS 4:a Lease.   -an option that permits entitiesThe Bank has elected to reclassify, from profit or lossadopt IFRS 16 using a modified retrospective approach at the date of initial application, therefore, it has recognise a right-of-use asset for an amount equal to other comprehensive income, somethe lease liability, which amounted MCh$154,284. Below is the detail of the income or expenses arising from designated financial assets (the "overlay approach"); -an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scopeimpacts as of IFRS 4 (the "deferral approach"). An entity would apply the overlay approach retrospectively to qualifying financial assets when it first applies IFRS 9 while an entity would apply the deferral approach for annual periods beginning on or after January 1, 2018.Management has assessed that the implementation of these modifications will not have a material impact on the Unaudited Consolidated Interim Financial Statements of the Bank.2019:     Balance as           Balance as       of December 31, 2018     Additions     of January 01, 2019       MCh$     MCh$     MCh$                       Right of use assets     -       154,284       154,284   Subtotals Assets           -       154,284       154,284                             Lease liability     -       154,284       154,284   Subtotals Liabilities     -       154,284       154,284   For more details, see Note 14.   F-38 F-50 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 02 NOTE 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,CHANGES, continued   IFRIC 22 Foreign Currency Transactions and Advance Consideration –This interpretations issued on December 8, 2016, clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. B. IFRS 9 ADOPTION – Transition disclosure   The Interpretation covers foreign currency transactions when an entity recognises a non-monetary asset or non-monetary liability arising fromfollowing disclosure provides the payment or receiptimpact of advance consideration beforeadopting IFRS 9 on the entity recognisesstatements of financial position and retained earnings including the related asset, expense or income. It does not apply when an entity measures the related asset, expense or income on initial recognition at fair value or at the fair valueeffect of the consideration received or paid at a date other than the date of initial recognition of the non-monetary asset or non-monetary liability. Also, the Interpretation need not be applied to income taxes, insurance contracts or reinsurance contracts.replacing IAS 39’s incurred credit loss provision with IFRS 9’s ECLs.   Consensus           IAS 39 carrying amount                 IFRS 9 carrying amount           Category     Amount     Reclassification     Remeasurement     Amount     Category       Ref   MCh$     MCh$     MCh$     MCh$     MCh$     MCh$   AMORTISED COST                                         Cash and deposit in banks                                         Opening balance under IAS 39 and closing under IFRS 9         AC       1,452,922       -       -       1,452,922       AC   Interbank loans, net                                                     Opening balance under IAS 39         AC       162,213       -       -       -       -   Remeasurement: ECL Allowance   A     -       -       (162,213 )     -       -       -   Closing balance under IFRS9         -       -       -       -       -       -   Loans and accounts receivable from customers, net                                                     Opening balance under IAS 39         AC       26,772,544       -       -       -       -   Addition: from interbank loans   A     -       -       162,213       -       -       -   Subtraction to FVOCI (net of allowance)   B     -       -       (107,846 )     -       -       -   Remeasurement: ECL Allowance         -       -       -       (97,322 )     -           Closing balance under IFRS 9         -       -       -       -       26,729,589       AC   Total financial assets measured at amortised cost                 28,387,679       (107,846 )     (97,322 )     28,182,511       -   FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (FVOCI)                                                     Available for sale investment (debt securities)                                                     Opening balance under IAS 39         FVOCI       2,574,546       -       -       -       -   Remeasurement: ECL Allowance         -       -       -       -       -       -   Closing balance under IFRS 9         -       -       -       -       2,574,546       FVOCI   Loans and accounts receivable from customers, net                                                     Opening balance under IAS 39         AC       -       -       -       -       -   Addition: from amortised cost (net of allowance)   B     -       -       107,846       -       -       -   Remeasurement: from cost to FV   B     -       -       -       (236 )     -       -   Remeasurement: ECL Allowance   B     -       -       -       291       -       -   Closing balance under IFRS 9         -       -       107,846       55       107,901       FVOCI   Investment in associate and other companies – Bladex (equity instruments)                                                     Opening balance under IAS 39         Cost       136       -       -       -       -   Remeasurement: from cost to FV   C     -       -       -       306       -       -   Closing balance under IFRS 9         -       -       -       306       442       FVOCI   Investment in associate and other companies- Stock exchange (equity instruments)                                                     Opening balance under IAS 39         FV       287       -       -       -       -   Remeasurement: from cost to FV         -       -       -       -       -       -   Closing balance under IFRS 9   C     -       -       -       -       287       FVOCI   Total financial assets measured at FVOCI         -       2,574,969       107,846       361       2,683,176       -   The date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability.   If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt. IFRIC 22 is effective for annual reporting periods beginning on or after 1 January 2018. Earlier application is permitted.The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank. Annual Improvement 2014-2016 IFRS 1 First time adoption of IFRS -Deletion of short-term exemptions for first-time adopters. IFRS 12 Disclosure of Interests in Other Entities -Clarification of the scope of the Standard. IAS 28 Investments in Associates and Joint Ventures - Measuring an associate or joint venture at fair value. The amendments to IFRS 1 and IAS 28 are effective for annual periods beginning on or after 1 January 2018, the amendment to IFRS 12 for annual periods beginning on or after 1 January 2017.The Bank’s management has considered that these amendments will not have material impact on the consolidated financial statements of the Bank. F-39 F-51 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 02 ACCOUNTING CHANGES, continued   Ref IAS 39 carrying amount     IFRS 9 carrying amount   Category Amount Reclassification Remeasurement Amount Category   MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ FAIR VALUE THROUGH PROFIT OR LOSS (FVPL)           Trading investment               Opening balance under IAS 39 and closing under IFRS 9   FVPL 485,736 - - 485,736 FVPL Derivative contracts (hedging + trading)       - - - - Opening balance under IAS 39 and closing under IFRS 9   FVPL 2,238,647 - - 2,238,647 FVPL Total financial assets measured at FVTPL     2,724,383 - - 2,274,383 - The following explains how applying the new requirements of IFRS 9 led to changes in classification of certain financial assets held by the Bank as shown in the table above: (A) Interbank loans According to the new balance presentation, the Bank has grouped interbank loans with the loans and account receivable since both are measured at amortised cost, and evaluated together for impairment purposes. (B) Loans and account receivable measured at fair value through other comprehensive income The Bank enters into arrangements with its major customers for project finance and syndicated loans and, sometimes the amount requested exceeds the Bank’s limit for a single client exposure under the established credit risk policy, accordingly, the transaction is approved under the condition to sell a portion of the facility in the near term, which is classified under this category. Also, the Bank has decided to include loans that the Bank are expecting to sell if the market conditions are favorable to the Bank in this category. These loans are measured at fair value through other comprehensive income, and subject to impairment requirements. (C) Investment in equity instrument The Bank has elected to irrevocably designate non-trading equity securities required to operates in Chile and outside at FVOCI as permitted under IFRS 9. Bladex and stock exchange securities were previously measured at cost as permitted by IAS 39. The changes in fair value will no longer be reclassified to profit or loss when they are disposed of.   F-52 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 02 ACCOUNTING CHANGES, continued The following table reconciles the December 31, 2017 period’s closing impairment allowance measured in accordance with the IAS 39 incurred loss model to the new impairment model:     Loans loss allowance under IAS 39      Reclassification     Remeasurement     Loans loss allowance under IFRS 9        MCh$     MCh$     MCh$     MCh$   Loans and receivable (IAS 39)/ Financial assets at amortised cost (IFRS 9)                         Interbank loans     472       (472 )     -       -   Loans and account receivable from customers     790,685       84       97,322       888,091   Total loans and account receivable at amortised cost     791,157       (388 )     97,322       888,091   Available for sale investment (IAS39)/Financial assets at FVOCI (IFRS 9)                                 Loans and account receivable from customer – at FVOCI     -       388       (291 )     97   Total financial assets at FVOCI     -       388       (291 )     97   Other credit- related commitments                                 Contingent liabilities     8,404       -       (3,767 )     4,637   Loan commitments     -       -       19,124       19,124   Total contingents     8,404       -       15,357       23,761   Total provision for loan losses     799,561       -       112,388       911,949   F-53 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 02 ACCOUNTING CHANGES, continued The composition of the loan portfolio as of January 1, 2018 is as follows:     Assets before allowances     ECL allowance         As of January 1, 2018   Stage 1     Stage 2     Stage 3     Total     Stage 1     Stage 2     Stage 3     Total     Net Assets       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$                                                           Commercial loans                                                       Interbank loans     162,685       -       -       162,685       13       -       -       13       162,672   Commercial loans     8,743,179       595,436       543,807       9,882,422       56,546       36,541       246,870       339,957       9,542,465   Foreign trade loans     1,464,059       56,110       54,344       1,574,513       4,883       849       33,480       39,212       1,535,301   Checking accounts debtors     173,738       8,005       13,953       195,696       2,302       411       9,385       12,098       183,598   Factoring transactions     441,014       4,035       4,841       449,890       837       91       3,366       4,294       445,596   Student loans     70,984       7,402       9,904       88,290       3,644       2,329       6,092       12,065       76,225   Leasing transactions     1,235,103       161,882       60,019       1,457,004       8,946       9,553       27,835       46,334       1,410,670   Other loans and account receivable     110,307       5,663       36,623       152,593       2,640       1,549       24,551       28,740       123,853   Subtotal     12,401,069       838,533       723,491       13,963,093       79,811       51,323       351,579       482,713       13,480,380                                                                             Mortgage loans                                                                         Loans with mortgage finance bonds     21,529       1,230       1,301       24,060       25       51       172       248       23,812   Endorsable mortgage mutual loans     107,900       2,973       4,205       115,078       100       143       628       871       114,207   Other mortgage mutual loans     8,061,800       465,146       430,811       8,957,757       14,477       20,033       72,390       106,900       8,850,857   Subtotal     8,191,229       469,349       436,317       9,096,895       14,602       20,227       73,190       108,019       8,988,876                                                                             Consumer loans                                                                         Installment consumer loans     2,378,614       234,044       298,084       2,910,742       51,172       46,866       157,811       255,849       2,654,893   Credit card balances     1,324,742       20,916       19,322       1,364,980       20,443       7,633       11,982       40,058       1,324,922   Leasing transactions     4,627       47       41       4,715       1,013       23       74       1,110       3,605   Other consumer loans     270,410       2,573       4,272       277,255       84       35       223       342       276,913   Subtotal     3,978,393       257,580       321,719       4,557,692       72,712       54,557       170,090       297,359       4,260,333                                                                             Total     24,570,691       1,565,462       1,481,527       27,617,680       167,125       126,107       594,859       888,091       26,729,589   F-54 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 03 SIGNIFICANT EVENTS   As of December 31, 2016,2019, the following significant events have occurred and affected the Bank`sBank’s operations and Consolidated Financial Statements.   a) The Board   InDuring the Ordinary Board Meeting of Banco Santander Chile held on March 15, 2016, Mr. Víctor Arbulú Crousillat resigned as director. In view of his resignation and the vacancy left by Mr. Lisandro Serrano, at the Ordinary Board Meeting held on October 20, 2015, the Board appointed Mr. Andreu Plaza López and Mrs. Ana Dorrego de Carlos. Finally, it is reported that Mr. Mauricio Larraín Garcés has been designated as a member of the Directors and Audit Committee in replacement of Mr. Víctor Arbulú Crousillat. In the Ordinary Board Meeting dated April 26, 2016, the appointment of directors, Mr. Andreu Plaza López and Mrs. Ana Dorrego de Carlos, have been ratified, and they have been appointed titular directors at the Ordinary Sessionordinary session of the Board of Directors of Banco Santander-Chile, held on October 20, 2015. b) Use of Profits and Distribution of Dividends TheFebruary 28, 2019, it was agreed to propose to the Ordinary Shareholders’ Meeting of Banco Santander Chile held on April 26, 2016, was chaired by Mr. Vittorio Corbo Lioi (President), Mr. Oscar Vön Chrismar Carvajal (First Vice-President), Mr. Roberto Méndez Torres (Second Vice-Chairman), Mr. Marco Colodro Hadjes, Mr. Lucia Cruz, Mr. Ana Dorrego de Carlos, Mauricio Larraín Garcés, Juan Pedro Santa Maria, Orlando Poblete Iturrate, Andreu Plaza López and Blanca Bustamante Bravo. In addition, the General Manager Mr. Claudio Melandri Hinojosa and the Manager23, 2019, a dividend of Strategic Planning Mr. Raimundo Monge. attended the meeting. According to the information presented in aforementioned meeting, 2015 net income (designated in the financial statements as “Income attributable to equity holders$ 1.88457837 per share, corresponding 60% of the Bank”) amounted to Ch$448,878 million, according to local regulations. The Board approvedprofits for the distribution of 75% of such net income, yielding a Ch$1.786 dividend per share, payable starting on April 29, 2016. Also, it was approved2018 fiscal year. Likewise, the board will propose that the remaining 25%40% of the profits will be retained inused to increase the Bank’s reserves.   c) AppointmentDuring the ordinary session of External Auditorsthe Board of Directors of Banco Santander-Chile, held on March 26, 2019, the following matters were agreed:   - Due to the resignation of the Director Mr. Andreu Plaza López, the Board of Directors of the Bank has appointed Mr. Rodrigo Echenique Gordillo to replace him as Director. In - It was agreed to subscribe an agreement with SKBergé S.A., whereby the Bank would acquire the ownership held by SKBergé Financiamiento S.A. in Santander Consumer Chile S.A., representing 49% of the capital stock of Santander Consumer Chile S.A., for a total of $59,063,470,000. During the Ordinary General Shareholders' Meeting indicated above,ordinary session of the Board of Directors of Banco Santander-Chile, held on July 30, 2019, it was agreed to appoint PricewaterhouseCoopers Consultores, Auditores y Compañícall an Extraordinary Shareholders Meeting for August 27, 2019, in order to submit for the shareholder’s consideration the acquisition of 51% of the shares issued by Santander Consumer Chile S.A. On August 13, 2019, the favorable opinions of the members of the Board of Directors of Banco Santander-Chile were communicated to the market, regarding the 51% acquisition of the shares of Santander Consumer Chile S.A. At the Extraordinary Shareholders Meeting of Banco Santander-Chile held on August 27, 2019, it was agreed to approve the operation to acquire 51% of the shares issued by Santander Consumer Chile S.A. The transactions were approved by the Financial Market Commission (FMC) on November 15, 2019, and executed on November 21, 2019. b) New subsidiaries and corporate modifications On October 19, 2019, Klare Corredora de Seguros S.A. was created as a Limitada, as external auditorsdigital insurance broker. With prior FMC (former SBIF) authorization by resolution No. 6780 of September 26, 2019, Banco Santander-Chile subscribed to 50.10% of the subsidiary. On November 27, 2019, the Bank acquired 51% of Santander Consumer S.A., an automobile financing non-banking company, which became a subsidiary of the Bank and its affiliatesa supporting banking business company from SK Berge (49%) and Banco Santander S.A. (2%) for a total amount MCh$62,136. The purchase generated a negative equity effect of MCh$37,041, since it was considered a transaction between entities under common control, the 2016 fiscal year.Bank used “predecessor accounting method”.   d) Capital increaseOn December 18, 2019, Santander Agencia de Valores Limitada modified its corporate name and business objective, becoming Santander Asesorias Financieras Limitada and having the following object: i) search for alternative sources of Transbank S.A. In the Extraordinary Shareholders' Meetingfinancing; ii) restructuring of Transbank S.A. held on April 21, 2016, it was agreedits liabilities; iii) negotiations to increase the capital of the company by capitalizing the accumulated profits, through theacquire, sell or merge companies; iv) issuance of shares redeemed for payment, and placement of payment shares for approximately $4,000 million. Banco Santander Chile participated proportionallybonds; v) placement of funds in the capital market; vi) credit or market risk analysis; vii) evaluation of new businesses; viii) knowledge of banking matters; ix) any other activity directly linked to its participation (25%), reason why it subscribed and paid shares for approximately $1 million.financial advice.   F-40 F-55 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 02 03 SIGNIFICANT EVENTS, continued   e) Issuance of bonds -c) Bods issued at December 31, 20162019   Inc.1 Senior bonds During the year ended December 31, 20162019 the Bank has issued senior bonds in the amount of UF 96,000,000, CLP 100,000,000,000, USD 215,000,000, JPY 3,000,000,000,AUD 185,000,000, EUR 104,000,00065,000,000 and CHF 125,000,000. Debt250,000,000, debt issuance information is included in Note 18.19. Series Currency Term (annual) Issuance rate (annual) Issuance date Amount Maturity date EUR EUR 7 1,09% 02-01-2019 40,000,000 07-02-2026 EUR EUR 15 1,25% 11-26-2019 25,000,000 01-03-2022 Total EUR       65,000,000   AUD AUD 15 3,66% 05-13-2019 22,000,000 20-05-2034 AUD AUD 5 1,13% 07-11-2019 20,000,000 11-07-2024 AUD AUD 5 1,13% 07-17-2019 28,000,000 17-07-2024 AUD AUD 5 1,13% 07-17-2019 15,000,000 17-07-2024 AUD AUD 20 3,05% 08-30-2019 75,000,000 28-02-2039 AUD AUD 15 3,16% 11-12-2019 12,000,000 20-11-2034 AUD AUD 15 2,91% 11-21-2019 13,000,000 27-11-2034 Total AUD       185,000,000   CHF CHF 5 0,38% 03-12-2019 150,000,000 27-09-2024 CHF CHF 10 0,14% 08-29-2019 100,000,000 29-08-2029 Total CHF       250,000,000     e.1) Senior bonds Series Currency Amount Term (annual) Issuance rate (annual) Issuance date Maturity date T1 UF 7,000,000 4.0 2.20% 02-01-2016 02-01-2020 T2 UF 5,000,000 4.5 2.25% 02-01-2016 08-01-2020 T3 UF 5,000,000 5.0 2.30% 02-01-2016 12-01-2020 T4 UF 8,000,000 5.5 2.35% 02-01-2016 08-01-2021 T5 UF 5,000,000 6.0 2.40% 02-01-2016 02-01-2022 T6 UF 5,000,000 6.5 2.45% 02-01-2016 08-01-2022 T7 UF 5,000,000 7.0 2.50% 02-01-2016 02-01-2023 T8 UF 8,000,000 7.5 2.55% 02-01-2016 08-01-2023 T9 UF 5,000,000 8.0 2.60% 02-01-2016 02-01-2024 T10 UF 5,000,000 8.5 2.60% 02-01-2016 08-01-2024 T11 UF 5,000,000 9.0 2.65% 02-01-2016 02-01-2025 T12 UF 5,000,000 9.5 2.70% 02-01-2016 08-01-2025 T13 UF 5,000,000 10.0 2.75% 02-01-2016 02-01-2026 T14 UF 18,000,000 11.0 2.80% 02-01-2016 02-01-2027 T15 UF 5,000,000 12.5 3.00% 02-01-2016 08-01-2028 Total UF 96,000,000         T16 CLP 100,000,000,000 5.5 5,20% 02-01-2016 08-01-2021 Total CLP 100,000,000,000         DN USD 10,000,000 5.0 Libor-USD 3M+1.05% 06-02-2016 06-09,2021 DN USD 10,000,000 5.0 Libor-USD 3M+1.22% 06-08-2016 06-17-2021 DN USD 10,000,000 5.0 Libor-USD 3M+1.20% 08-01-2016 08-16-2021 DN USD 185,000,000 5.0 Libor-USD 3M+1.20% 11-10-2016 11-28-2021 Total USD 215,000,000         JPY JPY 3,000,000,000 5.0 0.115% 06-22-2016 06-29-2021 Total JPY 3,000,000,000         EUR EUR 20,000,000 8.0 0.80% 08-04-2016 08-19-2024 EUR EUR 54,000,000 12.0 1.307% 08-05-2016 08-17-2028 EUR EUR 30,000,000 3.0 0.25% 12-09-2016 12-20-2019 Total EUR 104,000,000         CHF CHF 125,000,000 8.5 0.35% 11-14-2016 05-30-2025 Total CHF 125,000,000         e.2)c.2 Subordinated bonds   As at December 31, 20162019 the Bank had not issued subordinated bonds in this financial year.   e.3)c.3 Mortgage bonds   As at December 31, 20162019 the Bank had not issued mortgagesmortgage bonds in this financial year.   F-41 F-56 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 02 03 SIGNIFICANT EVENTS, continued   e.4)c.4       Repurchase of bonds   The Bank has conducted the following repurchase of bonds as of December 31, 2016:2019:   Date Series Amount 01-13-2016 Senior bond USD        600,000 01-27-2016 Senior bond USD        960,000 03-08-2016 Senior bond USD 481,853,000 03-08-2016 Senior bond USD 140,104,000 05-10-2016 Senior bond USD   10,000,000 11-29-2016 Senior bond USD     6,895,000 As of December 31, 2015, the following significant events have occurred and affected the Bank`s operations and Consolidated Financial Statements. a) The Board In the Ordinary Board Meeting of Banco Santander Chile held on April 28, 2015, Orlando Poblete Iturrate was confirmed as a Director, having been previously appointed Alternate Director in the Ordinary Board Meeting on April 22, 2014 and replacing Carlos Olivos Marchant as Director since September 23, 2014. Also, Blanca Bustamante Bravo was appointed as Alternate Director. In the Ordinary Board Meeting dated November 17, 2015 the Board appointed the director Orlando Poblete Iturrate as a member of the Audit Committee of Directors, replacing Lisandro Serrano Spoerer who had resigned in the Ordinary Board Meeting held on October 20, 2015. b) Use of Profits and Distribution of Dividends The Shareholders’ Meeting of Banco Santander Chile held on April 28, 2015, was chaired by Mr. Vittorio Corbo Lioi (Chairman), and attended by Roberto Méndez Torres (Second Vice President), the Directors: Marco Colodro Hadjes, Lucía Santa Cruz Sutil, Juan Pedro Santa María Pérez, Lisandro Serrano Spoerer, Roberto Zahler Mayanz and Orlando Poblete Iturrate. Also, the CEO Claudio Melandri Hinojosa and CAO Felipe Contreras Fajardo attended the meeting. According to the information presented in aforementioned meeting, 2014 net income (designated in the financial statements as “Income attributable to equity holders of the Bank”) amounted to Ch$550,331 million. The Board approved the distribution of 60% of such net income, yielding a Ch$1.752 dividend per share, payable starting on April 29, 2015. Also, it was approved that the remaining 40% of the profits will be retained in the Bank’s reserves. F-42  Table of Contents NOTE 02 SIGNIFICANT EVENTS, continued c) Issuance of bonds - at December 31, 2015 In the year ended December 31, 2015 the Bank has issued senior bonds in the amount of CLP 500,000,000,000 UF 14,000,000 CHF 150,000,000, and JPY 1,200,000,000. Debt issuance information is included in Note 18. c.1) Senior bonds Series Currency Amount Term Issuance rate Issuance date Maturity date P102-12-2019 Senior CLP 50,000,000,000 10 years 5.80% per annum simple 01-01-2015 01-01-2025   10,000,000,000 P202-14-2019 Senior CLP 100,000,000,000 5 years 5.20% per annum simple 01-01-2015 01-01-2020   30,000,000,000 P302-19-2019 Senior CLP 50,000,000,000 7 years 5.50% per annum simple 01-01-2015 01-01-2022    4,200,000,000 P402-22-2019 Senior CLP 150,000,000,000 5 years 4.80% per annum simple 03-01-2015 03-01-2020   14,240,000,000 P502-22-2019 Senior CLP 150,000,000,000 6 years 5.30% per annum simple 03-01-2015 03-01-2022   30,000,000 Total02-22-2019 CLPSenior 500,000,000,000CLP 10,000,000 P603-01-2019 Senior CLP    11,800,000,000 03-04-2019 Senior CLP    40,080,000,000 03-05-2019 Senior CLP    20,000,000,000 03-15-2019 Senior UF 3,000,000 5 years 2.25% per annum simple 03-01-2015 03-01-2020             156,000 P703-19-2019 Senior UF 3,000,000 7.5 years 2.40% per annum simple 03-01-2015 09-01-2022             418,000 P803-20-2019 Senior CLP     6,710,000,000 03-20-2019 Senior UF 3,000,000 5.5 years 2.25% per annum simple 03-01-2015 09-01-2020             154,000 P903-21-2019 Senior UF 5,000,000 10.5 years 2.60% per annum simple 03-01-2015 09-01-2025             100,000 Total03-25-2019 UFSenior 14,000,000UF               100,000 CHF fixed bond03-26-2019 CHFSenior 150,000,000UF 7 years 0.38% quarterly 04-19-2015 10-19-2022               90,000 Total04-08-2019 CHFSenior 150,000,000CLP      3,950,000,000 JPY current bond04-10-2019 JPYSenior 1,200,000,000UF 5 years 0.42% biannually 12-17-2015 12-17-2020             409,000 Total04-16-2019 JPYSenior 1,200,000,000UF                55,000 04-17-2019 Senior CLP        130,000,000 04-18-2019 Senior CLP        330,000,000 05-16-2019 Senior CLP    14,880,000,000 05-16-2019 Senior UF                  9,000 06-13-2019 Senior UF                  1,000 10-01-2019 Senior CLP    10,960,000,000 10-02-2019 Senior CLP        100,000,000 10-04-2019 Senior CLP          60,000,000 11-05-2019 Senior CLP    15,220,000,000 11-07-2019 Senior CLP     3,620,000,000 11-13-2019 Senior CLP     5,320,000,000 11-14-2019 Senior UF            2,977,000 11-28-2019 Senior UF              340,000 12-02-2019 Senior UF              105,000   c.2) Subordinated bondsd) Others   As atOn January 12, 2019, was published in the “Diario Oficial” Law 21,130 that modernizes Banking Legislation. This law introduces modifications, among other regulatory bodies, to the General Bank Law (LGB), to Law 21,000 creating the Financial Market Commission (“FMC” which replaces former SBIF), to the Organic Law of the State Bank of Chile and to the Tax Code. The main changes introduced by this law are the integration of the SBIF within the Financial Market Commission (FMC), new capital requirements in accordance with the international standards established by Basel III, in addition to new limits for credit operations. The new law adopts the highest international standards in banking regulation and supervision, strengthening international competitiveness and contributing to the financial stability of Chile. F-57 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 03 SIGNIFICANT EVENTS, continued The FMC has issued three standards drafts for comment of a total of 16 that are required for the full fulfillment of the new capital requirements: - Identification of banks with systemic importance. - New standardized methodology to determine risk-weighted assets operational risk.  - Methodology for computing regulatory capital. On December 31, 201520, 2019, the Bank had notFMC issued subordinated bonds in thisCircular N°2,243 Compendium of Accounting Standards for banks, which incorporates the modifications introduced by the IASB through new standards such as IFRS 9 Financial Instruments (excluding impairment chapter), IFRS 16 Leases, IFRS15 Revenue from Contracts with customers and disclosures required by IFRS 7 Financial Instruments:Disclosures. The modifications pursue greater convergence to IFRS, improving disclosures and contributing to the transparency of the Chilean banking system. The new compendium (CNCB) is applicable from January 1, 2021, and for the purposes of comparative financial statement as of March 2021, 2020 will be a transition year.   c.3)       Repurchase Sale of bondsassociates The Bank completed the sale of a significant part of its participation in Sociedad Nexus S.A., which reached 12.9% investment that was registered as an asset held for sale (see Note No. 39).   The Bank has conducted the following repurchase of bonds as of December 31, 2015: Date Series Amount 12-01-2015 Senior bond USD 19,000,000 c.4)       Mortgage bonds at December 31, 2015Social unrest   During October 2019, growing public concern over perceived social inequality led to a rise in social unrest. As a results, certain Bank’s branches suffered different level of damages. As of December 31, 20152019, the Bank has issued the following bonds:recorded an impairment for an amount of MCh$2,726 (see Note 33), and expenses for MCh$1,823 as other operational expenses (see Note 34) . Most of this damage was insured.   Series Currency Amount Term Issuance rate Issuance date Maturity date AC       CLP 100,000,000,000 10 years 5,50% per annum simple 01-01-2015 01-01-2025 Total CLP 100,000,000,000   F-43 F-58 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 0304 REPORTING SEGMENTS   The Bank manages and measures the performance of its operations by business segments. The information disclosed in this note is not necessarily comparable to that of other financial institutions, since it is based on management’s internal information system by segment.   Inter-segment transactions are conducted under normal arm’s length commercial terms and conditions. Each segment’s assets, liabilities, and income include items directly attributable to the segment to which they can be allocated on a reasonable basis. Due to changes aimed at allocating customers to those segments best capable of servicing them, and streamlining processes, the Bank has modified its internal structure during 2015. This change in composition of the segments resulted in the following: - Commissions paid in “Net fee and commission income “were reassigned among segments to more appropriately reflect the distributions in accordance with the management of each segment; - The effects of changes in foreign exchange rates of provisions were reallocated to the line item “Other”, to more appropriately reflect the effects directly attributable to the respective segments; - The improvement of the allocation of interest costs at time of placement of the loan.   Under IFRS 8, the Bank has aggregated operating segments with similar economic characteristics according to the aggregation criteria specified in the standard. A reporting segment consists of clients that are offered differentiated but, considering how their performance is measured, are homogenous services based on IFRS 8 aggregation criteria, thus they form part of the same reporting segment. Overall, this aggregation has no significant impact on the understanding of the nature and effects of the Bank’s business activities and the economic environment.   The Bank has the reportable segments noted below:   Retail Banking   Consists of individuals and small to middle-sized entities (SMEs) with annual income less than Ch$2,000 million. This segment gives customers a variety of services, including consumer loans, credit cards, autoautomobile loans, commercial loans, foreign exchange, mortgage loans, debit cards, checking accounts, savings products, mutual funds, stockbrokerage, and insurance brokerage. Additionally the SME clients are offered government-guaranteed loans, leasing and factoring.   Middle-market   This segment is made up of companies and large corporations with annual sales exceeding Ch$2,000 million. It serves institutions such as universities, government entities, local and regional governments and companies engaged in the real estate industry who carry out projects to sell properties to third parties and annual sales exceeding Ch$800 million with no upper limit. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, savings products, mutual funds, and insurance brokerage. Also companies in the real estate industry are offered specialized services to finance projects, chiefly residential, with the aim of expanding sales of mortgage loans.   Global CorporateInvestment Banking   This segment consists of foreign and domestic multinational companies with sales over Ch$10,000 million. The companies within this segment have access to many products including commercial loans, leasing, factoring, foreign trade, credit cards, mortgage loans, checking accounts, transactional services, treasury services, financial consulting, investments, savings products, mutual funds and insurance brokerage.   This segment also consists of a Treasury Division which provides sophisticated financial products, mainly to companies in the Middle-market and Global CorporateInvestment Banking segments. These include products such as short-term financing and fund raising, brokerage services, derivatives, securitization, and other tailor-made products.products, The Treasury area may act as brokers to transactions and also manages the Bank’s investment portfolio.   F-44 F-59 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 03 04 REPORTING SEGMENTS, continued   Corporate Activities (“Other”)   This segment mainly includes the results of our Financial Management Division, which develops global management functions, including managing inflation rate risk, foreign currency gaps, interest rate risk and liquidity risk. Liquidity risk is managed mainly through wholesale deposits, debt issuances and the Bank’s available for sale portfolio. This segment also manages capital allocation by unit. These activities usually result in a negative contribution to income.   In addition, this segment encompasses all the intra-segment income and all the activities not assigned to a given segment or product with customers.   The segments’ accounting policies are those described in the summary of accounting policies.policies, The Bank earns most of its income in the form of interest income, fee and commission income and income from financial operations. To evaluate a segment’s financial performance and make decisions regarding the resources to be assigned to segments, the Chief Operating Decision Maker (CODM) bases his assessment on the segment'ssegment’s interest income, fee and commission income, and expenses.   Below are the tables showing the Bank’s results by reporting segment for the years ended December 31, 2016, 20152019, 2018 and 20142017 in addition to the corresponding balances of loans and accounts receivable from customers:             For the year ended December 31, 2019       Loans and accounts receivable at amortised cost (1)     Net interest income     Net fee and commission income     Financial transactions, net (2)     Expected credit losses     Support expenses (3)     Segment’s net contribution       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$                                                             Retail Banking     22,926,377       960,361       230,627       28,426       (279,969 )     (575,511 )     363,934   Middle-market     8,093,496       298,587       38,712       13,535       (38,746 )     (97,054 )     215,034   Global Investment Banking     1,603,633       98,154       29,103       94,761       (224 )     (65,343 )     156,899   Other     48,009       59,862       (11,356 )     64,970       (4,819 )     (11,953 )     96,704                                                             Total     32,671,515       1,416,964       287,086       201,692       (323,311 )     (749,861 )     832,570                                                             Other operating income                                                     13,001   Other operating expenses and impairment                                                     (52,029 ) Income from investments in associates and other companies                                                     1,146   Income tax expense                                                     (175,074 ) Result of continuing operations                                                     619,614   Result of discontinued operations                                                     1,699   Net income for the year                                                     621,313       As of December 31, 2016   Loans and accounts receivable from customers (1) Net interest income Net fee and commission income Financial transactions, net (2) Provision for loan losses Support expenses (3) Segment`s net contribution   MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$                 Retail Banking 18,604,936 931,105 196,845 21,141 (323,888) (529,909) 295,294 Middle-market 6,396,376 244,960 30,851 19,577 (26,748) (83,412) 185,228 Commercial Banking 25,001,312 1,176,065 227,696 40,718 (350,636) (613,321) 480,522                 Global Corporate Banking 2,121,513 95,105 25,077 55,927 7,579 (53,935) 129,753 Other 83,606 10,196 1,651 43,713 974 (19,649) 36,885                 Total 27,206,431 1,281,366 254,424 140,358 (342,083) (686,905) 647,160                 Other operating income         6,427 Other operating expenses and impairment         (69,136) Income from investments in associates and other companies         3,012 Income tax expense         (109,031) Net income for the year         478,432                   (1) Corresponds to loans and accounts receivable from customers,at amortised cost under IFRS 9, without deducting their allowances for loan losses. (2) Corresponds to the sum of the net income from financial operations and the foreign exchange profit or loss. (3) Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.   F-45 F-60 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 03 04 REPORTING SEGMENTS, continued       As of December 31, 2015   Loans and accounts receivable from customers (1) Net interest income Net fee and commission income Financial transactions, net (2) Provision for loan losses Support expenses (3) Segment`s net contribution   MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$                 Retail Banking 17,034,707 873,026 190,380 16,245 (332,657) (533,086) 213,908 Middle-market 6,006,282 229,812 28,537 17,897 (26,147) (77,261) 172,838 Commercial Banking 23,040,989 1,102,838 218,917 34,142 (358,804) (610,347) 386,746                 Global Corporate Banking 2,178,643 85,553 15,231 50,327 (28,426) (49,533) 73,152 Other 81,125 66,815 3,479 61,030 (12,047) (1,328) 117,949                 Total 25,300,757 1,255,206 237,627 145,499 (399,277) (661,208) 577,847                 Other operating income         6,439 Other operating expenses and impairment         (58,750) Income from investments in associates and other companies         2,588 Income tax expense         (76,395) Net income for the year         451,729           For the year ended December 31, 2018       Loans and accounts receivable at amortised cost (1)     Net interest income     Net fee and commission income     Financial transactions, net (2)     Expected credit losses     Support expenses (3)     Segment’s net contribution       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$                                               Retail Banking     20,786,637       949,764       220,532       19,694       (287,739 )     (553,157 )     349,094   Middle-market     7,690,380       272,912       36,746       16,848       (26,314 )     (92,377 )     207,815   Global Investment Banking     1,613,088       96,722       35,064       57,340       2,339       (64,913 )     126,552   Other     123,310       94,970       (1,457 )     11,200       (5,694 )     (11,486 )     87,533                                                             Total     30,213,415       1,414,368       290,885       105,082       (317,408 )     (721,933 )     770,994                                                             Other operating income                                                     23,129   Other operating expenses and impairment                                                     (32,381 ) Income from investments in associates and other companies                                                     1,325   Income tax expense                                                     (167,144 ) Result of continuing operations                                                     595,923   Result of discontinued operations                                                     3,770   Net income for the year                                                     599,693     (1) Corresponds to loans and accounts receivable from customers, without deducting their allowances for loan losses. (2) Corresponds to the sum of the net income from financial operations and the foreign exchange profit or loss. (3) Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation and amortization. F-61 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 04 REPORTING SEGMENTS, continued           For the year ended December 31, 2017       Loans and accounts receivable from customers (1)     Net interest income     Net fee and commission income     Financial transactions, net (2)     Provision for loan losses     Support expenses (3)     Segment’s net contribution       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$                                               Retail Banking     19,233,169       970,332       206,449       20,595       (293,956 )     (534,970 )     368,450   Middle-market     6,775,734       264,663       36,280       13,751       (19,235 )     (91,882 )     203,577   Global Investment Banking     1,633,796       100,808       27,626       50,714       6,440       (62,685 )     122,903   Other     83,215       (9,112 )     8,708       44,692       4,496       (15,356 )     33,428                                                             Total     27,725,914       1,326,691       279,063       129,752       (302,255 )     (704,893 )     728,358                                                             Other operating income                                                     62,016   Other operating expenses and impairment                                                     (74,057 ) Income from investments in associates and other companies                                                     1,144   Income tax expense                                                     (145,031 ) Result of continuing operations                                                     572,430   Result of discontinued operations                                                     2,819   Net income for the year                                                     575,249   (1) Corresponds to loans and accounts receivable from customers, without deducting their allowances for loan losses.  (2) Corresponds to the sum of the net income from financial operations and the foreign exchange profit or loss. (3) Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation and amortization.   F-46 F-62 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 0305  REPORTING SEGMENTS, continued     As of December 31, 2014   Loans and accounts receivable from customers (1)  Net interest income Net fee and commission income Financial transactions, net (2) Provision for loan losses Support expenses (3) Segment`s net contribution   MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$                 Retail Banking 15,191,808 833,139 175,007 18,458 (325,621) (479,954) 221,029 Middle-market 5,443,983 200,675 27,055 16,342 (22,034) (66,321) 155,717 Commercial Banking 20,635,791 1,033,814 202,062 34,800 (347,655) (546,275) 376,746                 Global Corporate Banking 2,201,913 71,992 22,338 42,186 1,924 (44,195) 94,245 Other 54,945 211,298 2,883 35,579 (9,172) 2,261 242,849                 Total 22,892,649 1,317,104 227,283 112,565 (354,903) (588,209) 713,840                 Other operating income         6,545 Other operating expenses and impairment         (95,610) Income from investments in associates and other companies         2,165 Income tax expense         (51,050) Net income for the year         575,890 (1) Corresponds to loans and accounts receivable from customers, without deducting their allowances for loan losses. (2) Corresponds to the sum of the net income from financial operations and the foreign exchange profit or loss. (3) Corresponds to the sum of personnel salaries and expenses, administrative expenses, depreciation and amortization. F-47  Table of Contents NOTE 04 CASH AND CASH EQUIVALENTS   a)      The detail of the balances included under cash and cash equivalents is as follows:     As of December 31,     2016   2015     MCh$   MCh$           Cash and deposits in banks           Cash   570,317   632,435   Deposits in the Central Bank of Chile   507,275   184,510   Deposits in domestic banks   1,440   192   Deposits in foreign banks     1,200,357   1,247,669 Subtotals – Cash and deposits in banks   2,279,389   2,064,806             Cash in process of collection, net   206,810   262,364             Cash and cash equivalents   2,486,199   2,327,170               a) The detail of the balances included under cash and cash equivalents is as follows:     As of December 31,       2019     2018       MCh$     MCh$                 Cash and deposits in banks             Cash     861,178       824,863   Deposits at the Central Bank of Chile     1,731,079       953,016   Deposits in local banks     948       664   Deposits in banks abroad     961,315       286,898   Subtotals – Cash and deposits in banks     3,554,520       2,065,411                     Net cash items in process of collection     156,814       190,714                     Cash and cash equivalents     3,711,334       2,256,155     The balance of funds held in cash and at the Central Bank of Chile reflects the monthly average that the Bank must maintain in accordance with the regulations governing minimum reserves although the balance can be withdrawn on demand.   b)     Cash in process of collection and in process of being cleared: b) Cash in process of collection and in process of being cleared:   Cash items in process of collection and in process of being cleared represent domestic transactions which have not been processed through the central domestic clearinghouse or international transactions which may be delayed in settlement due to timing differences. These transactions were as follows:     As of December 31,   As of December 31,     2016   2015   2019   2018     MCh$   MCh$   MCh$   MCh$                     Assets Assets                   Documents held by other banks (documents to be cleared)   200,109   296,634 Funds receivable   295,174   427,887 Documents held by other banks (documents to be cleared)   217,394   210,546   Funds receivable   137,668   143,211   Subtotal Subtotal   495,283   724,521   355,062   353,757   Liabilities Liabilities                 Funds payable   288,473   462,157 Subtotal   288,473   462,157 Funds payable   198,248   163,043   Subtotal   198,248   163,043                   Cash in process of collection, net Cash in process of collection, net   206,810   262,364   156,814   190,714     F-48 F-63 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 06  NOTE 05 FINANCIAL ASSETS HELD FOR TRADING INVESTMENTS   The detail of instruments deemed as financial trading investments is as follows:     As of December 31,   As of December 31,     2016   2015   2019   2018     MCh$   MCh$   MCh$   MCh$                   Chilean Central Bank and Government securities Chilean Central Bank and Government securities                 Chilean Central Bank Bonds   158,686   159,767 Chilean Central Bank Notes   -   - Other Chilean Central Bank and Government securities   237,325   123,468 Chilean Central Bank Bonds   1,952   22,947   Chilean Central Bank Notes   -   -   Other Chilean Central Bank and Government securities   268,252   48,211   Subtotal Subtotal   396,011   283,235   270,204   71,158                 Other Chilean securities Other Chilean securities               Time deposits in Chilean financial institutions   -   - Mortgage finance bonds of Chilean financial institutions   -   - Chilean financial institution bonds   -   - Chilean corporate bonds   976   37,630 Other Chilean securities   -   - Time deposits in Chilean financial institutions   -   -   Mortgage finance bonds of Chilean financial institutions   -   -   Chilean financial institution bonds   -   -   Chilean corporate bonds   -   -   Other Chilean securities   -   -   Subtotal Subtotal   976   37,630   -   -                   Foreign financial securities Foreign financial securities               Foreign Central Banks and Government securities   -   - Other foreign financial instruments   -   - Foreign Central Banks and Government securities   -   -   Other foreign financial instruments   -   5,883   Subtotal Subtotal   -   -   -   5,883                 Investments in mutual funds Investments in mutual funds               Funds managed by related entities   -   3,406 Funds managed by others   -   - Funds managed by related entities   -   -   Funds managed by others   -   -   Subtotal Subtotal   -   3,406   -   -                 Total Total   396,987   324,271   270,204   77,041     As of December 31, 20162019 and 2015,2018, there were no trading investments sold under contracts to resell to clients andor financial institutions.   F-49 F-64 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 06 07 INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS   a) Rights arising fromAs of December 31, 2019 and 2018, the Bank does not have investment under resale agreementsagreements.   The Bank purchases financial instruments agreeing to resell them at a future date. As of December 31, 2016 and 2015, rights associated with instruments acquired under contracts to resell are as follows:   As of December 31,   2016   2015   From 1 day and less than 3 months More than 3 months and less than 1 year More than 1 year Total   From 1 day and less than 3 months More than 3 months and less than 1 year More than 1 year Total   MCh$ MCh$ MCh$ MCh$   MCh$ MCh$ MCh$ MCh$                     Securities from the Chilean Government and the Chilean Central Bank                   Chilean Central Bank Bonds 3,260 - - 3,260   1,978 - - 1,978 Chilean Central Bank Notes - - - -   2 - - 2 Other securities from the Government and the Chilean Central Bank 3,476 - - 3,476   483 - - 483 Subtotal 6,736 - - 6,736   2,463 - - 2,463                     Total 6,736 - - 6,736   2,463 - - 2,463 F-50  Table of Contents NOTE 06 INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS, continued b)      Obligations arising from repurchase agreements b) Obligations arising from repurchase agreements   The Bank raises funds by selling financial instruments and committing itself to buy them back at future dates, plus interest at a predetermined rate. As of December 31, 20162019 and 2015,2018, obligations related to instruments sold under repurchase agreements are as follows:   As of December 31,   As of December 31,   2016   2015   2019   2018   From 1 day to less than 3 months More than 3 months and less than 1 year More than 1 year Total   From 1 day to less than 3 months More than 3 months and less than 1 year More than 1 year Total   From 1 day to less than 3 months   More than 3  months and less than 1 year   More than 1 year   Total   From 1 day to less than 3 months   More than 3 months and less than 1 year   More than 1 year   Total   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                       Securities from Chilean Government and the Chilean Central Bank   Securities from Chilean Government and the Chilean Central Bank:                                   Chilean Central Bank Bonds - -   64,337 - 64,337   -        -              -   -   48,307           -             -   48,307   Chilean Central Bank Notes 155,044 - 155,044   22 - 22   -   -   -   -   -   -   -   -   Other securities from the Government and the Chilean Central Bank - -   11,006 - 11,006   379,891   33   -   379,924   110   -   -   110   Subtotal 155,044 - 155,044   75,365 - 75,365   379,891   33   -   379,924   48,417   -   -   48,417   Instruments from other domestic institutions:                                     Time deposits in Chilean financial institutions 56,898 495 - 57,393   68,324 - 68,324   127   4   -   131   128   -   -   128   Subtotal 56,898 495 - 57,393   68,324 - 68,324   127   4   -   131   128   -   -   128   Instruments from other foreign institutions:                                   Securities from Government or foreign Central Banks   -   -   -   -   -   -   -   -   Subtotal   -   -   -   -   -   -   -   -                                       Total 211,942 495 - 212,437   143,689 - 143,689   380,018   37   -   380,055   48,545   -   -   48,545     F-51 F-65 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 06 07 INVESTMENTS UNDER RESALE AGREEMENTS AND OBLIGATIONS UNDER REPURCHASE AGREEMENTS, continued   c) Below is the detail by portfolio of collateral associated with repurchase agreements as of December 31, 2016 and 2015, valued at fair value: c) Below is the detail by portfolio of collateral associated with repurchase agreements as of December 31, 2019 and 2018, valued at fair value:   As of December 31,   As of December 31, 2016   2015   2019   2018 Available for sale portfolio Trading portfolio Total     Available for sale portfolio Trading portfolio Total      Available for sale  portfolio   Trading portfolio    Total   Available for sale  portfolio   Trading portfolio   Total MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                           Chilean Central Bank and Government securities: Chilean Central Bank and Government securities:                           Chilean Central Bank Bonds - - -   62,350 - 62,350   -   -   -   49,040   -   49,040   Chilean Central Bank Notes 155,044 - 155,044   20 - 20   -   -   -   -   -   -   Other securities from the Government and the Chilean Central Bank - -   10,531 - 10,531   379,924   -   379,924   109   -   109   Subtotal 155,044 - 155,044   72,901 - 72,901   379,924   -   379,924   49,149   -   49,149   Other Chilean securities:                             Time deposits in Chilean financial institutions 57,393 - 57,393   68,321 - 68,321   131   -   131   132   -   132   Subtotal 57,393 - 57,393   68,321 - 68,321   131   -   131   132   -   132   Instruments from other foreign institutions:                           Securities from Government or foreign Central Banks   -   -   -   -   -   -   Subtotal   -   -   -   -   -   -                               Total 212,437 - 212,437   141,222 - 141,222   380,055   -   380,055   49,281   -   49,281     F-52 F-66 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 07 08 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING   a) As of December 31, 20162019 and 20152018 the Bank holds the following portfolio of derivative instruments:   As of December 31, 2016   As of December 31, 2019 Notional amount   Fair value   Notional amount   Fair value Up to 3 Months More than 3 months to 1 year More than 1 year Total   Assets Liabilities   Up to 3 Months   More than 3 months to 1 year   More than 1 year    Total   Assets   Liabilities MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                           Fair value hedge derivatives                           Interest rate swaps 74,086 514,454 1,402,870 1,991,410   38,977 211   381,638   317,610   1,847,138   2,546,386   39,460   34,264   Cross currency swaps 424,086 505,902 1,239,490 2,169,478   32,640 32,868   407,008   863,984   13,357,058   14,628,050   226,870   295,281   Subtotal 498,172 1,020,356 2,642,360 4,160,888   71,617 33,079   788,646   1,181,594   15,204,196   17,174,436   266,330   329,545                                   Cash flow hedge derivatives                                 Currency forwards 915,879 639,939 - 1,555,818   10,216 3,441   99,105   1,018,656   768,256   1,886,017   4,131   3,505   Cross currency swaps 897,480 2,613,706 4,260,194 7,771,380   43,591 68,894   2,266,907   1,938,222   10,848,233   15,053,362   106,413   43,183   Subtotal 1,813,359 3,253,645 4,260,194 9,327,198   53,807 72,335   2,366,012   2,956,878   11,616,489   16,939,379   110,544   46,688                                   Trading derivatives                                 Currency forwards 15,840,731 11,240,251 3,358,765 30,439,747   185,618 209,955   28,472,586   18,508,702   7,679,464   54,660,752   1,023,683   1,137,496   Interest rate swaps 6,889,665 12,512,285 49,747,459 69,149,409   627,047 526,695   16,678,487   40,892,909   89,109,046   146,680,442   2,465,235   2,270,686   Cross currency swaps 3,966,443 7,589,201 53,148,109 64,703,753   1,562,068 1,449,550   7,726,724   20,457,463   113,206,678   141,390,865   4,277,450   3,605,516   Call currency options 73,943 20,994 2,664 97,601   521 5   17,971   47,012   81,804   146,787   5,176   240   Call interest rate options - - - Put currency options 52,143 7,892 2,664 62,699   104 542   16,409   41,872   80,655   138,936   190   483   Other derivatives -   - Subtotal 26,822,925 31,370,623 106,259,661 164,453,209   2,375,358 2,186,747   52,912,177   79,947,958   210,157,647   343,017,782   7,771,734   7,014,421                                   Total 29,134,456 35,644,624 113,162,215 177,941,295   2,500,782 2,292,161   56,066,835   84,086,430   236,978,332   377,131,597   8,148,608   7,390,654         As of December 31, 2018     Notional amount   Fair value     Up to 3   months     More than 3   months to   1 year     More than   1 year     Total   Assets   Liabilities     MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                           Fair value hedge derivatives                         Interest rate swaps     80,000       491,600       1,191,012       1,762,612       14,789       9,188   Cross currency swaps     -       1,276,909       6,706,197       7,983,106       96,357       36,708   Subtotal     80,000       1,768,509       7,897,209       9,745,718       111,146       45,896                                                     Cash flow hedge derivatives                                                 Currency forwards     205,750       168,151       -       373,901       -       8,013   Cross currency swaps     1,920,900       1,970,412       9,191,209       13,082,521       79,859       32,712   Subtotal     2,126,650       2,138,563       9,191,209       13,456,422       79,859       40,725                                                     Trading derivatives                                                 Currency forwards     15,301,943       13,080,875       6,062,183       34,445,001       613,063       466,741   Interest rate swaps     12,024,095       22,064,681       69,453,618       103,542,394       723,870       577,835   Cross currency swaps     2,173,111       8,853,306       68,976,339       80,002,756       1,568,365       1,385,314   Call currency options     26,731       60,235       57,579       144,545       4,332       854   Put currency options     23,411       50,445       56,392       130,248       -       363   Subtotal     29,549,291       44,109,542       144,606,111       218,264,944       2,909,630       2,431,107                                                     Total     31,755,941       48,016,614       161,694,529       241,467,084       3,100,635       2,517,728     As of December 31, 2015   Notional amount   Fair value   Up to 3 months More than 3 months to 1 year More than 1 year Total   Assets Liabilities   MCh$ MCh$ MCh$ MCh$   MCh$ MCh$                 Fair value hedge derivatives                 Interest rate swaps 327,955 1,184,795 630,970 2,143,720   5,480 6,364 Cross currency swaps 9,441 30,040 1,842,421 1,881,902   181,557 1,483 Subtotal 337,396 1,214,835 2,473,391 4,025,622   187,037 7,847                 Cash flow hedge derivatives               Currency forwards - - - -   - - Cross currency swaps 7,281,184 4,445,006 2,720,520 14,446,710   273,291 69,716 Subtotal 7,281,184 4,445,006 2,720,520 14,446,710   273,291 69,716                 Trading derivatives               Currency forwards 18,731,575 13,328,727 3,459,386 35,519,688   341,236 318,416 Interest rate swaps 7,272,523 15,677,393 56,140,894 79,090,810   533,416 540,011 Cross currency swaps 5,881,627 5,898,094 44,921,355 56,701,076   1,826,977 1,883,185 Call currency options 49,067 60,380 477,057 586,504   42,325 41,451 Call interest rate options - - 264,473 264,473 1,148 1,253 Put currency options 48,958 52,682 - 101,640   422 684 Other derivatives 125,258 - - 125,258   74 43 Subtotal 32,109,008 35,017,276 105,263,165 172,389,449   2,745,598 2,785,043                 Total 39,727,588 40,677,117 110,457,076 190,861,781   3,205,926 2,862,606   F-53 F-67 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 07 08 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued   b) Hedge accounting   Fair value hedge:   The Bank uses cross-currency swaps and interest rate swaps to hedge its exposure to changes in fair value of hedged items attributable to interest rates. The aforementioned hedging instruments change the effective cost of long-term issuances from a fixed interest rate to a variable interest rate.   Below is a detail of the hedged elements and hedge instruments under fair value hedges as of December 31, 20162019 and 2015,2018, classified by term to maturity:   As of December 31, 2016 Within 1 year Between 1 and 3 years Between 3 and 6 years Over 6 years Total   As of December 31, 2019 MCh$   Within 1 year   Between 1 and 3 years   Between 3 and 6 years   Over 6 years   Total     MCh$   MCh$   MCh$   MCh$   MCh$ Hedged item                       Available for sale investments   Yankee bonds - 6,660 56,610 63,270 Loans and accounts receivable at amortised cost                     Mortgage loan   633,300   1,189,036   1,545,240   3,466,874   6,834,450   Commercial loans   -   600,000   50,000   -   650,000   Debt instruments at FVOCI                       Chilean sovereign bonds   -   -   5,605   394,691   400,296   Mortgage financing bonds - 5,651 - 5,651   -   2,728   -   -   2,728   Treasury bonds (BTP) - 33,300 366,300 399,600 Central bank bonds (BCP) - - Treasury bonds   -   -   149,474   37,369   186,843   Chilean Treasury bonds   -   289,369   -   -   289,369   Chilean Central Bank bonds   -   254,685   -   -   254,685   Time deposits and other time liabilities                         Time deposits 993,659 - 993,659   685,259   281,921   225,515   -   1,192,695   Issued debt instruments                         Senior bonds 524,869 652,046 1,000,905 520,888 2,698,708   651,681   1,133,698   2,253,892   3,324,099   7,363,370   Total 1,518,528 652,046 1,046,516 943,798 4,160,888   1,970,240   3,751,437   4,229,726   7,223,033   17,174,436   Hedging instrument                         Cross currency swaps 929,988 437,046 531,556 270,888 2,169,478   1,270,992   2,791,437   3,774,647   6,790,974   14,628,050   Interest rate swaps 588,540 215,000 514,960 672,910 1,991,410   699,248   960,000   455,079   432,059   2,546,386   Total 1,518,528 652,046 1,046,516 943,798 4,160,888   1,970,240   3,751,437   4,229,726   7,223,033   17,174,436         As of December 31, 2018     Within 1 year   Between 1 and 3 years   Between 3 and 6 years   Over 6 years   Total     MCh$   MCh$   MCh$   MCh$   MCh$ Hedged item                     Loans and accounts receivable at amortised cost                     Mortgage loan     653,872       1,272,382       276,590       603,818       2,806,662   Debt instruments at FVOCI                                         Chilean sovereign bonds     -       -       -       172,072       172,072   Mortgage financing bonds     -       -       3,779       -       3,779   Treasury bonds     -       -       -       174,440       174,440   Chilean Treasury bonds     -       304,818       -       220,041       524,859   Chilean Central Bank bonds     -       449,730       -       -       449,730   Time deposits and other time liabilities                                         Time deposits     486,013       -       -       -       486,013   Issued debt instruments                                         Senior bonds     708,624       1,117,779       1,298,471       2,003,289       5,128,163   Total     1,848,509       3,144,709       1,578,840       3,173,660       9,745,718   Hedging instrument                                         Cross currency swaps     1,276,909       2,794,709       1,228,840       2,682,648       7,983,106   Interest rate swaps     571,600       350,000       350,000       491,012       1,762,612   Total     1,848,509       3,144,709       1,578,840       3,173,660       9,745,718       As of December 31, 2015   Within 1 year Between 1 and 3 years Between 3 and 6 years Over 6 years Total   MCh$ MCh$ MCh$ MCh$ MCh$             Hedged item           Available for sale investments              Yankee bonds - - - 92,106 92,106    Mortgage financing bonds - - - 6,460 6,460    Treasury bonds (BTP) - - - - -    Central bank bonds (BCP) - - - - - Time deposits and other time liabilities           Time deposits 1,542,789 65,000 - - 1,607,789 Issued debt instruments              Senior bonds 9,442 573,960 867,865 868,000 2,319,267 Total 1,552,231 638,960 867,865 966,566 4,025,622 Hedging instrument              Cross currency swaps 39,481 548,960 567,865 725,596 1,881,902    Interest rate swaps 1,512,750 90,000 300,000 240,970 2,143,720 Total 1,552,231 638,960 867,865 966,566 4,025,622 F-54 F-68 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 07 08 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued   Cash flow hedges   The Bank uses cross currency swaps to hedge the risk from variability of cash flows attributable to changes in the interest rates of bonds and interbank loans at a variable rate. To cover the inflation risk in some items, both forwards as well as currency swaps are used.   Below is the notional amount of the hedged items as of December 31, 20162019 and 2015,2018, and the period when the cash flows will be generated:   As of December 31, 2016   As of December 31, 2019 Within 1 year Between 1 and 3 years Between 3 and 6 years Over 6 years Total   Within 1 year    Between 1 and 3 years    Between 3 and 6 years    Over 6 years    Total MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ Hedged item                       Loans and accounts receivables from customers     Loans and accounts receivable at amortised cost                     Mortgage loans 1,083,972 312,546 900,746 956,803 3,254,067   3,334,734   1,505,595   1,995,156   3,136,962   9,972,447   Commercial loans 972,360 - 972,360   -   -   -   -   -   Available for sale investments     Yankee bond - 126,140 406,881 533,021 Debt instruments at FVOCI                       Chilean sovereign bonds   -   -   -   -   -   Chilean Central Bank bonds 20,754 - 20,754   -   -   82,727   -   82,727   Time deposits 26,196 - 26,196   -   -   267,286   225,981   493,267   Time deposits and other time liabilities                           Time deposits 285,090 - 285,090   -   -   -   -   -   Issued debt instruments                           Senior bonds (variable rate) 854,414 399,451 285,355 - 1,539,220   358,118   341,283   -   -   699,401   Senior bonds (fixed rate) 140,765 108,409 243,121 105,600 597,895   803,596   1,696,595   1,152,461   1,069,511   4,722,163   Interbank borrowings                         Interbank loans 1,683,453 415,142 - 2,098,595   826,442   142,932   -   -   969,374   Total 5,067,004 1,235,548 1,555,362 1,469,284 9,327,198   5,322,890   3,686,405   3,497,630   4,432,454   16,939,379   Hedging instrument                         Cross currency swaps 3,511,186 1,235,548 1,555,362 1,469,284 7,771,380   4,205,129   2,918,149   3,497,630   4,432,454   15,053,362   Currency forwards 1,555,818 - 1,555,818   1,117,761   768,256   -   -   1,886,017   Total 5,067,004 1,235,548 1,555,362 1,469,284 9,327,198   5,322,890   3,686,405   3,497,630   4,432,454   16,939,379         As of December 31, 2018     Within 1 year    Between 1 and 3 years    Between 3 and 6 years    Over 6 years    Total     MCh$   MCh$   MCh$   MCh$   MCh$ Hedged item                     Loans and accounts receivable at amortised cost                     Mortgage loans     1,890,696       3,026,824       1,459,389       2,467,090       8,843,999   Commercial loans     109,585       -       -       -       109,585   Debt instruments at FVOCI                                         Chilean sovereign bonds     -       -       -       -       -   Chilean Central Bank bonds     -       -       246,306               246,306   Time deposits     -       -       166,628       -       166,628   Time deposits and other time liabilities                                         Time deposits     -       -       -       -       -   Issued debt instruments                                         Senior bonds (variable rate)     -       666,823       -       -       666,823   Senior bonds (fixed rate)     500,583       52,790       601,639       503,721       1,658,733   Interbank borrowings                                         Interbank loans     1,764,348       -       -       -       1,764,348   Total     4,265,212       3,746,437       2,473,962       2,970,811       13,456,422   Hedging instrument                                         Cross currency swaps     3,891,311       3,746,437       2,473,962       2,970,811       13,082,521   Currency forwards     373,901       -       -       -       373,901   Total     4,265,212       3,746,437       2,473,962       2,970,811       13,456,422     As of December 31, 2015   Within 1  year Between 1 and 3 years Between 3 and 6 years Over 6 years Total   MCh$ MCh$ MCh$ MCh$ MCh$ Hedged item             Loans and accounts receivables from customers              Mortgage loans 8,098,639 157,462 158,649 - 8,414,750 Commercial loans 564,800 - - - 564,800 Available for sale investments              Yankee bond - - 80,078 585,386 665,464    Chilean Central Bank bonds 123,962 20,467 - - 144,429    Time deposits 50,023 - - - 50,023 Time deposits and other time liabilities              Time deposits - - - - - Issued debt instruments              Senior bonds (variable rate) 963,829 1,176,383 - - 2,140,212    Senior bonds (fixed rate) - - 14,036 202,562 216,598 Interbank borrowings              Interbank loans 1,924,937 325,497 - - 2,250,434 Total 11,726,190 1,679,809 252,763 787,948 14,446,710 Hedging instrument           Cross currency swaps 11,726,190 1,679,809 252,763 787,948 14,446,710 Currency forwards - - - - - Total 11,726,190 1,679,809 252,763 787,948 14,446,710   F-55 F-69 Table of Contents  NOTE 07 Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 08 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued   Below is an estimate of the periods in which cash flows are expected to be produced:   b.1)b.1 Forecasted cash flows for interest rate risk:   As of December 31, 2016   As of December 31, 2019 Within 1 year Between 1 and 3 years Between 3 and 6 years Over 6 years Total   Within 1 year    Between 1 and 3 years   Between 3 and 6 years   Over 6 years    Total MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ Hedged item                         Inflows 159,439 83,193 32,647 3,748 279,027   25,328   10,220   217   -   35,765   Outflows (72,631) (45,857) (18,040) - (136,528)   (356,683 )   (245,480 )   (154,689 )   (163,151 )   (920,003 ) Net flows 86,808 37,336 14,607 3,748 142,499   (331,355 )   (235,260 )   (154,472 )   (163,151 )   (884,238 )                         Hedging instrument                         Inflows 72,631 45,857 18,040 - 136,528   356,683   245,480   154,689   163,151   920,003   Outflows (*) (159,439) (83,193) (32,647) (3,748) (279,027)   (25,328 )   (10,220 )   (217 )   -   (35,765 ) Net flows (86,808) (37,336) (14,607) (3,748) (142,499)   331,355   235,260   154,472   163,151   884,238     (*)Only includes cash flow forecast portion of the hedge instruments used to cover interest rate risk.   As of December 31, 2015   As of December 31, 2018 Within 1 year Between 1 and 3 years Between 3 and 6 years Over 6 years Total   Within 1 year    Between 1 and 3 years   Between 3 and 6 years   Over 6 years    Total MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ Hedged item                         Inflows 69,477 23,003 9,466 4,661 106,607   76,736   35,994   3,062   2,401   118,193   Outflows (40,521) (25,018) (6,216) (650) (72,405)   (125,747 )   (46,372 )   (13,311 )   (4,701 )   (190,131 ) Net flows 28,956 (2,015) 3,250 4,011 34,202   (49,011 )   (10,378 )   (10,249 )   (2,300 )   (71,938 )                         Hedging instrument                         Inflows 40,521 25,018 6,216 650 72,405   125,747   46,372   13,311   4,701   190,131   Outflows (*) (69,477) (23,003) (9,466) (4,661) (106,607)   (76,736 )   (35,994 )   (3,062 )   (2,401 )   (118,193 ) Net flows (28,956) 2,015 (3,250) (4,011) (34,202)   49,011   10,378   10,249   2,300   71,938     (*)Only includes cash flow forecast portion of the hedge instruments used to cover interest rate risk.   F-56 F-70 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017    NOTE 0708 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued   b.2)b.2 Forecasted cash flows for inflation risk:   As of December 31, 2016   As of December 31, 2019 Within 1 year Between 1 and 3 years Between 3 and 6 years Over 6 years Total   Within 1 year    Between 1 and 3 years    Between 3 and 6 years   Over 6 years    Total MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ Hedged item                         Inflows 22,586 11,896 56,107 115,753 206,342   74,574   109,486   216,972   422,362   823,394   Outflows (4,900) - (4,900)   (19,466 )   (50,151 )   (33,140 )   (52,880 )   (155,637 ) Net flows 17,686 11,896 56,107 115,753 201,442   55,108   59,335   183,832   369,482   667,757                               Hedging instrument                             Inflows 4,900 - 4,900   19,466   50,151   33,140   52,880   155,637   Outflows (22,586) (11,896) (56,107) (115,753) (206,342)   (74,574 )   (109,486 )   (216,972 )   (422,362 )   (823,394 ) Net flows (17,686) (11,896) (56,107) (115,753) (201,442)   (55,108 )   (59,335 )   (183,832 )   (369,482 )   (667,757 )     As of December 31, 2018     Within 1 year    Between 1 and 3 years    Between 3 and 6 years   Over 6 years    Total     MCh$   MCh$   MCh$   MCh$   MCh$ Hedged item                     Inflows     37,086       73,576       166,516       310,293       587,471   Outflows     (14,036 )     -       -       -       (14,036 ) Net flows     23,050       73,576       166,516       310,293       573,435                                             Hedging instrument                                         Inflows     14,036       -       -       -       14,036   Outflows     (37,086 )     (73,576 )     (166,516 )     (310,293 )     (587,471 ) Net flows     (23,050 )     (73,576 )     (166,516 )     (310,293 )     (573,435 )     As of December 31, 2015   Within 1 year Between 1 and 3  years Between 3 and 6 years Over 6 years Total   MCh$ MCh$ MCh$ MCh$ MCh$ Hedged item           Inflows 147,374 10,554 - - 157,928 Outflows - - - - - Net flows 147,374 10,554 - - 157,928             Hedging instrument           Inflows - - - - - Outflows (147,374) (10,554) - - (157,928) Net flows (147,374) (10,554) - - (157,928) F-57  Table of Contents NOTE 07 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued b.3)b.3 Forecasted cash flows for exchange rate risk:   As of December 31, 20162019 and 20152018 the Bank has no forecasted cash flows for exchange rate risk.   c) The accumulated effect of the mark to market adjustment of cash flow hedges produced by hedge instruments used in hedged cash flow was recorded in the Consolidated StatementStatements of Changes in Equity, specifically within Other comprehensive income, as of December 31, 20162019 and 2015,2018, is as follows:     As of December 31,   As of December 31, Hedged item   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$           Interbank loans   (6,019)   2,700   (1,872 )   309   Time deposits and other time liabilities   (294)   - Issued debt instruments   (8,169)   2,462   (16,345 )   (10,893 ) Available for sale investments   12,833   573 Loans and accounts receivable from customers   3,937   2,891 Debt instruments at FVOCI   (2,905 )   (1,392 ) Loans and accounts receivable at amortised cost   (19,313 )   21,779   Net flows   2,288   8,626   (40,435 )   9,803   F-71 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 08 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued   Since the inflows and outflows for both the hedged element and the hedging instrument mirror each other, the hedges are nearly 100% effective, which means that the fluctuations of fair value attributable to risk components are almost completely offset.   During the year, the Bank did not haveenter into any cash flow hedges of forecastrelating to forecasted transactions. F-58  Table of Contents NOTE 07 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING, continued   d) Below is a presentation of income generated by cash flow hedges amount that were reclassified from other comprehensive income to income for the year:   For the years ended December 31,     For the years ended December 31, 2016   2015   2014   2019   2018   2017 MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                 Bond hedging derivatives (77)   6   (16)   (120 )   -   -   Interbank loans hedging derivatives -   -   446   (955 )   (683 )   -     Cash flow hedge net income (77)   6   430 Cash flow hedge net gain (loss)   (1,075 )   (683 )   -     See Note 2324 - Equity, letter e)   e) Net investment hedges in foreign operations:   As of December 31, 20162019 and 2015,2018, the Bank does not have any foreign net investment hedges in its hedge accounting portfolio.   F-59  Table of Contents NOTE 08 INTERBANK LOANS a)f) As of December 31, 2016 and 2015, balances of “Interbank loans” are as follows:Macrohedges     As of December 31,   2016   2015   MCh$   MCh$         Domestic banks       Interbank loans 23   14 Other domestic bank loans 51   36         Foreign Interbank Loans       Interbank loans – Foreign 272,733   10,827 Provisions and impairment for foreign bank loans (4,135)   (1,166)         Total 268,672   9,711     Notional amount As of December 31, 2019   Within 1 year   Between 1 and 3 years   Between 3 and 6 years   Over 6 years   Total     MCh$   MCh$   MCh$   MCh$   MCh$ Hedge item                     Loans and account receivable at amortised cost                                         Mortgage loans     633,300       1,189,036       1,545,240       3,466,874       6,834,450   Commercial loans     -       600,000       50,000       -       650,000     b) The amount in each period for provisions and impairment of interbank loans is shown below:   As of December 31,   2016   2015 Domestic banks Foreign banks Total   Domestic banks Foreign banks Total MCh$ MCh$ MCh$   MCh$ MCh$ MCh$                 Balance as of January 1 - 1,166 1,166   - 1 1 Provisions established 1 3,051 3,052   141 1,216 1,357 Provisions released (1) (82) (83)   (141) (51) (192) Total - 4,135 4,135   - 1,166 1,166 F-60  Table of Contents NOTE 09 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS   a) Loans and accounts receivable from customers     Notional amount As of December 31, 2018   Within 1 year   Between 1 and 3 years   Between 3 and 6 years   Over 6 years   Total     MCh$   MCh$   MCh$   MCh$   MCh$ Hedge item                     Loans and account receivable at amortised cost                                         Mortgage loans     653,872       1,272,382       276,590       603,818       2,806,662   Commercial loans     -       -       -       -       -     As of December 31, 20162019 and 2015,2018, Other Assets include MCh$210,867 and MCh$9,414 respectively, related to fair value measurement of net assets or liabilities subject to macrohedges. See Note 16. F-72 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 09 LOANS AND ACCOUNTS RECEIVABLE AT AMORTISED COST As of December 31, 2019 the composition of the loan portfolio is as follows:   As of December 31, 2016 Assets before allowances   Allowances established   Normal portfolio Impaired portfolio Total   Individual allowances Group allowances Total   Assets net balance MCh$   MCh$   MCh$   Assets before allowances   ECL allowance   Net As of December 31, 2019   Stage 1   Stage 2   Stage 3   Total   Stage 1   Stage 2   Stage 3   Total   Assets   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                               Commercial loans                                           Interbank loans   14,852   -   -   14,852   1   -   -   1   14,851   Commercial loans 9,160,982 692,675 9,853,657   159,463 148,703 308,166   9,545,491   10,179,002   870,028   659,157   11,708,187   41,296   41,734   301,094   384,124   11,324,063   Foreign trade loans 1,750,196 79,708 1,829,904   56,919 901 57,820   1,772,084   1,519,757   155,324   38,552   1,713,633   4,113   705   23,569   28,387   1,685,246   Checking accounts debtors 166,073 13,395 179,468   2,794 6,854 9,648   169,820   166,771   16,108   14,014   196,893   1,492   764   9,644   11,900   184,993   Factoring transactions 291,112 5,639 296,751   4,787 620 5,407   291,344   478,465   7,946   2,989   489,400   1,158   234   1,904   3,296   486,104   Student loans   57,206   5,942   8,125   71,273   1,774   1,950   5,595   9,319   61,954   Leasing transactions 1,376,972 108,151 1,485,123   17,593 5,546 23,139   1,461,984   1,184,765   178,556   61,541   1,424,862   5,415   8,270   30,960   44,645   1,380,217   Other loans and account receivable 193,589 28,973 222,562   4,780 20,482 25,262   197,300   201,805   11,163   30,257   243,225   2,178   2,287   20,432   24,615   218,328   Subtotal 12,938,924 928,541 13,867,465   246,336 183,106 429,442   13,438,023   13,802,623   1,245,067   814,635   15,862,325   57,427   55,944   393,198   506,569   15,355,756                                               Mortgage loans                                             Loans with mortgage finance bonds 31,368 1,211 32,579   - 16 16   32,563   10,774   744   780   12,298   13   21   103   137   12,161   Endorsable mortgage mutual loans 115,400 4,534 119,934   - 190 190   119,744   92,792   2,819   4,541   100,152   72   103   641   816   99,336   Other mortgage mutual loans 8,074,900 391,943 8,466,843   - 56,803 56,803   8,410,040   10,172,400   454,385   523,760   11,150,545   8,361   14,385   77,360   100,106   11,050,439   Subtotal 8,221,668 397,688 8,619,356   - 57,009   8,562,347   10,275,966   457,948   529,081   11,262,995   8,446   14,509   78,104   101,059   11,161,936                                               Consumer loans                                             Installment consumer loans 2,468,692 253,673 2,722,365   - 249,545 249,545   2,472,820   3,378,489   270,347   268,700   3,917,536   51,289   45,102   158,670   255,061   3,662,475   Credit card balances 1,418,409 29,709 1,448,118   - 41,063 41,063   1,407,055   1,341,734   17,668   18,308   1,377,710   12,507   4,894   9,936   27,337   1,350,373   Leasing transactions 5,062 55 5,117   - 72 72   5,045   3,569   303   80   3,952   56   30   36   122   3,830   Other consumer loans 266,056 5,147 271,203   - 9,339 9,339   261,864   239,255   4,400   3,342   246,997   3,544   782   1,621   5,947   241,050   Subtotal 4,158,219 288,584 4,446,803   - 300,019   4,146,784   4,963,047   292,718   290,430   5,546,195   67,396   50,808   170,263   288,467   5,257,728                                               Total 25,318,811 1,614,813 26,933,624   246,336 540,134 786,470   26,147,154   29,041,636   1,995,733   1,634,146   32,671,515   133,269   121,261   641,565   896,095   31,775,420             F-61 F-73 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 09 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS,AT AMORTISED COST, continued As of December 31, 2015   Assets before allowances   Allowances established   Normal  portfolio Impaired  portfolio Total   Individual allowances Group allowances Total   Assets net balance MCh$ MCh$ MCh$   MCh$ MCh$ MCh$   MCh$                     Commercial loans                   Commercial loans   8,262,693 722,759 8,985,452   159,635 145,830 305,465   8,679,987 Foreign trade loans   2,077,598 74,972 2,152,570   65,631 1,473 67,104   2,085,466 Checking accounts debtors 221,796 12,927 234,723   2,665 7,204 9,869   224,854 Factoring transactions 270,272 5,375 275,647   5,194 761 5,955   269,692 Leasing transactions 1,430,470 103,722 1,534,192   18,810 6,627 25,437   1,508,755 Other loans and account receivable 121,647 22,128 143,775   4,570 12,801 17,371   126,404 Subtotal 12,384,476 941,883 13,326,359   256,505 174,696 431,201   12,895,158                     Mortgage loans                   Loans with mortgage finance bonds 42,263 1,765 44,028   - 336 336   43,692 Endorsable mortgage mutual loans   131,118 2,987 134,105   - 848 848   133,257 Other mortgage mutual loans   7,243,322 391,395 7,634,717   - 61,243 61,243   7,573,474 Subtotal 7,416,703 396,147 7,812,850   - 62,427 62,427   7,750,423                     Consumer loans                   Installment consumer loans 2,167,378 302,268 2,469,646   - 215,914 215,914   2,253,732 Credit card balances 1,410,036 24,573 1,434,609   - 43,159 43,159   1,391,450 Leasing transactions 5,383 77 5,460   - 79 79   5,381 Other consumer loans   236,564 4,392 240,956   - 8,355 8,355   232,601 Subtotal 3,819,361 331,310 4,150,671   - 267,507 267,507   3,883,164                     Total 23,620,540 1,669,340 25,289,880   256,505 504,630 761,135 24,528,745                        F-62  Table of Contents NOTE 09 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued b) Portfolio characteristics: As of December 31, 2016 and 2015 the portfolio before allowances is as follows, by customer’s economic activity:   Domestic loans (*)   Foreign interbank loans   Total loans   Distribution percentage   As of December 31   As of December 31,   As of December 31,   As of December 31,   2016 2015   2016 2015   2016 2015   2016 2015   MCh$ MCh$   MCh$ MCh$   MCh$ MCh$   % % Commercial loans                       Manufacturing 1,180,886 1,171,830   - -   1,180,886 1,171,830   4.34 4.63 Mining 340,554 510,467   - -   340,554 510,467   1.25 2.02 Electricity, gas, and water 442,936 454,456   - -   442,936 454,456   1.63 1.80 Agriculture and livestock 1,096,659 1,019,922   - -   1,096,659 1,019,922   4.03 4.03 Forest 96,806 96,069   - -   96,806 96,069   0.36 0.38 Fishing 296,592 344,496   - -   296,592 344,496   1.09 1.36 Transport 787,510 876,329   - -   787,510 876,329   2.89 3.46 Communications 196,934 160,135   - -   196,934 160,135   0.72 0.63 Construction 1,792,485 1,462,535   - -   1,792,485 1,462,535   6.59 5.78 Commerce 3,120,400 3,050,663   272,733 10,827   3,393,133 3,061,490   12.47 12.10 Services 482,900 483,516   - -   482,900 483,516   1.77 1.91 Other 4,032,877 3,695,991   - -   4,032,877 3,695,991   14.84 14.61                         Subtotal 13,867,539 13,326,409   272,733 10,827   14,140,272 13,337,236   51.98 52.71                         Mortgage loans 8,619,356 7,812,850   - -   8,619,356 7,812,850   31.68 30.88                         Consumer loans 4,446,803 4,150,671   - -   4,446,803 4,150,671   16.34 16.41                         Total 26,933,698 25,289,930   272,733 10,827   27,206,431 25,300,757   100.00 100.00 (*) Includes domestic interbank loans for Ch$74 million as of December 31, 2016 (Ch$50 million as of December 31, 2015), see Note 8. F-63  Table of Contents NOTE 09 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued c)     Impaired Portfolio i)     As of December 31, 2016 and 2015, the impaired portfolio is as follows:   As of December 31,    2016   2015   Commercial   Mortgage   Consumer   Total   Commercial   Mortgage   Consumer   Total   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ Individual impaired portfolio 439,707   -    -    439,707   486,685   -    -    486,685 Non-performing loans (1) (collectively evaluated) 316,838   147,572   99,721   564,131   346,868   183,133   113,467   643,468 Other impaired portfolio 172,624   250,116   188,863   611,603   108,330   213,014   217,843   539,187 Total 929,169   397,688   288,584   1,615,441   941,883   396,147   331,310   1,669,340 (1) Non-performing loans include the aggregate unpaid principal and accrued but unpaid interest on all loans with at least one installment at least 90 days past-due. ii) The impaired portfolio with or without guarantee as of December 31, 2016 and 2015 is as follows:   As of December 31,     2016   2015   Commercial   Mortgage   Consumer   Total   Commercial   Mortgage   Consumer   Total   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ Secured debt 519,821   357,320   35,134   912,275   410,700   362,326   42,244   815,270 Unsecured debt 409,348   40,368   253,450   703,166   531,183   33,821   289,066   854,070 Total 929,169   397,688   288,584   1,615,441   941,883   396,147   331,310   1,669,340                                   iii) The portfolio of non-performing loans with or without guarantee, as of December 31, 2016 and 2015 is as follows:   As of December 31,   2016   2015     Commercial   Mortgage   Consumer   Total   Commercial   Mortgage   Consumer   Total     MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   Secured debt 159,965   129,632   8,940   298,537   115,733   158,854   9,144   283,731   Unsecured debt 156,873   17,940   90,781   265,594   231,135   24,279   104,323   359,737   Total 316,838   147,572   99,721   564,131   346,868   183,133   113,467   643,468   F-64  Table of Contents NOTE 09 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued d) Allowances The changes in allowance balances during 2016 and 2015 are as follows: Activity during 2016 Commercial loans Mortgage loans Consumer loans Total   Individual Group Group Group   MCh$ MCh$ MCh$ MCh$ MCh$             Balance as of January 1, 2016 256,505 174,696    62,427 267,507 761,135 Allowances established (1) 61,002 133,855 50,892 280,544 526,293 Allowances released (2) (43,183) (14,432) (34,246) (30,790) (122,651) Allowances released due to charge-off (3) (54,924) (104,868) (10,911) (207,604) (378,307) Balances as of December 31, 2016 219,400 189,251 68,162 309,657 786,470 Activity during 2015 Commercial loans Mortgage loans Consumer loans Total   Individual Group Group Group   MCh$ MCh$ MCh$ MCh$ MCh$             Balance as of January 1, 2015 215,852 165,697    48,744 254,023 684,316 Allowances established (1) 124,968 136,778 34,373 248,937 545,056 Allowances released (2) (46,614) (17,885) (7,205) (18,126) (89,830) Allowances released due to charge-off (3) (37,701) (109,894) (13,485) (217,327) (378,407) Balances as of December 31, 2015 256,505 174,696 62,427 267,507 761,135 (1) Represents gross allowances made in respect of increased risk of loss during the period and loan growth. (2) Represents the gross amount of loan loss allowances released during the year as a consequence of reduction in the level of risk existing in the loan portfolio, including as a result of improvement in the credit risk classification of borrowers and loans paid. (3) Represents the gross amount of loan loss allowances removed due to charge-off. F-65  Table of Contents NOTE 09 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued e) Recoveries by type of loan   For the years ended December 31,   2016   2015   2014   MCh$   MCh$   MCh$             Commercial loans  27,185    26,032   16,947 Consumer loans  41,072    35,565   36,908 Residential mortgage loans  10,041    6,543   5,122 Total 78,298   68,140   58,977 Recoveries of loans previously charged off are recognized as income in the line item “Provision for loans losses”. We only recognize as a recovery interest and/or principal paid in cash in connection with a loan that has already been charged-off in its entirety. Such recoveries do not have an impact on our allowance for loan losses as these recoveries are for loans that have been already charged-off and recognized as a loss in our income statement and are no longer on-balance sheet. f) Allowances established on customer and interbank loans The following chart shows the balance of allowances established, associated with credits granted to customers and banks:   As of December 31,   2016   2015   2014   MCh$   MCh$   MCh$             Customers loans 354,367   371,489   296,257 Interbank loans 3,052   1,357   60 Total 357,419    372,846 296,317 F-66  Table of Contents NOTE 09 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued g)Portfolio by its impaired and non-impaired status.   As of December 31, 2016   Non-impaired Impaired Portfolio total   Commercial Mortgage Consumer Total non impaired Commercial Mortgage Consumer Total impaired Commercial Mortgage Consumer Total portfolio    MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$                           Current portfolio 12,765,961 7,944,260 3,957,566 24,667,787 463,176 133,816 100,670 697,662 13,229,137 8,078,076 4,058,236 25,365,449 Overdue for 1-29 days 97,302 69,227 113,031 279,560 35,777 12,984 32,536 81,297 133,079 82,211 145,567 360,857 Overdue for 30-89 days 75,033 208,181 87,622 370,836 118,461 105,804 70,920 295,185 193,494 313,985 158,542 666,021 Overdue for 90 days or more - - - - 311,755 145,084 84,458 541,297 311,755 145,084 84,458 541,297                           Total portfolio before allowances 12,938,296 8,221,668 4,158,219 25,318,183 929,169 397,688 288,584 1,615,441 13,867,465 8,619,356 4,446,803 26,933,624                           Overdue loans (less than 90 days) presented as portfolio percentage 1.33% 3.37% 4.83% 2.57% 16.60% 29.87% 35.85% 23.31% 2.35% 4.60% 6.84% 3.81%                           Overdue loans (90 days or more) presented as portfolio percentage. - - - - 33.55% 36.48% 29.27% 33.51% 2.25% 1.68% 1.90% 2.01% F-67  Table of Contents NOTE 09 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued   As of December 31, 2015   Non-impaired Impaired Portfolio total   Commercial Mortgage Consumer Total non impaired Commercial Mortgage Consumer Total impaired Commercial Mortgage Consumer Total portfolio   MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$                           Current portfolio 12,207,967 7,125,404 3,617,676 22,951,047 441,308 146,909 134,700 722,917 12,649,275 7,272,313 3,752,376 23,673,964 Overdue for 1-29 days 98,692 80,621 120,912 300,225 61,626 11,990 45,280 118,896 160,318 92,611 166,192 419,121 Overdue for 30-89 days 77,817 210,678 80,773 369,268 108,743 61,962 59,754 230,459 186,560 272,640 140,527 599,727 Overdue for 90 days or more - - - - 330,206 175,286 91,576 597,068 330,206 175,286 91,576 597,068                           Total portfolio before allowances 12,384,476 7,416,703 3,819,361 23,620,540 941,883 396,147 331,310 1,669,340 13,326,359 7,812,850 4,150,671 25,289,880                           Overdue loans (less than 90 days) presented as portfolio percentage 1.43% 3.93% 5.28% 2.83% 18.09% 18.67% 31.70% 20.93% 2.60% 4.68% 7.39% 4.03%                           Overdue loans (90 days or more) presented as portfolio percentage. - - - - 35.06% 44.25% 27.64% 35.77% 2.48% 2.24% 2.21% 2.36% F-68  Table of Contents NOTE 09 LOANS AND ACCOUNTS RECEIVABLE FROM CUSTOMERS, continued Reconciliation of overdue loans with non-performing loans   As of December 31, 2016   Commercial   Mortgage   Consumer   Total   MCh$   MCh$   MCh$                     Overdue loans  311,755    145,084    84,458    541,297 Loans with not overdue but classified as non-performing loans  5,083    2,488    15,263    22,834 Total  316,838    147,572    99,721   564,131   As of December 31, 2015   Commercial   Mortgage   Consumer   Total   MCh$   MCh$   MCh$                     Overdue loans  330,206    175,286    91,576    597,068 Loans with not overdue but classified as non-performing loans  16,662    7,847    21,891    46,400 Total  346,868    183,133    113,467   643,468 F-69  Table of Contents NOTE 10 AVAILABLE FOR SALE INVESTMENTS   As of December 31, 2016 and 2015, detail2018 the composition of instruments deemed as available for sale investmentsthe loan portfolio is as follows:     As of December 31,   2016   2015   MCh$   MCh$         Chilean central bank and government securities       Chilean central bank bonds 468,386   687,292 Chilean central bank notes                 1,222,283   - Other Chilean central bank and government securities 52,805   145,603 Subtotal          1,743.474   832,895 Other Chilean securities       Time deposits in Chilean financial institutions          893,000   712,859 Mortgage finance bonds of Chilean financial institutions           25,488   29,025 Subtotal          918,488   741,884 Foreign financial securities       Foreign Central Banks and Government securities                  387,146    - Other foreign financial securities          339,798   469,632 Subtotal          726,944   469,632         Total       3,388,906   2,044,411     Assets before allowances   ECL allowance   Net As of December 31, 2018   Stage 1   Stage 2   Stage 3   Total   Stage 1   Stage 2   Stage 3   Total   Assets     MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                       Commercial loans                                     Interbank loans     15,093       -       -       15,093       10       -       -       10       15,083   Commercial loans     9,684,451       841,123       608,192       11,133,766       52,782       41,954       274,050       368,786       10,764,980   Foreign trade loans     1,646,337       56,295       49,805       1,752,437       5,466       735       33,716       39,917       1,712,520   Checking accounts debtors     183,290       16,452       15,420       215,162       2,108       467       11,209       13,784       201,378   Factoring transactions     370,391       6,005       4,587       380,983       829       91       3,433       4,353       376,630   Student loans     64,381       6,049       9,486       79,916       2,705       2,170       6,315       11,190       68,726   Leasing transactions     1,225,755       169,196       48,773       1,443,724       7,236       9,033       22,531       38,800       1,404,924   Other loans and account receivable     123,108       5,135       36,821       165,064       2,594       1,190       26,178       29,962       135,101   Subtotal     13,312,806       1,100,255       773,084       15,186,145       73,730       55,640       377,432       506,802       14,679,342                                                                             Mortgage loans                                                                         Loans with mortgage finance bonds     15,261       1,241       924       17,426       20       40       117       177       17,249   Endorsable mortgage mutual loans     101,074       3,454       4,008       108,536       87       126       592       805       107,731   Other mortgage mutual loans     9,142,627       442,801       439,591       10,025,019       8,899       14,936       66,453       90,288       9,934,731   Subtotal     9,258,962       447,496       444,523       10,150,981       9,006       15,102       67,162       91,270       10,059,711                                                                             Consumer loans                                                                         Installment consumer loans     2,693,260       231,107       265,303       3,189,670       50,748       48,622       148,017       247,387       2,942,283   Credit card balances     1,385,783       14,977       16,392       1,417,152       15,087       4,961       8,740       28,788       1,388,364   Leasing transactions     3,974       133       50       4,157       83       22       22       127       4,030   Other consumer loans     258,723       2,822       3,765       265,310       4,986       767       2,287       8,040       257,270   Subtotal     4,341,740       249,039       285,510       4,876,289       70,904       54,372       159,066       284,342       4,591,947                                                                             Total     26,913,508       1,796,790       1,503,117       30,213,415       153,640       125,114       603,660       882,414       29,331,001     As F-74 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 09 LOANS AND ACCOUNTS RECEIVABLE AT AMORTISED COST, continued a. Commercial loans An analysis of changes in the gross carrying amount and the corresponding ECL allowance as of December 31, 20162019, is as follow:     Stage1   Stage2   Stage3         Individual   Collective   Individual   Collective   Individual   Collective   TOTAL     MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ Gross carrying amount at  January 1, 2019(*)     9,695,837       3,644,407       867,783       235,239       386,929       387,265       15,217,460   Transfers                                                         Transfers to stage 2     (518,990 )     (347,678 )     518,990       347,678       -       -       -   Transfers to stage 3     -       (41,696 )     -       -       -       41,696       -   Transfers to stage 3     -       -       (132,136 )     (230,125 )     132,136       230,125       -   Transfers to stage 1     158,935       159,009       (158,935 )     (159,009 )     -       -       -   Transfers to stage 2     -       -       11,229       120,293       (11,229 )     (120,293 )     -   Transfers to stage 1     -       1,134       -       -       -       (1,134 )     -   Net changes of financial assets     542,311       415,524       (119,884 )     (68,960 )     (24,788 )     (31,945 )     712,258   Write-off     -       -       -       -       (83,845 )     (94,004 )     (177,849 ) Foreign exchange adjustments and others     330,171       (236,341 )     17,920       (5,016 )     1,804       1,918       110,456   At December 31, 2019     10,208,264       3,594,359       1,004,967       240,100       401,007       413,628       15,862,325       Stage 1   Stage 2   Stage 3         Individual   Collective   Individual   Collective   Individual   Collective   TOTAL     MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ ECL allowance at January 1, 2019(*)     30,189       44,104       31,066       24,945       198,115       179,771       508,190   Transfers                                                         Transfers to stage 2     (7,786 )     (20,058 )     17,237       68,705       –         –         58,098   Transfers to stage 3     –         (2,666 )     –         –         –         16,087       13,421   Transfers to stage 3     –         –         (8,567 )     (42,601 )     44,203       71,200       64,235   Transfers to stage 1     1,576       4,838       (7,525 )     (22,278 )     –         –         (23,389 ) Transfers to stage 2     –         –         685       9,667       (3,867 )     (27,482 )     (20,997 ) Transfers to stage 1     –         88       –         –         –         (242 )     (154 ) Net changes of the exposure and modifications in credit risk     (6,948 )     14,199       (3,151 )     (12,533 )     41,365       54,962       87,894   Write-off     –         –         –         –         (83,844 )     (94,014 )     (177,858 ) Foreign exchange adjustments and others     4,508       (4,617 )     644       (350 )     193       (3,249 )     (2,871 ) At December 31, 2019     21,539       35,888       30,389       25,555       196,165       197,033       506,569   (*) Include loans and 2015,ECL balances of the line itemChilean central bankacquired Santander Consumer Chile S.A. F-75 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 09 LOANS AND ACCOUNTS RECEIVABLE AT AMORTISED COST, continued An analysis of changes in the gross carrying amount and government securities itemthe corresponding ECL allowance as of December 31, 2018, is as follow:     Stage1   Stage2   Stage3         Individual   Collective   Individual   Collective   Individual   Collective   TOTAL     MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ Gross carrying amount at January 1, 2018     9,062,153       3,338,916       630,515       208,018       372,744       350,747       13,963,093   Transfers                                                         Transfers to stage 2     (225,062 )     (53,020 )     225,062       53,020       -       -       -   Transfers to stage 3     (16,654 )     (67,886 )     -       -       16,654       67,886       -   Transfers to stage 3     -       -       (59,688 )     (40,853 )     59,688       40,853       -   Transfers to stage 1     13,199       52,755       (13,199 )     (52,755 )     -               -   Transfers to stage2     -       -       4,451       36,247       (4,451 )     (36,247 )     -   Transfers to stage1     -       718       -       -               (718 )     -   Net changes on financial assets     1,334,933       708,531       138,436       48,323       4,240       70,848       2,305,311   Write-off     -       -       -       -       (53,921 )     (74,430 )     (128,351 ) Foreign Exchange adjustments and others     (472,732 )     (363,045 )     (57,794 )     (19,528 )     (8,025 )     (32,784 )     (953,908 ) At December 31, 2018     9,695,837       3,616,969       867,783       232,472       386,929       386,153       15,186,145       Stage1   Stage2   Stage3         Individual   Collective   Individual   Collective   Individual   Collective   TOTAL     MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ ECL allowance at January 1, 2018     29,797       50,014       28,282       23,041       191,397       160,182       482,713   Transfers                                                         Transfers to stage 2     (2,719 )     (1,525 )     8,005       8,169       -       -       11,930   Transfers to stage 3     (241 )     (2,697 )     -       -       6,612       29,839       33,513   Transfers to stage 3     -       -       (5,541 )     (6,776 )     22,705       17,475       27,863   Transfers to stage 1     167       553       (411 )     (3,402 )     -               (3,093 ) Transfers to stage 2     -               330       1,854       (1,704 )     (6,776 )     (6,296 ) Transfers to stage 1     -       22       -       -       -       (72 )     (50 ) Net changes of the exposure and modifications in the credit risk     4,105       3,770       2,740       2,855       1,251       29,253       43,974   Write-off     -       -       -               (37,439 )     (58,510 )     (95,949 ) Foreign Exchange adjustments and others     (920 )     (6,646 )     (2,339 )     (1,167 )     15,293       7,926       12,197   At December 31, 2018     30,189       43,541       31,066       24,574       198,115       179,317       506,802   F-76 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 09 LOANS AND ACCOUNTS RECEIVABLE AT AMORTISED COST, continued b. Mortgage loans An analysis of changes in the gross carrying amount and the corresponding ECL allowance as of December 31, 2019, is as follow:     Stage1   Stage2   Stage3         Collective   Collective   Collective   TOTAL     MCh$   MCh$   MCh$   MCh$ Gross carrying amount at  January 1, 2019     9,258,962       447,496       444,523       10,150,981   Transfers                                 Transfers to stage 2     (481,646 )     481,646       -       -   Transfers to stage 3     (60,329 )     -       60,329       -   Transfers to stage 3     -       (333,706 )     333,706       -   Transfers to stage 1     361,293       (361,293 )     -       -   Transfers to stage 2     -       250,896       (250,896 )     -   Transfers to stage 1     2,338       -       (2,338 )     -   Net changes on financial assets     1,131,941       (35,200 )     (24,539 )     1,072,202   Write-off     -       -       (34,184 )     (34,184 ) Foreign exchange adjustments and others     63,407       8,109       2,480       73,996   At December 31, 2019     10,275,966       457,948       529,081       11,262,995       Stage 1   Stage 2   Stage 3         Collective   Collective   Collective   TOTAL     MCh$   MCh$   MCh$   MCh$ ECL allowance at January 1, 2019     9,006       15,102       67,162       91,270   Transfers                                 Transfers to stage 2     (3,318 )     20,509       –         17,191   Transfers to stage 3     (311 )     –         5,994       5,683   Transfers to stage 3     –         (12,598 )     31,654       19,056   Transfers to stage 1     1,374       (13,849 )     –         (12,475 ) Transfers to stage 2     –         8,341       (29,303 )     (20,962 ) Transfers to stage 1     6       –         (193 )     (187 ) Net changes of the exposure and modifications in credit risk     1,655       (3,054 )     32,561       31,162   Write-off     –         –         (34,184 )     (34,184 ) Foreign exchange adjustments and others     34       58       4,413       4,505   At December 31, 2019     8,446       14,509       78,104       101,059   F-77 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 09 LOANS AND ACCOUNTS RECEIVABLE AT AMORTISED COST, continued An analysis of changes in the gross carrying amount and the corresponding ECL allowance as of December 31, 2018, is as follow:     Stage1     Stage2     Stage3             Collective     Collective     Collective     TOTAL       MCh$     MCh$     MCh$     MCh$   Gross carrying amount at  January 1, 2018     8,191,229       469,349       436,317       9,096,895   Transfers                                 Transfers to stage 2     (87,473 )     87,473       -       -   Transfers to stage 3     (64,949 )     -       64,949       -   Transfers to stage 3     -       (54,488 )     54,488       -   Transfers to stage 1     162,432       (162,432 )     -       -   Transfers to stage 2     -       79,159       (79,159 )     -   Transfers to stage 1     2,612       -       (2,612 )     -   Net changes on financial assets     1,226,259       34,653       10,215       1,271,127   Write-off     -       -       (31,664 )     (31,664 ) Foreign Exchange adjustments and others     (171,148 )     (6,218 )     (8,011 )     (185,377 ) At December 31, 2018     9,258,962       447,496       444,523       10,150,981       Stage 1     Stage 2     Stage 3             Collective     Collective     Collective     TOTAL       MCh$     MCh$     MCh$     MCh$   ECL allowance at January 1, 2018     14,602       20,227       73,190       108,019   Transfers                                 Transfers to stage 2     (516 )     3,846       -       3,330   Transfers to stage 3     (383 )     -       9,060       8,677   Transfers to stage 3     -       (2,518 )     8,056       5,538   Transfers to stage 1     263       (6,255 )     -       (5,992 ) Transfers to stage 2     -       2,296       (10,185 )     (7,889 ) Transfers to stage 1     91       -       (232 )     (141 ) Net changes of the exposure and modifications in the credit risk     1,601       575       (1,784 )     392   Write-off     -       -       (13,548 )     (13,548 ) Foreign Exchange adjustments and others     (6,652 )     (3,069 )     2,605       (7,116 ) At December 31, 2018     9,006       15,102       67,162       91,270   F-78 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 09 LOANS AND ACCOUNTS RECEIVABLE AT AMORTISED, continued c. Consumer loans An analysis of changes in the gross carrying amount and the corresponding ECL allowance as of December 31, 2019, is as follow:     Stage1     Stage2     Stage3             Collective     Collective     Collective     TOTAL       MCh$     MCh$     MCh$     MCh$   Gross carrying amount at  January 1, 2019(*)     4,727,464       295,132       300,193       5,322,789   Transfers                                 Transfers to stage 2     (358,403 )     358,403       -       -   Transfers to stage 3     (25,210 )     -       25,210       -   Transfers to stage 3     -       (248,494 )     248,494       -   Transfers to stage 1     130,611       (130,611 )     -       -   Transfers to stage 2     -       56,489       (56,489 )     -   Transfers to stage 1     514       -       (514 )     -   Net changes on financial assets     430,777       (45,093 )     (3,605 )     382,079   Write-off     -       -       (223,919 )     (223,919 ) Foreign Exchange adjustments and others     57,294       6,892       1,060       65,246   At December 31, 2019     4,963,047       292,718       290,430       5,546,195       Stage 1   Stage 2   Stage 3       Collective   Collective   Collective   TOTAL     MCh$   MCh$   MCh$   MCh$ ECL allowance at January 1, 2019 (*)   75,495   60,467   165,052   301,014 Transfers                 Transfers to stage 2     (28,717 )     109,916       –         81,199   Transfers to stage 3     (1,633 )     –         11,699       10,066   Transfers to stage 3     –         (78,909 )     111,334       32,425   Transfers to stage 1     7,941       (32,506 )     –         (24,565 ) Transfers to stage 2     –         17,002       (31,914 )     (14,912 ) Transfers to stage 1     47       –         (233 )     (186 ) Net changes of the exposure and modifications in the credit risk     15,641       (25,712 )     135,298       125,227   Write-off     –         –         (223,919 )     (223,919 ) Foreign Exchange adjustments and others     (1,378 )     550       2,946       2,118   At December 31, 2019     67,396       50,808       170,263       288,467   (*) Include loans and ECL balances of the acquired Santander Consumer Chile S.A. F-79 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 09 LOANS AND ACCOUNTS RECEIVABLE AT AMORTISED, continued An analysis of changes in the gross carrying amount and the corresponding ECL allowance as of December 31, 2018, is as follow:     Stage1     Stage2     Stage3             Collective     Collective     Collective     TOTAL       MCh$     MCh$     MCh$     MCh$   Gross carrying amount at  January 1, 2018     3,978,393       257,580       321,719       4,557,692   Transfers                                 Transfers to stage 2     (46,936 )     46,936               -   Transfers to stage 3     (33,161 )             33,161       -   Transfers to stage 3     -       (19,327 )     19,327       -   Transfers to stage 1     29,777       (29,777 )     -       -   Transfers to stage 2     -       17,988       (17,988 )     -   Transfers to stage 1     37       -       (37 )     -   Net changes on financial assets     766,069       1,063       76,398       843,530   Write-off     -       -       (115,933 )     (115,933 ) Foreign Exchange adjustments and others     (352,439 )     (25,424 )     (31,137 )     (409,000 ) At December 31, 2018     4,341,740       249,039       285,510       4,876,289       Stage 1     Stage 2     Stage 3             Collective     Collective     Collective     TOTAL       MCh$     MCh$     MCh$     MCh$   ECL allowance at January 1, 2018     72,712       54,557       170,090       297,359   Transfers                                 Transfers to stage 2     (2,117 )     14,655       -       12,538   Transfers to stage 3     (1,431 )     -       16,311       14,880   Transfers to stage 3     -       (3,913 )     10,721       6,808   Transfers to stage 1     1,320       (4,890 )     -       (3,570 ) Transfers to stage 2     -       2,943       (9,107 )     (6,164 ) Transfers to stage 1     6       -       (18 )     (12 ) Net changes of the exposure and modifications in the credit risk     3,782       (8,572 )     42,194       37,404   Write-off     -       -       (64,506 )     (64,506 ) Foreign Exchange adjustments and others     (3,368 )     (408 )     (6,619 )     (10,395 ) At December 31, 2018     70,904       54,372       159,066       284,342   There were no changes to the assumptions used within the model. During 2019, the Bank completed an update of the 2018 Forward looking assessment, resulting in an increase of MCh$6,998 within the provision for loan losses. F-80 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 10 LOANS AND ACCOUNTS RECEIVABLE AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME The Bank has decided to classify a portfolio at fair value through other comprehensive income (FVOCI) related to loans and account receivable with its major customer, when they request a credit operation which exceeds single client exposure under the Bank’s credit risk policy. The risk committee approved the operation with the condition to sell a portion of the loan in the medium term, and meanwhile the Bank is looking for a buyer the portion is classified into this category. Additionally, the Bank includes securities soldoperations which are expecting to sell or maintain, depending if market conditions are favorable, these loans are classified into this category according to management business model. This portfolio is initially measured at amortised cost and afterward is adjusted at fair value, recognising the adjustment in other comprehensive income, while the Bank do not sell the loan. The portfolio is assessed for impairment loss under repurchase agreements to clientsthe new ECL model, same as loans at amortised cost. An analysis of changes in the gross carrying amount and financial institutions for Ch$155,044the corresponding ECL allowance is, as of December 31, 2019 is as follows:     Stage1     Stage2     Stage3             Individual     Individual     Individual     TOTAL       MCh$     MCh$     MCh$     MCh$   Gross carrying amount at  January 1, 2019     63,745       4,949       -       68,694   Transfers                                 Transfers to stage 1     -       -       -       -   Transfers to stage 2     -       -       -       -   Transfers to stage 3     -       -       -       -   Net changes on financial assets     1,428       (4,914 )     -       (3,486 ) Write-off     -       -       -       -   Foreign Exchange adjustments and others     993       (35 )     -       958   At December 31, 2019     66,166       -       -       66,166       Stage 1     Stage 2     Stage 3             Individual     Individual     Individual     TOTAL       MCh$     MCh$     MCh$     MCh$   ECL allowance at January 1, 2019     88       18       -       106   Transfers                                 Transfers to stage 1     -       -       -       -   Transfers to stage 2     -       -       -       -   Transfers to stage 3     -       -       -       -   Net changes of the exposure and modifications in the credit risk     65       (18 )     -       47   Write-off     -       -       -       -   Foreign Exchange adjustments and others     (52 )     -       -       (52 ) At December 31, 2019     101       -       -       101   F-81 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 10 LOANS AND ACCOUNTS RECEIVABLE AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME, continued An analysis of changes in the gross carrying amount and Ch$72,901 million, respectively.the corresponding ECL allowance is, as of December 31, 2018 is as follows:     Stage1     Stage2     Stage3             Individual     Individual     Individual     TOTAL       MCh$     MCh$     MCh$     MCh$   Gross carrying amount at  January 1, 2018     107,998       -       -       107,998   Transfers                                 Transfers to stage 1     -     -       -       -   Transfers to stage 2     (6,697 )     6,697       -       -   Transfers to stage 3     -       -       -       -   Net changes on financial assets     (40,754 )     (1,821 )     -       (42,575 ) Write-off     -       -       -       -   Foreign Exchange adjustments and others     3,198       73       -       3,271   At December 31, 2018     63,745       4,949       -       68,694       Stage 1     Stage 2     Stage 3             Individual     Individual     Individual     TOTAL       MCh$     MCh$     MCh$     MCh$   ECL allowance at January 1, 2018     97       -       -       97   Transfers                                 Transfers to stage 1     -     -       -       -   Transfers to stage 2     (17 )     26       -       9   Transfers to stage 3     -       -       -       -   Net changes of the exposure and modifications in the credit risk     8       (8 )     -       -   Write-off     -       -       -       -   Foreign Exchange adjustments and others     -       -       -       -   At December 31, 2018     88       18       -       106   F-82 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 11 DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME   As of December 31, 20162019 detail of debt instruments is as follows:     As of December 31,       2019     2018       MCh$     MCh$   Chilean central bank and government securities             Chilean central bank bonds     272,802       657,096   Chilean central bank notes     1,186,724       56,719   Other Chilean central bank and government securities     1,908,031       1,207,221   Subtotal     3,367,557       1,921,036   of which sold under repurchase agreement     379,294       16,109   Other Chilean securities                 Time deposits in Chilean financial institutions     398       2,693   Mortgage finance bonds of Chilean financial institutions     16,748       19,227   Other instruments issued in the country     2,410       2,907   Subtotal     19,556       24,827   of which sold under repurchase agreement     131       128   Foreign financial securities                 Foreign Central Banks and Government securities     197,685       280,622   Other foreign financial securities     425,474       167,838   Subtotal     623,159       448,460   of which sold under repurchase agreement     -       -   Total     4,010,272       2,394,323   As of December 31, 2019 “Chilean central bank and 2015,government securities” guarantee derivatives transactions through Comder Contraparte Central S.A. in the line itemOther Chilean securities includes securities soldlocal market as of December 31, 2019 and 2018 Ch$65,140 and Ch$42,910, while “Foreign financial securities” guarantee derivatives transactions through London Clearing House (LCH) as of December 31, 2019 and 2018 Ch$73,109 and Ch$58,892. Additionally, the Bank maintains guarantees with Euroclear as of December 31, 2019 and 2018 Ch$390,954 and Ch$98,832 to customers and financial institutions under repurchase agreements totaling Ch$57,393 and Ch$68,321 million, respectively.comply with the initial margin required by European EMIR standard.   As of December 31, 2016 available for sale investments2019 fair value through OCI included a cumulative net unrealizedunrealised income of Ch$7,37529,184 million, recordedrecoded as a “Valuation“valuation adjustment” in Other comprehensive income, distributed betweenOCI, of which Ch$6,44928,135 million are attributable to the equity holders of the Bankshareholders and Ch$9261,049 million attributable to non-controlling interest.   As of December 31, 2015 available for sale investments included a cumulative net unrealized loss of Ch$7,093 million, recorded as a “Valuation adjustment” in Other comprehensive income, distributed between Ch$6,965 million attributable to the equity holders of the Bank and Ch$128 million attributable to non-controlling interest.   F-70 F-83 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 11 DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME, continued   NOTE 10An analysis of changes in the fair value and the corresponding ECL as of December 31, 2019 is as follows:     Stage1     Stage2     Stage3             Collective     Collective     Collective     TOTAL   Gross carrying amount at  January 1, 2019     2,394,323       -       -       2,394,323   New assets purchased     7,573,665       -       -       7,573,665   Transfers to stage 1     -       -       -       -   Transfers to stage 2     -       -       -       -   Transfers to stage 3     -       -       -       -   Assets derecognised or matured (excluding write offs)     (5,694,456 )     -       -       (5,694,456 ) Changes due to modifications not derecognised     394,648       -       -       394,648   Write-off     -       -       -       -   Foreign Exchange adjustments and others     (657,908 )     -       -       (657,908 ) At December 31, 2019     4,010,272       -       -       4,010,272       Stage1     Stage2     Stage3             Collective     Collective     Collective     TOTAL   ECL at  January 1, 2019     258       -       -       258   New assets purchased     816       -       -       816   Transfers to stage 1     -       -       -       -   Transfers to stage 2     -       -       -       -   Transfers to stage 3     -       -       -       -   Assets derecognised or matured (excluding write offs)     (614 )     -       -       (614 ) Changes due to modifications not derecognised     67       -       -       67   Write-off     -       -       -       -   Foreign Exchange adjustments and others     (71 )     -       -       (71 ) At December 31, 2019     456       -       -       456   AVAILABLE FOR SALE INVESTMENTS,An analysis of changes in the fair value and the corresponding ECL as of December 31, 2018 is as follows:     Stage1     Stage2     Stage3             Collective     Collective     Collective     TOTAL   Gross carrying amount at  January 1, 2018     2,574,546       -       -       2,574,546   New assets purchased     5,037,857       -       -       5,037,857   Transfers to stage 1     -       -       -       -   Transfers to stage 2     -       -       -       -   Transfers to stage 3     -       -       -       -   Assets derecognised or matured (excluding write offs)     (5,604,114 )     -       -       (5,604,114 ) Changes due to modifications not derecognised     -       -       -       -   Write-off     -       -       -       -   Foreign Exchange adjustments and others     386,034       -       -       386,034   At December 31, 2018     2,394,323       -       -       2,394,323   F-84 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 11 DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME, continued     Stage1     Stage2     Stage3             Collective     Collective     Collective     TOTAL   ECL at  January 1, 2018     324       -       -       324   New assets purchased     634       -       -       634   Transfers to stage 1     -       -       -       -   Transfers to stage 2     -       -       -       -   Transfers to stage 3     -       -       -       -   Assets derecognised or matured (excluding write offs)     (705 )     -       -       (705 ) Changes due to modifications not derecognised     -       -       -       -   Write-off     -       -       -       -   Foreign Exchange adjustments and others     5       -       -       5   At December 31, 2018     258       -       -       258     Gross profits and losses realized on the sale of available for sale investments as of December 31, 2016, 20152019, 2018 and 2014, are2017 is as follows:   For the years ended December 31, 2016   2015   2014   As of December 31,   MCh$   MCh$   MCh$   2019   2018   2017           MCh$   MCh$   MCh$   Sale of available for sale investments generating realized profits 6,522,549   2,627,490   2,064,836   5,781,636   3,505,266   6,469,344   Realized profits 12,333   22,473   6,079   63,828   8,802   4,867   Sale of available for sale investments generating realized losses 346,906   346,450   92,620   607,349   709,371   466,732   Realized losses 132   72   64   156   6,004   3     The Bank evaluated those instruments with unrealized losses as of December 31, 20162019 and 20152018 and concluded they were not impaired. This review consisted of evaluating the economic reasons for any declines, the credit ratings of the securities’ issuers, and the Bank’s intention and ability to hold the securities until the unrealized loss is recovered. Based on this analysis, the Bank believes that there were no significant or prolonged declines nor changes in credit risk which would cause impairment in its investment portfolio, since most of the decline in fair value of these instruments was caused by market conditions which the Bank considers to be temporary. All of the instruments that have unrealized losses as of December 31, 20162019 and 2015,2018, were not in a continuouscontinuing unrealized loss position for more than one year.   F-71 F-85 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 11  NOTE 10 AVAILABLE FOR SALE INVESTMENTS,DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME, continued   The following charts show the available for sale investmentsdebt instruments at fair value through other comprehensive income cumulative unrealized profit and loss, as of December 31, 2016 and 2015:2019:   As of December 31, 2016:     Less than 12 months     More than 12 months     Total       Amortized cost     Fair value     Unrealized profit     Unrealized loss     Amortized cost     Fair value     Unrealized profit     Unrealized loss     Amortized cost     Fair value     Unrealized profit     Unrealized loss       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$                                                                             Chilean central bank and government securities                                                                         Chilean central bank Bonds     270,979       272,802       3,600       (1,777 )     -       -       -       -       270,979       272,802       3,600       (1,777 ) Chilean central bank notes     1,186,487       1,186,724       237       -       -       -       -       -       1,186,487       1,186,724       237       -   Other Chilean central bank and government securities     1,895,367       1,908,031       38,002       (25,338 )     -       -       -       -       1,895,367       1,908,031       38,002       (25,338 ) Subtotal     3,352,833       3,367,557       41,839       (27,115 )     -       -       -       -       3,352,833       3,367,557       41,839       (27,115 )                                                                                                   Other Chilean securities                                                                                                 Time deposits in Chilean financial institutions     398       398       -       -       -       -       -       -       398       398       -       -   Mortgage finance bonds of Chilean financial institutions     15,962       16,748       786       -       -       -       -       -       15,962       16,748       786       -   Chilean financial institution bonds     -       -       -       -       -       -       -       -       -       -       -       -   Chilean corporate bonds     -       -       -       -       -       -       -       -       -       -       -       -   Other Chilean securities     407       2,410       2,003       -       -       -       -       -       407       2,410       2,003       -   Subtotal     16,767       19,556       2,789       -       -       -       -       -       16,767       19,556       2,789       -                                                                                                     Foreign financial securities                                                                                                 Foreign central banks and government securities     198,020       197,685       11,110       (11,445 )     -       -       -       -       198,020       197,685       11,110       (11,445 ) Other foreign financial securities     413,468       425,474       13,080       (1,074 )     -       -       -       -       413,468       425,474       13,080       (1,074 ) Subtotal     611,488       623,159       24,190       (12,519 )     -       -       -       -       611,488       623,159       24,190       (12,519 )                                                                                                   Total     3,981,088       4,010,272       68,818       (39,634 )     -       -       -       -       3,981,088       4,010,272       68,818       (39,634 )     Less than 12 months   More than 12 months   Total   Acquisition cost Fair value Unrealized profit Unrealized loss   Acquisition cost Fair value Unrealized profit Unrealized loss   Acquisition cost Fair value Unrealized  profit Unrealized loss   MCh$ MCh$ MCh$ MCh$   MCh$ MCh$ MCh$ MCh$   MCh$ MCh$ MCh$ MCh$                               Chilean central bank and government securities                             Chilean central bank Bonds 461,793 468,386 6,612 (19)   - - - -   461,793 468,386 6,612 (19) Chilean central bank Notes 1,222,263 1,222,283 23 (3)   - - - -   1,222,263 1,222,283 23 (3) Other Chilean central bank and government securities 52,411 52,805 394 -   - - - -   52,411 52,805 394 - Subtotal 1,736,467 1,743,474 7,029 (22)   - - - -   1,736,467 1,743,474 7,029 (22)                               Other Chilean securities                             Time deposits in Chilean financial institutions 892,956 893,000 108 (64)   - - - -   892,956 893,000 108 (64) Mortgage finance bonds of Chilean financial institutions 25,021 25,488 469 (2)   - - - -   25,021 25,488 469 (2) Chilean financial institution bonds - - - -   - - - -   - - - - Chilean corporate bonds - - - -   - - - -   - - - - Other Chilean securities - - - -   - - - -   - - - - Subtotal 917,977 918,488 577 (66)   - - - -   917,977 918,488 577 (66)                               Foreign financial securities                             Foreign central banks and government securities 387,077 387,146 69 -   - - - -   387,077 387,146 69 - Other foreign financial securities 340,010 339,798 655 (867)   - - - -   340,010 339,798 655 (867) Subtotal 727,087 726,944 724 (867)   - - - -   727,087 726,944 724 (867)                               Total 3,381,531 3,388,906 8,330 (955)   - - - -   3,381,531 3,388,906 8,330 (955)   F-72 F-86 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 11  NOTE 10 AVAILABLE FOR SALE INVESTMENTS,DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME , continued   AsThe following charts show debt instruments at fair value through other comprehensive income cumulative unrealized profit and loss, as of December 31, 2015:2018:   Less than 12 months   More than 12 months   Total   Less than 12 months   More than 12 months   Total   Acquisition cost Fair value Unrealized profit Unrealized loss   Acquisition cost Fair value Unrealized profit Unrealized loss   Acquisition cost Fair value Unrealized profit Unrealized loss   Amortized cost   Fair value   Unrealized profit   Unrealized los   Amortized cost   Fair value   Unrealized profit   Unrealized loss   Amortized cost   Fair value   Unrealized profit   Unrealized loss   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                                       Chilean central bank and government securities                                                     Chilean central bank Bonds 692,559 687,292 280 (5,547)   -   692,559 687,292 280 (5,547)   658,013   657,096   3,698   (4,615 )                   658,013   657,096   3,698   (4,615 ) Chilean central bank notes -   -   -   56,737   56,719   10   (27 )                   56,737   56,719   10   (27 ) Other Chilean central bank and government securities 145,778 145,603 541 (716)   -   145,778 145,603 541 (716)   1,196,819   1,207,220   10,689   (262 )                   1,196,819   1,207,220   10,689   (262 ) Subtotal 838,337 832,895 821 (6,263)   -   838,337 832,895 821 (6,263)   1,911,569   1,921,035   14,397   (4,904 )                   1,911,569   1,921,035   14,397   (4,904 )                                                     Other Chilean securities                                                     Time deposits in Chilean financial institutions 713,172 712,859 44 (357)   -   713,172 712,859 44 (357)   2,691   2,693   1   -                   2,691   2,693   1   -   Mortgage finance bonds of Chilean financial institutions 28,726 29,025 325 (26)   -   28,726 29,025 325 (26)   19,010   19,227   426   (209 )                   19,010   19,227   426   (209 ) Chilean financial institution bonds -   -   -   -   -   -   -                   -   -   -   -   Chilean corporate bonds -   -   -   -   -   -   -                   -   -   -   -   Other Chilean securities -   -   -   220   2,907   2,687   -                   220   2,907   2,687   -   Subtotals 741,898 741,884 369 (383)   -   741,898 741,884 369 (383) Subtotal   21,921   24,827   3,114   (209 )                   21,921   24,827   3,114   (209 )                                                     Foreign financial securities                                                     Foreign central banks and government securities -   -   -   280,021   280,622   602   -                   280,021   280,622   602   -   Other foreign financial securities 471,269 469,632 1,577 (3,214)   -   471,269 469,632 1,577 (3,214)   174,387   167,837   -   (6,575 )                   174,387   167,837   -   (6,575 ) Subtotal 471,269 469,632 1,577 (3,214)   -   471,269 469,632 1,577 (3,214)   454,408   448,459   602   (6,575 )                   454,408   448,459   602   (6,575 )                                                     Total 2,051,504 2,044,411 2,767 (9,860)   -   2,051,504 2,044,411 2,767 (9,860)   2,387,898   2,394,322   18,112   (11,688 )                   2,387,898   2,394,322   18,112   (11,688 )   F-73 F-87 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 11 12 INVESTMENTS IN ASSOCIATES AND OTHER COMPANIES   a) Investments in associates and other, are shown in the following table:              Investment   Ownership interest As of December 31 Investment value As of December 31,   Profit and loss As of December 31,   2016 MCh$  2015 MCh$ 2014 MCh$  2016 MCh$ 2015  MCh$   2016 MCh$ 2015 MCh$  2014 MCh$ Company                     Redbanc S.A. 33.43 33.43 33.43            2,184 1,876   373          215          211 Transbank S.A. (1) 25.00 25.00 25.00          12,510        10,201          1,302 1,256 1,022 Centro de Compensación Automatizado 33.33 33.33 33.33   1,353         1,105             248 212 220 Sociedad Interbancaria de Depósito de Valores S.A. 29.29 29.29 29.29              938             794             195 213 170 Cámara de Compensación de Alto Valor S.A. (2 & 3) 14.93 14.23 14.14               866             768               98          127          107 Administrador Financiero del Transantiago S.A. 20.00 20.00 20.00   2,781 2,552             230          323          282 Sociedad Nexus S.A. 12.90 12.90 12.90   1,469 1,290             247         225         195 Servicios de Infraestructura de Mercado OTC S.A. (4) 12,07 11.11 11.11   1,378         1,138   132 (115) (172) Subtotal         23,479 19,724   2,825       2,456       2,035 Shares or rights in other companies (*)                     Bladex         136  136   26  25  20 Stock Exchanges                     157  417   161  107  110 Others         8  32   - - - Total         23,780 20,309   3,012 2,588 2,165                           (*) Investments in associates and other companies do not have market prices.           Investment       Ownership interest As of December 31     Carrying value As of December 31,     Profit and loss As of December 31,       2019 MCh$     2018 MCh$     2017 MCh$     2019 MCh$     2018 MCh$     2017 MCh$     2019 MCh$     2018 MCh$     2017 MCh$   Company                                                       Redbanc S.A. (*)     -       33,43       33,43       -       2,822       2,537       -       -       -   Transbank S.A. (*)     -       25,00       25,00       -       17,651       14,534       -       -       -   Centro de Compensación Automatizado S.A.     33,33       33,33       33,33       2,184       1,894       1,589       293       305       236   Sociedad Interbancaria de Depósito de Valores S.A.     29,29       29,29       29,29       1,485       1,233       1,087       252       223       235   Cámara de Compensación de Alto Valor S.A. (1)     15,00       15,00       15,00       958       945       909       29       58       66   Administrador Financiero del Transantiago S.A.     20,00       20,00       20,00       3,986       3,680       3,098       390       582       317   Sociedad Nexus S.A. (*)     -       12,90       12,90       -       2,279       1,911       -       -       -   Servicios de Infraestructura de Mercado OTC S.A.     12,07       12,48       12,48       1,556       1,491       1,489       60       57       115   Subtotal                             10,169       31,995       27,154       1,024       1,225       969   Shares or rights in other companies                                                                         Bladex                             -       -       136       13       19       25   Stock Exchanges                             -       -       287       109       148       150   Others                             8       8       8       -       (67 )     -   Total                             10,177       32,003       27,585       1,146       1,325       1,144     (*) (1) A capital increase was agreedThe Bank has entered into a process of selling the shares in Redbanc S.A., Transbank S.A. and Nexus SA, therefore, the Transbank’s Extraordinary Shareholders’ Meetingtreatment established in IFRS 5 “Non-current assets held for sale and discontinued operations” has been applied, on the participation of said companies, which is described in April 2016. Banco Santander participated in proportion to its ownership share (25%).Note 1 v) and Note 39.   (2)(1) In October 2015, HSBC Bank ChileFebruary 2017, Banco Paris sold its participation in Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A to Banco Santander. This transaction increased the Bank’s participation to 14.23%. See Note 1. (3) During the third quarter of 2016, a transaction took place through which Banco Penta ceded to Banco Santander a portion of its interest in the companies "Sociedad“Sociedad Operadora de la Cámara de Compensación de pagos de Alto Valor SA" and "Servicios de Market Infrastructure OTC SA "with whichS.A.”, the Bank's participation hasBank’s share increased to 14.84% and 11.93% respectively.15,00%.   (4) During the last quarter of 2016 a transaction was carried out through which Banco Penta ceded to Banco Santander a portion of its interest in the companies "Sociedad Operadora de la Cámara de Compensación de pagos de Alto Valor SA" and "Servicios de Market Infrastructure OTC SA "with which the Bank's share has increased to 14.93% and 12.07% respectively. As described in Note 1 g), the Bank has irrevocably designated its shares in Bladex and Stock exchange at fair value through other comprehensive income (FVOCI) Related dividends are recognised in the income statements under “Income from investments in associates and other companies”. The fair value of these equity investments is as follows:     December 31,       2019     2018       MCh$     MCh$   Bladex     328       329   Stock exchange     154       154   Total     482       483     F-74 F-88 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 1112 INVESTMENTS IN ASSOCIATES AND OTHER COMPANIES, continued   b)         Summary of financial information of associates as of and for the years ended December 31, 2016, 2015 and 2014. b) Summary of financial information of associates as of and for the years ended December 31, 2019, 2018 and 2017:   As of December 31, As of December 31, As of December 31, 2016   2015   2014   2019   2018   2017       Net income         Net income         Net income    Assets    Liabilities    Equity   Net income    Assets    Liabilities    Equity   Net income    Assets    Liabilities    Equity   Net income Assets Liabilities Equity Assets Liabilities Equity   Assets Liabilities Equity   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ MCh$   MCh$   MCh$                                                       Centro de Compensación Automatizado 5,508 1,523 3,241 744   5,148 1,897 2,616 635   3,731 1,117 1,953 661 Redbanc S.A. 19,927 13,505 5,307 1,115   20,296 14,877 4,777 642   19,215 14,246 4,336 633   23,413   14,106   8,441   866   20,825   12,469   7,505   851   21,235   13,751   6,428   1,056   Transbank S.A. 710,475 660,957 44,309 5,209   601,627 561,325 35,278 5,024   535,507 501,330 30,088 4,089   1,217,448   1,133,441   70,605   13,402   904,558   835,200   56,888   12,470   822,487   765,683   48,709   8,095   Centro de Compensación Automatizado S.A.   8,550   1,998   5,671   881   7,073   1,480   4,677   916   6,871   2,174   3,989   708   Sociedad Interbancaria de Depósito de Valores S.A. 3,204 103 2,435 666   2,714 58 2,093 563   2,715 314 1,863 538   5,074   4   4,209   861   4,392   230   3,400   762   3,720   60   2,858   802   Cámara de Compensación de Alto Valor S.A.   7,372   986   6,193   193   6,728   622   5,722   384   6,338   500   5,399   439   Administrador Financiero del Transantiago S.A.   54,712   34,787   17,978   1,947   55,818   37,419   15,490   2,909   51,304   35,814   13,907   1,583   Sociedad Nexus S.A. 30,038 19,229 8,898 1,911   23,153 13,682 7,730 1,741   14,438 6,185 6,745 1,508   31,147   13,471   17,660   16   35,139   18,335   13,955   2,849   32,669   18,888   10,354   3,427   Servicios de Infraestructura de Mercado OTC S.A. 29,258 18,258 9,906 1,094   17,631 7,800 10,869 (1,038)   12,001 1,094 12,603 (1,696)   15,152   2,682   11,993   477   25,273   13,313   11,506   454   17,913   6,414   10,963   536   Administrador Financiero del Transantiago S.A. 54,253  40,345  12,758  1,150    42,518  29,760  11,145  1,613    70,302 59,157 9,737 1,408 Cámara de Compensación de Alto Valor S.A. 6,099 627 4,815 657   5,730 775 4,066 889   5,278 636 3,901 741 Total 858,762 754,547 91,669 12,546   718,817 630,174 78,574 10,069   663,187 584,079 71,226 7,882   1,362,868   1,201,475   142,750   18,643     1,059,806   919,068   119,143   21,595     962,537   843,284   102,607   16,646     c) Restrictions over the ability of associated companies to transfer funds to investors. c) Restrictions over the ability of associated companies to transfer funds to investors.   There are no significant restrictions regarding the capacity of associates to transfer funds, whether in cash dividends, refund of loans, or advance payments to the Bank.   d) Activity with respect to investments in other companies during 2016, 2015 and 2014 d) Activity with respect to investments in other companies during 2019, 2018 and 2017 is as follows:   As of December 31,   2016 2015   2014   MCh$ MCh$   MCh$           Opening balance as of January 1, 20,309 17,914   9,681 Acquisition of investments (*) 1,123 302   6,313 Sale of investments - -   - Participation in income 3,012 2,588   2,165 Dividends received (217) (278)   (119) Other equity adjustments (447) (217)   (126)           Total 23,780 20,309   17,914 (*) See reference (1) of part a) of this note.       As of December 31,     2019   2018   2017     MCh$   MCh$   MCh$               Opening balance as of January 1,     32,003       27,585       23,780   Acquisition of investments     -       -       3   Sale of investments     -       -       -   Participation in income     1,146       1,325       1,144   Dividends received     (130 )     (38 )     (116 ) Other adjustments     (22,842 )     3,131       2,774                             Total     10,177       32,003       27,585   (*) The Bank has entered into a process of selling the shares in Redbanc S.A., Transbank S.A. and Nexus SA, As such, these investment have been reclassified to held for sale and presented under Other assets in the Consolidated Statement of Financial Position. F-75 F-89 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 12 13 INTANGIBLE ASSETS   a)   As of December 31, 2016 and 2015, the composition of intangible assets is as follows: a. As of December 31, 2019 and 2018, the composition of intangible assets is as follows:       As of December 31, 2016           As of December 31, 2019 Years of useful life Average remaining useful life Net opening balance as of January 1, 2016 Gross balance Accumulated amortization Net balance   Average remaining useful  life   Net opening balance as of January 1, 2019    Gross balance   Accumulated amortization   Net balance     MCh$       MCh$   MCh$   MCh$   MCh$                             Licenses 3 2 2,060 10,932 (9,276) 1,656     -     82   35,997   (35,997 )   -   Software development 3 2 49,077 286,781 (230,352) 56,429     2     66,841   214,005   (140,616 )   73,389                           Total   51,137 297,713 (239,628) 58,085       66,923   250,002   (176,613 )   73,389                 As of December 31, 2018     Average remaining useful  life   Net opening balance as of January 1, 2018    Gross balance   Accumulated amortization   Net balance         MCh$   MCh$   MCh$   MCh$                       Licenses     1       1,200       37,224       (37,142 )     82   Software development     2       62,019       181,191       (114,350 )     66,841                                             Total             63,219       218,415       (151,492 )     66,923              As of December 31, 2015   Years of useful life Average remaining useful life Net opening balance as of January 1, 2015 Gross balance Accumulated amortization Net balance       MCh$ MCh$ MCh$ MCh$               Licenses 3 2 2,006 10,932 (8,872) 2,060 Software development 3 2 38,977 259,500 (210,423) 49,077               Total     40,983 270,432 (219,295) 51,137   b)b. The changes in the value of intangible assets during the periods ended December 31, 20162019 and December 31, 20152018 is as follows:   b.1) Gross balance b.1 Gross balance   Gross balances Licenses Software development Total   Licenses   Software development   Total MCh$   MCh$   MCh$   MCh$               Balances as of January 1, 2016 10,932 259,500 270,432 Balances as of January 1, 2019   37,224   181,191   218,415   Acquisitions - 27,281   -   32,860   32,860   Disposals and impairment -   (1,227 )   -   (1,227 ) Other -   -   (46 )   (46 ) Balances as of December 31, 2016 10,932 286,781 297,713 Balances as of December 31, 2019   35,997   214,005   250,002                   Balances as of January 1, 2015 10,441 232,418 242,859 Balances as of January 1, 2018   37,224   159,833   197,057   Acquisitions 491 27,082 27,573   -   29,562   29,562   Disposals and impairment -   -   (8,204 )   (8,204 ) Other -   -   -   -   Balances as of December 31, 2015 10,932 259,500 270,432 Balances as of December 31, 2018   37,224   181,191   218,415     F-76 F-90 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 1213 INTANGIBLE ASSETS, continued   b.2) Accumulated amortization b.2 Accumulated amortization   Accumulated amortization Licenses Software development Total   Licenses   Software development   Total MCh$   MCh$   MCh$   MCh$               Balances as of January 1, 2016 (8,872) (210,423) (219,295) Balances as of January 1, 2019   (37,142 )   (114,350 )   (151,492 ) Year’s amortization (404) (19,929) (20,333)   (82 )   (26,266 )   (26,348 ) Other changes -   1,227   -   1,227   Balances as of December 31, 2016 (9,276) (230,352) (239,628) Balances as of December 31, 2019   (35,997 )   (140,616 )   (176,613 )                 Balances as of January 1, 2015 (8,435) (193,441) (201,876) Balances as of January 1, 2018   (36,918 )   (96,922 )   (133,840 ) Year’s amortization (437) (16,982) (17,419)   (224 )   (24,069 )   (24,293 ) Other changes -   -   6,641   6,641   Balances as of December 31, 2015 (8,872) (210,423) (219,295) Balances as of December 31, 2018   (37,142 )   (114,350 )   (151,492 )    c)c. The Bank has no restriction on intangible assets as of December 31, 20162019 and 2015.2018. Additionally, the intangiblesintangible assets have not been pledged as guarantee for fulfillment of financial liabilities. Also, the Bank has no debt related to Intangible assets as of those dates.   F-77 F-91 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 14  NOTE 13 PROPERTY, PLANT,FIXED ASSETS AND EQUIPMENTRIGHT OF USE ASSETS AND LEASE LIABILITY   a)  As of December 31, 2016 and 2015, the composition of property, plant, and equipment balances are composed as follows: a. As of December 31, 2019 and 2018, the composition of property, plant, and equipment balances are composed as follows:     As of December 31, 2016       As of December 31, 2019 Net opening balance as of January 1, 2016 Gross balance Accumulated depreciation Net balance   Net opening balance as of January 1, 2019    Gross balance    Accumulated depreciation   Net balance  MCh$ MCh$ MCh$   MCh$   MCh$   MCh$   MCh$                       Land and buildings 158,434 264,016 (94,207) 169,809   174,758   295,984   (121,338 )   174,646   Equipment 59,908 168,124 (101,618) 66,506   56,865   219,600   (164,106 )   55,494   Ceded under operating leases 4,238 4,888 (658) 4,230 Other 18,079 55,973 (39,139) 16,834   21,963   69,758   (47,552 )   22,206   Total 240,659 493,001 (235,622) 257,379   253,586   585,342   (332,996 )   252,346       As of December 31, 2015     As of December 31, 2018 Net opening balance as of January 1, 2015 Gross balance Accumulated depreciation Net balance   Net opening balance as of January 1, 2018    Gross  balance   Accumulated depreciation   Net balance  MCh$ MCh$ MCh$   MCh$   MCh$   MCh$   MCh$                       Land and buildings 142,596 237,449 (79,015) 158,434   159,352   289,568   (114,810 )   174,758   Equipment 49,100 137,621 (77,713) 59,908   63,516   192,328   (135,463 )   56,865   Ceded under operating leases 4,250 4,888 (650) 4,238 Other 15,615 51,482 (33,403) 18,079   15,458   62,156   (40,193 )   21,963   Total 211,561 431,440 (190,781) 240,659   238,326   544,052   (290,466 )   253,586        b)b. The changes in the value of property, plant, and equipment as of December 31, 20162019 and 20152018 is as follows:   b.1) b.1 Gross balance 2019   Land and buildings   Equipment   Other   Total     MCh$   MCh$   MCh$   MCh$                   Balances as of January 1, 2019     289,568       192,328       62,156       544,052   Additions     10,065       33,302       7,602       50,969   Disposals     (2,636 )     (6,030 )     -       (8,666 ) Impairment due to damage (*)     (1,013 )     -       -       (1,013 ) Other     -       -       -       -   Balances as of December 31, 2019     295,984       219,600       69,758       585,342   (*) Banco Santander-Chile have recognized in its consolidated financial statements as of December 31, 2019 an impairment of $ 1,013 million, due to social unrest in the country.See Note 33.   2016 Land and buildings Equipment Ceded under operating leases Other Total   MCh$ MCh$ MCh$ MCh$ MCh$             Balances as of January 1, 2016 237,449 137,621 4,888 51,482 431,440 Additions 26,567 30,965 - 4,823 62,355 Disposals - (228) - (332) (560) Impairment due to damage - (234) - - (234) Other - - - - - Balances as of December 31, 2016 264,016 168,124 4,888 55,973 493,001 F-78 F-92 Table of Contents    Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 1314 PROPERTY, PLANT,FIXED ASSETS AND EQUIPMENT,RIGHT OF USE ASSETS AND LEASE LIABILITY, continued   2015 Land and buildings Equipment Ceded under operating leases Other Total 2018   Land and buildings   Equipment   Other   Total MCh$   MCh$   MCh$   MCh$   MCh$                     Balances as of January 1, 2015 209,668 108,416 4,888 43,499 366,471 Balances as of January 1, 2018   259,316   169,286   55,613   484,215   Additions 27,781 29,282 - 8,048 65,111   30,396   27,697   8,646   66,739   Disposals - (56) - (65) (121)   (144 )   (4,616 )   (2,103 )   (6,863 ) Impairment due to damage - (21) - (21)   -   (39 )   -   (39 ) Other -   -   -   -   -   Balances as of December 31, 2015 237,449 137,621 4,888 51,482 431,440 Balances as of December 31, 2018   289,568   192,328   62,156   544,052     b.2) Accumulated depreciation(*) Banco Santander-Chile has had to recognize in its financial statements as of December 31, 2018 impairment by $ 39 million, corresponding to looting in ATM’s. b.2 Accumulated depreciation 2019   Land and buildings   Equipment   Other   Total     MCh$   MCh$   MCh$   MCh$                   Balances as of January 1, 2019     (114,810 )     (135,463 )     (40,193 )     (290,466 ) Depreciation charges in the period     (16,018 )     (29,968 )     (6,869 )     (52,855 ) Sales and disposals in the period     9,490       1,325       -       10,815   Other     -       -       (490 )     (490 ) Balances as of December 31, 2019     (121,338 )     (164,106 )     (47,552 )     (332,996 )    2016 Land and buildings Equipment Ceded under operating leases Other Total   MCh$ MCh$ MCh$ MCh$ MCh$             Balances as of January 1, 2016 (79,015) (77,713) (650) (33,403) (190,781) Depreciation charges in the period (15,192) (23,976) (8) (5,849) (45,025) Sales and disposals in the period - 71 - 113 184 Transfers - - - - - Other - - - - - Balances as of December 31, 2016 (94,207) (101,618) (658) (39,139) (235,622) 2018   Land and buildings   Equipment   Other   Total     MCh$   MCh$   MCh$   MCh$                   Balances as of January 1, 2018     (97,267 )     (109,843 )     (34,558 )     (241,668 ) Depreciation charges in the period     (17,585 )     (25,660 )     (5,635 )     (48,880 ) Sales and disposals in the period     42       40       -       82   Other     -       -       -       -   Balances as of December 31, 2018     (114,810 )     (135,463 )     (40,193 )     (290,466 )   2015 Land and buildings Equipment Ceded under operating leases Other Total   MCh$ MCh$ MCh$ MCh$ MCh$             Balances as of January 1, 2015 (67,073) (59,316) (638) (27,883) (154,910) Depreciation charges in the period (11,966) (18,417) (12) (5,800) (36,195) Sales and disposals in the period 24 20 - 280 324 Transfers - - - - - Other - - - - - Balances as of December 31, 2015 (79,015) (77,713) (650) (33,403) (190,781) F-79 F-93 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017    NOTE 1314 PROPERTY, PLANT,FIXED ASSETS AND EQUIPMENT,RIGHT OF USE ASSETS AND LEASE LIABILITY, continued   c. The composition of the right of use assets as of December 31, 2019 and January 1, 2019 is as follows: c)  Operational leases – lessor         As of December 31, 2019     First application balance as of  January 1, 2019   Gross balance    Accumulated depreciation   Net balance      MCh$   MCh$   MCh$   MCh$ Land and building     154,284       181,325       (25,338 )     155,987   Equipment     -       -       -       -   Other     -       -       -       -   Total     154,284       181,325       (25,338 )     155,987   d. The movement of the right of use assets under lease during the 2019 period, is as follows: d.1) Gross balance 2019   Land and building   Lease improvements   Equipment   Other   Total     MCh$   MCh$   MCh$   MCh$   MCh$ Balances as of January 1, 2019 (*)     154,284       122,658       -       -       154,284   Additions     46,423       7,013       -       -       46,423   Disposals     (17,669 )     (2,636 )     -       -       (17,669 ) Impairment     (1,713 )     -       -       -       (1,713 ) Other     -       -       -       -       -   Balances as of December 31, 2019     181,325       127,035       -       -       181,325   (*) See Note N° 02. d.2) Accumulated amortization 2019   Land and building   Lease improvements   Equipment   Other   Total     MCh$   MCh$   MCh$   MCh$   MCh$ Balances as of January 1, 2019 (*)     -       (68,145 )                         Amortization for the period     (26,889 )     (7,898 )     -       -       (26,889 ) Sales and disposals during  the period     1,551       1,936       -       -       1,551   Transfers     -       -       -       -       -   Others     -       -       -       -       -   Balances as of December 31, 2019     (25,338 )     (74,107 )     -       -       (25,338 ) (*) See Note N° 02. F-94 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 14 FIXED ASSETS AND RIGHT OF USE ASSETS AND LEASE LIABILITY, continued e. Lease liability:   As of December 31, 20162019 and 2015,2018, the composition of lease liability balances are composed as follows:      As of December 31,     2019   2018     MCh$   MCh$ Lease liability     158,494       -   Total     158,494       -   An explanation of the difference between operating lease commitment under IAS 17 at December 31, 2018 and initial application of IFRS 16 as of January 1, 2019 is as follows: MCh$ Operating lease commitments as at December 31, 2018 173,602 Discounted using the lessee´s incremental borrowing rate of at the date of initial application 14,726 Lease liabilities recognised due to IFRS 16 implementation 139,558 Lease liability recognised as at January 1, 2019 154,284 f. Expenses associated with assets for the right of use leased assets and lease liability     As of December 31,     2019   2018     MCh$   MCh$ Depreciation     (26,889 )     -   Interests     (2,965 )     -   Short term lease     (4,177 )     -   Total     (34,031 )     -   g. As of December 31, 2019 and 2018, the maturity level of the lease liability, according to their contractual maturity is as follows:     As of December 31,     2019   2018     MCh$   MCh$ Due within 1 year     26,061       -   Due after 1 year but within 2 years     24,311       -   Due after 2 years but within 3 years     21,667       -   Due after 3 years but within 4 years     19,411       -   Due after 4 years but within 5 years     16,982       -   Due after 5 years     50,062       -   Total     158,494       -   F-95 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 14 FIXED ASSETS AND RIGHT OF USE ASSETS AND LEASE LIABILITY, continued h. Operational leases – lessor As of December 31, 2019 and 2018, the future minimum lease cash inflows under non-cancellable operating leases are as follows:   As of December 31,   As of December 31, 2016   2015   2019   2018 MCh$   MCh$   MCh$   MCh$             Due within 1 year               506   465   603   469   Due after 1 year but within 2 years 1,029   1,057   598   882   Due after 2 years but within 3 years 502   465   500   469   Due after 3 years but within 4 years 473   462   498   460   Due after 4 years but within 5 years 344   440   412   428   Due after 5 years 2,067   2,322   1,563   2,242               Total 4,921   5,211   4,174   4,950        d) Operational leases – lessee Certain Bank’s premises and equipment are leased under various operating leases. Future minimum rental payments under non-cancellable leases are as follows:   As of December 31,   2016   2015   MCh$   MCh$         Due within 1 year 26,455   22,303 Due after 1 year but within 2 years 24,903   20,862 Due after 2 year but within 3 years 20,582   19,499 Due after 3 years but within 4 years 17,321   17,215 Due after 4 years but within 5 years 14,569   14,154 Due after 5 years 53,694   55,561         Total 157,524   149,594 e)i. As of December 31, 20162019 and 2015,2018, the Bank has no financial leases which cannot be unilaterally rescinded.   f)j. The Bank has no restriction on property, plant and equipment as of December 31, 20162019 and 2015.2018. Additionally, the property, plant and equipment have not been provided as guarantees of financial liabilities. The Bank has no debt in connection with property, plant and equipment.   F-80 F-96 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017     NOTE 14 15 CURRENT AND DEFERRED TAXES   a)   Current taxes a) Current taxes   As of December 31, 20162019 and 2015,2018, the Bank recognizesrecognises taxes payable (recoverable), which is determined based on the currently applicable tax legislation.legislation, This amount is recorded net of recoverable taxes, and is shown as follows:     As of December 31,     2016   2015   MCh$   MCh$         Summary of current tax liabilities (assets)       Current tax (assets) -   - Current tax liabilities 29,294   17,796         Total tax payable (recoverable) 29,294   17,796         (Assets) liabilities current taxes detail (net)       Income tax, tax rate(*) 145,963   121,775 Minus:       Provisional monthly payments (113,700)   (96,319) Credit for training expenses   (1,972)   (1,851) Land taxes leasing -   (3,853) Grant credits (1,079)   (1,326) Other 82   (630)         Total tax payable (recoverable) 29,294   17,796           (*)The tax rate is 24.0% for 2016 and 22.5% for 2015.       As of December 31,       2019     2018       MCh$     MCh$                 Summary of current tax liabilities (assets)                 Current tax (assets)     (11,648 )     -   Current tax liabilities     -       8,093                     Total tax payable (recoverable)     (11,648 )     8,093                     (Assets) liabilities current taxes detail (net)                 Income tax, tax rate     153,424       196,527   Minus:                 Provisional monthly payments     (159,943 )     (186,060 ) Credit for training expenses     (2,145 )     (1,937 ) Land taxes leasing             -   Grant credits     (1,149 )     (1,320 ) Other     (1,835 )     883                     Total tax payable     (11,648 )     8,093   b)   Effect on income b) Effect on income   The effect of income tax expense on income for the years ended December 31, 20162019, 2018 and 20152017 is comprised of the following items:     As of December 31,   As of December 31,     2016   2015 2014   2019   2018   2017     MCh$   MCh$   MCh$   MCh$   MCh$                         Income tax expense                       Current tax   145,963   121,775 122,150   153,424   196,527   145,112                     Credits (debits) for deferred taxes                   Origination and reversal of temporary differences   (37,269)   (45,672) (72,244)   37,432   (25,517 )   (6,751 ) Valuation provision   -   (56 )   5,955   Subtotals   108,694   76,103 49,906   190,856   170,954   144,316   Tax for rejected expenses (Article No.21)   336   340 746 Tax for rejected expenses (Article No21)   927   1,110   610   Other   1   (48) 398   (16,709 )   (4,920 )   105   Net charges for income tax expense   109,031   76,395 51,050   175,074   167,144   145,031     F-81 F-97 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 14 15 CURRENT AND DEFERRED TAXES, continued:continued   c)   Effective tax rate reconciliation c) Effective tax rate reconciliation   The reconciliation between the income tax rate and the effective rate applied in determining tax expenses as of December 31, 2016, 20152019, 2018 and 2014,2017, is as follows:       For the year ended December 31,   2016   2015   2014   Tax rate   Amount   Tax rate   Amount   Tax           rate   Amount     %   MCh$   %   MCh$   %   MCh$                             Tax calculated over profit before tax 24.00   140,991   22.50   118,828   21.00   131,657   Price level restatement for tax purposes (5.49)   (32,256)   (5.42)   (28,630)   (6.18)   (38,724)   Single penalty tax (rejected expenses) 0.06   336   0.06   340   0.12   746   Effect of tax reform changes on deferred tax 0.01   86   (2.01)   (10,600)   (6.26)   (39,262)   Real estate taxes 0.00   -   (0.73)   (3,853)   (0.54)   (3,357)   Other (0.02)   (126)   0.06   310   -   (10)   Effective rates and expenses for income tax 18.56   109,031   14.46   76,395   8.14   51,050       For the year ended December 31,       2019     2018     2017       Tax           Tax           Tax             rate     Amount     rate     Amount     rate     Amount       %     MCh$     %     MCh$     %     MCh$                                         Tax calculated over profit before tax     27.00       214,566       27.00       207,046       25.50       183,671   Price level restatement for tax purposes(1)     (6.33 )     (50,297 )     (5.15 )     (39,494 )     (3.03 )     (21,829 ) Single penalty tax (rejected expenses)     0.12       927       0.14       1,110       0.08       610   Effect of tax reform changes on deferred tax(2)     -       -       -       -       (2.86 )     (20,600 ) Real estate taxes     -       -       -       -       -       -   Other     1.24       9,878       (0.20 )     (1,518 )     0.44       3,179   Effective tax rates and expenses for income tax     22.03       175,074       21.79       167,144       20.13       145,031     (1) Mainly corresponds to the permanent differences originated from the Own Tax Monetary Correction and the effect of the bonds received to article 104 of LIR. d)   Effect of deferred taxes on comprehensive income d) Effect of deferred taxes on comprehensive income   Below is a summary of the separate effect of deferred tax on other comprehensive income, showing the asset and liability balances, for the years ended December 31, 20162019 and 2015:2018:   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$               Deferred tax assets Deferred tax assets             Available for sale investments 3,266   1,751 Cash flow hedges -   (155) Total deferred tax assets recognized through other comprehensive income 3,266   1,596 Debt instruments at FVOCI   8,074   1,166   Cash flow hedges   10,918   65   Total deferred tax assets recognised through other comprehensive income   18,992   1,231               Deferred tax liabilities Deferred tax liabilities             Available for sale investments (5,036)   (155) Cash flow hedges (549)   (1,785) Total deferred tax liabilities recognized through other comprehensive income (5,585)   (1,940) Available for sale investments   -   -   Debt instruments at FVOCI   (15,830 )   (2,976 ) Cash flow hedges   -   (2,711 ) Total deferred tax liabilities recognised through other comprehensive income   (15,830 )   (5,687 )             Net deferred tax balances in equity Net deferred tax balances in equity (2,319)   (344)   3,162   (4,456 )             Deferred taxes in equity attributable to equity holders of the Bank (2,097)   (373) Deferred taxes in equity attributable to shareholders of the Bank   3,444   (4,102 ) Deferred tax in equity attributable to non-controlling interests Deferred tax in equity attributable to non-controlling interests (222)   29   (282 )   (354 ) F-82 F-98 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 14 15 CURRENT AND DEFERRED TAXES, continued   e)       Effect of deferred taxes on income e) Effect of deferred taxes on income   As of December 31, 20162019 and 2015,2018, the Bank has recorded effects for deferred taxes in the financial statements.statements:   Below are the effects of deferred taxes on assets, liabilities and income:     As of December 31,       2019     2018       MCh$     MCh$   Deferred tax assets             Interests and adjustments     9,531       9,384   Non-recurring charge-offs     15,325       13,389   Assets received in lieu of payment     1,214       785   Exchange rate adjustments     -       1,675   Property, plant and equipment valuation     6,381       6,138   Allowance for loan losses     188,956       184,488   Provision for expenses     89,098       63,134   Derivatives     -       3,924   Leased assets     116,226       107,897   Subsidiaries tax losses     5,416       5,314   Prepaid expenses     -       156   Right of use assets     249       -   Total deferred tax assets     432,396       396,284                     Deferred tax liabilities                 Valuation of investments     (17,518 )     (42 ) Prepaid expenses     (20,347 )     (349 ) Depreciation     -       -   Valuation provision     (6,058 )     (5,989 ) Derivatives     (36,512 )     -   Exchange rate adjustments     (2,817 )     (3,383 ) Other     (75 )     (20 ) Total deferred tax liabilities     (83,327 )     (9,783 )     As of December 31,   2016   2015   MCh$   MCh$ Deferred tax assets       Interests and adjustments 9,473   10,962 Non-recurring charge-offs 9,891   7,839 Assets received in lieu of payment 2,999   1,686 Property, plant and equipment 4,570   5,408 Allowance for loan losses 163,456   139,777 Provision for expenses 67,073   47,218 Derivatives -   7,481 Leased assets 71,834   69,244 Subsidiaries tax losses 9,467   7,705 Valuation of investments -   9,800 Other 17,571   11,811 Total deferred tax assets 356,334    318,931         Deferred tax liabilities       Valuation of investments (1,802)   - Depreciation -   (355) Other (299)   (1,611) Total deferred tax liabilities (2,101)   (1,966) f)       Summary of deferred tax assets and liabilities f) Summary of deferred tax assets and liabilities   Below is a summary of the deferred taxes impact on equity and income.income,   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                 Deferred tax assets               Recognized through other comprehensive income 3,266   1,596 Recognized through profit or loss 356,334   318,931 Recognised through other comprehensive income   18,992   1,231   Recognised through profit or loss   432,396   396,284   Total deferred tax assets 359,600   320,527   451,388   397,515                 Deferred tax liabilities               Recognized through other comprehensive income (5,585)   (1,940) Recognized through profit or loss (2.101)   (1.966) Recognised through other comprehensive income   (15,830 )   (5,687 ) Recognised through profit or loss   (83,327 )   (9,783 ) Total deferred tax liabilities (7.686)   (3.906)   (99,157 )   (15,470 )   F-83 F-99 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 1516 OTHER ASSETS   Other assets item includes the following:     As of December 31,   As of December 31,     2016   2015   2019   2018     MCh$   MCh$   MCh$   MCh$                     Assets for leasing(1) Assets for leasing(1)   44,840   35,519   67,139   47,486                 Assets received or awarded in lieu of payment Assets received or awarded in lieu of payment               Assets received in lieu of payment   26,598   15,892 Assets awarded at judicial sale   26,895   14,938 Provision on assets received in lieu of payment or awarded   (7,558)   (5,873) Subtotal   45,935   24,957 Assets received in lieu of payment   18,755   17,525   Assets awarded at judicial sale   22,177   21,524   Provision on assets received in lieu of payment or awarded   (2,042 )   (723 ) Subtotal   38,890   38,326                   Other assets Other assets               Guarantee deposits (margin accounts)(2)   314,616   170,232   Non-current assets classified as held for sale(4)   22,394   -   Gold investments   680   522   VAT credit   22,663   9,097   Income tax recoverable   1,787   1,756   Prepaid expenses   432,030   477,819   Assets recovered from leasing for sale   3,575   6,848   Valuation adjustments by macro hedge(5)   210,867   9,414   Pension plan assets   670   846   Accounts and notes receivable   147,108   59,511   Notes receivable through brokerage and simultaneous transactions   43,354   71,382   Other receivable assets   44,262   48,612   Other assets(3)   89,111   49,365   Subtotal   1,333,117   905,404   Guarantee deposits (margin accounts)(2)   396,289   649,325           Gold investments   446   443 VAT credit   8,941   9,468 Income tax recoverable   22,244   35,925 Prepaid expenses   148,288                192,894 Assets recovered from leasing for sale   6,040   2,214 Pension plan assets   1,637   1,875 Accounts and notes receivable   56,624   36,566 Notes receivable through brokerage and simultaneous transactions    60,632   52,798 Other receivable assets   15,082   11,379 Other assets(3)   40,274   46,811 Subtotal   756,497   1,039,698       Total   847,272     1,100,174             Total   1,439,146   991,216   (1) Assets available to be granted under the financial leasing agreements. (2) Guarantee deposits (margin accounts) correspond to collateralscollateral associated with derivative financial contracts to mitigate the counterparty credit risk and are mainly established in cash. These guarantees operate when mark to market of derivative financial instruments exceed the levels of threshold agreed in the contracts, which could result in the Bank deliverdelivering or receivereceiving collateral. (3) Other assets mainly include settlement of derivatives and other financial transactions. (4) Corresponds to the interests in Redbanc S.A., Transbank S.A. and Nexus S.A., which have been reclassified as non-current assets classified as held for sale in accordance with IFRS 5 “Non-current assets held for sale and discontinued operations “, for additional information see Note 1 v) and Note 39. (5) Net assets and liabilities fair value valuation subject to macro hedges. See Note 8   F-84 F-100 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 16 17 TIME DEPOSITS AND OTHER TIME LIABILITIES   As of December 31, 20162019 and 2015,2018, the composition of the line item time deposits and other liabilities is as follows:     As of December 31,   As of December 31,     2016   2015   2019   2018     MCh$   MCh$   MCh$   MCh$                     Deposits and other demand liabilities                   Checking accounts   6,144,688   5,875,992   8,093,108   6,794,132   Other deposits and demand accounts   564,966   577,077   741,103   709,711   Other demand liabilities   829,661   903,052   1,463,221   1,237,574                   Total   7,539,315                     7,356,121 Subtotal   10,297,432   8,741,417                   Time deposits and other time liabilities                 Time deposits   13,031,319   12,065,697   13,064,932   12,944,846   Time savings account   116,451   113,562   123,787   118,587   Other time liabilities   3,939   3,508   4,098   4,386                     Subtotal   13,192,817   13,067,819   Total   13,151,709   12,182,767   23,490,249   21,809,236     F-85 F-101 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 1718  INTERBANK BORROWINGS   As of December 31, 20162019 and 20152018 the line item Interbank borrowings is as follows:     As of December 31,   2016   2015   MCh$   MCh$ Loans from financial institutions and the Central Bank of Chile       Other obligations with Central Bank of Chile 7   4 Subtotal 7   4 Loans from domestic financial institutions 365,436   - Loans from foreign financial institutions       Mizuho Corporate Bank 411,753   260,042 Sumitomo Mitsui Banking Corporation 233,060   169,906 Bank of America 213,200   70,890 Citibank N.A. - New York 183,193   272,572 Wells Fargo Bank N.A. – New York 113,631   106,328 Standard Chartered Bank - New York 99,943   141,738 The Bank of New York Mellon 82,594   52,393 The Bank of Nova Scotia 39,967   60,206 Barclays Bank PLC London 33,279   35,391 HSBC Bank Plc Ny 33,214   - NTT Docomo Inc. 33,149   35,133 Zurcher Kantonal Bank 20,021   21,257 European Investment Bank 13,980   14,808 Banco Santander – Hong Kong 6,165   5,106 Banque Bruxelles Lambert S.A. 5,797   - Banque Cantonale Vaudoise 5,714   - Banco Santander – Brasil S.A. 5,175   7,619 Standard Chartered Bank 1,931   1,464 China Construcción Bank 1,044   585 Hong Kong and Shanghai Banking 889   - Bank of Tokio Mitsubishi 430   474 Thai Military Bank Public Comp 425   - Bank of Communications 393   - Shinhan Bank 354   200 Denizbank A.S. 347   - Agricultural Bank of China 327   - Banco Santander – Madrid 322   112 Kookmin Bank 317   - Bank of China 311   1,174 Banca Monte dei Paschi di Siena 309   123 Unicrédito Italiano - New York 302   863 Keb Hana Bank 301   - State Bank of India 289   - Taipei Bank 260   214 ING Bank N.V. - Vienna 228   303 First Union National Bank 226   290 Westpac Banking Corporation 226   - BNP Paribas S.A. 218   435 Shanghai Pudong Development 205   167 Bank of Montreal 201   - Bank of Taiwan 183   28 Citibank N.A. Turkiye Merkez S. 158   - Woori Bank 153   75 Banque Generale Du Luxembourg 138   - Cassa Di Risparmio Di Parma E 132   - Oriental Bank Of Commerce 132   - Kotak Mahindra Bank Limited 129   - Banco Do Brasil S.A.           120   - Banco Bradesco S.A. 113   177 Habib Bank Limited             105   37 Caixabank S.A.                 93   - Canara Bank                    91   - Hua Nan Commercial Bank Ltd. 83   130 Development Bank Of Singapore 80   - Casa Di Risparmo De Padova E.R. 76   85 Hanvit Bank 76   61 HSBC France (formerly Hsbc Ccf) 74   - Yapi Ve Kredi Bankasi A.S.     73   - Banco General S A              62   - Banco De Crédito Del Perú 58   67 Banco Popular Espanol S.A.    56   59 Bank Of East Asia, Limited, The 54   -     As of December 31,       2019     2018       MCh$     MCh$   Loans from financial institutions and the Central Bank of Chile             Other obligations with Central Bank of Chile     -       -   Subtotal     -       -   Loans from domestic financial institutions     286,603       -   Loans from foreign financial institutions                 Bank of America N.A. US Foreign     355,051       38,906   Citibank N.A.     269,841       -   Mizuho Bank Ltd Ny     269,404       223,829   Wells Fargo Bank N.A.     231,823       -   Sumitomo Mitsui Banking Corporation     179,415       278,765   Standard Chartered Bank     153,373       50,960   The Bank of Nova Scotia     134,819       163,927   The Bank of New York Mellon     119,616       69,921   Barclays Bank Plc London     98,803       34,965   Corporacion Andina De Fomento     75,097       52,371   Zürcher Kantonalbank     75,002       -   The Toronto Dominion Bank     71,191       -   Hsbc Bank Plc     69,786       34,936   Bank of Montreal     56,123       31   State Bank of India     28,231       331   Banco Latinoamericano De Comercio     18,731       -   Banco Santander Brasil S.A.     7,873       8,040   Banco Santander Hong Kong     3,697       6,047   Standard Chartered Bank     3,613       843   Bank of China     952       7,777   Industrial and Commercial Bank     898       30   Banco Santander Central Hispano     848       1,295   Korea Exchange Bank     761       -   Hong Kong and Shanghai Banking     684       1,300   China Merchants Bank     597       -   Unicredito Italiano Spa     583       1,117   Banco Bilbao Vizcaya Argentaria     571       888   Rabobank, Hong Kong Branch     477       -   Bbva Bancomer, S.A.     553       -   Kbc Bank Nv     406       -   Bank of Communications     385       -   Bank of The West     261       -   Danske Bank A/S     224       -   Deutsche Bank A.G.     193       5,558   Kookmin Bank     185       -   Caixabank S.A.     166       -   E, Sun Commercial Bank Ltd.     159       -   Bank of Tokio Mitsubishi     156       1,032   Woori Bank     155       -   Agricultural Bank of China     152       106   Bank of Taiwan     135       127   Shinhan Bank     133       -   Taiwan Cooperative Bank     131       -   Keb Hana Bank     119       -   United Bank of India     113       378   Banca Di Credito Cooperativo A     112       -   Joint Stock Commercial Bank Fo.     110       33   Banca Nazionale Del Lavoro S.P.     106       77   Hua Nan Commercial Bank Ltd.     102       164   Industrial Bank of Korea     96       195   Banco Bradesco S.A.     84       89   Bank of Ningbo     83       -   Bank of East Asia, Limited     82       205   Hdfc Bank Limited     72       -   China Everbright Bank     70       -   Cassa Di Risparmio Di Parma E     69       -   Mizuho Corporate Bank Ltd.     67       -   Banco Bpm Spa     66       21   Canara Bank     66       -   Banco Comercial Portugues     63       -   Caixa Destalvis I Pensions de Barcelona     63       -   Shanghai Pudong Development Ba     59       237   Subtotal     2,232,856       1,284,501     F-86 F-102 Table of Contents  Banco Santander-Chile and Subsidiaries   Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 1718 INTERBANK BORROWINGS, continued     As of December 31   2016   2015   MCh$   MCh$ Loans from foreign financial institutions       J.P. Morgan Chase Bank N.A. - New York 49   80 Banco Commerzbank              47   - Hsbc Bank Canada               47   - Finans Bank A.S. 46   101 Bangkok Bank Public Company Li 42   - United Bank Of India           39   - Banco Bolivariano C.A.         38   - Banco Bilbao Vizcaya Argentaria 34   144 Hsbc Bank Brasil S.A.  - Banco 34   - Banca Delle Marche Spa         31   - Banca Popolare Di Vicenza Scpa 31   68 Bancolombia S.A.               31   - Bayerische Hypo- Und Vereinsba 27   - Banca Popolare Dell'Emilia Rom 26   - Metropolitan Bank Limited      26   - Banco Itau 25   - Icici Bank Limited             25   - China Merchants Bank           22   - Australia And New Zealand Bank 21   - Banca Lombarda E Piemontese S. 21   - Hsbc Bank Middle East          21   - Cassa Di Risparmio In Bologna 20   - Export-Import Bank Of Thailand 20   - Chang Hwa Commercial Bank Ltd. 17   28 Fifth Third Bank 15   123 Bank Of China Guangdong Branch 14   - Hdfc Bank Limited              13   - Fortis Bank S.A./N.V. Brussels 12   - Union Bank Of India            10   - Intesa Sanpaolo Spa            7   - Deutsche Bank Sociedad Anonima 6   - Banco Popolare Soc Coop        5   - Industrial Bank Of Korea       5   - Banca Commerciale Italiana S.P. -   280 Banca Nazionale Del Lavoro S.P. -   30 Banco De Occidente -   162 Banco De Sabadell S.A. -   147 Banco Del Pichincha -   124 Banco Do Brasil S.A. – London -   496 Banco Espirito Santo S.A. -   142 Banco Interamericano De Finanzas -   21 Banco Itau - Paraguay S.A.       -   135 Banco Surinvest S.A. -   96 Bank Mandiri (Persero) -   60 BBVA Banco Francés S.A. -   21 Caixa D'Estalvis i Pensions -   243 China Guangfa Bank Co. Ltd. -   103 Citibank El Cairo -   57 Citic Industrial Bank -   71 Commerzbank A.G. - Frankfurt -   175 Corporación Andina De Fomento -   14,162 Danske Bank -   113 Deutsche Bank A.G.- New York -   573 Hang Seng Bank Ltd. -   26 Kasikorn Bank Public Co. Ltd. -   79 Kfw Ipex Bank Gmbh -   - Korea Exchange Bank -   83 Nordea Bank Danmark -   34 Punjab National Bank -   26 State Bank Of India -   25 Taiwan Business Bank -   64 The Toronto Dominion Bank – Toronto -   21 Turk Ekonomi Bank A.S. -   29 U.S. Bank -   37 Wachovia Bank N.A.- Miami -   26,668 Otros 4,169   2,211         Subtotal 1,550,925   1,307,570 Total 1,916,368   1,307,574                   As of December 31,       2019     2018       MCh$     MCh$   Loans from foreign financial institutions, continued             Banca Monte dei Paschi di Siena     58       179   Banca Commerciale Italiana S.P.     50       288   Fortis Bank S.A./N.V. Brussels     50       42   Habib Bank Limited     38       -   Kasikornbank Public Company Li     33       -   Banco Rio De La Plata S.A.     24       -   Australia And New Zealand Bank     23       -   Banco de la Republica Oriental     23       41   Citic Industrial Bank     19       -   Shangai Pudong Development Ban     14       -   Banco Caixa Geral     10       -   Bank of Baroda     9       37   Shanghai Commercial and Saving     6       33   Hsbc Bank USA     2       394   Akbank T.A.S     -       106   Banca Lombarda E Piemontese S.     -       60   Banca Popolare Dell’Emilia Rom     -       31   Banca Popolare Di Milano S.C.A.     -       6   Banco Commerzbank     -       19   Banco de Galicia Y Buenos Aires     -       231   Banco De Sabadell S.A.     -       20   Banco Internacional S.A.     -       33   Banco Itau S.A.     -       14   Banistmo S.A.     -       32   Bank of India     -       51   Bank of Shanghai     -       134   Bankinter S.A.     -       24   Banque Bruxelles Lambert S.A.     -       509   Bnp Paribas, Hong Kong Branch     -       3,554   Caixabank S.A.     -       44   Cajas Rurales Unidas     -       18   Canara Bank     -       237   Casa Di Risparmo De Padova E.R.     -       30   Cassa Di Risparmio In Bologna     -       21   Chang Hwa Commercial Bank Ltd.     -       18   China Construcción Bank     -       35   Citibank N.A.     -       241,041   Credit Agricole     -       106   Credit Lyonnais     -       139   Development Bank of Singapore     -       3   Dexia Bank SA     -       789   First Union National Bank     -       201   Hang Seng Bank (China) Limited     -       6   Hanvit Bank     -       58   Hdfc Bank Limited     -       28   Hsbc Bank Middle East     -       77   International Commercial Bank     -       70   Kbc Bank Nv     -       23   Keb Hana Bank     -       2,318   Kookmin Bank     -       78   Mega International Commercial     -       9   Metropolitan Bank Limited     -       170   Oriental Bank of Commerce     -       87   Rabobank, Hong Kong Branch     -       1,548   Raiffeisen Bank Polska S.A.     -       31   Shinhan Bank     -       380   Taiwan Business Bank     -       19   Taiwan Cooperative Bank     -       66   U.S. Bank (Formerly First Bank)     -       18   United World Chinese Commercial Bank     -       15   Wachovia Bank N.A.     -       33,499   Wells Fargo Bank N.A.     -       216,749   Woori Bank     -       356   Subtotal     359       504,125   Total     2,519,818       1,788,626     F-87 F-103 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 17 18 INTERBANK BORROWINGS, continued   a) Obligations with Central Bank of Chile Debts to the Central Bank of Chile include credit lines for renegotiation of loans and other borrowings. These credit lines were provided by the Central Bank of Chile for renegotiation of loans due to the need to refinance debt as a result of the economic recession and crisis of the banking system in the early 1980s. The outstanding amounts owed to the Central Bank of Chile under these credit lines are as follows:   As of December 31,   2016   2015   MCh$   MCh$         Totals Line of credit for renegotiation with Central Bank of Chile 7   4         b) Loans from domestic financial institutions   These obligations’ maturities are as follows:   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                 Due within 1 year 365,436   -   158,855   -   Due within 1 and 2 year -   -   117,344   -   Due within 2 and 3 year -   -   8,167   -   Due within 3 and 4 year -   -   2,237   -   Due after 5 years -   -   -   -                 Total loans from domestic financial institutions 365.436   .   286,603   -     c)b) Foreign obligations   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                 Due within 1 year 525,521   868,593   1,970,790   1,648,955   Due within 1 and 2 year 725,315   352,345   225,025   139,671   Due within 2 and 3 year 186,352   35,390   37,400   -   Due within 3 and 4 year 80,473   35,133   -   -   Due after 5 years 33,264   16,109   -   -       Total loans from foreign financial institutions 1,550,925   1,307,570   2,233,215   1,788,626     F-88 F-104 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 1819 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES   As of December 31, 20162019 and 2015,2018, composition of this item is as follows:   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                   Other financial liabilities                 Obligations to public sector 61,490   63,921   9,198   32,449   Other domestic obligations 175,028   152,247   204,705   175,210   Foreign obligations 3,498   4,359   12,455   7,741   Subtotals 240,016   220,527   226,358   215,400   Issued debt instruments               Mortgage finance bonds 46,251   62,858   18,502   25,490   Senior bonds 6,416,274   5,041,636   8,574,213   7,198,865   Mortgage bond 104,182   107,582   89,924   94,921   Subordinated bonds 759,665   745,019   818,084   795,957   Subtotals 7,326,372   5,957,095   9,500,723   8,115,233                 Total 7,566,388   6,177,622   9,727,081   8,330,633     Debts classified as current are either demand obligations or will mature in one year or less. All other debts are classified as non-current.non-current, The Bank’s debts, both current and non-current, are summarized below:   As of December 31, 2016   As of December 31, 2019   Current   Non-current Total   Current   Non-current   Total   MCh$   MCh$   MCh$   MCh$   MCh$                   Mortgage finance bonds 11,236   35,015 46,251   6,013   12,489   18,502   Senior bonds 1,135,713   5,280,561 6,416,274   2,078,202   6,496,011   8,574,213   Mortgage bond 4,318   99,864 104,182   5,137   84,787   89,924   Subordinated bonds 4   759,661 759,665   -   818,084   818,084   Issued debt instruments              1,151,271   6,175,101 7,326,372   2,089,352   7,411,371   9,500,723                   Other financial liabilities 158,488   81,528 240,016   226,033   325   226,358                   Total 1,309,759   6,256,629 7,566,388   2,315,385   7,411,696   9,727,081   F-89 F-105 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 18 19 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued   As of December 31, 2015   As of December 31, 2018   Current   Non-current Total   Current   Non-current   Total   MCh$   MCh$   MCh$   MCh$   MCh$                   Mortgage finance bonds 5,544   57,314 62,858   6,830   18,660   25,490   Senior bonds 796,012   4,245,624 5,041,636   844,898   6,353,967   7,198,865   Mortgage bond 4,063   103,519 107,582   4,833   90,088   94,921   Subordinated bonds 6,583   738,436 745,019   1   795,956   795,957   Issued debt instruments 812,202   5,144,893 5,957,095   856,562   7,258,671   8,115,233                   Other financial liabilities 136,172   84,355 220,527   205,871   9,529   215,400                   Total 948,374   5,229,248 6,177,622   1,062,433   7,268,200   8,330,633     a) Mortgage finance bonds   These bonds are used to finance mortgage loans. Their principal amounts are amortizedamortised on a quarterly basis.basis, The range of maturities of these bonds is between five and twenty years.years, Loans are indexed to UF and create a yearly interest yield of 5.53%5.39% as of December 31, 2016 (5.95%2019 (5.43% as of December 31, 2015)2018).   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                   Due within 1 year 11,236   5,544   6,013   6,830   Due after 1 year but within 2 years 8,673   6,237   4,944   5,946   Due after 2 year but within 3 years 6,928   8,000   3,928   5,034   Due after 3 year but within 4 years 6,246   5,211   2,442   3,997   Due after 4 year but within 5 years 5,278   5,005   1,005   2,480   Due after 5 years 7,890   32,861   170   1,203   Total mortgage bonds 46,251   62,858   18,502   25,490     b) Senior bonds   The following table shows senior bonds by currency:   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                   Santander bonds in UF 3,588,373   2,179,643   4,814,604   4,095,741   Santander bonds in USD 909,354   1,625,150   1,649,238   1,094,267   Santander bonds in CHF 568,549   535,448   499,485   386,979   Santander bonds in Ch$ 1,037,515   475,075   1,242,633   1,291,900   Santander bonds in AUD 60,890   62,066   124,748   24,954   Current bonds in JPY 179,426   164,254   77,797   191,598   Santander bonds in EUR 72,167   -   165,708   113,426   Total senior bonds 6,416,274   5,041,636   8,574,213   7,198,865     F-90 F-106 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 18 19 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued   i. Placement of senior bonds:   In 2016,2019, the Bank issued bonds for UF 62,000,000;29,678,000; CLP 590,000,000,000; JPY 3,000,000,000; USD 215,000,000;115,000,000,000; EUR 104,000,000;30,000,000; AUD 160,000,000 and CHF 125,000,000250,000,000 detailed as follows:   Series Currency Amount Term Issuance rate Series approval date Series maximum amount Maturity date R1 UF 15,000,000 5.5 2.50% 09-01-2015 15,000,000 03-01-2021 R2 UF 10,000,000 7.5 2.60% 09-01-2015 10,000,000 03-01-2023 R3 UF 10,000,000 10.5 3.00% 09-01-2015 10,000,000 03-01-2026 R5 UF 7,000,000 7.0 2.55% 09-01-2015 7,000,000 12-01-2022 R6 UF 7,000,000 9.0 2.65% 12-01-2015 7,000,000 12-01-2024 P9 UF 3,000,000 10.5 2.60% 03-01-2015 5,000,000 09-01-2025 T2 UF 5,000,000 4.5 2.25% 02-01-2016 5,000,000 08-01-2020 T5 UF 5,000,000 6.0 2.40% 02-01-2016 5,000,000 02-01-2022 Total UF 62,000,000           R4 CLP 100,000,000,000 5.5 5.50% 09-01-2015 100,000,000,000 03-01-2021 P4 CLP 50,000,000,000 5.0 4.80% 03-01-2015 150,000,000,000 03-01-2020 SD CLP 140,000,000,000 5.0 5.50% 06-01-2014 200,000,000,000 06-01-2019 SC CLP 200,000,000,000 10.0 5.95% 06-01-2014 200,000,000,000 06-01-2024 P3 CLP 50,000,000,000 7.0 5.50% 01-01-2015 50,000,000,000 01-01-2022 P1 CLP 50,000,000,000 10.0 5.80% 01-01-2015 50,000,000,000 01-01-2025 Total CLP 590,000,000,000           JPY JPY 3,000,000,000 5.0 0.115% 06-22-2016 3,000,000,000 06-29-2021 Total JPY 3,000,000,000           DN USD 10,000,000 5.0 Libor-USD 3M+1.05% 06-02-2016 10,000,000 06-09-2021 DN USD 10,000,000 5.0 Libor-USD 3M+1.22% 06-08-2016 10,000,000 06-17-2021 DN USD 10,000,000 5.0 Libor-USD 3M+1.20% 08-01-2016 10,000,000 08-16-2021 DN USD 185,000,000 5.0 Libor-USD 3M+1.20% 11-10-2016 185,000,000 11-28-2021 Total USD 215,000,000           EUR EUR 54,000,000 12.0 1.307% 08-05-2016 54,000,000 08-17-2028 EUR EUR 20,000,000 8.0 0.80% 08-04-2016 20,000,000 08-19-2024 EUR EUR 30,000,000 3.0 0.25% 12-09-2016 30,000,000 12-20-2019 Total EUR 104,000,000           CHF CHF   125,000,000 8.5  0.35% 11-14-2016  125,000,000 05-30-2025 Total CHF 125,000,000           Series   Currency   Amount     Term   Issuance rate   Series approval date   Series maximum amount     Maturity date T7   UF     5,000,000     4   2,50%   02-01-2016     5,000,000     02-01-2023 T8   UF     5,678,000     4 y 6   2,55%   02-01-2016     5,678,000     08-01-2023 T14   UF     9,000,000     8   2,80%   02-01-2016     18,000,000     02-01-2027 T6   UF     5,000,000     10   1,70%   11-01-2018     5,000,000     05-01-2029 T10   UF     5,000,000     5 y 4   2,60%   02-01-2016     5,000,000     08-01-2024 Total   UF     29,678,000                   38,678,000       U9   CLP     75,000,000,000     2 y 8   ICP + 0,80% yearly   11-01-2018     75,000,000,000     11-19-2021 P-5   CLP     75,000,000,000     2 y 7   5,3% yearly   03-01-2015     150,000,000,000     03-01-2022 Total   CLP     150,000,000,000                   225,000,000,000       EUR   EUR     30,000,000     7   1,10%   02-01-2019     40,000,000     02-07-2026 EUR   EUR     25,000,000     5   1,25%   11-26-2019     25,000,000     11-26-2034 Total   EUR     55,000,000                   65,000,000       AUD   AUD     22,000,000     15   3,66% yearly   05-20-2019     22,000,000     05-20-2034 AUD   AUD     20,000,000     5   1,13% yearly   07-11-2019     20,000,000     07-11-2024 AUD   AUD     28,000,000     5   1,13% yearly   07-17-2019     28,000,000     07-17-2024 AUD   AUD     15,000,000     5   1,13% yearly   07-17-2019     15,000,000     07-17-2024 AUD   AUD     75,000,000     20   3,05% yearly   08-30-2019     75,000,000     02-28-2039 AUD   AUD     12,000,000     5   3,16% yearly   11-12-2019     12,000,000     11-20-2034 AUD   AUD     13,000,000     5   2,91% yearly   11-21-2019     13,000,000     11-27-2034 Total         185,000,000                   185,000,000       CHF   CHF     150,000,000     5 y 6   0,38% yearly   03-12-2019     150,000,000     09-27-2024 CHF   CHF     100,000,000     10   0,14% yearly   08-29-2019     100,000,000     08-29-2029 Total   CHF     250,000,000                   250,000,000         F-91 F-107 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 18 19 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued   During 2016,2019, the Bank performed a partial repurchase of the following bonds: Date Type Currency Amount 02-12-2019 Senior CLP 10,000,000,000 02-14-2019 Senior CLP 30,000,000,000 02-19-2019 Senior CLP 4,200,000,000 02-22-2019 Senior CLP 14,240,000,000 02-22-2019 Senior CLP 30,000,000 02-22-2019 Senior CLP 10,000,000 03-01-2019 Senior CLP 11,800,000,000 03-04-2019 Senior CLP 40,080,000,000 03-05-2019 Senior CLP 20,000,000,000 03-15-2019 Senior UF 156,000 03-19-2019 Senior UF 418,000 03-20-2019 Senior CLP 6,710,000,000 03-20-2019 Senior UF 154,000 03-21-2019 Senior UF 100,000 03-25-2019 Senior UF 100,000 03-26-2019 Senior UF 90,000 04-08-2019 Senior CLP 3,950,000,000 04-10-2019 Senior UF 409,000 04-16-2019 Senior UF 55,000 04-17-2019 Senior CLP 130,000,000 04-18-2019 Senior CLP 330,000,000 05-16-2019 Senior CLP 14,880,000,000 05-16-2019 Senior UF 9,000 06-13-2019 Senior UF 1,000 10-01-2019 Senior CLP 10,960,000,000 10-02-2019 Senior CLP 100,000,000 10-04-2019 Senior CLP 60,000,000 11-05-2019 Senior CLP 15,220,000,000 11-07-2019 Senior CLP 3,620,000,000 11-13-2019 Senior CLP 5,320,000,000 11-14-2019 Senior UF 2,977,000 11-28-2019 Senior UF 340,000 12-02-2019 Senior UF 105,000 F-108 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 19 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued In 2018, the Bank issued bonds for UF 23,000,000; CLP 225,000,000,000; USD 70,000,000, EUR 66,000,000, AUD 20,000,000; CHF 115,000,000 and JPY 7,000,000,000, detailed as follows: Series   Currency   Amount     Term   Issuance rate   Series approval date   Series maximum amount     Maturity date T1   UF     4,000,000     2   2,20%   02-01-2016     7,000,000     02-01-2020 T4   UF     4,000,000     3   2,35%   02-01-2016     8,000,000     08-01-2021 T11   UF     5,000,000     7   2,65%   02-01-2016     5,000,000     02-01-2025 T12   UF     5,000,000     7   2,70%   02-01-2016     5,000,000     08-01-2025 T15   UF     5,000,000     11   3,00%   02-01-2016     5,000,000     08-01-2028 Total   UF     23,000,000                   30,000,000       P5   CLP     75,000,000,000     4   5,30%   03-05-2015     150,000,000,000     03-01-2022 U4   CLP     75,000,000,000     3 y 4   ICP + 1,00%   01-10-2017     75,000,000,000     01-10-2022 U3   CLP     75,000,000,000     2 y 7   ICP + 1,00%   06-11-2018     75,000,000,000     06-11-2021 Total   CLP     225,000,000,000                   300,000,000,000       USD   USD     50,000,000     10   4,17%   10-10-2018     50,000,000     10-10-2028 USD   USD     20,000,000     2   0,03%   11-16-2018     20,000,000     11-16-2020 Total   USD     70,000,000                   70,000,000       EUR   EUR     26,000,000     7   1,00%   05-04-2018     26,000,000     05-28-2025 EUR   EUR     40,000,000     12   1,78%   06-07-2018     40,000,000     06-15-2030 Total   EUR     66,000,000                   66,000,000       AUD   AUD     20,000,000     5   3,56%   11-13-2018     20,000,000     11-13-2023 Total   AUD     20,000,000                   20,000,000       CHF   CHF     115,000,000     5 y 3   0,44%   09-21-2018     115,000,000     12-21-2023 Total   CHF     115,000,000                   115,000,000       JPY   JPY     4,000,000,000     10 y 6   0,65%   07-13-2018     4,000,000,000     01-13-2029 JPY   JPY     3,000,000,000     5   0.56%   10-30-2018     3,000,000,000     10-30-2023 Total    JPY     7,000,000,000                   7,000,000,000       F-109 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 19 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued During 2018, the Bank performed a partial repurchase of the following bond:   Date   Type Currency Amount 01-04-2018 Senior CLP     12,890,000,000   01-13-201601-04-2018   Senior USD         600,000 01-27-2016    Senior USD         960,000 03-08-2016  Senior USD   418,853,000 03-08-2016  Senior USD   140,104,000 05-10-2016  Senior USD     10,000,000 11-29-2016  Senior USD       6,895,000 In 2015, the Bank issued bonds for UF 22,000,000; CLP 200,000,000,000; CHF 150,000,000; and JPY 1,200,000,000 detailed as follows: Series Currency Amount Term Issuance rate Series approval date Series maximum amount Maturity date SG Series UF 3,000,000 12 years 3.30% per annum simple 11-01-2014 UF 3,000,000 11-01-2025 SF Series UF 3,000,000 5 years 3.00% per annum simple 11-01-2014 UF 3,000,000 04-01-2020 SB Series UF 2,000,000 5 years 2.65% per annum simple 07-01-2014 UF 2,000,000 07-01-2019 BSTDP6 Series UF 3,000,000 5 years 2.25% per annum simple 03-01-2015 UF 3,000,000 03-01-2020 BSTDP7 Series UF 3,000,000 8 years 2.40% per annum simple 03-01-2015 UF 3,000,000 09-01-2022 BSTDP8 Series UF 3,000,000 6 years 2.25% per annum simple 03-01-2015 UF 3,000,000 09-01-2020 BSTDP9 Series UF 2,000,000 6 years 2.60% per annum simple 03-01-2015 UF 5,000,000 09-01-2025 BSTDSA0714 Series UF 3,000,000 10 years 3.00% per annum simple 07-01-2014 UF 5,000,000 07-01-2024 UF Total UF 22,000,000     4,600,000,000   BSTDP2 Series01-22-2018 CLP 100,000,000,000Senior 5 years 5.20% per annum simple 01-01-2015 CLP 100,000,000,000 03-01-2020 BSTDP4 Series CLP 100,000,000,000 5 years 4.80% per annum simple 03-01-2015 CLP 150,000,000,000 03-01-2020 CLP Total CLP 200,000,000,000UF     24,000   CHF fixed rate bond04-05-2018 CHF 150,000,000Senior 7 years 0.38%  quarterly 05-19-2015 CHF 150,000,000 05-19-2022 CHF Total CHF 150,000,000UF     484,000   JPY Current Bond04-06-2018 JPY 1,200,000,000Senior 5 years 0.42% biannually 12-17-2015 JPY 1,200,000,000 17-12-2020 JPY Total JPY 1,200,000,000UF     184,000 04-23-2018 Senior UF     216,000 During 2015, the Bank repurchased senior bonds for USD 19, 000,000. 04-24-2018 ii. Nominal bonds to be placed:Senior UF 4,000 04-25-2018 Senior UF 262,000 05-10-2018 Senior UF 800,000 06-07-2018 Senior USD 3,090,000 12-11-2018 Senior USD 250,000,000   Asii. of December 31, 2016, there are no outstanding amounts of bonds, not previously authorized, to be placed. F-92  Table of Contents NOTE 18 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued iii. The maturities of senior bonds are as follows:     As of December 31,   2016 2015 MCh$ MCh$ Due within 1 year 1,135,713   796,012 Due after 1 year but within 2 years 321,509   1,147,138 Due after 2 year but within 3 years 816,919   415,914 Due after 3 year but within 4 years 663,289   682,494 Due after 4 year but within 5 years 754,768   466,700 Due after 5 years 2,724,076   1,533,378 Total senior bonds 6,416,274   5,041,636     As of December 31,       2019     2018       MCh$     MCh$                 Due within 1 year     2,078,202       844,898   Due after 1 year but within 2 years     1,147,825       1,331,255   Due after 2 year but within 3 years     1,221,393       1,073,847   Due after 3 year but within 4 years     742,238       1,104,547   Due after 4 year but within 5 years     1,278,746       421,918   Due after 5 years     2,105,809       2,422,400   Total senior bonds     8,574,213       7,198,865     c) Mortgage bonds   Detail of mortgage bonds per currency is as follows:   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                   Mortgage bonds in UF 104,182   107,582   89,924   94,921   Total mortgage bonds 104,182   107,582   89,924   94,921     i. Allocation of mortgage bonds   During 20162019 and 2015,2018, the Bank has not placed any mortgage bonds.   ii. The maturities of Mortgage bond are as follows:     As of December 31,   2016   2015   MCh$   MCh$         Due within 1 year 4,318   4,063 Due after 1 year but within 2 years 6,932   6,522 Due after 2 year but within 3 years 7,156   6,733 Due after 3 year but within 4 years 7,386   6,951 Due after 4 year but within 5 years 7,626   7,175 Due after 5 years 70,764   76,138 Total Mortgage bonds 104,182   107,582 F-93 F-110 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 18 19 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued   d)ii. The maturities of Mortgage bonds are as follows:     As of December 31,       2019     2018       MCh$     MCh$                 Due within 1 year     5,137       4,833   Due after 1 year but within 2 years     8,248       7,758   Due after 2 year but within 3 years     8,514       8,008   Due after 3 year but within 4 years     8,788       8,267   Due after 4 year but within 5 years     9,072       8,534   Due after 5 years     50,165       57,521   Total Mortgage bonds     89,924       94,921   d) Subordinated bonds   Detail of the subordinated bonds per currency is as follows:   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                   Subordinated bonds denominated in CLP 4   6   -   1   Subordinated bonds denominated in UF 759,661   745,013   818,084   795,956   Total subordinated bonds 759,665   745,019   818,084   795,957     i.i, Allocation of subordinated bonds   During 20162019 and 2015,2018, the Bank has not placed any subordinated bonds. The maturities of subordinated bonds, are as follows:   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                   Due within 1 year       -   1   Due after 1 year but within 2 years 4   6,583   -   -   Due after 2 year but within 3 years -   -   -   -   Due after 3 year but within 4 years -   -   -   -   Due after 4 year but within 5 years -   -   -   -   Due after 5 years 759,661   738,436   818,084   795,956   Total subordinated bonds 759,665   745,019   818,084   795,957   F-111 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 19 ISSUED DEBT INSTRUMENTS AND OTHER FINANCIAL LIABILITIES, continued   e) Other financial liabilities   The composition of other financial obligations, by maturity, is detailed below:   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                   Non-current portion:             Due after 1 year but within 2 years 33,777   3,497   41   9,221   Due after 2 year but within 3 years 24,863   20,240   44   40   Due after 3 year but within 4 years 5,794   16,063   48   44   Due after 4 year but within 5 years 1,973   28,227   53   48   Due after 5 years 15,121   16,328   132   176   Non-current portion subtotal 81,528   84,355   318   9,529               Current portion:             Amounts due to credit card operators 151,620   129,358   151,984   172,425   Acceptance of letters of credit 2,069   3,176   5,709   2,894   Other long-term financial obligations, short-term portion 4,799   3,638   68,347   30,552   Current portion subtotal 158,488   136,172   226,040   205,871               Total other financial liabilities                240,016   220,527   226,358   215,400     F-94 F-112 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 19 20 MATURITY OF FINANCIAL ASSETS AND LIABILITIES   As of December 31, 20162019 and 2015,2018, the detail of the maturities of assets and liabilities is as follows:   As of December 31, 2016 Demand Up to 1 month Between 1 and 3 months  Between 3 and 12 months Subtotal up to 1 year  Between 1 and 3 years Between 3 and 5 years More than 5 years   Subtotal More than 1 year Total   MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$                       Financial assets                     Cash and deposits in banks 2,279,389 - - - 2,279,389 - - - - 2,279,389 Cash items in process of collection 495,283 - - - 495,283 - - - - 495,283 Trading investments - 52,443 13,252 118,845 184,540 75,378 106,808 30,261 212,447 396,987 Investments under resale agreements - 6,736 - - 6,736 - - - - 6,736 Financial derivative contracts - 82,243 120,653 292,801 495,697 531,094 357,833 1,116,158 2,005,085 2,500,782 Interbank loans (*) - 12,859 135,756 124,143 272,758 44 - 5 49 272,807 Loans and accounts receivables from customers (**) 717,306 2,393,216 2,108,001 4,488,993 9,707,516 4,937,271 2,909,140 9,379,697 17,226,108 26,933,624 Available for sale investments - 1,581,682 250,222 314,842 2,146,746 37,974 379,976 824,210 1,242,160 3,388,906 Guarantee deposits (margin accounts) 396,289 - - - 396,289 - - - - 396,289 Total financial assets 3,888,267 4,129,179 2,627,884 5,339,624 15,984,954 5,581,761 3,753,757 11,350,331 20,685,849 36,670,803                       Financial liabilities                     Deposits and other demand liabilities 7,539,315 - - - 7,539,315 - - - - 7,539,315 Cash items in process of being cleared 288,473 - - - 288,473 - - - - 288,473 Obligations under repurchase agreements - 212,437 - - 212,437 - - - - 212,437 Time deposits and other time liabilities 121,527 6,105,767 4,193,906 2,537,299 12,958,499 118,101 13,913 61,196 193,210 13,151,709 Financial derivative contracts - 92,335 122,565 263,893 478,793 494,539 346,948 971,881 1,813,368 2,292,161 Interbank borrowings 4,557 373,423 115,769 1,154,063 1,647,812 233,542 35,014 - 268,556 1,916,368 Issued debt instruments - 43,141 185,425 922,705 1,151,271 1,168,117 1,444,593 3,562,391 6,175,101 7,326,372 Other financial liabilities 153,049 1,461 1,161 2,817 158,488 58,641 7,766 15,121 81,528 240,016 Guarantees received (margin accounts) 480,926 - - - 480,926 - - - - 480,926 Total financial liabilities 8,587,847 6,828,564 4,618,826 4,880,777 24,916,014 2,072,940 1,848,234 4,610,589 8,531,763 33,447,777 As of December 31, 2019   Demand   Up to 1 month   Between 1 and 3 months   Between 3 and 12 months   Subtotal up to 1 year   Between 1 and 3 years   Between 3 and 5 years   More than 5 years   Subtotal More than 1 year   Total     MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                           Financial assets                                         Cash and deposits in banks     3,554,520       –         –         –         3,554,520       –         –         –         –         3,554,520   Cash items in process of collection     355,062       –         –         –         355,062       –         –         –         –         355,062   Financial assets held for trading     –         38,644       –         645       39,289       181,705       37,659       11,551       230,915       270,204   Investments under resale agreements     –         –         –         –         –         –         –         –         –         –     Financial derivative contracts     –         371,775       400,196       1,543,446       2,315,417       1,383,493       1,346,329       3,103,369       5,833,191       8,148,608   Loans and accounts receivables at amortised cost (*)     296,461       2,963,578       2,400,909       5,511,374       11,172,322       5,706,433       4,093,147       11,699,613       21,499,193       32,671,515   Loans and account receivable at fvoci (**)     –         –         –         5,953       5,953       –         –         60,213       60,213       66,166   Debt instruments at fvoci     –         1,131,500       3,752       52,130       1,187,382       508,596       725,419       1,588,875       2,822,890       4,010,272   Equity instruments at fvoci     –         –         –         –         –         –         –         482       482       482   Guarantee deposits (margin accounts)     314,616       –         –         –         314,616       –         –         –         –         314,616   Total financial assets     4,520,659       4,505,497       2,804,857       7,113,548       18,944,561       7,780,227       6,202,554       16,464,103       30,446,884       49,391,445                                                                                     Financial liabilities                                                                                 Deposits and other demand liabilities     10,297,432       –         –         –         10,297,432       –         –         –         –         10,297,432   Cash items in process of being cleared     198,248       –         –         –         198,248       –         –         –         –         198,248   Obligations under repurchase agreements     –         380,055       –         –         380,055       –         –         –         –         380,055   Time deposits and other time liabilities     142,273       5,184,567       4,905,414       2,417,703       12,649,957       357,856       163,121       21,883       542,860       13,192,817   Financial derivative contracts     –         422,749       427,825       951,684       1,802,258       1,253,280       1,180,948       3,154,168       5,588,396       7,390,654   Interbank borrowings     94       363,560       624,167       1,141,824       2,129,645       387,936       2,237       –         390,173       2,519,818   Issued debt instruments     –         285,159       759,519       1,044,674       2,089,352       2,394,850       2,042,292       2,974,229       7,411,371       9,500,723   Lease liabilities     –         –         –         26,061       26,061       45,978       36,393       50,062       132,433       158,494   Other financial liabilities     161,021       5,155       30,969       28,888       226,033       83       99       143       325       226,358   Guarantees received (margin accounts)     994,714       –         –         –         994,714       –         –         –         –         994,714   Total financial liabilities     11,793,782       6,641,245       6,747,894       5,610,834       30,793,755       4,439,983       3,425,090       6,200,485       14,065,558       44,859,313     (*) Interbank loansLoans and accounts receivables at amortised cost are presented on a gross basis. Thebasis, the amount of allowance is Ch$4,135896,095 million. (**) Loans and accounts receivables from customersat fvoci are presented on a gross basis. Provisions amounts according to typebasis, the amount of loan are detailed as follows: Commercial loansallowance is Ch$429,442 million, Mortgage loans Ch$57,009 million, and Consumer loans Ch$300,019101 million.   F-95 F-113 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 19 20 MATURITY OF FINANCIAL ASSETS AND LIABILITIES, continued:continued   As of December 31, 2015 Demand Up to 1 month Between 1 and 3 months Between 3 and  12 months Subtotal  up to 1 year Between 1 and 3 years Between 3 and 5 years  More than 5 years Subtotal More than 1 year Total   MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$                       Financial assets                     Cash and deposits in banks 1,677,076 387,730 -  -  2,064,806 - - -  -  2,064,806 Cash items in process of collection 724,521 -  -  -  724,521 - - -  -  724,521 Trading investments -  126,248 21,364 264 147,876 15,623 72,112 88,660 176,395 324,271 Investments under resale agreements -  2,463 -  -  2,463 - - -  -  2,463 Financial derivative contracts -  158,843 213,335 407,854 780,032 798,557 393,309 1,234,028 2,425,894 3,205,926 Interbank loans (*) 9,371 -  1,506 -  10,877 - - -  -  10,877 Loans and accounts receivables from customers (**) 664,164 2,401,995 2,178,424 4,027,990 9,272,573 4,746,876 2,751,926 8,518,505 16,017,307 25,289,880 Available for sale investments -  480,801 72,217 243,241 796,259 48,651 469,004 730,497 1,248,152 2,044,411 Guarantee deposits (margin accounts) 649,325 -  -  -  649,325 - - -  -  649,325 Total financial assets 3,724,457 3,558,080 2,486,846 4,679,349 14,448,732 5,609,707 3,686,351 10,571,690 19,867,748 34,316,480                       Financial liabilities                     Deposits and other demand liabilities 7,356,121 -  -  -  7,356,121 - - -   -  7,356,121 Cash items in process of being cleared 462,157 -  -  -  462,157 - - -  - 462,157 Obligations under repurchase agreements -  143,689 -  -  143,689 - - -  -  143,689 Time deposits and other time liabilities 114,341 5,707,940 3,210,947 2,853,761 11,886,989 231,272 7,661 56,845 295,778 12,182,767 Financial derivative contracts -  126,643 190,409 380,158 697,210 679,133 337,598 1,148,665 2,165,396 2,862,606 Interbank borrowings 27,323 7,946 148,509 684,819 868,597 388,626 50,351 -  438,977 1,307,574 Issued debt instruments 1,953 440,500 155,821 213,928 812,202 1,590,546 1,173,536 2,380,811 5,144,893 5,957,095 Other financial liabilities 129,358 3,142 558 3,114 136,172 23,737 44,290 16,328 84,355 220,527 Guarantees received (margin accounts) 819,331 -  -  -  819,331 - - -  -  819,331 Total financial liabilities 8,910,584 6,429,860 3,706,244 4,135,780 23,182,468 2,913,314 1,613,436 3,602,649 8,129,399 31,311,867 As of December 31, 2018   Demand   Up to 1 month   Between 1 and 3 months   Between 3 and 12 months   Subtotal up to 1 year   Between 1 and 3 years   Between 3 and 5 years   More than 5 years   Subtotal More than 1 year   Total     MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                           Financial assets                                         Cash and deposits in banks     2,065,411       -       -       -       2,065,411       -       -       -       -       2,065,411   Cash items in process of collection     353,757       -       -       -       353,757       -       -       -       -       353,757   Financial assets held for trading     -       1,064       -       11,642       12,706       16,331       20,080       27,924       64,335       77,041   Investments under resale agreements     -       -       -       -       -       -       -       -       -       -   Financial derivative contracts     -       111,268       128,024       543,722       783,014       723,622       552,133       1,041,866       2,317,621       3,100,635   Loans and accounts receivables at amortised cost (*)     238,213       3,295,003       2,323,442       4,880,726       10,737,384       5,474,289       3,236,349       10,765,393       19,476,031       30,213,415   Loans and account receivable at fvoci (**)     -       -       -       25,294       25,294       4,949       -       38,451       43,400       68,694   Debt instruments at fvoci     -       2,391,329       -       1       2,391,330       86       -       2,907       2,993       2,394,323   Equity instruments at fvoci     -       -       -       -       -       -       -       481       483       483   Guarantee deposits (margin accounts)     170,232       -       -       -       170,232       -       -       -       -       170,232   Total financial assets     2,827,613       5,798,664       2,451,466       5,461,385       16,539,128       6,219,277       3,808,562       11,877,024       21,904,863       38,443,991                                                                                     Financial liabilities                                                                                 Deposits and other demand liabilities     8,741,417       -       -       -       8,741,417       -       -       -       -       8,741,417   Cash items in process of being cleared     163,043       -       -       -       163,043       -       -       -       -       163,043   Obligations under repurchase agreements     -       48,545       -       -       48,545       -       -       -       -       48,545   Time deposits and other time liabilities     122,974       5,248,418       4,108,556       3,326,199       12,806,147       191,547       6,137       63,988       261,672       13,067,819   Financial derivative contracts     -       131,378       120,361       349,551       601,290       495,789       471,185       949,464       1,916,438       2,517,728   Interbank borrowings     39,378       16,310       404,575       1,188,692       1,648,955       139,671       -       -       139,671       1,788,626   Issued debt instruments     -       71,465       39,267       745,830       856,562       2,431,849       1,549,743       3,277,079       7,258,671       8,115,233   Other financial liabilities     179,681       934       2,412       22,844       205,871       9,261       92       176       9,529       215,400   Guarantees received (margin accounts)     540,091       -       -       -       540,091       -       -       -       -       540,091   Total financial liabilities     9,786,584       5,517,050       4,675,171       5,633,116       25,611,921       3,268,117       2,027,157       4,290,707       9,585,981       35,197,902   (*) Interbank loansLoans and accounts receivables at amortised cost are presented on a gross basis. Thebasis, the amount of allowance is Ch$1,166 882,414 million. (**) Loans and accounts receivables from customersat fvoci are presented on a gross basis. Provisions amounts according to typebasis, the amount of loan are detailed as follows: Commercial loansallowance is Ch$431,201 million, Mortgage loans Ch$62,427 million, and Consumer loans Ch$267,507106 million.   F-96 F-114 Table of Contents  NOTE 20 Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 21 PROVISIONS AND CONTINGENT PROVISIONS   a) As of December 31, 20162019 and 2015,2018, the composition is as follows:      As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                   Provisions for personnel salaries and expenses 72,592   64,861   101,223   93,379   Provisions for mandatory dividends 142,815   134,539   185,727   178,600   Provisions for contingent loan risk 11,399   10,750 Provisions for contingencies associated with administrative claims and leasing contracts 65,404   64,848 Provisions for contingent loan   23,792   24,329   Provision for contingencies   15,388   8,963   Total 292,210   274,998   326,130   305,271     b) Below is the activity regarding provisions during the years ended December 31, 20162019, 2018 and 2015.2017   Personnel salaries and expenses  Mandatory dividends Contingent loans  Contingencies Total   Personnel salaries and expenses   Mandatory Dividend   Contingent loan   Contingencies   Total   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                           Balances as of January 1, 2016 64,861 134,539 10,750 64,848 274,998 Balances as of January 1, 2019   93,379   178,600   24,329   8,963   305,271   Provisions established 80,298 142,815 9,789 85,492 318,394   78,316   185,727   16,277   27,975   298,627   Application of provisions (72,567) (134,539) - (135) (207,241)   (70,385 )   -   -   (155 )   (70,540 ) Provisions released - (9,140) (84,801) (93,941)   (552 )   (178,600 )   (16,814 )   (21,395 )   (207,693 ) Reclassifications - -   -   -   -   -   -   Other - -   465   -   -   -   465                           Balances as of December 31, 2016 72,592 142,815 11,399 65,404 292,210 Balances as of December 31, 2019   101,223   185,727   23,792   15,388   326,130                           Balances as of January 1, 2015 46,759 170,973 12,679 55,559 285,970 Balances as of January 1, 2018   97,576   168,840   10,079   27,303   303,798   Provisions established 75,491 134,539 5,409 147,693 363,132   80,912   178,600   19,440   19,647   298,599   Application of provisions (56,878) (170,973) - (150,681) (378,532)   (72,975 )   -   -   (4,431 )   (77,406 ) Provisions released - (7,338) 12,277 4,939   (3,195 )   (168,840 )   (5,190 )   (33,535 )   (210,781 ) Reclassifications - -   -   -   -   -   -   Other (511) - (511)   (8,939 )   -   -   -   (8,939 )                         Balances as of December 31, 2015 64,861 134,539 10,750 64,848 274,998 Balances as of December 31, 2018   93,379   178,600   24,329   8,963   305,271                         Balances as of January 1, 2017   72,592   142,815   11,399   65,404   292,210   Provisions established   106,687   168,840   7,341   8,645   291,513   Application of provisions   (81,703 )   (142,815 )       (389 )   (224,907 ) Provisions released   -   -   (8,661 )   (46,357 )   (55,018 ) Reclassifications   -   -   -           Other   -   -   -                                 Balances as of December 31, 2017   97,576   168,840   10,079   27,303   303,798   F-115 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 21 PROVISIONS AND CONTINGENT PROVISIONS, continued   c) Provisions for personnel salaries and expenses:expenses includes:   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$                   Provision for seniority compensation 10,376   11,550   6,797   9,531   Provision for stock-based personnel benefits -   -   -   -   Provision for performance bonds 38,510   31,528   68,595   59,633   Provision for vacations 21,800   21,053   23,864   22,792   Provision for other personnel benefits 1,906   730   1,967   1,423   Total 72,592   64,861   101,223   93,379   d) Provisions for contingent loan risk Provision for contingent loan arise from contingent liabilities and loan commitments. Provisions for ECL risks in respect of contingent loan are included in ECL allowance in the income statements for the year. An analysis of changes in the corresponding ECL allowance as of December 31, 2019 and 2018 is as follows:       Stage 1   Stage 2   Stage 3   TOTAL     Individual   Collective   Individual   Collective   Individual   Collective     ECL allowance at January 1, 2019     1,701       15,070       259       172       3,856       3,271       24,329   Transfer                                                         Transfers to stage 2     (100 )     (318 )     122       878       –         –         582   Transfers to stage 3     –         (203 )     –         –         167       4,675       4,639   Transfers to stage 3     –         –         (24 )     (144 )     1,742       1,290       2,864   Transfers to stage 1     46       122       (82 )     (473 )     –         –         (387 ) Transfers to stage 2     –         –         –         234       (54 )     (1,444 )     (1,264 ) Transfers to stage 1     –         45       –         –         (130 )     (1,278 )     (1,363 ) Net changes on financial assets     (423 )     (1,474 )     (41 )     (106 )     (2,100 )     2,173       (5,471 ) Write-off     –         –         –         –         –         –         –     Foreign Exchange adjustments and others     (9 )     (115 )     (8 )     (19 )     6       8       (137 ) At December 31, 2019     2,061       13,127       226       542       3,500       4,336       23,792   F-97 F-116 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 21 PROVISIONS AND CONTINGENT PROVISIONS, continued     Stage 1     Stage 2     Stage 3     TOTAL       Individual     Collective     Individual     Collective     Individual     Collective         ECL allowance at January 1, 2018     1,627       16,261       219       187       2,884       3,182       24,360   Transfer                                                         Transfers to stage 2     (30 )     -       65       -       -       -       35   Transfers to stage 3     (1 )     -       -       -       328       -       327   Transfers to stage 3     -       -       (11 )     -       567       -       556   Transfers to stage 1     1       -       (7 )     -       -       -       (6 ) Transfers to stage 2     -       -       -       -       -       -       -   Transfers to stage 1     -       -       -       -       (1 )     -       (1 ) Net changes on financial assets     136       683       3       (37 )     54       (77 )     762   Write-off     -       -       -       -       -       -       -   Foreign Exchange adjustments and others     (32 )     (1,874 )     (10 )     22       24       166       (1,704 ) At December 31, 2018     1,701       15,070       259       172       3,856       3,271       24,329     F-117 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 2122 OTHER LIABILITIES   The other liabilities line item is as follows:       As of December 31,     2016   2015     MCh$   MCh$           Accounts and notes payable   154,159   129,547 Unearned income   509   514 Guarantees received (margin accounts)(1)   480,926   819,331 Notes payable through brokerage and simultaneous transactions   27,745   20,764 Other payable obligations(2)   80,100   40,828 Withheld VAT   1,964   1,656 Other liabilities(3)   50,382   33,229           Total   795,785   1,045,869     As of December 31,       2019     2018       MCh$     MCh$                 Accounts and notes payable     214,216       163,216   Income received in advance     640       673   Adjustment due to macro-hedging valuation     -       7,039   Guarantees received (margin accounts) (1)     994,714       540,091   Notes payable through brokerage and simultaneous transactions (3)     1,418,340       50,807   Other payable obligations (2)     61,555       94,779   Withholding VAT     8,147       1,990   Accounts payable insurance companies     9,510       8,424   Other liabilities     99,203       33,388                     Total     2,806,325       900,407     (1) Guarantee deposits (margin accounts) are collateralscorrespond to collateral associated to derivative financial contracts to mitigate the counterparty credit risk and are mainly established in cash. These guarantees operate when mark to market of derivative financial instruments exceed the levels of threshold agreed in the contracts, which could result in the Bank deliverdelivering or receivereceiving collateral. (2) Other payable obligations mainly relatesrelate to settlement of derivatives and other financial transactions derived from the operation of the Bank. (3) Other liabilities: mainly include reimbursementIn December 2019, Santander Corredora de Bolsa acted as an intermediary in the public offering of insurance commissions.shares held between Latam and Delta, which was passed to the shareholders on January 3, 2019.   F-118 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 22 23 CONTINGENCIES AND COMMITMENTS   a) a) Lawsuits and legal procedures   As of the issuance date of these financial statements, the Bank and its affiliates were subject to certain legal actions in the normal course of their business.business, As of December 31, 2016,2019, the BanksBank and its subsidiaries have provisions for this item of Ch$1,194 million and Ch$48 million, respectively1,274 (Ch$1,803 million and Ch$118923 million as of December 31, 2015)2018) which is included in “Provisions” in the Consolidated StatementStatements of Financial Position as provisions for contingencies.   b) b) Contingent loans   The following table shows the Bank’s contractual obligations to issue loans:     As of December 31,   2016   2015   MCh$   MCh$         Letters of credit issued 158,800   179,042 Foreign letters of credit confirmed 57,686   70,434 Guarantees 1,752,610   1,684,847 Personal guarantees 125,050   163,955 Subtotal 2,094,146   2,098,278 Available on demand credit lines 7,548,820   6,806,745 Other irrevocable credit commitments 260,266   82,328 Total 9,903,232   8,987,351 F-98  Table of Contents NOTE 22 CONTINGENCIES AND COMMITMENTS, continued     As of December 31,       2019     2018       MCh$     MCh$   Letters of credit issued     140,572       223,420   Foreign letters of credit confirmed     70,192       57,038   Performance guarantee     1,929,894       1,954,205   Personal guarantees     451,950       133,623   Total contingent liabilities     2,592,608       2,368,286   Available on demand credit lines     8,732,422       8,997,650   Other irrevocable credit commitments     485,991       327,297   Total loan commitment     9,218,413       9,324,947   Total     11,811,021       11,693,233     c) c) Held securities   The Bank holds securities in the normal course of its business as follows:   As of December 31, 2016   2015   As of December 31,   MCh$   MCh$   2019   2018       MCh$   MCh$   Third party operations             Collections 163,303   162,619   90,966   99,784   Transferred financial assets managed by the Bank   21,507   26,262   Assets from third parties managed by the Bank and its affiliates 1,586,405   1,507,359   1,592,845   1,630,431   Subtotal 1,749,708   1,669,978   1,705,318   1,756,477   Custody of securities                 Securities held in custody 390,155   321,741   9,731,894   11,160,488   Securities held in custody deposited in other entity 687,610   561,612   1,206,541   861,405   Issued securities held in custody 18,768,572   18,246,386   21,636,819   12,335,871   Subtotal 19,846,337   19,129,739   32,575,254   24,357,764   Total 21,596,045   20,799,717   34,280,572   26,114,241     During 2016,2019, the Bank classified the portfolios managed by private banking in “Assets from third parties managed by the Bank and its affiliates” (memo account). At the end of December 2016,2019, the balance for this was Ch$1,586,370 1,592,810 million (Ch$1,507,305 1,630,396 million at December 31, 2015)2018).   d) d) Guarantees   Banco Santander ChileSantander-Chile has comprehensive officer fidelity insurancean integral bank policy No. 4356192,of coverage of Official Loyalty N°5014196 in force with the company Compañía de Seguros Chilena Consolidada de Seguros insurance company,S.A., coverage for 50,000,000 USD 5,000,000,per claim with an annual limit of 100,000,000 USD, which jointly covers both the Bank and its affiliates for the period from July 1, 2016 tosubsidiaries, with an expiration date of June 30, 2017.2020, which has been renewed. F-119 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 23 CONTINGENCIES AND COMMITMENTS, continued   e) Contingent loans and liabilities   To satisfy its clients’ needs, the Bank took on several contingent loans and liabilities that are not be recognizedrecognised in the Consolidated Financial StatementStatements of Financial Position; these contain loan risks and they are, therefore, part of the Bank`sBank’s global risk.   F-99 F-120 Table of Contents  NOTE 23 Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 24 EQUITY   a) a) Capital   As of December 31, 20162019 and 20152018 the Bank had 188,446,126,794 shares outstanding, all of which are subscribed for and paid in full, amounting to Ch$891,303 million. All shares have the same rights, and have no preferences or restrictions.   The activity with respect to shares during 2016, 20152019, 2018 and 20142017 was as follows:   SHARES As of December 31,   SHARES As of December 31,   2016   2015   2014   2019   2018   2017                         Issued as of January 1 188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794   Issuance of paid shares -   -   -   -   -   -   Issuance of outstanding shares -   -   -   -   -   -   Stock options exercised -   -   -   -   -   -   Issued as of December 31, 188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794     As of December 31, 2016, 20152019, 2018 and 20142017 the Bank does not have any of its own shares in treasury, nor do any of the consolidated companies.   As of December 31, 20162019 the shareholder composition was as follows:   Corporate Name or Shareholder's Name Shares ADRs (*) Total % of equity holding  Corporate Name or Shareholder’s Name   Shares   ADRs (*)   Total   % of equity holding                         Santander Chile Holding S.A. 66,822,519,695 - 66,822,519,695 35.46   66,822,519,695   -   66,822,519,695   35.46   Teatinos Siglo XXI Inversiones Limitada 59,770,481,573 - 59,770,481,573 31.72   59,770,481,573   -   59,770,481,573   31.72   The Bank New York Mellon - 34,800,933,671 34,800,933,671 18.47   -   24,822,041,271   24,822,041,271   13.17   Banks on behalf of third parties 12,257,100,312 - 12,257,100,312 6.50   15,957,137,883   -   15,957,137,883   8.47   Pension funds (AFP) on behalf of third parties 6,990,857,997 - 6,990,857,997 3.71   9,995,705,956   -   9,995,705,956   5.30   Stock brokers on behalf of third parties 3,071,882,351 - 3,071,882,351 1.63   5,551,024,270   -   5,551,024,270   2.95   Other minority holders 4,732,351,195 - 4,732,351,195 2.51   5,527,216,146   -   5,527,216,146   2.93   Total 153,645,193,123 34,800,933,671 188,446,126,794 100.00   163,624,085,523   24,822,041,271   188,446,126,794   100.00   (*) American Depository Receipts (ADR) are certificates issued by a U.S. commercial bank to be traded on the U.S. securities markets. As of December 31, 2018 the shareholder composition was as follows: Corporate Name or Shareholder’s Name   Shares   ADRs (*)   Total   % of equity holding                   Santander Chile Holding S.A.     66,822,519,695       -       66,822,519,695       35.46   Teatinos Siglo XXI Inversiones Limitada     59,770,481,573       -       59,770,481,573       31.72   The Bank New York Mellon     -       26,486,000,071       26,486,000,071       14.05   Banks on behalf of third parties     15,451,106,985       -       15,451,106,985       8.20   Pension funds (AFP) on behalf of third parties     9,033,172,896       -       9,033,172,896       4.79   Stock brokers on behalf of third parties     4,773,558,507       -       4,773,558,507       2.53   Other minority holders     6,109,287,067       -       6,109,287,067       3.25   Total     161,960,126,723       26,486,000,071       188,446,126,794       100.00   (*) American Depository Receipts (ADR) are certificates issued by a U.S. commercial bank to be traded on the U.S. securities markets.   F-100 F-121 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 23 24 EQUITY, continued   As of December 31, 20152017 the shareholder composition was as follows:   Corporate Name or Shareholder's Name Shares ADRs (*) Total % of equity holding  Corporate Name or Shareholder’s Name   Shares   ADRs (*)   Total   % of equity holding                      Santander Chile Holding S.A. 66,822,519,695 - 66,822,519,695 35.46   66,822,519,695   -   66,822,519,695   35.46   Teatinos Siglo XXI Inversiones Limitada 59,770,481,573 - 59,770,481,573 31.72   59,770,481,573   -   59,770,481,573   31.72   The Bank New York Mellon (1) - 32,516,063,671 32,516,063,671 17.25   -   31,238,866,071   31,238,866,071   16.58   Banks on behalf of third parties 11,878,070,560 - 11,878,070,560 6.30   13,892,691,988   -   13,892,691,988   7.37   Pension funds (AFP) on behalf of third parties 8,887,560,424 - 8,887,560,424 4.72   6,896,552,755   -   6,896,552,755   3.66   Stock brokers on behalf of third parties 3,460,285,074 - 3,460,285,074 1.84   3,762,310,365   -   3,762,310,365   2.00   Other minority holders 5,111,145,797 - 5,111,145,797 2.71   6,062,704,347   -   6,062,704,347   3.21   Total 155,930,063,123 32,516,063,671 188,446,126,794 100.00   157,207,260,723   31,238,866,071   188,446,126,794   100.00   (*) American Depository Receipts (ADR) are certificates issued by a U.S. commercial bank to be traded on the U.S. securities markets. (1) As of August 4, 2015, Banco Santander Chile signed a contract which appoints The Bank of New York Mellon as the commercial bank authorized to trade ADRs, replacing J.P. Morgan Chase Bank NA. As of December 31, 2014 the shareholder composition was as follows: Corporate Name or Shareholder's Name Shares ADRs (*) Total % of   equity holding             Santander Chile Holding S.A. 66,822,519,695 - 66,822,519,695 35.46 Teatinos Siglo XXI Inversiones Limitada 59,770,481,573 - 59,770,481,573 31.72 J.P. Morgan Chase Bank - 31,370,004,471 31,370,004,471 16.65 Banks  on behalf of third parties 10,949,884,423 - 10,949,884,423 5.81 Pension funds (AFP) on behalf of third parties 10,082,508,540 - 10,082,508,540 5.35 Other minority holders 9,450,728,092 - 9,450,728,092 5.01 Total 157,076,122,323 31,370,004,471 188,446,126,794 100.00 (*) American Depository Receipts (ADR) are certificates issued by a U.S. commercial bank to be traded on the U.S. securities markets.   b) b) Reserves   InDuring 2019, on the Shareholders Meeting held in April, 2016, due to the Shareholders’ Meeting, the Bankit is agreed to capitalized 25%capitalize on reserves 40% of retained earnings from 2015 as reserves; which equals Ch$112,219previous years, equivalent to $236,761 million (Ch$220,132($141,204 and $141,706 million in 2015)the year 2018 and 2017 respectively). As a result of the purchase of Santander Consumer S.A., the Bank has recorded negative equity effect of MCh$37,041, since the Bank apply “predecessor accounting method”, and the difference between the consideration transferred and the acquired net asset is recorded in equity, within reserves. See Note 3.   c) c) Dividends   The distribution of dividends is detailed in the Consolidated StatementStatements of Changes in Equity.   F-101  Table of Contents NOTE 23 EQUITY, continued d) d) As of December 31, 2019, 2018 and 2017 the basic and diluted earnings per share were as follows:   As of December 31,   As of December 31, 2016   2015   2014   2019   2018   2017 MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                     a) Basic earnings per share                     Total attributable to the equity holders of the Bank 476,067   448,466   569,910 Total attributable to the shareholders of the Bank   619,091   595,333   562,801   Weighted average number of outstanding shares 188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794   Basic earnings per share (in Ch$) 2,526   2,380   3.024   3.285   3.159   2.986   Basic earnings per share from continuing operations (in Ch$)   3.276   3.139   2.972   Basic earnings per share from discontinued operations (in Ch$)   0.009   0.020   0.015                         b) Diluted earnings per share 476,067   448,466   569,910               Total attributable to the equity holders of the Bank 188,446,126,794   188,446,126,794   188,446,126,794 Total attributable to the shareholders of the Bank   619,091   595,333   562,801   Weighted average number of outstanding shares -   -   -   188,446,126,794   188,446,126,794   188,446,126,794   Adjusted number of shares 188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794   188,446,126,794   Diluted earnings per share (in Ch$) 2,526   2,380   3.024   3.285   3.159   2.987   Diluted earnings per share from continuing operations (in Ch$)   3.276   3.139   2.972   Diluted earnings per share from discontinued operations (in Ch$)   0.009   0.020   0.015     As of December 31, 2016, 20152019, 2018 and 20142017 the Bank does not own instruments with dilutive effects.   F-102 F-122 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 23 24 EQUITY, continued   e) Other comprehensive income from available for sale investments and cash flow hedges: e) Other comprehensive income from available for sale investments and cash flow hedges:     For the years ended December 31,   For the years ended December 31,   2016   2015   2014   2019   2018   2017   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$               Debt instruments at FVOCI             As of January 1,   6,962   1,855   -   Gain (losses) on the re-measurement of debt instruments at FVOCI, before tax   (17,775 )   6,609   -   Recycling from other comprehensive income to income for the year   39,997   (1,502 )   -   Available for sale investments                 As of January 1,   (7,093)   21,684   840   -   -   7,375   Gain (losses) on the re-measurement of available for sale investments, before tax   2,267   (51,178)   14,829   -   -   (10,384 ) Reclassification from other comprehensive income to income for the year   12,201   22,401   6,015 Recycling from other comprehensive income to income for the year   -   -   4,864   Subtotals   14,468   (28,777)   20,844   22,222   5,107   (5,520 ) Total   7,375   (7,093)   21,684   29,184   6,962   1,855                   Cash flow hedges                 As of January 1,   8,626   10,725   (8,257)   9,803   (3,562 )   2,288   Gains (losses) on the re-measurement of cash flow hedges, before tax   (6,261)   (2,105)   18,552   (49,163 )   14,048   (5,850 ) Reclassification adjustments on cash flow hedges, before tax   (77)   6   430 Recycling adjustments on cash flow hedges, before tax   (1,075 )   (683 )   -   Amounts removed from equity and included in carrying amount of non-financial asset (liability) which acquisition or incurrence was hedged as a highly probable transaction   -   -   -   -   -   -   Subtotals   (6,338)   (2,099)   18,982   (50,238 )   13,365   (5,850 ) Total   2,288   8,626   10,725   (40,435 )   9,803   (3,562 )                 Other comprehensive income, before taxes   9,663   1,533   32,409   (11,251 )   16,765   (1,707 )                 Income tax related to other comprehensive income components                 Income tax relating to debt instruments at FVOCI   (7,756 )   (1,810 )   -   Income tax relating to available for sale investments   (1,770)   1,596   (4,554)       -   (473 ) Income tax relating to cash flow hedges   (549)   (1,940)   (2,252)   10,918   (2,646 )   908   Total   (2,319)   (344)   (6,806)   3,162   (4,456 )   435                   Other comprehensive income, net of tax   7,344   1,189   25,603   (8,089 )   12,309   (1,272 ) Attributable to:                 Equity holders of the Bank   6,640   1,288   25,600 Shareholders of the Bank   (8,856 )   11,353   (2,312 ) Non-controlling interest   704   (99)   3   767   956   1,040     The Bank expects that the results included in "Other“Other comprehensive income"income” will be reclassified to profit or loss when the specific conditions have been met.   F-103 F-123 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 24 25 NON-CONTROLLING INTEREST   a) The non-controlling interest included in the equity and the income from the subsidiaries is summarized as follows:       Other comprehensive income               Other comprehensive income As of December 31, 2016 Non-controlling Equity Income Available for sale investments Deferred tax Total other comprehensive income Comprehensive income As of December 31, 2019   Non- controlling   Equity   Income   Debt instruments at FVOCI    Deferred tax   Total other comprehensive  income   Comprehensive income  % MCh$  MCh$   %   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                               Subsidiaries:                               Santander Agente de Valores Limitada 0.97 492 116 - 116 Santander Corredora de Seguros Limitada   0.25   178   6   1   -   1   7   Santander Corredores de Bolsa Limitada   49.41   22,301   625   (261 )   71   (190 )   435   Santander Asesorías Financieras Limitada(1)   0.97   498   9   -   -   -   9   Santander S.A. Sociedad Securitizadora 0.36 2 -    -   0.36   2   -   -   -   -   -   Santander Corredores de Bolsa Limitada (1) 49.41 19,966 1,130 1,054 (252) 802 1,932 Santander Corredora de Seguros Limitada 0.25 164 7 - 7 Klare Corredora de Seguros S.A.   49.90   3,782   (503 )   -   -   -   (503 ) Santander Consumer Chile S.A. (2)   49.00   24,564   1,544   -   -   -   1,544   Subtotal   20,624 1,253 1,054 (252) 802                 2.055       51,325   1,681   (260 )   71   (189 )   1,492       Entities controlled through other considerations:                                   Santander Gestión de Recaudación y Cobranzas Limitada   100.00   3,777   1,031   -   -   -   1,031   Bansa Santander S.A. 100.00 6,533 529 - 529   100.00   20,051   (486 )   -   -   -   (486 ) Santander Gestión de Recaudación y Cobranzas Limitada 100.00 2,184 583 - 583 Multinegocios S.A. (2) 100.00 - Servicios Administrativos y Financieros Limitada. (2) 100.00 - Multiservicios de Negocios Limitada. (2) 100.00 - Multiplica Spa   100.00   4,480   (4 )   -   -   -   (4 ) Subtotal   8,717 1,112 - 1,112       28,308   541   -   -   -   541                                     Total   29,341 2,365 1,054 (252) 802 3,167       79,633   2,222   (260 )   71   (189 )   2,033     (1) Ex Santander S.A. Corredores de Bolsa, See Note 1. (1) Ex Santander Agente de Valores Limitada (2)As of June 30, 2015, these entities have stopped rendering sales services for On November27, 2019, the Bank and therefore they have been excluded fromacquired the consolidation perimeter. See Note 1.51% of Santander Consumer S.A., the remaining 49% is accounted as non-controlling interest.                 Other comprehensive income As of December 31, 2018   Non-controlling   Equity   Income   Debt instruments at FVOCI   Deferred tax   Total other comprehensive income   Comprehensive income     %   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                               Subsidiaries:                             Santander Corredora de Seguros Limitada     0.25       172       4       (2 )     -       (2 )     2   Santander Corredores de Bolsa Limitada     49.41       21,673       755       (84 )     2       (82 )     673   Santander Agente de Valores Limitada     0.97       488       99       -       -       -       99   Santander S.A. Sociedad Securitizadora     0.36       2       -       -       -       -       -   Subtotal             22,335       858       (86 )     2       (84 )     774   Entities controlled through other considerations:                                                         Santander Gestión de Recaudación y Cobranzas Limitada     100.00       3,777       852       -       -       -       852   Bansa Santander S.A.     100.00       20,051       2,650       -       -       -       2,650   Subtotal             23,828       3,502       -       -       -       3,502                                                             Total             46,163       4,360       (86 )     2       (84 )     4,276     F-104 F-124 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 24 25 NON-CONTROLLING INTEREST, continued                   Other comprehensive income As of December 31, 2017   Non-controlling   Equity   Income   Available for sale investments   Deferred tax   Total other comprehensive income   Comprehensive income     %   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                               Subsidiaries:                             Santander Corredora de Seguros Limitada     0.25       167       4       -       -       -       4   Santander Corredores de Bolsa Limitada     49.41       21,000       702       470       (134 )     336       1,038   Santander Agente de Valores Limitada     0.97       389       132       -       -       -       132   Santander S.A. Sociedad Securitizadora     0.36       2       -       -       -       -       -   Subtotal             21,558       838       470       (134 )     336       1,174   Entities controlled through other considerations:                                                         Santander Gestión de Recaudación y Cobranzas Limitada     100.00       2,925       741       -       -       -       741   Bansa Santander S.A.     100.00       17,401       10,869       -       -       -       10,869   Subtotals             20,326       11,610       -       -       -       11,610                                                             Total             41,883       12,448       470       (134 )     336       12,784           Other comprehensive income As of December 31, 2015 Non-controlling Equity Income Available for sale investments Deferred tax Total other comprehensive income Comprehensive income   % MCh$ MCh$  MCh$  MCh$  MCh$  MCh$                 Subsidiaries:               Santander Agente de Valores Limitada 0.97 652 98 (4) 1 (3) 95 Santander S.A. Sociedad Securitizadora 0.36 2 - - - - - Santander Corredores de Bolsa Limitada (1) 49.41 21,765 816 (128) 29 (99) 717 Santander Corredora de Seguros Limitada 0.25 156  (5) - - - (5)                                         Subtotal   22,575 909 (132) 30 (102) 807 Entities controlled through other considerations:                 Bansa Santander S.A. 100 6,004 334 - - - 334 Santander Gestión de Recaudación y Cobranzas Limitada   100 1,602 564 - - - 564 Multinegocios S.A. (2) 100 - 310 - - - 310 Servicios Administrativos y Financieros Limitada. (2) 100 - 550 - - - 550 Multiservicios de Negocios Limitada. (2) 100 - 596 - - -                          596 Subtotal   7,606 2.354 - - -                 2,354                 Total   30,181 3.263 (132) 30 (102) 3,161   (1) Ex Santander S.A. Corredores de Bolsa, See Note 1. (2) As of June 30, 2015, these entities have stopped rendering sales services for the Bank and therefore they have been excluded from the consolidation perimeter. See Note 1. F-105 F-125 Table of Contents  NOTE 24 NON-CONTROLLING INTEREST, continued         Other comprehensive income As of December 31, 2014 Non-controlling Equity Income Available for sale investments Deferred tax Total other comprehensive income Comprehensive income   % MCh$ MCh$  MCh$  MCh$  MCh$  MCh$                 Subsidiaries:               Santander Agente de Valores Limitada 0.97 558 87 - - - 87 Santander S.A. Sociedad Securitizadora 0.36 2 - - - - - Santander S.A. Corredores de Bolsa 49.41 20,928 1,239 (34) 7 (27) 1,212 Santander Corredora de Seguros Limitada 0.25 154 (4) - - - (4) Subtotals   21,642 1,322 (34) 7 (27) 1,295                 Entities controlled through other considerations:               Bansa Santander S.A. 100.00 5,671 2,236 - - - 2,236 Santander Gestión de Recaudación y Cobranzas Limitada (1) 100.00 1,037 1,531 - - - 1,531 Multinegocios S.A. 100.00 730 253 - - - 253 Servicios Administrativos y Financieros Limitada 100.00 2,001 315 - - - 315 Servicios de Cobranzas Fiscalex Limitada (1) 100.00 - - - - - - Multiservicios de Negocios Limitada 100.00 2,002 323 - - - 323 Subtotals   11,441 4,658 - - - 4,658                 Total   33,083 5,980 (34) 7 (27) 5,953 (1) On August 01, 2014 Banco Santander-Chile and Subsidiaries Notes to the company Servicios de Cobranza Fiscalex Limitada was acquired by Santander Gestión de Recaudación y Cobranza Limitada.Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 F-106  Table of Contents NOTE 24 25 NON-CONTROLLING INTERESTS, continued   b) The overview of the financial information of the subsidiaries included in the consolidation of the Bank that possess non-controlling interests is as follows, which does not include consolidation or conforming accounting policy adjustments:   As of December 31,   As of December 31, 2016   2015   2014   2019   2018   2017   Net income     Net income     Net               Net               Net               Net Assets Liabilities Capital   Assets Liabilities Capital   Assets Liabilities Capital income   Assets   Liabilities   Capital   income   Assets   Liabilities   Capital   income   Assets   Liabilities   Capital   income MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ Santander Corredora de Seguros Limitada 75,000 10,065 62,276 2,659   72,860 10,588 60,765 1,507   70,602 9,068 63,078 (1,544)   82,918   12,372   68,159   2,387   77,764   9,595   66,374   1,795   76,177   9,803   64,937   1,437   Santander Corredores de Bolsa Limitada 86,473 45,724 38,356   2,393   71,118 26,763 42,618 1,737   74,408 31,790 40,171 2,447   1,479,974   1,434,843   43,866   1,265   102,228   57,999   42,691   1,538   88,711   45,855   41,424   1,432   Santander Agente de Valores Limitada 54,486 3,666 38,851 11,969   131,305 64,049 57,554 9,702   339,787 282,233 48,556 8,998 Santander Asesorias Financieras Limitada(*)   51,505   51   50,481   973   50,552   71   40,177   10,304   44,910   4,732   26,569   13,609   Santander S.A. Sociedad Securitizadora 509 77 512 (80)   566 53 561 (48)   622 61 640 (79)   636   88   639   (91 )   704   66   728   (90 )   400   50   432   (82 ) Klare Corredora de Seguros S.A.   8,303   724   8,586   (1,007 )   -   -   -   -   -   -   -   -   Santander Consumer Chile S.A.   505,059   452,528   39,951   12,580   -   -   -   -   -   -   -   -   Santander Gestión de Recaudación y Cobranzas Ltda. 8,547 6,363 1,602 582   6,194 4,592 1,038 564   4,917 3,880 458 579   8,200   3,392   3,777   1,031   6,932   3,155   2,925   852   10,826   7,901   2,184   741   Multinegocios S.A. (management of sales force) (1) -   -   1,959 1,229 477 253 Servicios Administrativos y Financieros Limitada (management of sales force) (1) -   -   2,956 955 1,686 315 Servicio de Cobranza Fixcalex Ltda. -   -   - Multiservicios de Negocios Limitada (call center) (1) -   -   3,401 1,399 1,679 323 Bansa Santander S.A. 31,301 24,768 6,004 529   31,631 25,627 5,670 334   31,062 25,391 3,435 2,236   87,607   68,042   20,051   (486 )   20,437   386   17,401   2,650   25,535   8,134   6,533   10,868   Multiplica Spa   4,480   4   4,480   (4 )   -   -   -   -   -   -   -   -   Total 256,316 90,663 147,601 18,052   313,674 131,672 168,206 13,796   529,714 356,006 160,180 13,528   2,228,682   1,972,044   239,990   16,648   258,617   71,272   170,296   17,049   246,559   76,475   142,079   28,005     (1) As of June 30, 2015, these entities have stopped rendering sales services for the Bank and therefore they have been excluded from the consolidation perimeter. See Note 1.   F-107 F-126 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 25 26 INTEREST INCOME   This item refers to interest earned in the period from the financial assets whose return, whether implicitly or explicitly, is determined by applying the effective interest rate method, regardless of the value at fair value, as well as the effect of hedge accounting (see c).   a) For the years ended December 31, 2016, 20152019, 2018 and 20142017 the income from interest, was attributable to the following items:     For the years ended December 31,   2016     2015   2014   Interest Inflation adjustments Prepaid fees Total   Interest Inflation adjustments Prepaid fees Total   Interest Inflation adjustments Prepaid fees Total Items MCh$ MCh$ MCh$ MCh$   MCh$ MCh$ MCh$ MCh$   MCh$ MCh$ MCh$ MCh$                               Resale agreements 1,488 - - 1,488   1,075 - - 1,075   1,223 - - 1,223 Interbank loans 295 - - 295   375 - - 375   139 - - 139 Commercial loans 742,432 130,904 7,659 880,995   687,464 168,752 8,494 864,710   706,190 208,427 7,883 922,500 Mortgage loans 304,116 228,081 7,012 539,209   259,941 286,437 23,191 569,569   245,980 328,212 18,230 592,422 Consumer loans 604,152 660 4,318 609,130   586,385 3,418 3,706 593,509   603,804 5,108 3,205 612,117 Investment instruments 75,808 2,916 - 78,724   60,004 7,616 - 67,620   61,774 25,461 - 87,235 Other interest income 11,136 2,445  - 13,581   10,111 5,831  - 15,942   10,584 3,218 - 13,802                               Interest income less income from hedge accounting 1,739,427 365,006 18,989 2,123,422   1,605,355 472,054 35,391 2,112,800   1,629,694 570,426 29,318 2,229,438 F-108  Table of Contents NOTE 25 INTEREST INCOME, continued     For the years ended December 31,     2019   2018   2017     Interest   Inflation adjustments   Prepaid fees   Total   Interest   Inflation adjustments   Prepaid fees   Total   Interest   Inflation adjustments   Prepaid fees   Total Items   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                                   Resale agreements     718       -       -       718       903       -       -       903       939       -       -       939   Interbank loans     1,263       -       -       1,263       897       -       -       897       969       -       -       969   Commercial loans     780,284       160,462       16,478       957,224       771,405       153,851       11,008       936,264       752,013       85,389       10,525       847,927   Mortgage loans     349,663       283,820       455       633,938       330,055       266,691       909       597,655       320,041       149,303       414       469,758   Consumer loans     593,705       384       8,107       602,196       579,929       439       6,166       586,534       612,932       363       4,738       618,033   Investment instruments     71,150       26,169       -       97,319       75,423       24,790       -       100,213       74,000       5,797       -       79,797   Other interest income     18,387       3,592       -       21,979       16,644       4,013       -       20,657       12,172       1,538       -       13,710                                                                                                     Interest income not including income from hedge accounting     1,815,170       474,427       25,040       2,314,637       1,775,256       449,784       18,083       2,243,123       1,773,066       242,390       15,677       2,031,133     b) For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, the expense from interest expense, excluding expense from hedge accounting, is as follows:   For the years ended December 31,   For the years ended December 31, 2016   2015   2014   2019   2018   2017 Interest Inflation adjustments Total   Interest Inflation adjustments Total   Interest Inflation adjustments   Total   Interest   Inflation adjustments   Total   Interest   Inflation adjustments   Total   Interest   Inflation adjustments   Total Items MCh$ MCh$ MCh$   MCh$ MCh$ MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                             Demand deposits (16,003)  (1,043) (17,046)    (13,875)  (1,343)  (15,218)    (6,189) (1,909)   (8,098)   (14,018 )   (1,508 )   (15,526 )   (14,914 )   (1,371 )   (16,285 )   (13,851 )   (695 )   (14,546 ) Repurchase agreements (2,822) - (2,822)   (6,893) -  (6,893)   (7,052) -   (7,052)   (9,710 )   -   (9,710 )   (6,439 )   -   (6,439 )   (6,514 )   -   (6,514 ) Time deposits and liabilities (399,720) (38,946) (438,666)   (346,174) (47,370) (393,544)   (334,841) (74,384)   (409,225)   (335,307 )   (27,172 )   (362,479 )   (317,061 )   (35,284 )   (352,345 )   (341,821 )   (20,509 )   (362,330 ) Interbank loans (19,803) - (19,803)   (14,998) (2) (15,000)   (19,015) (9)   (19,024)   (50,354 )   -   (50,354 )   (39,971 )   -   (39,971 )   (26,805 )   -   (26,805 ) Issued debt instruments (197,973) (105,452) (303,425)   (183,561) (113,029) (296,590)   (175,886) (137,460)   (313,346)   (250,512 )   (145,487 )   (395,999 )   (241,455 )   (133,227 )   (374,682 )   (220,027 )   (76,170 )   (296,197 ) Other financial liabilities (3,008) (781) (3,789)   (3,070) (1,180) (4,250)   (3,131) (1,729)   (4,860)   (1,310 )   (33 )   (1,343 )   (2,698 )   (110 )   (2,808 )   (2,946 )   (303 )   (3,249 ) Lease contracts   (2,965 )   -   (2,965 )   -   -   -   -   -   -   Other interest expense (5,211) (8,874) (14,085)   (3,456) (14,776) (18,232)   (2,636) (17,839)   (20,475)   (16,651 )   (11,300 )   (27,951 )   (6,929 )   (10,497 )   (17,426 )   (5,236 )   (4,973 )   (10,209 )               Interest expense not including expenses from hedge accounting (644,540) (155,096) (799,636)   (572,027) (177,700) (749,727)   (548,750) (233,330)   (782,080)   (680,827 )   (185,500 )   (866,327 )   (629,467 )   (180,489 )   (809,956 )   (617,200 )   (102,650 )   (719,850 ) F-127 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 26 INTEREST INCOME, continued   c) For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, the income and expense from interest is as follows:   For the years ended December 31,   For the years ended December 31,   2016   2015   2014   2019   2018   2017   Items MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                     Interest income less income from hedge accounting 2,123,422   2,112,800   2,229,438 Interest expense less expense from hedge accounting (799,636)   (749,727)   (782,080) Interest income not including income from hedge accounting   2,314,637   2,243,123   2,031,133   Interest expense not including expense from hedge accounting   (866,327 )   (809,956 )   (719,850 )                   Net Interest income (expense) from hedge accounting 1,323,786   1,363,073   1,447,358   1,448,310   1,433,167   1,311,283                     Hedge accounting (net) (42,420)   (107,867)   (130,254)   (31,346 )   (18,799 )   15,408                     Total net interest income 1,281,366   1,255,206   1,317,104   1,416,964   1,414,368   1,326,691   F-109 F-128 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 26 27 FEES AND COMMISSIONS   This item includes the amount of fees earned and paid during the year, except for those which are an integral part of the financial instrument’s effective interest rate:   For the years ended December 31,     For the years ended December 31,   2016   2015   2014   2019   2018   2017   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                     Fee and commission income                   Fees and commissions for lines of credits and overdrafts 5,754   6,597   7,015   10,315   6,624   7,413   Fees and commissions for guarantees and letters of credit 35,911   35,276   32,403   35,039   33,654   33,882   Fees and commissions for card services 195,566   175,262   147,256   225,702   218,903   201,791   Fees and commissions for management of accounts 31,540   30,291   29,031   35,949   33,865   31,901   Fees and commissions for collections and payments 31,376   30,399   35,355   33,355   40,077   44,312   Fees and commissions for intermediation and management of securities 9,304   10,000   9,286   10,154   10,147   10,090   Insurance brokerage fees 40,882   39,252   34,695   49,664   39,949   36,430   Office banking 14,145   15,224   17,602   13,655   15,921   15,669   Fees for other services rendered 38,038   35,978   30,798    47,331   45,633   43,123   Other fees earned 28,668    24,621   23,288    37,494   39,690   30,947   Total 431,184    402,900   366,729    498,658   484,463   455,558     For the years ended December 31,     For the years ended December 31,   2016   2015   2014   2019   2018   2017   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                   Fee and commission expense                 Compensation for card operation (143,509)   (129,196)   (104,095)   (171,513 )   (163,794 )   (149,809 ) Fees and commissions for securities transactions (946)   (1,315)   (979)   (1,001 )   (936 )   (858 ) Office banking (14,671)   (15,320)   (16,602)   (1,860 )   (4,096 )   (15,283 ) Other fees (17,634)   (19,442)   (17,770)   (37,198 )   (24,752 )   (10,545 ) Total (176,760)   (165,273)   (139,446)   (211,572 )   (193,578 )   (176,495 )                 Net fees and commissions income 254,424   237,627   227,283   287,086   290,885   279,063     The fees earned in transactions with letters of credit are presented in the Consolidated StatementStatements of Income in the line item “Interest income”.   F-110 F-129 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 27 FEES AND COMMISSIONS, continued   The income and expenses for the commissions of the business segments are presented below and the calendar for the recognition of income from ordinary activities is opened.     Segments     Revenue recognition calendar for ordinary activities   As of December 31, 2019   Individuals and PYMEs     Companies and Institutions     Global Investment Banking     Others     Total       Transferred over time     Transferred at a point in time     Accrual model       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$                                                     Commission income                                                 Commissions for lines of credit and overdrafts     6,123       935       3,240       17       10,315       10,315       -       -   Commissions for guarantees and letters of credit     11,553       17,531       5,842       113       35,039       35,039       -       -   Commissions for card services     218,635       6,042       950       75       225,702       41,347       184,355       -   Commissions for account management     32,608       2,515       823       3       35,949       35,949       -       -   Commissions for collections, collections and payments     36,129       2,185       464       (5,423 )     33,355       -       12,854       20,501   Commissions for intermediation and management of values     3,219       245       8,301       (1,611 )     10,154       -       10,154       -   Remuneration for insurance commercialization     49,664       -       -       -       49,664       -       -       49,664   Office banking     9,280       3,782       606       (13 )     13,655       -       13,655       -   Other remuneration for services rendered     42,499       3,748       839       245       47,331       -       47,331       -   Other commissions earned     12,462       10,727       14,293       12       37,494       -       37,494       -   Total     422,172       47,710       35,358       (6,582 )     498,658       122,650       305,843       70,165                                                                     Commission expenses                                                                 Remuneration for card operation     (168,024 )     (3,475 )     (321 )     307       (171,513 )     -       (171,513 )     -   Commissions per transaction with securities     -       -       (33 )     (968 )     (1,001 )     -       (1,001 )     -   Office banking     (1,186 )     (389 )     (282 )     (3 )     (1,860 )     -       (1,860 )     -   Other commissions     (22,335 )     (5,134 )     (5,619 )     (4,110 )     (37,198 )     -       (37,198 )     -   Total     (191,545 )     (8,998 )     (6,255 )     (4,774 )     (211,572 )     -       (211,572 )     -   Total Net commission income and expenses     230,627       38,712       29,103       (11,356 )     287,086       122,650       94,271       70,165   F-130 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 27 FEES AND COMMISSIONS, continued The income and expenses for the commissions of the business segments are presented below and the calendar for the recognition of income from ordinary activities is opened.     Segments     Revenue recognition calendar for ordinary activities   As of December 31, 2018     Individuals and PYMEs     Companies and Institutions     Global Investment Banking     Others     Total       Transferred over time       Transferred at a point in time     Accrual model         MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$                                                     Commission income                                                                 Commissions for lines of credit and overdrafts     5,901       271       453       (1 )     6,624       6,624       -       -   Commissions for guarantees and letters of credit     11,099       16,258       6,239       58       33,654       33,654       -       -   Commissions for card services     211,615       6,193       1,036       59       218,903       34,856       184,047       -   Commissions for account management     30,386       2,678       799       2       33,865       33,865       -       -   Commissions for collections, collections and payments     66,780       1,693       458       (28,854 )     40,077       -       15,719       24,358   Commissions for intermediation and management of values     4,050       134       7,221       (1,258 )     10,147       -       10,147       -   Remuneration for insurance commercialization     -       -       -       39,949       39,949       -       -       39,949   Office banking     11,420       3,893       608       -       15,921       -       15,921       -   Other remuneration for services rendered     40,901       3,833       819       80       45,633       -       45,633       -   Other commissions earned     6,908       9,743       23,320       (281 )     39,690       -       39,690       -   Total     389,060       44,696       40,953       9,754       484,463       108,999       311,157       64,307                                                                     Commission expenses                                                                 Remuneration for card operation     (159,817 )     (3,186 )     (134 )     (657 )     (163,794 )     -       (163,794 )     -   Commissions per transaction with securities     (169 )     (3 )     (419 )     (345 )     (936 )     -       (936 )     -   Office banking     (2,374 )     (985 )     (722 )     (15 )     (4,096 )     -       (4,096 )     -   Other commissions     (6,168 )     (3,776 )     (4,614 )     (10,194 )     (24,752 )     -       (24,752 )     -   Total     (168,528 )     (7,950 )     (5,889 )     (11,211 )     (193,578 )     -       (193,578 )     -   Total Net commission income and expenses     220,532       36,746       35,064       (1,457 )     290,885       108,999       117,579       64,307   F-131 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 28 NET INCOME (EXPENSE) FROM FINANCIAL OPERATIONS   ForIn accordance with the years ended December 31, 2016, 2015IFRS 9 and 2014,IFRS 7 disclosure, the detail of income (expense) from financial operations is as follows:   For the years ended December 31,   For the years ended December 31,   2016   2015   2014   2019   2018   MCh$   MCh$   MCh$   MCh$   MCh$                 Income (expense) from financial operations     Trading derivatives (395,209)   (503,981)   (224,015) Trading investments 18,229   21,505   45,952 Net gains on trading derivatives   (162,183 )   38,217   Net gains on financial assets at fair value through profit or loss   11,878   9,393   Net gains on derecognition of financial assets measured at amortised cost   63,672   8,479   Sale of loans and accounts receivables from customers               Current portfolio 1,469   921   1,261   63   (309 ) Charged-off portfolio 2,720   (58)   4,809   3,248   709   Available for sale investments 14,598   23,655   6,934 Repurchase of issued bonds (8,630)   (14)   5,198 Repurchase of issued bonds (*)   3,265   (840 ) Other income (expense) from financial operations (211)   75   214   1,892   (2,475 ) Total income (expense) (367,034)   (457,897)   (159,647)   (78,165 )   53,174     (*)The Bank repurchased its own bonds, see Note 3 for details.   The disclosure for the year December 31, 2017, the detail of income (expense) from financial operations is as follows: For the years ended December 31, 2017 MCh$ Income (expense)  from financial operations Trading derivatives (18,974 ) Trading investments 10,008 Sale of loans and accounts receivables from customers Current portfolio 3,020 Charged-off portfolio 3,020 Available for sale investments 8,956 Repurchase of issued bonds (742 ) Other income (expense) from financial operations (2,492 ) Total income (expense) 2,796 F-132 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 2829 NET FOREIGN EXCHANGE GAIN (LOSS)   Net foreign exchange income includes the income earned from foreign currency trading, differences arising from converting monetary items in a foreign currency to the functional currency, and those generated by non-monetary assets in a foreign currency at the time of their sale.sale,   For the years ended December 31, 2016, 20152019, 2018 and 20142017 net foreign exchange income is as follows:    For the years ended December 31,   For the years ended December 31,   2016   2015 2014   2019   2018   2017   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                     Net foreign exchange gain (loss)                   Net profit (loss) from currency exchange differences 116,117   (197,875)   (370,282)   (89,893 )   (212,618 )   113,115   Hedging derivatives 399,875   777,254   621,767   362,374   252,275   22,933   Income from assets indexed to foreign currency (8,745)   25,421   22,404   7,376   12,251   (9,190 ) Income from liabilities indexed to foreign currency 145   (1,404)   (1,677)   -   -   98   Total 507,392   603,396   272,212   279,857   51,908   126,956   F-111 F-133 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017   NOTE 2930 PROVISIONS FOR LOANEXPECTED CREDIT LOSSES ALLOWANCE   a)I. For the years ended December 31, 2016, 2015 and 2014 activity for provisions for loanExpected credit losses is as follows:(ECL) allowance – under IFRS 9   As of December 31, 2019 and 2018, under the new credit risk model established by IFRS 9 the ECL allowance by stage recorded at income statements is as follows:   Loans and accounts receivable from customers    Total For the year ended December 31, 2016   Interbank  loans  Individual  Commercial loans Mortgage  loans Group Consumer  loans  Group Contingent  loans  Individual Group Individual Group   MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ Charged-off individually significant loans - (11,222) - - - - - (11,222) Provisions established (3,052) (61,002) (133,855) (50,892) (280,544) (11,986) (2,909) (544,240) Total provisions and charge-offs (3,052) (72,224) (133,855) (50,892) (280,544) (11,986) (2,909) (555.462) Provisions released 83 43,183 14,432 34,246 30,790 6,963 5,384 135,081 Recovery of loans previously charged off - 11.142 16,043 10,041 41,072 - - 78,298 Net charge to income (2,969) 17,899 (103,380) (6,605) (208,682) (5,023) 2,475 (342,083)     Loans and accounts receivable from customers    Total For the year ended December 31, 2015   Interbank  loans Individual Commercial loans Mortgage  loans Group Consumer loans Group Contingent loans Individual Group Individual Group   MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ Charged-off individually significant loans - (12,955) - - - - - (12,955) Provisions established (1,357) (124,968) (136,778) (34,373) (248,937) (2,808) (2,601) (551,822) Total provisions and charge-offs (1,357) (137,923) (136,778) (34,373) (248,937) (2,808) (2,601) (564.777) Provisions released 192 46,614 17,885 7,205 18,126 5,042 2,296 97,360 Recovery of loans previously charged off - 8.978 17,054 6,543 35,565 - - 68,140 Net charge to income (1,165) (82,331) (101,839) (20,625) (195,246) 2,234 (305) (399.277) For the year ended December 31, 2019   Stage1   Stage2   Stage3   TOTAL   Individual   Collective   Individual   Collective   Individual   Collective         MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ Commercial loans     (3,002 )     (4,930 )     (10,469 )     (8,686 )     (79,501 )     (33,657 )     (140,245 ) Mortgage loans     –         (1,177 )     –         (4,998 )     –         (8,237 )     (14,412 ) Consumer loans     –         (8,875 )     –         (15,280 )     –         (145,328 )     (169,483 ) Contingent loans     45       589       10       24       152       188       1,008   Loans and account receivable at FVOCI     5       –         –         –         –         –         5   Debt at FVOCI     –         (184 )     –         –         –         –         (184 ) Total     (2,952 )     (14,577 )     (10,459 )     (28,940 )     (79,349 )     (187,034 )     (323,311 )     Loans and accounts receivable from customers Total For the year ended December 31, 2014   Interbank loans  Individual Commercial loans Mortgage   loans Group Consumer loans Group Contingent  loans Individual Group Individual Group   MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ MCh$ Charged-off individually significant loans -    (10,811) - - - -   (10,811) Provisions established (60) (52,240) (174,244) (24,907) (218,941) (8,305) (3,641) (482,338) Total provisions and charge-offs (60) (63,051) (174,244) (24,907) (218,941) (8,305) (3,641) (493,149) Provisions released 554 15,903 7,127 6,561 38,275 4,431 6,418 79,269 Recovery of loans previously charged off -    5,302 11,645 5,122 36,908 - - 58,977 Net charge to income 494 (41,846) (155,472) (13,224) (143,758) (3,874) 2,777 (354,903) For the year ended December 31, 2018   Stage1     Stage2     Stage3     TOTAL       Individual     Collective     Individual     Collective     Individual     Collective             MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$   Commercial loans     79       5,652       (2,891 )     (1,533 )     (96,131 )     (47,959 )     (142,783 ) Mortgage loans     -       5,583       -       5,161       -       3,377       14,121   Consumer loans     -       1,861       -       192       -       (191,304 )     (189,251 ) Contingent loans     (90 )     1,214       11       (68 )     (225 )     (834 )     8   Loans and account receivable at FVOCI     363       -       68       -       -       -       431   Debt at FVOCI     -       66       -       -       -       -       66   Total     352       14,376       (2,812 )     3,752       (96,356 )     (236,720 )     (317,408 )   II. Provision for loan losses – under IAS 39           Loans and accounts receivable from customers               For the year ended December 31, 2017   Interbank loans     Commercial loans     Mortgage loans     Consumer loans     Contingent loans             Individual     Individual     Group     Group     Group     Individual     Group      Total       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$   Charged-off individually significant loans     -       (15,699 )     -       -       -       -       -       (15,699 ) Provisions established     (307 )     (64,658 )     (148,681 )     (43,621 )     (252,038 )     (3,117 )     (4,224 )     (516,646 ) Total provisions and charge-offs     (307 )     (80,357 )     (148,681 )     (43,621 )     (252,038 )     (3,117 )     (4,224 )     (532,345 ) Provisions released     3,970       55,925       20,491       11,427       46,089       7,001       1,660       146,563   Recovery of loans previously charged off     -       11,114       21,499       10,942       39,972       -       -       83,527   Net charge to income     3,663       (13,318 )     (106,691 )     (21,252 )     (165,977 )     3,884       (2,564 )     (302,255 ) b) The detail of Charge-off of individually significant loans, is as follows:       For the years ended December 31,     2016 2015   2014     MCh$ MCh$   MCh$             Charge-off of loans   47,605 50,656                 37,673 Provision applied   (36,383) (37,701)   (26,862) Net charge offs of individually significant loans   11,222 12,955   10,811 For the years ended December 31, 2017 MCh$ Charge-off of loans 51,978 Provision applied (36,279 ) Net charge offs of individually significant loans 15,699   F-112 F-134 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017     NOTE 3031 PERSONNEL SALARIES AND EXPENSES   For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, the composition of personnel salaries and expenses is as follows:   For the years ended December 31,   For the years ended December 31,   2016   2015   2014   2019   2018   2017   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                         Personnel compensation 249,703   233,707   213,364   260,445   259,354   250,962   Bonuses or gratifications 77,649   78,260   77,145   78,534   72,728   75,181   Stock-based benefits 331   66   329   (315 )   (337 )   2,752   Seniority compensation: 26,263   34,012   10,551 Seniority compensation   25,006   21,869   26,120   Pension plans (150)   431   1,395   566   1,069   2,039   Training expenses 2,835   3,186   2,477   4,918   3,782   2,867   Day care and kindergarten 3,072   2,992   2,485   2,731   2,778   2,505   Health funds 4,777   4,474   4,082   -   -   4,748   Welfare funds 806   754   533   6,644   6,040   896   Other personnel expenses 29,847   29,181   26,527   31,628   30,281   28,897   Total 395,133   387,063   338,888   410,157   397,564   396,967     F-113 F-135 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 31 32 ADMINISTRATIVE EXPENSES   For the years ended December 31, 2016, 20152019, 2018 and 2014,2017, the composition of the item is as follows:       For the years ended December 31,       2019     2018     2017       MCh$     MCh$     MCh$                       General administrative expenses     124,896       145,241       139,418   Maintenance and repair of property, plant and equipment     19,214       20,962       21,359   Office lease     -       29,761       26,136   Equipment lease     -       55       96   Short term leases contracts     4,177       -       -   Insurance payments     3,848       3,439       3,354   Office supplies     5,126       5,070       6,862   IT and communication expenses     52,017       44,209       39,103   Heating, and other utilities     2,848       4,849       5,468   Security and valuables transport services     12,187       12,168       12,181   Representation and personnel travel expenses     4,109       3,444       4,262   Judicial and notarial expenses     1,277       1,148       974   Fees for technical reports and auditing     7,643       10,020       9,379   Other general administrative expenses     12,450       10,116       10,244   Outsourced services     71,572       65,358       57,400   Data processing     31,921       32,360       34,880   Archive services     3,518       3,401       3,324   Valuation services     3,644       3,167       2,419   Outsourcing     10,139       9,936       6,878   Other     22,350       16,494       9,899   Board expenses     1,356       1,297       1,290   Marketing expenses     20,891       19,286       18,877   Taxes, payroll taxes, and contributions     14,897       13,907       13,118   Real estate taxes     1,954       1,730       1,443   Patents     1,913       1,896       1,646   Other taxes     5       7       24   Contributions to CMF (former SBIF)     11,025       10,274       10,005   Total     233,612       245,089       230,103     For the years ended December 31,   2016   2015   2014   MCh$   MCh$   MCh$             General administrative expenses 138,974   127,826   125,271  Maintenance and repair of property, plant and equipment 19,901   20,002   17,498 Office lease 28,098   27,472   28,348 Equipment lease 280   134   94 Insurance payments 3,842   3,656   3,302 Office supplies 5,747   6,232   4,567 IT and communication expenses 37,351   28,420   29,379 Heating, and other utilities 4,863   4,764   4,131 Security and valuables transport services 14,793   15,393   17,089 Representation and personnel travel expenses 5,440   4,590   4,173 Judicial and notarial expenses 952   2,103   2,192 Fees for technical reports and auditing 7,631   7,301   6,891 Other general administrative expenses 10,076   7,759   7,607 Outsourced services 55,757   60,913   51,504  Data processing 36,068   39,286   32,253 Products sale -   226   1,502 Archive services 4,427   1,047   3,305 Valuation services 3,489   2,969   2,119 Outsourcing 5,404   7,275   5,608  Other 6,369   10,110   6,717 Board expenses 1,371   1,465   1,314  Marketing expenses 17,844   18,483   16,419  Taxes, payroll taxes, and contributions 12,467   11,844   10,641  Real estate taxes 1,435   1,813   1,415 Patents 1,618   1,589   1,525 Other taxes 93   3   15 Contributions to SBIF 9,321   8,439   7,686 Total 226,413    220,531    205,149    F-114 F-136 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017   NOTE 3233 DEPRECIATION, AMORTIZATION, AND IMPAIRMENT   Depreciation, amortization and impairment charges for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, are detailed below:   For the years ended December 31,     For the years ended December 31,   2016   2015   2014   2019   2018   2017   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                   Depreciation and amortization                 Depreciation of property, plant, and equipment (45,025)   (36,195)   (27,571)   (52,855 )   (54,987 )   (55,623 ) Amortization of Intangible assets (20,334)   (17,419)   (16,601)   (26,348 )   (24,293 )   (22,200 ) Depreciation right of use assets   (26,889 )   -   -   Total depreciation and amortization (65,359)   (53,614)   (44,172)   (106,092 )   (79,280 )   (77,823 ) Impairment of property, plant, and equipment (234)   (21)   (108)   (1,013 )   (39 )   (354 ) Impairment of right of use assets   (1,713 )   -   -   Impairment of intangibles -   -   (36,556)   -   -   (5,290 ) Total impairment   (2,726 )   (39 )   (5,644 ) Total (65,593)   (53,635)   (80,836)   (108,818 )   (79,319 )   (83,467 )   As of December 31, 2016, the equipment impairment totaled Ch$234 million to (Ch$21 million as of December 31, 2015 and Ch$108 million as of December 31, 2014), million, mainly due to damages to ATMs.   F-137 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 33 34 OTHER OPERATING INCOME AND EXPENSES   a) Other operating income is comprised of the following components:       For the years ended December 31,     2016   2015   2014     MCh$   MCh$   MCh$               Income from assets received in lieu of payment             Income from sale of assets received in lieu of payment   1,663   2,455   2,811 Recovery of charge-offs and income from assets received in lieu of payment   -   -   - Subtotal   1,663   2,455   2,811 Income from sale of investments in other companies             Gain on sale of investments in other companies   -   617   - Subtotal   -   617   - Other income             Leases   519   708   805 Income from sale of property, plant and equipment   2,017   381   687 Recovery of provisions for contingencies   -   -   315 Compensation from insurance companies due to damages   1,530   435   661 Other   698   1,843   1,266 Subtotal   4,764   3,367   3,734               Total   6,427   6,439   6,545 F-115  Table of Contents NOTE 33 OTHER OPERATING INCOME AND EXPENSES, continued     For the years ended December 31,       2019     2018     2017       MCh$     MCh$     MCh$                       Income from assets received in lieu of payment     5,613       7,106       3,330   Release of contingencies provisions(1)     -       12,020       29,903   Other income     7,388       4,003       28,783   Leases             222       264   Income from sale of property, plant and equipment(2)     2,456       2,490       23,229   Recovery of provisions for contingencies     -       -       -   Compensation from insurance companies due to damages     4,681       144       1,237   Other     251       1,147       4,053                             Total     13,001       23,129       62,016     (1) In accordance with IAS 37, the Bank recorded contingencies provisions, which during 2018 were favorable to the Bank. (2) Corresponds to legal cession of rights made by Bansa Santander S.A. which result in an income of Ch$2,122 million, as of December 31, 2018. See Note N°26. b) Other operating expenses are detailed as follows:   For the years ended December 31,   For the years ended December 31,   2016   2015   2014   2019   2018   2017   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   Allowances and expenses for assets received in lieu of payment           3,900   2,537   5,591   Provision on assets received in lieu of payment 9,246   7,803   1,577   1,828   816   3,912   Expenses for maintenance of assets received in lieu of payment 2,170   2,397   2,489   2,072   1,721   1,679   Subtotal 11,416   10,200   4,066     Credit card expenses 3,636   4,624   2,638   1,077   3,151   3,070       Customer services 3,734   3,919   9,940   2,456   3,635   2,563       Other expenses       41,870   23,019   57,189   Operating charge-offs 6,146   5,359   6,153   973   798   1,607   Life insurance and general product insurance policies 18,393   11,225   8,919   21,205   9,964   23,475   Sale of property plant and equipment   67   62   -   Additional tax on expenses paid overseas 142   2,651   3,055   -   -   -   Provisions for contingencies 4,238   15,230   13,080   120   21   -   Expense for adopting chip technology on cards -   -   2,400 Retail association payment   343   898   912   Expense on sale of participation on associates   126   -   -   Expense on social commotion event   1,823   -   -   Other 21,197   5,521   8,695   17,213   11,276   31,195   Subtotal 50,116   39,986   42,302                   Total 68,902   58,729   58,946   49,303   32,342   68,413   F-116 F-138 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 3435 TRANSACTIONS WITH RELATED PARTIES   In addition to Affiliatesaffiliates and associated entities, the Bank’s “related parties” include its “key personnel” from the executive staff (members of the Bank’s Board of Directors and Managers of Banco Santander ChileSantander-Chile and its affiliates, together with their close relatives), as well as the entities over which the key personnel could exercise significant influence or control.   The Bank also considers the companies that are part of the Santander Group worldwide as related parties, given that all of them have a common parent, i.e., Banco Santander S.A. (located in Spain).   Transactions between the Bank and its related parties are specified below. To facilitate comprehension, we have divided the information into four categories:   Santander Group Companies   This category includes all the companies that are controlled by the Santander Group around the world, and hence, it also includes the companies over which the Bank exercises any degree of control (Affiliates(affiliates and special-purpose entities).   Associated companies   This category includes the entities over which the Bank, in accordance with section b) of Note 1 to these Financial Statements, exercises a significant degree of influence and which generally belong to the group of entities known as “business support companies.”companies”.   Key personnel   This category includes members of the Bank’s Board of Directors and managers of Banco Santander ChileSantander-Chile and its affiliates, together with their close relatives.   Other   This category encompasses the related parties that are not included in the groups identified above and which are, in general, entities over which the key personnel could exercise significant influence or control.   The terms for transactions with related parties are equivalent to those which prevail in transactions made under market conditions or to which the corresponding considerations in kind have been attributed.   F-117 F-139 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 34 35 TRANSACTIONS WITH RELATED PARTIES, continued   a) Loans to related parties: Below are loans and accounts receivable as well as contingent loans that correspond to related entities:   As of December 31,   As of December 31,   2016   2015   2014   2019   2018   2017   Companies of the Group Associated companies Key personnel  Other   Companies of the Group  Associated  companies Key personnel Other   Companies of the Group Associated  companies  Key personnel Other   Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                                             Loans and accounts receivable:                                                       Commercial loans 81,687 533 4,595 7,100   77,388 565 5,841 1,963   51,647 9,614 4,348 8,743   246,868   375   2,986   685   122,289   459   4,299   233   80,076   771   3,947   7,793   Mortgage loans - -  18,046  -    - -  20,559  -    - 19,941 -   -   -   20,473   -   -   -   18,814   -   -   -   18,796   -   Consumer loans - -  3,783 -    - -  2,274 -    - 2,798 -   -   -   5,781   -   -   -   5,335   -   -   -   4,310   -   Loans and accounts receivable: 81,687 533 26,424 7,100   77,388 565 28,674 1,963   51,647 9,614 27,087 8,743   246,868   375   29,240   685   122,289   459   28,448   233   80,076   771   27,053   7,793                                                           Allowance for loan losses (209) (35) (87) (34)   (213) (190) (62) (20)   (139) (10) (46) (18)   (122 )   (182 )   (179 )   (10 )   (308 )   (9 )   (116 )   (5 )   (209 )   (9 )   (177 )   (18 ) Net loans 81,478 498 26,337 7,066   77,175 375 28,612 1,943   51,508 9,604 27,041 8,725   246,746   193   29,061   675   121,981   450   28,332   228   79,867   762   26,876   7,775                                                           Guarantees 434,141 -  23,636 5,486   499,803 -  25,493 1,632   409,339 - 23,896 1,289   462,513   -   23,918   288   442,854   -   22,893   7,171   361,452   -   23,868   7,164                                                           Contingent loans:                                                         Personal guarantees  -  -    -    -     -   -   -   -   -   -   -   -   -   -   -   -   Letters of credit 27,268 -    29,275 -    16,000 - 11   4,112   -   -   63   5,392   -   2,060   44   19,251   -   -   33   Guarantees 437,101 -  -   510,309 -  2   432,802 - 762   464,691   -   -   -   445,064   -   3,364   -   377,578   -   -   -   Contingent loans: 464,369 -  -  -   539,584 -  2   448,802 - 773   468,803   -   -   63   450,456   -   5,424   44   396,829   -   -   33                                                           Allowance for contingent loans (5) -    (11) -    (12) -   (835 )   -   -   -   (1 )   -   (18 )   -   (4 )   -   -   1                                                           Net contingent loans 464,364 -  -  -   539,573 -  2   448,790 - 773   467,968   -   -   63   450,455   -   5,406   44   396,825   -   -   34   F-118 F-140 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 34 35 TRANSACTIONS WITH RELATED PARTIES, continued   Loan activity to related parties during 2016, 20152019, 2018 and 20142017 is shown below:       As of December 31,       2019     2018     2017       Companies of the Group     Associated companies     Key Personnel     Other     Companies of the Group     Associated companies     Key Personnel     Other     Companies of the Group     Associated companies     Key Personnel     Other       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$                                                                             Opening balances as of January 1,     572,745       459       33,871       7,899       476,906       771       27,051       7,826       546,058       532       26,423       7,100   Loans granted     193,798       167       4,826       500       200,657       39       16,574       773       78,214       318       7,777       1,050   Loans payments     (50,646 )     (251 )     (9,457 )     (7,651 )     (104,818 )     (351 )     (9,754 )     (700 )     (147,366 )     (79 )     (7,149 )     (324 )                                                                                                   Total     715,897       375       29,240       748       572,745       459       33,871       7,899       476,906       771       27,051       7,826     As of December 31,     2016   2015   2014   Companies of the Group Associated companies Key Personnel Other   Companies of the Group Associated companies Key Personnel Other Companies of the Group Associated companies Key Personnel Other   MCh$ MCh$ MCh$ MCh$   MCh$ MCh$ MCh$ MCh$   MCh$ MCh$ MCh$ MCh$                               Opening balances as of January 1, 616,968 565 28,675 1,966   500,449 9,614 27,087 9,516   250,293 618 21,644 61,130 Loans granted 122,729 203 8,580 6,808   276,383 7 8,991 4,113   338,784 9,108 11,651 17,585 Loans payments (193,189) (236) (10,832) (1,674)   (159,864) (9,056) (7,403) (11,663)   (88,628) (112) (6,208) (69,199)                               Total 546,508 532 26,423 7,100   616,968 565 28,675 1,966   500,449 9,614 27,087 9,516   F-119 F-141 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 34 35 TRANSACTIONS WITH RELATED PARTIES, continued   b) Assets and liabilities with related parties   As of December 31,     As of December 31,   2016   2015   2014   2019   2018   2017   Companies of the Group Associated companies Key personnel Other   Companies of the Group  Associated companies Key personnel  Other   Companies of the Group   Associated companies Key personnel  Other   Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                                               Assets                                                             Cash and deposits in banks 187,701 -   23,578 -   193,377 -   171,816   -   -   -   189,803   -   -   -   74,949   -   -   -   Trading investments -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   Obligations under repurchase agreements Loans -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   Financial derivative contracts 742,851 33,433 -   771,774 24,773 -   995,468 -   2,058,715   218,610   -   55   748,632   105,358   -   9   545,028   86,011   -   -   Available for sale investments -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   Other assets 4,711 67,454 -   3,218 19,101 -   2,776 -   185,317   210,579   -   -   38,960   51,842   -   -   8,480   118,136   -   -                                                           Liabilities                                                             Deposits and other demand liabilities 6,988 7,141 2,883 630   9,987 8,535 2,454 1,373   5,061 1,168 2,403 4,602   25,261   93,761   4,624   566   27,515   21,577   2,493   480   24,776   25,805   2,470   221   Obligations under repurchase agreements Loans 56,167 -   12,006 -   47,010 -   138,498   5,000   270   80   6,501   -   329   68   50,945   -   -   -   Time deposits and other time liabilities 1,545,771 621 2,365 1,984   1,360,572 234 2,728 898   269,381 2,320 81,079   1,183,235   282,171   4,246   2,204   2,585,337   -   3,189   838   785,988   27,968   3,703   3,504   Financial derivative contracts 954,575 54,691 -   1,323,996 23,326 -   1,395,507 -   2,159,660   288,013   -   3   770,624   112,523   -   -   418,647   142,750   -   7,190   Interbank borrowing   -   -   -   -   -   -   -   -   -   -   -   -   Issued debt instruments 484,548 -   398,565 -   336,323 -   363,154   -   -   -   335,443   -   -   -   482,626   -   -   -   Other financial liabilities 8,970 -   2,409 -   846 -   6,231   -   -   -   6,807   -   -   -   4,919   -   -   -   Other liabilities 446 44,329 -   376 19,541 -   771 -   8,130   146,164   -   -     60,884   89,817   -   -     164,303   58,168   -   -       F-120 F-142 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 34 35 TRANSACTIONS WITH RELATED PARTIES, continued   c) Income (expense) recorded due to transactions with related parties   For the years ended December 31,   For the years ended December 31,   2016   2015   2014   2019   2018   2017   Companies of the Group Associated Companies Key personnel Other   Companies of the Group Associated companies Key personnel Other   Companies of the Group Associated Companies Key personnel Other   Companies of the Group   Associated Companies   Key personnel   Other   Companies of the Group   Associated companies   Key personnel   Other   Companies of the Group   Associated Companies   Key personnel   Other   MCh$ MCh$   MCh$ MCh$   MCh$ MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                                             Income (expense) recorded                                                           Interest income and inflation-indexation adjustments (39,279) 40  1,164 115   (10,986)  -  1,664 116   (11,130) 25 1,963 (2,509)   (41,181 )   (5,235 )   1,151   26   (53,256 )   (156 )   1,252   508   (43,892 )   -   1,051   -   Fee and commission income and expenses 38,167 45 204 20   35,955 77 208 39   30,591 84 230 167   28,274   14,499   232   28   91,178   7,826   305   22   72,273   15,404   224   1   Net income (expense) from financial operations and net foreign exchange gain (loss) (*) (343,963) (48,373)  (88) 2   (321,985) (16,845)  15 6   (315,918) - 20 (10,051)   (586,318 )   (84,236 )   -   -   (566,677 )   65,727   27   (12 )   363,108   (48,453 )   (3 )   19   Other operating income and expenses 931 (2,239)   -    955 (1,027)   -  -    1,158 -   406   (2,026 )   -   -   42   1,388   -   -   21,670   (1,454 )   -   -   Key personnel compensation and expenses  - -  (37,328) -     -  -  (39,323) -    - (31,361) -   -   -   (37,377 )   -   -   -   (40,683 )   -   -   -   (43,037 )   -   Administrative and other expenses (35,554) (43,115) -    (30,591) (41,691) -  -    (30,342) (33,961) -   (11,877 )   (47,757 )   -   -   (43,035 )   (50,764 )   -   -   (48,246 )   (47,220 )   -   -                                                                   Total (379,698) (93,642) (36,048) 137   (326,652) (59,486) (37,436) 161   (325,641) (33,852) (29,148) (12,393)   (610,696 )   (124,755 )   (35,994 )   54     (571,748 )   24,021   (39,099 )   518     364,913   (81,723 )   (41,765 )   20     (*) Primarily relates to derivative contracts used to financially cover exchange risk of assets and liabilities that cover positions of the Bank and its subsidiaries.subsidiaries,   F-121 F-143 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 34 35 TRANSACTIONS WITH RELATED PARTIES, continued   d) Payments to Board members and key management personnel   The compensation received by key management personnel, including Board members and all the executives holding manager positions shown in the “Personnel salaries and expenses” and/or “Administrative expenses” items of the Consolidated StatementStatements of Income, corresponds to the following categories:     For the years ended December 31,   2016   2015   2014   MCh$   MCh$   MCh$             Personnel compensation 17,493   18,605   17,410 Board members’ salaries and expenses 1,269   1,374   1,235 Bonuses or gratifications 14,404   12,861   12,358 Compensation in stock 331   66   310 Training expenses 161   122   78 Seniority compensation 2,619   4,154   234 Health funds 285   314   288 Other personnel expenses 916   1,396   504 Pension plans (*) (150)   431   1,395 Total 37,328   39,323   33,812 (*)Some of the executives that qualified for this benefit left the Group for different reasons, without complying with the requirements to use the benefit, therefore the obligation amount decreased, which generated the reversal of provisions.     For the years ended December 31,       2019     2018     2017       MCh$     MCh$     MCh$                       Personnel compensation     16,264       16,924       16,863   Board members’ salaries and expenses     1,358       1,230       1,199   Bonuses or gratifications     16,104       16,243       16,057   Stock-based benefits     (315 )     (337 )     1,923   Seniority compensation     2,378       4,202       3,842   Pension plans     566       1,069       2,039   Training expenses     37       210       68   Health funds     273       284       273   Other personnel expenses     712       858       773   Total     37,377       40,683       43,037     e)(*) Some of the executives that qualified for this benefit left the Group for different reasons, without complying with the requirements to receive the benefit, therefore the obligation amount decreased, which generated the reversal of provisions. e) Composition of key personnel   As of December 31, 2016, 20152019, 2018 and 2014,2017, the composition of the Bank’s key personnel is as follows:   Position No. of executives   N° of executives   Position As of December 31,   As of December 31,   2016 2015 2014   2019   2018   2017                     Director 13 12 13   10   11   11   Division manager 17 16 18   12   12   13   Department manager 76 79 90 Manager 61 53 54   106   108   109                     Total key personnel 167 160 175   128   131   133   F-122 F-144 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 3536 PENSION PLANS   The Bank has an additional benefit available to its principal executives, consisting of a pension plan. The purpose of the pension plan is to endow the executives with funds for a better supplementary pension upon their retirement.   For this purpose, the Bank will match the voluntary contributions made by the beneficiaries for their future pensions with an equivalent contribution. The executives will be entitled to receive this benefit only when they fulfill the following conditions:   a. Aimed at the Bank’s management.management b. The general requisite to apply for this benefit is that the employee must be carrying out his/her duties when turning 60 years old.old   c. The Bank will create a pension fund, with life insurance, for each beneficiary in the plan. Periodic contributions into this fund are made by the manager and matched by the Bank.Bank d. The Bank will be responsible for granting the benefits directly.directly   If the working relationship between the manager and the respective company ends, before s/he fulfills the abovementioned requirements, s/he will have no rights under this benefit plan.   In the event of the executive’s death or total or partial disability, s/he will be entitled to receive this benefit.   The Bank will make contributions to this benefit plan on the basis of mixed collective insurance policies whose beneficiary is the Bank. The life insurance company with whom such policies are executed is not an entity linked or related to the Bank or any other Santander Group company.   Plan Assets owned by the Bank at the end of 20162019 totaled Ch$6,6127,195 million (Ch$6,9456,804 million in 2015)2018).   The amount of the defined benefit plans has been quantified by the Bank, based on the following criteria:   Calculation method:   Use of the projected unit credit method which considers each working year as generating an additional amount of rights over benefits and values each unit separately. It is calculated based primarily on fund contributions, as well as other factors such as the legal annual pension limit, seniority, age and yearly income for each unit valued individually.   Assets related to the pension fund contributed by the Bank into the Seguros Euroamérica insurance company with respect to defined benefit plans are presented as net of associated commitments.   Actuarial hypothesis assumptions:   Actuarial assumptions with respect to demographic and financial variables are non-biased and mutually compatible with each other.other, The most significant actuarial hypotheses considered in the calculations were:   Plans post-employment   Plans post-employment   Plans post- employment   Plans post- employment 2016   2015   2019   2018           Mortality chart RV-2014/CB-2014   RV-2009   RV-2014   RV-2014 Termination of contract rates 5.0%   5.0%   5,0%   5,0% Impairment chart PDT 1985   PDT 1985   PDT 1985   PDT 1985 F-123 F-145 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 35 36 PENSION PLANS, continued   Activity for post-employment benefits is as follows:   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$   Plan assets 6,612   6,945   7,195   6,804   Commitments for defined-benefit plans                 For active personnel (4,975)   (5,070)   (6,525 )   (5,958 ) Incurred by inactive personnel -   -   -   -   Minus:                 Unrealized actuarial (gain) losses -   -   -   -   Balances at year end 1,637   1,875   670   846     Year’s cash flow for post-employment benefits is as follows:   For the years ended December 31,   For the years ended December 31,   2016   2015   2014   2019   2018   2017   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                         a) Fair value of plan assets                       Opening balance 6,945   6,495   5,171   6,804   7,919   6,612   Expected yield of insurance contracts 335   432   446   333   353   307   Employer contributions 886   18   878   859   836   1,931   Actuarial (gain) losses -   -   -   -   -   -   Premiums paid -   -   -   -   -   -   Benefits paid (1,554)   -   -   (801 )   (2,304 )   (931 ) Fair value of plan assets at year end 6,612   6,945   6,495   7,195   6,804   7,919   b) Present value of obligations                         Present value of obligations opening balance (5,070)   (4,639)   (3,244)   (5,958 )   (6,998 )   (4,975 ) Net incorporation of Group companies -   -   -   -   -   -   Service cost 150   (431)   (1,395)   (567 )   (1,069 )   (2,039 ) Interest cost -   -   -   -   -   -   Curtailment/settlement effect -   -   -   -   -   -   Benefits paid -   -   -   -   -   -   Past service cost -   -   -   -   -   -   Actuarial (gain) losses -   -   -   -   -   -   Other (55)   -   -   -   2,109   16   Present value of obligations at year end (4,975)   (5,070)   (4,639)   (6,525 )   (5,958 )   (6,998 ) Net balance at year end 1,637   1,875   1,856   670   846   921   F-124 F-146 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 35 36 PENSION PLANS, continued   Plan expected profit:   As of December 31,   As of December 31,   2016   2015   2014   2019   2018   2017               Type of expected yield from the plan’s assets UF + 2.50% annual   UF + 2.50% annual   UF + 2.50% annual   UF + 2,50% annual   UF + 2,50% annual   UF + 2,50% annual   Type of yield expected from the reimbursement rights UF + 2.50% annual   UF + 2.50% annual   UF + 2.50% annual   UF + 2,50% annual   UF + 2,50% annual   UF + 2,50% annual     Plan associated expenses:   For the years ended December 31,   For the years ended December 31,   2016   2015   2014   2019   2018   2017   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                     Current period service expenses (150)   431   1,395   566   1,069   2,039   Interest cost -   -   -   -   -   -   Expected yield from plan’s assets (335)   (432)   (446)   (333 )   (353 )   (307 ) Expected yield of insurance contracts linked to the Plan:                         Extraordinary allocations -   -   -   -   -   -   Actuarial (gain)/ losses recorded in the period -   -   -   -   -   -   Past service cost -   -   -   -   -   -   Other -   -   -   -   -   -   Total (485)   (1)   949   233   716   1,732   F-125 F-147 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 36 37 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES   Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The measurement of fair value assumes the sale transaction of an asset or the transference of the liability happens within the main asset or liability market, or the most advantageous market for the asset or liability.   For financial instruments with no available market prices, fair values have been estimated by using recent transactions in analogous instruments, and in the absence thereof, the present values or other valuation techniques based on mathematical valuation models sufficiently accepted by the international financial community. In the use of these models, consideration is given to the specific particularities of the asset or liability to be valued, and especially to the different kinds of risks associated with the asset or liability.   These techniques are significantly influenced by the assumptions used, including the discount rate, the estimates of future cash flows and prepayment expectations. Hence, the fair value estimated for an asset or liability may not coincide exactly with the price at which that asset or liability could be delivered or settled on the date of its valuation, and may not be justified in comparison with independent markets.   Except as detailed in the following table, the management considerconsiders that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values.   Determination of fair value of financial instruments   Below is a comparison between the value at which the Bank’s financial assets and liabilities are recorded and their fair value as of December 31, 20162019 and 2015:2018:   As of December 31, 2016   2015   As of December 31,   Book value   Fair value   Book value   Fair value   2019     2018   MCh$   MCh$   MCh$   MCh$   Book value   Fair value   Book value   Fair value               MCh$   MCh$   MCh$   MCh$   Assets                             Trading investments 396,987   396,987   324,271   324,271 Financial derivative contracts 2,500,782   2,500,782   3,205,926   3,205,926   8,148,608   8,148,608   3,100,635   3,100,635   Loans and accounts receivable from customers and interbank loans, net 26,415,826   29,976,931   24,538,456   26,676,836 Available for sale investments 3,388,906   3,388,906   2,044,411   2,044,411 Financial assets held for trading   270,204   270,204   77,041   77,041   Loans and accounts receivable at amortised cost, net   31,775,420   34,602,793   29,331,001   30,505,023   Loans and accounts receivable at FVOCI, net   66,065   66,065   68,588   68,588   Debt instrument at FVOCI   4,010,272   4,010,272   2,394,323   2,394,323   Guarantee deposits (margin accounts) 396,289   396,289   649,325   649,325   314,616   314,616   170,232   170,232                       Liabilities                     Deposits and interbank borrowings 22,607,392   22,833,009   20,846,462   21,167,077   26,010,067   26,200,921   23,597,863   23,770,106   Financial derivative contracts 2,292,161   2,292,161   2,862,606   2,862,606   7,390,654   7,390,654   2,517,728   2,517,728   Issued debt instruments and other financial liabilities 7,566,388   8,180,322   6,177,622   6,556,120   9,727,081   10,718,997   8,330,633   8,605,135   Guarantees received (margin accounts) 480,926   480,926   819,331   819,331   994,714   994,714   371,512   371,512     The fair value approximates the carrying amount of the following line items due to their short-term nature: cash and deposits-banks, cash items in process of collection and investments under resale or repurchase agreements.   In addition, the fair value estimates presented above do not attempt to estimate the value of the Bank’s profits generated by its business activity, nor its future activities, and accordingly, they do not represent the Bank’s value as a going concern. Below is a detail of the methods used to estimate the financial instruments’ fair value.   F-148 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 37 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued a) Trading investmentsFinancial assets held for trading and available for sale investmentDebt instruments at FVOCI   The estimated fair value of these financial instruments was established using market values or estimates from an available dealer, or quoted market prices of similar financial instruments. Investments are evaluated at recorded value since they are considered as having a fair value not significantly different from their recorded value. To estimate the fair value of debt investments or representative values in these lines of businesses, we take into consideration additional variables and elements, as long as they apply, including the estimate of prepayment rates and credit risk of issuers.   F-126  Table of Contents NOTE 36 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued b) Loans and accounts receivable from customers and interbank loansat amortised cost   Fair value of commercial, mortgage and consumer loans and credit cards isare measured through a discounted cash flow (DCF) analysis. To do so, we use current market interest rates considering product, term, amount and similar loan quality. Fair value of loans with 90 days or more of delinquency are measured by means of the market value of the associated guarantee, minus the rate and term of expected payment. For variable rate loans whose interest rates change frequently (monthly or quarterly) and that are not subjected to any significant credit risk change, the estimated fair value is based on their book value.   c) Deposits   Disclosed fair value of deposits that do not bear interest and saving accounts is the amount payable at the reporting date and, therefore, equals the recorded amount. Fair value of time deposits is calculated through a discounted cash flow calculation that applies current interest rates from a monthly calendar of scheduled maturities in the market.   d) Short and long term issued debt instruments   The fair value of these financial instruments is calculated by using a discounted cash flow analysis based on the current incremental lending rates for similar types of loans having similar maturities.   e) Financial derivative contracts   The estimated fair value of financial derivative contracts is calculated using the prices quoted on the market for financial instruments having similar characteristics.   The fair value of interest rate swaps represents the estimated amount that the Bank determines as exit price in accordance with IFRS 13.   If there are no quoted prices from the market (either direct or indirect) for any derivative instrument, the respective fair value estimates have been calculated by using models and valuation techniques such as Black-Scholes, Hull, and Monte Carlo simulations, taking into consideration the relevant inputs/outputs such as volatility of options, observable correlations between underlying assets, counterparty credit risk, implicit price volatility, the velocity with which the volatility reverts to its average value, and the straight-line relationship (correlation) between the value of a market variable and its volatility, among others.   F-149 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 37 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued Measurement of fair value and hierarchy   IFRS 13 - Fair Value Measurement, provides a hierarchy of reasonable values which separates the inputs and/or valuation technique assumptions used to measure the fair value of financial instruments. The hierarchy reflects the significance of the inputs used in making the measurement. The three levels of the hierarchy of fair values are the following:   • Level 1: the inputs are quoted prices (unadjusted) on active markets for identical assets and liabilities that the Bank can access on the measurement date.date   • Level 2: inputs other than the quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.indirectly   • Level 3: inputs are unobservable inputs for the asset or liability i.e. they are not based on observable market data. F-127  Table of Contents NOTE 36 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continueddata   The hierarchy level within which the fair value measurement is categorized in its entirety is determined based on the lowest level of input that is significant to the fair value measurement in its entirety.   The best evidence of a financial instrument’s fair value at the initial time is the transaction price.   In cases where quoted market prices cannot be observed, Management makes its best estimate of the price that the market would set using its own internal models which in most cases use data based on observable market parameters as a significant input (Level 2) and, in very specific cases, significant inputs not observable in market data (Level 3). Various, various techniques are employed to make these estimates, including the extrapolation of observable market data.   Financial instruments at fair value and determined by quotations published in active markets (Level 1) include:   - Chilean Government and Department of Treasury bonds - U.S. Treasury BondsMutual funds   Instruments which cannot be 100% observable in the market are valued according to other inputs observable in the market (Level 2).   F-150 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 37 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued The following financial instruments are classified under Level 2:   Type of financial instrument Model used in valuation Description of  unobservable inputs ž ●  Mortgage and private bonds Present Value of Cash Flows Model Internal Rates of Return (“IRRs”) are provided by RiskAmerica, according to the following criterion: If, at the valuation day, there are one or more valid transactions at the Santiago Stock Exchange for a given mnemonic,nemotechnic, the reported rate is the weighted average amount of the observed rates. In the case there are no valid transactions for a given mnemonic on the valuation day, the reported rate is the IRR base from a reference structure, plus a spread model based on historical spread for the same item or similar ones. ž ●  Time deposits Present Value of Cash Flows Model IRRs are provided by RiskAmerica, according to the following criterion: If, at the valuation day, there are one or more valid transactions at the Santiago Stock Exchange for a given mnemonic, the reported rate is the weighted average amount of the observed rates. In the case there are no valid transactions for a given mnemonic on the valuation day, the reported rate is the IRR base from a reference structure, plus a spread model based on issuer curves. ž ●  Constant Maturity Swaps (CMS), FX and Inflation Forward (Fwd), Cross Currency Swaps (CCS), Interest Rate Swap (IRS) Present Value of Cash Flows Model IRRs are provided by ICAP, GFI, Tradition, and Bloomberg according to this criterion: With published market prices, a valuation curve is created by the bootstrapping method and is then used to value different derivative instruments. ž ●  FX Options Black-Scholes Formula adjusted by the volatility simile (implicit volatility)., Prices (volatility) are provided by BGC Partners, according to this criterion: With published market prices, a volatility parameter is created by interpolation and then these volatilities are used to value options. ● Guarantee deposits, guarantee received (Threshold) Present Value of Cash Flows Model Collateral associated to derivatives financial contracts: Average trading swap (CMS), FX and inflation Forward, Cross Currency Swap (CCS), Interest Rate Swap (IRS) y FX options.   In limited occasions significant inputs not observable in market data are used (Level 3). To carry out this estimate, several techniques are used, including extrapolation of observable market data or a mix of observable data.   F-128  Table of Contents NOTE 36 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued The following financial instruments are classified under Level 3:   Type of financial instrument  financial instrumentModel Model used in valuation Description of no observable inputs ž● Caps/ Floors/ Swaptions Black Normal Model for Cap/Floors and Swaptions There is no observable input of implicit volatility. ž● UF options Black – Scholes There is no observable input of implicit volatility. ž● Cross currency swap with window Hull-White Hybrid HW model for rates and Brownian motion for FX There is no observable input of implicit volatility. ž● CCS (special contracts) Implicit Forward Rate Agreement (FRA) Start Fwd unsupported by MUREX (platform) due to the UF forward estimate. ž● Cross currency swap, Interest rate swap, Call money swap in Tasa Activa Bancaria (Active Bank Rate) TAB, Present Value of Cash Flows Model Validation obtained by using the interest curve and interpolating flow maturities, but TAB is not a directly observable variable and is not correlated to any market input. ž  Bonds● Debt instruments (in our case, low liquidity bonds) Present Value of Cash Flows Model Valued by using similar instrument prices plus a charge-off rate by liquidity. ● Loans and account receivable at FVOCI Present Value of Cash Flows Model Measured by discounting estimated cash flow using the interest rate of new contracts.   F-151 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 37 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued   The Bank does not believe that any change in unobservable inputs with respect to level 3 instruments would result in a significantly different fair value measurement.   The following table presents the assets and liabilities that are measured at fair value on a recurrent basis, as of December 31, 2016 and 2015:basis:   Fair value measurement   Fair value measurement   As of December 31, 2016   Level 1   Level 2   Level 3   2019   Level 1   Level 2   Level 3   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$                                   Assets                           Trading investments 396,987   396,011   976   - Available for sale investments 3,388,906   2,471,439   916,808   659 Financial assets held for trading   270,204   270,204   -   -   Loans and accounts receivable at FVOCI, net   66,065   -   -   66,065   Debt instruments at FVOCI   4,010,272   3,992,421   17,146   705   Derivatives 2,500,782   -   2,461,407   39,375   8,148,608   -   8,133,700   14,908   Guarantee deposits (margin accounts) 396,289   396,289   -   -   314,616   -   314,616   -   Total 6,682,964   3,263,739   3,379,191   40,034   12,809,765   4,262,625   8,465,462   81,678                                 Liabilities                         Derivatives 2,292,161   -   2,292,118   43   7,390,654   -   7,387,704   2,950   Guarantees received (margin accounts) 480,926   480,926   -   -   994,714   -   994,714   -   Total 2,773,087   480,926   2,292,118   43   8,385,368   -   8,382,418   2,950             Fair value measurement As of December 31, 2015   Level 1   Level 2   Level 3 MCh$   MCh$   MCh$   MCh$               Assets               Trading investments 324,271   283,236   41,035   - Available for sale investments 2,044,411   1,287,589   756,056   766 Derivatives 3,205,926   -   3,166,779   39,147 Guarantee deposits (margin accounts) 649,325   649,325   -   - Total 6,223,933   2,220,150   3,963,870   39,913             Liabilities       Derivatives 2,862,606   -   2,862,606   - Guarantees received (margin accounts) 819,331   819,331   -   - Total 3,681,937   819,331   2,862,606   -         Fair value measurement   As of December 31,   2018     Level 1     Level 2     Level 3       MCh$     MCh$     MCh$     MCh$                             Assets                         Financial assets held for trading     77,041       71,158       5,883       -   Loans and accounts receivable at FVOCI, net     68,588       -       -       68,588   Debt instruments at FVOCI     2,394,323       2,368,768       24,920       635   Derivatives     3,100,635       -       3,089,077       11,558   Guarantee deposits (margin accounts)     170,232       -       170,232       -   Total     5,810,819       2,439,926       3,290,112       80,781                                                                       Liabilities                                 Derivatives     2,517,728       -       2,516,933       795   Guarantees received (margin accounts)     371,512       -       371,512       -   Total     2,889,240       -       2,888,445       795   F-129 F-152 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 3637  FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued   The following table presents assets or liabilities which are not measured at fair value in the statementstatements of financial position but for which the fair value is disclosed, as of December 31, 2016 and 2015:disclosed:   Fair value measurement   Fair value measurement   As of December 31, 2016   Level 1   Level 2   Level 3   2019   Level 1   Level 2   Level 3   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   Assets                           Loans and accounts receivable from customers and interbank loans, net 29,976,931   -   -   29,976,931 Loans and accounts receivable at amortised cost, net   34,602,793   -   -   34,602,793   Total 29,976,931   -   -   29,976,931   34,602,793   -   -   34,602,793   Liabilities                             Deposits and interbank borrowings 22,833,009   -   22,833,009   -   26,200,921   -   15,903,489   10,297,432   Issued debt instruments and other financial liabilities 8,180,322   -   8,180,322   - Issued debt instruments and other financial liabilities   10,718,997   -   10,718,997   -   Total 31,013,331   -   31,013,331   -   36,919,918   -   26,622,486   10,297,432                 Fair value measurement As of December 31, 2015   Level 1   Level 2   Level 3 MCh$   MCh$   MCh$   MCh$               Assets         Loans and accounts receivable from customers and interbank loans, net 26,676,836   -   -   26,676,836 Total 26,676,836   -   -   26,676,836 Liabilities           Deposits and interbank borrowings 21,167,077   -   21,167,077   - Issued debt instruments and other financial liabilities 6,556,120   -   6,556,120   - Total 27,723,197   -   27,723,197   -       Fair value measurement   As of December 31,   2018     Level 1     Level 2     Level 3       MCh$     MCh$     MCh$     MCh$                             Assets                         Loans and accounts receivable at amortised cost, net     30,505,023       -       -       30,505,023   Total     30,505,023       -       -       30,505,023   Liabilities                                 Deposits and interbank borrowings     23,770,106       -       15,028,689       8,741,417   Issued debt instruments and other financial liabilities     8,605,135       -       8,605,135       -   Total     32,375,241       -       23,633,824       8,741,417   The fair values of othersother assets and other liabilities approximate their carrying values.   The methods and assumptions to estimate the fair value are defined below:   - Loans and amounts due from credit institutions and from customers – Fair value are estimated for groups of loans with similar characteristics. The fair value was measured by discounting estimated cash flow using the interest rate of new contracts. That is, the future cash flow of the current loan portfolio is estimated using the contractual rates, and then the new loans spread over the risk freerisk-free interest rate are incorporated to the risk freerisk-free yield curve in order to calculate the loan portfolio fair value. In terms of behavior assumptions, it is important to underline that a prepayment rate is applied to the loan portfolio, thus a more realistic future cash flow is achieved.   - Deposits and interbank borrowings – The fair value of deposits was calculated by discounting the difference between the cash flows on a contractual basis and current market rates for instruments with similar maturities. For variable-rate deposits, the carrying amount was considered to approximate fair value.   - Issued debt instruments and other financial liabilities – The fair value of long-term loans were estimated by cash flow discounted at the interest rate offered on the market with similar terms and maturities.   The valuation techniques used to estimate each level are defined in note 1.h.i)Note 1,k)   There were no transfer between levels 1 and 2 for the year ended December 31, 20162019 and 2015.2018.   F-130 F-153 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 36 37 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued   The table below shows the effect, at December 31, 2016,2019 and 2018, on the fair value of the main financial instruments classified as Level 3 of a reasonable change in the assumptions used in the valuation. This effect was determined by a sensitivity analysis under a 1bp scenario, detailed in the following table:   As of December 31, 2019 As of December 31, 2019 Instrument Level 3 Valuation technique Main unobservable inputs Impacts (in MCh$)  Sens. -1bp Unfavourable scenario Impacts  (in MCh$)  Sens. +1bp Favourable scenario Valuation technique Main unobservable inputs Impacts (in MCh$) Sens, -1bp Unfavorable scenario Impacts (in MCh$) Sens, +1bp Favorable scenario Derivatives Present Value method Curves on TAB indices (1) (12.30) 12.30 Present Value method Curves on TAB (1) (2,3) 2,3 Available for sale investments Internal rate of return method BR UF (2) - Debt instruments at FVOCI Internal rate of return method BR UF (2) - As of December 31, 2018 Instrument Level 3 Valuation technique Main unobservable inputs Impacts (in MCh$) Sens, -1bp Unfavorable scenario Impacts (in MCh$) Sens, +1bp Favorable scenario Derivatives Present Value method Curves on TAB (1) (1,3) 1,3 Available for sale investments Internal rate of return method BR UF (2) - -   (1) TAB: “Tasa Activa Bancaria” (Active Bank Rate). Average interest rates on 30, 90, 180 and 360 day deposits published by the Chilean Association of Banks and Financial Institutions (ABIF) in nominal currency (Chilean peso) and in real terms, adjusted for inflation (in Chilean unit of account (Unidad de Fomento - UF)). (2) BR: “Bonos de Reconocimiento” (Recognition Bonds). The Recognition Bond is an instrument of money provided by the State of Chile to workers who joined the new pension system, which began operating since 1981.   The following table presents the Bank’s activity for assets and liabilities measured at fair value on a recurrent basis using unobserved significant entriesinputs (Level 3) as of December 31, 20162019 and 2015:2018:     Assets   Liabilities   MCh$   MCh$         As of January 1, 2016 39,913   -         Total realized and unrealized profits (losses)       Included in statement of income 39,376   43 Included in other comprehensive income (108)   - Purchases, issuances, and loans (net) -   -         As of December 31, 2016 79,181   43         Total profits or losses included in comprehensive income for 2016 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2015 39,268   43             Assets     Liabilities       MCh$     MCh$                 As of January 1, 2019     80,781       795                     Total realized and unrealized profits (losses)                 Included in statements of income     827       2,155   Included in other comprehensive income     70       -   Purchases, issuances, and loans (net)     -       -   As of December 31, 2019     81,678       2,950                     Total profits or losses included in comprehensive income for 2019 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2018     897       2,155     F-154 Table of Contents   Assets Liabilities Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017   MCh$ MCh$ As of January 1, 2015 43,665 - Total realized and unrealized profits (losses) Included in statement of income (3,634) - Included in other comprehensive income (118) - Purchases, issuances, and loans (net) - - As of December 31, 2015 39,913 - Total profits or losses included in comprehensive income for 2015 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2014 (3,752) - NOTE 37 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued     Assets     Liabilities       MCh$     MCh$                 As of January 1, 2018     22,987       7                     Total realized and unrealized profits (losses)                 Included in statements of income     57,769       (802 ) Included in other comprehensive income     25       -   Purchases, issuances, and loans (net)     -       -   As of December 31, 2018     80,781       (795 )                   Total profits or losses included in comprehensive income for 2018 that are attributable to change in unrealized profit (losses) related to assets or liabilities as of December 31, 2017     57,794       (802 ) The realized and unrealized profits (losses) included in comprehensive income for 20162019 and 2015,2018, in the assets and liabilities measured at fair value on a recurrent basis through unobservable market data (Level 3) are recorded in the StatementStatements of Comprehensive Income.   The potential effect as of December 31, 20162019 and 20152018 on the valuation of assets and liabilities valued at fair value on a recurrent basis through unobservable significant entriesinputs (level 3), generated by changes in the principal assumptions if other reasonably possible assumptions that are less or more favorable were used, is not considered by the Bank to be significant.   F-131  Table of Contents NOTE 36 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued The following tables show the financial instruments subject to compensation in accordance with IAS 32, for 20162019 and 2015:2018: As of December 31, 2019     Linked financial instruments, compensated in balance               Financial instruments   Gross amounts     Compensated in balance     Net amount presented in balance     Remains of unrelated and / or unencumbered financial instruments     Amount in Statements of Financial Position   Assets   Ch$ Million     Ch$ Million     Ch$ Million     Ch$ Million         Financial derivative contracts     8,148,151       -       8,148,151       457       8,148,608   Investments under resale agreements     -       -                           Loans and accounts receivable at amortised cost, net             -               31,775,420       31,775,420   Loans and accounts receivable at FVOCI, net     66,065               -       66,065       66,065   Total     8,214,216       -       8,148,151       31,841,942       39,990,093   Liabilities                                         Financial derivative contracts     7,388,145       -       7,388,145       2,509       7,390,654   Investments under resale agreements     380,055       -       380,055       -       380,055   Deposits and interbank borrowings     -       -       -       26,010,067       26,010,067   Total     7,768,200       -       7,768,200       26,012,576       33,780,776     As of December 2016   Linked financial instruments, compensated in balance       Financial instruments Gross amounts Compensated in balance Net amount presented in balance   Remains of unrelated and / or unencumbered financial instruments Amount in Statements of Financial Position    Assets Ch$ Million Ch$ Million Ch$ Million   Ch$ Million   Financial derivative contracts 2,237,731 - 2,237,731   263,051 2,500,782 Investments under resale agreements 6,736 - 6,736   -  6,736 Loans and accounts receivable from customers, and Interbank loans, net - - -   26,415,826 26,415,826 Total 2,244,467 - 2,244,467   26,678,877 28,923,344 Liabilities             Financial derivative contracts 2,100,955 - 2,100,955   191,206 2,292,161 Investments under resale agreements 212,437 - 212,437   - 212,437 Deposits and interbank borrowings - - -   22,607,392 22,607,392 Total 2,313,392 - 2,313,392   22,798,598 25,111,990 As of December 2016    Linked financial instruments, compensated in balance       Financial instruments Gross amounts Compensated in balance Net amount presented in balance   Remains of unrelated and / or unencumbered financial instruments Amount in Statements of Financial Position    Assets Ch$ Million Ch$ Million Ch$ Million   Ch$ Million   Financial derivative contracts 3,011,322 - 3,011,322   194,604 3,205,926 Obligations under repurchase agreements 2,463 - 2,463   - 2,463 Loans and accounts receivable from customers, and Interbank loans, net - - -   24,538,456 24,538,456 Total 3,013,785 - 3,013,785   24,733,060 27,746,845 Liabilities             Financial derivative contracts 2,718,401 - 2,718,401   144,205 2,862,606 Investments under resale agreements 143,689 - 143,689   - 143,689 Deposits and interbank borrowings - - -   20,846,462 20,846,462 Total 2,862,090 - 2,862,090   20,990,667 23,852,757 F-132 F-155 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 36 37 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES, continued As of December 31, 2018     Linked financial instruments, compensated in balance               Financial instruments   Gross amounts     Compensated in balance     Net amount presented in balance     Remains of unrelated and / or unencumbered financial instruments     Amount in Statements of Financial Position   Assets   Ch$ Million     Ch$ Million     Ch$ Million     Ch$ Million         Financial derivative contracts     1,947,726       -       1,947,726       1,152,909       3,100,635   Obligations under repurchase agreements     -       -       -       -       -   Loans and accounts receivable at amortised cost, net     -       -       -       29,331,001       29,331,001   Loans and accounts receivable at FVOCI, net     68,588       -       -       68,588       68,588   Total     2,016,314       -       1,947,726       30,552,498       32,500,224   Liabilities                                         Financial derivative contracts     1,735,555       -       1,735,555       782,173       2,517,728   Investments under resale agreements     48,545       -       48,545       -       48,545   Deposits and interbank borrowings     -       -       -       23,597,862       23,597,862   Total     1,784,100       -       1,784,100       24,380,035       26,164,135     The Bank, in order to reduce its credit exposure in its financial derivative operations, has entered into collateral contracts with its counterparties, in which it establishes the terms and conditions under which they operate. In terms collateral (received/delivered) operates when the net of the fair value of the financial instruments held exceed the thresholds defined in the respective contracts.   As of December 31, 2016 As of December 31, 2015   As of December 31, 2019   As of December 31, 2018   Financial derivative contracts Assets Liabilities   Assets Liabilities   Assets   Liability   Assets   Liability   MM$   MM$   MM$   MM$   MM$   MM$                               Financial derivative contracts with collateral agreement threshold equal to zero 2,134,917 1,986,345   2,613,217 2,410,696   7,478,837   6,748,219   2,639,835   2,133,149   Financial derivative contracts with non-zero threshold collateral agreement 233,945 238,450   388,677 311,056   532,298   517,814   344,520   262,683   Financial derivative contracts without collateral agreement 131,920 67,366   204,032 140,854   137,472   124,621   116,280   121,896   Total 2,500,782 2,292,161   3,205,926 2,862,606   8,148,607   7,390,654   3,100,635   2,517,728     F-133 F-156 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 37 38 RISK MANAGEMENT   Introduction and general description   The Bank, due to its activities with financial instruments is exposed to several types of risks. The main risks related to financial instruments that apply to the Bank are as follows:   - Market risk: rises from holding financial instruments whose value may be affected by fluctuations in market conditions, generally including the following types of risk:   a. Foreign exchange risk: this arises as a consequence of exchange rate fluctuations among currencies. b. Interest rate risk: this arises as a consequence of fluctuations in market interest rates. c. Price risk: this arises as a consequence of changes in market prices, either due to factors specific to the instrument itself or due to factors that affect all the instruments negotiated in the market. d. Inflation risk: this arises as a consequence of changes in Chile’s inflation rate, whose effect would be mainly applicable to financial instruments denominated in UFs.   - Credit risk: this is the risk that one of the parties to a financial instrument fails to meet its contractual obligations for reasons of insolvency or inability of the individuals or legal entities in question to continue as a going concern, causing a financial loss to the other party.   - Liquidity risk: is the possibility that an entity may be unable to meet its payment commitments, or that in order to meet them, it may have to raise funds with onerous terms or risk damage to its image and reputation.   - Capital risk: this is the risk that the Bank may have an insufficient amount and/or quality of capital to meet the minimum regulatory requirement to operate as a bank, respond to market expectations regarding its creditworthiness, and support its business growth and any strategic possibilities that might arise, in accordance with its strategic plan. This note includes information on the Bank’s exposure to these risks and on its objectives, policies, and processes involved in their measurement and management.   Risk management structure   The Board is responsible for the establishment and monitoring of the Bank’s risk management structure, for which purpose it has an on-line corporate governance system which incorporates international recommendations and trends, adapted to Chilean regulatory conditions and given it the ability to apply the most advanced practices in the markets in which the Bank operates.   The effectiveness with which we are able to manage the balance between risk and reward is a significant factor in our ability to generate long term, stable earnings growth. Toward that end, our Board and senior management places great emphasis on risk management.   A. Integral Risk Committee   The Integral Risk Committee of the Board is responsible for reviewing and monitoring all risks that may affect us, including reputation risk, allowing for an integral risk management. This committee serves as the governing body through which the Board supervises risk in general. It also evaluates the reasonability of the systems for measurement and control of risks.   F-157 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued ·● Credit risk ·● Market risk ·● Operational risk ·● Solvency risk (BIS) ·● Legal risks ·● Compliance risks ·● Reputational risks   This Committee includes the Vice Chairman of the Board and five Board members. This committee also includes the CEO, the Director of Risk and other senior level executives from the commercial side of our business.   B. Audit Committee F-134  Table of Contents NOTE 37 RISK MANAGEMENT, continued B. Audit Committee   The Audit Committee (Comité de Directores y Auditoría) is comprised of three members of the Board of Directors. The Committee Secretary is the alternate director Juan Pedro Santa María. The General Counsel is the Committee Secretary. The Chief Executive Officer, General Auditor and other persons from the Bank can be invited to the meetings if necessary and are present on specific matters. This Committee’s primary responsibility is to support the Board of Directors in the continuous improvement of our system of internal controls, which includes reviewing the work of both the external auditors and the Internal Audit Department. The committee is also responsible for analyzing observations made by regulatory entities of the Chilean financial system about us and for recommending measures to be taken by our management in response. This committee also performs functions of a remuneration committee as established in Chilean Law, and reviews annually the salary and bonus programs for the executive officers of the Bank. The external auditors are recommended by this committee to our Board of Directors and appointed by our shareholders at the annual shareholders’ meeting.   C. Asset and Liability Committee C. Asset and Liability Committee   The ALCO includes the Chairman of the Board and five additional members of the Board, the Chief Executive Officer, the Corporate Financial Controller, the Manager of the Financial Management Division, the Manager of Market Risk, the Manager of the Treasury Division, and other senior members of management. The ALCO meets monthly. All limits reviewed by the ALCO are measured and prepared by the Market Risk Department. The non-Board members of the ALCO meet weekly to review liquidity, funding, capital and market risk related matters.   The main functions of the ALCO are:   ·● Making the most important decisions regarding our exposure to inflation, interest rate risk, funding, capital and liquidity levels. The main limits set and monitored by the ALCO (and measured by the Market Risk Department) are: ·● Review of the Bank’s inflation gap.gap ·● Review of the evolution of the most relevant local and international markets and monetary policies.policies   D. Market Committee D. Market Committee   The Market Committee includes the Vice-Chairman of the Board, three additional members of the Board, the Chief Executive Officer, the Manager of Global Banking and Markets, the Manager of the Treasury Division, the Manager of the Financial Management Division, the Manager of Market Risk, the Financial Controller and other senior members of management.   F-158 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued The Market Committee is responsible for:   ·● Establishing a strategy for the Bank’s trading investment portfolio.portfolio ·● Establishing the Bank’s policies, procedures and limits with respect to its trading portfolio. The Bank’s Market Risk Department measures all risks and limits and reports these to the Market Committee.Committee ·● Reviewing the net foreign exchange exposure and limit ·● Reviewing the evolution of the most relevant local and international markets and monetary policies.policies   E. Risk Department E. Risk Department   All issues regarding risk in the Bank are the responsibility of the Bank’s Risk Department. The Risk Department reports to the CEO but has full independence, and no risk decisions can be made without its approval.   F-135  Table of Contents NOTE 37 RISK MANAGEMENT, continued Credit risk   Credit risk is the risk that one of the parties to a financial instrument fails to meet its contractual obligations for reasons of insolvency or inability of the individuals or legal entities in question to continue as a going concern, causing a financial loss to the other party. The Bank consolidates all elements and components of credit risk exposure to manage credit risk (e.g.(i.e., individual delinquency risk, inherent risk of a business line or segment, and/or geographical risk).   In Note 9 and Note 11, we present our net exposure to credit risk at December 31, 2019 and 2018. Credit Risk Governance   The Risk Division, our credit analysis and risk management group, is largely independent of our Commercial Division.Division, Risk evaluation teams interact regularly with our clients. For larger transactions, risk teams in our headquarters work directly with clients when evaluating credit risks and preparing credit applications. Various credit approval committees, all of which include Risk Division and Commercial Division personnel, must verify that the appropriate qualitative and quantitative parameters are met by each applicant. Each committee’s powers are defined by our Board of Directors.   Santander-Chile’s governance rules have established the existence of the Integral Risk Committee. This committee is responsible for revising and following all risks that may affect us, including reputational risk, allowing for an integral risk management. This committee serves as the governing body through which the Board supervises all risk functions. It also evaluates the reasonability of the systems for measurement and control of risks. This Committee includes the Vice Chairman of the Board and five Board members.   The Board has delegated the duty of credit risk management to the Integral Risk Committee, as well as to the Bank’s risk departments, whose roles are summarized below:   ·● Formulation of credit policies, by consulting with the business units, meeting requirements of guarantees, credit evaluation, risk rating and submission of reports, documentation and legal procedures inVerify compliance with the regulatory, legal and internal requirementsstrategic objectives of the Bank.group, depending on both assumed and potential risk, and alerting management to such risks. ● Propose the primary metrics for risk appetite framework. ● Review the level of compliance with regulatory provisions and recommendations issued by the Local and External Supervisors, ensuring their implementation on the stipulated dates. ● Analyze with a comprehensive vision, the map of recommendations and incidents formulated by the different control instances (FMC-former SBIF, DAI and External Audit) in order to identify the main risks involved. ● Review the risk benchmark analysis, and from its results, identify and propose “best practices” or corrective / preventive actions, ensuring their proper implementation. F-159 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued   ·● EstablishReview the structure to approve and renew credit requests. The Bank structures creditadequate management of risks by assigningthe management areas, formulating where appropriate, the mitigation actions in accordance with the policies approved by the Board. ● Monitoring, analysis and control of the limits defined in the Risk Framework (basic and complementary metrics) and the key credit risk indicators of each zone, segment or product, identifying possible sources of concern. ● Analyze the relevant aspects of the risk (exogenous variables), which could eventually materialize in possible losses for the business (emerging risks). ● Analyze and propose eventual changes in the policies and procedures used by the Bank for the administration, control and management of risks, when inconsistencies or vulnerabilities are verified. ● Encourage compliance by the Bank with the best corporate governance practices in risk management, ● Pre-review the documents of type 0 and 1 (Frames and Models) that were defined in the Approval Hierarchy model, which must then be approved in the Directory. ● Perform, according to the concentrationcalendar proposed by the Risk Department or on request, the sectoral analyzes considered relevant. ● Review of that riskrisks in terms of individual debtors, debtor groups, industry segmentRisk Compliance and country. Approval levels are assigned to the correspondent officials of the business unit (commercial, consumer, SMEs) to be exercised by that level of management. In addition, those limits are revised constantly. Teams in charge of risk evaluation at the branch level interact on a regular basis with customers; however, for larger credit requests, the risk team from the head office and the Executive Risk Committee works directly with customers to assess credit risks and prepare risk requests.Reputational Risk. ·● Limit concentrations of exposure to customers or counterparties in geographic areas or industries (for accounts receivable or loans), and by issuer, credit rating, and liquidity. · Develop and maintainAny other task that the Bank’s credit risk classifications for the purpose of classifying risks according to the degree of exposure to financial loss that is exhibited by the respective financial instruments, with the aim of focusing risk management specifically on the associated risks. · Revise and evaluate credit risk. Management’s risk divisions are largely independent of the Bank’s commercial division and evaluate all credit risks in excess of the specified limits prior to loan approvals for customers or prior to the acquisition of specific investments. Credit renewal and reviews are subject to similar processes.Board deems necessary.   The following diagram illustrates the governance of our credit risk division including the committees with approval power:   F-136  Table of Contents NOTE 37 RISK MANAGEMENT, continued   Role of Santander Spain’s Global Risk Department: Credit Approval: Loans approved on an individual basisRisk   In preparing a credit proposal for a corporate client whose loans are approved on an individual basis, Santander-Chile’s personnel verifies such parameters as debt servicing capacity (typically including projected cash flows), the company’s financial history and projections for the economic sector in which it operates. Thematters regarding Credit Risk, Division is closely involved in this process, and prepares the credit application for the client. All proposals contain an analysis of the client’s strengths and weaknesses, a rating and a recommendation. Credit limits are determined not on the basis of outstanding balances of individual clients, but on the direct and indirect credit risk of entire financial groups. For example, a corporation will be evaluated together with its subsidiaries and affiliates. Credit Approval: Loans approved on a group basis The majority of loans to individuals and small and mid-sized companies are approved by the StandardizedSantander Spain’s Global Risk Area through an automated credit scoring system. This system is decentralized, automated and based on multiple parameters, including demographic and information regarding credit behavior from external sources and the SBIF. Loans analyzed on an individual basis For loans that are greater than Ch$150 million (US$225,000), the Bank uses internal models to assign a risk category level to each borrower and its respective loans. We considerDepartment has the following risk factors: industry or sector of the borrower, the borrower’s competitive position in its markets, owners or managers of the borrower, the borrower’s financial situation, the borrower’s payment capacity and the borrower’s payment behavior to calculate the estimated incurred loan loss. Through these categories, we differentiate the normal loan portfolio from the impaired one. These are our categories:role:   1.● Debtors may be classified in risk categories A1, A2, A3 or B (AAll credit risks greater than U.S.$80 million, after being approved locally, are reviewed by Santander Spain. This additional review ensures that no global exposure limit is applicable if they are current on their payment obligations and show no sign of deterioration in their credit quality and B is different from the A categories by a certain history of late payments). The A categories are distinguished by different PNPs (as defined below).being breached. ● In standardized risks, the consumer and mortgage scoring models are developed locally but are reviewed and approved by Santander Spain’s Global Risk Department.   F-137 F-160 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 37 38 RISK MANAGEMENT, continued   2.● Debtors classifiedFor each scoring model, a quarterly Risk Report is prepared, which is reviewed locally and is also sent to Santander Analytics (Santander Spain). This report includes the evolution of basic credit risk parameters such as C1, C2, C3, C4, D1 or D2 include debtors whose loans with us have been charged off or administered by our Recovery Unit, or classifiedloan amounts, non-performance, charge-offs and provisions. ● Monthly, the Controller of the Risk Department sends a report to Santander Spain’s Global Risk Department covering all the main indicators regarding credit risk and the evolution of credit risk asPrecontenciosos (PRECO or deteriorated). compared to the budgeted levels.   For loans classified as A1, A2, A3 and B, we assign a specific provision level on an individual basis to each borrower and, therefore, the amount of loan loss allowance is determined on a case by case basis. Estimated Incurred Loan Loss = Loan Loss Allowance The estimated incurred loss is obtained by multiplying all risk factors defined in the following equation: EIL= EXP x PNP x SEV · EIL = Estimated Incurred Loan Loss. The estimated incurred loan loss is how much could be lost in the event a debtor does not perform the obligations under the loan. · EXP = Exposure. This corresponds to the value of commercial loans. · PNP = Probability of Non-Performance. This variable, expressed as a percentage, indicates the probability that a debtor will default. This percentage is associated with the internal rating that we give to each debtor, which is determined by analyzing such parameters as debt servicing capacity. · SEV = Severity. This is the effective loss rate given default for debtors in the same segment, which is determined statistically based on the historical effective losses for us for each segment. Every year, models together with PNP and SEV assumptions, are tested by the Bank’s Credit Risk Department, to ensure that they are appropriate at each reporting date so as to make sure any difference between the estimated incurred losses and real losses is reduced. These tests focus on the validation of the sufficiency of the Bank’s allowances, and consist of comparisons between actual write-offs to allowances established by the model, and the coverage of the total allowance to actual write-offs in the most current periods. Individual loan classification and improvements to any customer classification are also presented for approval to our Risk Committee.Impairment assessment (policy applicable from January 1, 2019)   In accordance with such policy, every year we update appraisalsthe requirements of fair value of collateral before the end of the 24 month period for certain customers and such updated appraisals are considered in the calculation of the allowance for loan losses. The number of updated appraisals performed in 2013 was 113, in 2014 was 98, in 2015 was 43 and 2016 it was 142, and such updated appraisals were performed mainly because of changes in customer conditions (renegotiation deterioration of financial situation increase in credit line). For loans classified in the C and D categories, loan loss allowances are based mainly on the fair value of the collateral, adjusted for an estimate cost to sell, that each of these loans have. Allowance percentage for each category is then based on the fair value of the collateral, or the expected future cash flow from the loan for each individually evaluated non-performing loans. Loans analyzed on a group basis The Bank uses the concept of estimated incurred loss to quantify the allowances levels over loan analyzed on a group basis. Incurred loss is the expected provision expense that will appear one year away from the balance date of the transaction’s credit risk, considering the counterpart risk and the collateral associated to each transaction. Following the Bank’s definition, the Bank uses group evaluation to approach transactions that have similar credit risk features, which indicate the debtor’s payment capacity of the entire debt, capital and interests, pursuant to the contract’s terms. In addition, this allows us to assess a high number of transactions with low individual amounts, whether they belong to individuals or small sized companies. Therefore, debtors and loans with similar features are grouped together and each group has a risk level assigned to it. These models are meant to be used mainly to analyze loans granted to individuals (including consumer loans, credit lines, mortgage loans and commercial loans) and commercial loans to SMEs. F-138  Table of Contents NOTE 37 RISK MANAGEMENT, continued Allowances are established using these models, taking into account the historical impairment and other known circumstances at the time of evaluation. After this, a historical loss rate is assigned to each portfolio profile constituting each segment. The method for assigning a profile is established based on a statistical building method, establishing a relation through a logistic regression various variables, such as payment behavior in the Bank, payment behavior outside the Bank, various socio-demographic data, among others, and a response variable that determines a client’s risk level, which in this case is 90 days of non-performance. Afterwards, common profiles are established related to a logical order and with differentiate default rates, applying the real historical lossIFRS 9 the Bank has had with that portfolio. Our models for loans analyzed ondeveloped a group basis (consumer loans, residential mortgage loans and small-and-mid-sized commercial loans) are monitored on a monthly basis with respect to predictability and stability, using indices that seek to capture the underlying need to update the models for current loss trends. Therefore, the periods of historical net charge-offs used in the allowancenew credit risk model, may be more than a year old as we only update the historical net charge-offs only when our assessment of predictability and stability indicators determine it is necessary. The different risk categories are constructed and updated periodically based on the payment behavior of the client’s profile to which they belong, as well as his or her socio-demographic characteristics. Therefore, when a customer has past due balance or has missed some payments, the outcome is that the customer will move to a different segment with a higher loss rate, therefore capturing current trends for each risk profile. Once the customers have been classified, the loan loss allowance is the product of three factors: Exposure (EXP), Probability of Non-Performance (PNP) and Severity (SEV). EXP = Exposure. This corresponds to the value of commercial loans. PNP = Probability of Non-Performing. This variable, expressed as a percentage, indicates the probability that a debtor will default. This percentage is associated with the internal score that we give to each debtor, which is determined by analyzing such parameters as debt servicing capacity (including, usually, projected cash flows), the company’s financial history, the solvency and capacity of shareholders and management, and projections for the economic sector in which it operates. The internal rating can be differentapplicable from ratings obtained from external third parties. SEV = Severity. This is the effective loss rate given default for debtors in the same segment, which is determined statistically based on the historical effective losses for us for each segment. Every year, models together with PNP and SEV assumptions, are tested by the Bank’s Credit Risk Department, to ensure that they are appropriate at each reporting date so as to make sure any difference between the estimated incurred losses and real losses is reduced. Allowances for consumer loans The estimated incurred loss rates for consumer loans correspond to charge-offs net of recoveries. The methodology establishes the period in which the estimated incurred loss for each risk profile emerges. Once the loss has been considered to have been incurred, the estimated incurred loss rates are applied to the corresponding risk profile to obtain the net charge-off level associated with this period. The loss rates applied to each risk profile are based only on the historical net charge-off data for that specific profile within one of the four groups of consumer loans. No other statistical or other information other than net charge-offs is used to determine the loss rates. The following diagrams set forth the allowances required by our current models for consumer loans: F-139  Table of Contents NOTE 37 RISK MANAGEMENT, continued Santander: Bank Loan type Allowance Level(1) (Loss rate)               Consumer Performing New clients Existing clients     0.33% -19.40% 0.08%-15.55%                 Renegotiated consumer loans which were less than 90 days past due at the time of renegotiation (2) 6.49%-32.09%                 Renegotiated consumer loans which were more than 90 days past due at the time of renegotiation (2) 44.05%-100%                 Non-performing Days Past Due New Clients Existing Clients Previously Renegotiated 90-120 35.93% 35.93% 44.05% 120-150 44.11% 44.11% 50.38% 150-180 52.77% 52.77% 57.48% >180 Charged-off _______________ 1. Percentage of loans outstanding 2. This category relates only to loans which were renegotiated and were less than 90 days past due at the time of renegotiation, migrating from such category as they reached 90 days past due since renegotiation. There are two renegotiated categories in our consumer loan portfolio:January 1, 2019.   1.a. Renegotiated Consumer which were less than 90 days past due at the timeDefinition of renegotiation. The allowance for loan loss percentages (or loss rates) are assigned based on eight different risk profiles which are determined based on demographicdefault and payment behavior variables.cure The Bank considers a financial instrument defaulted and therefore Stage 3 for ECL calculations in all cases when the borrower becomes 90 days past due on its contractual payments. As a part of a qualitative assessment of whether a customer is in default, the Bank also considers a variety of instances that may indicate unlikeliness to pay. Such events include:   2.● Renegotiated Consumer which were more than 90 daysInternal rating of the borrower indicating default or near default ● The borrower requesting emergency funding from the Bank ● The borrower having past due liabilities to public creditors or employees ● The borrower is deceased ● A material decrease in the underlying collateral value where the recovery of the loan is expected from the sale of the collateral ● A material decrease in the borrower’s turnover or the loss of a major customer ● A covenant breach not waived by the Bank ● The debtor (or any legal entity within the debtor’s group) filing for bankruptcy application/protection ● Debtor’s listed debt or equity suspended at the timeprimary exchange because of renegotiation. The loss rates are assigned based on four different risk profiles which are determined based on the number of days overdue at the time of renegotiation:rumors or facts about financial difficulties It is the Bank’s policy to consider a financial instrument as ‘cured’ and therefore re-classified out of Stage 3 when none of the default criteria have been present for at least twelve consecutive months (and 24 months for special vigilance operations). The decision whether to classify an asset as Stage 2 or Stage 1 once cured depends on the updated credit grade, at the time of the cure, and whether this indicates there has been a significant increase in credit risk compared to initial recognition.   Profileb. 1: 180 or more days past due Profile 2: between 150Internal rating and 180 days past due Profile 3: between 120 and 150 days past due Profile 4: between 90 and 120 days past duePD estimation   Small-The Bank’s Credit Risk Department operates its internal rating models. The models incorporate both qualitative and mid-sized commercial loansquantitative information and, in addition to information specific to the borrower utilise supplemental external information that could affect the borrower’s behavior. The internal credit grades are assigned based on the internal scoring policy, PDs are then adjusted for IFRS 9 ECL calculations to incorporate forward looking information and the IFRS 9 Stage classification of the exposure.   To determine the estimated incurred loss for individuals (natural persons), small- and mid-sized commercial loans collectively evaluated for impairment, we mainly analyze the payment behavior of clients, particularly the payment behavior of clients with payments that are 90 days or more past-due, clients with other weaknesses, such as early non-performance (i.e., payments that are past-due, though by less than 90 days), clients with modified loans and clients with renegotiated loans, as well as success in recovery against these clients. We also consider whether the loan has underlying mortgage collateral.   F-140 F-161 Table of Contents  NOTE 37 Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 RISK MANAGEMENT, continued The risk categories are such that when a customer has a past-due balance or has missed some payments, the outcome is that the customer will move to a different risk category with a higher loss rate, therefore capturing current trends of the customer and, in the aggregate, current trends in the market. In order to calculate the estimated incurred loan loss for all commercial loans collectively evaluated for impairment, the Bank sub-divided the portfolio in the following way: Loan type Allowance Level(1) (Loss rate)   Commercial loans analyzed on a group basis Performing Commercial loan to individuals w/o mortgage collateral Commercial loan to individuals with mortgage collateral Small Enterprise Mid-sized   Enterprise     3.72% -46.76% 0.02%-7.89% 0.20%-21.82% 0.11%-16.92                   Renegotiated commercial loans which were less than 90 days past due at the time of renegotiation (2) 5.22%-19.54%                   Renegotiated commercial loans which were more than 90 days past due at the time of renegotiation (2) Days Past Due when renegotiated Commercial loan to individuals w/o mortgage collateral Commercial loan to individuals with mortgage collateral Small Enterprise Mid-sized  Enterprise   90-179 50.76% 16.29% 30.07% 24.32%   180-359 51.89% 23.90% 44.00% 37.64%   360-719 56.04% 31.46% 50.27% 47.09%   >720 57.54% 36.69% 53.86% 52.63%                 Non-performing consumer Days Past Due Commercial loan to individuals w/o mortgage collateral Commercial loan to individuals with mortgage collateral Small Enterprise Mid-sized   Enterprise Previously renegotiated 90-179 50.76% 16.29% 30.07% 24.32% 24.32% 180-359 51.89% 23.90% 44.00% 37.64% 37.64% 360-719 56.04% 31.46% 50.27% 47.09% 47.09% >720 57.54% 36.69% 53.86% 52.63% 52.63%                   _______________ (1) Percentage of loans outstanding (2) This category relates only to loans which were renegotiated and were less than 90 days past due at the time of renegotiation, migrating from such category as they reached 90 days past due since renegotiation. F-141  Table of Contents NOTE 37 RISK MANAGEMENT, continued Allowances for residential mortgage loans The provision methodology for residential mortgage loans takes into consideration different factors in order to group customers with less the 90 days past due into seven different risk profiles. Factors considered, in the first place, are whether the customer is a new customer or with prior history with the Bank. For each of these main categories additional factors are considered in order to develop risk profiles within each risk category, including payment behavior, non-performance less than 90 days, collateral levels, renegotiation history with the Bank, and historical amounts of net charge-offs, among others. The explanation for the initial segregation into three categories, existing, new customer, is as follows: an existing customer is a customer for which there is a broader level of information and history of payment behavior with the Bank, while for a new customer the Bank has no history of payment behavior and only information from the banking system and credit bureaus is available. The risk categories are such that when a customer’s payment behavior deteriorates, the outcome is that the customer will move to a different risk category with a higher loss rate, therefore capturing the current status of the customer. Previous to 2016, mortgage loans with more than 90 days past due balances are assigned a loss rate of 11.01%. In 2016, mortgage loans more than 90 days past due balances are assigned a loss rate depending on the loan to value. We determined that 90 days is appropriate, since our historical analysis of customer’s behavior has shown that after 90 days, customers are likely to default on their obligations, and that, over succeeding periods, the loss incurred does not increase given the high fair value of collateral percentage to loan amount required under our credit policies for this type of loan. Also, we note that the Chilean economy’s stability over the last few years has not resulted in other than insignificant fluctuations in collateral fair values on residential mortgage loan properties. The following table sets forth the required loan loss allowance for residential mortgage loans: Bank Loan type Allowance Level(1) (Loss rate)   Residential mortgage Performing Bank (excl. Select) Santander Select 0.00%-8.30% 0.00%-4.90% Renegotiated mortgage loans which were less than 90 days past due at the time of renegotiation (2) 0.32%-12.06% Renegotiated mortgage  loans which were more than 90 days past due at the time of renegotiation (2) 5.72%-20.81% Non-performing mortgage Loan to Value 0-60 5.72% 60-80 8.31% 80-90 11.60% >90 20.81% 1. Percentage of loans outstanding 2. This category relates only to loans which were renegotiated and were less than 90 days past due at the time of renegotiation, migrating from such category as they reached 90 days past due since renegotiation. F-142  Table of Contents NOTE 37 38 RISK MANAGEMENT, continued   The following table shows quality assets and its related provision, based on our internal scoring policy as of December 31, 20162019 and 2015:2018:       December 31, 2019       Individually assessed   Commercial   Stage 1     Stage 2     Stage 3     Total   Individual       Percentage     Stage 1     Stage 2     Stage 3     Total ECL Allowance     Percentage   Portfolio   MCh$     MCh$     MCh$     MCh$     %     MCh$     MCh$     MCh$     MCh$     %                                                                 A1     99,042       -       -       99,042       0.30 %     2       -               2       0.00 % A2     907,659       37       -       907,696       2.78 %     443       -               443       0.05 % A3     2,418,990       61       -       2,419,051       7.41 %     2,617       -               2,617       0.29 % A4     3,262,671       7,184       -       3,269,855       10.01 %     4,399       22               4,421       0.49 % A5     2,188,717       22,163       -       2,210,880       6.77 %     7,618       515               8,133       0.91 % A6     1,086,401       47,157       487       1,134,045       3.47 %     6,461       1,410       208       8,079       0.90 % B1     -       603,201       -       603,201       1.85 %     -       12,641       -       12,641       1.41 % B2     -       82,781       560       83,341       0.26 %     -       3,773       205       3,978       0.44 % B3     -       85,034       817       85,851       0.26 %     -       3,367       261       3,628       0.40 % B4     -       83,039       50,662       133,701       0.41 %     -       4,085       21,910       25,995       2.90 % C1     -       45,433       113,004       158,437       0.48 %     -       3,516       50,440       53,956       6.02 % C2     -       8,865       66,965       75,830       0.23 %     -       614       28,504       29,118       3.25 % C3     -       15,762       32,839       48,601       0.15 %     -       221       11,281       11,502       1.28 % C4     -       2,405       38,967       41,372       0.13 %     -       170       20,039       20,209       2.26 % C5     -       847       44,057       44,904       0.14 %     -       43       27,586       27,629       3.08 % C6     -       998       52,649       53,647       0.16 %     -       12       35,732       35,744       3.99 % Subtotal     9,963,480       1,004,967       401,007       11,369,454       34.80 %     21,540       30,389       196,166       248,095       27.69 %   As of December 31, Category 2016   2015 Commercial  Portfolio  Individual   Percentage   Allowance   Percentage   Individual   Percentage   Allowance   Percentage MCh$   %   MCh$   %   MCh$   %   MCh$   %                                 A1 1,599,311   5.88%   923   0.12%   2,073,792   8.20%   1,210   0.17% A2 6,437,930   23.67%   23,757   3.00%   5,898,065   23.32%   17,353   2.28% A3 2,030,867   7.46%   29,668   3.75%   1,599,234   6.32%   25,145   3.30% B 538,909   1.98%   40,545   5.13%   504,937   1.99%   37,157   4.87% C1 121,893   0.45%   2,176   0.28%   81,767   0.32%   1,635   0.21% C2 51,034   0.19%   4,555   0.58%   48,569   0.19%   4,857   0.64% C3 49,901   0.18%   11,136   1.41%   37,663   0.15%   9,416   1.24% C4 64,118   0.24%   22,894   2.90%   69,952   0.28%   27,981   3.67% D1 73,462   0.27%   42,625   5.39%   76,157   0.30%   49,503   6.49% D2 89,857   0.33%   72,192   9.13%   92,682   0.36%   83,414   10.94% Subtotal 11,057,282   40.65%   250,471   31.69%   10,482,818   41.43%   257,671   33.81%                                   Group   Percentage   Allowance   Percentage   Group   Percentage   Allowance   Percentage MCh$   %   MCh$   %   MCh$   %   MCh$   % Commercial                               Normal portfolio 2,741,858   10.08%   58,453   7.39%   2,483,258   9.81%   50,559   6.63% Impaired portfolio  341,132   1.25%   124,653   15.76%    371,160   1.47%   124,137   16.28% Subtotal 3,082,990   11.33%   183,106   23.15%   2,854,418   11.28%   174,696   22.91% Mortgage                               Normal portfolio 8,221,666   30.22%    23,699   3.00%   7,416,703   29.31%    19,133   2.51% Impaired portfolio  397,688   1.46%   33,310   4.21%    396,147   1.57%   43,294   5.68% Subtotal 8,619,354   31.68%   57,009   7.21%   7,812,850   30.88%   62,427   8.19% Consumer                               Normal portfolio 4,158,221   15.28%    147,979   18.72%   3,819,361   15.10%    118,006   15.48% Impaired portfolio  288,584   1.06%   152,040   19.23%    331,310   1.31%   149,501   19.61% Subtotal 4,446,805   16.34%   300,019   37.95%   4,150,671   16.41%   267,507   35.09% Total 27,206,431   100.00%   790,605   100.00%   25,300,757   100.00%   762,301   100.00%     Collectively assessed       Stage 1     Stage 2     Stage 3     Total Group     Percentage     Stage 1     Stage 2     Stage 3     Total ECL Allowance     Percentage       MCh$     MCh$     MCh$     MCh$     %     MCh$     MCh$     MCh$     MCh$     %   Commercial     3,839,143       240,100       413,628       4,492,871       13.75 %     35,887       25,555       197,032       258,474       28.84 % Mortgage     10,275,966       457,948       529,081       11,262,995       34.47 %     8,446       14,509       78,104       101,059       11.28 % Consumer     4,963,047       292,718       290,430       5,546,195       16.98 %     67,396       50,808       170,263       288,467       32.19 % Subtotal     19,078,156       990,766       1,233,139       21,302,061       65.20 %     111,729       90,872       445,399       648,000       72.31 % Total     29,041,636       1,995,733       1,634,146       32,671,515       100.00 %     133,269       121,261       641,565       896,095       100.00 %   See Note 29 for more detailF-162 Table of the Bank’s impaired loans and the associated allowances. Also, see Note 19 for a detail of the maturity of the Bank’s financial assets.Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued   Credit quality     December 31, 2018       Individually assessed   Commercial   Stage 1     Stage 2     Stage 3     Total   Individual       Percentage     Stage 1     Stage 2     Stage 3     Total ECL Allowance     Percentage   Portfolio   MCh$     MCh$     MCh$     MCh$     %     MCh$     MCh$     MCh$     MCh$     %                                                                 A1     29,998       -       -       29,998       0,10 %     2       -       -       2       0,00 % A2     1,074,789       -       -       1,074,789       3,56 %     525       -       -       525       0,06 % A3     2,699,684       309       -       2,699,993       8,94 %     2,526       -       -       2,526       0,29 % A4     3,200,608       16,546       -       3,217,154       10,65 %     8,865       323       -       9,188       1,04 % A5     1,755,259       26,141       -       1,781,400       5,90 %     11,296       453       -       11,749       1,33 % A6     935,499       45,671       -       981,170       3,25 %     6,975       2,213       -       9,188       1,04 % B1     -       494,915       187       495,102       1,64 %     -       14,107       79       14,186       1,61 % B2     -       81,955       156       82,111       0,27 %     -       2,786       66       2,852       0,32 % B3     -       67,089       614       67,703       0,22 %     -       3,841       233       4,074       0,46 % B4     -       47,653       45,480       93,133       0,31 %     -       2,488       19,688       22,176       2,51 % C1     -       46,383       108,325       154,708       0,51 %     -       2,548       48,147       50,695       5,75 % C2     -       15,678       39,246       54,924       0,18 %     -       1,261       18,171       19,432       2,20 % C3     -       19,655       26,204       45,859       0,15 %     -       733       10,803       11,536       1,31 % C4     -       3,560       32,445       36,005       0,12 %     -       246       17,077       17,323       1,96 % C5     -       703       64,762       65,465       0,22 %     -       32       40,541       40,573       4,60 % C6     -       1,525       69,511       71,036       0,22 %     -       35       43,310       43,345       4,91 % Subtotal     9,695,837       867,783       386,930       10,950,550       36,24 %     30,189       31,066       198,115       259,370       29,39 %   The Bank determines the credit quality of financial assets using internal credit ratings. The rating process is linked to the Bank’s approval and monitoring processes and is carried out in accordance with risk categories established by current standards. Credit quality is continuously updated based on any favorable or unfavorable developments to customers or their environments, considering aspects such as commercial and payment behavior as well as financial information. See credit quality of loans above.     Collectively assessed       Stage 1     Stage 2     Stage 3     Total Group     Percentage     Stage 1     Stage 2     Stage 3     Total ECL Allowance     Percentage       MCh$     MCh$     MCh$     MCh$     %     MCh$     MCh$     MCh$     MCh$     %   Commercial     3,616,969       232,472       386,154       4,235,595       14,02 %     43,541       24,574       179,317       247,432       28,04 % Mortgage     4,341,740       249,039       285,510       4,876,289       16,14 %     70,904       54,372       159,066       284,342       32,23 % Consumer     9,258,962       447,496       444,523       10,150,981       33,60 %     9,006       15,102       67,162       91,270       10,34 % Subtotal     17,217,671       929,007       1,116,187       19,262,865       63,76 %     123,451       94,048       405,545       623,044       70,61 % Total     26,913,508       1,796,790       1,503,117       30,213,415       100,00 %     153,640       125,114       603,660       882,414       100,00 %   In relation to the credit quality of the investment portfolio, local regulations specify that banks are able to hold only local and foreign fixed–income securities except in certain cases. Additionally, Banco Santander ChileSantander-Chile has internal policies to ensure that only securities approved by the Market Risk department, which are stated in the documents “APS” – Products and underlying Approval, are acquired. The Credit Risk Department sets the exposure limits to those approved APSs .APS’s. The APS is updated on daily basis.   As of December 31, 2016, 75.74% of2019, 99% our total investment portfolio correspondcorresponds to securities issued by the Chilean Central Bank and US treasury notes.   F-143 F-163 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued c. Exposure at default The exposure at default (EAD) represents the gross carrying amount of the financial instruments subject to the impairment calculation, addressing both the client’s ability to increase its exposure while approaching default and potential early repayments too. To calculate the EAD for a Stage 1 loan, the Bank assesses the possible default events within 12 months for the calculation of the 12mECL. However, if a Stage 1 loan that is expected to default in the 12 months from the balance sheet date and is also expected to cure and subsequently default again, then all linked default events are taken into account. For Stage 2, Stage 3 the exposure at default is considered for events over the lifetime of the instruments. d. Loss given default The credit risk assessment is based on a standardised LGD assessment framework that results in a certain LGD rate. These LGD rates take into account the expected EAD in comparison to the amount expected to be recovered or realised from any collateral held. The Bank segments its retail lending products into smaller homogeneous portfolios (evaluated collective), based on key characteristics that are relevant to the estimation of future cash flows. The applied data is based on historically collected loss data and involves a wider set of transaction characteristics (i.e., product type, wider range of collateral types) as well as borrower characteristics. Further recent data and forward-looking economic scenarios are used in order to determine the IFRS 9 LGD rate for each group of financial instruments. Under IFRS 9, LGD rates are estimated for the Stage 1, Stage 2, Stage 3 IFRS 9 segment of each asset class. The inputs for these LGD rates are estimated and, where possible, calibrated through back testing against recent recoveries. These are repeated for each economic scenario as appropriate. e. Significant increase in credit risk (SICR) The Bank continuously monitors all assets subject to ECLs. In order to determine whether an instrument or a portfolio of instruments is subject to 12 month ECL or Lifetime ECL, the Bank assesses whether there has been a significant increase in credit risk since initial recognition. The Bank also applies a secondary qualitative method for triggering a significant increase in credit risk for an asset, such as moving a customer/facility to the watch list (Special vigilance). The Bank may also consider that events explained in letter a) above are a significant increase in credit risk as opposed to a default. Regardless of the change in credit grades, if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial recognition. When estimating ECLs on a collective basis for a group of similar assets, the Bank applies the same principles for assessing whether there has been a significant increase in credit risk since initial recognition. Quantitative criteria for SICR Stage 2: The quantitative criteria is used to identify where an exposure has increased in credit risk and it is applied based on whether an increase in the lifetime PD since the recognition date exceeds the threshold set in absolute terms. The following formula is used to determine such threshold: Threshold = Lifetime PD (at reporting date) – Lifetime PD (at origination) F-164 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued Collectively assessed     Individually assessed Mortgages Other loans Revolving (Credit cards) Collectively assessed  SME   Individually assessed SME   Middle market Corporate and Investment Banking 39.57 % 39.11 % 15.73 % 39.11 %   22.69%   4.5 % Santander Group criteria There is also a relative threshold of 100% of all portfolios with the exception of the Corporate and Investment Banking Portfolio. Qualitative criteria for SICR Stage 2: The qualitative criteria is based on the existence of evidence that leads to an automatic classification of financial instruments in stage 2, mainly 30 days overdue and restructured. Thresholds of SICR are calibrated based on the average ECL of exposures that are 30 days overdue or with a level of credit risk considered to be “significant”. Collectively assessed Individually assessed Mortgages Other loans Revolving (Credit cards) Collectively assessed SME Individually assessed SME Middle market Corporate and Investment Banking Irregular portfolio > 30 days Irregular portfolio > 30 days Irregular portfolio > 30 days Irregular portfolio > 30 days Irregular portfolio > 30 days Irregular portfolio > 30 days Irregular portfolio > 30 days Restructured marked for monitoring Restructured marked for monitoring Restructured marked for monitoring Restructured marked for monitoring Restructured marked for monitoring Restructured marked for monitoring Restructured marked for monitoring Clients that are considered to be substandard or in incompliance (pre-legal action) Clients that are considered to be substandard or in incompliance (pre-legal action) Clients that are considered to be substandard or in incompliance (pre-legal action) These thresholds are defined by the Model Committee and the Integral Risk Committee, and are evaluated annually with updates made depending on impacts and definitions of the risk models associated to each portfolio. f. Grouping financial assets measured on a collective basis The Bank calculates ECLs either on a collective or an individual basis. The evaluates on individual basis commercial loans that are greater than Ch$400 million (US$240,000), while smaller commercial loans, mortgage loans and consumer loans are grouped into homogeneous portfolios, based on a combination of internal and external characteristics. g. Modified loans When loan measured at amortised cost has been renegotiated or modified but not derecognised, the Bank must recognise the resulting gains or losses as the difference between the carrying amount of the original loans and modified contractual cash flows discounted using the EIR before modification. F-165 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued If the modification does not result in derecognition, then the subsequent assessment of whether there is a significant increase in credit risk is made comparing the risk at the reporting date based on the modified contractual term and the risk at initial recognition based on the original, unmodified contractual term. If the modification results in derecognition, then the modified asset is considered to be a new asset. Accordingly, the date of modification is treated as the date of initial recognition for the purposes of the impairment requirements.     As of December 31, 2019     As of December 31, 2018       Stage 1     Stage 2     Stage 3     Total     Stage 1     Stage 2     Stage 3     Total       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$   Gross carrying amount     29,041,636       1,995,733       1,634,146       32,671,515       26,913,508       1,796,790       1,503,116       30,213,415   Modified loans     -       512,529       611,316       1,123,845       -       582,513       815,094       1,397,607   %     -       25.68 %     37.41 %     3.44 %     -       32.42 %     54.23 %     4.63 %                                                                   ECL allowance     133,269       121,261       641,565       896,095       153,640       125,114       603,660       882,414   Modified loans     -       36,329       242,649       278,978       -       44,099       323,802       367,901   %     -       29.96 %     37.82 %     31.13 %     -       35.25 %     53.64 %     41.69 % h. Analysis of risk concentration The following table shows the risk concentration by industry, and by stage before ECL allowance of loans and account receivable at amortised cost:     December 31, 2019     December 31, 2018       Stage 1     Stage 2     Stage 3     Total     Stage 1     Stage 2     Stage 3     Total   Commercial   MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$   loans                                                 Manufacturing     1,110,484       107,356       67,974       1,285,814       992,786       92,931       54,048       1,139,765   Mining     280,297       123,005       3,739       407,041       182,342       21,821       4,585       208,748   Electricity, gas, and water     309,941       22,907       8,196       341,044       384,288       22,365       2,279       408,932   Agriculture and livestock     1,020,857       172,984       93,440       1,287,281       934,199       166,271       100,781       1,201,251   Forest     132,483       17,035       15,689       165,207       120,371       9,402       14,115       143,888   Fishing     223,980       24,879       7,695       256,554       238,348       11,104       3,569       253,021   Transport     665,570       64,115       34,192       763,877       716,493       55,011       37,802       809,306   Communications     206,660       28,122       6,168       240,950       178,215       30,407       7,222       215,844   Construction (*)     782,265       85,435       106,568       974,268       723,600       88,691       93,747       906,038   Commerce     2,655,982       110,326       30,107       2,796,415       2,950,517       189,623       199,924       3,340,064   Services     2,971,563       190,097       204,472       3,366,132       1,771,595       81,159       12,915       1,865,669   Other     3,442,541       298,806       236,395       3,977,742       4,120,052       331,470       242,097       4,693,619                                                                     Subtotal     13,802,623       1,245,067       814,635       15,862,325       13,312,806       1,100,255       773,084       15,186,145                                                                     Mortgage loans     10,275,966       457,948       529,081       11,262,995       9,258,962       447,496       444,523       10,150,981                                                                     Consumer loans     4,963,047       292,718       290,430       5,546,195       4,341,740       249,039       285,510       4,876,289                                                                     Total     29,041,636       1,995,733       1,634,146       32,671,515       26,913,508       1,796,790       1,503,117       30,213,415   (*) In 2019 we improved the classification of our construction loans, reassigning loans for real state rental investment companies to services. F-166 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued i. Macro economical forward-looking information and scenarios The annual growth forecasts for the most relevant macroeconomic variables for each of our scenarios are as follows:     Average estimates 2020 - 2021       Unfavorable scenario 2     Unfavorable scenario 1     Base scenario     Favorable scenario 1     Favorable scenario 2   Official interest rate     0.25 %     0.50 %     1.59 %     3.20 %     4.42 % Unemployment rate     7.31 %     6.96 %     6.50 %     6.04 %     5.70 % Housing Price growth     (1.70 )%     1,04 %     4.67 %     8.30 %     11.04 % GDP growth     (1.16 )%     0.67 %     3.12 %     5.56 %     7.40 % Consumer Price Index     (0.26 )%     1.07 %     2.82 %     4.57 %     5.90 % The highest probability of occurrence is associated to the base scenario, while the extreme scenarios have a lower probability than the more moderate scenarios. The methodology used for the generation of the local scenarios is based on the Methodology Framework of the Corporate Research Service and is applied to the loan portfolio with the exception of loans from the Corporate and Investment Banking segment which uses global scenarios as defined by the Santander Group. The probabilities for the scenarios must total 100% and be symmetrical. Local scenario     Global scenario     Probability weighting           Probability weighting   Favorable scenario 2     10 %     Favorable scenario 1     30 % Favorable scenario 1     15 %     Base scenario     40 % Base scenario     50 %     Unfavorable scenario 1     30 % Unfavorable scenario 1     15 %               Unfavorable scenario 2     10 %               The ECL allowance sensibility to future macro-economic conditions is as follows:     December 31, 2019     December 21, 2018       MCh$     MCh$   Reported ECL allowance     896,095       882,414   Gross carrying amount     32,671,515       30,213,415                     Reported ECL Coverage     2.74 %     2.92 %                   ECL amount by scenarios                 Favorable scenarios 2     797,501       745,089   Favorable scenarios 1     835,956       815,113   Base scenarios     884,480       879,358   Unfavorable scenarios 2     929,802       949,329   Unfavorable scenarios 2     962,437       970,563                     Coverage ratio by scenarios                 Favorable scenarios 2     2.44 %     2.46 % Favorable scenarios 1     2.56 %     2.69 % Base scenarios     2.71 %     2.90 % Unfavorable scenarios 2     2.85 %     3.13 % Unfavorable scenarios 2     2.95 %     3.21 %   F-167 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 3738 RISK MANAGEMENT, continued j. Collateral and other credit enhancement The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral. The main types of collateral obtained are, as follows: ● For securities lending and reverse repurchase transactions, cash or securities ● For corporate and small business lending, charges over real estate properties, inventory and trade receivables and, in special circumstances, government guarantees ● For retail lending, mortgages over residential properties The following table show the maximum exposure to credit risk by class of financial asset, associated collateral and the net exposure to credit risk:     As of December 31,       2019     2018       Maximum exposure to credit risk     Collateral     Net exposure     Associated ECL     Maximum exposure to credit risk     Collateral     Net exposure     Associated ECL       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$     MCh$   Commercial loans     15,928,491       8,180,015       7,748,476       506,670       15,254,838       7,369,291       7,885,547       506,908   Mortgage loans     11,262,995       10,725,604       537,391       101,059       10,150,981       9,699,324       451,657       91,270   Consumer Loans     5,546,195       748,577       4,797,618       288,467       4,876,289       754,920       4,121,369       284,342   Total     32,737,681       19,654,196       13,083,485       896,196       30,282,108       17,823,535       12,458,537       882,520   (*) Includes Loans and account receivable at FVOCI According to the Bank’s policy when an asset (real state) is repossessed are transferred to assets held for sale at their fair value less cost to sell as non-financial assets at the repossession date. F-168 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued   Maximum exposure to credit risk   Financial assets and off-balance sheet commitments   For financial assets recognised in the Consolidated StatementStatements of Financial Position, maximum credit risk exposure equals their carrying value. Below is the distribution by financial asset and off-balance sheet commitments of the Bank’s maximum exposure to credit risk as of December 31, 20162019 and 2015,2018, without deduction of collateral, security interests or credit improvements received:     As of December 31,       As of December 31,     2016   2015       2019   2018     Amount of exposure   Amount of exposure       Amount of exposure   Amount of exposure   Note MCh$   MCh$   Note   MCh$   MCh$                     Deposits in banks 4 1,709,071   1,432,371   5   2,693,342   1,240,578   Cash items in process of collection 4 495,283   724,521   5   355,062   353,757   Trading investments 5 396,987   324,271 Investments under resale agreements 6 6,736   2,463 Financial derivative contracts 7 2,500,782   3,205,926   8   8,148,608   3,100,635   Loans and accounts receivable from customers and interbank loans, net 8 and 9 26,415,826   24,538,456 Available for sale investments 10 3,388,906   2,044,411 Financial assets held for trading   6   270,204   77,041   Loans and account receivable at amortised cost / Loans and account receivable at FVOCI   9 /10   31,841,485   29,399,589   Debt instrument at fair value through other comprehensive income   11   4,010,272   2,394,323                         Off-balance commitments:                       Letters of credit issued   158,800   178,461       140,572   223,420   Foreign letters of credit confirmed   57,686   70,417       70,192   57,038   Guarantees   1,752,610   1,673,580 Performance guarantees       1,929,894   1,954,205   Available credit lines   7,548,820   6,806,745       8,732,422   8,997,650   Personal guarantees   125,050   163,395       451,950   133,623   Other irrevocable credit commitments   260,266   82,161       485,991   327,297   Total   44,816,823   41,247,178       59,129,994   48,345,002     Foreign derivative contracts   As of December 31, 2016,2019, the Bank’s foreign exposure -including counterparty risk in the derivative instruments’ portfolio- was USD 3,1212,309 million or 5.86%3,65% of assets. In the table below, exposure to derivative instruments is calculated by using the equivalent credit risk; which equals the replacement carrying amount plus the maximum potential value, considering the cash collateral that minimizes exposure.   Below, there are additional details regarding our exposure to Colombia and Italy, since they arefor those countries classified above 1 and where the below represents our majority of exposure to categories other than 1. Below we detail as of December 31, 2016,2019, considering fair value of derivative instruments.   Country Classification Derivative Instruments (adjusted to market) USD MCh$ Deposits USD MCh$ Loans USD MCh$ Financial investments USD MCh$ Total Exposure  USD MCh$    Classification   Derivative Instruments (adjusted to market)   Deposits   Loans   Financial investments   Total  Exposure             US$ millions           China   2   0.00   0.00   7.23   0.00   7.23   Colombia 2 0.82 0.00 0.19 0.00 1.01   2   1.24   0.00   0.00   0.00   1.24   Italy 2 0.00 8.77 0.00 8.77   2   0.00   1.36   0.32   0.00   1.68   China 2 0.00 348.99 0.00 348.99 México 2 0.00 0.09 0.32 0.00 0.41 Panamá 2 0.69 0.00 0.69 Perú 2 2.82 0.00 2.82 Mexico   2   9.42   0.04   0.00   0.00   9.46   Panama   2   1.50   0.00   0.00   0.00   1.50   Peru   2   2.20   0.00   0.00   0.00   2.20   Uruguay 2 0.00 0.68 0.00 0.68   2   0.00   0.00   0.10   0.00   0.10   Other 3 1.32 0.00 1.32 Total   5.65 8.86 350.18 0.00 364.69       14.36   1.40   7.65   0.00   23.41   The total amount of this exposure to derivative instruments must be compensated daily with collateral and, therefore, the net credit exposure is USD 0.00.   F-144 F-169 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 3738  RISK MANAGEMENT, continued   Our exposure to Spain within the group is as follows:   Counterpart Country Classification Derivative instruments (market adjusted) MUSD  Deposits MUSD Loans MUSD Financial Investments MUSD Exposure Exposure MUSD Banco Santander España (*) Spain 1 0.00 280.92 - - 280.92 Counterpart Country Classification Derivative instruments (market adjusted) Deposits Loans Financial Investments   Exposure Exposure     US$ millions Banco Santander España (*) Spain 1 319.0 54.8 0.4 0.0 374.20 Santander UK UK 1 24.0 2.0 0.0 0.0 26.00 Banco Santander Mexico Mexico 2 9.4 0.0 0.0 0.0 9.4 Total     352.4 56.8 0.4 0.0 409.6 (*) The total amount of this exposure to derivative instruments must be compensated daily with collateral and, therefore, the net credit exposure is USD 0.   Security interests and credit improvements   The maximum exposure to credit risk is reduced in some cases by security interests, credit improvements, and other actions which mitigate the Bank’s exposure. Based on the foregoing, the creation of security interests are a necessary but not a sufficient condition for granting a loan; accordingly, the Bank’s acceptance of risks requires the verification of other variables and parameters, such as the ability to pay or generate funds in order to mitigate the risk being taken on.   The procedures used for the valuation of security interests utilize the prevailing market practices, which provide for the use of appraisals for mortgage securities, market prices for stock securities, fair value of the participating interest for investment funds, etc. All security interests received must be instrumented properly and registered on the relevant register, as well as have the approval of legal divisions of the Bank.   The risk management model includes assessing the existence of adequate and sufficient guarantees that allow recovering the credit when the debtor’s circumstances prevent them from fulfilling their obligations.   The Bank has classification tools that allow it to group the credit quality of transactions or customers. Additionally, the Bank has historical databases that keep this internally generated information to study how this probability varies. Classification tools vary according to the analyzed customer (commercial, consumer, SMEs, etc.).   Below is the detail of security interests, collateral, or credit improvements provided to the Bank as of December 31, 20162019 and 2015.2018,   As of December 31,   As of December 31,   2016   2015   2019   2018   MCh$   MCh$   MCh$   MCh$   Non-impaired financial assets:             Properties/mortgages 17,560,550   16,849,296   23,371,510   22,047,354   Investments and others 2,326,396   2,287,128   2,785,219   2,200,776   Impaired financial assets:                 Properties/ mortgages 186,297   265,052   101,456   119,181   Investments and others 2,064   4,268   525   865   Total 20,075,307   19,405,744   26,258,710   24,368,176     F-170 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued Credit risk mitigation techniques   The Bank applies various methods of reducing credit risk, depending on the type of customer and product. As we shall see, some of these methods are specific to a particular type of transaction (e.g.(i.e., real estate guarantees) while others apply to groups of transactions (e.g.(i.e., netting and collateral arrangements). F-145  Table of Contents NOTE 37 RISK MANAGEMENT, continued   Collateral   Banco Santander controls the credit risk through the use of collateral in its operations. Each business unit is responsible for credit risk management and formalizes the use of collateral in its lending policies.   Banco Santander uses guarantees in order to increase their resilience in the subject to credit risk operations.operation. The guarantees can be used fiduciary, real, legal structures with power mitigation and compensation agreements. The Bank periodically reviews its policy guarantees by technical parameters, normative and also its historical basis, to determine whether the guarantee is legally valid and enforceable.   Credit limits are continually monitored and changed in customer behavior function. Thus, the potential loss values represent a fraction of the amount available.   Collateral refers to the assets pledged by the customer or a third party to secure the performance of an obligation. Collateral may be:   ·● Financial: cash, security deposits, gold, etc. ·● Non-financial: property (both residential and commercial), other movable property, etc.   One very important example of financial collateral is the collateral agreement. Collateral agreements comprise a set of highly liquid instruments with a certain economic value that are deposited or transferred by a counterparty in favor of another party in order to guarantee or reduce any counterparty credit risk that might arise from the portfolios of derivative transactions between the parties in which there is exposure to risk.   Collateral agreements vary in nature but, whichever the specific form of collateralisation may be, the ultimate aim, as with the netting technique, is to reduce counterparty risk.   Transactions subject to a collateral agreement are assessed periodically (normally on a daily basis). The agreed-upon parameters defined in the agreement are applied to the net balance arising from these assessments, from which the collateral amount (normally cash or securities) payable to or receivable from the counterparty is obtained.   For real estate collateral periodic re-appraisal processes are in place, based on the actual market values for the different types of real estate, which meet all the requirements established by the regulator.   Specifically, mortgage loans are secured by a real property mortgage, and threshold mitigate counterparty credit risk of derivative instruments.instruments, (See note 9 c) ii) and iii), for a detail of the impaired portfolio and non-performing loans with or without guarantee). Net exposure to credit risk The following chart shows the net exposure to the credit risk as of December 31, 2016. As of December 31, 2016 Maximum exposure to credit risk MCh$ Loans covered by   Net exposure MCh$ Mortgage guarantee MCh$ Other MCh$           Commercial loans 13,867,465 2,032,600 5,000,875 6,833,990 Mortgage loans 8,619,356 8,063,225 - 556,131 Consumer loans 4,446,803 - - 4,446,803 Total 26,933,624 10,095,825 5,000,875 11,836,924   Personal guarantees and credit derivatives   Personal guarantees are guarantees that make a third party liable for another party’s obligations to the Bank. They include, for example, security deposits and standby letters of credit. Only guarantees provided by third parties that meet the minimum requirements established by the supervisor can be recognizedrecognised for capital calculation purposes. F-171 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued   Credit derivatives are financial instruments whose main purpose is to hedge credit risk by buying protection from a third party, whereby the Bank transfers the risk of the issuer of the underlying instrument. Credit derivatives are OTC instruments, i.e. they are not traded in organized markets.   Credit derivative hedges, mainly credit default swaps, are entered into with leading financial institutions. F-146  Table of Contents NOTE 37 RISK MANAGEMENT, continued Assets Received in Lieu of Payment   Assets received or awarded in lieu of payment of loans and accounts receivable from clients are recognizedrecognised at their fair value (as determined by an independent appraisal). The excess of the outstanding loan balance over the fair value is charged to net income for the period, under “Provision for loan losses”. Any excess of the fair value over the outstanding loan balance, less costs to sell of the collateral, is returned to the client. These assets are subsequently adjusted to their net realizable value less cost to sale (assuming a forced sale).   At December 31, 2016,2019, assets received or awarded in lieu of payment amounted to Ch$45,93538,890 million (gross amount: Ch$53,493 million ;40,932 million; allowance: Ch$7,5582,042 million).   At December 31, 2015,2018, assets received or awarded in lieu of payment amounted to Ch$24,95738,326 million (gross amount: Ch$30,830 million ;39,049 million; allowance: Ch$5,873723 million).   Liquidity risk   Liquidity risk is the risk that the Bank may have difficulty meeting the obligations associated with its financial obligations.   Liquidity risk management   The Bank is exposed on a daily basis to requirements for cash funds from various banking activities, such as wires from checking accounts, fixed-term deposit payments, guarantee payments, disbursements on derivatives transactions, etc. As typical in the banking industry, the Bank does not hold cash funds to cover the balance of all the positions, as experience shows that only a minimum level of these funds will be withdrawn, which can be accurately predicted with a high degree of certainty.   The Bank’s approach to liquidity management is to ensure-- whenever possible--to have enough liquidity on hand to fulfill its obligations at maturity, in both normal and stressed conditions, without entering into unacceptable debts or risking the Bank’s reputation. The Board establishes limits on the minimal part of available funds close to maturity to fulfill said payments as well as over a minimum level of interbank operations and other loan facilities that should be available to cover transfers at unexpected demand levels. This is constantly reviewed. Additionally, the Bank must comply with the regulation limits established by the SBIFFMC (former SBIF) for maturity mismatches.   These limits affect the mismatches of future flows of income and expenditures of the Bank on an individual basis. They are:   i. mismatches of up to 30 days for all currencies, up to the amount of basic capital;capital ii. mismatches of up to 30 days for foreign currencies, up to the amount of basic capital; andcapital iii. mismatches of up to 90 days for all currencies, twice the basic capital.capital   The Bank’s treasury department (“Treasury”)Financial Management Division receives information from all the business units abouton the liquidity profile of itstheir financial assets and liabilities, in addition to details fromas well as breakdowns of other futureprojected cash flows that arisestemming from future business transactions. Based on thisbusinesses. On the basis of that information, Treasury keepsthe Financial Management Division maintains a short-termportfolio of liquid short–term assets, portfolio,comprised mainly composed of liquid investments, interbank loans and advanced payments,advances to guarantee thatother banks, to make sure the Bank has enoughsufficient liquidity. LiquidityThe business units’ liquidity needs of business units are fulfilledmet through short-termshort–term transfers from Treasurythe Financial Management Division to cover any short-term variationshort–term fluctuations and long-termlong–term financing to address all the structural liquidity requirements. F-172 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued   The Bank monitors its liquidity position daily to establishevery day, determining the future flows of inflowits outlays and outflow. At each month's closing,revenues. In addition, stress tests are carried out inperformed at the close of each month, for which a variety of scenarios are used, fromencompassing both normal market conditions to those that contain significant fluctuations. Liquidityand conditions of market fluctuation are used. The liquidity policy and procedures are subjectedsubject to review and approval ofby the Bank’s Board. TherePeriodic reports are periodic reports which detailgenerated by the Bank’s,Market Risk Department, providing a breakdown of the liquidity position of the Bank and its subsidiaries’, liquidity position,subsidiaries, including any exceptions and the corrective measures adopted, correcting measures, which are also reviewed periodically byregularly submitted to the ALCO.ALCO for review.   The Bank relies on customer (retail)demand deposits from Retail, Middle-Market and institutional deposits,Corporates, obligations to banks, debt instruments, and time deposits as its main sources of funding. Although most obligations to banks, debt instruments and time deposits have maturities of more than onemature in over a year, customer (retail) and institutional deposits tend to have shorter maturities and a large proportion of them are payable within 90 days. The short-termshort–term nature of these deposits increases the Bank’s liquidity risk, and hence, the Bank actively manages this risk throughby continual supervision of the market trends and price management.   F-147  Table of Contents NOTE 37 RISK MANAGEMENT, continued Liquidity risk management seeks to ensure that, even under adverse conditions, we have access to the funds necessary to cover client needs, maturing liabilities and capital requirements. Liquidity risk arises in the general funding for our financing, trading and investment activities. It includes the risk of unexpected increases in the cost of funding the portfolio of assets at appropriate maturities and rates, the risk of being unable to liquidate a position in a timely manner at a reasonable price and the risk that we will be required to repay liabilities earlier than anticipated.   The following table sets forth the balance of our liquidity portfolio managed by our Financial Management Division in the manner in which it is presented to the Asset and Liability Committee (ALCO) and the Board. The ALCO has determined that our liquidity portfolio must be comprised of cash plus assets that can be readily convertible into cash either through the Chilean Central Bank window, overnight deposits or instruments or the local secondary market. The management of the Bank’s liquidity portfolio is performed by the Financial Management Division under rules determined by the ALCO.ALCO and based on classifications by the FMC and the Bank’s management.     As of December 31,   2016 2015   MCh$ MCh$ Financial investments for trading 396,987 324,271 Available for sale investments 3,388,906 2,044,411 Encumbered assets (net) (1)  (205,703)  (77,647) Net cash (2)  16,259  (315,415) Net Interbank deposits (3) 1,335,017 1,683,208 Total liquidity portfolio 4,931,466 3,658,828 (1) Assets encumbered through repurchase agreements are deducted from the liquidity portfolio. (2) Cash minus reserve requirements. As is presented in Note 4 the reserve requirements are established by the monthly average reserves that the Bank must maintain in accordance with regulation governing minimum reserves. (3) Includes overnight deposits in Central Bank, domestic banks and foreign banks. F-148  Table of Contents NOTE 37 RISK MANAGEMENT, continued     As of December 31,       2019     2018       MCh$     MCh$   Financial investments for trading     270,204       77,041   Available for sale investments     4,010,272       2,394,323   Encumbered assets (net) (1)     (380,055 )     (48,843 ) Net cash (2)     2,384,323       149,321   Net Interbank deposits (3)     (281,620 )     967,095   Total liquidity portfolio     6,013,124       3,538,937   (1) Assets encumbered through repurchase agreements are deduced from liquidity portfolio. (2) Cash minus reserve requirements. As is presented in Note 5 the reserve requirements are established by the monthly average reserves that the bank must maintain in accordance with regulation governing minimum reserves. (3) Includes overnight deposits in Central Bank, domestic banks and foreign banks.   Exposure to liquidity risk   A similar, yet not identical, measure is the calculation used to measure the Bank´s liquidity limit as established by the SBIF.FMC (former SBIF). The Bank determines a mismatch percentage for purposes of calculating such liquidity limit which is calculated by dividing its benefits (assets) by its obligations (liabilities) according to maturity based on estimated repricing. The mismatch amount permitted for the 30 day and under period is 1 timestime [regulatory] capital and for the 90 day and under period – 2 times [regulatory] capital.   F-173 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued The following table displays the actual derived percentages as calculated per above:   As of December 31, 2016   2015   As of December 31,   %   2019 %   2018 %   30 days (15.00)   38.00   63   (20 ) 30 days foreign currency 21.00)   -   -   -   90 days (37.00   44.00   79   (37 )   Below, is the breakdown by maturity, of the liability balances of the Bank as of December 31, 20162019 and 2015:2018:     Demand Up to 1 month Between 1 and 3 months Between 3 and 12 months Subtotal up to 1 year Between 1 and 3 years Between 3 and 5 years More than 5 years Subtotal after 1 year Total As of December 31, 2016 MM$ MM$ MM$ MM$ MM$ MM$ MM$ MM$ MM$ MM$ Obligations under repurchase agreements -  212,437  -  -  212,437  -  -  -  -  212,437 Checking accounts, time deposits and other time liabilities 7,949,315  6,105,767  4,193,906  2,537,299   20,786,287 118,101  13,913  61,196  193,210 20,979,497 Financial derivatives contracts -  92,335  122,565  263,893  478,793 494,539 346,948  971,881 1,813,368  2,292,161 Interbank borrowings  4,557  373,423  115,769  1,154,063  1,647,812  233,542  35,014 -  268,556  1,916,368 Issue debt instruments  -  43,141  185,425  922,705  1,151,271 1,168,117 1,444,593  3,562,391 6,175,101  7,326,372 Other financial liabilities  153,049  1,461  1,161 2,817  158,488  58,641  7,766  15,121  81,528 240,016 Subtotal 8,106,921 6,828,564 4,618,826 4,880,777 24,435,088 2,072,940 1,848,234 4,610,589 8,531,763 32,966,851 Contractual interest payments  2,273  56,121  170,861  537,941  767,196 1,762,884 - 987,370 2,750,254  3,517,450 Total 8,109,194 6,884,685 4,789,687 5,418,718 25,202,284 3,835,824 1,848,234 5,597,959  11,282,017 36,484,301 F-149  Table of Contents NOTE 37     Demand   Up to 1 month   Between 1 and 3 months   Between 3 and 12 months   Subtotal up to 1 year   Between 1 and 3 years   Between 3 and 5 years   More than 5 years   Subtotal after 1 year   Total As of December 31, 2019   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$   MCh$ Obligations under repurchase agreements     –         380,055       –         –         380,055       –         –         –         –         380,055   Checking accounts, time deposits and other time liabilities     10,439,705       5,184,567       4,905,414       2,417,703       22,947,389       357,856       163,121       21,883       542,860       23,490,249   Financial derivatives contracts     –         422,749       427,825       951,684       1,802,258       1,253,280       1,180,948       3,154,168       5,588,396       7,390,654   Interbank borrowings     94       363,560       624,167       1,141,824       2,129,645       387,936       2,237       –         390,173       2,519,818   Issue debt instruments     –         285,159       759,519       1,044,674       2,089,352       2,394,850       2,042,292       2,974,229       7,411,371       9,500,723   Lease liabilities     –         –         –         26,061       26,061       45,978       36,393       50,062       132,433       158,494   Other financial liabilities     161,021       5,155       30,969       28,888       226,033       83       99       143       325       226,358   Subtotal     10,600,820       6,641,245       6,747,894       5,610,834       29,600,793       4,439,983       3,425,090       6,200,485       14,065,558       43,666,351   Contractual interest payments     10,473       148,731       267,994       1,727,401       2,154,599       1,720,990       1,653,500       3,101,084       6,475,574       8,630,173   Total     10,611,293       6,789,976       7,015,888       7,338,235       31,755,392       6,160,973       5,078,590       9,301,569       20,541,132       52,296,524   RISK MANAGEMENT, continued    As of December 31, 2016,2019, the scheduled maturities of other commercial commitments, including accrued interest, were as follows:   Other Commercial Commitments      Up to 1 month     Between 1 and 3 months     Between 3 and 12 months     Between 1 and 5 years     More than 5 years     Total       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$   Performance guarantee     144,364       544,370       899,437       312,559       22,292       1,923,022   Confirmed foreign letters of credit     25,491       1,808       11,306       31,587       -       70,192   Letters of credit issued     30,555       348       33,439       70,924       -       135,266   Pledges and other commercial commitments     30,357       9,009       317,824       94,561       -       451,751   Total other commercial commitments     230,767       555,535       1,262,006       509,631       22,292       2,580,231   Other Commercial Commitments Up to 1 month Between 1 and 3 months Between 3 and 12 months Between 1 and 5 years More than 5 years Total (in millions of Ch$) Guarantees 79,457 175,437 739,170 592,017 151,435 1,737,516 Confirmed foreign letters of credit 12,247 8,125 8,505 28,809 - 57,686 Letters of credit issued 36,662 82,342 39,768 27 - 158,799 Pledges and other commercial commitments 9,916 11,591 39,811 63,731 - 125,049 Total other commercial commitments 138,282 277,495 827,254 684,584 151,435 2,079,050     Demand Up to 1 month Between 1 and 3 months Between 3 and 12 months Subtotal up to 1 year Between 1 and 3 years Between 3 and 5 years More than 5 years Subtotal after 1 year Total As of December 31, 2015 MM$ MM$ MM$ MM$ MM$ MM$ MM$ MM$ MM$ MM$ Obligations under repurchase agreements -  143,689 -  -  143,689 -   - - 143,689 Checking accounts, time deposits and other time liabilities  7,932,619 5,707,940  3,210,947  2,853,761  19,705,267  231,272  7,661 56,845  295,778 20,001,045 Financial derivatives contracts -  126,643  190,409  380,158  697,210 679,133 337,598  1,148,665 2,165,396  2,862,606 Interbank borrowings  27,323  7,946  148,509  684,819  868,597  388,626 50,351 -  438,977  1,307,574 Issue debt instruments  1,953  440,500  155,821  213,928  812,202 1,590,546 1,173,536  2,380,811 5,144,893  5,957,095 Other financial liabilities  129,358  3,142  558 3,114  136,172  23,737 44,290  16,328  84,355 220,527 Subtotal 8,091,253 6,429,860 3,706,244 4,135,780  22,363,137 2,913,314 1,613,436  3,602,649 8,129,399 30,492,536 Contractual interest payments  2,075  66,964  141,529  553,736  764,304 1,814,540 - 905,460 2,720,000  3,484,304 Total 8,093,328 6,496,824 3,847,773 4,689,516 23,127,441 4,727,854 1,613,436 4,508,109  10,849,399 33,976,840 F-174 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued       Demand     Up to 1 month     Between 1 and 3 months     Between 3 and 12 months     Subtotal up to 1 year     Between 1 and 3 years     Between 3 and 5 years     More than 5 years     Subtotal after 1 year     Total   As of December 31, 2018   MM$     MM$     MM$     MM$     MM$     MM$     MM$     MM$     MM$     MM$   Obligations under repurchase agreements     -       48,545       -       -       48,545       -       -       -       -       48,545   Checking accounts, time deposits and other time liabilities     9,027,434       5,248,418       4,108,556       3,326,199       21,710,607       191,547       6,137       63,988       261,672       21,972,279   Financial derivatives contracts     -       131,378       120,361       349,551       601,290       495,789       471,185       949,464       1,916,438       2,517,728   Interbank borrowings     39,378       16,310       404,575       1,188,692       1,648,955       139,671       -       -       139,671       1,788,626   Issue debt instruments     -       71,465       39,267       745,830       856,562       2,431,849       1,549,743       3,277,079       7,258,671       8,115,233   Other financial liabilities     179,681       934       2,412       22,844       205,871       9,261       92       176       9,529       215,400   Subtotal     9,246,493       5,517,050       4,675,171       5,633,116       25,071,830       3,268,117       2,027,157       4,290,707       9,585,981       34,657,811   Contractual interest payments     4,918       82,292       158,760       812,920       1,058,890       1,156,262       1,110,918       1,537,385       3,804,565       4,863,456   Total     9,251,411       5,599,342       4,833,931       6,446,036       26,130,720       4,424,379       3,138,075       5,828,092       13,390,546       39,521,266     As of December 31, 2015,2018, the scheduled maturities of other commercial commitments, including accrued interest, were as follows:   Other Commercial Commitments Up to 1 month Between 1 and 3 months Between 3 and 12 months Between 1 and 5 years More than 5 years Total (in millions of Ch$) Guarantees 89,430 142,285 714,747 709,844 28,541 1,684,847 Confirmed foreign letters of credit 16,522 12,504 6,535 34,872 - 70,433 Letters of credit issued 39,552 100,407 37,753 1,330 - 179,042 Pledges and other commercial commitments 11,935 11,179 58,629 82,212 - 163,955 Total other commercial commitments 157,439 266,375 817,664 828,258 28,541 2,098,277 F-150  Table of Contents NOTE 37 RISK MANAGEMENT, continued Other Commercial Commitments   Up to 1 month     Between 1 and 3 months     Between 3 and 12 months     Between 1 and 5 years     More than 5 years     Total       MCh$     MCh$     MCh$     MCh$     MCh$     MCh$   Performance guarantee     663,642       188,147       905,554       163,506       33,356       1,954,205   Confirmed foreign letters of credit     3,842       9,128       33,177       10,891       -       57,038   Letters of credit issued     12,469       110,970       54,015       45,937       29       223,420   Pledges and other commercial commitments     22,128       63,230       41,637       6,628       -       133,623   Total other commercial commitments     702,081       371,475       1,034,383       226,962       33,385       2,368,286     Market risk   Market risk arises as a consequence of the market activity, by means of financial instruments whose value can be affected by market variations, reflected in different assets and financial risk factors. The risk can be diminished by means of hedging through other products (assets/liabilities or derivative instruments) or terminating the open transaction/position. The objective of market risk management is to manage and control market risk exposure within acceptable parameters.   There are four major risk factors that affect the market prices: type of interest, type of exchange, price, and inflation. In addition and for certain positions, it is necessary to consider other risks as well, such as spread risk, base risk, commodity risk, volatility or correlation risk.   Market risk management   The Bank’s internal management measure market risk based mainly on the procedures and standards of Banco Santander Spain, which are in turn based on an analysis of three principal components:   - trading portfolio;portfolio - domesticlocal financial management portfolio;portfolio - foreign financial management portfolio.portfolio F-175 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued   The trading portfolio is comprised mainly of investments, valued at fair value, and free of any restriction on their immediate sale, which are often bought and sold by the Bank with the intent of selling them in the short term in order to benefit from short-term price fluctuations. The financial management portfolios include all the financial investments not considered a part of trading portfolio.   The ALCO has the general responsibility for the market risk. The Bank’s risk/finance department is responsible for formulating detailed management policies and applying them to the Bank’s operations, in conformity with the guidelines adopted by the ALCO and the Global Risk Department of Banco Santander Spain.   The department’s functions in connection with trading portfolio include the following:   i. apply the “Value at Risk” (VaR) techniques to measure interest rate risk;risk, ii. adjust the trading portfolios to market and measure the daily income and loss from commercial activities;activities, iii. compare the real VaR with the established limits;limits, iv. establish procedures to prevent losses in excess of predetermined limits;limits, and v. furnish information on the trading activities to the ALCO, other members of the Bank’s management, and the Global Risk Department of Banco Santander Spain. F-151  Table of Contents NOTE 37 RISK MANAGEMENT, continued   The department’s functions in connection with financial management portfolios include the following:   i. perform sensitivity simulations (as explained below) to measure interest rate risk for activities denominated in local currency and the potential losses forecasted by these simulations; andsimulations. ii. provide daily reports thereon to the ALCO, other members of the Bank’s management, and the Global Risk Department of Banco Santander Spain.   Market risk -– management of trading portfolio   The Bank applies VaR methodsmethodologies to measure the market risk of its trading portfolio. The Bank has a consolidated commercial position that is made upcomprised of fixed fixed–income investments and foreign exchange trading, and a minimum position of investments in equity shares.currency trading. This portfolio is comprised mostly made of Chilean Central Bank of Chile bonds, mortgage bonds, andlocally issued, low–risk corporate bonds issued locally at low risk.and foreign currencies, mainly U.S. dollars. At the closing date,end of each year, the trading portfolio did not show investments in another portfolio.included no stock portfolio investments.   For the Bank, the VaR estimate is done throughmade under the historical simulation methodmethodology, which consists of observing the behavior of profitthe profits and losslosses that mightwould have taken place withoccurred in the current portfolio if the market conditions atfor a given timehistorical period had been present and, basedin force, in order to infer the maximum loss on the basis of that information, infer maximum losses with a determined confidence level. This methodgiven degree of confidence. The methodology has the advantage of precisely reflecting precisely the historical distribution of the market valuesvariables and not requiring any assumptions regarding the distribution assumption for aof specific probability.probabilities. All the VaR measures are designedintended to establishdetermine the distribution function for a change in the value change inof a given portfolio, and once thisthat distribution is known, to calculate the percentile related to the necessary degree of confidence, level, which will matchbe equal to the value at risk value in relation toby virtue of those parameters. As calculated by the Bank, the VaR is an estimate of the maximum expected loss of market value offor a given portfolio in one over a 1–day horizon, with a 99.00% confidence.confidence level. It is the maximum 1–day loss in one daythat the Bank could expect to experience in a given portfolio, with a 99.00% confidence level of 99.00%.level. In other words, it is the loss that the Bank would haveexpect to dealexperience only 1.0% of the time. The VaR provides a single estimationestimate of the market risk that cannot be compared with otherwhich is not comparable from one market risks.risk to another. Returns are calculated usingthrough the use of a 2–year time window of 2 years or at least 520 data points gatheredobtained since the last reference date for calculation of the VaR going backward in the past to calculate VaR.time.   The Bank doesWe do not calculate three separate VaRs. Only oneWe calculate a single VaR is calculated for the entire trading portfolio, which in addition is separated intosegregated by risk types.type. The VaR program carries outsoftware performs a historical simulation and calculates a profit (ganancia or “G”)Profit and loss (pérdida or “P”) G&PLoss Statement (P&L) for 520 data points (days) for each risk factor (fixed income, foreign currency and variable income). Eachincome.) The P&L of each risk factor’s G&Pfactor is added together and a consolidated VaR is calculated with 520 data points or days. In addition,days of data. At the same time a VaR is calculated for each risk factor based on the individual G&PP&L calculated for each. Additionally,each individual risk factor. Furthermore, a weighted VaR is calculated followingin the manner described above, mentioned method but givingwhich gives a larger weightgreater weighting to the 30 most recent data points. The highest VaRlarger of the two VaRs is the one that is reported. In 20152019, 2018 and 2014,2017, we were still usingused the same VaR model and thethere has been no change in methodology has not changed.or assumptions for subsequent periods.   The Bank uses the VaR estimates to issueprovide a warning in casewhen the statistically estimated incurred losses for thein its trading portfolio would exceed the cautionary levels.prudent levels, and hence, there are certain predetermined limits. F-176 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued   Limitations of the VaR model   When applying a calculation methodology, no assumptions are made regarding the probability distribution of the changes in the risk factors; the historically observed changes are used for the risk factors on which each position in the portfolio will be valued.   It is necessary to define a valuation function fj(xi) for each instrument, j, preferably the same one used to calculate the market value and income of the daily position.position, This valuation function will be applied in each scenario to generate simulated prices for all the instruments in each scenario.   In addition, the VaR methodology should be interpreted taking into consideration the following limitations:   - Changes in market rates and prices may not be independent and identically distributed random variables and may not have a normal distribution. In particular, the assumption of normal distribution may underestimate the probability of extreme market movements;   - The historical data used by the Bank may not provide the best estimate of the joint distribution of changes in the risk factors in the future, and any modification of the data may be inadequate. In particular, the use of historical data may fail to capture the risk of potential extreme and adverse market fluctuations, regardless of the time period used;   F-152  Table of Contents NOTE 37 RISK MANAGEMENT, continued - A 1-day time horizon may not fully capture the market risk positions which cannot be liquidated or covered in a single day.day, It would not be possible to liquidate or cover all the positions in a single day;   - The VaR is calculated at the close of business, but trading positions may change substantially in the course of the trading day;   - The use of a 99% level of confidence does not take account of, or make any statement about, the losses that could occur outside of that degree of confidence; and   - A model such as the VaR does not capture all the complex effects of the risk factors over the value of the positions or portfolios, and accordingly, it could underestimate potential losses.losses,   At no time in 2016 and 2015 did the Bank exceed the VaR limits in connection with the three components which comprise the trading portfolio: fixed-income investments, variable-income investments and foreign currency investments. The Bank carries outback-testings on aWe perform back-testing daily basis and generally discoversfind that trading losses exceed the estimatedour VaR estimate approximately one out of hundred businessevery 100 trading days. At the same time, we set a limit to the maximum VaR that we are willing to accept over our trading portfolio. Also, a maximum VaR limit was established that can be applied over the trading portfolio. BothDuring the first nine months of the year, the VaR remained at low levels. However as of October 2019 there was more market volatility as a consequence of the social crisis the country faced and there were temporary VaR excesses given the increase in 2016market volatility. F-177 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued The strategy to correct it was to decrease the foreign exchange and 2015,interest rate positions, which, in addition with a decrease in market volatility, caused the Bank has kept withinVaR for December 31, 2019 to be USD 4.7 million, below the maximum limit it established for the VaR; even when the real VaR exceeded estimations.total limit.   High, low and average levels for each component and year were as follows:   VaR 2016  USDMM   2015 USDMM   2019 USDMM     2018 USDMM   Consolidated:             High 3.95   3.61   15.78   5.23   Low 1.08   0.62   1.33   1.21   Average 2.25   1.38   3.06   2.01         Fixed-income investments:                 High 2.71   3.13   9.77   2.54   Low 0.55   0.61   1.18   1.19   Average 1.33   1.23   2.33   1.71         Variable-income investments                 High 0.03   0.19   -   0.01   Low 0.00   0.00   0.01   -   Average 0.00   0.00   -   -         Foreign currency investments                 High 3.83   3.43   6.05   4.29   Low 0.61   0.04   0.10   0.09   Average 1.91   0.64   1.60   1.14     Market risk - local and foreign financial management   The Bank’s financial management portfolio includes most of the Bank’s non-trading assets and liabilities, including the credit/loan portfolio. For these portfolios, investment and financing decisions are strongly influenced by the Bank’s commercial strategies.   The Bank uses a sensitivity analysis to measure market risk for domestic and foreign currencies (not included in the trading portfolio). The Bank carries out a simulation of scenarios that will be calculated as the difference between current flows in the chosen scenario (curve with a parallel movement of 100 basis points (“bp”) in all its sections) and its value in the base scenario (current market). All positions in domestic currency indexed to inflation (UF) are adjusted by a sensitivity factor of 0.570,57 which represents a change in the curve of 57bp57 bp in all real rates and 100 bp in nominal rates. The same scenario is carried out for net positions in foreign currency and interest rates in USD.USD, In addition, the Bank has established limits regarding maximum loss this kind of movement in interest rates can have over capital and net financial income budgeted for the year. F-153  Table of Contents NOTE 37 RISK MANAGEMENT, continued   To establish the consolidated limit, we add the foreign currency limit to the domestic currency limit and multiple by 2 the sum of the multiplication of them together both for net financial loss limit as well as for the capital and reserves loss limit, using the following formula:   Consolidated Consolidated limit = square root of a2 + b2 + 2ab a: domestic currency limit  b: foreign currency limit Since we assume the correlation is 0; 2ab = 0, 2ab = 0 F-178 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 a: domestic currency limit RISK MANAGEMENT, continued b: foreign currency limit Since  we assume the correlation is 0; 2ab = 0. 2ab = 0.   Limitations of the sensitivity models   The most important assumption is using an exchange rate of 100 bp based on yield curve (57 bp for real rates). The Bank uses a 100 bp exchange since sudden changes of this magnitude are considered realistic. Santander Spain Global Risk Department has also established comparable limits by country, so as to compare, control and consolidate market risk by country in a realistic and orderly fashion.   In addition, the sensitivity simulation methodology should be interpreted taking into consideration the following limitations:   - The simulation of scenarios assumes that the volumes remain consistent in the Bank’s Consolidated Statements of Financial Position and are always renewed at maturity, thereby omitting the fact that certain credit risk and prepayment considerations may affect the maturity of certain positions.   - This model assumes an identical change along the entire length of the yield curve and does not take into account the different movements for different maturities.   - The model does not take into account the volume sensitivity which results from interest rate changes.   - The limits to losses of budgeted financial income are calculated based on the financial income foreseen for the year, which may not be actually earned, meaning that the real percentage of financial income at risk may be higher than the expected one.   Market risk – Financial management portfolio – December 31, 20162019 and 20152018   2016   2015   2019     2018   Effect on financial income Effect on capital   Effect on financial income Effect on capital   Effect on financial income   Effect on capital   Effect on financial income   Effect on capital                           Financial management portfolio – local currency (MCh$)                     Loss limit 48,000 175,000   32,500 150,000   100,000   275,000   48,000   192,001   High 30,853 146,208   29,721 103,091   32,719   273,473   43,742   189,725   Low 21,978 108,249   13,882 72,104   12,686   145,338   27,854   170,450   Average 26,119 120,159   22,695 88,394   24,719   228,772   37,569   180,972   Financial management portfolio – foreign currency (Th$US)                     Loss limit 30 75   30 70   30   75   30   75   High 14 35   9 15   20   35   12   38   Low 6 13   - 5   5   1   4   (10 ) Average 10 26   2 12   12   12   9   22   Financial management portfolio – consolidated (in MCh$)                     Loss limit 48,000 175,000   34,500 150,000   100,000   275,000   48,000   192,002   High 31,764 145,566   29,232 102,002   34,462   271,989   45,492   192,848   Low 23,088 107,959   14,129 70,741   15,236   143,836   29,167   168,766   Average 27,390 119,632   22,390 87,095   27,918   227,303   38,908   182,557     F-154 F-179 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 37 38 RISK MANAGEMENT, continued   Capital risk   The Group defines capital risk as the risk that the Group or any of its companies may have an insufficient amount and/or quality of capital to: meet the minimum regulatory requirements in order to operate as a bank; respond to market expectations regarding its creditworthiness; and support its business growth and any strategic possibilities that might arise, in accordance with its strategic plan.   The objectives in this connection include most notably:   To meet the internal capital and capital adequacy targets ● To meet the internal capital and capital adequacy targets To meet the regulatory requirements ● To meet the regulatory requirements To align the Bank’s strategic plan with the capital expectations of external agents (rating agencies, shareholders and investors, customers, supervisors, etc.) ● To align the Bank’s strategic plan with the capital expectations of external agents (rating agencies, shareholders and investors, customers, supervisors, etc.) To support the growth of the businesses and any strategic opportunities that may arise ● To support the growth of the businesses and any strategic opportunities that may arise   The Group has a capital adequacy position that surpasses the levels required by regulations.   Capital management seeks to optimize value creation at the Bank an at its different business segment. The Bank continuously evaluates it risk-return ratios through its basic capital, effective net equity, economic capital and return on equity. With regard to capital adequacy, the Banks conducts its internal process based on the SBIFCMF standards (former SBIF) which are based on Basel Capital Accord (Basel I)., Economic capital is the capital required to support all the risk of the business activity with a given solvency level.   Capital is managed according to the risk environment, the economic performance of Chile and the business cycle.cycle, Board may modify our current equity policies to address changes in the mentioned risk environment.environment,   Minimum Capital   Under the General Banking Law, a bank is required to have a minimum of UF800,000 (approximately Ch$21,07822,648 million or U.S.$31.6USD$30,3 million as of December 31, 2016)2019) of paid-in capital and reserves, calculated in accordance with Chilean GAAP.   Capital adequacy requirement   Chilean banks are required by the General Banking Law to maintain regulatory capital of at least 8% of risk-weighted assets, net of required loan loss allowance and deductions, and paid-in capital and reserves (“basic capital”) of at least 3% of total assets, net of required loan loss allowances. Regulatory capital and basic capital are calculated based on the consolidated financial statements prepared in accordance with the Compendium of Accounting Standards issued by the SBIFCMF (former SBIF) the Chilean regulatory agency. As we are the result of the merger between two predecessors with a relevant market share in the Chilean market, we are currently required to maintain a minimum regulatory capital to risk-weighted assets ratio of 11%. As of December 31, 2016,2019, the ratio of our regulatory capital to risk-weighted assets, net of loan loss allowance and deductions, was 13.4%12,86% and our core capital ratio was 10.5%6,96%. F-180 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 38 RISK MANAGEMENT, continued   Regulatory capital is defined as the aggregate of:   ·● a bank’s paid-in capital and reserves, excluding capital attributable to subsidiaries and foreign branches or capital básico;basic capital; ·● its subordinated bonds, valued at their placement price (but decreasing by 20.0%20,0% for each year during the period commencing six years prior to maturity), for an amount up to 50.0%50,0% of its basic capital; and ·● its voluntary allowances for loan losses for an amount of up to 1.25%1,25% of risk weighted-assets.weighted-assets, F-155  Table of Contents NOTE 37 RISK MANAGEMENT, continued   The levels of basic capital and effective net equity at the close of each period are as follows:       Ratio       Ratio   As of December 31,   As of December 31,   As of December 31,   As of December 31,   2016   2015   2016   2015   2019   2018   2019   2018   MCh$   MCh$   %   %   MCh$   MCh$   %   %   Basic capital 2,868,706   2,734,699   7.22   7.31   3,390,823   3,239,546   6.96   7.72   Regulatory capital 3,657,707   3,538,216   13.43   13.37   4,304,401   4,101,664   12.86   13.40     Risk Concentration   The Bank operates mainly in Chile, thus most of its financial instruments are concentrated in that country. See Note 9 of the financial statements for a detail of the38, credit risk to see concentration of the Bank’s loans and accounts receivable by industry.industry above.   F-156 F-181 Table of Contents  Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 39 NON CURRENT ASSETS HELD FOR SALE   Banco Santander has decided to implement its own acquisition network, therefore the Bank is in process to dispose-of the investment in the companies who provide such services. Accordingly, the Bank management is engaged in search plan for a buyer. As required by IFRS 5, the Bank has reclassified to assets held for sale under the heading Other assets in the Consolidated Statement of Financial Position as of December 31, 2019 and in the same way it has presented in the income statements the effects associated with those investments as discontinued operations for all years presented. The following investments in associates were classified to Other assets as assets held for sale:           2019     2018     2017   As of December 31,   Participation     Assets     Income     Income     Income       %     MCh$     MCh$     MCh$     MCh$   Transbank     25.00       19,093       1,442       3,118       2,024   Nexus (*)     1.94       357       136       368       442   Redbanc     33.43       2,944       121       285       353   Total             22,394       1,699       3,771       2,819   (*) Remaining participation pending to sell at the end of the current year. See Note 40. F-182 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 3840 SUBSEQUENT EVENTS   Bond issuance and repurchase On January 7, 2020 Banco Santander Chile placed a bond with a 5 year term for an amounted of U.S.$750 million under the Rule 144-A of Securities Exchange Commission of United States. On January 21, 2020, the Bank placed a Subordinated bond for an amount of U.S.$200 million. On February 4, 2017,2020, the Bank placed a Senior Bond placement corresponding to its "T-9" linebond for an amount of 5,000,000 UF.UF2,000,000.   On January 5, 2017,The Bank has performed the Bank made an assignment of credits punished to Private Investment Funds Portfolio Thirteen. The total number of loans granted amounted to 244 credits, representing eighty-two clients, totaling $3,886,015,860 pesos, as the sum of the unpaid balance of the capital of each loan. The price of the assignment was $777,203,172 pesos, which generated an effect in result for this same amount.following bond repurchases during 2020:   Date   UF       Date   Ch$     01-02-2020     375.000       01-13-2020     50.000.000     01-14-2020     131.000       01-14-2020     9.820.000.000     01-21-2020     171.000       01-15-2020     400.000.000     01-21-2020     181.000       01-21-2020     330.000.000     01-24-2020     2.000       01-22-2020     11.430.000.000     02-17-2020     15,000                   02-17-2020     2,000                   02-18-2020     50,000                   02-18-2020     4,000                   02-20-2020     350,000                   02-20-2020     115,000                   02-21-2020     57,000                   02-21-2020     24,000                   02-24-2020     10,000                   02-24-2020     250,000                   At the Extraordinary Shareholders' Meeting held on January 9, 2017, the following matters were approved Investment in relation to the modification of corporate name, reduction of directors, updating of established capital stock, deletion of transitional clauses, adoption of agreements modification Statutes,associated and empowerment:affiliates   i.a. Modify the name or corporate name of the Bank, only in the sense of eliminating the possibility of using the names Banco Santander Santiago or Santander Santiago; ii. Decrease the number of directors from 11 to 9 members, with the two alternate directors remaining; And consequently modify other related statutory clauses; And incorporate into the Bylaws a Transitory Provision, without being an integral part thereof, in the sense that the current directors-in-office continue in their positions up to the date of the next Ordinary Shareholders' Meeting; iii. Update the capital stock to the amount of $891,302,881,691, which includes amount of $215,394,964,605, corresponding to the revaluation of the bank's capital stock, accumulated from January 1, 2002 to December 31 of the year 2008, the latter date from which the Generally Accepted Accounting Principles, which were replaced by the new Compendium of Accounting Standards established by the Superintendency of Banks and Financial Institutions in 2009, ceased to apply to the accounting of the bank, whose principles and standards, as of that year, do not establish adjustments due to inflation; and to agree on the elimination of the Second Transitory Article of the Bylaws, which relates to the composition of capital stock, which has produced all its effects and is not necessary to be maintained in the bylaws. The number of shares in which the capital stock is divided does not suffer alteration. iv. Suppress the First Transitory Clause of the Bylaws, which relates to the effects of the merger by absorption of the former Banco Santander with Banco Santiago, now Banco Santander - Chile; v. Modify other aspects of the By-Laws in order to bring them into line with current legal regulations, including the deletion of "General" or "General" Articles in various Articles, as they are now simply Ordinary or Extraordinary Shareholder Meetings; Modify the statutory provision on loss, theft, theft or destruction of stock certificates; To amend Article Twenty-Four concerning the operation of the Board of Directors and to amend the final paragraph of Article Forty-sixth, concerning the quorum to adopt agreements for the non-distribution of dividends at shareholders' meetings, adapting it to article 79 of Law No. 18.0456, which Is fully applicable to banks. vi. Considering the amendments to the previous paragraphs, an updated consolidated text of the Bank's Articles of Association was approved. vii. Provision of powers that are necessary to comply and carry out the agreements that were adopted at that meeting.Nexus   On January 13, 2017,22, 2020 Banco Itau-Corpbanca purchased the remaining shares held by Banco Santander in Nexus (79,577 shares), whit this, the sale process of Nexus has conclude. The investment in this company was classified as assets held for sale in June 2019. b. Santander Consumer S.A. (“Consumer”) On January 7, 2020 at the Extraordinary Shareholders Meeting, the members agreed to modify the business structure of Santander Consumer Chile to a limited liability company (responsabilidad limitada), which will operate under the corporate name Santander Consumer Finance Limitada. c. Santander S.A. Sociedad Securitizadora On January, 16, 2020, the company sent a “Material Fact” (Hecho Esencial) notifying that at the Extraordinary Shareholder Meeting held on January 15, 2020, the members agreed to modify the capital increase agreement dated on November 27, 2018, without changing the number of shares (280 ordinary registered shares, with a singles series and without nominal value). F-183 Table of Contents Banco Santander-Chile and Subsidiaries Notes to the Consolidated Financial Statements AS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 NOTE 40 SUBSEQUENT EVENTS, continued New regulations On January 27, 2020, Financial Market Commission (FMC) issued two papers draft for comments related to credit-risk weighted assets and capital buffer requirements for the framework of modernization of the Chilean Banking Law (LGB), in accordance with new Basel III requirements. On February 24, 2020 was published in the “Diario official” Law 21,210 which will be effective from the first quarter of 2020. The modification includes changes to income tax law, VAT tax and Tax Code. The Bank placed a Senior Bond placement correspondingis reviewing any potential impact on the implementation of the new tax regulations. No other subsequent events to its "T-13" line for an amountbe disclose have occurred between January 1, 2020 and the authorization date of 5,000,000 UF.these financial statement (March 6, 2020). JONATHAN COVARRUBIAS HERNANDEZ Chief Accounting Officer MIGUEL MATA HUERTA Chief Executive Officer   The Consolidated Financial StatementsF-184 Table of Banco Santander Chile as of and for the period ended December 31, 2016, were approved by the Directors and Audit Committee on March 16, 2017.Contents   Between January 1, 2017 and the date on which these Consolidated Financial Statements were issued (March 24, 2017), no other events have occurred which could significantly affect their interpretation.     FELIPE CONTRERAS FAJARDOBanco Santander-Chile and Subsidiaries Chief Accounting OfficerNotes to the Consolidated Financial Statements CLAUDIO MELANDRI HINOJOSAAS OF DECEMBER 31, 2019 AND 2018 AND FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 Chief Executive Officer   F-157  Table of Contents