Contribute to the Progress of People and Businesses

Annual Report 2017

FINANCIAL / SUSTAINABILITY

#contribute to the progress of people and businesses

Annual Report 2017

FINANCIAL / SUSTAINABILITY Annual Report 2017

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04 Santander Chile today 26 Corporate governance 58 Risk management 06 Awards 2017 36 Business environment 66 Compliance 10 Letter from the 42 Strategic plan and value 72 Financial results Chairman of the Board creation 14 Letter from the CEO and 44 Business model Country Head 47 Business areas 20 Board of Directors 50 Technology and innovation 24 Administration 52 Sustainability at Santander Chile

This annual report is also available online at www.santander.cl 4 5 6

92 Our team 134 Banco Santander 140 Glossary 102 Client at the center around the world 142 General information 114 Value creation for 136 Value creation at 148 About this annual report Santander Group shareholders 149 GRI indicators 138 Santander Group’s 120 Sustainable 156 Financial statements vision management of the supply chain 122 Our commitment to society 131 Environmental management Santander Chile Today

11% 19.2% 11,068 core capital ratio ROE employees

58,198 3.5 926 million US$ million in ATMs assets clients

Banco Santander has Environmental sustainability 4 maintained a leading 2015 2016 2017 position adjusting its Paper consumption (tons.) 2,191 2,124 1,662 strategy to a changing Energy consumption (KwH) 33,404,726 30,865,037 29,604,845 and demanding Water consumption (m3) 210,439 154,068 107,074 environment. Total CO2 emissions 18.477 19.044 18.557 The commercial Land travel (mills. kms.) 3.3 2.5 2.5 transformation started Air travel (mills. kms.) 9,2 13,2 14,9 Electronic waste recycling 22,4 47,8 132 by the institution has (tons.) allowed it to achieve positive results and outstanding advances Social sustainability on the client side. Each 2015 2016 2017 one of the initiatives Nº grants 451 461 496 and efforts undertaken Santander Universities Nº collaboration 52 52 52 are coherent with agreements Employments for Universia 59,666 49,142 42,195 the Bank’s mission university students

to contribute to the Sanodelucas Visits to web portal 785,836 962,234 994,668

progress of people and Nº corporate Community 1,051 225 492 businesses. volunteers

Balance sheet and results (MM$) 2017 2016 Change 17/16 Balance sheet Commercial loans 13,908,642 13,867,465 0.3% Residential mortgage loans 9,096,895 8,619,356 5.5% Consumer loans 4,557,692 4,446,803 2.5% Loans and accounts receivable from customers 27,563,229 26,933,624 2.3% Provisions (815,687) (820,139) (0.5%) Total loans, net1 26,747,542 26,113,485 2.4% Financial investments2 3,785,893 3,785,893 0.0% Total assets 35,804,279 37,006,645 (3.2%) Total deposits 19,682,111 20,691,024 (4.9%) Issued debt instruments 7,093,653 7,326,372 (3.2%) Equity 3,108,063 2,898,047 7.2% Results Net interest income 1,326,691 1,281,366 3.5% Net fee and commission income 279,063 254,424 9.7% Total financial transactions, net 129,752 140,358 (7.6%) Net operating profit before provisions for loan losses 1,822,669 1,694,447 7.6% Provisions for loan losses (299,205) (343,286) (12.8%) Total operating expenses (806,551) (772,337) 4.4% Operating income 716,913 578,824 23.9% Net income 577,263 474,716 21.6% Net income attributable to equity holders 564,815 472,351 19.6%

Profitability and efficiency 5 Net interest margin 4.42% 4.45% -3 pb Return over average equity 19.2% 17.0% + 228 pb Return over average assets 1.58% 1.33% + 25 pb Efficiency (cost / income) 41.0% 42.7% - 173 pb Recurrence (commissions / costs) 39.6% 37.0% + 255 pb Portfolio quality Annual Report 2017 Report Annual Cost of credit (provision expense / total loans) 1.08% 1.26% - 18 pb Non-performing loans / total loans 2.28% 2.07% + 21 pb Provisions / total loans (expected loss) 2.94% 3.02% - 7 pb Provisions / non-performing loans (coverage) 128.8% 145.4% - 1,663 pb Capitalization and balance sheet structure Effective equity / risk weighted assets 13.9% 13.4% + 48 pb Basic capital / risk weighted assets 11.0% 10.5% + 45 pb Basic capital / total assets 7.9% 7.2% + 70 pb Loans / deposits3 100.7% 92.1% + 857 pb Loans / total assets 74.7% 70.6% + 414 pb

Structure Branches 385 434 (11.3%) Automatic teller machines (ATMs) 926 1.295 (28.5%) Employees 11,068 11,354 (2.5%) Customers4 3,512,502 3,516,113 (0.1%)

1. Does not include interbank loans. Gross of provisions./ 2. Includes trading and available for sale investments./ 3. Adjusted by the portion of mortgage loans financed with issued debt instruments./ 4. Latest available information. Awards 2017

Different organizations and 1 specialized media, in Chile and abroad, distinguished Banco Santander acknowledging a management of excellency in several areas.

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BEST BANK IN THE WORLD, NUMBER 1 IN CHILE, BY ACCORDING TO THE BANKER EUROMONEY 6 Prestigious British magazine The Banco Santander was awarded 3 Banker –leader in banking and as Best Bank in Chile by reputed international finance information– English magazine Euromoney. It’s chose Banco Santander not only the fifth time over the last ten years 4 as Global Bank of the Year, but in which the Bank is awarded as EXCELLENNCY IN DIVERSITY also as Best Bank in Chile, Latin the most distinguished in the local MANAGEMENT America, Spain, Brazil, and Portugal. banking industry. Santander Group Advances in commercial banking, also obtained the award as Best Universidad de La Frontera together benefits for customers and the Bank in Latin America in Wealth with El Mercurio newspaper innovative use of technology, Management and Best Bank in the presented Santander Chile with the especially in relation with the offer World for SMEs. Excelencia Sin Frontera award, in of products more attuned with attention to diversity management. client's needs, were determinant for This for the launching of programs the award in our country, as well as 3 oriented towards talented youth and for the other distinctions. international mobility initiatives for BEST BANK IN CHILE BY our employees. LATINFINANCE

LatinFinance magazine named 5 Santander Chile as Bank of the Year in the country. The publication BANCO SANTANDER IN THE DOW highlighted the efforts on the JONES SUSTAINABILITY INDEX corporate segment, which allowed 2017 the Bank to participate in the For the third consecutive year largest infrastructure deals, and Santander was included among especially the advances in retail the 27 companies that integrate banking with the deployment of the Dow Jones Sustainability index the Work Café branches and digital Chile (DJSI Chile). The Bank’s developments such as the digital permanent commitment with 2 Onboarding. sustainability through the respect Transparente, Universidaddel prepared byKPMG,Chile companies inChile.Theranking among themosttransparent Banco Santanderwaschosen For thefifthconsecutiveyear, 7 in the2017index. being oneofthesevenlistedbanks definitive list,SantanderChile DJSI MILA,only42enteredthe 150 companiesinvitedtothe Mexican companies.Fromthe Colombian, Peruvianand social performanceofChilean, economic, environmentaland Pacific Alliancethatmeasures Markets), firstindexofthe (Integrated LatinAmerican Jones SustainabilityIndexMILA Chile alsointegratedtheDow RobecoSAM, BancoSantander sustainability score(TSS)from Thanks tothehightotal 6 society, validatedthisdistinction. employees, shareholders,andthe of stablerelationswithcustomers, for theenvironmentandpromotion MILA 2017 MILA JONES SUSTAINABILITY INDEX SANTANDER CHILE IN THE DOW RECOGNITION TRANSPARENCY PROhumana 2017,whichrecognizes Business SustainabilityRanking only banktoqualifyinthe Banco Santanderwasthe 9 of 50companies. place onthegeneralrakinginatotal employees, andfrom18thto12th companies withover5,000 fourth tosecondplaceamong Banco Santandermovedfrom 8 transparency standard. that reachedtheglobalcorporate third placeamong43institutions Negocios placedtheBankon Desarrollo andInteligenciade SUSTAINABILITY TOP TEN IN BUSINESS GREAT PLACE TO WORK 6 10 Seal. being distinguishedwiththeBronze Santander obtainedninthplace social andenvironmentalbehavior. their commitmentandeconomic, institutions thatstandoutfor 11 organizations. analysis oftheemployees based onaglobalstudyandan by theinternationalconsultant, Employee Compromiseaward The Bankwaspresentedwiththe 12 the SantanderAcademy. professional developmentthrough a culturethatprivilegesemployee’s distinction fortheimplementationof award, Santanderreceivedaspecial In thelastversionofthisimportant financial transparency. was awardedwiththefirst place in score ofthefinancialindustry and well, theBankobtained highest Selectivo deAcciones(IPSA). As part oftheIndicedePrecio that highlightsleadingcompanies in therankingpreparedbyDEVA, was awardedwiththesecondplace Banco Santander’sAnnualReport According toInformeReporta, ENGAGEMENTAWARDS 2017 KORN FERRY EMPLOYEE AWARD CARLOS VIAL ESPANTOSO DISTINGUISHED SANTANDER ANNUAL REPORT 8 7 Annual Report 2017 13

BEST INVESTOR RELATIONS

A survey conducted by El Mercurio Inversiones determined that Banco Santander has the best Investor Relations department (in the category of over US $1,500 in market capitalization). The survey 16 was conducted among 32 research managers, portfolio managers, local equity analysts and family office managers. prepared by GfK Adimark. Clients 17 value that the Bank is permanently SANTANDER PRIVATE BANKING adapting to their demands and AWARDED 14 highlighted its App as the best in the market. For the fifth consecutive year, AN INNOVATIVE BANK Euromoney presented Santander Best Place to Innovate ranking Private Banking as the Best –based on a perception study 16 Private Bank in Chile in 2017. The prepared by GfK Adimark, with BEST OF THE BEST award was given as recognition the sponsorship of the Centro to the specialized advisory model de Innovación, Emprendimiento An important distinction that implemented by the Bank, and y Tecnología (CIET) from the recognizes Banco Santander’s that has allowed to consolidate Universidad Adolfo Ibáñez, commitment with its employee’s long standing trust relations with Microsoft, XPGConsultNet and wellbeing and financial future customers. Together with the America Retail- placed Banco was received by the Bank from same distinction for the Portugal Santander, for second year in a Principal, in collaboration with subsidiary, the Group entered the 8 row, among the 50 companies People First and La Tercera list of the ten best global private that best manage innovation in newspaper, during the Best banks as well as being awarded as Chile. Company for Employee Financial the best entity in Latin America in Future award ceremony. two service categories. Santander was chosen as “Best 15 of the Best”. The score was LEADER IN DIGITAL calculated based on the delivery 18 BANKING of benefits and incentives in AMONG THE MOST SECURE four areas: financial and pension, Santander was nominated as the BANKS IN THE WORLD number 1 digital bank in Chile by the insurance, health and wellbeing, Customer Satisfaction Study 2017 and organizational culture. Global Finance Magazine once more included Santander Chile among the most secure banks in the world. It is the only Chilean among the top fifty most secure commercial banks in the world and the first privately owned among the most secure in Latin America.

BEST BANK IN CHILE FOR TRADE FINANCE

Global Finance Magazine named Banco Santander as the best Trade Finance bank in Latin America, Argentina, Mexico, Portugal and 14 Chile. 9 Annual Report 2017 Report Annual

Banco Santander’s management over various areas translated into several awards and recognitions during the period. Letter from the Chairman of the Board

Vittorio Corbo Lioi

At the end of the Dear shareholders, excess of US$2,300 million makes it stand out within the Chilean I have the honor to present year Santander is banking system and abroad. you with the Annual Report positioned as the and Financial Statements The Chilean economy expanded largest bank in the corresponding to the 2017 exercise 1.5% in 2017, advancing once of Banco Santander Chile. Net more below its potential growth country in terms income attributable to shareholders and, as a result, capacity gaps of total assets, and reached $564,815 million, which continued to increase, marking translates into a profit of $3.0 per a fourth year of low growth with the stock trades on share and US$1.95 per ADR. At an average increase of only 1.7% the Santiago Stock the end of the year Santander is for the period between 2014 and the largest bank in the country 2017. Nevertheless, throughout Exchange and the in terms of total assets, and the the year activity went from less to NYSE. stock trades in the Santiago Stock more, fostered by a better external Exchange and the NYSE. As of that scenario –the world economy grew date the Bank has a market cap 3.7% backed by the developed of US$14,732 million, total assets world’s impulse and China’s reach US$58,198 million, equity at dynamism- which raised copper book value of US$5,052 million, prices and underpinned the mining Core capital (Tier I) is 11%, and a activity, and by sustained favorable solid structural liquidity position in financial conditions, both locally employment growing 2.0%, of anincreaseddynamismwith The labormarketshowedsigns the economy. aim ofincreasingthestimulus on January to2.5%inMay,withthe monetary policyratefrom3.5%in of theyear,BCChreduced figures evidencedatthebeginning In responsetothelowinflation Chile’s (BCCh)tolerancerange. lower partoftheCentralBank to descendandsettledinthe on inflation,whichcontinued an additionalnegativepressure of therealexchangerateand translated intoanappreciation 615 attheendofperiod.This beginning oftheyearto$/US$ moving from$/US$670atthe against theUnitedStatesdollar, the yearwitha7%appreciation The pesostrengthenedthroughout increased 4.7%. exports fell0.9%whileimports the strikeatEscondidamine.Thus, part duetospecificphenomenaas not evidenceabigdynamismin for Chile,theexternalsectordid trade andbetterexchangeterms thanks totherecuperationofworld the betterglobalenvironment with a1.1%drop.Inaddition,despite of contraction,closingtheperiod formation completedafourthyear increased 2.4%butfixedcapital a result,privateconsumption purchase ofdurablegoods.As of theyear,mainlydrivenby accelerate duringthelastmonths consumption thattendedto obeys toaresilienthousehold The largerexpansionexhibited reversing thetrendshownlastyear. quarter togrow3.3%inthefourth, moved fromfalling0.4%inthefirst and internationally.Thusactivity (3.1% in2017), whileGDPwould demand wouldgrowaround 4.0% sovereign rating.Allinall,internal growth andrecuperatethe conditions toresumeinvestment same timecreatethenecessary consumption growth,whileatthe fiscal deficit,whichwilllimitpublic important effortstoreducethe Foremost, itwillhavetoundertake has tofaceimportantchallenges. However, thenewgovernment to resumealargergrowthpath. of theyear,shouldleadactivity monetary stimulusuntiltheend contained inflationandasustained favorable exchangeterms, to apositiveexternalscenario, following years.Thelatteradded change intheexpectationsfor year generatedanimportant elections heldattheendoflast internal scenario,thepresidential this exercise.Withrespecttothe show apositiveevolutionduring emerged fromrecessionandshould America, BrazilandArgentina, the largestcountriesinLatin than in2017isexpected.Aswell, upwards andalargerdevelopment countries continuetoberevised Growth projectionsfordeveloped suggests apositiveenvironment. for 2018,theexternalscenario Regarding growthexpectations expansion. earning jobsregisteredaverylow public sector,whileprivatewage- driven bytheimpulseof wage-earners increasedmainly as self-employment.Nevertheless, creation inthepublicsectoraswell in theworkforcedrivenbyjob reflects animportantincrease years (6.5%in2016).Thelatter slightly higherthanthatofprevious unemployment rateof6.7%was although theaverageannual the CentralBank ofChile). with regulatoryattributions (e.g. interaction withotherorganisms coordination andcollaboration; and to seekforregulatoryefficiency; prevent financialstabilityrisks; market; proposalofsolutionsto a systemicvisionofthefinancial Its regulatoryattributionsinclude: its autonomyandindependence. institutional designthatlooksafter itself asacollegiatebodywithan of financialrisks,constituting towards aconsolidatedsupervision FMC representsabigadvance assuming allofitsfunctions.The January 15,2018,withtheFMC Insurance (SVS)intotheFMCon Superintendency ofSecuritiesand ended withtheintegrationof started onmid-Decemberand while theimplementationperiod commissioners wereappointed (FMC). InAugust,thefive the FinancialMarketCommission approved thebillthatcreates Also, inFebruary2017Congress the lawhasbeenpassed. year implementationperiodonce situations. Thebillproposesasix to theadministrationofcritical the supervisioninstitutionalityand addition itincludeschangesto (Chile iscurrentlyinBaselI).In requirements toBaselIIIstandards adequate thelocalbank’scapital to theGBLsince1997,is which isthefirstbigchange The maingoalofthisinitiative, the GeneralBankingLaw(GBL). to Congressabillthatchanges industry, inJune2017wassent that willhaveanimpactonthe With respecttonormativechanges fundamentals. by thecountry’ssolidmacro increase closeto3.5%,backed 11 Annual Report 2017 Once approved the bill that Finally, in March 2017, the streamline its functioning. As modernizes the General Banking government sent to Congress a well, another document titled Law, the FMC will absorb the new bill that proposes to change New Board Member Induction Superintendency of Banks (SBIF), the way personal data is protected. was incorporated, its goal being which will simplify the global The proposal seeks to balance to make more expeditious and supervision and regulation of the especially the respect for, and efficient the incorporation of new financial industry. This is in line protection of, privacy, with the free members to the Board. Also, the with the global trend of integration flow of information, guaranteeing composition of Board Supporting of the financial supervisors, as that established authorization rules Committees saw substantial financial markets increase in do not prevent the legitimate usage changes, mainly increasing the depth and entities become more of data by people, organizations number of independent directors complex and interconnected. and companies. One of the in the majority of the committees. The collegiate structure of the main innovations appears on For its part, the Human Resources FMC-that counts with a Chairman the automatized treatment of Committee doubled the frequency and four commissioners- together large volumes of data (Big Data), of its annual meetings from two to with the strengthening of critical protecting the owner’s control over four, and it was resolved that the situation management –as a result its information, but also recognizing appointment and compensation of giving the supervisor tools that the legality of access and usage functions could not be on the allow it to act in a more timely of third party information and same committee, which should and early manner- will make particularly from companies. With imply additional changes in the normative decisions more flexible respect to the new responsibilities future. Finally, in 2017 Amrop MV and objective. The proposed of companies that manage Consulting advised the Board on modernization is necessary for Chile databases, a new regulation for a self-assessment process –an to obtain regulatory equivalence personal data processing will international good corporate at an international level, while at impose a series of new obligations governance practice and included the same time is fundamental to regarding communication, custody, within the norms provisioned by maintain a robust banking system security and elimination, together the Chilean banking authority- as 12 that stimulates growth. with an audit that is expected to it has been done over the last six be strong. As well, these same years with positive results. By the end of October, and after companies will have to certify three years of deliberation, the On other matters, Law 20,945 their prevention models with the bill that modifies the Consumer published in August 2016 and Data Protection Agency with a Protection Agency (SERNAC) was that modified the Decreto Ley 211 three-year renewal period. If the approved. The new law reduces that regulates free competition bill is approved, the usage of response times and existing in Chile, came into force during Big Data for commercial actions barriers to complaints, increases the first half of 2017. One of might be limited, even preventing fines set on the previous law, the most important changes the development of personalized empowers consumer associations, relates to the incorporation as services. All in all, the integration and maintains the competence an anti-competitive behavior of of databases with information of of local law courts, moving to interlocking of board members and debtors in the financial system higher courts those situations of senior officers (the simultaneous remains pending. This would allow diffuse or collective interest, as participation of one person in to have consolidated information well as those derived from pre- senior executive positions or to enhance risk measurements and formulated standard contracts. The as a board member in two or thus contribute to improve the latter should translate into more more companies that compete access to, and reduce the cost of, consistent rulings, as the civil justice against each other). As a sign of credit. is a more competent instance in transparency, Banco Santander technical terms. As a way to adapt During 2017 the Board resolved that no Board member to the new regulation, Santander implemented several initiatives to or relevant senior executive may is preparing itself detecting client's strengthen the Bank’s Corporate participate in another company most common complaints and Governance, always taking into –with the exception of Santander developing mechanisms through account the best national and Group companies. It should be which it may offer a satisfactory international practices. One of noted that, as well as the other answer that avoids potential law them was the development of members of the organization, suits. Board Bylaws to strengthen and Board members adhere to the Banco Santander Chile stands in a leading position in the industry fruit of a management of excellency, adhering to the highest corporate governance standards.

General Code of Conduct and the was included among the 27 up with the challenges reflected Code of Conduct in Securities companies that make up the Dow here. Markets, including the procedures Jones Sustainability Index (DJSI) Banco Santander Chile stands to avoid potential conflicts of of the Santiago Stock Exchange. in a leading position in the interest in its functioning. As well, thanks to the high total industry fruit of a management of sustainability score (TSS) from In regards to the relation with the excellency, adhering to the highest RobecoSAM, the Bank was one Bank’s stakeholders, during 2017 corporate governance standards. of the 42 companies, among 150 the Investor Relations area together We have a clear vision reflected in invited to participate, selected to with the Shareholder’s Department a demanding Strategic Plan that 13 integrate the DJSI MILA (Integrated deployed an active agenda to keep responds to current demands, and Latin American Markets), first shareholders, analysts, and retail that will allow us to adequately index of the Pacific Alliance. In and institutional investors duly face the continuous changes in addition, for the fifth consecutive informed about the developments the environment and the new of the Bank and the country. This year, Santander was recognized challenges that this entails. For implied over 800 communications among the most transparent the latter its fundamental to count over ten countries including companies in Chile according to with the performance of a first- Annual Report 2017 Report Annual meetings, webcasts, phone the ranking prepared by KPMG, class team led by the Bank’s conferences and other events. Chile Transparente, Universidad senior management, a professional These efforts were recognized by del Desarrollo and Inteligencia Board with recognized the market. In a survey conducted de Negocios. It was also the only achievements and mainly external, by El Mercurio Inversiones among bank that qualified in the Business and the support of Santander 32 research managers, portfolio Sustainability Ranking PROhumana Group thanks to its 160 years of managers, local equity analysts 2017, being awarded ninth place experience in the business. and family office managers, Banco and distinguished with the Bronze Cordially, Santander was determined to Seal. Finally, Global Finance have the best investor relations Magazine once more included department in the category Santander Chile among the most above US$1,500 million in market secure banks in the world. It should capitalization. On the same line, be noted that it is the only Chilean according to the Informe Reporta, bank among the top 50 most Santander’s Annual Report 2016 secure banks in the planet and the was awarded with the second place first among privately owned banks in the ranking prepared by DEVA, in Latin America. Undoubtedly, which highlights leading companies these recognitions make us pride within the IPSA. Also, for the third and motivate us to continue Vittorio Corbo Lioi consecutive year, Banco Santander deploying our best efforts to keep CHAIRMAN OF THE BOARD Letter from the CEO and Country Head

Claudio Melandri Hinojosa

It is with great pride and satisfaction As well, we continued to lead The Bank's financial that I present you with the innovation in customer service developments in the strategy and launching a new model for the results showed a main results of Banco Santander retail segment that changes significant increase Chile for the 2017 exercise, a year relationship paradigms. Also, 2017 of consolidation of our goals, and in was a year of recognitions for our and shareholder’s which the fruits of our efforts during Bank, both for its financial results and solvency, as well as for its the last years have become tangible attributed net income commitment to sustainability and in an ostensible way. good labor relations. reached a record Last year, and always guided by Therefore, I daresay that during figure in the history of our mission to contribute to the 2017 Banco Santander Chile progress of people and companies continued to contribute to the the Bank, increasing and setting the client at the center, country in a sustained manner loans and deposits financial results showed a significant and consolidate its financial increase and shareholder’s results in a decelerating economic in a demanding attributed net income reached a environment, with lower inflation environment, without record figure in the history of the and more uncertainty. And as has Bank, increasing loans and deposits been a constant, said goals were sacrificing quality of in a demanding environment, achieved maintaining an adequate without sacrificing quality of service. risk and return relation (reflected service. outstanding initiatives onthisfront surpassed 98%.Oneofthe most around 95%,whiletheWeb channel VOX maintainedsatisfaction levels channel, thebranchnetwork and and complaints.Perservice satisfaction inrelationtoclaims significantly increasingcustomer the latestavailablefigures,and 10,000 debtorsaccordingto from 11.5to9.5complaintsper agency) by17.7%astheydropped the SERNAC(customerprotection reducing complaintspresentedat compared tothecompetition, position incustomersatisfaction Chile consolidateditsrelative currently moving.In2017Santander scenario inwhichtheindustryis in ordertofacethechallenging milestones ofgreatrelevance teams markedthisperiodwith between thedifferentareasand experience, thecoordinatedwork substantially improvecustomer Regarding thefirstobjective, Simple, PersonalFair(SPF)style. change, incorporatingthenew promote andmangeacultural middle-market segment;and deepen therelationshipin transformation ofretailbanking; customers throughthecontinuous develop newwaystorelatewith improve customerexperience; of ourStrategicPlan:substantially key milestonesintheconsolidation results, Iwouldliketohighlightthe achievements intermsoffinancial Before goingoverthesignificant international level. most profitableandefficientatthe banking systemandamongthe outstanding positionintheChilean results thatplaceSantanderinan return overequity)andwith in asolidcapitalbaseandhigh motivations such as:thedesire the customer’sfundamental The modeltakeschargeof for themiddleincomesegments. and accompanimentparadigm that changestheclientrelationship unprecedented valueproposition period wasthelaunchofLife,an important milestonesinthe No doubtthatoneofthemost solved immediately. while over60%ofcomplaintswere a positiveresolution for customers, of incomingcallswereclosedwith attention channels.Moreover,84% a powerfulsupportfortheother a facilitatorfordigitalaccessand all customersegments,becoming 24/7 attentionmodelavailablefor advantage. Also,VOXadopteda well asarecognizedcompetitive becoming aniconfortheBankas branches acrossthecountry,and the periodwith20ofthese Work Cafébranchmodel,ending was theconsolidationof the mostimportantdevelopments wherever heis.Inthisline,oneof client hastheBankathisdisposal, integrated model,inwhicheach for aclientportfolio-toan account executiveisresponsible carterized model–inwhichan Bank continuedtomovefroma of retailbanking,during2017the the continuoustransformation In relationtothesecondobjective, recurring activities. an experiencethatispartoftheir opinion regardingofferedservices, by phonetolearnabouttheir on theprogramcontactingclients The mainexecutivesparticipate requirements andexpectations. Services closertocustomer brings employeesfromCentral which was theConectaprogram, that allowsthe simultaneous implemented. Multipagois a tool card. Additionaltoolswere also single productssuchasacredit being abletocontractplans or computer oramobiledevice, presential), eitherfromadesktop of BancoSantanderonline(non non-clients tobecomecustomers the first100%digitalplatformfor the launchofdigitalOnBarding, this linearelevantmilestonewas without humanintervention.In operations, notonlyfinancial, any typeoftransactionsand digital, customerscanconduct completely transactionaland and wheneverherequires; the customer’scontext,wherever personalized andrelevantoffersin a uniformexperience;contextual, are integratedandoffercustomers omnichannel, allattentionchannels developed forthemobileplatform; hence alldesignsareoriginally are orientedtowardsmobility, developments andinnovations conditions: mobilefirst, capabilities overfourbasic improve itsdigitalbanking Chile continuedtoexpandand Throughout theyear,Santander a Lifecreditcard. the LifePlanand300clientswith registered 482newclientswith after beinglaunched,themodel At December32,afewdays or discountsoninstallments. installments, paymentflexibility at supermarkets,nointerest recognitions suchasdiscounts behavior throughexclusive digital, andrewardsgoodfinancial new attentionmodeliscompletely services thatworkcorrectly.The the availabilityofproductsand are worthwhile;timesaving;and recognized andthattheirefforts to progress;theneedbe

15 Annual Report 2017 The coordinated work between the different areas and teams marked this period with milestones of great relevance in order to face the challenging scenario in which the industry is currently moving.

payment of several bills in one has been incorporated. The plans. In addition, a Digital Office single transaction, either on the update also features the usage was launched. This is a tablet Web or App, while Multioferta is of predictive patterns backed for executives loaded with NEO an initiative that after an upfront on neural networks models that Connect BEI, a mobile version of online risk assessment allows learn from customer interactions NEOCRM, improving the mobility clients to manage their credit with each of the Bank’s contact and efficiency of the commercial availability, assigning it among points. We expect this change teams and encouraging visits different products such as a to generate a positive impact on and proximity to clients. Also, credit card, an overdraft line or a customer service, as well as an the value offer on international consumer loan. In addition, a tool increase in productivity thanks trade was improved leveraging to block and unblock credit and to the optimization of account on the new Mercury platform 16 debit cards was implemented, executive’s management times. and the international coverage of both on the Web and App, Finally, new plans were launched, Santander Group, translating into adding up to the capability of standing out the Limited a 6% increase in the number of issuing credit and debit cards in Santander LATAM Pass Plan for customers using these products. 10 minutes directly on a branch. individuals and four new plans Finally, Office Banking, the online These cards are activated for SMEs, each with different platform for companies, continued immediately. characteristics based on client to be strengthened, obtaining a These initiatives seek to satisfy needs, and seeking to strengthen four point increase in customer the needs of customers that the Bank’s role as a strategic satisfaction with the platform, with increasingly migrate towards partner for SMEs. This translated the attributes Security, Stability digital channels, which is evident into a 58% increase in the number and Variety of operations that can in the 80 million monthly of plans sold. be conducted, standing out. transactions that the Santander Regarding the third objective of Regarding the fourth and last Chile App registered in 2017, the Strategic Plan, deepen the point of the Strategic Plan, four times as much as in 2016. relationship model in the middle- advance in the consolidation of Despite this, the Bank maintained market segment, throughout the an internal culture centered on high service quality levels with period diverse initiatives were clients, the cultural change process availability and performance implemented allowing the Bank started in 2015 was focused in the indicators of 99.3% and 97.9%, to continue advancing in the internalization of concepts relative respectively. All in all, during 2017 development and consolidation to the Simple, Personal and Fair the one million digital client mark of the integral customer (SPF) style and its eight behaviors. was passed, anticipating a goal attention model, leveraging on A highlight is the Inconsistencies that was set for 2018. the Company Centers located initiative, a program in which 70% Another highlight was the across the country. The Bank of the Bank’s teams participated implementation of NEO Evolution, allied with the Mide UC Centre seeking to identify everything that an update of NEOCRM to which to detect gaps in the executive’s prevents us from being more SPF. the Bank’s new incentives model knowledge and improve training Also, StarmeUp was launched, a global platform that allows environmental areas. It also and an effective control over employees to recognize those that constitutes our Communication on operating expenses. stand out in the fulfillment of the Progress (COP) from the Global Regarding the Bank’s commercial eight SPF behaviors. An important Compact, initiative to which we performance, total loans milestone was the beginning of adhere since 2003. (excluding interbank loans) a branch renovation program to Net income attributable to grew 2.3% during the period. By make them more accessible to shareholders reached $564,815 product, consumer and credit card all customers with any type of million, 19.6% higher year-on- loans increased 2.5% driven by disability. The latter will demand year. ROE, or return over average the former with a 6.5% expansion. a $10,000 million investment equity, climbed to 19.2%, above Mortgage loans grew 5.5% while of which 10% has already been last year’s 17% and the 12.4% commercial loans increased 0.3%. committed in 2017. During this 17 posted by the banking system as a Commercial focus was maintained period over 91% of employees whole in 2017. The efficiency ratio on middle and high-income participated in training programs improved from 42.7% in 2016 to individuals and middle and large- that added up to 194 thousand 41% at the close of the year, while sized companies, which expanded lecture hours and a $2,440 million Core Capital increased 45 basis above 5%, and especially on investment. As well it should points (bp) to 11% by year-end increasing the number of loyal be noted that, as part of its and the Basel ratio reached 13.91%, clients. On the rest of the corporate values and basic action 2017 Report Annual 48bp above the figure for the segments growth was selective. principles, Santander Chile adheres previous exercise. All this ratios to the respect of fundamental surpass with ease those of the Commercial activity during the rights, equal opportunities and industry. period allowed Santander to retain non-discrimination. Lastly, the its leading position in the system Net contribution from the business Commitment and Organizational increasing the distance with its segments –understood as the Support survey's results main competitors. Adjusted by sum of net interest income plus maintained their high levels credit investments held abroad fees and commissions, total reflecting the satisfaction of by some local banks, Santander’s financial transactions, net, and employees. The compromise total loan market share (excluding less loan loss provisions and dimension reached 86% in interbank loans and loan loss operating expenses- that reflects 2017 (87% in 2016), while the reserves) climbed to 18.7%. the performance of the Bank’s organizational support dimension Although this figure is lower than core business, increased 15.4% increased to 80% (79% in 2016). the 19.1% of 2016, the Bank grew in twelve months. These results more than the competition’s As in the previous year, our are a combination of a higher average increasing the distance annual report complies with the commercial activity thanks to a with its main competitor from Global Reporting Initiative (GRI) good increase in the loyal client 110bp to 144bp. guidelines to adequately account base, a better funding mix, lower for the Bank’s performance loan loss provision expenses, a Regarding the funding base, the on the economic, social and continuous increase in fee income Bank strived to improve the local funding mix taking advantage of year, allowed the Bank to optimize Regarding our financial results, the low interest rate environment the funding base taking advantage net interest income increased as well as from the lower inflation, of specific opportunities during 3.5% as a consequence of larger and a comfortable liquidity the period. One such opportunity loan volumes and good funding position due to the issuances was a US$500 million three-year cost management, partially conducted in 2016. This drove issue in the US market, anticipating compensated by the lower a 4.9% reduction in the total the FED’s interest rate hike and inflation during the year. All in deposit base during the year, as a securing the lowest coupon rate all, net interest margin –this is result of a 3% increase in demand ever for a Chilean issuer in the net interest income divided by deposits (non-yielding funds for US market for such tenor. These average earning assets- remained the bank) and a 9.4% decrease in transactions reaffirm the Bank’s stable at 4.42% (4.45% in 2016). 18 time deposits. The latter is a direct capability to access markets Fee income climbed 9.7% in 2017, consequence of the low interest in advantageous conditions, above the 7.1% of 2016. The good rate and inflation environment, as maintaining an adequate performance answered to the it reduces the attractiveness for diversification of the funding base. sustained work on the relation with customers of this savings product. As well, they reflect the positive wholesale clients, the constant Nevertheless, the Bank followed perception of international and focus on non-credit activities in the same strategy as last year local investors about Santander the corporate segment leveraging preferring mutual fund growth Chile. on the Bank’s strong execution over time deposits, thus benefiting Thus, the Bank maintains a capabilities, and a larger use of clients with higher returns and competitive funding cost the products offered to retail yielding a larger fee income for compared to the industry, partly clients, in line with higher loyalty the Bank. As a result, the average compensating the negative and transaction levels. Highlights total deposit cost dropped from pressure on spreads due to the are the increase in credit card 2.32% in 2016 to 1.87% in 2017. All loan growth mix change towards transactions (+6.2%) and in the in all, and adjusting by investments less risky segments, but also less total amount (+8.8%). In effect, held abroad by some local banks, profitable, and the lower inflation. loyal customers –those that hold Santander Chile’s market share At the same time, the Bank kept and use more the Bank’s products- in total deposits reached 16.6%, a comfortable structural liquidity grew 9.5% in the high income standing out as the main private level –understood as the difference segment, 4% in SMEs and 3% in bank in the country. between liquid financial assets and the middle-market segment. As mentioned before, during non-structural financial liabilities- Loan loss provision expenses 2016 the Bank built a comfortable that reached US$2,307 million were down by 12.8% year-on- liquidity position, in part due to at year-end. We believe that all year thanks to lower provisions debt issuances in the local and these figures reflect our strong and charge-offs, and higher international markets for close to competitive position, resulting recuperations of loans previously US$3,800 million. This, together from a well planned and executed charged off. The latter evidences with a moderate loan growth in the strategy. the positive impact of the growth as Bankofthe Yearinthecountry. magazine namedSantander Chile Bank inChile.Also,LatinFinance elected usoncemoreasBest in theWorld.Aswell,Euromoney Santander GrouptheBest Bank Best BankinChileandnamed Banker choseSantanderasthe and internationalinstitutions.The awards fromprestigiousnational the periodwasrecognizedwith The Bank’sperformanceduring recuperations. understood asnetcharge-offsless 2.7 timestheeffectiveloanloss, end, loanlossallowancescover It shouldbenotedthat,atyear- by theendofyearpicksup. the economicrecuperationseen be temporary,andreverseas We believethatthelattershould during thefirsthalfofyear. weaker labormarketespecially was 240.2%,explainedbya reached 2.28%,whilecoverage of theyear.Non-performingloans was evidencedtowardstheend although aslightdeterioration the periodsawapositiveevolution 2017. Regardingportfolioquality, 2015 to1.26%in2016and1.08% positive trendfallingfrom1.64%in over totalloans)continuesona cost ofcredit(loanlossprovisions and recoverypolicies.Thus,the implemented changesinadmission together withthepreviously focus onlessriskysegments, people andbusinessesprosper. and theindustry,advancingdecidedly in helping responds tothechallengesofenvironment We haveexecutedaStrategicPlanthat executed aStrategic Planthat in thisadministration.Wehave and shareholdersfortheirtrust I wouldliketothanktheBoard improve. aspects thatwemuststill give informationregarding measure ourperformanceand They serveasparametersto humbly. them receive and feel proudoftheseawards professional development.We culture thatprivilegesemployee’s for theimplementationofa special distinctiontoSantander Carlos VialEspantosogavea newspaper. Also,Fundación People FirstandLaTercera award, organizedbyPrincipal, for EmployeeFinancialFuture the Best”inBestCompany was alsoelectedas“Bestof in thegeneralranking.TheBank moving from18thto12thplace over 5,000employees,and ranking amongcompanieswith place intheGreatPlacetoWork climbing fromfourthtosecond best companiestoworkinChile, Santander rankedamongthe Regarding workenvironment, (35.1% includingdividends). 29.3% returninChileanpesos stock yieldedshareholdersa During 2017SantanderChile’s advances ofourStrategicPlan. Bank’s performanceandthe The marketalsorecognizedthe Claudio MelandriHinojosa Cordially, employees andthesociety. our shareholders,customers, commitment tocreatevaluefor reach ourgoals,reaffirmingthe sound strategy,allowusto an experiencedteamanda existence- that,togetherwith that celebrated160yearsof support fromSantanderGroup in theenvironmentand flexibility toadaptchanges capability, anticipationand in themarket,innovation advantages –aleadingposition have strongcompetitive there ismuchyettodo.We tangible results,however last yearsalreadygenerates prosper. Theworkoverthe helping peopleandbusinesses industry, advancingdecidedlyin of theenvironmentand responds tothechallenges CEO AND COUNTRY HEAD 19 Annual Report 2017 Board of Directors

The Board of Directors of Banco Santander is composed of nine directors and two alternate directors, responsible for the strategic guidelines, global oversight of the business and its results, and risk management.

11 6 88% Members External directors Committee attendance VITTORIO CORBO LIOI ÓSCAR VON CHRISMAR CARVAJAL ROBERTO MÉNDEZ TORRES Chairman First vice president Second vice president

ANA DORREGO DE CARLOS ANDREU PLAZA LÓPEZ ORLANDO POBLETE ITURRATE Director Director Director

21 Annual Report 2017 Report Annual

LUCÍA SANTA CRUZ SUTIL JUAN PEDRO SANTA MARÍA PÉREZ ROBERTO ZAHLER MAYANZ Director Director Director

BLANCA BUSTAMANTE BRAVO RAIMUNDO MONGE ZEGERS Alternate Director Alternate Director Is also economic advisor for relevant Holds a Business Administration degree VITTORIO CORBO LIOI national and international companies. from Pontificia Universidad Católica de Chairman Has published and edited 11 books and Chile, where he was awarded as Ingeniero Is president of Vittorio Corbo y over 100 different articles in books and Comercial del Año in 2010. He holds an Asociados, member of the Board at international magazines specialized in MBA and a PhD from Stanford University, Centro de Estudios Públicos (CEP), economics. with specialization in Consumer Research. member of the MIT Sloan Latin As well, was elected as Central Bank America Advisory Council and of President of the Year on a worldwide the International Advisory Board of basis by Global Finance magazine ANA DORREGO DE CARLOS the Center for Social and Economic (2006), Economist of the Year by El Director Research (CASE) of Warsaw, Poland. Mercurio newspaper in Chile (2003), During the last years has worked in Was president of the Central Bank Ingeniero Comercial del Año by the Financial Planning and Corporate of Chile (2003-2007) and member Fundación de Egresados de Ingeniería Development at Santander Group, of the Advisory Board of the World Comercial de la Universidad de Chile coordinating the Group’s planning Bank’s Chief Economist and the (2004), and received the InBest Chile processes and the follow-up of the Advisory Committee for Monetary and Award for his contribution to the different projects and units. In addition, Exchange Policy of the Capital Markets development of the Chilean capital she has participated in the coordination Department of the IMF. market (2015). of M&A and integration processes In the academic area he has been Graduated in Business Administration of Santander Group in different economics professor at the Concordia at Universidad de Chile (with maximum geographies. distinction) and holds a PhD in economics University in Canada and in the Currently, besides her position as director from MIT. Pontificia Universidad Católica de at Banco Santander Chile, she is director Chile, and Professorial Lecturer at of Santander Securities Services (a Santander Group entity specialized in the Georgetown University in the post contract services to institutional United States. He was senior associate ÓSCAR VON CHRISMAR CARVAJAL customers). researcher of the Centro de Estudios First vice president Públicos (2008-2017), chairman of Entered Banco Santander in 1990 as Was director of e-business Development at Santander Group and, previously, the Latin American Chapter of the Deputy CEO of the Finance Division. director of corporate customer relations Econometric Society, vice chairman of Between 1995 and 1996 was CEO at and commercial director of Transactional 22 the International Economic Association Banco Santander Perú. In 1997 was appointed CEO at Santander Chile, Banking at Bankinter. and member of the Board of the position he held until December 2009 Holds a degree in Business Econometric Society. when he joined the Board of which he is Administration from the Universidad Also held executive positions at the currently first vice president. Is director Pontificia de Comillas ICAI-ICADE, World Bank in Washington DC (1984- at the Santiago Stock Exchange and and holds an International MBA fom 1991), and has advised and worked until 2016 was also director at Banco Universidad Deusto-Bilbao, Spain, and in over 15 countries and lectured Santander Argentina and Peru. Adolfo Ibáñez, Miami-Chile. on seminars in the most important Before joining Santander Group he universities and central banks in the was manager of the Finance Division world. at Morgan Bank and manager of the ANDREU PLAZA LÓPEZ During the last years presided the Finance Division at ING Bank. Has over 25 Director commission to update the structural years of experience in banking. Was appointed as responsible for the balance rule, named by Finance Holds a Civil Engineering degree from Technology and Operations Division at Minister Felipe Larraín; was a member Universidad de Santiago with specialty Santander Group in January 2015. He of the Presidential Advisory Board studies in the United States and Europe. has been in the Group since 2012, when against corruption and conflicts of he joined as Technology and Operations interest (Engel Commission), named (Retail and Business Banking) director at by President Michelle Bachelet, and ROBERTO MÉNDEZ TORRES Santander UK. member of the Working Group Second vice president Holds a degree in Mathematics from the to make recommendations for Is a senior professor of the Governance Universitat Autónoma de Barcelona, and the modernization of the banking School at the Pontificia Universidad holds several Master’s degrees in Finance regulation, named by Finance Minister Católica de Chile. Besides being second and Banking from Stanford, Insead, The Rodrigo Valdés. vice chairman of the Board of Santander Wharton School and ESADE. In the business area is Chairman of Chile, he is chairman of the Board of Before joining Santander, he was the Board of Banco Santander Chile, Universia Chile. Executive Vice President and member director of Santander Group Mexico, Founded and was chairman of Adimark, of the Comité de Dirección de Caixa and director of CCU S.A.. Was a and chairman of the Board of ICARE. Catalunya since 1998, member of the director at Banco Santander S.A. in He serves at the Advisory Board of Junta de Servired and also of the Aula Madrid, Spain and of Endesa Chile. Fundación Paz Ciudadana. Escola Europea. Pro Tempore of the Financial a Business Administration degree ORLANDO POBLETE ITURRATE Law Committee at Federación with specialization in economics Director Lationamericana de Bancos from the Universidad de Chile, Since 1991 to date has served as (FELABAN). where he has been professor of professor of Procedural Law at Is a member of the Board at the Macroeconomics, International Universidad de los Andes. Between Centro de Arbitraje y Mediación de Economy and Monetary Theory 1997 and 2004 he served as Dean Santiago de la Cámara de Comercio and Policy. of the Law Faculty of the same de Santiago, and holds a Law degree University, and since then and until from Pontificia Universidad Católica 2014 he served as Chancellor, when de Chile. BLANCA BUSTAMANTE BRAVO he joined the Board of the University. Alternate director He is partner at the law firm Orlando Holds a Business Administration Poblete y Cia. and member of the ROBERTO ZAHLER MAYANZ degree with specialization in arbitrage body at the Centro de Director economics from the Pontificia Arbitraje y Mediación de la Cámara Is president of the advisory firm Universidad Católica de Chile. Has de Comercio de Santiago. Between Zahler & Co. and advisor for the served as economic analyst at the 1979 and 1991 he served as professor World Bank, Banco Interamericano de Central Bank in Chile, and research of Procedural Law at Universidad de Desarrollo (BID), Bank for International analyst at Oppenheimer & Co. New Chile. Settlements at Basel (BIS) and the York and IM Trust. Holds a degree in Law and a Law International Monetary Fund (IMF). Became Head of Investor Magister from Universidad de Chile. He Was a member of the Grupo Asesor Relations at Viña Concha y Toro also graduated from the Programa de de Alto Nivel del Presidente del BID, when she joined the company Alta Dirección de Empresas (PADE) of the Comité Latinoamericano de in 1998, position she held until from the ESE Business School at Asuntos Financieros (CLAAF) and the 2010. In 2001 she started serving Universidad de los Andes. Non-G7 Eminent Persons Group for as Corporate Communications the new International Financial System assistant manager. Currently she Architecture. Was visiting professor serves as director of Corporate LUCÍA SANTA CRUZ SUTIL at the IMF Research Department. Also Affairs with responsibility over the Director served as director at Air Liquide Chile corporate communications and 23 and Banco Santiago, and chairman of investor relations areas. Since 2013 Is number member of the Social, the Board at Siemens Chile. she is part of the Consejo Directivo Political and Moral Sciences Academy Between 1991 and 1996 he served as del Centro de Investigación e at the Instituto de Chile; member president of the Central Bank of Chile Innovación at Concha y Toro. of the Board of the Universidad and between 1989 and 1991 was vice Adolfo Ibáñez; director at Compañía president. Previous to that, he was de Seguros Generales y de Vida La main regional advisor in monetary RAIMUNDO MONGE ZEGERS

Chilena Consolidada and is part of the 2017 Report Annual and financial policy at Comisión Self-Regulation Board of Insurance Alternate director Económica para América Latina Companies in Chile. Is general director at ESE Business y el Caribe (CEPAL) of the United School at Universidad de los Holds a B.A. in History from King’s Nations and researcher and professor Andes. Until May 2017 he served College, London University and at the Economic Sciences Faculty at as corporate director of Strategic an M.Phil. in History from Oxford Universidad de Chile. and Financial Planning at Banco University. Was awarded Doctor Has provided technical assistance to Santander Chile and CEO of Honoris Causa in Social Sciences at central banks, finance ministers and Santander Chile Holding, entity King’s College, London University. financial regulation superintendencies that holds Santander Group’s at Argentina, Barbados, Bolivia, investments in Chile. Brazil, Colombia, Costa Rica, Ecuador, Guatemala, Indonesia, Jamaica, Previously he had other JUAN PEDRO SANTA MARÍA PÉREZ Kosovo, Mexico, Dominican Republic, responsibilities at Santander Group Director Uruguay and Paraguay; to the Chile, which he joined in 1991 after Has been Corporate Legal Director at International Fund for Agricultural serving at the Central Bank of Chile. Santander Group in Chile and Legal Development (IFAD) and the African Among them he was finance director Counsel at Banco Santander Chile, Economic Commission (AEC), both and research and planning manager. Banco O’Higgins and Banco Santiago. from the United Nations. Is author Holds a Business degree from He has been president of the Legal of over one hundred articles and Pontificia Universidad Católica Committee of the Asociación de books in Chilean and international de Chile and an MBA from the Bancos e Instituciones Financieras magazines. Holds a Masters degree University of California, Los Angeles for over 20 years and President from the University of Chicago and (UCLA). Administration

Banco Santander has deepened the change process to fulfill its mission of contributing to the progress of people and businesses, and become the most valued bank in the country, always trying to maintain the highest standards.

1 2 3 4 5 6 7 4. CLAUDIO MELANDRI Quality Division Manager ofClientsandService 3. CARLOS VOLANTE NEIRA Corporate Banking Director ofSantanderGlobal 2. FRED MELLER SUNKEL Financial Controller 1. GUILLERMO SABATER Deputy GeneralManager 11. MIGUEL MATA HUERTA Country Head Chief ExecutiveOfficerand HINOJOSA MAROTO 8

10 9. RICARDO BARTEL JEFFERY Director ofRiskDivision 8. FRANCO RIZZA General Counsel 7. CRISTIÁN FLORENCE KAUER Director ofRetailBanking 6. MATÍAS SÁNCHEZ Banking Director ofMiddle-Market 5. JOSÉ MANUEL MANZANO Operations Division Director ofTechnologyand GARCÍA TAGLE

10. MARÍA EUGENIA DE LA Director ofInternalAudit 14. RICARDO MARTÍNEZ Costs Director ofAdministrationand 13. SERGIO ÁVILA SALAS Chief FinancialOfficer 12. EMILIANO MURATORE Communications Manager ofHumanResourcesand FUENTE NÚÑEZ SÁNCHEZ 13

25 Annual Report 2017 Corporate governance

The management of Banco Santander Chile is backed by a strong corporate governance at the leading edge of international practices and standards, allowing it to create value and guarantee transparency to the market. On this line, the Bank has the necessary mechanisms to achieve an adequate control of risks and get the trust of shareholders, employees, clients, providers and the society as a whole.

PARAMETERS AND STANDARDS

Based on the guidelines established by the Basel Committee, Banco Santander has defined a series of parameters that back the action of its corporate government:

1 4 7

Close supervision by the Board and Permanent determination and Executive compensation senior management. monitoring of risks. design with long term plans.

2 5

Simple and clear organizational Internal audit and independent structure. external audit.

3 6

Robust internal control system. Subsidiary supervision. The defined standards to achieve these goals are:

External directors: six of eleven members of the Board are external to Santander Group.

2 4 6 Compliance: a compliance area Participation: directors are active Division of functions: in order oversees the application of the members of the management to effectively manage risks, commercial and support areas Bank’s ethics codes, Chile’s committees. Corporate Governance regulations are separated. Risk management and the United States’ Sarbanes- is done by teams different from Oxley Law, as well as the applicable commercial teams, and most 3 Basel criteria. credit decisions are adopted by Ethics: all employees subscribe committees. Banco Santander’s General Code 7 of Conduct. Employees directly Supervision: the Bank is supervised 5 related with securities markets by the Superintendencia de Bancos sign an additional code of Autonomous audit: an autonomous e Instituciones Financieras and by conduct especially designed for area within the Bank undertakes the U.S. Securities and Exchange this area. control activities. Commission (SEC).

27 Annual Report 2017 Report Annual CORPORATE GOVERNANCE BOARD OF DIRECTORS

BODIES BOARD SUPPORTING DIRECTION COMMITTEE COMMITTEES Chief Executive Officer and fourteen top Banco Santander’s Corporate managers Governance is organized in three levels: MANAGER’S COMMITTEE

distributed as dividends. Hence, the In attention to the reform of the ORDINARY SHAREHOLDER’S approved dividend per share was of Bank’s by-laws, agreed in the MEETING $1.75459102. 22nd Extraordinary Shareholder’s Meeting held on January 9, 2017, Governed by the Ley de In addition, a new Board had to the Board composition was Sociedades Anónimas, by Banco be elected at the meeting. The modified passing from 11 directors Santander Chile’s by-laws and new Board was composed of and two alternate directors, to other regulation applicable to nine directors and two alternate 9 directors and two alternate banking institutions, the Ordinary directors, for a three-year directors. Shareholder’s Meeting is one of the period. Board compensation corporate governance bodies. The was also approved, as well as The new elected Board was quorum is the absolute majority the Audit Committee report and integrated by: Orlando Poblete of outstanding shares with voting compensation for said committee, Iturrate, Roberto Zahler Mayanz, rights (unless the by-laws or a including the annual budget for its Juan Pedro Santa María Pérez, specific law determines another operation. Andreu Plaza López, Ana Dorrego quorum) and in a second citation de Carlos, Óscar von Chrismar with present shareholders. 28 Material Carvajal, Vittorio Corbo Lioi, Lucía In order for the shareholder’s issue Santa Cruz Sutil and Roberto meeting to take place a series Méndez Torres, as directors, of formal requirements must be BOARD OF DIRECTORS and Blanca Bustamante Bravo met like a summons by the Board, and Raimundo Monge Zegers as Representing the interests of publications in a countrywide alternate directors. Two of the all the Bank’s shareholders, the circulation newspaper, a letter or directors are also executives at Board is the main corporate email sent to shareholders, quorum Santander Group and three are governance body. It has a structure and the presence of a notary public, independent, in accordance with in accordance with the size of among others. what is established in article the institution and its principal 50 bis of the Ley 18,046 about The 36th Ordinary Shareholder’s functions are: establishment Sociedades Anónimas. Hence, Meeting, that met in April 2017, of strategic guidelines, global Marco Colodro Hadjes and approved: the annual report, monitoring of businesses and Mauricio Larraín ceased to be part general balance statement, financial results, and the analysis of statements and the 2016 external of the Board. opportunities and threats. In auditor’s report, the designation addition, the Board gets especially Board members have been chosen of external auditors and private involved in the management and for their outstanding careers, their risk rating agencies for 2017, and decisions regarding all of the risks knowledge and large national the distribution of the profits faced by the Bank. The latter and international experience in of 2016, which amounted to implies that it has to approve and the financial sector. All directors $472,351,259,517. monitor the risk framework and risk integrate diverse working Moreover, the shareholder’s appetite, and its coincidence with committees where they learn meeting approved to allocate business plans, as well as ensure about the Bank’s management 30% of the net income of 2016 the correct reporting from all units and situation in depth. Board –equivalent to $141,705,377,855- and watch over the functioning of meetings are held once a month to increase reserves, while the the three lines of defense (business and during 2017 attendance of remaining 70% –amounting to and risk origination, risk control and directors, including alternate $330,645,881,662- was set to be compliance, and internal audit). directors, reached 88%. efficient. directors moreexpeditiousand of makingtheintegrationnew was incorporated,withthegoal Induction ofNewBoardMembers this body.Also,adocumenttitled streamlines thefunctioningof Regulation thatstrengthensand Banco SantanderpreparedaBoard to non-bankingcorporations, Although thelocalregulationapplies optimize theBoard’sfunctioning. in 2017twoinitiativesthatseekto guidelines, theBankimplemented In linewithSantanderGroup’s Raimundo MongeZegers Blanca BustamanteBravo Roberto ZahlerMayanz Juan PedroSantaMaríaPérez Lucía SantaCruzSutil Orlando PobleteIturrate Andreu PlazaLópez Ana DorregodeCarlos Roberto MéndezTorres Óscar vonChrismarCarvajal Vittorio CorboLioi 100,000 during thelastcalendaryear. total annualincomeinexcess ofUF as longthecorporategroup hasa two ormorecompetingcompanies, executive positionsorofadirector, in participation ofonepersonin relevant conduct, thisisthesimultaneous executives asananti-competitive of directorsandrelevantsenior incorporation oftheinterlocking important changesrelateswiththe competition inChile.Oneofthemost Decreto Ley211thatregulatesfree during thefirsthalfof2017,modified 2016 andthatcameintoeffect Law 20,945,publishedinAugust Name REGULATORY CHANGES GUIDELINES SANTANDER GROUP practices and guarantee the applicationofgovernability work, insuchawayastoensure committees thatsupportthe Board’s all directorsintegratethediverse Mission andVision.Forthesame, strategies, inlinewiththeBank’s They leadthemainpoliciesand participation ofdirectorsiskey. In corporatemanagementactive last sixyearswithpositiveresults. Bank hasbeenapplyingitoverthe Chilean bankingsupervisor.The included withinthenormsof practice ofcorporategovernance This isaninternationalgood on anewself-assessmentprocess. in previousyears,advisedtheBoard MV Consulting,ashasbeenthecase During 2017,externaladvisorAmrop out ofthescopecompetition. companies-, evenifsaidcompanyis exception ofSantanderGroup in anyothercompany–withthe or seniorexecutivemayparticipate Santander resolvedthatnodirector a reflectionoftransparency,Banco Given theabovementioned,andas COMMITTEES BOARD SUPPORTING BOARD SELF-ASSESSMENT OF THE Alternate director Alternate director Director Director Director Director Director Director Second vicepresident First vicepresident Chairman Position Resources Committee inthefuture. additional changestotheHuman same committee,whichwill imply functions couldnotresidein the appointment andcompensation four. Aswell,itwasresolved that of annualmeetingsfromtwoto which doubledthefrequency the HumanResourcesCommittee, Another importantpointrelatesto Committee. and MoneyLaunderingPrevention Analysis andResolutionCommittee Committee, Market Committee, HumanResources Risk Committee,Strategic ALCO, AuditCommittee,Integral supporting committees,specifically: composition ofmosttheBoard of independentdirectorsinthe was anincreaseinthenumber integration. Fundamentally,there changes wereenactedontheir work, during2017substantial efficiency ofthecommittee’s guidelines, thatseektoincrease Based onthenewSantanderGroup instances ofagreed-uponmatters. formal recordsandfollow-up frequencies, subrogationschemes, meet regularly,withpre-established and decisionmaking.Committees about theevolutionofbusiness them toinformthemselvesindetail interests. Theseinstancesallow and defenseofshareholder’s transparency, responsibility,efficacy No Yes Yes No Yes Yes No No Yes No Yes External 29 Annual Report 2017 BOARD SUPPORTING COMMITTEES

AUDIT RISK ANALYSIS AND RESOLUTION

Members: Orlando Poblete / Members: Roberto Zahler / Members: Juan Pedro Santa Chairman. Juan Pedro Santa Chairman. Óscar von Chrismar María / Chairman. Raimundo María / Secretary. Roberto / Vice president. Vittorio Corbo, Monge. Zahler and Blanca Bustamante. Roberto Méndez, Raimundo Frequency: monthly. Monge and Juan Pedro Santa Frequency: monthly. María. Functions: define and control Functions: its main functions compliance with policies and Frequency: biweekly. are: (i) oversee the Bank in the norms, and general and specific financial statement preparation Functions: propose the risk goals in terms of prevention of process for the institution; (ii) framework and general policies money laundering and financing management of internal auditors for the definition of the Bank’s of terrorism, in accordance with and external auditors in said risk appetite, and supervise local laws and norms, as well as process, with the goal that the the correct identification, those of Santander Group. Bank delivers adequate financial measurement and control of all information to shareholders, the risks faced by the company. investors and general public; and (iii) ensure the efficiency of the company’s internal control systems and compliance with applicable norms and HUMAN RESOURCES 30 regulations. Members: Blanca Bustamante / Chairman. Orlando Poblete and Lucía Santa Cruz.

Frequency: quarterly.

Functions: generate and validate the actuation guidelines of the Human STRATEGIC Resources Division in relation MARKET to Banco Santander’s general Members: Vittorio Corbo / Human Resources and Chairman. Roberto Méndez, Members: Óscar von Chrismar Management policies. Raimundo Monge and Lucía / Chairman. Vittorio Corbo and Santa Cruz. Roberto Zahler.

Frequency: biannual. Frequency: monthly

Functions: assess and define Functions: oversee the results ASSET AND LIABILITY (ALCO) of the trading investment the main goals and guidelines Members: Vittorio Corbo / portfolios; make estimates about for the elaboration of the Chairman. Óscar von Chrismar the national and international Bank’s strategic plan. Approve and Raimundo Monge. the plan prepared by senior economic situation that may be management for the Bank and used to take positions; review Frequency: monthly. with the business managers subsidiaries, and the different Functions: oversee and the Bank’s risk appetite, business units if it is the case, approve, depending on the and approve the risk limits as well as periodically monitor case, the risks and positions established annually. its progress. taken and managed by the financial management area of the Bank and its subsidiaries. Poblete IturrateasChairman. Mayanz, designatingMr.Orlando Bustamante BravoandRoberto Zahler as replacementsdirectorsBlanca vacant. InMay2017,theBoard named positions intheAuditCommittee directors oftheBank,leavingtheir Garcés resignedtotheirpositionsas Hadjes andMr.MauricioLarraín In April2017Mr.MarcoColodro Pedro SantaMaríaPérezassecretary. as Vicepresidents,andwithMr.Juan Mr. OrlandoPobleteIturrateacting with Mr.MauricioLarraínGarcésand presided byMr.MarcoColodroHadjes, beginning of2017,theCommitteewas independence conditions.Inthe of threedirectorsthathavesufficient Committee, thelatteriscomprised As statedintheby-lawsofAudit regards totheauditcommittee. of Sarbanes-OxleyLaw,includein the SBIFnormanddispositions addition ofthetasksthatLaw18,046, contain asfunctionsofthisbodythe Committee, approvedbytheBoard, the former,by-lawsofAudit agreement oftheBoard.Inlinewith Santander Chilethusdecidedby function asasingleentity,andBanco Committee andAudit allowed banksthattheDirector’s It shouldbenotedthattheSBIF Committee. Banco SantanderChile,haveanAudit in saidcountry,asisthecaseof demands thatcompaniesregistered United States’Sarbanes-Oxleylaw forth itsfunctionswithinsaidnorm. dependent fromtheBoard,andsets banks tohaveanAuditCommittee set forthaspecificnormthatdemands and FinancialInstitutions(SBIF)has As well,theSuperintendencyofBanks are alsoestablishedinsaidlaw. Director’s Committee,anditsfunctions demands thatcertainentitieshavea Law 18,046ofSociedadesAnónimas AUDIT COMMITTEE once approved. Committee’s minutestotheBoard Board, notwithstandingsendingthe the Committeeispresentedto a summaryoftheissuescoveredby to theBoardmeeting.Inlatter, three hoursandthatareheldprior that normallylastanaverageof opportunities during2017,meetings The Committeehasmetin12 period PricewaterhouseCoopers Committee proposedforthe 2017 finally makesthedesignation. The Shareholder’s Meeting,which a proposaltotheOrdinary its turn,theBoardformulates auditors foreachexercise.In the designationofexternal for proposingtotheBoard The Committeeisalsoresponsible the progress. issued andtheCommitteeoversees with recommendationspreviously reports onthestatusofcompliance the correspondingrating.Also,he the auditedunitorprocesswith the conclusionsandqualifying audit reportissued,summarizing explanation ofeachandevery of theunitsetsforthadetailed In eachordinarysession,thedirector was fullycompleted. by theendofyearprogram each session.Itshouldbenotedthat planned workwascarriedouton the period,andmonitoringof sanctioned atthebeginningof the yearwasproposed,which Under this,aworkprogramfor depends fromtheCommittee. The Bank’sInternalAuditunit EXTERNAL AUDITORS INTERNAL AUDIT ISSUES COVERED DURING 2017 been fullymet. the yearallobservationshave a monthlybasis.Bytheendof monitored bytheCommitteeon grounds forastrictoversight audit firminitsfinalreportgive The observationsissuedbythe the internalcontrolsituation. subsidiaries, andreportsabout statements oftheBankandits itself aboutthefinancial The auditfirmpronounces Shareholder’s Meeting. was theappointedby Compañía Limitada.Saidfirm Consultores, Auditoresy satisfactory. internal controlatthebank is methodologically, thatthe with theaffirmation,backed the differentprocessesthat end information ontheadvance of the responsiblemanagement Committee receivesfrom during theexercise Regarding internalcontrol, Committee. of thisisalsoreviewedbythe Internal Controlcertification.All must issuetheFinancialReport year. Forthiseffect,theBank information bytheendof it containstheBank’sfinancial authorities ofthatcountry,as report tobepresentedthe States, itmustalsoissuea20-F Bank isregisteredintheUnited the period.Consideringthat statements issuedattheendof well asthedefinitivefinancial implies theintermediateas loss reservessufficiency.This and inparticularaboutloan the internalcontrolsituation, Bank’s financialstatementsand and pronounceitselfaboutthe Committee istoknow,analyze functions oftheAudit One ofthemostimportant AND INTERNAL CONTROL FINANCIAL STATEMENTS 31 Annual Report 2017 SBIF AUDIT FOLLOW-UP On each transaction that is Audit Committee the information presented, the Committee demands and analysis conducted on The Committee performs a follow- a reasoned and professional the functioning of the money up of the advance and timely explanation about it, and especially, compliance of all recommendations laundering prevention system, asks for objective background issued by the supervisory authority which is based on a high level and details regarding amounts as a result of their annual visits. To informational tool called NORKOM. to be paid for the specified that extent it receives a monthly Related to Compliance issues, the report from the area in charge of service. As well, the Technology Committee has been monitoring the coordination of the different Division must inform periodically the normative aspects that affect responsible areas. In case that, in about technology budgets, their United States rules: FATCA and its opinion, the implementation of compliance and results, explaining Volcker Rule. These issues, that an observation is not advancing eventual differences if any. affect most of the banks due to adequately, it is presented to the The chairman of the Committee their commercial and financial administration in order to advance leaves a formal record of the relations with that nation, have 32 in it. contracts reviewed and approved forced to develop complex control prior to their presentation to the systems and train operators Board so that, if the latter deems, OPERATIONS WITH RELATED in order to comply with said are approved. PARTIES regulation.

Law 18,046 of Sociedades Anónimas Material demands that the Audit Committee issue CONFIDENTIAL MAILBOX pronounce itself about operations COMPLIANCE AND PREVENTION conducted by the Bank with other The Audit Committee has made OF MONEY LAUNDERING AND companies or persons that are available to all employees FINANCING OF TERRORISM related by property or management, of the bank a confidential in the terms defined by the law. The During the exercise the Committee communications system, through goal is that those transactions be has received information from the which they can directly contact carried out at market conditions, Compliance Department, and has the Committee to report irregular, that is, that agreed-upon terms are analyzed the main aspects that conflictive or potentially dangerous fair. have been subject to the Global situations. The Committee spends important Compliance Committee. The latter In order to give privacy and time in the analysis of these oversees the adequate management confidentiality to the system, operations, and in particular in the of compliance risks to which the necessary attributes to give Bank’s technological contracts, Bank is exposed. Subject to analysis tranquility to users, the Complaints which are provided by Santander are the assessment and resolution Group through professional of the following risks: Normative Mailbox is managed by a leading specialized entities, thus achieving Compliance, Conduct, Reputational, international external provider. a technology that, besides being and Money Laundering and It should be noted that in June homogeneous, has an international Financing of Terrorism. In relation 2017, the Compliance Department standard, also procuring the highest to the latter, the Compliance presented to the Committee possible security. Department has reported to the a request to implement a Ana DorregodeCarlos Roberto MéndezTorres Óscar vonChrismarCarvajal Vittorio CorboLioi executives atBanco SantanderS.A. 1. DirectorsAnaDorregodeCarlos andAndreuPlazaLópezhavevoluntarilyrenouncedtotheir compensationgiventhattheyare Name respective proceduralstatus. Santiago andinregions,withtheir information includesanyissues,in by amountandreputationalrisk.This divided thepresentationsoflawsuits the officeofGeneralCounselhas the reputationalriskforBank, result. Inrelationtotherelevanceof contemplate tofaceanadverse eventual provisionstheBankshould most riskysituations,aswellthe the GeneralCounselexplains that affecttheBank.Theofficeof status ofthejudicialprocesses is thoroughlyinformedaboutthe Every threemonthstheCommittee employees withsuppliers. inadequate conductoftheBank’s non-compliance ofthenormativeor this channelistodetectpotential contracted bytheBank.Thegoalof towards currentsuppliers whistleblower channeloriented Raimundo MongeZegers(S) Blanca BustamanteBravo(S) Juan PedroSantaMaríaPérez Roberto ZahlerMayanz Lucía SantaCruzSutil Andreu PlazaLópez Orlando PobleteIturrate AFFECT THE BANK JUDICIAL PROCESSES THAT MAY 1 1 375 UF 375 UF 500 UF 250 UF 250 UF 250 UF 250 UF 250 UF 250 UF N.A. N.A. stipend Monthly current marketconditions. 2010, inordertoalignthemwith which hadremainedunalteredsince adjustment totheircompensation, in April11,2017,regardingan proposal presentedbytheBoard held inApril2017approvedthe The OrdinaryShareholder’sMeeting as institutionalandretailinvestors. countries, includinganalystsaswell instances wereheldoverten in all,over860communication conferences andotherevents.All meetings, webcasts,telephone country’s situation.Thisincluded about theBank’sresultsand shareholders andinvestorsinformed carried outanactiveagendatokeep with theShareholder’sDepartment Investor Relationsareatogether During 2017BancoSantander’s COMPENSATION POLICY RELATION WITH SHAREHOLDERS 15 UFRiskCommittee/30Strategic (Chairman) /60UFALCOCommittee 15 UFRiskCommittee/60Market UF MarketCommittee (Chairman) /60UFStrategicCommittee30 15 UFRiskCommittee/60ALCO of committees of integration for stipend Additional monthly Committee UF AnalysisandResolution Committee /30UFStrategic 15 UFRiskCommittee/30ALCO Committee (Chairman) 115 UFAuditCommittee/60HumanResources Committee (Chairman) 15 UFRiskCommittee/60AnalysisandResolution (Chairman) /30UFMarketCommittee 115 UFAuditCommittee/30Risk Committee 30 UFStrategicCommittee/HumanResources Resources Committee 230 UFAuditCommittee(Chairman)/30Human N.A. N.A. biweekly frequency,thestipend the RiskCommitteewhichhasa Regarding directorsthatintegrate monthly basis. be paidperassistanceandnotona be onemonthlysession,whichwill everyone, themaximumstipendwill assistance tothemeetings.For will receivetwicethisamountper The chairmanofeachcommittee session oftherespectivecommittee. was ofUF30pereachattended Committee, theproposedstipend the AuditCommitteeandRisk or morecommittees,excluding In addition,forbeingpartofone presidents havea50%increase. previously stated,whileVice the stipendisdoubleamount UF 230.InthecaseofChairman, respect tothepreviousstipendof which impliedan8.7%increasewith director wasestablishedatUF250, Thus, themonthlystipendforeach 420 UF 510 UF 665 UF Total 355 UF 425 UF 325 UF 425 UF 310 UF 510 UF N.A. N.A. 33 Annual Report 2017 In April 2017, the Ordinary Shareholder’s Meeting approved a readjustment to Board compensation, which had remained unaltered since 2010, in order to align them with current market conditions.

was set at UF 15 per each year oriented to retention and main communication instance attended session. The chairman motivation of executives, with of the Bank’s strategies and will perceive twice this amount payment depending on the performance review, and one per session. For everyone the degree of the achievement of of its most relevant functions is maximum stipend will be two goals, both common as well as to communicate the initiatives sessions per month, payable individual, during a time horizon and specific businesses, as well per attendance and not on a of over a year. During 2017, total as the collection of feedback. monthly basis. compensation paid to executive The frequency of sessions is monthly. Executives are With respect to the members officers and management obliged to transmit to their of the Audit Committee, members was MM$42,753, in line teams within a week the article 50 bis of the Ley de with the policies established by matters covered in the session. Sociedades Anónimas states the Board. In larger teams the relay is that, mandatorily, each member cascaded, as the goal is that all must have a compensation for employees are informed about their function of no less than DIRECTION COMMITTEE AND the matters subject to this 34 one third of the stipend to which MANAGER’S COMMITTEE committee. they are entitled as members of the Board. Considering the The objective of the Direction latter, the chairman of the Committee is to achieve a management of excellency. It is Committee will receive a UF 230 SUSTAINABILITY responsible for the coordination monthly stipend, while the other MANAGEMENT directors that are members of of strategies and business areas, Banco Santander has socio- the Committee will perceive detailed monitoring of results, environmental policies that a UF 115 stipend per attended transmission of the Board’s define activities that are session with a maximum of one guidelines, and the analysis of prohibited and norm those monthly session. opportunities and threats. This that are defined as restricted. committee is integrated by With respect to senior The latter are only undertaken the CEO and the top fourteen management, the guidelines after an exhaustive analysis executives of the Bank, who and compensation policies for of the operation’s impacts in represent the Business, Risk and the Bank’s top management terms of policy compliance Support areas. The committee and senior executives are and the Equator Principles, if meets every week and, every determined by the Human they apply. The supervision six months, holds a special Resources Committeee. Senior of these rules is responsibility meeting to review the Bank’s management has variable of the Risk Committee, which performance. compensation plans linked to reports back to the Board on a the achievement of certain goals The Manager’s Committee monthly basis. For its part, the and objectives, with fulfillment is conformed by the Bank’s Sustainability Committee led by evaluated on a quarterly and or senior management, with the CEO and Country Manager, yearly frequency. Additionally, members selected based Claudio Melandri, safeguards there are variable compensation on their achievements and the integration of sustainability plans that span more than one corporate criteria. This is the within the business model. ETHICAL FRAMEWORK

The organization’s principles together with the employee’s professional ethic constitute solid pillars in which Banco Santander’s business activity is based. All employee actuations, as a consequence of their link with the Bank, must be guided by the following principles that operate across the board:

1 3 5

EQUALITY OF OPPORTUNITIES RECONCILIATION OF WORK AND ENVIRONMENT PROTECTION AND AND NON-DISCRIMINATION PERSONAL LIFE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY POLICIES Constitutes a basic actuation In order to develop the corporate principle at Banco Santander to social responsibility commitment All employees, within the scope of provide with the same opportunities assumed by the Bank to improve their competences, must actively to access a job and a professional employee’s and their family’s and responsibly engage in the promotion, ensuring at all times the life quality, a work environment conservation of the environment, absence of discrimination situations compatible with personal respecting legal requirements, either by gender, sexual orientation, development is promoted, helping following recommendations and race, religion, origin, civil status or employees and teams reconcile procedures established by the Bank, social condition. in the best possible manner work to reduce the environmental impact 35 requirements with the needs of their of its activities and contribute to personal lives and families. improve the sustainability goals 2 contemplated in our corporate social responsibility protocols. In the RESPECT PEOPLE 4 decisions about project financing, Harassment, abuse, intimidation, the guidelines established in the LABOR RISK PREVENTION lack of respect and consideration, or internal social and environmental

any other type of physical or verbal Banco Santander considers the responsibility policies will be 2017 Report Annual aggression, are unacceptable and occupational health and security followed. will not be permitted or tolerated of its employees as fundamental at work. Those employees with to achieve a comfortable and safe responsibility over others within work environment, being a priority 6 the Bank’s organizational units the permanent improvement of COLLECTIVE RIGHTS must promote and ensure, with working conditions. the means at their disposal, that Employees must respect these situations don’t happen. syndication, association and All employees, and especially collective bargaining rights, as those that serve as managers, will well as the activities carried out by promote at all times, and within the organizations that represent all professional levels, relations employees, in accordance with based on respect for the dignity their legally attributable functions of others, the participation, equity and competences, maintaining with and reciprocal collaboration, them a relation based on mutual fostering a respectful workplace respect, in order to promote an in order to achieve a positive work open, transparent and constructive environment. speech that allows the consolidation of the goals of social peace and work stability. Business environment

The important recovery of investment and consumption, and more agile labor markets, added to the fact that the higher growth is synchronized between countries, contributed to overcome the world economy’s weak results for the previous year.

On the other hand, the main the norm during 2017. Despite the MARKET ENVIRONMENT countries in Latin America started larger dynamism and a systematic to show signs of recuperation. reduction in unemployment rates,

During 2017 the economy posted Brazil and Argentina emerged inflation in the world remained a solid growth of 3.7% (3.2% in from the deep recessions of 2016, contained, evidencing that 2016), backed by the drive of while Mexico was able to sustain capacity gaps continued to be the developed world and China’s healthy growth rates, despite the wide. In several countries the labor dynamism. The important recovery uncertainties created by the tax participation rate is still substantially of investment and consumption, proposals in the United States below the levels prior to the and more agile labor markets, and the threat of a possible subprime crisis, which suggests added to the fact that growth is renegotiation of the NAFTA. As well, that, the pressure on wages –and, synchronized between countries, Peru and Colombia were favored therefore, over inflation- could take contributed to overcome the by better terms of trade, although some time to appear. world economy’s weak results their economies decelerated due to for the previous year, the lowest In this context, global monetary climate phenomena and the impact since the subprime crisis. The conditions turned less expansive. better global performance, and of corruption scandals. The Federal Reserve (FED) started of China in particular that grew Very expansive monetary policies, in October the withdrawal of its 6.9%, increased the prices of raw stimulating fiscal policies and higher quantitative stimulus, without big materials locating the value of copper at an average of 2.80 US$/ confidence levels –reflected in a disruptions in the markets. In its lb, above the 2.21 US$/lb of the widespread rise of stock indices, December meeting it raised the fed previous year, figures not seen where among others the S&P 500 funds rate for the third time to 1.5%, since 2014. increased 19% in the year- were in one of the last actions led by its the country.However, throughout operation inthenorthernpart of of astrikeinanimportantmining the endof2016,andimpact growth duetotheslowdown by there wasasignificantdecrease in widened. Atthebeginningof2017 long termtrendandcapacitygaps In Chiletheeconomygrewbelowits reflecting alowriskperception. down tominimumhistoricallevels, financial markets,likeVIX,were However, volatilitymeasuresinthe generated alotofuncertainty. North Korea’snucleartests The geopoliticaltensionsaround stimulus bythebeginningof2018. the withdrawalofitsquantitative Bank (ECB),signaledthestartof other hand,theEuropeanCentral replaced byJeromePowell.Onthe president JanetYellen,beforebeing global traderecovery andbetter Despite thebetterglobalscenario, period witha1.1%drop. year ofcontractionandclosing the to disappoint,completinga fourth fixed capitalformationcontinued increased 2.6%intheyear,gross Although privateconsumption by purchasesofdurablegoods. accelerate inthelastmonths,fueled remained resilientandtendedto Household consumptionspending growth. 1.5%, oncemorebelowpotential All inall,theeconomyexpanded 3.3% growthonthefourthquarter. contraction onthefirstquarter,toa dynamism, movingfroma0.4% Thus, activityshowedabetter scenario andtherecoveryofmining. favored byabetterexternal the yeareconomyrecovered, earners wasdirectly orindirectly fraction oftheincreaseinwage- self-employment. Aswell,a large creation duringtheyearlinked to of 2.2%,withalargepart job which expandedatanaverage rate important reboundintheworkforce, in 2016).Thelatterreflectsan above thatofpreviousyears(6.5% a 6.7%averagein2017,slightly the unemploymentrateendedwith growth inemployment,although of abetterdynamism,with2% The labormarketshowedsigns presented adeficitof1.2%GDP. account, ontheotherhand, expanded 4.7%.Thecurrent contracted 0.9%,whileimports phenomena. During2017exports affected largelybyspecific did notshowagreatdynamism, terms oftrade,theexternalsector 37 Annual Report 2017 Real GDP Chile, real GDP Internal demand (y/y change, %) (y/y change, %) (y/y change, %)

2016 2017E 2018E 3.6 3.0 2.9 Brazil -3.5 2.3 2.0 1.0 1.8 1.3 1.5 3.2 1.1 South Korea 2.8 -0.4 3.0 3.0 2014 2015 2016 2017 2018E 2014 2015 2016 2017 2018E India 7.1 6.7 7.4 China 6.7 Average copper Price Average WTI oil price 6.9 (US$/BBL) 6.5 (US$/LB) U.S. 1.5 2.3 3.1 2.8 3.0 2.5 2.5 2.2 93 Eurozone 1.8 59 2.5 49 43 51 2.2 Japan 0.9 1.6 1.2 2014 2015 2016 2017 2018E 2014 2015 2016 2017 2018E

fueled by the public sector. Real stimulus, reducing the monetary the previous government –the wages tended to accelerate by policy rate from 3.5% in January to “Obamacare”- are eliminated. the end of the second quarter, due 2.5% in May 2017. On the fiscal side, During the period, Europe was to important negative inflation the increase in copper prices during marked by a series of political surprises on that part of the the year improved fiscal income 38 tensions. At the beginning of the year, but latter moderated their which, added to a slight moderation year, the election of Emmanuel expansion averaging a 2% increase in the expansion of spending, Macron in France contained the in the year. translated into a stabilization of the protectionist positions that had public deficit, which closed the year The peso continued to strengthen manifested in the Brexit vote in the at 2.8% of GDP. and appreciated 7% against the United Kingdom the previous year, American dollar, moving from 670 In the political front, the tax reform and that threatened to keep moving $/US$ at the beginning of January, promised by Donald Trump’s forward with the help of Marine Le to around 615 $/US$ at the close of government advanced substantially Pen’s candidacy. In Germany, the the year. This drop in the exchange in Congress and was on the verge September elections ensured a new rate also translated into a real of being approved. Mainly, the mandate for Chancellor Angela appreciation of the currency. Thus, reform reduces the marginal tax Merkel, although also weakened the real exchange rate remained rate on individual income from her position in parliament and during 2017 around 3.4% below the 39.5% to 37%, cuts the corporate hindered the formation of her average of the last 15 years. tax rate from 35% to 21% and drops new government. On the other Inflation, that had dropped sharply the tax rate on so called pass- hand, the government of Catalonia during the second half of 2016 through1 companies from 39.5% promoted a plebiscite to declare its together with the appreciation of to 25%. Also, a series of taxes and independence, which was cancelled the peso, continued to deepen its tax exemptions are eliminated, by the Constitutional Court of fall in a context of greater slack, and incentives are introduced for Spain, and that led to new elections and by mid-year settled in the lower North American companies to pay in which the pro-independence part of the Central Bank’s tolerance taxes in the United States. Together again obtained a majority at range. In this context, the issuing with the latter, some components parliament (albeit by a slight institute decided to inject a larger of the health system reform of margin). The uncertainty generated

1. Companies that don’t pay corporate taxes, but instead their owners pay taxes on the income obtained on an individual basis under the corresponding income tax rates. ($/US$) Average nominal exchange rate his powerincreasedsignificantly the bodyfornextfiveyears, and secretary XiJinpingaspresident of Communist Partyratifiedgeneral In China,theXIXCongressof the steps. negotiation powerforthenext latter substantiallyreducesMay’s before beingimplemented.The approved byaparliamentaryrule regarding theBrexitmustbe established thatanyagreement –with pro-governmentvotes- political defeatwhenparliament Theresa Maysufferedanimportant the EU.However,PrimeMinister that theBritishshouldpaytoexit of theamountcompensations December thatincludesanestimate partial agreementwasreachedin difficulty throughouttheyear.A for theBrexitadvancedwith and theEuropeanUnion(EU) between theUnitedKingdom On theotherhand,negotiations from theautonomouscommunity. with animportantexitofcompanies economic consequencesinSpain, by theCatalonianprocesshashad GDP) (% result fiscal Effective -1.6 570 2014 2014 654 -2.1 2015 2015 677 -2.7 2016 2016 649 -2.8 2017 2017 2018E 2018E 615 2.0 are theexternal scenarioandthe the potentialtrend.Onitsside after severalyearsgrowing below be toresumeeconomicdynamism, the mostimportantchallenges will obtaining 54.6%ofvotes.One with broadcitizensupportafter in Chile,SebastiánPiñerawon In thelastpresidentialelection productivity andsustaingrowth. public sectorinordertoincrease and promoteefficiencyonthe reduce thecurrentlyelevatedrisks, on thefinancialsectorinorderto introduction ofmoreregulations sustainable andcleaneconomy, towards thegenerationofamore front, theagendaisoriented on globalissues.Onthedomestic strategy ofopennessandinfluence of commercialintegrationanda investment, thestrengthening development, theexpansionof hegemony throughmilitary desire toachievegreaterworld which aresynthetizedinthe the nextdecadeswereoutlined, During theCongressgoalsfor included intheConstitution. as hispoliticalthesishavebeen (%) Average unemployment (%) rate policy Monetary 6.4 3.8 2014 2014 3.1 6.2 2015 2015 6.5 3.5 2016 2016 6.7 2.7 2017 2017 2018E 2018E 2.6 6.6 Senate. constitutional procedurein the the vergeofstartingitssecond to approvetheprojectthat ison Given thelatter,it'simportant countries andintheregion. to regulationsinadvanced has fallenbehindwithregards system isrobust,legislation Although theChileanfinancial to theGeneralBankingLaw. on theproposedamendment necessary tocontinueadvancing the currentgovernment,itwillbe that willprobablyinheritfrom Within thelegislativeagenda will dependonthelatter. adjustments tothetaxburden spending expansionandeventual how muchisstructural.Public larger incomeiscyclicaland determine howmuchofthe be importanttoadequately rates andcopperprices,itwill be favoredbyhighergrowth although fiscalincomewill fiscal discipline.Inthissense, demands withoutsacrificing channel aseriesofsocial challenge willbetoadequately last months.Anotherimportant recovery oftrustseenoverthe (y/y change, %) (y/y change, Labor income (y/y change, %) (y/y change, Average inflation 3.4 4.7 2014 2014 4.3 3.2 2015 2015

2.8 3.8 2016 2016 4.0 2.2 2017 2017 2018E 2018E 4.3 2.4 39 Annual Report 2017 in nominal terms, although lower Total deposits increased 3% – FINANCIAL SYSTEM than the previous year’s 9.6%. The excluding Corpbanca’s investment During 2017 loan volumes in the latter responds, on the one hand, in Colombia and BCI’s in the U.S.- banking system maintained the to the lower inflation registered slightly below the 3.6% figure of trend of the previous year, this is, in 2017 compared to the previous 2016. The dynamics of savings decelerating growth as a reflection year, as well as the slow economic in the system responded to the of the economy’s slow dynamism, dynamism. Commercial loans international and local economic although somewhat less than what expanded 1.5% in nominal terms, scenario, the internal interest rate was seen in 2016, despite having below the 3% of 2016, being the levels and loan growth slowdown. recorded a slight recuperation lowest figure in the last years. The low interest rates and inflation during the first quarter. Hence, total Finally, consumer loans grew in Chile, together with a good loans increased 4.7% in nominal 7.1%, above the 6.7% recorded in performance of the local stock terms –excluding Corpbanca’s the previous period, and despite market pushed investors to seek investment in Colombia and showing a strong rebound in the other investment securities, like BCI’s in the U.S.- below the 5.3% first quarter with an 8.9% increase, variable income and mutual figure of 2016. Activity was led by to then slow down gradually funds. The latter grew 8.8% in the mortgage loans that grew 10.1% throughout the rest of the year. year, below the 9.5% increase of

Summarized income statement (MMM$)

DEC 16 DEC 17 CHANGE 17/16

Net interest income 6,207.2 6,626.0 6.7%

Net fee and commission income 1,574.0 1,720.6 9.3%

40 Financial transactions, net 941.4 836.7 (11.1%) Other operating income, net (187.8) (22.9) (87.8%)

Gross operating income 8,534.8 9,160.3 7.3%

Provisions for loan losses (1,623.2) (1,697.3) 4.6%

Total operating expenses (4,486.1) (4,721.3) 5.2%

Income before tax 2,456.4 2,869.1 16.8%

Income tax expense (491.4) (632.2) 28.6%

Net income 1,964.9 2,236.9 13.8%

Chilean banking system ratios (%)

2017 2016 2015

Return over average assets 1.04 0.95 1.15

Return over average equity 12.4 11.6 14.7

BIS ratio system1 13.57 13.78 12.62

Efficiency 49.4 50.2 47.4

Non-performing loans / total loans 1.95 1.87 1.88

Expected loss 2.49 2.50 2.38

Loans / deposits2 90.6 89.6 89.7

Source: Superintendecy of Banks and Financial Institutions. 1. As of November 2017, last available figure. 2. Total loans excluding the portion of mortgage loans financed with long term bonds. than in2016. reached MM$2,236.9,13.8%higher net incomeforthebankingsystem reform approvedin2014.Finally, to 25.5%in2017asstated thetax in thefiscalratefrom24% 2016 of higherincomeandtheincrease tax grew28.6%asaconsequence tax incomeincreased16.8%.Income operating expenses.Allinall,pre- transactions resultsandhigher was compensatedbylowerfinancial growth. Alloftheabovementioned expense increaseinlinewithloan translated intoaloanlossprovision latter isastableassetqualitywhich 9.3% intheperiod.Addedto increased 6.7%,whilenetfeesgrew expenses. Netinterestincome well astheeffortstorationalize and controlleddelinquency,as 2017 asareflectionofloangrowth The industrypostedgoodresultsin compared to2.50%in2016. at 2.49%bytheendofyear loans) remainedalmostunchanged as loanlossallowancesovertotal index orexpectedloss(understood 1.87%. Ontheotherhand,risk 1.95%, slightlyhigherthanlastyear’s loans asoftheclose2017reached non-performing loansovertotal controlled delinquencylevels.Thus, healthy loanportfolioswith continuous effortstomaintain a consequenceoftheindustry’s economic growth.Thelatteris previous year,despitethelow around thesamelevelsof Portfolio qualityremainedstable in 2016. 0.1% incomparisontoa5.2%growth year, whiletimedepositscontracted compared to0.4%intheprevious demand depositsexpanded9.6% from LatinAmerica.Allinall, continued toattractcapitalflows States andtherecoveryinEurope growth consolidationintheUnited the year.Inaddition,economic especially duringthefirsthalfof 2016 albeitwithagooddynamic, Colombia and from BCI in the U.S. the in BCI from and Colombia in Corpbanca from investments Excludes ( System Banking Chilean the in growth Savings Mutual funds Commercial loans Demand deposits Consumer loans ( System Banking Chilean the in growth Loan Colombia and from BCI in the U.S. the in BCI from and Colombia in Corpbanca from investments Excludes 133.4 MMM MMM D D D D 50.3 30.9 58.9 ec ec ec ec 16 16 16 9.5% 16 0.4% 3.0% 6.7% US$ and %) and US$ US$ and %) and US$ 133.4 58.0 Mar 17 Mar Mar 17 Mar Mar 17 Mar 17 Mar 55.4 31.3 14.0% 5.4% 2.9% 8.9% 134.1 J J J J 57.2 31.5 59.1 un un un un 17 17 17 17 15.4% 5.7% 2.1% 8.0% 134.9 S S S S 58.4 58.2 31.9 ep ep ep ep 17 17 17 17 11.7% 9.2% 2.0% 7.3% D D D D 135.4 64.5 54.8 33.1 ec ec ec ec 17 17 17 8.8% 9.6% 17 1.5% 7.1% Total loans Total savings Mortgage loans Time deposits 128.0 237.2 229.1 D D D D 64.8 ec ec ec ec 16 16 16 4.8% 5.2% 16 5.3% 9.6% 238.5 125.1 66.4 Mar 17 Mar Mar 17 Mar Mar 17 Mar Mar 17 Mar 231.1 4.0% -0.4% 5.5% 9.4% 125.9 242.2 233.7 J J J J 68.1 un un un un 17 17 17 17 5.0% 0.7% 5.0% 9.7% 244.2 236.3 127.6 S S S S 69.5 y/y change, % y/y change, y/y change, % y/y change, ep ep ep ep 17 17 17 17 5.6% 1.5% 4.9% 9.8% 127.9 239.9 247.2 D D D D 71.4 ec ec ec ec 17 17 17 17 4.2% -0.1% 4.7% 10.1% 41 Annual Report 2017 Banco Santander has a Strategic Plan Strategic that responds to the current demands in the industry and allows us to face the plan and new challenges in the environment. For the latter its fundamental to count with value the performance of a first-class team led by the Bank’s senior management, creation a recognized and professional Board and mainly external, and the support of Santander Group.

MISSION VALUES Contribute to the progress of people and businesses 1 4 Leadership Talent We have a leadership vocation born We promote meritocracy, team from the valuation of our clients work and self-management, VISION which are at the center of our daily fostering performances of life, from a country that sees us as To be the leading and most valued excellency. We recognize the relevant actors and committed with 42 bank in the country, putting the potential in each person and its progress, from our teams, which client at the center of our raison generate personal and professional can fully develop, and from our d’etre. development opportunities. shareholders through a solid and stable institution over time. 5 Ethics 2 We carry on our work and assume Management of excellency tasks and responsibilities, observing We like a job well done. We set and respecting the law, both in ourselves clear, challenging and form and in spirit. We avoid that shared goals that allow us to fully our individual behaviors within develop our capabilities, with or outside the institution, cause monitoring and control policies, to material or moral damage, and be the best Bank for our clients and compromise or affect the image and the country. dignity of persons, and of Santander Group. 3 Client orientation 6 We are a services company and clients are our raison d’etre. We Commitment with the society work to generate solutions that We contribute in the construction simplify their lives and permit them of a better country through our to experience the best possible sustainability policy and the service experience with us. We want adhesion to fundamental rights, to fulfill their dreams and make their equality of opportunities, non- ideas and projects come true in a discrimination, protection of the long standing relation based on environment, and the balance trust and excellency. between personal and work life. We bring value to our audiences:

EMPLOYEES CLIENTS Contribute to Deliver to our clients the the professional best service experience, development and simplifying their lives improvement of work and helping them life quality of our teams. accomplish their ideas.

SOCIETY SHAREHOLDERS Collaborate in the Achieve a sustainable development of the and above the average 43 country and the progress profitability, and an of those most in need. adequate valuation for their investment. Annual Report 2017 Report Annual

We have 1 3 Substantially improve customer Deepen the relationship model defined four experience. in Middle-market and Corporate strategic Banking. objectives: 2 Develop new ways to relate with 4 our clients through the continuous Promote and manage a cultural transformation of Retail Banking. change, incorporating the new Simple, Personal and Fair style. Business model

1 PART OF SANTANDER GROUP 3.5% Banco Santander Chile is part of Santander Group, its of the Group’s main shareholder with 67.18% of the shares. It’s the second total assets most traded stock in the country, represents 3.5% of the Group’s assets and 6% of the consolidated net income. It’s PART OF an autonomous subsidiary in terms of financing, capital and of6% the Group’s SANTANDER liquidity, answering to a local management, which protects consolidated net income GROUP the Bank from the issues generated by external crisis. It’s governed by a robust regulatory framework that sets strict limits to operations with related parties, and strong corporate nd governance, with a Board that is mainly external and with most2 traded active participation. stock in Chile

2 Wide branch A UNIVERSAL BANK and ATM A UNIVERSAL 44 Santander serves the needs of all types of clients: network BANK individuals with different income levels, companies across the of different sizes, private corporations and public country institutions. Its loan portfolio is widely diversified in multiple economic sectors, focusing on housing and consumer lending. Loans to individuals represent of56% loans to 56% of total loans, while the remaining 44% are loans individuals to companies and corporations. Also, it has a wide product range to satisfy the needs of its clients, with a distribution network (branches, internet, call center, 44% ATMs and mobile) with country-wide coverage. of loans to SMEs, FOCUS IN companies and CLIENT corporations BANKING

3 FOCUS IN CLIENT BANKING Although it’s a universal bank, Santander of79% results bases its activity in Commercial Banking generated by (individuals and companies), which Commercial generates around 79% of results. It’s a Banking Bank with a large presence in the retail segment and leads the market in consumer st and mortgage loans. It’s the number one in1 total clients bank in checking accounts and banking credit cards. Its wide distribution network allows serving over 3.5 million customers, st positioning it as the first bank in the in1 checking country. accounts and credit cards PRUDENCE AND RISK SHEET BALANCE STRONG TEAM THE BEST model isbasedonsixpillars: and businesseswithaSimple,PersonaFairstyle.This mission thatstrivestocontributetheprogressofpeople center ofitsdailyworkandisalignedwiththeinstitutional Banco Santander’sbusinessmodelputstheclientat ALLOCATION RESOURCE EFFICIENT as theChileansovereign. the riskappetite.TheBank’s riskrating,Aa3,isthesame adequate delinquencylevels andgoodcoveragegiven model andprudentmanagement principlestranslateinto balance sheetandhighprofitability.Anadvancedrisk system’s average,anadequatelyfinancedcommercial funding diversification,astrongcapitalbaseabovethe profile onalltherisksitfaces.It’sdistinguishedbyits Banco Santandermaintainsamiddle-lowandpredictable 6 fundamental concepts:Simple,PersonalandFair. that integratesethicalcriteriaandbasesitsactivityinthree over 5,000employees.Itdrivesacustomer-centricculture, the GreatPlacetoWorkranking,amongcompanieswith rate andwidetrainingcoverage.Santanderranks2ndin environment withhighsatisfactionlevels,apromotion the company’ssustainabilitythroughaninternalwork of peopleandbusinesses.Theseprofessionalsensure fulfill theinstitution'smission,contributetoprogress Banco Santanderhas11,068employeesthatworkto 4 organization. resources tosatisfytheneedsofclients,throughasimple constantly searchingforanoptimalallocationof Santander isthemostefficientbankincountry, 5 STRONG BALANCE SHEET AND RISK PRUDENCE THE BEST TEAM EFFICIENT RESOURCE ALLOCATION coverage 128.8% core capital 11% risk rating Aa3 male 45% female 55% employees 11,068 efficiency 41% issue Material 45 Annual Report 2017 SPF style

Our way of doing things is based on a style:

1 2 3 SIMPLE PERSONAL FAIR

Offer our clients a quality service, Treat clients as if they were unique, Treat clients in a fair and equal easy to understand products and delivering a tailor-made service. manner, with transparency and permanent connectivity to attend solving their requirements with their requirements. maximum diligence.

This style translates into eight behaviors that reflect the Santander culture:

1 4 7

EMPATHIZE WITH KEEP PROMISES: DEVELOP THE TEAM: OUR CLIENT: nothing worse than being grow making others grow and learn everything starts and ends with this. incoherent and leave others waiting. from mistakes.

2 5 8

SHOW RESPECT: COLABORATE: PLAY FAIR: treat others as you would like to be there are no “others” yes to transparency and no to treated. only “us”. shortcuts.

3 6

TRULY LISTEN AND SPEAK TAKE THE INITIATIVE: CLEARLY: things don’t happen for a reason, this way we avoid misunderstandings but because of someone. and question constructively. Banco Santander has launched a Business deep commercial transformation process to face a more competitive areas scenario and align with client’s new expectations and needs, thus ensuring the company’s sustainability.

Material issue To accomplish these 1 challenges, the business RETAIL BANKING areas have adjusted their strategy putting the client This division has made a sustained of the low-income business; the digital deployment and the effort aimed at transforming into at the center and working change in the incentives model for the best retail bank in the country. towards a healthy and commercial executives. To that extent it has driven an profitable growth. This 47 increasing digital development has allowed the Bank to and the transformation of its client 2017 HIGHLIGHTS win the trust and loyalty relationship model. • Launch of Life, innovative of clients and strengthen Retail Banking serves Individuals value proposal for middle and low income segments, which operational excellency. and SME segments. The former recognizes and rewards good includes high, middle and low clients.

income individuals. SMEs serve 2017 Report Annual • Consolidation of the Work small and mid-sized companies with Café model, with a total of 20 annual sales below $1,200 million. branches throughout the country Delivers a variety of products by the end of the year. and services to clients, consumer • Innovative plans in means and mortgage loans, credit and of payment, with highlight debit cards, checking and demand launches such as Limited Plan accounts, savings and investment and the massification of the WorldMember Black credit card. and insurance products. In addition, offers specialized loans for working • New products for SMEs like capital and foreign trade, state Atrevete Plan, oriented towards smaller companies. guaranteed loans, leasing and factoring. Retail Banking represents • Technological advances reflected, close to 54% of the Bank’s net among others, in the 100% digital On Boarding and improvements results. in the Santander App. In 2017 Retail Banking focused its • Changes in the incentives model efforts in the development of the for commercial executives, new client service concept reflected incorporating international in the Work Café; the transformation standards. 2

MIDDLE-MARKET BANKING

This division includes mid-sized in which a relevant part has been b. Interactive presentations, to companies with annual sales the financial advisory work carried promote products and services between $1,200 million and $10 out through the Business Centers during meetings with clients. billion; large companies with annual implemented across the country. • Boost foreign trade to sales over $10 billion; and real estate The strategy of listening to clients consolidate as the best companies including all entities that to detect their needs was clearly alternative in the market execute projects for third parties, as fundamental in the improvement of leveraging on the new platform well as construction companies with customer satisfaction results. Net annual sales over $800 million. Also, Mercury and the international satisfaction increased four points with serves the institutions segment, presence of Santander Group. respect to 2016, and three attributes which includes organizations Improvements in processes and were the most valued by clients: such as universities, government information available for clients entities, municipalities and regional in relation to credit letters, governments. • Security. collections and payment orders, resulting in a 6% increase in new Offers a wide variety of products, • Stability. foreign trade clients and an 8% including commercial loans, • Variety of operations that can be rise in client loyalty. leasing, factoring, foreign trade conducted. Material and mortgage loans, credit cards, issue checking accounts, transactional Material and treasury services, financial 2017 HIGHLIGHTS issue • Middle-Market continued advisory and investment banking, strengthening Office Banking • In April 2017, Middle-Market savings and investment and (the online bank for the presented “Digital Office”, a insurance products. segment’s clients), which tablet for commercial executives 48 saw updates in the account Middle-Market represents close loaded with: statement and transfer services. to 29% of the net contribution of a. NEO Connect BEI, a mobile the Bank’s business segments. • New Santander College version, version of NEO CRM that focuses Its strategy during 2017 geared enhanced based on an alliance on the usage of the device’s towards mid and large-sized mobile functions, like camera and with the Centro de Medición de companies, focusing on higher value geo-localization, to encourage la Pontificia Universidad Católica, added non-credit related products. the mobility and efficiency of Mide UC, which identified the During the last years, Middle-Market the teams, and oriented towards knowledge gaps of commercial has developed and consolidated commercial visits and delivery of executives in order to optimize an integral client service model, a value offer that surprises clients. training plans. • over theworld. financial advisorforclients from all consolidated ascross-border in theChileanmarket.Italso size, complexityandvisibility relevant operationsintermsof by participatinginthemost strengthened itsleadership During 2017SantanderGCB Bank’s netresults. GCB representscloseto17%ofthe and GlobalMarkets.Santander Financial Solutions&Advisory; Global TransactionBanking; Corporate &InvestmentBanking; satisfy theneedsofthissegment: It hasfourspecializedunitsto risk coverageneeds. client’s financing,investment,and in 22countrieswhereitserves wholesale products.Itispresent services orhighvalue-added sophistication, requiretailormade given theirsize,complexityor clients andinstitutionsthat, innovative solutionsforcorporate This globalbusinessunitoffers 3 achieve ourgoals. was launchedhasbeenkeyto The deepdigitalrenewalthat CORPORATEBANKING (GCB) SANTANDER GLOBAL • • • 2017 HIGHLIGHTS 2.5 times. investor demandequivalent to in themarket,gatheringan The bondraisedalargeinterest with a67basispointsspread. placement ratereached1.87% in thelocalmarket.Thebond million (US$250million)bond ENAP ontheissueofaUF6.5 Exclusive financialadvisorto complexities ofoperations. done consideringamountsand is arecognitiontothework Global FinanceMagazine.This Provider 2017inChile,by Awarded BestTradeFinance highlighted. team during2016werealso and achievementsoftheFX Cash Managementbusiness As well,innovationsinthe Trade Financeoperations. bond issuancesandtwo & Acquisitionsmarket,five eight operationsintheMergers the ProjectFinancemarket, four featuredoperationsin Euromoney. Theawardcovered Investment BankinChileby Banking waschosenBest Santander GlobalCorporate • • • • Meridian forEUR 10million. French infrastructurefund hospital concessiontothe 49% stakeintheFélixBulnes Astaldi inthesaleprocessof a infrastructure: SGCBadvised Disinvestment ofAstaldiin owner oftheremainingstake. region toPacificHydroChile, Chacayes intheO’Higgins hydroelectric powerstation 27% stakeinrun-of-the-river SGCB thecompanysoldits energy: withtheadvisoryof Disinvestment byAstaldiin GCB. in thisoperationbySantander US$120 million,andwasadvised to HurtadoVicuñaGroupfor stake inCementosPolpaico LafargeHolcim solda54% the Chileanpopulation. electric lines,andserves95%of controls 10,000kilometersof for US$1,300million.Transelec Power GridInternationalCo. in Chile-toChinaSouthern main transmissioncompany of a28%stakeinTranselec– Partners LPagreedtothesale GCB, BrookfieldInfrastructure With theadvisoryofSantander 49 Annual Report 2017 Technology and innovation

Material issue

One of the main goals during 2017 was to advance quickly and with content, in digital transformation. Given the latter, Banco Santander strengthened and consolidated a series of processes in various fields, which has allowed the Bank to offer higher security and better services to clients, thus ratifying its position as a leader in digital banking.

In this context, the most important highlights were:

50 1 4

In business continuity, key aspect to defense and response to external In IT development and digital transform customer experience, the threats, ensuring robustness and transformation, the Division Technology and Operations Division reliability to clients in relation to consolidated the work it had achieved a record regarding incidents the protection of information and been carrying out under the Agile methodology. The processes in technological platforms with no transactions. platform was left completely more than 0.6 per day in 2017, a operational, incorporating to its figure that compares favorably with 3 architecture enablers that allow the record of almost three incidents In services and operations, several continuing advancing in digital in 2015 and one in 2016. In addition, processes were strengthened and developments. Together with the there was a relevant reduction in improved, thus optimizing the latter, 465 projects were developed, obsolescence, which reached 47% in levels of transaction services to of which 203 are classified as databases, 40% in operating systems 100% of trade finance operations, digital. The most important was and 23% in critical applications. 86% of leasing, factoring and the change of technology model, Fundamental for these achievements confirming operations, and 100% which allowed enhancing the quality was the investment in production of massive factories. As well there assurance unit in implementation, infrastructure, which reached US$ 35 was a 9% reduction in complaints, besides creating a capacity analysis million. also diminishing the response time area based on the integration of to complaints by a 67%. All of the development teams. All of the above abovementioned was possible should translate into significant Material thanks to the strengthening and improvements in development times 2 issue focus on the post-sales area. There and a reduction in costs associated were also improvements in the In cybersecurity, an important to technological implementation, quality and quantity of operations and currently increasing risk, the thus making the Technology and processed every day for all of the Operations Division a lever to Bank invested a significant part of Bank’s products, with mortgage generate competitive advantages its Capex –above 7%- in tools for loans standing out. for the Bank. INNOVATION POLICY

For Banco Santander innovation is and on the other, higher efficiencies During 2017 some traditional a continuous process that commits due to process optimization, both branches were redesigned integrating it as a whole entity, and that seeks because they are simplified and the Work Café model in regards to the systematic and incentives, leaving to retrieve those initiatives key because the application of new aside only co-work spaces and the to improve developments related models or technologies permit the coffee shop. This has meant placing to customer experience. Through reduction of operating costs. the Bank at the forefront in service services and procedures that One of the flagship projects in models, reaffirming its innovative add value to clients, Santander this line is the Work Café branch. imprint. 51 wants to generate a relevant Implemented in 2016, the initiative Beyond the developments in impact in the business identifying was a pioneer both in the local products and services, Banco client’s preferences and trends or market and within Santander Group. Santander is focused in creating anticipating them. The success has driven the expansion an innovation culture, so as for it The latter translates into an evident of this service model, but also the to become in the mid-term part improvement in service, and by adaptation of some traditional of the DNA of all the divisions extension, in client perception. This branches based on the learnings and employees, translating into 2017 Report Annual entails, on the one side, more income, obtained in its implementation. sustainable results for the company.

supported by the Centro de over 18 years of age, professionals, INNOVATION AWARD Innovación, Emprendimiento residing in all regions of the For the second year in a row, y Tecnología (CIET) of the country, and that had or had Banco Santander was included Universidad Adolfo Ibáñez, had a relation with the evaluated among the 50 companies that Microsoft, XPGConsultNet and industry. best manage innovation in Chile. América Retail. The latter according to the Best The ranking was constructed on Place to Innovate 2017 ranking, the back of a quantitative study prepared based on a perception that included 2,270 structured study from GfK Adimark and interviews to men and women Sustainability at Santander Chile

Banco Santander understands sustainability as the ability to adapt to new demands with creativity and innovation; to generate value for stakeholders and procure social and economic progress, and mitigating environmental impact wherever it’s present.

52 Part of the Bank’s Materializes in business, not an products, services LOYE EMP ES additional task. and business

management.

L E

H SANTANDER CHILE

SUSTAINABILITY

MODEL

Part of

Country-wide.

corporate culture

R (as each employee

I understands his

Y U

work and acts

consequently).

Respects the Reflected in environment. communication (massive, individual, digital). • • • description seepage122): of actionweredefined(forafull the followingthreesupportinglines opportunities toprogress.Thus, as itgivesaccesstonewandbetter importance asanessentialfactor, area, thestrategyemphasizesits differentiating highlightsinthis one ofSantander’smostimportant Capitalizing aswelleducation applied byallareas. that issharedand structures astory the businessand set inthecenterof sustainability is whole. Tothisend, the societyasa suppliers and shareholders, employees, clients, trust andloyaltyof bank, basedonthe best commercial aspiring tobethe and businesses, progress ofpeople contributing tothe achieve itsmissionof Santander Chileto used byBanco the essentialtools strategy isoneof The sustainability Financial education Higher education Primary andsecondaryeducation

familiar scopes. balancing theirpersonal,workand feel happy,growandprogress, place wheretheycandevelop, to work,offerasafeandattractive an employeristobethebestplace and abilities.Themainchallengeas contribute to society with their ideas to actasabridgeforemployees businesses. Thus,theBankwants to theprogressofpeopleand shares themissionofcontributing and committhebesttalent,which latter, theBankstrivestoattract Santander’s development.Giventhe in thesustainabilitystrategyand differences, theyarefundamental are diverseandrespectfulof Composed ofindividualsthat reputation. construction andcareoftheBank’s benefit, andthatcollaborateinthe establish permanentlinksofmutual context ofsustainability,seekingto with themareundertakeninthe defined andtherelationships model. Theywerecorporately of BancoSantander’sbusiness Stakeholders representthecenter page 102). more detailseeClientschapter on at thecenterofexperience (for series ofinitiativesthatputthe client adjusted itsstrategyandstarted a a referenceinclientsatisfaction,it the mostrecommendedBankand and fidelity.Topositionitselfas them, basedontrust,transparency build longlastingrelationshipswith Santander ispermanentlyseekingto the sustainabilityofbusiness,so They arefundamentaltomaintain CLIENTS EMPLOYEES STAKEHOLDERS issue Material granted bytheChileangovernment. holding theProPymesealsince2011, corporate policies,inadditionto Human RightsandGlobalCompact adheres totheUnitedNation’s suppliers ispartofthevaluechain, that asustainabledevelopmentof mitigate risks.Asitunderstands the Bankseekstoinnovateand sustainability. Togetherwiththem, is keyfortheBank’sbusiness relationship andofmutualbenefit Maintain withsuppliersastable Bank hasattheirdisposal. communication channelsthatthe in atimelymanner,throughvarious information clearly,truthfullyand the baseofprovidingallavailable long termrelationissustainedover percentage inthebusiness.The independent oftheownership all shareholdersisguaranteed, addition, equaltreatmentto profitable andsustainable.In and makingtheirinvestment and services,generatingprofits, management ofrisks,products shareholders througharesponsible Santander createsvaluefor and FinancialEducation. Primary andSecondaryEducation, in threeareas,HigherEducation, tools andlearningopportunities individual’s progress,sodelivers constitutes aprimeenginefor action. Itunderstandsthatthis education isthemainfocusof programs inthecommunity,where progress throughinvestment contribute toeconomicandsocial Banco Santanderwantsto

SUPPLIERS SHAREHOLDERS COMMUNITY 53 Annual Report 2017 COMMUNICATION CHANNELS

EMPLOYEES CLIENTS SHAREHOLDERS SUPPLIERS COMMUNITY

Ordinary Service evaluation Global commitment Corporate web page Shareholder’s and monitoring Press room. survey. and its sections. Meeting (annual). process.

Acknowledgment Social network Sustainability web Starmeup. Quarterly reports. of outstanding campaigns. site. suppliers.

“Santander Comprometidos”: monthly digital Profiles in social Virtual Attention newsletter that networks: Facebook, Shareholder Center (CAV), and informs clients Twitter, YouTube, mailbox and e-mail live and mobile (CAP about the various Instagram and communication. and CAP mobile). actions in which the LinkedIn. Bank and its teams commit for a more sustainable Chile.

Membership and Corporate intranet New Santander App Service phone participation in updated daily. version. numbers. non-government organizations.

Claims App and web that Social networks: allow channeling Shareholder releases Facebook, Twitter, Massive e-mails. complaints simply (Annual Report, YouTube, Instagram and with traceability 20-F report). and LinkedIn. 54 of the solution status.

Santander Audiovisual “Flash económico”: SMS messages. Universities section capsules. economic analysis. in corporate website. IDEAS magazine and special editions; Investor Relations internal releases in Opinion columns. App. physical and digital formats.

News Human Resources Division: monthly digital newsletter that VOX client service. covers sports and cultural activities, benefits and campaigns.

Internet mobile. Branches for all client segments. Surveys (through different channels). Information about campaigns and products sent via e-mail. MATERIALITY

In 2017, Banco Santander The process was conducted commissioned a specialized in accordance with the GRI consultant to conduct a materiality G4 methodology, and defined study to identify the most relevant the following list of high aspects for stakeholders, and include relevance issues: them within the Annual Report. Material issue / see throughout this report.

Risk Management Reputational risk Multichannel and Commercial offer digitalization with positive social impact

Cybersecurity Client Innovation in products Economic and and information satisfaction and services financial performance protection

Commercial offer with Environmental risks of Promotion of positive environmental the business diversity and impact inclusion

Environmental Social investment Human capital management programs development 55

Economic issue Environmental issue Social issue Impact within Impact the company outside of the company Annual Report 2017 Report Annual

Identification process of relevant aspects

Internal aspects External aspects

Ideas magazine Institutional Corporate Press SDG Industry Matrix presentation of the Santander 2015 reports for Financial Services Finance Division materiality study (sustainable development goals matrix for financial services)

Quality Annual Materiality studies Social GRI Standards benchmark Report 2016 from other banks networks report

Sustainability DJSI questionnaire SASB materiality Monitoring DJSI – Financial strategy Chile 2017 map of written Industry – Banks press COMMITMENT OF BANCO SANTANDER WITH SDG

Sustainability is a daily and global 1 9 challenge. This is reflected in the Promotes poverty eradication. It’s the leading financial institution in commitment of the 195 participant the country financing infrastructure countries, plus the European Union projects. (196 signatories), which in 2015 3 adhered to the 17 Sustainable Has several policies that promote 10 Development Goals (SDG) of the health and wellbeing of employees United Nations. Inspired in these goals and their families. Encourages financial inclusion of Banco Santander Chile focused on communities and boosts training, the promotion of economic growth entrepreneurship and employment 4 and country development through creation. education. Also, these goals are in line Boost quality education in the with the Bank’s Simple, Personal and most vulnerable segments as well 11 Fair culture: if simple to understand as in higher education, to help the Contributes to the progress of and use products and services are progress of communities in which people and businesses to support the offered, adjusted to a personal offer it’s present. sustainable growth of communities. based on client’s needs, funded on a fair and transparent relation, it is 5 possible to advance consistently 12 Promotes an open attitude towards towards a sustainable development. Looks after the correct integration diversity, being a basic principle of of ethical, social and environmental This is how through its business its actuation to guarantee non- criteria for the development of a activities and investment programs in discrimination. the community, Banco Santander has responsible activity. an impact on the following SDG: 8 13 Aspires to attract and retain the 56 Analyses the social and environmental best talent and for employees to risks of its operations, and boosts feel motivated, committed and renewable energy project financing rewarded. to support the fight against climate change. Paz CiudadanaFoundation Sustainable Development) of theWorldBusinessCouncilfor Acción Empresas(Chileanchapter PROhumana United Nations'GlobalCompact In Chile CDP (CarbonDisclosureProject) Sustainable Beef Work Groupfor Principles (PRI) Responsible Investment Responsible Soy Round Tablefor Equator Principles Wolfsberg Group UNEP FinanceInitiative (WBCSD) Sustainable Development World BusinessCouncilfor (BEI) Banking EnvironmentInitiative United Nations'GlobalCompact At acorporatelevel well asinChile. initiatives, bothatacorporatelevelas Santander adherestoseveral environmental criteriainitsbusiness, integration ofethical,socialand With thegoaltostrengthen INITIATIVES PARTICIPATION IN EXTERNAL listed banksinthe2017index. Santander Chilebeingoneofthesix only 42wereselectedinthefinallist, companies invitedtotheDJSIMILA, companies. Oftheover150 Colombian, PeruvianandMexican and socialperformanceofChilean, measures economic,environmental first indexofthePacificAlliancethat (Latin AmericanIntegratedMarket), Dow JonesSustainabilityMILAIndex Santander Chilealsoenteredthe Sustainability assessment,Banco RobecoSAM’s annualCorporate score (TSS),measuredthrough thanks tothehightotalsustainability compose theindex.Aswell,and in thelistof27companiesthat consecutive year,itwasincluded since then.In2017,andforthethird being partoftheDJSIChileindex in 2015,withBancoSantander The DJSIindexarrivedtothecountry 2000 and2003,respectively. (DJSI) andtheFTSE4Goodsince in theDowJonesSustainabilityIndex actuations incompanies.It’spresent that analyzeandvaluesustainable the mainglobalstockindexes Santander Groupisalsopartof STOCK INDEXES PRESENCE IN SUSTAINABILITY 57 Annual Report 2017 Risk management

Material issue

During 2017, the Bank consolidated a four-year process of consistent improvements in all of its financial ratios, a clear signal that the business model change moves in the correct direction. In this context, the Risk Division took 58 important steps to strengthen an ever more preventive, predictive and proactive risk management, which had as distinctive elements the incorporation of advanced methodologies, solid and well established corporate governance, and the significant involvement of senior management. institution. a Simple,PersonalandFair plan, thatseekstobecome with theBank’sstrategic last years.Theseareinline the RiskDivisionduring have modeledtheworkof Four arethegoalsthat practices aroundtheworld. regulations andcurrent incorporation ofnewnorms, allowing ittopioneerinthe dialogue withdifferentactors possibility ofaconstructive excellence, understoodasthe search forregulatory the Bankisonapermanent 3 that itputsclientsatthecenter. Bank’s strategicplaninthesense the RiskDivisionisalignedwith a secondyearinrow.Thisway, Survey, reachingthebestratingfor outstanding theInternalClient in differentsurveys,beingthemost the divisionwaspositivelyevaluated trustworthy partner.During2017, is fundamentaltobevaluedasa the Bank’sgrowth.Inthisline,it mission tocontributepositively 1 REGULATORY MANAGEMENT: REGULATORY PARTNER: theDivisionhas BE A TRUSTWORTHY BUSINESS 2 Robotics. Analytics, DataManagementand has beenfocusedinAdvanced collection entity.Inthissense,work change engineandnotonlyadata the Divisiontobeanimportant predictive models,soasfor tools, tothenbuildanddevelop adapting thedifferenttechnological has aspecializedteamthatworks management approach.TheDivision major assetinananticipatedrisk strengthening predictability,a tools thatdirectlyinfluenceby Big DataandMachineLearning, technologies hasbeenkey,like controls. Theincorporationofnew and strengtheningautomating market, reducingresponsetimes process efficiencyandtime-to- project, whichhasimproved of theDigitalRiskApproach process fromtheimplementation the Bank’sdigitaltransformation the RiskDivisionhasaccompanied 4 this issue. the Excellencecertificationin Banco Santanderachieved management approach.Also, evolving toanadvancedrisk the-art tools,whichpermitted (ARM) incorporatedstate-of- Advanced ManagementProgram in itsthirdandlastyear,the MANAGEMENT EXCELLENCY: DIGITAL TRANSFORMATION:

59 Annual Report 2017 Financial risks Credit Market Liquidity risk risk risk

Structural risk

Non-financial risks Reputational Model Strategic risk risk risk

Equity Operational Conduct risk risk risk

the instructions issued by the ARM, FROM PROGRAM TO MAIN RISKS SBIF and qualification and risk MANAGEMENT STYLE Banco Santander, within its assessment models approved by The Excellence certification in management and control scope, the Board. advanced risk management defines 10 types of risks –credit, 60 • Loan loss provisions for market, liquidity, structural, equity, achieved by Banco Santander within commercial loans analyzed on operational, conduct, reputational, the Advanced Risk Management an individual basis. To establish model and strategic- which entail program framework was one of the them the Bank assigns a risk maintaining a broad and integral highlights of 2017. The program, category to the debtor and its view of the risk profile. The following implemented and executed during respective loans, considering are the most important risks: the last three years, implied that the the following risk factors in the Bank moved to a higher state in risk analysis: industry or sector, management after incorporating FINANCIAL RISKS partners and administration, advanced methodologies –which financial situation and payment strengthened predictability- to the capability, and payment Credit risk policies of the Division and the Bank, behavior. and into its governance system. Is the risk that one of the parts in a • Loan loss provisions for clients financial instrument contract ceases The program, that delivered assessed on a group basis, to fulfill its contractual obligations certifications in Standard and relevant to address a large due to insolvency or incapacity, Compliance levels, and finally in the number of operations with small producing on the other a financial Excellence level, will now undergo single amounts, and where loss. a significant transformation as it debtors are natural people or changes into a management style, small-sized companies. These this is, the way in which Santander Mechanisms operations include consumer manages risks. This style is a broad • Responsible for the management loans, mortgage loans and and company-wide approach, of this risk, delegated by the commercial loans to individuals. that includes the risk culture, and Board: Integral Risk Committee Loan loss provision levels have aims to deepen the development (IRC), Executive Credit been established in accordance of an advanced risk management Committee and the Bank’s risk with expected loan losses, approach. departments. through the classification of • Loan loss provisions for probable the portfolio using one of two loan losses in accordance with models: a. Based on the characteristics • Financial management portfolios • Compliance of regulatory of the debtors and their include all financial investments limits set by the SBIF and outstanding loans, where not considered within the trading the Central Bank for maturity debtors and loans with similar portfolio. This is, the majority of mismatches. characteristics may be grouped the Bank’s assets and liabilities • Daily monitoring of the and each group is assigned a that are not trading investments, liquidity position, establishing specific risk level. including the loan portfolio. The future cash inflows and Bank applies a sensitivity analysis b. Based on the behavior of outflows. to measure the portfolio’s market a group of loans, in which risk with respect to local and • Stress tests at the close of loans with analogous foreign currency. Through a each month, using a variety payment history and similar scenario simulation the present of scenarios that cover characteristics are grouped value of future cash flows in the both normal and fluctuating and each group is assigned a base scenario (current market) conditions. specific risk level. is compared against the value under a chosen market (a 100 NON-FINANCIAL RISKS Market risk basis point movement across the The Risk Division is responsible Market risks appear when investing curve). The same simulation is for the management of non- in financial instruments whose done on the net foreign currency value may be affected by changes positions and interest rates in financial risks to which the in market conditions. They are United States dollars. Finally, business is exposed. Besides grouped in four categories: limits are established in relation operational risk, it includes exchange rate risk, due to to the maximum loss these types information security, business movements in the foreign exchange of movements can cause on the continuity, technological and the rate; reasonable value, due to Bank’s equity and net interest risks associated to outsourced changes in interest rates; price, by income projected for the year. processes, regulatory and changes in market prices due to the financial report, and also 61 instrument’s own factors or those Liquidity risk conduct, reputational and model that affect all financial instruments; risks. Refers to the possibility that an and inflation, due to changes in entity cannot meet its payment As well, it leads the Chile’s inflationary indexes. commitments or, that in order establishment and deployment to meet them, has to resort to of a risk management culture, Mechanisms obtaining funds in burdensome mainly within the most exposed ways or that could deteriorate its areas. The new organizational • Responsible for market risk 2017 Report Annual image or reputation. management: ALCO, risk and non-financial risk control departments and the Bank’s model entails responsible Finance Management. Mechanisms management to act as a second control layer, supporting, • Management analysis in three • The Bank’s approach in liquidity overseeing and strengthening main components: trading management is to ensure, the first line of defense which portfolio, financial management as much as possible, that it corresponds to the business portfolio in local currency, and has sufficient funds to meet financial management portfolio in obligations at maturity, in normal units and their support areas, in foreign currency. stress circumstances. such a way so as for risks to be adequately identified, declared, • The trading portfolio is comprised • The Board sets limits, understood monitored and mitigated. of fixed income securities and as a minimum relation between foreign currency. This portfolio available and receivable funds Adequate governance has includes essentially bonds plus a minimum amount of been defined ensuring the from the Central Bank of Chile, interbank operations and other correct management of non- mortgage bonds and low risk loan facilities, which should be financial risks, compliance corporate bonds issued locally. available to cover withdrawals with the strategies determined Measurement of the portfolio’s or an unexpected demand to minimize losses and the market risk is done with the VAR level. These limits are reviewed adequate periodical and integral methodology. periodically. report to senior management. RISK GOVERNANCE the Bank is always thoughtful to Risk Governance must look after an recommendations from supervisory adequate risk decision making and One of Banco Santander’s strategic and regulatory bodies, as well as to an effective control of risks. Also, goals is to lead in risk management, best practices in the market. This must ensure that these risks are seeking to anticipate the challenges way the governance of the risk managed in accordance with the of the economic, social and function has been strengthened, risk appetite defined by the Board. regulatory environments which delimiting more clearly the To achieve this goal the following are in constant change. For this responsibilities of the different principles have been established: committees that supervise and manage risks.

1 3 5

Separation of decision making Ensure that all risk decisions have a Strengthen risk-controlling from risk control functions. formal approval process. committees.

2 4 6

Strengthen the responsibility Ensure an integral view of all types Maintain a simple structure of for risk-generating functions in of risks. committees. decision-making.

LINES OF DEFENSE

Banco Santander’s management of defense must adjust to the risk compliance function. Both must and risk control model is based on appetite and defined limits, so it look after the effective control of three lines of defense. must have the means to identify, risks and ensure they are managed measure, treat and report the in accordance to the defined risk assumed risks. appetite level. FIRST LINE OF DEFENSE

It’s comprised of business functions, SECOND LINE OF DEFENSE or activities that take or generate THIRD LINE OF DEFENSE exposure to a risk. The assumption Corresponds to the risk control Refers to the final control stage, or risk generation in the first line and supervision functions, and the and Internal Audit is responsible. Periodically evaluates that the policies, methods and procedures are adequate and checks their effective implantation. 1ST LINE OF DEFENSE Business functions, or activities that take The risk control, compliance or generate exposure to a risk. and internal audit functions have enough separation and 2ND LINE OF DEFENSE independence between them, and Control and supervision of risks with respect to the other functions function. they control or supervise, in order 3RD LINE OF DEFENSE for them to act, and have access Periodical Internal Audit, refers to to the Board or its committees the last control stage. through their senior manager. RISK CONTROL management, keeping senior 3 STRUCTURE management informed about Analyze and propose eventual Unlike what happens in other their management and profile, as changes to the policies and institutions, risk management has well as the ICR in regards to the procedures used by the Bank for a superlative importance for senior aspects relevant to their scope. the administration, control and management. The Board, body The ICR reviews the integral management of risks, whenever that heads risk control at the Bank, view of risks including credit, inconsistencies or vulnerabilities has established the Integral Risk market, liquidity, operational, are detected. 63 Committee (IRC) in order to better compliance and conduct risks, execute its functions in this regard. as well as the risk appetite. Also, Said committee is composed by 4 addresses a broad agenda of risk six of the Bank’s nine directors and Review documents prior to their issues, structural and short-term, meets bi-weekly. approval by the Board. covering the main highlights and The ICR’s role is to define the issues of most relevance on this risk framework and general scope. This way, in addition to the audit 2017 Report Annual guidelines to set the risk appetite, controls and existing internal supervising over the correct The ICR’s principal functions are: controls in each area, a new identification, measurement and control layer is added in charge of global control of all risks. 1 supervising risks on a consolidated Among the risks overseen stand Analyze with an integral view, the basis, allowing the Board to decide out: credit, market, liquidity, administration of risks and the about the risk appetite or level structural, equity, operational, map of recommendations issued with which to operate. As well, model, conduct, reputational and by local and foreign regulators, as the area develops independent regulatory risks. well as compliance of regulatory exercises where the established The Risk Supervision and provisions. procedures for risk management Consolidation area supports the are tested, and periodically ICR in its functions, constituting reviews the sufficiency of loan loss a second line of defense for 2 provisions. all risk domains, ensuring that Verify compliance of the Group’s In addition to the all material risks are correctly strategic goals, according to abovementioned, the Board has identified, measured and assumed or potential risks, established the Asset and Liability controlled. This area applies a identifying warning lights. Committee (ALCO) to assist it in global and independent view of the management and control of the portfolios, about their risk risks. This committee is comprised of three directors, seven members conditions, and products and 1 of the Bank’s Direction Committee, services offered. Through the RESPONSIBILITY: identification, and three managers (Finance establishment of standards and management and evaluation of Management, Treasury and Market procedures, the Bank procures to risks are everyone's responsibility. Risk). create a disciplined and constructive control environment, in which 2 The ALCO is responsible for the all employees understand their CHALLENGE: constantly development and supervision functions and obligations in regards of compliance of the Bank’s question if the way in which we to this. risk policies, in accordance to are managing risks is the most the guidelines established to adequate for the Bank. this effect by the Board and regulatory provisions from the RISK CULTURE 3 Superintendency of Banks and One of the main achievements RESILIENCE: be capable of Financial Institutions (SBIF). In of the ARM program, especially resisting uncertainty and overcome particular, the ALCO establishes and according to what was developed controls compliance with the main adverse moments, creating around it during 2017, was securing guidelines related to interest rate, synergies to ensure sustainable a company-wide risk culture. Today financing, equity and liquidity risks, results. the Bank’s employees assume that as well as the evolution of local and each one of them is responsible international financial markets and for the management of risks within 4 the monetary policy. their daily work. The latter is CLIENT ORIENTATION: clients are The Board also has two other key accounted for in the Group’s latest at the center of risk management, committees: the Market Committee Commitment Survey, in which 94% seeking the best for them in the (MC) and the Audit Committee of surveyed employees answered long term. (AC). that risk culture was an integral part

64 Each one of them is comprised of of the Bank. 5 three directors and members of the The conviction shown by employees Bank’s senior management. is the result of a sustained work in SIMPLE: risk management is The MC is integrated by three training and communication of the simple and easy to understand by members of the Board and defines culture. This annual plan considered everyone the strategy for the Bank’s trading face-to-face training reaching portfolio (Treasury), establishing 2,680 employees, diverse e-learning policies, procedures and limits adding up to 13,991 approvals and RISK PROFILE for taking positions, through knowledge capsules massively the analysis of the national and distributed. Banco Santander Chile defines a international situation. specific profile for each managed Business sustainability is intimately risk. Through an international The AC is integrated by four related with the fact that all the methodology, known as Risk directors, is mainly responsible for Bank’s employees are capable of Identification and Assessment, and monitoring the Bank’s financial managing risk, independent of in accordance with the defined risk statement generation process, and whether they serve clients or not. appetite, the way in which risks are the internal and external auditors Therein lays the importance of managed and limits set –among work, in the benefit of transparency programs that consolidate the risk other considerations-, a profile is with shareholders, investors and culture. defined for each risk. Conceptually, general public. On this same line it’s important that the Bank seeks, on each step, to Risk policies and management the entire organization adjust its clearly define the risk appetite – systems are regularly reviewed actions in line with the five principles how far is the Bank willing to go- in to reflect the changes in market of risk management: line with a middle low risk profile. which are inconstantchange. social andregulatory environments the challenges of theeconomic, management, seeking toanticipate strategic goalsistoleadinrisk One ofBancoSantander’s 65 InformeAnnualInforme Report Anual Anual 2017 2017 Compliance

This area addresses the growing probity challenges as well as issues as important as the supervision of compliance with the internal manuals, laws and international regulation; the approval, sale, monitoring and post-sale of products; money laundering prevention, and reputational risk.

Banco Santander has a 1 3

compliance department REGULATORY COMPLIANCE RISK: PREVENTION OF MONEY that, aligned with the is the risk of non-compliance by the LAUNDERING AND FINANCING OF corporate strategy and the Bank, of the regulator’s norms and TERRORISM RISK: is to avoid the business model, manages expectations which could lead to institution being used as a vehicle for money laundering or financing of four risks: legal or regulatory sanctions. terrorist groups.

2 4

CONDUCT RISK: is the risk that REPUTATIONAL RISK: is the risk of actions from either employees or an adverse economic impact, actual the Bank as a whole might translate or potential, due to undermine in into negative results for clients or the Bank’s perception on the part of the markets in which it operates. employees, clients, shareholders or investors, and the society in general. Compliance aboutoccurred areas, periodicallyreportsto of thebusinessandsupport first lineofcontrol,comprised the risksitmanages.Thus, monitoring andverificationsof as such,exercisescontrols, been strengthened,which, a secondlineofdefensehas Compliance Departmentas this modeltheroleof financial industry.Through best standardsintheglobal Function inlinewiththe to improvetheCompliance started in2016anditsgoalis Model (TOM).Thisprogram denominated TargetOperating transformation program the ComplianceFunction’s were madeinallphasesof During 2017notoriousadvances are met. procedures definedbythe Bank applied, andthatthenorms and and supervisoryelementsare to checkthatappropriatecontrol the necessaryreviewsandtests parameters. Aswell,performs effective consideringitsaction by Complianceareadequateand methods andproceduresapplied assesses thatthepolicies, line ofdefensethatperiodically audited byInternalAudit,third The ComplianceDepartmentis measures. corrective andmitigation implementation ofthenecessary to beaddressedandforthe in orderfortheincidences informing seniormanagement This areaisthenresponsiblefor incidences, incasethereare. ARC andRiskCommittees. Analysis andResolution(ARC), Pre a permanentinviteetothe Audit, In addition,Complianceattends as improvements. vote, andmanagesproposals area hasrightsofspeechand Compliance Department,andthis organized directlybythe Follow-up committeesare Commercialization andRegulatory The GlobalCompliance,Local Committee Follow-up Regulatory 5 Committee Portfolios 4 Risks Committee Non-financial 3 Committee Commercialization Local 2 Committee and Pre-Arc Committee (ARC) Resolution Analysis and 1 in thefollowingcommittees: As well,participatesamongothers, committees. Audit, RiskandGlobalCompliance functionally totheBoardand to theLegalDepartmentand Compliance reportshierarchically ORGANIZATIONAL MODEL GOVERNANCE AND Committee Complaints 10 Committee Sustainability 9 Committee Grants 8 Committee Cybersecurity 7 Committee Suppliers 6 67 Annual Report 2017 2017 HIGHLIGHTS

1 2

CERTIFICATION OF THE CRIME INCOPORATION OF NEW PREVENTION MODEL OF LAW INTERNAL MANUALS 20,393 • Control guidelines over criminal how to manage those that cannot be avoided, provide due During 2017, through the risks: the main purpose of this information to affected clients, certification company ICR Chile document is to establish the and also adequately document Limitada, inscribed in the registry of minimum control guidelines over for its internal control and the Superintendency of Banks and criminal risks faced by Banco explanation to regulators about Financial Institutions, monitoring Santander and its subsidiaries. the implantation of established was carried out on the certification This with the aim of establishing measures to attend the achieved for the period 2016-2018 an adequate prevention, abovementioned goals. by the crime prevention model of supervision and control Law 20,393. framework over the organization, A conflict of interest exists the people that compose it and whenever a contradiction or This certificate endorses correct the activity it carries out, so as incompatibility situation arises, implementation of controls over to allow the Bank to minimize directly or indirectly, between processes or activities related to the interests of Banco Santander the probable materialization of the business that might present or its subsidiaries and the criminal risk upon the commission potential risks of commission of the interest of its employees, clients, of a crime. crimes detailed in the Law (money managers, shareholders or other laundering, financing of terrorism, • General policy on financing third parties directly or indirectly bribery of national or foreign civil of electoral campaigns and related to them by control, or servants, and receiving), with the political parties: is ruled by among clients. 68 goal of preventing and detecting the transparency, honesty and • Product and massive service them on a timely manner. political neutrality principles approval: it adapts to the in the relationships of Banco In addition, following best Corporate Framework of international practices, Banco Santander and its subsidiaries Product Commercialization and Santander has a criminal risk with political parties and other standardizes the new product prevention model for the Bank and entities with public and social application form. The fast track subsidiaries denominated Corporate goals of a political nature, circuit is also incorporated. rejecting all action on the part Defense. The goal of the latter is • Training procedure for the sale to set guidelines and controls for of its employees and senior of products and services: its the adequate management of the management that could be goal is to minimize the risks of an crimes established in the law as well related to any form of corruption inadequate commercialization, as other types of crimes, prevent over these entities. non-compliance of regulation and or detect the materialization of the The policy is established on of the possible reputational risk, generated in the sales process risks associated with these crimes, the basis of the General Code of products and services due ensure the effectiveness of internal of Conduct and considers to deficiencies in education procedures to mitigate them, and the provisions of Law 18,603 and training of employees its accreditation in front of third Orgánica Constitucional de los parties. that distribute or sell said Partidos Políticos in relation to products and services. Contains The crimes comprised by Corporate donations and administrative the actuation guidelines and Defense are: fraud and deceptive sanctions. principles corporately defined in advertising; influence peddling this matter. and corruption; cybercrime; stock • Approval and monitoring market crimes and receiving. • General policy on conflicts of interest: its purpose is to process of custody of own and/ or client’s assets: regulates the establish the mechanisms approval and review of custody and procedures that allow providers, with the purpose of the identification of possible minimizing the Bank’s exposure conflicts of interest, determine 3 4

TRAINING STRATEGY IMPLEMENTATION OF CIRCULAR N°57 FROM THE UNIDAD DE to the different types of risks to During the year, face-to-face ANÁLISIS FINANCIERO (UAF) which it is exposed, derived from training of employees continued, the provision of custody services oriented towards consolidating In September came into effect by internal or external providers, a compliance culture. For this, Circular N°57 from the Unidad de both for own assets as well as for diverse training instances and Análisis Financiero that, for the client’s assets. communication activities were purpose of preventing money carried out transversally. laundering, gives instructions • Consumer protection policy: regarding obligations of establishes the actuation criteria This program’s goal is to teach identification and registry of final that must be considered in employees to identify, through very concrete examples, especially beneficiaries of individuals and legal the elaboration of the internal sensible situations like conflicts structures. normative and in the relation with of interest, relations with the clients, as well as in its monitoring competition and authorities, and oversight, all of this with the acceptance of gifts from clients 5 aim of guaranteeing adequate or suppliers, sale of financial COUNTRY RISK AND SANCTIONS protection for the financial products and employee’s personal POLICIES consumer. investments. In October the Board of the Bank • Fiduciary risk policy: sets the Also, the management of the approved the new Corporate minimum contents that must be program oriented towards the Framework for the Prevention of incorporated within the policies subscription of the codes of conduct Money Laundering and Financing for product investment and that rule over the Bank’s employees of Terrorism, reinforcing the associated risk management, continued. The high percentage of compliance of international applying general and specific employees that have subscribed the sanction programs and financial criteria, with the goal of Bank and its subsidiary’s codes and countermeasures, issued by minimizing Banco Santander’s manuals, positions the entity among important organizations as the UN, exposure to fiduciary risks those with the best international the European Union and the United 69 derived from the approval standards. States (OFAC-FINCEN). As well, a of financial investment or new country valuation is established, savings products bearing the based on the money laundering Santander brand and/or whose prevention risk that affects management or structuring is them, in accordance with current undertaken directly, delegated or international sanction programs and mandated to a third entity. international hazard standards. Annual Report 2017 Report Annual 6

COMMON REPORTING STANDARD Material (CRS) issue

Considering the new international In September 2017 the Board To guarantee the correct implantation of the model and standard designed by the OECD approved the Reputational Risk Model. The latter is based on an socioenvironmental policies, a to prevent tax evasion and elusion, eminently preemptive approach, Reputational Risk Working Group through the exchange of relevant but also in effective crisis was created, entity which reports information among participant management processes. The aim is the topics discussed to the Global Compliance Committee. countries, Banco Santander is that reputational risk management implementing the CRS compliance integrates both to business and It should be noted that within program in accordance with the support activities, as well as to the reputational risk model, rules issued by the Chilean Ministry internal processes, and that risk during 2016 were approved the socioenvironmental policies that of Finance in June 2017. This norm control and supervision functions incorporate it as part of their establish the criteria that Santander forces financial institutions to activities. Group must apply in relation to the conduct due diligence processes granting of financial products and and report financial accounts This way, the Reputational Risk services in the following sectors: maintained by foreign residents. Model implies an integrated energy, soft commodities and understanding, not only of the Bank’s defense. activities and processes during The policies establish two types the course of business, but also as Material of activities, those prohibited and issue how it is perceived by stakeholders 7 hence in which the Bank cannot (employees, clients, shareholders participate, and those restricted, REPUTATIONAL MODEL RISK and the society in general) in in which the Risk Division and the their different environments. During the period advances were respective business area must assess This approach demands a close the social and environmental impacts achieved on the structuring of collaboration between management of the operation, and the compliance reputational risk as an independent 70 support and control functions, and with this policy and the Equator function in relation to other risks. the different stakeholders. Principles, when they apply.

SOCIOENVIRONMENTAL POLICIES

ENERGY SOFT COMMODITIES DEFENSE

Covers all activities related with Implies all activities that impact forestry Everything related to the sector (hydric, coal, nuclear, resources (wood, paper, pulp, biofuel, defense material and bituminous sands, oil and gas) and palm oil and soy, rubber and livestock dual-use technologies. all types of financing, equity and and agricultural activities) and all types of Definition advisory services. financing, equity and advisory services.

Coal thermal power plants under Deforestation (zones declared as of high No commercial relation development or built, upgrades ecological value), developments in peat bogs with organizations to operational coal thermal power in countries not designated in accordance (and their subsidiaries) plants, nuclear power plants that do with the Equator Principles and extraction that manufacture, not comply with the characteristics and sale of native wood species without commercialize or detailed in the policy, large dams certification. distribute defense and the development, construction material or dual-use or expansion of bituminous sands technologies.

Prohibited activities projects in countries not designated in accordance with the Equator Principles. Oil and gas exploration and Processes that have a large environmental All operations related production projects, operations impact on high ecological and/or social value to the manufacturing, with coal related energy groups, forests included in the UNESCO’s world commercialization operations related with the generation heritage list. The extraction of native species, or distribution of of nuclear energy, biomass power developments of wooded areas that have defense material or plants and the development, suffered fires or massive deforestation in the dual-use technologies construction or expansion of last five years, operations with clients related that do not respect bituminous sands projects. to countries not designated in the following conventions and

Restricted activities subsectors: wood, pulp and paper, palm oil, treaties on the non- soy, biofuels and livestock activities. proliferation of weapons. in the General Code of Conduct are in theGeneral Code ofConductare detailed regulation,normsestablished a In certain specific subjects that need the businessandstakeholders. employees musthaveinrelation to conduct, principlesandvaluesthatall international practicesthatdefinethe instruments inspiredinbest Banco Santanderhasseveral 10 adequate controlstomitigaterisks. implies thattheyeffectivelyhave and NormativeReportsaudits,which rating fortheCorporateDefense Audit Division,anacceptableglobal The Bankachieved,fromtheInternal 9 were designedforallemployees. more amicablee-learningcourses documents. Inparallel,simplerand the area,newsanddownloadable containing generalinformationon portal foremployee’sinternaluse, the Bank’sintranet.It'saservices of anewCompliancewebpagein start ofspecificactions,asthelaunch The abovementionedimpliedthe concepts. in theSimple,PersonalandFair Bank’s missionandcultureinspired and ethicalactuations,inlinewiththe was carriedouttostrengthenprobity during theyearanintensivework relevant inthecommercialareasand This processhasbeenespecially organization. across theboardwithin the correctapplicationofregulation employee’s ethicalactuationand that seekstofostergoodpractices, an internalcommunicationsplan to Compliancework,in2017started With thepurposeofgivingvisibility 8 CODES OF CONDUCT AUDITS COMMUNICATIONAL PLAN • • The maindocumentsare: the workofBoard. avoid potentialconflictsofinterestin Conduct, includingtheproceduresto in theSecuritiesMarketsCodeof in theGeneralCodeofConductand Board adheretowhatisestablished of theorganization,members It shouldbenotedthat,astherest reading andsubscription. in thecorporateintranet,bothfor Manual, areavailableforallemployees the AnticorruptionandBribery Laundering PreventionManualand Codes ofConduct,theMoney The GeneralandSecuritiesMarkets of saidcodesandmanuals. circulars thatdevelopspecificpoints Compliance Committee,andnotesor which areapprovedbytheGlobal in sectorialcodesandmanuals, complemented withthoseappearing control sensible known information control sensible knowninformation in generalseeksto:registerand key areas.Amongotherthings, people thatconformtheBank’s of privilegedinformationbythe conflicts ofinterestandtheuse on thismatter,seekstoprevent Conduct: Securities MarketsCodeof read, acceptandsignthecode. working attheBank,committo New employeesthatbegin Santander’s principles. conduct inaccordancetoBanco straight, impartialandhonest society, basedonaprofessional, the restofindustryand hierarchical superiors,coworkers, clients, suppliers,publicauthorities, must haveintheirrelationswith and principlesthatallemployees program. DefinestheBank’svalues organization’s compliance is thecentralelementin General CodeofConduct: contains the policies contains thepolicies • • people weresubjecttothiscode. At thecloseofyear,679 them tosupervisoryauthorities. abuse andinthatcase,report suspicious ofconstitutingmarket them; analyzepossiblebehaviors situations thatmightoriginate conflicts ofinterestandthose identify, registerandresolve Markets CodeofConduct; non-compliance oftheSecurities employees andmanagepossible account operationsbyrestricted operations; controlown- for authorizationofown-account to communicationsandrequests is applicable;receiveandrespond collectives towhichtherestriction the typeofactivity,portfoliosor restricted securitiesaccordingto supervise operationswith operations withsaidsecurities; employees, andwatchover affected securitiesandinitiated the Bank;maintainlistof and thatgeneratedwithin prevention. relation tocorruptionandbribery levels withintheorganization, in must becompliedwithatall Thus, rulesaremadeknownthat corruption withinBancoSantander. guidelines toavoidanyformof bribery policyseekstosetconduct Manual: Corruption andBriberyPrevention regulations inforce. to adjustitthenewneedsand This manualwasupdatedin2016 the completionoftrainingcourses. document ismandatory,aswell prevention system.Readingofthe an adequatemoneylaundering and compliedwithtoestablish procedures thatmustbeapplied policies, norms,organizationand Bank anditssubsidiariesthe all employeesworkingatthe its goalistomakeknown of TerrorismPreventionManual: Money LaunderingandFinancing the anticorruption and theanticorruptionand 71 Annual Report 2017 Financial results

Material issue

Banco Santander continued to capitalize on the efforts carried out within the Commercial Transformation Plan framework, with the goal of being the best bank for its clients.

Income attributable to shareholders over-year. ROE (measured as net funding mix, stable asset quality and reached MM$564,815 in 2017, 19.6% income attributable to shareholders a continuous increase in fee income. higher than in 2016. Net income over average equity) reached 2017 also presented a favorable 72 before taxes, which does not 19.3%, higher than the previous situation for the Bank in terms consider the effects of the increase year’s 17.0%, while ROA (attributed of low interest rates following an in the statutory tax rate during net income over average assets) expansive monetary policy by the 2017, grew 23.9% compared to the climbed to 1.58%, higher than the Central Bank of Chile with a 1.0% previous year. On the other hand, 1.33% of 2016. Efficiency improved drop in the rates during the first half net operating profits from the to 41%, compared to 42.7% on the of the year, opportunity that was previous year. business segments –understood adequately managed by the Bank. as the sum of net interest income These results are a combination of Santander Chile continued to plus net fees and commissions plus a larger activity due to the increase capitalize on the efforts made since financial results, net, and minus loan in the loyal client base, with the 2012 –and that continue being loss provisions- which reflects the consequent loan growth –especially carried out- within the Commercial performance of the Bank’s core in the Bank’s target segments for Transformation Plan framework, business, increased 9.1% year- the period-, an improvement in the including the deployment of Work Cafés, the new branch model, and the remodeling of the traditional Income Net operating profit Return over attributable to from the business average equity branch network, the launch of Life shareholders segments (%) (the new service model for middle (MM$) (MM$) and low-income individuals), the addition of new tools to NEOCRM +19.6% +9.1% +228 pb and important investments in technology and operations as the 564,815 1,385,758 472,351 1,270,643 19.2% digital On Boarding, strengthening 17.0% the Bank’s transactional capabilities, with the goal of improving client service quality and be the best bank 2016 2017 2016 2017 2016 2017 for our clients. Other operatingexpenses Operating expenses Operating profit Provisions forloanlosses Net operatingprofitbeforeprovisionsforloanlosses Other operatingincome Total financialtransactions,net Basic grossmargin Net feeandcommissionincome Net interestincome to equity holders over average total assets. /7. Loan loss allowances over total loans. /8. Includes SuperCaja. Includes /8. loans. total over allowances loss /7. Loan assets. total average over holders to equity attributable income Net /6. equity. average over holders to equity attributable income Net /5. deposits. total over loans with financed mortgages of portion less loans /4. Net provisions. of Gross /3. rates. to exchange due share per income net in to change respect with differ may ADR per income net in Change /2. losses. impairment Includes 1. adjusted deposit / Loan Net incomeattributabletoequityholders Summary ofresults(MM$) Loans andaccountsreceivablefromcustomers ATMs ROAA Branches Basel ratio Expected loss Coverage ofnon-performingloans Non-performing loans/total Total loans Net incomeperADR(US$) Net incomepershare($) ROAE Recurrence Efficiency Net interestmargin Equity Interbank loans Minority interest Net income Net operatingincome Total deposits 5 6 8 3 7 3 4 1 2 3 27,563,229 27,725,914 (704,893) (299,205) 1,605,754 1,523,464 1,822,669 3,108,063 (101,658) 19,682,111 1,326,691 279,063 564,815 577,263 128.78% 162,685 716,913 129,752 100.7% 12,448 87,163 13.91% 2.94% 39.6% 2.28% 41.0% 1.58% 19.2% 2017 4.4% 3.00 926 385 1.95 26,933,624 20,691,024 27,206,431 (686,905) 2,898,047 1,694,447 (343,286) 1,535,790 1,281,366 (85,432) 578,824 1,351,161 254,424 272,807 472,351 140,358 474,716 145.41% 13.43% 18,299 3.02% 37.0% 2.07% 42.7% 17.0% 2,365 92.1% 1.33% 2016 1.295 4.5% 434 1.50 2.51 CHANGE 17/16 - 1,663pb + 857pb + 228pb + 255pb (40.4%) - 173pb + 48pb + 25pb 426.3% 376.3% + 21pb (12.8%) (4.9%) (7.6%) 23.9% - 3pb - 7pb 29.7% 19.6% 12.8% (369) 19.0% 19.6% 21.6% 4.6% 7.6% 2.6% 9.7% 3.5% 2.3% 7.2% (49) 1.9% 73 Annual Report 2017 LOANS their expansion rate throughout the In the rest of the portfolio, growth year to stabilize during the second was selective. In the SME segment Total loans (including interbank semester. Consumer loans showed the activity concentrated in the loans) increased 1.9% during the a sustained deceleration in their larger companies maintaining an year (+2.3% excluding interbank growth rhythm during the period, integral product offering balancing loans). This figure is lower than although somewhat more sharp income from lending operations the 7.5% expansion of last year, during the first months. Commercial with fees. In the corporate in line with the weak economic loans also reduced their growth segment, which covers the largest performance especially during rates in the year, but recuperated companies in the country, loans the first half of the year, and the during the fourth quarter in line with are volatile by the business’ peso’s appreciation against the the improved economic dynamism nature, this is, large non-recurring U.S. dollar during the second half in the period. Growth is a reflection transactions. Hence, although of the Bank’s strategy during the during the year total loans of the year –that impacted mainly exercise, focusing in client segments decreased, the segment posted on the corporate client’s portfolio. that offer a higher risk-adjusted better results year-over-year by This way mortgage loans profitability, this is, middle and high- implementing a strategy focused maintained the trend shown income individuals, and middle and on non-lending related products during 2016, gradually reducing large-sized companies. that offer better margins.

Loans by segment (MM$) 2017 2016 CHANGE 17/16

Individuals1 15,408,301 14,774,431 4.3% 74 SMEs 3,824,868 3,830,505 (0.1)%

Individuals + SMEs 19,233,169 18,604,936 3.4%

Middle-market 6,775,734 6,396,376 5.9%

Global Corporate Banking 1,633,796 2,121,513 (23.0%)

Others 83,215 83,606 (0.5%)

Total loans2 27,725,914 27,206,431 1.9%

1. Includes mortgage and consumer loans and other loans to individuals. 2. Includes interbank loans. Gross of loan loss allowances.

Loans by product (MM$) 2017 2016 CHANGE 17/16

Commercial 13,908,642 13,867,465 0.3%

Mortgage 9,096,895 8,619,356 5.5%

Consumer + credit card 4,557,692 4,446,803 2.5%

Consumer 3,192,712 2,998,685 6.5%

Credit cards 1,364,980 1,448,118 (5.7%)

Loans and accounts receivable from customers 27,563,229 26,933,624 2.3%

Interbank loans 162,685 272,807 (40.4%)

Total loans1 27,725,914 27,206,431 1.9%

1. Gross of loan loss allowances. This way, loans to individuals low-yielding interbank loans during (excluding interbank loans) of and SMEs increased 3.4% in the the year. It’s important to note 18.7% -considering adjustments year. In individuals growth was that the abovementioned growth for credit investments maintained mainly driven by the middle and does not reflect the segment’s abroad by some local banks high-income segments with a performance during the period to allow for an adequate 5.6% expansion. Low-income –the loan portfolio is volatile by comparison. Although this figure segment loans decreased 24.3% the business’ nature- as close to is lower than the 19.1% of 2016, with respect to the previous 90% of profits are related to non- the Bank was able to increase the year. Regarding the latter, the lending activities. distance with its main competitor Bank completed the reduction by 110 basis points (bp) to By product, commercial loans process of Banefe, the specialized 144bp. It should be mentioned increased 0.3% in line with the division in low-income individuals, that Santander Chile has a retail lower investment and appreciation launching Life in December, the orientation, with a relevant of the peso. Mortgage loans new distribution model for the low position in retail banking. Thus, grew 5.5%, in part reflecting the and middle-income segments. SME in loans to individuals Banco economic environment as well as loans fell 0.1% in the year. Santander closed the year with a the effect of the lower inflation Loans to mid and large-sized 21.2% market share, 340bp above rate over the portfolio. On the companies showed a 5.9% its main competitor. The previous other hand, consumer loans increase, although below last figure is explained with a 22.4% expanded 6.5%, while credit card year’s 6.5% growth. Loans to market share in consumer loans, loans decreased 5.7%, figures the corporate segment, this is, against the main competitor’s that compare with 10.4% and multinational and the largest 19.7%, and a 20.7% market share 0.9% increases, respectively, for companies in the country, in mortgage loans, 50bp higher the previous period. The latter contracted 23.0%, affected by than the main competitor in is a reflection of the continuous 75 a lower demand associated to the industry and 370bp above slowdown in the country’s growth. the drop in investment during the closest private competitor. the first half of the year, and the The Bank continued to consolidate Finally, the market share in appreciation of the Chilean peso its leading position in the industry commercial loans reached 16.7%, –considering that close to 10% of with its performance during reducing the gap with the main total loans are denominated in the period. In effect, Santander competitor from 180bp in 2016 to U.S. dollars-, and the maturity of reached a total loan market share 10b by the end of the year. 2017 Report Annual

Loan market share (%)

Santander Comp. 1 Comp. 2 Comp. 3 Comp. 4 Comp. 5

25.0 22.5 20.0 17.5 15.0 12.5 10.0 7.5 5.0 2.5 0 Total loans Individuals Consumer Mortgage Commercial DEPOSITS

The Finance Management Division (mainly equity and provisions). deposits (funding with no cost of Banco Santander is in charge Finally, liquid financial assets are for the Bank) increased 3.0% in of managing the Bank’s balance financed in part with non-structural the period thanks to Santander’s structure and liquidity position. financial liabilities (time deposits leadership in Cash Management This unit, set apart from the Bank’s from wholesale clients and bonds products for companies and a larger loyalty of retail clients. Time treasury, uses its own methodology with maturity less than 120 days due, deposits contracted 9.4% after the that defines Structural Liquidity and commercial paper), while the inflationary profile and low interest as the difference between liquid remaining part, which corresponds rates made them less attractive financial assets and non-structural to Structural Liquidity, is financed for clients, situation which the financial liabilities. with structural financial liabilities. Bank took advantage of to adjust During the period structural liquidity The applied methodology its deposit pricing strategy and remained on average at US$2,219 distinguishes between commercial thus improve spreads. All in all, by million, closing the year at US$2,307 assets (loans to clients), fixed assets the end of the year the average million. and liquid financial assets. The annual total deposit cost, including former are financed with structural or In line with the abovementioned demand and time deposits, stable funding sources, considering strategy, Santander continued to decreased from 2.32% in 2016 to as such demand deposits, time make efforts to improve the local 1.87% in 2017. deposits from retail clients, structural funding mix taking advantage of Given this scenario, Santander Chile time deposits from wholesale clients, the Central Bank’s low interest continued with the strategy started bonds and bank credit lines. With rate scenario during the first the previous year favoring mutual respect to the last three, these are semester, as well as from the fund growth over time deposits, considered non-structural funding lower inflation and its comfortable benefiting clients with better sources when their maturity is less liquidity position. This way, the returns on their investments and than 120 days due. Fixed assets are total deposit base decreased 4.9%, generating a larger fee income for 76 financed with permanent liabilities despite total loan growth. Demand the Bank.

Consolidated balance sheet Structural liquidity as of as of December 31, 2017 December 31, 2017 (MMMUS$) (MMMUS$)

12.8 Demand deposits 5.7 Commercial 22.5 loans Retail time 10.2 deposits

Consumer loans 7.4 Wholesale stable +2.3 6.0 time deposits

Mortgage 8.9 Local bonds loans 14.7 3.4 2.4 International bonds 2.7 Bank credit lines Fixed assets 4.3 Equity and 6.8 other liabilities Financial assets 5.7 Non-structural 3.4 financing

ASSETS 53.4 LIABILITIES Financial Non-structural assets financing Mortgage bonds Subordinated bonds Senior bonds Total clientfunds Loan todepositadjusted Total issueddebtinstruments Credit letters Total bonds Mutual funds Total deposits on the retail deposit base, and on theretaildeposit base,and sources, relyingontheoneside includes diversifyingitsfunding Part oftheBank’sfinancing strategy market share. Chile endedtheyearwitha15.1% Regarding timedeposits,Santander period witha19.6%marketshare. type, demanddepositsclosedthe main privatebankinthecountry.By 16.6%, positioningSantanderasthe total depositsmarketsharereached allow foranadequatecomparison, abroad bysomelocalbanksto Adjusting byinvestmentsheld in termsofdepositmarketshare. a leadingpositionintheindustry at theendofyearBankhas Same aswithloanstocustomers, numerator. the from subtracted are mortgages the for computation reason, this For deposits. short-term not and liabilities term long with mainly financed loans long-term-fixed-rate mostly are Mortgages deposits.) time and (Demand / letters) credit and bonds with financed mortgages of portion the excluding loans (Net 2. Limited. Holdings Investment SAM of asubsidiary General Fondos, de Administradora S.A. Managment Asset by Santander managed funds mutual for broker exclusive the is Chile Santander 1. Time deposits Demand deposits Funding sources(MM$,%) 1 2 0 2.5 5.0 7.5 10.0 12.5 15.0 17.5 20.0 22.5 25.0 (%) by products and share market Total loan Santander deposits Total Comp. 1 Comp. 24,739,003 7,093,653 5,056,892 7,059,174 11,913,945 6,186,760 19,682,111 7,768,166 773,192 100.7% 34,479 99,222 2017 Comp. 2 Comp. deposits Demand Demand Comp. 3 Comp. 20,691,024 25,717,092 5,026,068 7,326,372 13,151,709 6,416,274 7,539,315 7,280,121 759,665 104,182 46,251 92.1% 2016 Comp. 4 Comp. deposits Time Time CHANGE 17/16 + 857bp (25.5%) Comp. 5 Comp. (3.0%) (4.9%) (9.4%) (4.8%) (3.8%) (3.2%) (3.6%) 0.6% 3.0% 1.8% 77 Annual Report 2017 on the other, on international total deposits. It should also be anticipating the FED’s interest markets. This way the Bank noted that Santander Chile is one rate increase and securing a low seeks to increase local funding of the local banks with the lowest financing rate. In fact, a US$500 from non-institutional investors – exposure to wholesale financing as million three-year tenor bond was example of the latter are Pension a percentage of total funds. issued in the U.S. market, which Fund Administrators (AFPs)- reached a 2.669% IRR equivalent Regarding financing from obtaining local diversification, to a 72bp spread over Treasury, international markets, the Bank has and maintaining a percentage of making it the lowest coupon rate pioneered the search and access the funding from other markets ever obtained by a Chilean issuer to new markets and investors in (geographic and currency in the American market for that Europe and Asia, as well as in the diversification). The result is a United States. tenor. Finally, throughout the solid balance sheet structure, year several bond repurchases In 2016 the Bank issued close to with a strong position that allows were carried out over the normal US$3,800 million in international the Bank to be prepared against course of business, given that as markets building a comfortable liquidity shortage scenarios in the the maturity date approaches they liquidity position. The latter added local market, while at the same lose computability for liquidity to the moderate growth in total time improve the funding mix and metrics. These transactions loans in 2017 allowed the Bank to optimize cost of funds. reflect the Bank’s ongoing optimize its funding base taking capability of accessing markets In line with the Bank’s strategy advantage of specific opportunities in advantageous conditions, of maintaining a mainly retail and that appeared during the year. In maintaining an adequate more permanent funding base, the local market the Bank issued diversification in the funding base, and hence more competitive in bonds for a total of UF 10 million and a positive perception from terms of costs, during the period (inflation linked currency) and national and international investors the Bank focused on increasing $160 billion in peso denominated regarding Santander Chile. retail deposits which grew 5.3%, bonds. In international markets, 78 and thus moving from a 67.4% of and relying on the Bank’s The executed strategy again total deposits in 2016 to 72.0% in international issuances program helped to partially compensate 2017. On the other hand, structural EMTN, several Private Placements the lower spreads due to the deposits from wholesale clients in US$ and AUD were done change in the loan growth mix decreased from 22.2% of total at interest rates below the towards less risky segments, but deposits to 18.8% over the same equivalent local alternative. In also less profitable, maintaining period, while non-structural addition, in December Santander a competitive funding cost deposits from wholesale clients took advantage of a specific compared to the rest of the dropped from 10.3% to 9.2% of opportunity in US$ financing industry.

Deposit Structure as of December 31, 2017 Part of the Bank’s (%) financing strategy includes Core Stable Non-stable diversifying its funding deposits wholesale wholesale deposits deposits sources, relying on the retail deposit base and on 10.4 9.2 18.8 international markets. 22.2

67.4 72.0

2016 2017 RESULTS BY BUSINESS SEGMENT

Operating result of the Bank’s change over the last years- and flat Global Corporate Banking business segments increased operating expenses, following the (GCB) posted a good 9.1% in 2017. Said percentage Bank’s efforts to increase productivity increase in results despite includes net interest income, net and efficiency with investments in the contraction of the loan fees, financial transactions, net, technology, rationalization of the portfolio, standing out the and loan loss provision expenses, distribution network and changes in larger interest margin (+6%) 79 and excludes other corporate client attention models. thanks to an improved loan mix activities like the impact of inflation Results in the middle-market and lower funding costs, as well in results, exchange rate changes segment (Banca de Empresas e as larger fee income (+10.2%) and the impact of regulatory Instituciones, BEI), increased 9.2% as and lower loan loss provisions. changes on loan loss provisions. a consequence of higher core income The latter was compensated by Including operating expenses, driven by loan growth and a better a lower financial transactions Annual Report 2017 Report Annual the business segment’s net funding mix, and lower loan loss result and increased operating contribution increased 15.4%. The provisions. The latter was partially expenses in line with the latter is a consequence of higher compensated by lower fee income segments activity growth and interest income and fees, and and contained operating expenses investments in technological lower loan loss provisions, partially despite the growth in the business. developments. compensated by lower financial transactions result and contained operating expenses. Net contribution from business 2016 2017 Net contribution from the retail segments (MM$, %) segment (individuals and SMEs) increased 25.1%, a reflection of a +19.6% larger interest income thanks to 564,815 +25.1% 472,351 the growth of loan volumes and 372,250 +9.2% a better funding mix, higher fee 297,568 +0.9% income linked to the increase 186,418 203,500 119,401 120,471 in the loyal client base, lower loan loss provisions due to the improvement in asset quality –as Net income Retail Middle- GCB attributable to banking market a result of the loan growth mix shareholders Global Operating results by business Retail (Individuals Middle-market3 Total business Corporate 1 and SMEs2) (BEI) segments segment (MM$) Banking4

Net interest income 970,332 264,663 100,808 1,335,803

Annual change (%) 4.2% 8.0% 6.0% 5.1%

Net fee income 206,449 36,280 27,626 270,355

Annual change (%) 4.9% 17.6% 10.2% 7%

Core income5 1,176,781 300,943 128,434 1,606,158

Annual change (%) 4.3% 9.1% 6.9% 5.4%

6 80 Financial transactions, net 20,595 13,751 50,714 85,060

Annual change (%) (2.6%) (29.8%) (9.3%) (12.0%)

Loan loss provisions (290,156) (19,312) 4,008 (305,460)

Annual change (%) (9.8%) (24.4%) n.m. (12.7%)

Net operating profit7 907,220 295,382 183,156 1,385,758

Annual change (%) 9.6% 9.5% 5.7% 9.1%

Operating expenses (534,970) (91,882) (62,685) (689,537)

Annual change (%) 1.0% 10.2% 16.24% 3.3%

Net contribution 372,250 203,500 120,471 696,221

Annual change (%) 25.1% 9.2% 0.9% 15.4%

1. Excludes results from Corporate Activities. 2. SMEs: companies with annual sales below $1,200 million. 3. Middle-market: companies with annual sales between $1,200 million and $10,000 million, companies from the real estate sector with annual sales over $800 million, large companies with annual sales over $10,000 million and institutions like universities, government entities and regional local governments. 4. Global Corporate Banking: local and foreign multinational companies with annual sales in excess of $10,000 million. 5. Core income: net interest income + net fee income from businesses. 6. Financial transactions, net: net income from financial operations + foreign exchange net gain (loss). 7. Net operating profit: net interest income + net fee income + financial transactions, net – loan loss provisions from the business segments. 2017 andalmostentirelyduring the against theU.S.dollar(7.8% during and theappreciationofpeso given thelocaleconomicscenario lower internalinflationarypressures 2.8% of2016.Thelatterwasdueto UF increased1.7%in2017,belowthe with a-0.03%change.Intotal,the especially duringthethirdquarter compared tothepreviousyear, again recordedalowerprofilewhen relevant indicatorfortheBank, or inflationadjustedcurrency),the inflation. TheUF(unidaddefomento, negatively affectedbythelower liabilities, sonetinterestincomewas more inflationadjustedassetsthan On theotherhand,Bankhas income. net, line,withoutaffectingnet recorded inthefinancialtransactions, income, thecorrespondinghedgeis lower costisrecordedasinterest margins. However,althoughthe thus reducingthepressureon nevertheless hedgedwithforwards- short-term liabilities–whichare reductions inthecostofsome against theU.S.dollargenerates appreciation oftheChileanpeso run aforeigncurrencygap,the Even thoughtheBankdoesnot in theaverageinvestmentportfolio. average loansanda4.3%expansion latter isaresultof4.2%growthin 4.2%, belowthe9.9%of2016.The average earningassetsincreased the pressureonmargins.Allinall, and alsolessprofitable,keeping continued inlessriskysegments, The Bank’sgrowthfocusduring2017 growth mix. semester, andthechangeinloan the Chileanpesoduringsecond in theperiod,appreciationof compensated bythelowerinflation better fundingmix,althoughpartially as aresultofloangrowthand Net interestincomeincreased3.5% NET INTEREST INCOME when consideringtheUFgap (the reflects theeffectofinflation Non-client interestincome net interestincome. the period,above3.5%of total net interestincomeincreased5.1%in marginal costoffunds.Thus,client that correspondstothetheoretical subtracting theinternaltransferrate with clients,likeloansanddeposits, income generatedfromactivities income. Thefirstincludesallinterest client andnon-clientnetinterest latter wedistinguishbetween inflation. Tobettervisualizethe results excludingtheeffectof correctly, reflectedinthegood executed itsbusinessstrategy inflation onresults,Santander Despite thenegativeeffectof in 2016to4.42%2017. remained stablemovingfrom4.45% by averageinterestearningassets, that is,netinterestincomedivided All inall,netinterestmargin(NIM), products intheretailsegments. the profitabilityofsomelending during theperiod,whichreduced Chilean financialsystem)decreased (which actsasacaponratesthe maximum conventionalinterestrate increase incopperprices.Finally,the second halfoftheyear)following UF annual1. change Net interestincome Annual inflationanual Net interestmargin(NIM) assets (IEA) Average interestearning Average investments Average loans Net interestincome(MM$,%) income Non-client netinterest Client netinterestincome 1 30,009,564 27,446,293 1,326,691 2,563,271 1,335,80 (MM$) net interest income Client and non-client average of$4,527billionin2016 reduced theUFgapfroman of thelowerinflationBank To containthenegativeeffect line). income fromfinancialoperations said portfolioisincludedinthenet trading (asthefinancialincomeof cost ofinvestmentsclassifiedas treasury positionsandthefinancial the interestincomefrom of theBank’sstructuralliquidity, cost ofhedges,thefinancial interest incomeasthefinancial well astheothercomponentsof indexed assetsandliabilities),as difference betweeninflation 4.42% 1,261,451 (9,112) 2017 1.71% 10,196 income interest net Client 1,281,366 2016 26,335,424 28,794,144 2,458,720 1,281,366 1,271,170 income interest net client Non- +5.1% +3.5% 4.45% 2.80% 10,196 2016 2017 1,326,691 1,335,803 CHANGE (9,112) income interest Total net - 110pb - 3pb 17/16 4.2% 4.3% 3.5% 4.2% 5.1% NM 81 Annual Report 2017 to an average of $4,087 billion in 1 2017. The latter implies that for Total and client net interest margin (%) every 100 basis points that inflation increases, non-client interest income records an additional $41 billion in annual income approximately 5.0% 5.0% all else equal). In addition, a strict 4.8% 4.8% 4.8% Client policy on lending product’s prices NIM was maintained, as well as taking 4.6% 4.6% 4.3% advantage of the reductions in the 4.2% 4.2% Total interest rate enacted by the Central NIM Bank –it should be remembered

that the Bank’s liabilities have a 0.5% 0.5% 0.7% 0.5% UF change shorter duration than its assets, so 0.0% a decrease in the Monetary Policy Rate (MPR) affects NIM positively- 4Q16 1Q17 2Q17 3Q17 4Q17 and changing the deposit structure 82 increasing the proportion of demand deposits, which are largely 1 Annualized figures for client and total net interest margin. Quarterly UF change. non-yielding, with respect to total deposits.

All of the abovementioned translated into client net interest margin –client net interest income over average loans for the period, and that excludes the effect of inflation and UF Change; total net interest margin; client net interest margin; and client net interest margin, reflects the Bank’s core commercial net of loan loss provisions 2016 2017 business- increasing from 4.83% in (%) 2016 to 4.87% in 2017. The latter is a reflection of the change in the loan growth mix, compensated by a good management of funding costs. 4.87 4.83 4.45 4.42 The Bank’s final goal is NIM net 3.52 3.78 of risk. Thus, the continuous improvement in asset quality 2.8 contributed to increase net interest 1.7 margin, net of loan loss provisions, from 3.26% in 2016 to 3.42% in 2017. Similarly, client NIM net of loan loss provisions, improved from 3.52% in 2016 to 3.78% in 2017. UF change NIM Client NIM Client NIM, net of risk CHANGE Fee income (MM$) 2017 2016 FEES 17/16 Fee income increased 9.7% during Credit, debit and 51,982 52,057 (0.1%) the period, above the 7.1% expansion ATM card fees of the previous year. GCB recorded Collection fees 44,312 31,376 41.2% good fee income especially during the first quarter, which contributed Insurance brokerage 36,430 40,882 (10.9%) to a total 10.2% increase in annual International business 33,882 35,911 (5.7%) net fee income in the segment. Asset management 43,331 38,244 13.3% It’s important to remember that revenues in this segment are Checking accounts 31,901 31,540 1.1% dependent on businesses that given Brokerage and custody of 9,232 8,358 10.5% their nature are non-recurring, securities translating into profit volatility. Lines of credit and overdrafts 7,413 5,754 28.8% All in all, the bank is strong in the provision of non-lending value- Other fees 20,580 10,302 99.8% added products, such as Cash 83 Total fees 279,063 254,424 9.7% Management, financial advisory and investment banking in general, which should continue supporting fee income growth in this segment. Middle-market posted a 17.6% increase in fee income driven by

the client base growth, especially Clients (annual growth, %) 2017 Report Annual loyal customers. In the retail Total Loyal segment (individuals and SMEs) fees increased 4.9% boosted by the 10.0 9.5 growing client loyalty levels and more client transactionality, which translated into a larger usage of the 3.9 4.0 2.9 2.9 2.3 3.0 Bank’s products like credit and debit cards. In fact, the loyal client base continued to grow, which should Select Middle-income SMEs Middle-market translate into larger fee income as the economy resumes growth. The latter was partially compensated by lower fees associated with During 2017 the Bank continued Bank’s distribution channels and automatic teller machine usage in innovating in client attention products, translating into loyal client line with the optimization of the models with the consolidation of growth –understood as clients with ATM network. It should be noted the new Work Café branch model between two to four products, that although this has a negative and launching Life for middle and and minimum levels of usage and impact in fee income, it generates low-income individuals. These profitability for each segment. This cost savings and improves initiatives are backed by the way, the Bank has more clients and efficiency. increased digitalization of the more loyal clients. Total customers, considering of Banks and Financial Institutions By products, collection fees grew individuals, SMEs, companies and (SBIF). Total checking accounts 41.2% mainly driven by those related institutions, add up to over 3.5 increased 6% in the period, while to insurance premiums associated million, with growth in all segments debit cards expanded 1.5%. In the with mortgages. Lines of credit and and especially in high-income or case of credit cards, although a overdraft fees increased 28.8%, while Select (+10.0%). It’s important to those related to securities brokerage 5% decrease was recorded in the highlight that client base growth climbed 10.5% boosted by the good number of active cards, those was accompanied by a larger performance of variable income. with operations grew 3.2% year- loyalty level, especially in high- Asset management fees increased on-year, while the number of income individuals with a 9.5% 13.3% in line with the Bank’s efforts to increase. operations increased 6.2% and the offer the product to clients as well as total operated amount expanded Good commercial performance the attractiveness of this investment of the year is also reflected in 8.8%. The latter reflects the strong alternative over time deposits, given products, according to figures increase in product usage and interest rate and inflation levels published by the Superintendency hence, more transactionality. during the year.

Products (thousands; annual growth, %) 2016 2017

+1.5%

84 3,506,717 3,560,342 -5.0% +6.0% 2,001,574 1,900,899 952,448 898,933

Checking Credit cards Debit cards accounts

Fuente: SBIF. Cifras a noviembre 2017, última información disponible. year. Theserevenueshadavery 8.6% withrespecttotheprevious Client treasuryresultsdecreased treasury results. area asclientandnon-clientrelated they arepresentedbybusiness Financial transactionsincomeline, In ordertobetterunderstandthe depreciation oftheexchangerate. periods ofsharpappreciationor income lines,especiallyduring important distortionsonthese gain (loss)line.Thisgenerates element intheNetexchangerate value togetherwiththecovered accounting arecarriedatfairmarket derivatives accountedunderhedge transaction income(loss).The result isrecognizedasNetfinancial value (mark-to-market)andthe former arecarriedatfairmarket under hedgeaccounting.The considered astrading,oraccounted hedged withderivativeswhichare position inforeignexchangeis foreign exchange.TheBank’sspot denominated in,oradjustedby, gaps betweenassetsandliabilities the Bankdoesnotrunsignificant 2016. It’simportanttohighlightthat together declined3.5%comparedto exchange gain(loss),which transactions andNetforeign income (expense)fromfinancial transactions includethelinesNet The resultfromfinancial Total financialtransactions, net Non-client treasuryincome Client treasuryservices (MM$, %) Financial transactions TRANSACTIONS FINANCIAL extraordinary incomeof$5,834 high. Inthefirstquarterof2016an the comparisonbaseisabnormally the caseofclienttreasuryresults It’s importanttomentionthatin term interestrates. consequent riseinmiddleandlong- expectations for2018andthe quarter driven by increasing inflation partially reversedduringthefourth for saleportfolio.Thelatterwas on thepositionsavailable interest ratesfell,generatingprofits year, middleandlong-termlocal rates duringthefirsthalfof the CentralBankreducedinterest decreased throughouttheyearand Bank. Asinflationexpectations they carrysovereignriskforthe bonds orCentralBankbonds,so mainly byChileangovernment to manageliquidityarecomprised bank’s fixedincomeportfoliosused decreased 5.7%year-on-year.The Non-client treasuryresults market making. as welltheactivitylevelsin decelerated duetolowervolatility, year demandforhedgingproducts However, duringtherestof considered asincomeinthisline. in themarketmakingbusiness, boosts cross-sellingofproducts segment (debtstructuring),which Capital MarketsdealsintheGCB good firstsemesterdrivenbyDebt 129,752 82,040 47,712 2017 the Bank’snetincomeline. to thehedgethereisnoimpactin within theincomestatement.Thanks element isrecognizedinotherlines change inthevalueofcovered financial transactions,whilethe whose resultisrecognizedas risk ishedgedwithderivatives (mainly technologyrelated).This denominated inforeigncurrency portion ofadministrativeexpenses in foreigncurrency,aswella provisions forloansdenominated positively affectedloanloss This way,thepesoappreciation or adjustedby,foreigncurrency. contracts aredenominatedin, Some assets,liabilitiesandservice covered byvariousmechanisms. exchange raterisk,whichis Bank doesnotcarryasignificant results. Itshouldbenotedthatthe dollar affectednon-clienttreasury appreciation againsttheU.S. second halfoftheyearpeso happened in2016,duringthe Finally, andsimilarlytowhat after theBrexitvote. recorded inthederivativesportfolio risk includedinthederivatives)was the marketvalueofcounterparty Value Adjustment,anestimateof abnormally highCVAresult(Credit well, inthesecondhalfof2016an the Bankininternationalmarkets.As the repurchaseofbondsissuedby million wasrecordedasaresultof 140,358 90,796 49,562 2016 CHANGE 17/16 (9.6%) (7.6%) (3.7%) 85 Annual Report 2017 LOAN LOSS PROVISIONS

Loan loss provision expenses During the year the general depth through the inclusion of a decreased 12.8% in the year. The evolution of asset quality was recessive period within the sample, decline is explained by lower positive, albeit with an increase and as a result the parameters established provisions and charge- in non-performing loans (loans for Probability of Default (PD) offs (-9.34%), and higher recoveries with one or more installments 90 and Loss Given Default (LGD) (+6.4%). The latter is a consequence days or more overdue plus the were strengthened. This implied of the continuous growth focus in outstanding loan balance) and recognizing extraordinary provisions less risky segments, of the changes impaired loans (non-performing for commercial and mortgage in admission and recovery policies loans plus renegotiated loans) loans, which was compensated implemented over the last years, explained by a weaker labor market by lower loan loss provisions for and the reduction in the size of especially during the first half of consumer loans, with which total Banefe, the specialized division the year. Nevertheless, the latter loan loss provision expense was not in low-income individuals. The should be transitory and revert as significantly affected. lower loan loss provision expense the economic recuperation seen by together with the growth of the loan the end of the period continues. In All in all, the non-performing ratio, portfolio translated into a better addition, in September an update which considers loans with one or cost of credit, this is, total provision of the provisioning model for more installments 90 days or more expense over average loans, which loans analyzed on a group basis overdue including the outstanding decreased from 1.26% in 2016 to was carried out. This process balance divided by total gross 1.08% in 2017. incorporated a larger historical loans, closed the year at 2.28%,

Loan loss provisions and portfolio quality 2017 2016 CHANGE 17/16 (MM$, %) Net established loan loss provisions 4,408 (29,770) n.m. 86 Charge-offs (386,928) (391,814) (1.2%) Loan loss provisions and charge-offs (382,520) (421,584) (9.3%) Recuperations 83,315 78,298 6.4% Net loan loss provisions (299,205) (343,286) (12.8%) Total loans 27,725,914 27,206,431 1.9% Total loan loss allowances (LLR) (815,773) (820,311) (0.6%) Loan loss allowances for client loans (815,687) (820,139) (0.5%) Loan loss allowances for interbank loans (86) (172) (50.0%) Past-due loans1 (PDL) 339,562 324,312 4.7% Non-performing loans2 (NPL) 633,461 564,131 12.3% Impaired loans3 (IL) 1,803,173 1,615,441 11.6% Loan loss provisions and charged-off loans / total loans 1.38% 1.55% - 17 pb Cost of credit4 1.08% 1.26% - 18 pb PDL / Total loans 1.22% 1.19% + 3 pb NPL / Total loans 2.28% 2.07% + 21 pb IL / Total loans 6.50% 5.94% + 57 pb Expected loss (LLR / Total loans) 2.94% 3.02% - 7 pb Coverage of PDLs 240.24% 252.94% - 1,270 pb Coverage of NPLs5 128.8% 145.4% - 1,663 pb

1. Past-due loans include installments 90 or more days overdue. 2. Non-performing loans includes installments 90 or more days overdue plus the outstanding loan balance. 3. Deteriorated loans include NPLs plus renegotiated loans. 4. Cost of credit is equivalent to Net loan loss provisions over total loans. 5. Coverage of NPLs is the ratio between Loan loss allowances and Non-performing loans. Loan loss provisions by product 2017 2016 CHANGE 17/16 (MM$) Consumer loans (165,977) (220,960) (24.9%) Mortgage loans (17,220) (19,299) (10.8%) Commercial loans1 (116,094) (137,871) (15.8%) Total loan loss provisions2 (299,291) (378,130) (20.8%)

1. Includes provisions for contingent loans./ 2. Excludes provisions for interbank loans (constitution of $156 million in 2016 and a release of $86 million in 2017) and additional provisions (in December 2015 $35.000 million were recognized as extraordinary additional loan loss provisions following a regulatory change by the SBIF, which were reclassified in January 2016 to the respective portfolios without affecting net income).

slightly above the 2.07% recorded in from 6.5% in 2016 to 7.2% in 2017. impaired loans reached 5.1% as 2016. On the other hand, coverage, Non-performing loans, on the other of December 2017 compared to understood as loan loss allowances hand, reached 2.3% by the close of 4.6% in the same month of 2016. over non-performing loans including the year, almost the same as the As well, coverage increased from interbank loans, reached 128.8% as 2.2% of 2016. Coverage decreased 41.4% to 42.7% over the same of the end of the period, below last from 300.9% in 2016 to 275.0% in period. It should be highlighted year’s 145.4%. As well, the impaired 2017, reflecting the effect of the that the Bank has maintained strict requirements for mortgage loans loan portfolio over total loans, which change in the provisioning model with a Loan-to-value (LTV, amount considers non-performing loans and the growth of the portfolio. of the loan over value of the plus renegotiated loans, ended Regarding mortgage loans, loan property) below 80%. the year at 6.5%, above the 5.9% loss provisions fell 10.8% despite posted in December 2016. All in The commercial portfolio the extraordinary additional all, the expected loss, this is, loan evidenced a 15.8% decrease in provisions recorded after the loss allowances over total loans, loan loss provisions, considering 87 update in the provisioning model in decreased from 3.02% at the end of the impact of the change in September. Asset quality remained last year to 2.94% in December 2017. the provisioning model. Non- stable, despite a slight increase performance closed the year at It should be noted that by the end in non-performing loans and 2.6% compared to 2.3% in 2016. of the year loan loss allowances impairment during the second half Impairment reached 7.3% in 2017, cover 2.7 times the effective loan of the year, reflection of the higher above the 6.7% of 2016. Finally, loss, understood as charge-offs net

unemployment. Non-performing coverage of non-performing loans 2017 Report Annual of recoveries. loans increased from 1.7% in 2016 to went from 144.9% at the close of By product, in the case of consumer 1.8% by the end of 2017. Similarly, 2016 to 125.6% in 2017. loans a 24.9% reduction in net loan loss provisions was recorded compared to the previous year. Loan-to-value at origination (%) This is explained in part by the change in the loan growth mix 85 towards less risky segments, as 83 well as by the continuous efforts to 81 improve admission and recovery 79 processes, in addition to the effect 77 of the update in the provisioning 75 model mentioned before. Regarding 73 71.5 asset quality, the local economic 71 environment and the increase in 69 unemployment negatively impacted 67 delinquency levels. Thus impaired 65 consumer loans (non-performing Jul 17 Jul 15 Jul Jul 16 Jul 14 Jan 17 Jan 15 Jan 16 Jan 14 Oct 17 Mar 17 Apr 17 Apr Oct 15 Mar 15 Apr 15 Apr Feb 17 Oct 16 Oct 14 Feb 15 Mar 16 Mar 14 Apr 16 Apr Apr 14 Apr Dec 17 Feb 16 Feb 14 Dec 15 Nov 17 May 17 Nov 15 Dec 16 Dec 14 Aug 17 May 15 Nov 16 Nov 14 Aug 15 Jun 17 May 16 May 14 Jun 15 Jun Aug 16 Aug 14 Jun 16 Jun 14 Sep 17 plus renegotiated loans) increased Sep 15 Sep 16 Sep 14 consequence of the acceleration those located away from branches OPERATING EXPENSES of the closure of Banefe branches, and that were not profitable. Total operating expenses, excluding completely ending this model by Although this reduces income other operating expenses, increased year-end, but compensated with from ATM transactions, it implies 2.6% in the period, below the the opening of new Work Café lower expenses like securities and 3.9% growth of the previous branches, which total 20 points valuables transport services, which year. Efficiency, this is, operating at the close of 2017. The latter are dropped 17.7% during the year. It should be noted that transactions expenses over total operating more productive compared to in ATMs are being replaced by income, closed the year at 41.0%, traditional branches. In this line, the which compares favorably with the transactions in other channels renovation of traditional branches 42.7% registered in 2016. like Web, Mobile and VOX. All of towards multi-segment formats the abovementioned translates The relatively low growth in moved ahead, making them more into that, although the number of expenses –practically in line with efficient in terms of space usage branches decreased 11.3%, total CPI and despite the fact that a good and back-office, which translates volumes per branch (considering portion of these, like personnel into fewer branches needed and loans and deposits) increased 11.6%. salaries and office leases, are thus lower office rental expenses. Similarly, volumes per employee indexed to inflation or the exchange As well, the number of ATMs grew 1.5% with respect to the rate- is a direct consequence of decreased importantly, especially previous year. several initiatives implemented to increase commercial productivity and efficiency. The success of the continuous digital and distribution Operating expenses (MM$, %) 2017 2016 CHANGE 17/16 network transformation is driving Personnel expenses (396,967) (395,133) 0.5% 88 higher labor productivity and maintaining high customer Administrative expenses (230,103) (226,413) 1.6% satisfaction levels. Depreciation and amortization (77,823) (65,359) 19.1%

Personnel expenses increased Operating expenses (704,893) (686,905) 2.6% 0.5% with respect to 2016. This Other operating expenses (101,658) (85,432) 19.0% is explained by slightly higher Impairment of property, plant (5,644) (234) 2,312.0% remunerations due to inflation, and equipment as salaries are adjusted once a Total other operating expenses (96,014) (85,198) 12.7% year, and specifically during the Total operating expenses (806,551) (772,337) 4.4% second quarter, in accordance Efficiency1 41.0% 42.7% - 173 bp to the accumulated CPI change over the previous twelve months. 1. Operating expenses over operating income net of total other operating expenses. The latter was almost completely compensated by the reduction in the total number of employees during the period. These Branches Productivity per Productivity per adjustments are part of the cost (Nº) branch (volumes1 pre employee (volumes1 efficiency plan started in 2015. branch) per employee) (MMM$) (MMM$) Material issue 2016 2017 During the year the Bank -11.3% +11.6% +1.5% continued advancing on the digital 434 385 110,363 129,138 transformation plan launching digital 4,219 4283 On Boarding and Life, as well as new improvements to NEOCRM, thus boosting digitalization. In addition, 49 branches were closed as a 1. Volumes = loans plus deposits financial and tax accounting. tax and Bank’s financial the in charge-offs and provisions of treatment different the in originates difference This liabilities. and taxes in deferred fluctuation the from impact the as well as assets leased on paid taxes property from credits tax income mainly Includes 3. restatement. level price for adjusted tax before income net over applied is rate tax statutory The inflation. to CPI indexed is capital purposes, tax For 2. details. more for statements financial consolidated the in 12 to note refer Please only. purposes informational for is table This 1. Net incomebeforetaxadjustedbypricelevelrestatement Net incomebeforetax Taxes (MM$) severance paymentsfor$12billion 2017 anextraordinaryexpensein in lieuofpayment.Also,during of charge-offsassetsreceived This isexplainedbyalargeramount growth recordedthepreviousyear. compares favorablywiththe8.0% 4.4% withrespectto2016,which expenses, totalexpensesincreased When includingtotalotheroperating efficiency andproductivity. transformation plantoincrease is carryingoutaspartofthedigital and digitalbankingthattheBank respond toinvestmentsinsoftware amortization expenses(19.1%) The largerdepreciationand stimulate thebusiness. support thelaunchofLifeandto period marketingexpensesgrewto processes. Inaddition,duringthe to improveefficiencyofinternal client transactionality,andseeking Mobile), inlinewithincreased channels (Internet,Voxand to developandstrengthendigital sustained investmentsintechnology is partiallyaconsequenceofthe expenses, althoughcontained, The increaseinadministrative Tax benefits Income taxexpenseatstatutoryrate Statutory taxrate Price levelrestatementofcapital Effective taxrate Income tax 3 1 2 affect attributednetincome. minority interestandthusdoesnot net ofaccruedtaxes,correspondsto income generatedbytheoperation, no ownershipinBansaS.A.,allthe noted that,giventhattheBankhas other operatingincome.Itshouldbe million, whichwasrecordedas extraordinary incomeof$20,663 of paymentgeneratingaone-time property, soldassetsreceivedinlieu by theBankduetocontrolandnot Bansa S.A.,companyconsolidated Finally, duringthethirdquarter favorable resultfortheBankin2017. constituted in2016,andwhichhada for contingencies$29,903million together withareleaseofprovisions assets receivedinlieuofpayment, higher recuperationsincharged-off were partiallycompensatedby and fixedassets.Theseexpenses recorded, mainlyobsoletesoftware intangibles for$5,290millionwas an extraordinaryimpairmentof As well,duringthethirdquarter efficiency planmentionedbefore. previous year,bothpartofthecost similar tothe$10,789millionof approximately wasregistered, (165,246) (143,613) 648,023 720,874 (72,851) 21,633 25,5% 19.9% 2017 income. does notaffectattributednet to minorityinterestandthus of accruedtaxes,corresponds generated bythisoperation,net As mentionedbefore,theprofit reflected inthetaxexpenseline. a correspondingtaxpayment extraordinary incomegenerated be notedthatBansaS.A.’s accounting purposes.Itshould on theBank’scapitalfortax price levelrestatementcharge period, whichimpliedalower to thelowerinflationin in September2014-aswell by thetaxreformapproved 2016 to25.5%in2017asstated –which increasedfrom24%in to thehigherstatutorytaxrate before taxes.Thelatterisdue 23.9% increaseinnetincome the previousyearandabove MM$137,646, 28.5%higherthan In 2017taxexpensereached TAXES (107,120) (115,394) (101,027) 480,809 581,836 24,0% 18.4% 8,274 2016 CHANGE 17/16 + 150bp + 68bp (76.8%) 386.0% 23.9% 28.5% 54.1% 45.1% 89 Annual Report 2017 Capital adequacy BALANCE SHEET STRENGTH 2017 2016 CHANGE 17/16 (MM$, %) At the close of 2017 the capital base Basic capital 3,066,180 2,868,706 6.9% (core capital) of Banco Santander Chile Tier II capital 815,072 789,001 3.3% amounts to MM$3,066,180 (US$4,984 Effective equity 3,881,252 3,657,707 6.1% million). This figure is 6.9% higher than 1 in 2016 and translates into a core capital Total assets 38,713,600 39,713,043 (2.5%) ratio of 11%, above the 10.5% of the Consolidated risk 27,911,834 27,237,835 2.5% previous year. It should be mentioned weighted assets that dividend policy reached 70% in the Basic capital / 7.92% 7.22% + 70 bp period. On the other hand, the Bank’s BIS Total assets ratio or Basel ratio climbed to 13.9% at Basic capital / Risk weighted 10.99% 10.53% + 45 bp December 31, 2017, 48bp above last year’s assets (Tier I) figure. Basel ratio 13.91% 13.43% + 48 bp This position is a reflection of the Bank’s strategic focus in the efficient use of 1. For the purpose of calculating the capital ratio, financial derivative contracts capital, allocating it to highly profitable are presented at their Credit Risk Equivalent value. operations relative to their capital consumption. Thus, these figures show Santander’s capability to grow while at the same time keep a solid capital Core capital; total loans; and position. It should be highlighted that risk weighted assets 2016 2017 Santander Chile has not issued new shares (MM$, annual change %) over the last 14 years. +2.5% Banco Santander Chile recorded a 24.6% +45pb +1.9% return over average equity before tax 27,912 10.99% and 19.6% after tax in the 2017 exercise. 27,726 90 These figures reflect the Bank’s focus 10.53% on profitability, the loan mix and the improvements in the funding mix, and at 27,206 27,238 the same time, a prudential position with a high capital base and liquidity. This way Santander Chile achieves an adequate risk Core Total Risk return relation. capital loans weighted assets

ROE / Core capital relation (%)

25 Santander Comp.1 20 Comp.3 Comp.2 15 System (%) 1 Comp.5 10

5 Pre-tax ROE Pre-tax Comp.4 0

5 7 9 11 13 15

Core Capital Tier 1 (%)

1. Pre-tax ROE = Net income before taxes / average equity. Source: SBIF as of December 2017. competitors. to theSBIF),abovemain climbed to19.3%(19.4%according to shareholdersoveraverage equity, ROE, thisisnetincomeattributable according totheSBIF).Similarly, earning assets,reached4.31%(4.4% income overaverageinterest margin (NIM),thisisnetinterest the endofexercise,netinterest profitable operations.Thisway,at allocating capitaltothemost its resourcesasbestpossible As well,theBankseekstouse competitors. the figuresobservedformain to theSBIFmethodology),below efficiency ratio(39.1%according of 2017,SantanderChilehada41.0% forefront oftheindustry.Atclose productivity andmaintainitatthe investing inprojectsthatincrease allocate itsresourcesefficiently, high efficiency.TheBankseeksto term StrategicPlanhasbeenits of BancoSantanderChile’slong One ofthefundamentalpillars COMPETITION COMPARISON WITH THE 46.0 Source: Superintendencia de Bancos e Instituciones Financieras assets earning interest / Average income interest = Net margin interest Net 4. expenses /Operating =Fees Recurrence 3. income Operating / expenses Operating = Efficiency 2. equity /Average income =Net ROE 1. (%, at December 31, 2017) 31, at December (%, ROE (%, at December 31, 2017) 31, at December (%, Recurrence 19.4 Santander 1

39.6 19.3 38.1 14.0 3

Comp. 1 Comp. 12.3 33.3 26.6 8.2 Comp. 2 Comp. 22.7 1.6 (%, at December 31, 2017) 31, at December (%, Efficiency 4.56 Net interest margin (%, at December 31, 2017) 31, at December (%, 39.1 Comp. 3 Comp. 4.40 43.8 2

3.45 50.4 Comp. 4 Comp. 3.29 50.7 4

59.8 3.20 Comp. 5 Comp. 65.2 2.71 91 Annual Report 2017 Our team

The Human Resources and Communications Division continued to execute the Cultural Change Plan as the main axis of their strategic plan, which during 2017 focused in the cultural internalization stage. Also, and to improve the achievement of strategic challenges, defined new leadership and talent management models, centered on the SPF culture.

MOVING AHEAD IN THE SPF CULTURAL CHANGE

STAGE 1 STAGE 2 STAGE 3 ASSIMILATION INTERNALIZATION SETTLEMENT November 2015 – June 2016 July 2016 – December 2018 January 2019 > month). managers toclients(twoper of VOXphonecallsandfrom high clientattendance),listening in 33branches(chosenduetotheir needs. Includeshalf-dayinternships contact withclient’sdemandsand Bank’s CentralServicescouldhave the differentareasthatworkat into acontinuousactionsothat plan from2016transformedin2017 1 Some oftheinitiativesare: communicational reinforcement. Committee andapermanent and monitoringoftheCulture This stagehadthesupport and symbolsoftheorganization. well asintheprocesses,systems in thebehaviorofemployees,as achievement ofvisiblechanges cultural changehadasagoalthe manner atthisstageofthe activities developedinaplanned The numerousinitiativesand CONECTA PROGRAM: SPF INITIATIVES isapilot of theculture. advance towardstheinternalization was arelevantmilestoneinthe inconsistencies withtheSPFculture) us tobe“amoreSPFBank”(3,012 identify thatwhichdoesnotallow of 70%theBank’steamsto 3 and Fair. a BankthatismoreSimple,Personal behaviors thatleadSantandertobe new waytodothingsanddeepenthe conversation instancesaboutthe workshops enabledthecreationof which addedupto1,080hours.These participated inthesetrainingsessions, the SPFbehaviors.Intotal360agents throughout thecountrytoworkon twelve facilitatorsheld32workshops 2 Committee. which theymetwiththeDirection and monthlycoffeemeetings,in eight workshopsandcaseanalysis The trainingprogramconsidered was increasedtofiftyemployees. change processineachopportunity- a keyroleandsupportthecultural mobilizer’s group-thosethatplay 4 INCONSISTENCIES: BRANCH NETWORK LEADERS: SPF CULTURE TRAINING FOR SPF MOBILIZERS: in 2017 the in 2017the the participation 5 6 businesses. to theprogressofpeopleand how Santandercontributes teams andclientexperiences, and showsthroughtheBank’s program thattoursthecountry commitment andhumanqualities. demonstrated outstanding many employeesthathave rewarded someofthe throughout 2017,Santander 7 new wayofdoingthings. acknowledgements boostedthe SPF behaviors.Over46,140 stands outinoneoftheeight to recognizeanotherthat phone andallowsanemployee App downloadedtoamobile platform thatworksthroughan TOURING SANTANDER: STARMEUP: OVERCOMINGSPIRIT: AWARDS TO EMPLOYEE’S ACKNOWLEDGES YOU, SANTANDER globalrecognition

93 Annual Report 2017 monitoring employee perception 1 THE BEST PLACE TO WORK regarding the installation of the SPF Identify roles and their contribution culture in the organization, as well The commitment level and to the organization more objectively. satisfaction of employees with as the Simple, Personal and Fair Santander, as well as the advances in attributes facing clients. 2 the SPF culture, had good results in In addition to the measurement of 2017, reflecting the progress of the the SPF culture implementation Ease the analysis and market Cultural Change Plan. advances, the Human Resources research locally and globally. Thus, in the Great Place to Work Division also periodically assesses (GPtW) survey, the Bank jumped employee performance. 3 from fourth to second place as best company to work among those with Count with a methodology and role

structure, which are more flexible more than five thousand employees, NEW ORGANIZATIONAL CHART and advanced from 18th to 12th place and adaptable to needs and changes. To better respond to the in the general ranking. transformation challenges and Also, the good quality of the standardize the role structure to that It’s important to stress out that the work environment was reflected of the Corporation, in the year the update did not imply changes in in an international recognition, as organizational chart was updated, relation to dependencies, functions, Santander Chile was awarded with implementing a new valuation and wages or contractual conditions of the Employee Engagement Award mapping methodology, simplifying employees (for more information see by Korn Ferry, a global North names and role families. This will “The implementation in figures”, pg. American consultant for employees allow to: 95). and organizations, which recognized 21 organizations around the world that demonstrated high commitment levels with their employees in 2017. 94 As well, in the Commitment Survey, Commitment survey 2015 2016 2017 Santander Chile achieved the best results in SPF culture perception Santander Santander Santander Santander Santander Santander Chile Group Chile Group Chile Group within Santander Group, with a Commitment 86 75 87 78 86 77 five points increase with respect to Organizational 2016, also being the dimension that 78 66 79 70 80 71 support improved the most. It’s important to highlight that this survey allows SPF 77 72 79 74 84 79

GPtW: sustained improvement

In 2017 the largest The satisfaction index Santander’s results number of employees improved four points: position it above the participated: benchmark of the fifty best companies to work in 90% 83% Chile. of the workforce was part Satisfaction of the process 2017 79% 9,961 Satisfaction employees 2016

The implementation 5 4 20 in figures massive talks in the meetings with focused auditorium unions meetings

120 530 5,462 9,000 CAV new roles positions employees with role queries created change

Material issue

MOVEMENTS TALENT DEVELOPMENT

Together with the already described The Training Model exists to support professionals and cover restructuring of positions, in the the Bank’s strategy and secure succession needs, which in 2017 year 124 employees were promoted the necessary human capital to were complemented with Talent to management positions, while successfully face the organization’s in Motion: 3,438 employees were transferred current and future challenges. Thus, • Future Directives (FUDI) internally so as for them to face new it’s necessary to attract, retain challenges and grow professionally and develop talent. With this goal • Santander Executive Training within the company. in mind Santander has created a Program (STEP) series of programs that take place • Santander World internationally as well as locally. 95 • Cross Borders • International initiatives are corporate programs that aim • Talent in Motion to promote high performance Annual Report 2017 Report Annual

2015 2016 2017

Participants Editions Participants Editions Participants Editions

STEP 8 5 3 5 1 5

FUDI (Chile) 28 14 30 14 30 14

FUDI (Chileans abroad) 19 14 5 14 5 14

Internships (Chileans abroad)* 73 6 82 7 143 8

Talen in Motion (Chile) 1 1

Talen in Motion (Chileans abroad) 1 1

Total 128 39 120 40 181 43

* Includes total participants in Santander World and Cross Borders. SANTANDER ACADEMY SPECIFIC GOOD PRACTICES TRAINING Santander’s Training Model also In 2017 Santander certified itself includes other training initiatives, • Skills in the ISO 10,667 norm, which structured and formulated to • Technical knowledge guarantees best practices in Human adjust detected gaps, which are Resources as it provides a clear and available to all employees in the concise guide for good practices in LEADERS organization, without any type of employee performance assessment • Across-the-board discrimination. Thus, professional in organizations. The latter through offer for leaders, development of all employees is deputy managers and standardized processes based fostered, taking one step further managers on evidence with objective and to build the best place to work. measurable systematics, applicable INTERNAL worldwide. To achieve an even more KNOWLEDGE successful professional In addition, in the last version of development of employees, • Sharing internal the Carlos Vial Espantoso Award, know-how work has been carried out in the Banco Santander was awarded Santander Corporate Academy, with a special distinction for the which will be launched during the implementation of a culture that first semester of 2018 and will be CORPORATE privileges employee professional oriented towards the creation PROGRAMS development. Workers of all • SPF systematic of new permanent study plans business areas can opt for learning • BEI style per Division. The latter will allow plans as a growth opportunity performance improvements in the within the organization. current position, and prepare the SELFMANAGEMENT person to assume higher positions • Open training offer within the organization, while • Train yourself (Expand collaborating on the achievement courses, Grow and of Santander Group Chile’s goals. +conecta2) 96 • English courses

Training indicators 2015 2016 2017

Annual investment (M$) 2,748,508 2,373,607 2,441,505

Training hours by type of employee

Administrative 55 47 15

Professionals 39 33 18

Supervisors 32 37 19

Percentage of employees over total 86.6% 90.6% 91.2% head count

Participation by segment

Administrative 39% 41% 36%

Professionals 44% 44% 49%

Supervisors 17% 15% 14%

Satisfaction evaluation by 6.7 6.3 6.5 participants (1 to 7)

Teaching hours (total) 486,354 470,421 194,1951

1. The change in relation to total teaching hours and annual training investment in 2017 with respect to previous years is mainly due to courses that started during the year but which have not been accounted for as they have not ended yet. Central Servicesbuildings: created inBancoSantander’s collaborative spaceswere “indoors”, in2017thefollowing To replicatethismodel to emerge. disciplines inorderfornewideas professionals fromdifferent and approachesbetween the exchangeofexperiences as itenhancesconversationand promotion ofcollaborativework, an effectivestrategyforthe Chile theco-workconceptas consolidated inSantander the secondsemesterof2016 Café branchmodelduring The inaugurationoftheWork BOOSTING CO-WORK incorporating variablessuchas as awaytodevelopprojects in theUnitedStates2001 Agile methodology,conceived driving sincetheendof2016 Operations Divisionhasbeen Agile cells:theTechnologyand 2 cafeteria. for collectiveworkanda to allemployees,withworktables Division seektobeaspaceopen Administration andCosts floor: thenewofficesof Bombero Ossa1068,10th 1 encourage creativity. that favorconversationsand enhanced withenvironments Training Center,trainingis Playlab: inthisSantander 3 manner. efficient andnon-hierarchical areas thatworkinaflexible, includes peoplefromdifferent this approachtheworksystem permanent monitoring.From that allowsforspecificgoalsand an essentiallycollaborativemode speed andflexibility,basedon 97 Annual Report 2017 98

REMUNERATIONS RETRIBUTION/VARIABLES SALARY READJUSTMENTS BY GENDER (total workforce) Banco Santander’s compensation policy is funded on the idea that retribution, based on the value of 84% of employees women: 1,671 (average equity, brings together what each earned rewards for their increase: 18.4%) performance, with a total employee receives in relation to men: 1,169 (average investment in excess of increase: 15.5%) his contribution, performance, $60 billion cooperation and talent, adding up also his development within SALARY READJUSTMENTS FOR BENEFITS (allowances for bonuses, the organization, which goes way PERFORMANCE vacations, marriages, births) beyond remuneration.

In the reported year, the minimum 73% of employees that 75% above the system's wage at Banco Santander was maintained a good average $668,630, amount that exceeds by performance over the last three years have been 248% the minimum wage in Chile, benefited with salary set in July 2017 at $270,000 (both increases that in 2017 figures gross). For this concept, reached an average of 10.6% MM$396,967 was spent.

Compensation in the Bank is REMUNERATION (nominal VOLUNTARY ROTATION calculated based on a fixed amount increase) plus variables that depend on Santander: 6.4% vs 3.6%, the lowest in the individual and group goals, in banking system: 3.8% banking system addition to benefits that apply to each employee and his family group. Source: Human Resources Division, Banco Santander Chile • manner: these employeesinanadequate environment inordertointegrate employees, aswellconditionthe were donetosensitizeandtrain during theyearseveralactivities an agreementwithFundaciónTacal, In thiscontext,inadditiontosigning transversal frameworktothepolicy. business, thusgrantingamore with disabilitiesandthoseofthe into accounttheneedsofpeople 2018. Thelatterwelcomesandtakes approved duringthefirsthalfof with Disabilities,whichwillbe Chile’s InclusionPolicyforPeople carried outonBancoSantander Inclusion Program,in2017workwas To giveconsistencytotheexisting • • INCLUSION AT SANTANDER • • Two eventswereheld: projected toincreasein2018. participated, figurethatis conducted inwhich20people A signlanguagecoursewas right). more detailsseeinsetonthe diagnostic wascarriedout(for A universalaccessibility Communications Division. and theHumanResources visual disabilitiesfromVOX between employeeswith Another acquaintancemeeting disabilities. Melandri andemployeeswith and CountryHeadClaudio A breakfastwiththeCEO issue Material since thebeginning. * Thistableshowscurrentfigures,butmightchangeasthepro ject hasbeenmodified • • norm, offering: executive's desksthatfulfillthe reaching specificagentandaccount accessible routethatpermits branches. This,creatingan accessibility inallofitscurrent defined thatitwillgrantuniversal current regulationSantander In accordancewithareviewof Bathroom changes Teller /attentiondeskchanges Elevation platforms/ramps Elevators Branches tobeintervened with PeopleFirst andLa by Principalincollaboration award, aninitiativedeveloped as “BestoftheBest”inthis Santander wasrecognized MAKING AN ACCESSIBLE BANK EMPLOYEE FINANCIAL FUTURE BEST COMPANY FOR people. software, especialforblind to theinstallationofJaws whenever necessary,inaddition workstations arebeingadapted are beingadjustedand The Bank’sselectionprocesses that willworkinthefuture. currently workattheBank,or people withdisabilitiesthat and interactadequatelywith of preparingthemtowelcome trained insensibility,withtheaim Another 45employeeswere Executed bytheendof2017

demanded accessguarantees. of bathroomsthatcomplywithall and 76.1%willneedtheconstruction adjusting tellersandattentiondesks, of brancheswillbeintervened elevation platformsorramps.82.8% and 12.8%theincorporationof implementation ofanelevator that 7.2%ofbranchesrequirethe In addition,thediagnosisyielded already beenspentduringtheyear. investment, ofwhich10%has will demandaMM$10,000 Remodeling workandadaptations • • • • their employees . wellbeing andfinancialfuture of commitment tocontributein the companies thathaveagreater Tercera newspaper,distinguishing storeys orfloorunevenness. at brancheswithtwoormore persons withreducedmobility platforms orelevatorsfor Access ramps,elevation disabilities. general useofpersonswith At leastonebathroomforthe Exclusive parkingspaces. comply withaccessibility. Tellers andattentiondesksthat 38 38 38 4 3 Total 298 385 274 46 26 Advance % 10% 14% 13% 12% 9% 99 Annual Report 2017

BENEFITS AND Leaves / Permits INCENTIVES

Santander Chile’s value offer includes reconciliation and 199 229 8,938 for marriage or civil for birth family special flexibility measures, training of union agreement (parents) competences and languages, grants and boost to excellence, and health and sports initiatives, among others. Above all, those 305 4,716 5,748 related to the wellbeing and final degree plus permits free evenings examinations financial future of employees, allowed the Bank to be 100 recognized in 2017 in the Best Company for Employee Financial Future award as “Best of the

Best”. Benefits for parents

CORPORATE VOLUNTEERING 620 602 1,219 birth bonus and employees employees benefited Volunteering initiatives are an presents benefited with with kinder garden important element to channel day-care the social concerns of Banco Santander’s employees and develop capabilities and skills such as collaboration, team work,

leadership and creativity. On Be-healthy program the other hand, they strengthen the Bank’s commitment with the society through the direct 12,000 234 528 action of its employees within its ecological people people attended healthy sustainability strategy framework backpacks participated in nutrition workshops (for more information see pg. 129). delivered talks Union membership indicators 2015 2016 2017 UNIONS N° of employees in unions 8,363 8,208 8,351 Labor relations at the Bank Percentage of union membership 71.3% 71.6% 75.5% have always been open to all N° of unions 24 24 22 organizations, making efforts to Jobs covered by collective agreement1 100% 100% 100% build solid bases and integrate Union membership rate in Chile2 15.5% 16.6% 17.0% long-term approaches. Thus, a 1. Collective bargaining agreement terms are applied to all non-unionized employees that cannot be relevant relationship axis has part of a collective bargaining (contributors, adherents and senior management), by virtue of the union’s approval for this effect. / 2. Source: Dirección del Trabajo. been structured, which is part of Santander Group’s corporate Total head count 2015 2016 2017 strategy. In addition, Santander Total 11,723 11,354 11,068 Chile has characterized for Total men 5,225 5,120 4,996 having a high union membership Total women 6,498 6,234 6,072 rate through the years, Total indefinite contract 11,525 11,175 10,986 not having labor conflicts Indefinite contract men 5,147 5,048 4,967 and making efforts to be in Indefinite contract women 6,378 6,127 6,019 permanent contact with them Total fixed-term contract 198 179 82 Fixed-term contract men 78 72 29 (open doors policy and regular Fixed-term contract women 120 107 53 meetings every month). Total full-time 11,235 10,748 10,535 Thanks to the latter, between Full-time men 5,109 4,959 4,856 the end of 2017 and February Full-time women 6,126 5,789 5,679 2018 an anticipated collective Total new hires 1,833 1,528 1,222 Total new hires men 821 691 596 bargaining process took place, Total new hires women 1,012 837 626 which covered 10,300 employees Average years 9.4 9.6 10.0 across the country ending Average years men 10.6 10.8 11.1 successfully. Average years women 8.5 8.7 9.1

101 Gender and number 2015 2016 2017 Number % Number % Number % Total directives 375 3.20 336 3.0 305 2.8 Men 265 70.67 248 73.8 218 71.5 Women 110 29.33 88 26.2 87 28.5 Total supervisors 1,318 11.24 1,322 11.6 1,260 11.4 Men 669 50.76 675 51.1 654 51.9 Annual Report 2017 Report Annual Women 649 49.24 647 48.9 606 48.1 Total professionals 4,862 41.47 4,990 43.9 5,442 49.2 Men 1,998 41.09 2,081 41.7 2,189 40.2 Women 2,864 58.91 2,909 58.3 3,253 59.8 Total administrative 5,168 44.08 4,706 41.4 4,061 36.7 Men 2,293 44.37 2,116 45.0 1,935 47.6 Women 2,875 55.63 2,590 55.0 2,126 52.4

Health and security indicators 2015 2016 2017 % of total employees represented in parity committees 100% 100% 100% Non-worked hours due to common illness or non-working accident 980,702 920,661 963,560 Absenteeism rate 3.5% 4.0% 4.4% Severity of work accidents (days not worked) 2,141 4,206 3,182 Mortal accidents 0 0 0

Average rotation 2015 2016 2017 Total 11.7% 14.5% 11.9% Average rotation men 12.5% 13.7% 12.9% Average rotation women 11.0% 15.1% 11.1% The client at the center

Material issue

In order to contribute to the progress of people and businesses, as established in its Mission, Banco Santander has worked tirelessly in its commercial transformation. Thus, seeks to consolidate as the most recommended bank and as a referent in terms of customer satisfaction.

102

The Bank has adjusted its strategy Through its diverse business areas and has undertaken a series of provides a value offer to different initiatives that contribute to the client segments, individuals, SMEs, continuous improvement of the companies and corporations, with commercial attention model, the products and services especially growing channel digitalization to designed for each of them. During increase its availability and the 2017, the coordinated work of the offer of an innovative generation diverse areas and teams marked of products and services. All of this this period with milestones of great leveraged in a corporate culture relevance to face the challenging based on the Simple, Personal and scenario in which the financial Fair concepts. industry is currently moving and continue advancing to have clients that are more loyal, active and digital.

620,386 3.0% 8.9% Loyal clients Loyal client Consumer loan growth growth (installment loans) increase qualityofservice. to implementplansandactionsthat areas receivethenecessaryinput collaborative workscheme,business customer experience.Undera and detectopportunitiestoimprove studies orientedtoknowtheirvoice constantly surveysclientsthrough It shouldbenotedthattheBank digital andvirtualchannels. Bank’s clients,andinnovationsin VOX attentionmodeltoallofthe Pass Plan;expansionofthe24/7 Life andLimitedSantanderLATAM the differentclientsegments,like launch ofemblematicproductsfor the WorkCafébranchmodel; year standout:theconsolidationof the implementedinitiativesin goals hasbeenconstantandwithin work carriedouttoachievethese focuses forBancoSantander.The with themarefundamentalstrategic establish long-termrelationships Improve customerexperienceand QUALITY PLAN (%) / Considers grades 5, 6 and 7 6and 5, grades /Considers (%) Customer satisfaction evolution level. with ahighcustomersatisfaction against therelevantcompetition Bank maintaineditsrelativeposition was notexempt.Despitethis,the improvements-, ofwhichSantander successive yearsofimportant observed atanindustrylevel–after a generalizedreductioncanbe In termsofcustomersatisfaction October 2017, GfK Adimark 2017, GfK October to –May research external satisfaction Customer Source: 2014 88 2015 93 2016 96 91.7 2017

(%) / Considers grades 5, 6 and 7 6and 5, grades /Considers (%) by channel Satisfaction Research (branches) Web). and Eol (VOX Adimark GfK research Internal Source: Web VOX Branches 2015 2015 93 2015 96 97 2016 2016 95 96 2016 97 94.7 2017 2017 98.6 2017 95 103 Annual Report 2017 Sernac Financiero ranking Net satisfaction per attribute Complaints per attention channel (Complaints per (Claims and complaints / Change (%) 10,000 debtors) %, January to November 2017)

4 -17.7% App Change 12 Web 11.49 9.45 +29% 67 +25% +25% VOX

Second Second Clarity Time General semester semester Satisfaction 17 2015 2016 Branches

Source chart 1: Servicio Nacional del Consumidor (SERNAC, Consumer Protection Agency), latest available information. / Charts 2 and 3: Clients and Service Quality Division.

REDUCTION OF COMPLAINTS ADVANCES IN THE COMMERCIAL Customer’s net satisfaction in ATTENTION MODEL relation to claims and complains, showed a considerable increase Banco Santander has been a pioneer expectations, the Conecta program in 2017, mainly on the following in modernizing its commercial was transformed into a permanent attributes: clarity, which climbed network introducing models which action that was expanded to a larger 29%; time, which grew 25%, and have transformed customer habits, number of employees and extended general satisfaction that also making available to them all the to the 33 branches with the highest 104 increased 25%. This was achieved advantages offered by technology client influx. thanks to process automatization and digital development. During It should be noted that the program initiatives and measurements for 2017, the Bank continued to move consists of three initiatives: managers daily management control. from a carterized model –in which On the other hand, the Financial the account executive is responsible calling clients; internship in a branch; SERNAC ranking as of the second for a portfolio of clients- to a non- and call listening at VOX. During semester of 2016 (latest available carterized or integrated model, in 2017 most of senior management information), which considers which the client has the Bank at his at Central Services made telephone complaints per 10 thousand disposal. contacts with a select base of debtors, showed a 17.7% reduction customers to learn about their for Banco Santander. opinion regarding the services These results were influenced by CONECTA PROGRAM offered by the Bank. This experience the collaborative work between Started as a pilot plan which put was incorporated as part of their the internal areas to reduce the in contact Central Service’s areas routine tasks, defining for this effect complaints and the numerous with client’s requirements and two phone calls per month. measures implemented for this goal. Example of the latter was the improvement in webpay which allowed clients with a debt to Figures 2017/2016 (Nº) pay with another bank’s financial 2016 2017 product. 672 Banco Santander counts with various channels to receive complaints. 67% of them are 314 received through the Contact 231 108 Center or VOX, 17% through 69 60 branches, and the web site receives 12% while the App covers VOX Branch Manager’s the remaining 4%. internships internships telephone calls WORK CAFÉ work and the exchange of as it is served by a group of experiences between professionals trained executives for these One of the most remarkable of different disciplines. effects; second, there’s always developments is the new Work someone available to serve Café branch model, redesign that It’s a design that has no physical the customer; and finally, can aims at offering a better customer tellers and operates on an extended be attended at any branch or experience, increase efficiency and schedule from 9:00 to 18:00 hours. through VOX. This model was generate more income. At the end This experience has been so highly launched in mid-2017 in two of the period, Santander had 20 valued by clients that in 2017 the branches under this format which Bank took the decision to extend zones and is being expanded became an icon for the Bank and a attention hours in all the Bank’s towards the rest of the country. renowned competitive advantage traditional branches. Thus, tellers For high-income individuals facing clients. maintain their regular schedule the specialized attention until 14:00 hours, while commercial They are multi-segment business model Select continued to centers, with 100% digital self- and post sales executives attend be strengthened with new service processes and paperless, Monday to Thursday from 9:00 to products and services offered. which allow completing regular 14:00 hours and from 15:30 to 18:00 SMEs have Santander Advance financial transactions in an hours, and Fridays from 9:00 to which makes available to autonomous manner, although the 14:00 hours as is common (for more clients a financial and non- help from specialized executives is information about the Work Café financial offer, as well as the also available. see pgs. 51 and 128). support of specialized account In addition, through the Work Café In addition, the integrated model executives. For mid-sized and Banco Santander made available for middle-income individuals large companies the Business to customers and non-customers was launched, which has various Centers were created, which a co-work space that fosters advantages: first, the client does not total 16 points by the end of entrepreneurship, collaborative depend on its account executive the year. 105 Annual Report 2017 Report Annual Material issue

NEO EVOLUTION DIGITAL BANKING In this commercial transformation context an update was needed for The Bank’s business areas have NEOCRM, a tool that since 2012 has managed to combine the best of the played a key role to deepen client face-to-face world with the digital knowledge, improve commercial world. The irruption of technology effectiveness and increase has modified the relationship habits satisfaction levels. between customers and the Bank, and digital channels have enabled The new version is NEO Evolution, to simplify processes and achieve an intelligence tool that enables higher efficiency, productivity and NEW INCENTIVES a client to interact with the Bank MODEL through any account executive at profitability. any branch, without the need of updating his historical records on The drive on digital banking has Another relevant focus each interaction. been supported in four basic was the change applied to Launched in December 2017, conditions: the incentives model for NEO Evolution not only makes account executives, following a customer’s historical records international standards. 1 available to account executives, The latter aims for a better Mobile first: the Bank’s it also incorporates the Bank’s developments and innovations are alignment with the income new incentives model and all the statement and expand it to a oriented towards mobility, in such 106 Big Data development, which has larger number of executives allowed to reformulate predictive a way that all designs are thought throughout the distribution models through the integration of primarily for the mobile platform. network. neural network systems that learn from the interaction between clients The new scheme includes 2 and each of the Bank’s points of productivity as well as contact. Omnichannel: completely integrated compliance with certain channels that allow clients to Implemented on a first stage in the standards in terms of audit operate indistinctively through a Work Café branches, NEO Evolution and quality of service, and digital channel, a branch or VOX. will not only impact favorably in integrates the risk variable. face-to-face customer service, it will It should be noted that with also contribute to optimize account 3 this change all products executive’s time and provide greater Contextual, personalized and generate points or benefits, client coverage rates, maintaining relevant: offer in the customer’s without having to sell one in the Simple, Personal and Fair style. context, wherever and whenever he particular. Neither does it set requires. specific goals, but rather the achievement of a minimum from which all additional 4 points generate rewards, Full transactional and 100% digital: which is very stimulating for carry out all types of transactions executives. and operations, not only financial, without human intervention halfway through the process. In 2017 focus was set on three fundamental aspects:

Put the customer at the Do things efficiently from a Demand center of the experience. profit and loss standpoint. generation.

The developments and All these developments One of the milestones in innovations driven by Digital also have as an important the year was the creation of Banking in 2017 have aimed component the increase of an area that determined a to put the customer at the the Bank’s revenue and the major change in the Digital center of the experience, reduction of costs. This is, Banking strategy in relation which has translated into make the offer more efficient to the offering of products process simplification in accordance with results. and services. If until last year and efficiency. From the Improvements in relation to potential customer universe development of tools for the connectivity, advances in the was delimited by the condition new commercial systematic notifications system, and the of being a client of the Bank, –NEO Evolution- to the new tools for mobile devices during 2017 the action radius 107 creation of a library that as the blocking and unblocking expanded to non-clients.

keeps all graphical elements of credit and debit cards, are The implementation of enough for the interaction between efficient to the extent that they infrastructure and cutting clients and the Bank in its meet this double goal: ease the edge technology, together digital version, including interaction between customer with improvements in the all products and services and Bank, and translate into a most demanded processes which have been offered benefit for the institution either and service flows, allowed Annual Report 2017 Report Annual this year, they have all been by increasing revenues or to increase the number of thought from the perspective reducing costs. transactions through digital of putting the client at channels from 100 million the center. As well, Digital monthly operations in Banking has directed its work December 2016, to 210 million to achieve a goal which is a in December 2017. complement of the latter: one experience, one Bank, one customer. Under this maxim, the client can interact with the Bank’s different digital platforms in the same way. MAIN INITIATIVES It can also be done face-to-face supporting the project’s success. approaching any branch, apply These figures were accompanied In 2017 was launched Card Blocking and in simple steps validate his by great innovations that impacted in the Bank’s web portal. This the market, tearing down certain information and get his products unique service in the industry paradigms of the banking industry activated immediately. allows the temporary or definitive in Chile and the world: services Future customers will be able to blocking of credit and debit cards, offered without the need of physical choose between plans or single as well as the subsequent activation documentation from clients, with products, for example purchasing in the case of a temporary block. absence of papers and contracts, only a credit card. This function was used over 30,000 with digital signatures and times per month. 108 The latter not only simplifies the immediate delivery of checkbooks lives of clients and employees, Another progress during the period and credit and debit cards, all of was the integration of WebPay them printed at Banco Santander’s it’s also an important tool for the into the Home Banking portal. The branches. distribution channels. system allows clients to choose The new platform has enabled On this stage the collaborative work how to pay for their products the purchasing of products by an between the business areas and the (consumer or mortgage loans, Technology and Operations Division average of 140 new clients per or credit cards), either with their has been key. The latter has driven month. own personal checking account or these innovations through the Agile using cards from other banks. On methodology, DevOps and the use average, over 12,500 monthly users Home Banking of new development technologies. were registered. This is the base for the success of During 2017, together with the In addition Multipago (multi- programs like digital On Boarding, strengthening of digital banking, payment) was launched. The Life, Insurance App, and Investment a series of improvements were initiative enables clients to pay App, among others. implemented on Home Banking, all their bills registered within the the www.santander.cl web portal web portal in a single transaction, for individual clients. The most On Boarding improving over the previous significant achievement was experience in which each bill had In October 2017 was launched passing the one million client to be paid individually. To date an this tool, the first 100% digital On mark anticipating to the projected average of 700 multi-payments are Boarding for non-customers to deadlines. done every month. become clients of Banco Santander online, from a computer or mobile Launched in the beginning of 2016, Another innovation was Multioferta device. Through simple steps the Home Banking allows clients to (multi-offer), which allows clients client can validate his personal and easily and intuitively find all the to distribute their global credit work information, compare the benefits offered by Santander. amount (how much debt can be products he needs and formalize the To date, the web portal registers taken on a consolidated basis) purchase at the branch he prefers. over 240,000 visits per month, among different credit products adapting totheirdemands,offering valued thattheBankispermanently prepared byGfKAdimark.Clients Customer SatisfactionStudy2017 The distinctionwasbasedonthe the number1digitalbankinChile. Santander wasbeingchosenas An importantrecognitionforBanco these indicators reached 99.8% and these indicators reached99.8%and the sametime).InDecember 2017 of operatingintheapplication within performance relatestothecapability application inlessthanfiveseconds; refers tothecapabilityofopening indicators wereregistered(availability client availabilityandperformance million permonth.Also,increasing transactions duplicated,reaching30 Office Banking.Thetotalvolumeof had animportantincidencefactorin Bank’s amountofdigitaltransactions The substantialincreasein2017the Office Banking month. an averageof2,800operationsa documentation. Thistooltotals also improvingtheBank’sbacking the insuranceperspectiveand delivering aclearerprocessfrom perfecting customerexperience also incorporated,whichaimat Improvements to123Clickwere credit limits. contract consumerloansorincrease by 100clientsamonth,eitherto close oftheyearthistoolwasused is doneonlineandupfront.Atthe to theirneeds.Theriskassessment line oraconsumerloan,according such asanoverdraftline,creditcard BANKING NUMBER ONE IN DIGITAL issue Material issue Material

on strengtheningdigitalbanking. on thedrivefrombusinessarea’s over thelastyearsatBankbased This awardratifiestheworkdone different platforms. their experiencewiththeBank’s products andservicesthatsimplify of theoriginalversion. has over50%ofthefunctionalities experience forclients,andalready was renovated,offeringafriendlier The deskversionoftheplatform 98.9%, respectively. cards, functionality available24 unblocking ofcreditanddebit already mentionedblocking and Adding uptothelatteris respectively, inDecember2017. reaching 99.3%and97.9%, indicators werealsosignificant, Availability andperformance transactions. reaching 80millionmonthly in relationtothepreviousyear as in2017theyquadruplicated App supportsthedistinction, transactions registeredbythe The amountofdigital client experience. operations thathaveimproved close formatwithamultiplicityof latter basedonafriendlyand prepared byGfKAdimark.The Client SatisfactionStudy2017 market inaccordancetothe evaluated Appinthelocal chosen –asin2016-asthebest The Bank’sAppwasoncemore Santander App (thousands) clients digital of Evolution hours aday. users. showed onemillion10thousand end ofDecember2017therecords reached muchsoonerasbythe digital platforms,thegoalwas the onemillionfrequentusersof of 2018theBankcouldsurpass it wasprojectedthatbytheend reached bytheBank.Although to thenumberofdigitalclients highlights ofdigitalizationrelates One ofthemostimportant DIGITAL CLIENTS Operations Division Operations and Technology Source: 855 2014 920 2015 960 2016 1 1,010 2017 109 Annual Report 2017 MERITOLIFE

LIFE, A REWARD FOR CLIENTS

The transformation plan executed 1 1 by Banco Santander included a new New generation products, simpler Digital program from approach on the commercial model and more flexible, that can be Santander Life which allows for low-income individuals, with purchased digitally (credit and debit the accumulation of merits the goal of adapting it to the new card, consumer loan and checking and access to exclusive needs and expectations of this client account). recognitions. group. Thus, by the end of 2017 – and aligned with the final milestone in the integration of the Banefe 2 2 network with Banco Santander- Life A financial merit program called Each time a customer pays was launched, an unprecedented MERITOLIFE, which registers the his Santander Life products value proposition for the middle and timely payment of obligations on time adds merits. The low-income segments which are transforming them to “merits”, more merits accumulated, now welcome in Santander’s broad which are accumulated in a client’s the more he progresses and branch network. personal account. Customers add up goes up to another level, merits when they pay on time, and At December 31, 2017, after a few which allows accessing better subtract when they pay late. The recognitions. days of being launched, the model level of accumulated merits allow to 110 counted with 482 new Life Plan access different recognitions. customers and 300 clients with a Merits are not spent when Life credit card. using recognitions. They are Life innovates radically regarding 3 only lost when Santander the traditional propositions for this Life products are not paid on A digital application accessible segment and Banco Santander is time: from within the Santander App for the first to take this step taking individuals makes the content of PAYMENT MERIT charge of client’s fundamental this new proposal tangible: review Payment on time of 500 motivations: to progress, the need accumulated merits, learn how an installment of your to be recognized and that their they were obtained and request Personal Life loan. efforts are worth it, time saving, acknowledgements. Payment on time (total 500 and the availability of products and Among available acknowledgements monthly amount) of your services that work well. Life credit card. are: discount on the first Based on this, a new relationship Payment on time of your 300 purchase; recurring discounts Life credit card (less than and accompaniment paradigm on supermarkets: no-interest the total amount). is proposed, where the efforts installments; flexibility for the Reaching 30 days overdue -500 to comply on time with financial payment of one installment or on your Personal Life loan. obligations is transformed into access to rebates on the amount of Reaching 60 days overdue -1,500 merits and acknowledgements. an installment. All these rewards are on your Personal Life loan. Life offers modern and technological accessible as clients comply with Reaching 60 days overdue -1,500 products and services solutions, their financial commitments and on your Life credit card. where their design includes three accumulate increasing amounts of Reaching 90 days overdue Lose all fundamental concepts: merits. on your Personal Life loan.

Reaching 90 days overdue Lose all on your Life credit card. access available recognitions. can reviewaccumulatedmerits and Through theSantanderApp clients client’s behaviorasadigital user. proposition isthatitstimulates Another characteristicofthis value following characteristics: Is thekeytoenterLifeandhas • • • • • • SANTANDER LIFE APP CREDIT CARD SANTANDER LIFE 0-1,999 0 month LEVEL 1 LEVEL installments 3 no-interest supermarkets 5% level). installments (dependingonmerit Offers upto12no-interest notified online. Returns areimmediateand month). purchases (upto$5thousandper Returns 5%onsupermarket the firstpurchase. Returns upto$10thousandon the sameday. Ready touse,activateanduseon Boarding (alsoface-to-face). Purchased digitallythroughOn 2,000-4,999 2 to 4months installment one Postpone installments 6 no-interest supermarkets 5% LEVEL 2 LEVEL 5,000-14,999 months 5 to 10 interest rate interest consumer loan on discount 15% installment one Postpone installments 9 no-interest supermarkets 5% LEVEL 3 LEVEL • their strategicpartner: strengthen theroleofBankas plans werelaunchedseekingto For theSMEsegmentfournew LATAM Passcreditcards. during themonthwithallSantander over thetotalamountpurchased tranch between$1.5and$4million, LATAM Passkilometersinthe the accumulationof33%more other benefits,theplanenables WorldMember Limited.Among plan’s principalcreditcardis or Selectsegment,inwhichthe Plan, orientedtothehigh-income Limited SantanderLATAMPass One ofthemostemblematicwas period. grew 58%,inrelationtothesame year, whilethenumberofplanssold when comparedtotheprevious card poolincreased49%in2017 sale ofplansfortheentirecredit repercussions: revenuesfromthe The latterhadpositive in thecreditcardmarket. leadership withthebestvalueoffers Santander seekstoconsolidateits for individualsandSMEs.Thisway, payment withrenewedlaunches by thestrategyusedinmeansof The 2017periodwasalsomarked MEANS OF PAYMENT Home Banking. debit card,OfficeBanking or includes acheckingaccount, transactional platformwhich own businessandrequirea men thatarestartingtheir entrepreneurs andbusiness Plan Atrévete:orientedtowards 15,000-34,999 months to 30 15 calendar payment Change rate interest consumer loan on discount 30% installment one Postpone installments no-interest 12 supermarkets 5% LEVEL 4 LEVEL 35,000 and over and 35,000 to months 70 35 calendar payment Change rate interest consumer loan on discount 40% installment one Postpone installments no-interest 12 supermarkets 5% LEVEL 5 LEVEL plans forthisclient group. a 37%increaseinthesaleof new with newproducts,whichimplied university segmentwasupdated In addition,thevalueofferfor the and pre-approvedoffer. alternatives throughapersonalized can alsoaccessthesenew have aflatrate.Currentcustomers All oftheabovementionedplans • • • payment behavior. positive reinforcementongood of therelationwithclientsanda acknowledgments aretheaxis recognitions. Meritsand Each leveloffersdifferent LEVELS ACKNOWLEDGMENT it’s anaturalorlegalperson. or OfficeBanking,dependingif Business creditcardandHome access totheWorldMember Plan EmpresaBlack:includes same card. persons currentlyhavewiththe same benefitsthatnatural Business creditcardwiththe Includes aWorldMember products plusHomeBanking. segments, offeringthefourbasic from theSME1and2 persons withbusinessquality, Pass: orientedtowardsnatural Plan EmpresarioLATAM no-interest installments. allows purchasesinuptosix Empresarial creditcard,which Banking. IncludestheVISA and creditcard,plusOffice account, lineofcredit,debit quality, includesachecking or naturalpersonswithbusiness Plan Pyme:designedforlegal 111 Annual Report 2017 CARD IN 10 MINUTES Increase in sales of plans (%) Adding to the abovementioned is the reissue of cards at branches. 2016 2017 Changes introduced in this process allow clients to obtain a new card in 10 minutes, at any of the 230 branches available across the country, and activate it immediately. +58% This considerably shortens waiting +68% times between the application and final delivery in order to be able to use the product. The same applies to checkbooks, +34% as since 2017 it’s possible to print +37% a 12-page document upon client demand, at any of the branches across the country. Plans for Plans for university SMEs and Total plans individuals students Businesses

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AGREEMENT FOR SMES Together with the opening of a new Work Café branch and with the purpose of boosting entrepreneurship and innovation, Banco Santander signed in 2017 an agreement with the Asociación de Emprendedores de Chile, ASECH (Chilean association of entrepreneurs). The alliance includes the Bank’s active participation in the most important activities carried out at a national level, as well as the accompaniment and delivery of solutions to entrepreneurs that are starting their businesses. During the year over 9 thousand entrepreneurs got in touch at close to 90 events like trade shows, summits, seminars and entrepreneurship working days. 1 millon 1,116 MM$26,631 monthly calls VOX monthly sales through VOX executives through VOX

SANTANDER TOCTOC ALLIANCE

In the mortgage area Banco A good example is the Contact In response to the multi-contact Santander entered into an alliance Center or VOX, which has which clients are looking for, with TOCTOC, with the purpose transformed into a digital access the online Chat was created on of offering to clients a complete facilitator and a powerful support the Bank’s public website. This advisory service, including for the rest of the channels. is a virtual branch for clients personalized search and financing, In 2017 VOX broadened its and non-customers to talk to during the purchase or rental attention model to a 24/7 system, executives on real-time and solve process of a property. extending it from an emergency their banking concerns, without service to a full service option the need to be derived to another This new tool can be accessed for all customer segments. As attention channel. The VOX chat directly through the Bank’s website well, by the end of the year, any is available every day of the week or at www.toctoc.com/santander. client that reaches Santander and counts with an assistance At the site clients can find through VOX has the option to service in case of emergencies information on reference market choose between self-service or or unexpected situations, and values, capital gains in a sector, 113 direct contact with an executive, works in extended schedule. The neighborhood data, nearby schools, noticeably improving their service number of daily contacts in this green areas, and commerce and experience. platform reaches one thousand security indicators, among others. people. In addition to contact simplification integral executives These advances were were incorporated, with resolution complemented with a seven- week training program for all OMNICHANNEL STRATEGY capabilities so as to give response 2017 Report Annual to client’s needs from the first executives, and improvement Changes introduced into the contact, advise them so they can of profiles and the induction attention model also consider the conduct operations and activate process, pointing towards strengthening and integration products, as well as guaranteeing satisfying client’s needs, of channels, as an essential attention of calls from clients empathizing with their emotions requirement to efficiently improve to branches. Making use of this and thus achieve higher loyalty quality of service. channel, clients can purchase levels. These initiatives have had Banco Santander’s omnichannel a consumer loan or apply for a such a positive impact that, in strategy is based on the increasing checking account, a credit card, 2017, in the evaluation at the strengthening of complementary a line of credit, or an increase end of calls, 97% of clients are channels, in order for them to be in the credit limit. They can also satisfied with their attention and available for clients whenever and invest in mutual funds, stock, 96% say their requirements were wherever they need. Currently, time deposits, purchase foreign solved. all channels operate linked with a currency and insurance. Adding The latter not only adds value to unique database, so independent of to the latter is the possibility clients, but also directly impacts the channel used service experience to inquire about products and on the Bank’s revenues. In 2017, will be similar, as each one of them services, requests and complaints, 21% of checking account plans will deliver an answer to client’s card blocking and no-payment and 16% of consumer loans were needs and requirements. orders. sold through VOX. Value creation for shareholders

Banco Santander Chile is the country’s leading financial institution, by market share as well as by capital strength and profitability. The Bank specializes in the financing business, product innovation, risk management, and strong orientation towards customer quality of service with a marked retail vocation. The Bank has an active participation in the local market, leveraging on Santander Group’s international network.

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The Bank originates in 1978 with creates great impact at a national main universities. That same year a the opening of a subsidiary of level, allowing the Bank to duplicate bancarization effort through Banefe Banco Santander in Chile mainly its business volume in only eight is started. dedicated to international trade. months. Financiera Fusa is acquired In July 2002 an Extraordinary In 1982 the assets and liabilities of in 1995, which is merged with Shareholders' Meeting is held Banco Español Chile, at the moment Fincard giving birth to Banefe, in which the merger between under liquidation, are acquired. Santader’s specialized division Banco Santander Chile and Banco During the following years the Bank to serve middle and low-income Santiago is approved, through the develops an integral financial group individuals. incorporation of the former into the concept, incorporating innovative Santander Chile merges with Banco latter. This operation gives birth technological solutions to better Osorno y la Unión in 1996, turning to the largest bank in the country serve clients. into the largest bank in the country leading in all business segments. In 1993 Fincard is acquired, to with leading positions in all business Since then the Bank maintains a that date the largest credit card segments. Furthermore, in 2000, universal bank profile with a marked processing company in the country, the www.santander.cl web portal is retail orientation, with presence in all thus entering the low-income launched and in 2001 the Universia business segments and the largest segment. The next year is launched portal is created with the support of distribution network spread across SuperHipoteca, a product that Santander Group and the country’s the country. 16.58 property. which holdasagroup16.58%ofthe latter areincludedADRholders, minority shareholders.Amongthe 3.68% oftheshares,andother December 31,2017conjointlyhold Administrators (AFP),whichasof shareholders includePensionFund Siglo XXILtda.Therestofthe Chile HoldingS.A.andTeatinos the companythroughSantander Spain, whichcontrols67.18%of The largestshareholderisSantander (American DepositaryReceipts). Stock Exchange(NYSE)asADRs Exchange andintheNewYork shares tradeintheSantiagoStock Each sharerepresentsonevote.The only oneclass,withoutparvalue. 188,446,126,794 ordinaryshares,of of December31,2017isdividedinto Banco Santander’sbasiccapitalas SHAREHOLDER STRUCTURE (% as of December 31, 2017) 31, of December as (% Shareholder Structure Chile Santander Banco ADR 3.68 3.68 s AFP s 12.56 12.56 67.18 67.18 Santander Group shareholders minority Other Santander Group Banco Santanderonbehalfofthirdparties Itau-Corpbanca onbehalfofthirdparties Banco deChileonbehalfofthirdparties The BankOfNewYorkMellon(ADRs) Teatinos SigloXXlInversionesS.A. Santander ChileHoldingS.A. Business nameorshareholder Btg PactualChileS.A.CorredoresdeBolsa Banco Santander-HSBCBankPLCLondres Valores SecurityS.A.CorredoresdeBolsa Banchile AdministradoraGeneraldeFondos Corpbanca CorredoresdeBolsaS.A. Aberdeen ChileFund,Inc. Inversiones AntaresS.A. Fondo MutuoSantanderAccionesChilenas Fondo MutuoSecurityChileLong-Short Soc. Adm.deFondosCesantíaChile Fondo MutuoTannerCapitales Fondo MutuoEtfItNowIpsa Nevasa CorredoresdeBolsa S.A. Other 11,475shareholders Total shares A. F.P.ModeloS. B.C.I. CorredordeBolsaS.A. LarrainVial S.A.CorredoradeBolsa Santander CorredoresdeBolsaLimitada Banchile CorredoresdeBolsa A. F.P.CapitalS. A. F.P.CuprumS. A. F.P.ProvidaS. A. F.P.HabitatS. Bice InversionesCorredoresdeBolsaS.A. A. F.P.PlanvitalS. 126,593,001,268 188,446,126,794 66,822,519,695 59,770,481,573 31,238,866,071 1,804,545,502 5,167,453,600 3,086,841,253 5,415,097,655 5,364,197,536 1,421,624,255 1,283,622,517 1,812,969,102 259,898,955 194,382,008 674,919,074 254,065,196 370,367,814 382,514,907 257,346,618 238,452,951 135,575,202 107,612,837 358,315,142 255,962,118 96,585,783 113,001,987 134,122,227 155,481,106 971,198,701 98,572,123 107,789,111 91,744,175 SHARES # OVER TOTAL 100.00 35.46 67.18 16.58 31.72 0.06 0.06 0.06 0.08 0.05 0.05 0.05 0.20 0.20 0.07 0.07 0.96 0.96 0.68 0.36 0.52 0.75 2.74 2.85 2.87 0.10 0.14 0.14 0.14 0.19 0.13 0.13 1.64 % 115 Annual Report 2017 Total return, Chilean bank’s stock STOCK PRICE PERFORMANCE global markets performance 2017 (%) (% change in pesos) Although the economy had a weak performance during 2017, the better external scenario, the Mexbol 10.1 Santander 29.3 significant increase in copper prices, Chile 35.1 an improvement in trust and better FTSE 12.0 economic perspectives for the 30.6 DAX 12.5 IPSA following years, drove a substantial 34.0 increase in the price of local assets. Nikkei 21.3 Banco de 28.9 During the year the IPSA climbed S&P500 Chile 33.7 30.6% (34.0% total return) in a 21.8 context in which the global stock Bovespa 26.9 27.6 BCI exchanges had good performances, 31.2 for example, the Dow Jones CLBanca 27.2 CLBanca 23.5 increased 28.1%. Dow Jones 28.1 27.2 Regarding the shares of Banco IPSA Santander Chile, the market was 34.0 Itau- -0.4 Corpbanca optimistic about the evolution of Hang Seng 41.3 -0.4 its strategy and results. The latter triggered an important demand for Source: Bloomberg the stock, both internal and external. Share price Total return change including This way, Santander Chile’s share dividends price increased 29.3% closing the year at $48.2 (US$31.3 per ADR) and creating value for shareholders Total return, compared performance (%) for MMUS$3,339 in 2017. When 116 Santander Chile adding the dividend paid during 35.1% CLBanca the year, which amounts to 70% 34.0% 27.2% of the attributed net income of IPSA 2016 for an amount of $1.75459102 per share, total return perceived by shareholders during the year reached 35.1% (49.3% per ADR). This figure compares with a 34.0% 12 Jul for the IPSA and the 27.2% for 4 Jan 8 Mar 4 Oct 6 Dec 21 Jun 13 Sep 19 Apr 15 Feb 2 Aug 25 Jan 15 Nov 31 May 25 Oct 10 May 29 Mar 27 Dec the average of the banks trading 23 Aug in the Santiago Stock Exchange represented by the CLBANCA index. Price / book value multiple (times) In terms of valuation, the Bank maintains its position among the most valued banks in the world, Santander Chile 2.9 trading by year-end at a price/ Latin America 2.1 book value ratio of 2.9 times, above the average of banks in different Emerging Europe 1.3 latitudes. The high multiples at which the Bank’s shares trade reflect Global 1.3 the optimism regarding future Africa & Middle East 1.3 performance expectations for the institution, the market’s positive Developed Asia Pacific 1.2 evaluation on its strategy and the Emerging Asia Pacific 1.1 Source: JP Morgan good financial results achieved by Global Valuation Matrix, the Bank during the year. Developed Europe 1.0 January 2018, except Santander Chile Source: Bloomberg 2016. million shares,62.1%higherthanin daily tradedvolumeexceeds251 2016. Intermsofshares,theaverage compared totheoneregisteredin the ADR.Thisfigureis20.9%higher the localshareandMMUS$11.2to which MMUS$5.4correspondto volume reachedMMUS$16.6of whole, theaveragedailytraded the NYSE.Foryear2017asa Santiago StockExchangeand considering transactionsinthe the mosttradedatalocallevel Santander Chile’sstockisoneof volume millions) (US$ traded daily Average Exchange Stock Santiago 10.3 2016 3.0 7.3 16.6 NYSE 11.2 2017 5.4 Book valueperADR(US$) High shareprice($) Closing shareprice($) Stock indicators Earnings perADR(US$) Earnings pershare($) ADR ratio # shares(million) Low ADRprice($) High ADRprice($) Closing ADRprice(US$) Low shareprice($) Dividends pershare($) Book valuepershare($) Payout policy(%) Dividends perADR(US$) dollars Total return(includingdividends)in pesos Total return(includingdividends)in Average dailytradedvolume(MMUS$) sands ofshares) Average dailytradedvolume(thou- Market capitalization(MMUS$) Price /bookvaluepershare(times) Price /earningspershare(times) 188,446.1 251,527 400.0 14,732 49.3% 35.1% 16.49 10.72 2017 3.00 70.0 50.7 48.2 34.7 1.04 16.6 21.4 1.95 31.3 32.1 1.75 16.1 2.9 188,446.1 208,064 10,303 400.0 30.8% 23.8% 2016 15.38 75.0 9.22 37.3 23.5 16.0 1.08 10.3 1.50 14.9 38.1 21.9 29.1 1.79 2.51 2.4 CHANGE 17/16 + 1,852bp + 1,130bp (3.0%) 43.0% 43.0% 20.9% 36.5% 29.3% (1.8%) 29.7% 33.7% 19.6% 16.3% 62.1% 33.1% 19.1% 7.2% n.a. n.a. n.a. n.a. n.a. 117 Annual Report 2017 PAYOUT POLICY

The Bank’s payout policy is to America, Europe, U.S. and Asia; Standard & Poor’s meetings and visits to branches; Foreign currency long-term distribute at least 30% of net A rating income attributable to equity telephone conferences; email and Local currency long-term holders as dividends, in accordance SMS; and breakfasts with local A rating with current dividend regulation investors and minority shareholders. Foreign currency short-term In total more than 800 contacts A-1 set forth in the Ley de Sociedades rating Anónimas and the General Banking were held with investors of all Local currency short-term kinds in 10 countries. Moreover, in A-1 Law. Nevertheless, during 2017 the rating November 2017, the Shareholders' Ordinary Shareholders' Meeting held Outlook Neg in April 26, agreed to distribute as Department extended an invitation dividends 70% of the net income to minority shareholders to attend Fitch Ratings attributable to equity holders of Aida opera at the Teatro Municipal Foreign currency long-term A 2016. de Santiago. This first class show rating was well attended and made Local currency long-term It should be noted that the dividend A participants very happy. rating reinvestment program oriented Foreign currency short-term F1 towards retail shareholders of rating Banco Santander launched in 2016, Local currency short-term F1 offers shareholders to reinvest RISK RATING rating their perceived dividends in shares Viability rating A Banco Santander is one of the best of the Bank without paying any Outlook Stable rated private companies in Latin kind of fees. As well, shareholders 118 America and emerging markets. can purchase and sell stock of LOCAL RATINGS any issuer through the Santander Banco Santander’s shareholders INTERNATIONAL Shareholder’s Department with have named Fitch Ratings Ltda. and preferential fees. RATINGS Feller Rate Clasificadora de Riesgo Currently three rating companies Ltda. to rate the public securities issued by the institution, which are classify Banco Santander: Moody’s, set forth in the following tables: Standard and Poor’s (S&P) and Fitch ACTIVITIES Ratings. Moody’s and S&P maintain WITH INVESTORS negative perspectives, which The Investor Relations area together respond mainly to the negative Fitch Ratings with the Shareholders' Department outlook on the sovereign risk by Shares 1CN1 of Santander Chile deployed a broad Moody’s, and the downgrade on the Short-term deposits N1+ agenda of activities during the year sovereign from AA- to A+ in July to keep shareholders and investors Long-term deposits AAA 2017 by S&P. in general dully informed about Mortgage bonds AAA the Bank’s business performance. Senior bonds AAA To ensure a permanent and fluid Subordinated bonds AA contact with the different investors Moody's and minority shareholders, diverse Bank deposits AA3 Feller Rate

communication channels are used, Baseline Credit Assessment Shares 1CN1 a3 including: Shareholders' Meeting; (BCA) Short-term deposits N1+ publications like the Annual Report, BCA adjusted a3 Long-term deposits AAA 20-F Report and quarterly press Senior bonds AA3 Mortgage bonds AAA releases; webpage with all the Commercial paper P-1 Senior bonds AAA relevant information; participation Outlook Neg Subordinated bonds AA+ in investment conferences in Latin The high multiples at which the Bank’s shares trade reflect, among other things, the optimism regarding future performance expectations for the institution and the market’s positive evaluation on Banco Santander.

119 Annual Report 2017 Report Annual Sustainable management of the supply chain

In addition to maintaining stable relations, of mutual benefit and based on ethics, in 2017 Banco Santander strengthened its Global Purchasing Model1 with a special emphasis on risk. Thus, version 2.0 of this instrument provided the actuation guidelines for reaching agreements and control, establishing the relevance of risks associated to the service, mitigation, improvement and remediation, as well as establishing adequate risk control mechanisms and effective and permanent monitoring.

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Together with the increased Supply Model Homologation of emphasis in risk mitigation, the Implementation critical services Bank also wanted to highlight the and suppliers importance of including innovation in products and services, as well as driving improvements in the Contract clauses Suppliers relationship with suppliers. (Service/Norm Committee SBIF 20-7) (supplier service

monitoring)

Definition of Annual and monthly critical suppliers supplier evaluation 1. For more information please see https://www.santander.cl/nuestro_ banco/sostenibilidad/proveedores.asp Material issue

EVALUATIONS ENSURING AND REWARDS SUSTAINABILITY The Bank counts with a series GLOBAL COMPACT The model demands undertaking of other criteria to help ensure monitoring to guarantee that The Bank adheres to sustainability in the supply chain, providers comply with minimum the Ten Principles of both at a corporate as well as a demanded conditions in several the United Nations’ national level. areas, the most relevant being Global Compact, which that of social obligations with their implies that contracts employees. Monitoring is done PROPYME SEAL with suppliers include a through external revisions (audits) clause that establishes the Since 2011, Santander adheres and internal revisions (evaluation commitment to respect voluntarily to the Propyme Seal (pro platforms). and comply with them. SME), which guarantees payment In order to reinforce good to SMEs in less than 30 days since • Ensures compliance practices, over the last 17 years the reception of the invoice. The with the Corporate initiative promotes good practices Bank conducts an annual award Policy on Human Rights and generates shared value, as it ceremony to distinguish those on this respect. allows companies in this segment suppliers that deliver high quality to count with the necessary cash • Maintains a high and innovative products and flow to continue operating. In 2017, percentage of local services, which also offer the highest payment was made on average in suppliers in favor of risk mitigation, exhibit best practices 10.6 days. local employment. with their employees and maintain the best financial health.

In the reported year, 24 external 121 Nº of suppliers by billing level 2015 2016 2017 entities were awarded (six winners and 18 outstanding) among the 369 MM$ 600 124 90 84 which provide services to the Bank. MM$ 180 < MM$ 600 137 94 104 It should be highlighted that Banco MM$ 30 < MM$ 180 101 140 181 Santander Chile’s evaluation model Total 362 324 369 was presented as “Best Practice” at Santander Group’s Global Suppliers Committee. Expense breakdown (%)1 2017 2017 Report Annual Technology 35% Operations 39% Marketing and advertising 2% SANTANDER SEMINAR Real estate 13% Titled “Santander World and Personnel 4% Relation with Our Providers”, the Decentralized 5% first seminar oriented towards these stakeholders was held in Institutional 2% 2017. Its main function was to highlight the strategic role that 1. Only suppliers evaluated in 2017. external companies play in the Bank’s processes to ensure optimal Supplier management 2015 2016 2017 performance, and in value creation N° of suppliers (Based on suppliers billing 630 737 766 for clients. > MM$ 30)2 Annual billing (MMM$) 414 411 439 Ninety suppliers and twenty Banco Santander invitees were part of Local suppliers (%) 94 95 94 the event, which attended talks Evaluated suppliers 362 324 369 regarding the national economy and relevant topics. 2. In 2015 the range definition was corrected (MM$ 30 instead of MM$ 5). Our commitment with society

Material issue

Banco Santander contributes to economic and social progress through programs that invest in the community and which are focused on education. It has defined this line of action as it believes it’s the main driver of people’s prosperity.

This way, the Bank delivers tools and learning opportunities in three areas:

1 2 3 HIGHER EDUCATION PRIMARY AND SECONDARY FINANCIAL EDUCATION 122 EDUCATION Through the Programa de Apoyo People’s financial health directly a la Educación Superior (PAES, For the Bank, the development of impacts on their quality of life and Higher Education Support Program), children and youngsters in school in the construction of society. That’s Santander contributes to prepare age is key for the future. Thus, it why Santander drives programs and future professionals in the context finances through Fundación Belén actions that seek to deliver tools that of globalization, generating Educa the Programa de Orientación diminish information gaps and boost international experiences that Vocacional (Vocational Guidance education in this area. broaden their view of the world and Program) oriented to students provide them with new tools to be attending their schools. put to society’s service.

Economic value added and distributed (%)

5.5 0.1 7.1 0.1 Payments Contribution Payments to Contribution to the state to society the state to society 18.6 Employee’s 18.4 salaries and Employee’s benefits salaries and benefits 2016 2017 13.2 Operating 13.9 expenses Operating expenses 6.5 56.1 11.4 49.1 Retained economic Payment to capital Retained economic Payment to value added suppliers value added capital suppliers of theirimpact. diverse startupsandmeasurement facilitated, aswellmonitoring of interchange ofbestpractices is attract investment.Thisway, the share ideasandknowledge, and members withinthisecosystemto around theworldcontactother In itstudentsandentrepreneurs of universityentrepreneurship. the world’slargestecosystem platform thataimstobecome Santander X,aninternationaldigital During theyearwaslaunched entrepreneurship A globalecosystemofuniversity Chile. stood out,SantanderXandBRAIN context, thefollowingtwoinitiatives and growthincompanies.Inthis to promotepeople’sdevelopment entrepreneurship asakeyfactor gave aspecialimpulseto during theyearBancoSantander Together withthePAESprogram, FOCUS ON ENTREPRENEURSHIP FOR DEVELOPMENT HIGHER EDUCATION AS A DRIVER

Ana Botín,President BancoSantander better worldfor everyone”. the doorstotalent inordertobuilda university entrepreneurship. Itwillopen will bethelargestglobalecosystem of connecting pointofallentrepreneurs. It “Santander Xaspirestobecome the one thousandinstitutions. with thegoalofconnectingover US$59 millionaroundtheworld Santander Groupwillinvest During thenextfouryears, Chile. Pontificia UniversidadCatólicade Chilean institutionswasthe Uruguay. Amongtheparticipating Spain, Mexico,Portugaland from Argentina,Brazil,Chile, counted withover60universities By theendof2017,platform Among them,27Mexicanteams of 220projectsfrom597people. 2017, countedwiththeparticipation third version,whichtookplacein Universidad CatólicadeChile.The Innovation CenterfromthePontificia by BancoSantanderChileandthe the country.Theprogramisorganized entrepreneurships thataddvalueto of scienceandtechnology,into of initiativesbasedontheapplication in 2015topromotethetransformation The BRAINChileprogramwascreated Adding valuetothecountry arrived totheprogramthanks that 123 Annual Report 2017 a pilot prepared with the Bank, Higher Education Support Program), • 113 international mobility grants: promoting integration and which is implemented in all the oriented to junior and senior networking. countries in which Santander Group undergraduate students that On a first stage, 34 projects were is present and holds agreements wish to study one academic selected to participate in a boot with over 1,100 study centers around semester in one of the universities camp with several workshops the world. This initiative seeks to around the world that have a collaboration agreement. focused on product and generate international experiences service design, and intellectual that broaden horizons and deliver • 221 Ibero-America property and entrepreneurial new tools, both elements that today Undergraduate Students grants: mindset, among other topics. In constitute important competitive oriented to junior and senior addition, entrepreneurs received advantages in the labor market. undergraduate students that wish mentoring from companies from In addition promotes international to undergo a six-month internship different industries, gaining new in a university in Argentina, Brazil, student and teacher mobility, and knowledge, tools and networks Spain, Chile, Colombia, Mexico, drives entrepreneurship initiatives to continue developing their Peru, Portugal, Puerto Rico or in science and technological projects. Uruguay. areas, aware that these areas are After the boot camp, the top generators of change and promoters • 62 Ibero-America Young twelve projects were chosen Teachers and Researchers of innovation, indispensable to face to advance to the Acceleration grants: oriented towards teachers the future. Stage, where each one received and researchers of participant $3 million to build prototypes universities, interested in a two- in labs and in the FabLab Santander Grants month academic internship in one UC. During ten weeks they of the universities in the Ibero- In Chile, the PAES program has been obtained new tools to continue American area. developing their business model present for 15 years, period in which • 100 SME Santander together with support from a it has benefited over 2,700 students, Universidades grants: aiming to mentor. teachers and researchers from the support undergraduate students different universities in the country Finally, these twelve initiatives and become a growth ally, with mobility and fellowship grants. 124 split between them a $47 establishing contacts between million prize. The three projects In 2017 US$2 million were allocated students and companies and that were awarded the largest to finance 496 grants, broken down institutions, and facilitating their amounts were NeuroRehab in the following categories: subsequent job placement. Technologies with $9.25 million, Carnes Deliscia with $8.375 million and Clinic Hub with $6.55 million.

BROADENING HORIZONS AND PERFECTING KNOWLEDGE Over the last two decades, Banco Santander through the Santander Universidades Division has been helping to prepare tomorrow’s SANTANDER GRANTS AWARDS professionals within the context At the Teatro San Ginés in of an increasingly globalized and Bellavista, was held the award demanding world. ceremony for students and To this extent it developed teachers which were awarded the Programa de Apoyo a la the close to 500 grants delivered Educación Superior (PAES, by banco Santander in 2017. Some of the destinations chosen for an academic semester were universities in Germany, Spain, Mexico, United States, Australia, Brazil and Canada. researcher fromeachwinningstudy. thousand asagrantforthesenior Junior ResearchercategoryandUS$5 category, US$30thousandforthe thousand fortheSeniorResearcher thousand totalamount:US$70 Both awardsdistributeaUS$110 health ofmultinationalfamilies. situation, multi-dimensionaland immigrants inabsolutepoverty informal immigrantworker’shealth, immigrants, children’shealth, like mentalhealthofinternational aspects emergedfromthedocument a multi-methodstudy”.Central for internationalimmigrantsinChile: in theprimarypublichealthsystem her research“Developingintelligence the UniversidaddelDesarrollo,for matron nurseBálticaCabiesesfrom Researcher categoryawardwasfor On theotherhand,Junior associated toarsenic. life andwatchoverhealthissues future exposures,maintainahealthy recommending theavoidanceof were transmittedtothecommunity, Católica deChile.Researchresults Ferreccio ofthePontificiaUniversidad Chile”, conductedbyDra.Catterina of arsenicexposureinnorthern category thestudy“Healthimpacts awarded initsSeniorResearcher In itsfifthversion,thisinitiative Scientific ResearchAward of contributingtotheprogress Chile, highlightedtheBank’smission Country HeadofBancoSantander Piñera. ClaudioMelandri,CEOand Beatriz SánchezandSebastián Carolina Goic,AlejandroGuillier, chiefs ofpresidentialcandidates the expositionsofprogram educational institutionsanalyzed authorities ofthecountry’sdifferent Meeting washeld,inwhichthemain The XVUniversityChancellor’s knowledge andinvestigation. Academic projectsthatpromote 1 way: were carriedoutinthefollowing guidelines, whichduringtheyear are undertakenaroundtwocentral an activeagenda.Theseinitiatives participation of60universitiesand In Chile,Universiacountswiththe into thelabormarket. incorporation ofuniversitystudents programs thatfosterthe and managedriveemployment institutions, promoteinnovation new opportunitiesforeducational countries- isfocusedongenerating America, withpresencein20 –the mostimportantinIbero- This networkof1,341universities UNIVERSIA tools. training needsandapplymarketing internships andfirstjobs,identify University servicestopromote 2 focus ondigitaltraining. to theirpartnerinstitutions,witha projects andvalueaddedservices various fields,isdrivingacademic promoting meetingpointsfor fact thatinChile,togetherwith network’s reachaswellthe of UniversiaChile,highlightedthe Pedro Fuenzalida,generaldirector their students.Afterwards,José and effortstotheuniversities education, devotingtime,resources people andthesocietythrough attendees. US$3 thousandwereraffledamong with Trabajando.com,fivegrantsfor the meeting,organizedtogether to 1,800interestedattendees.At all theirfellowshipsoffertotheclose education institutionswhichpromoted held, gathering28Chileanhigher The 7thPostgraduateMeetingwas Trabajando.com. jobs throughthelaborcommunity for recentgraduatesand289,164total Universia arranged42,195firstjobs 125 Annual Report 2017 students from schools Carlos Oviedo are low financial literacy levels within SUPPORT TO PRIMARY AND Cavada and Lorenzo Sazié were the population. According to the SECONDARY EDUCATION advised from equal number of tutors last version of the PISA test, 38% of in six meetings held throughout the students in our country do not reach second semester. the minimum competencies in this SANTANDER LEARNING SPACES IN issue. Adding to the latter is the fact CAMPS PROJECT • Keynote speeches: twelve managers and deputy managers from Banco that, according to figures from the In order to complement formal Santander addressed high school SBIF, 98% of Chileans over fifteen education and boost the capabilities students from Carlos Oviedo Cavada years of age hold at least one financial and talents of children and youngsters School to motivate and encourage product. that live in high vulnerability contexts, youngsters to acquire helpful tools Banco Santander together with Since 2013 Banco Santander has for their academic and work future Fundación TECHO Chile have driven created programs and driven concrete based on their own vital experiences. the construction and implementation of actions to deliver tools that contribute “Keys for success”, “Decision learning spaces at camps. to people’s financial knowledge and the making and how they impact life”, reduction of information gaps. Thus in 2017 a book collection “Vocation, ¿what do I base myself on campaign was done gathering over one to choose a career?” and “Careers thousand reading texts. In addition, this and employment”, were the themes FINANCIAL EDUCATION AT SCHOOL initiative enabled four learning spaces presented by volunteers to the PROGRAM for children in equal number of camps different specialties taught by this at Lampa and Colina communes, in the school. Afterwards, students had This initiative is carried out since 2016 Metropolitan Region. the chance to talk in depth with the together with the Public Policy Center Bank’s directives and clear different of the Pontificia Universidad Católica doubts about their lives and their de Chile and points towards improving VOCATIONAL GUIDANCE work. financial capabilities and knowledge PROGRAM of students at educational institutions • Professional internships: since through innovative and integral Undertaken by Fundación Belén 2003 Santander has opened its 126 Educa, its goal is to guide, accompany doors to students from Belén methodologies. and train youngsters from vulnerable Educa for professional internships Based on a survey about Financial sectors through the vocational choice –a requirement for them to obtain Education in schools (whose results are process, and is comprised of three their Technical Professional College explained in Stage 2 further down) and instances: degree. Between December 2017 the experience from 2016, during the year and February 2018, 30 students • Santander Academic Excellency the project was expanded and carried out from the Administration specialty grants: for the 14th consecutive year, in four stages: from Carlos Oviedo Cavada and the Bank gave grants to ex alumni of José María Caro schools completed the Fundación Belén Educa for their their professional internships at outstanding school performance, 1 Banco Santander. leadership, commitment and 2nd version of the course to train directors responsibility during their study of educational institutions years. In 2017 four students were Tema material awarded from schools Raúl Silva It’s a blended course, in which 110 Henríquez, José María Caro, Juan directors from all over the country EDUCACIÓN FINANCIERA Francisco Fresno and Manuel participated, covering financial resource Vicuña, totaling 47 beneficiaries with management in educational institutions, this grant. and development of financial knowledge People’s financial health directly for life and creation of collaborative • Tutorials: without interruption since impacts their quality of life, especially projects in order to generate learnings 2008, volunteers from Santander given the current massification and in this matter. To promote participation have given vocational support diversification of financial products and Banco Santander granted a scholarship to to senior students from diverse services. According to international all registered participants, which financed schools in this network (composed and national studies conducted by of twelve educational institutions the Organization for Cooperation and 90% of the course’s cost. The multiplier with high vulnerability indices). In Economic Development (OECD), the effect of this course will occur once each 2017 a record was achieved in the World Bank, Banco Santander and trained director develops and executes a number of tutored students, as 33 other researches on the issue, there project taking into account the reality of Month. context oftheFinancialEducation Financial Institutions(SBIF)inthe Superintendency ofBanksand in thisinitiative,organizedbythe Fundación BelénEducaparticipated 157 studentsfromfourschools FINANCIAL EDUCATION FAIR EDUCA STUDENTS TO THE IV SANTANDER INVITED BELÉN pilot of “Gymkana Financiera”, winner pilot of“GymkanaFinanciera”, winner In 2017startedtheimplementation contest from the“LasLucasseEducan” 2016 Implementation ofthewinner project 3 teach thesetopicstostudents. trained andinterestedtheyareto school directorsinallChileabouthow level ofknowledgeteachersand gather informationregardingthe 2016 asurveywasconductedto with publicpoliciesinthisarea.In population onthisissue,contributing needs andperceivedbarriersforthe indicators, detectingexpectations, and thusgeneratereference the financialliteracylevelofChileans June andOctober2017tomeasure This surveywascarriedoutbetween Financial Education Citizen perceptionsurveyabout 2 this issueintheeducationalsystem. schools abouttheimportanceofworking of keynotespeechesattheirrespective committed themtocarryoutaseries Education Ambassadors”,rolethat year’s coursewerein2017“Financial The beststudentsfromtheprevious indirectly. thousand peopleareexpectedtobenefit their respectiveschools,socloseto60 of thePublicStudiesCenter(CEP). Agency andHaraldBeyer,director from theEducationalQuality Teacher Prize2016,CarolinaFlores Linconao, runner-upintheGlobal Financial Institutions,Paola Superintendent ofBanksand panel conformedbyEricParrado, Madrid, followedbyadiscussion the UniversidadComplutensede PhD inEconomicsandteacherfrom exposition fromEnriqueCastelló, The seminarstartedwithan community. useful toolsfortheacademic knowledge, goodpracticesand stage, aswelldelivering financial educationintheschool highlighting theimportanceof framework, withthegoalof the FinancialEducationMonth This meetingwasheldwithin vida”. aula: Educaciónfinancieraparala Seminar “ElFuturocomienzaenel Financial EducationInternational 4 competition inpairs. are testedafterwardsthrougha through informativevideos,which students learnfinancialconcepts online platforminwhichhighschool School, fromBelénEduca.It’san previous yearatJoséMaríaCaro Educan” contestconductedthe project fromthe“LasLucasse 206,678 and Advicesand evolution Tips Sanodelucas to Visits Source: Google Analytics. 2014 785,836 2015 962,234 2016 994,668 2017 • • • • divided intofourchapters: from BancoSantanderinthisarea, regarding activitiesandprojects is availablealltheinformation www.sanodelucas.cl website the at Thus, initiatives. education for allofSantander’sfinancial itself asaconceptumbrella changed itsfocustoposition the industryandstartedin2013, In theyear,thisproject,pioneerin SANODELUCAS SANODELUCAS schools, previouslyexplained. Financial EducationProgramat Sanodelucas Education:isthe number ofvisitsisrising. As canbeseeninthechart, issue withareneweddesign. delivers adviceregardingthe financial educationportal, corresponds totheoriginal Sanodelucas tipsandadvices: previously explained. Financial EducationSeminar, Sanodelucas Expert::isthe youngsters). them forthefirsttime(mainly products thepeoplethatuse use oftheprincipalfinancial goal istotrainonthegood Sanodelucas FirstSteps:its with anevent. secondes, b)Sessions equal orlongerthan90 defined as:a)Sessions unique users,condition Refers tothenumberof beneficiaries Tips andAdvices Sanodelucas 94,343 127 Annual Report 2017 WORK CAFÉ AS A STRATEGIC CORPORATE VOLUNTEERING SUPPORT IN EMERGENCIES CENTER FOR CONTRIBUTING TO SOCIETY In accordance to its Volunteering Santander’s commitment with This space is also used as a strategic Policy, Banco Santander promotes society’s development goes beyond center for delivering keynote throughout the year, and across the the established initiatives, so speeches that contribute to society, country, employee participation in each time the country suffers an which during 2017 turned around emergency situation the Bank carries entrepreneurship. Carried out by the the diverse corporate volunteering out some type of activity or extra Chilean Association of Entrepreneurs initiatives, procuring to offer a effort to help the victims. (ASECH), they gathered one thousand broad variety of possibilities to help. attendees in ten speeches, which were The latter considering the Bank’s Thus, at the beginning of 2017, in the transmitted through Facebook Live to wake of the fire that affected the close to a million people generating mission, as well as the current central-southern part of Chile, the 7,500 reactions. situation, community needs and Bank initiated several activities to employee expectations. Fernanda Vicente help in different fronts: 128 Among the corporate volunteering Director of ASECH, President of • Chile Helps Chile Campaing: Mujeres del Pacífico initiatives promoted by the Bank carried out by TECHO Chile, stands out the Annual Solidary Canal 13 and Banco Santander, Nicolás Shea Project contest, through which Entrepreneur, founder of Cumplo, $1,555,768,324 were raised employees have the possibility to Start-up Chile, eClass, Jóvenes al with which 500 emergency Servicio de Chile, ASECH and TOD@S apply for financing to implement houses were built in 19 affected initiatives that help communities, communes. Daniel Undurraga new or existing, carried out by Co-founder and CTO of CornerShop • Campaign 1 + 2: each peso themselves. In the 2017 version of donated by employees was this contest over 50 applications Francisco Gazmuri duplicated by the Bank to help Executive Director of ASECH were submitted from employees victims. Employees not only from all the country’s regions. 13 put money themselves, but also Tadashi Takaoka projects were selected, each being Manager Entrepreneurship at CORFO encouraged clients to donate granted one million pesos for their money through an account Juan Pablo Larenas implementation, gathering over 200 especially opened by Santander to Director of ASECH volunteers. collect funds.

José Tomás Infante Founder of Cervecería Kross

Marcelo Guital Director of ASECH

Óscar Solar Director of ASECH 492 3,918 $50,481,334 Alejandra Mustakis Total Total hours Valuation of President of ASECH number of donated by the contributed volunteers Bank hours Tutorships (BelénEduca) Exterior paintingat"LosPatroncitos"Kindergarten wildfire (HogardeCristo) Construction ofrecreationalareasat“Hualqui”School,affectedby Exterior paintingat"RocíodeAmor"Kindergarten(HogarCristo) by wildfires(HogardeCristo) Construction ofrecreationalareasat“LasCorrientes”School,affected Olga, affectedbywildfire(HogardeCristo) Construction ofrecreationalareasat“Personitas”KindergarteninSanta Book collection(TECHO) Easter eggscollection(HogardeCristo) Fund collectionforwildfires(TECHO) Volunteering initiatives2017 Construction ofrecreationalareasat“Esperanzadeniños”Kindergarten • • • TOTAL Solidary Projects Happy Park(PequeñoCottolengo) Keynote speeches(BelénEduca) Construction oflearningspaceat"NuevaComaico"Camp(TECHO) fire-fighting inthePainecommune. Financing of flight hours to support Angol). Vichuquén, Florida,Bulnesand Constitución, Buin,Hualañé, (Cauquenes, Empedrado,Licantén, to firebrigadesoftencommunes delivery offire-fightingequipment Support toChile’sFireBrigades: Marchigüe, ConstituciónandTalca. to bedeliveredSantaOlga, and veterinaryhealthproducts environmental hygienesupplies thousand personalgroomingkits, its employeescollectedfour areas: Santandertogetherwith Supply deliveryataffected in thepromotion ofhabitability collaborates with thefoundation over thelast20years.TheBank beginnings, workingtogether with TECHOChilesincetheir Santander holdsanalliance TECHO CHILE Claudio Melandri,CEOandCountryHead throughout thecountry”. initiatives carriedoutbyTECHOChile course oftheseyearsinthedifferent who havejoinedasvolunteersoverthe employees alsohave:thereareseveral we takethisroleveryseriouslyandour to helppeopleprogress.Asacompany the missionofBancoSantander,whichis carried outthereiscloselyrelatedwith since theirbeginnings,asthework “We havebeentogetherwithTECHO Emergencies). information see Supportin emergency campaigns(for more In addition,it’spresentinall and communitiesinthecountry. of livesvulnerablefamilies and improvementinthequality communes Diverse Antofagasta Hualqui Iquique Constitución Constitución Santiago Calama communes Diverse communes Diverse Maipú /city Commune SANTIAGO SANTIAGO COLINA Metropolitana Región Metropolitana Región Metropolitana Región Antofagasta Región de Biobío Región del Tarapacá Región de Maule Región del Maule Región del Metropolitana Región Antofagasta Región de Metropolitana Región Todo elpaís Metropolitana Región Metropolitana Región Region 16 11 33 19 14 34 15 9 13 10 492 33 210 63 12 volunteers Nº 129 Annual Report 2017 CULTURE

For over two decades, Banco “CABO DE HORNOS” BOOK Hernán Rodríguez, geographer Santander encourages and spreads To give life to this work and Valeria Maino and photographer out cultural and artistic expressions commemorate the 400 years of the Max Donoso. that contribute to the integral discovery of this mythical place in development of people and help our country, distinguished specialists value the country’s cultural heritage. in the most diverse topics on the WINNER OF PALOMA O’SHEA During 2017 this commitment was southernmost region of the planet PIANO CONTEST made manifest in diverse activities: were gathered. The book unites ten Over 1,160 people attended the authors, and contains a logbook concerts and masterclasses, in covering between Hoorn and Cabo SANTANDER NATIONAL THEATER the cities of Frutillar, Castro, de Hornos, a 16 thousand kilometers TOUR Valdivia and Rancagua, offered journey carried out by Dutch sailors by Spanish piano player Juan Four plays toured the country to four centuries ago. It’s the 32nd Pérez Floristán, winner of the make culture reach the Bank’s edition from Banco Santander XVIII version of the Santander employees and customers and their together with the Museo Chileno Paloma O’Shea International families in 22 performances, two de Arte Precolombino through the Piano Contest. theatrical pieces for adults (“Our Cultural Donations Law. Women” and “I’m a Disaster”) and equal number for all the family (“Alice ARTISTIC INTERVENTION OF through the mirror” and “The Little “CASAS DE CAMPO” BOOK BANDERA STREET Prince”). Together, these shows were The third volume was launched Thanks to a public-private seen by over 9,600 people in a tour of a collection that rescues by alliance, Bandera, one of the that covered nine cities between geographic zones Chile’s historical main avenues in downtown Arica and Punta Arenas. heritage contained in each of these houses, through their architecture Santiago, was intervened and surroundings. Prepared together between Moneda and Compañía CIRQUE DU SOLEIL: “SÉP7IMO DÍA with the Corporación Patrimonio streets at the end of 2017 in 130 – NO DESCANSARÉ” Cultural de Chile and the Cultural order to transform it into a Argentinean rock group Soda Stereo Donations Law, this work covers colorful pedestrian walkway. revived in Santiago thanks to the the territory between the Maule and The first section of this magic of Cirque du Soleil with the Cautín valleys. In this book’s edition work, denominated “Social “Sép7imo Día – No Descansaré” show, participated a team of professionals Connection”, is located in front which was seen by over 120 thousand with distinguished careers, such as of the Bank’s headquarters spectators, four thousand of them researcher and academic Teresita and counted with Santander´s customers. Pereira, architect and historian support. Our commitment with society Material issue

The efforts undertaken by Banco Santander on this issue translated into significant reductions in the most relevant consumptions generated by the operation of the Central Services buildings.

Banco Santander’s commitment with this, the Bank continues to with the environment is apparent in work to reduce the environmental NEW ISO ADAPTATION PROCESS two ways: impact of its activities through 1 efficient energy consumption, Banco Santander Chile has its reduction in paper usage, recycling Environmental Management Direct: through a responsible and promotion, and correct treatment of System certified under norm ISO efficient use of natural resources in 131 residuals and their reuse. 14,001:2004 valid until September its daily operation. 20181. With the goal of updating The implementation of this new and recertify under the new ISO version also contemplates the 2 14,001:2015, during the year new incorporation of environmental care Indirect: represented by its banking concepts and requirements were concepts into the corporate culture and financial operation (for more integrated, such as: to motivate, train and commit information regarding the analysis • Settle environmental

employees and other stakeholders 2017 Report Annual of social and environmental risks of management on Banco in this issue. the Bank’s operations and financing, Santander Chile’s Sustainability see pg. 70). In addition, the Bank is spreading Committee, headed by the among its employees the relevant CEO and Country Head. Thus, information about the performance the issue will be discussed at of its environmental work and a top management level, and NEW ENVIRONMENTAL the activities carried out for the transversal to all areas. POLICY development, care and conservation • Identify the needs and Santander’s direct environmental of the environment. expectations of interested parts. management has a new version • Implement actions to tackle of its Environmental Policy, The Environmental Management risks and opportunities. which focuses its actions on the System (SGMA in Spanish) watches prevention of contamination, over compliance with these aspects, • Focus on the life cycle in the the continuous improvements whose functions are permanently analysis of environmental of its processes and goals, revised in order to advance and compliance with current continuously in Santander’s environmental regulation. Together environmental performance.

1. It’s important to note that the certification as well as the actions and measurements always refer to the three most important buildings from Central Services (Bandera N° 140, Bandera N° 150 and Bombero Ossa N° 1068). These three buildings as a whole contribute around 50% of the Bank’s total revenues. management. Water consumption Paper consumption (m3) (tons)

IMPORTANT SAVINGS

Efforts undertaken in this sense 300,000 3,000 –incorporation of cutting-edge 250,000 2,500 technology and awareness- raising campaigns- are manifest 200,000 2,000 in significant reductions in 150,000 1,500 consumptions, as can be seen in the following charts. 100,000 1,000

50,000 500

HYDRIC RESOURCE 0 0 2014 2015 2016 2017 2014 2015 2016 2017 Performance improvements in this variable have allowed for a permanent reduction in its consumption, achieving a 31% drop Energy consumption E-Waste recycling with respect to the previous year. (kws) (tons)

PAPER 35 140 Despite being a relevant resource 34 120 for the Bank’s operation, the latter 132 33 100 has undertaken huge efforts to 32 incorporate cutting-edge and more 80 31 efficient equipment and technology, 60 30 obtaining as a result a better usage 40 of this resource. Thus, during 2017 29 20 a 22% saving in consumption was 28 achieved, way larger than the 27 0 previously achieved level. 2014 2015 2016 2017 2014 2015 2016 2017

ENERGY

The incorporation of more advanced technologies in equipment and lighting, together with awareness campaigns in the efficient use of CLIMATE CHANGE the resource, point towards an improvement in this indicator. Carbon footprint During the exercise a 4% saving 2 measurement is part CO total emissions was achieved, figure expected to (tons) increase in the future. of Banco Santander’s environmental care. Thanks to the incorporation of clean 19,842 technologies and the control E-WASTE 19,044 of maintenance frequencies 18,477 18,558 Electronic garbage or E-Waste and routines of emitting is the most significant residual equipment, among other generated, which during the actions, a reduction was exercise achieved an important achieved, which is set forth in 2014 2015 2016 2017 recycling level, increasing 176% with the adjacent chart. respect to 2016. technologies used infaucetswill modernizing facilities,thebetter been completed.Inaddition to and BomberoOssastreetshad buildings locatedonEstado floors fromBancoSantander’s bathroom remodelingplanofsome At theendofyear60% $247,413,495 investment. The totalprojectconsidersa a 40%lowerpeakenergydemand. savings inenergyconsumptionand pilots inbranches,reaching5.9% through twomonitoringandcontrol The firststepswereexecuted project isexpectedtobeginin2018. the goal.Theexecutionofthis alarm inreal-timewhentheyexceed goals perbranch,triggeringan the definitionofdailyconsumption branches. Thisinformationwillallow demand, andpowerfactorin50 such aspeakdemand,powerfactor to monitorinreal-timevariables management projectwasstarted energy consumptionandcontrol Plan (PEEinSpanish),2017an the contextofEnergyEfficiency On thissamelineofsavings,within LESS WATER PLAN ENERGY EFFICIENCY TRANSVERSAL INITIATIVES element. hand, willuse30%lessofthis Efficient usetoilettes,ontheother compared totraditionaltaps. allow tosaveup70%ofwater a lowcarboneconomy. contributes tothetransition towards added, asthroughthesethe Bank services withenvironmental value includes thosefinancialproducts and Santander’s commercialactivity also March 25 between 20.30and21.30hourson all lightsatitscorporatebuildings the WorldWildlifeFund,turningoff the Planet”,promotedworldwideby Santander adheredtothe“Hourof In addition,likeinpreviousyears, meeting rooms,amongothers. leaving theairconditioningonin conducts likeexcessprintingand taking careoftheplanet,avoiding commit allemployeesandteamsin out inordertoraiseawarenessand Environment Together”wascarried The initiative“Let’sTakeCareofthe ENVIRONMENTAL IMPACT FINANCIAL PRODUCTS WITH CAMPAIGNS INTERNAL PRO-ENVIRONMENT th . issue Material contracts. long-term energysupply Santa Sofía)andtheirrespective Park OlmuéandSolar from SunEdisoninChile(Solar acquisition ofphotovoltaicparks sole advisorforColbúninthe As well,theBankactedas energy tothesystemfrom2018. of 299MWandwillsupplyclean a combinedinstalledcapacity developer Mainstream,willhave which belongtoActisfundand Sarco SpA.Bothprojects, Llanquihue SpAandAelaEólica of windmillprojectsAelaEólica added taxfortheconstruction financed 100%ofthevalue Thus, in2017SantanderChile evaluation. the analysistoolsfortheir business specialists,andupdates on thesefactorstoriskand Bank givesspecifictraining environmental risks.Thus,the regarding theirsocialand million mustbeanalyzed all projectslargerthanUS$10 Principles, whichimpliesthat adheres totheEquator Since 2009,SantanderGroup

CORPORATE MANDATES 133 Annual Report 2017 Our success in 2017 Banco shows that our way of doing business, Santander and our focus on building loyalty, is creating a virtuous worldwide circle that delivers growth, profitability and strength.

In 2017 we Attributable profit (Millions of euros) 11.8% 10.84% obtained excellent Return on Fully loaded results the right tangible equity CET1 capital +7%* (underlying) ratio way: through 2017/2016 profitable 6,619 growth and a 6,204 strong balance

134 sheet, while 4.08% 47.4% 2016 2017 NPL ratio Efficiency helping people (cost- and businesses * +7.4% in constant euros to-income) prosper.

SANTANDER CONSUMER FINANCE Balanced UNITED UNITED KINGDOM 13% STATES geographic 4% 16% diversification is key to our stable BRAZIL and predictable POLAND 3% growth. 26% MEXICO 7% PORTUGAL 5% SPAIN 15%* CHILE

6% Main countries OTHER COUNTRIES Santander Consumer Finance ARGENTINA 1% 4% Contribution to underlying Group profit, %.

* Including Popular (3%). generate capital. and organically the persharedividend customers, increase us tolendmore the world,allowing efficient banksin most profitableand We areoneofthe granted in 2017 in granted scholarships Fair and Personal Simple, more are that ways in colleagues behave their that believe employees of 81% 44,862 data onshareholders. except numberofemployeesand Figures excludingBancoPopular, 202,251 Communities People helped in 2017 in helped million people people million 2.1 are engaged employees of 77% institutions in countries 21 academic and universities with agreements 1,295

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t r h e … Shareholders Customers 4.0 133 million million customers digital Million (+21%) 25.4 growth share per dividend cash +11% of Banco Santander Chairman executive Group Botín, Ana 135 Annual Report 2017 We aim to be our customer’s bank of Creating choice. Through innovation, we are transforming our business to become value a more profitable and sustainable bank.

We are meeting our targets earlier than expected...

Strategic priorities Key metrics

Be the best bank to Number of core markets where the Bank work for and have a is among the three leading banks to work People strong internal culture for (according to local rankings)

Loyal individual customers (millions) Earn the lasting loyalty of our individual and corporate customers: Loyal corporate customers (thousands) 136 improve our franchise Growth in customer loans (%)6

Customers1 Number of countries where the Bank is among the top 3 of its competitors in customer satisfaction Operational excellence and digital transformation Number of digital customers (millions)

Growth in fee income (%)6

Fully loaded CET1 capital ratio (%) Capital strength and risk management Cost of credit (%)

Shareholders Cost-to-income ratio (%)

Growth in earnings per share (%) Improve profitability RoTE (return on tangible equity, %)5

Cash dividend as a percentage of attributable profit

Santander Universities Number of grants (thousands)

Support people in the Number of people helped by the Bank's Communities local communities where social investment programs (millions) the Bank operates 10.55% 48.1% 2016 1,356 1.18% 40% 20.9 1.0% 11.1% 8.1% 13.9 2% 37 1.7 4 8 10.84% 47.4% 10.6% 1.07% 1,494 11.8% 2017 40% 1.0% 25.4 15.8 2% 45 2.1 5 7 countries 30-40% 45-47% > com- > double double petitors c Goals >11.5% . 10% 1,646 2018 1.2% Most digit >11% 130 30 All 5 17 4 4 2 2

Further Further Página 46-47 Pages Pages Pages Pages 42-45 42-45 40-41 48-51 Page Page Page Page Page Page Page Page Page Page info 60 49 45 58 59 59 59 59 59 42 7 .

...with aclearstrategyandstrongculture profit. RoTE on attributable profit was 10.4% in both years. / 6. Constant euros. Constant 6. / years. both in 10.4% was profit RoTEattributable on profit. underlying using calculated are 2017 and 2016 /5. 2016-2018. Total amount /4. competitors. to our close be will it where States, United the in Except /3. average. 2015-2018 /2. Popular. Excluding 1. S our corporate behaviors. on based is Fair. culture and This Personal Simple, it: we do how is we do what as important as Just All the Santander team engaged in risk in engaged team Santander the All Group. the throughout way working of the into assimilated and known be must principles its and generate they risks the for responsible employees all making on based is It activities. day-to-day our in risks manage and we understand which in way the defines which pro, risk called culture, risk asolid has Santander culture: Risk progress. human to meant discovery its what and by fire inspired is and to progress commitment our reflects 1986, since logo our of part been has which flame, The League. Champions UEFA the in phase anew entering we are strategy: to this responds sponsorship sport global of by evolution day day. The created is prosperity that idea the around revolves positioning brand Our communities. to committed and sustainable digital, and modern customer-focused, more is which brand a to evolve towards strategy a we defined 2017 In The Santander brand imple PersonalFair risk pro risk respect I show people I support promises I keep daily work responsible fortherisksin their of employeesrecognizeand are 94% Shareholders Employees I trulylisten change I embrace cooperation encourage I actively Communities passion I bring straight I talk Customers 137 Annual Report 2017 The Santander We are committed to generating growth in a vision sustainable, predictable and responsible manner.

Our strengths to continue growing and to be successful in the long term Our purpose 1 We have SCALE and To help people and the potential to grow businesses prosper. organically

We are the leader in market share in five of our core markets. We are also in the top three in seven of those markets in terms of customer 138 satisfaction.

Our aim We have 133 million customers in markets with a total population of more than one billion.

We have more than 17 million loyal customers To be the best retail and and 25 million digital customers. This implies commercial bank, earning the huge potential for organic growth through increased loyalty and digitalization. lasting loyalty of our people, customers, shareholders and Our critical mass gives us efficiency, sources of growth and new business communities. opportunities.

POSITION OF BANCO SANTANDER IN MARKET SHARE IN LOANS

1 #1 #3 BRAZIL MEXICO A bank that is… SPAIN POLAND ARGENTINA1

PORTUGAL1 Simple Personal Fair UK2 CHILE # 5 3 U.S. SCF

1. Includes only private sector banks. 2. Mortgages, consumer and commercial loans. 3. Santander Bank market share in the States in which the Group operates. Our strengths to continue growing continue to volatility and higher growth. volatility higher and less with results better deliver to us allows model business unique Our (%) (%) profit underlying of Distribution Americas 48% Geographically, we have a balanced Geographically,wehaveabalanced Ourdiversificationbycountryand By business, there is a good revenue mix Bybusiness,thereisagoodrevenuemix 2 manner stable more in a profits higher which contributes business, and diversification by country PREDICTABLE GROWTH: markets (whichfuelgrowthinrevenue). (which providestability),anddeveloping distribution betweenmaturemarkets key toourpositiveperformance. throughout thecycleanditis business allowsustomaximizeresults finance, SMEs,companiesandotherproducts. between productsforindividuals,consumer Europe 52%

(%) (%) channels digital in sales and Percentage of transactions more digital and sales. transactions we have more digital customers and off: paying is transformation digital Our We have launched a wide array of initiatives Wehavelaunchedawidearrayofinitiatives Thedigitalizationofourcommercial Ourtechnologicaltransformation 3 and operational excellence operational and increase customer loyalty INNOVATIONFocus on blockchain, data,paymentsandservices. at thebank,focusingonfourmainareas: customer satisfactionandloyalty. personalized andmodern.Thisincreases products andservicesthataremoresimple, business allowsustoofferourcustomers of loyalanddigitalcustomers. contributes toincreasethenumber andtobesuccessful 39% are digital of transactions in thelongterm to to digital sales are of total 31% 139 Annual Report 2017 This Annual Report is an exercise in Glossary transparency, containing relevant information for the Bank’s different stakeholders about the institution’s economic, environmental and social performance. With the goal of strengthening this aspect, we attach a glossary that explains technical terms contained in this report, so as to facilitate their comprehension.

ATM by S&P Dow Jones Indices, to certify FTSE4GOOD Automated Teller Machine (ATM) is and group Chilean companies that Sustainability stock index created an electronic banking outlet, which comply with environmental, social by the London Exchange in 2001. allows customers to complete basic and corporate governance standards, Incorporates traded companies transactions without the aid of a and which are part of the IPSA, the from all over the world that comply branch representative or teller. principal stock index in the local with the index’s established pre market. requisites, such as CSR (Corporate BACK OFFICE Social Responsibility) practices on environment, shareholder relations The group of activities that support FACTORING and human rights, based on the the business, like computer work, Financial tool that allows companies principles of responsible investment. communications, accounting or to transform assets into liquid human resource management. resources, through the sale of a firm’s GREEN HOUSE GASES (GHG) accounts receivable to a financial Gases whose presence in 140 BENCHMARK institution known as a factor. the atmosphere contribute Term used to refer to a level of quality that can be used as to the green-house effect. The most FAST TRACK a standard when comparing known is CO2 (carbon dioxide), products, services and processes To accelerate a project’s progress, although also participate methane in organizations that have the best with the goal of achieving more rapid (CH4), nitrogen oxide (N2O) and practices and results in an area of results than usual. fluorinated gases. interest.

FATCA GLOBAL REPORTING INITIATIVE CAPEX (GRI) Acronym for Foreign Tax Compliance Independent institution that created CAPital EXpenditures. Refers to Act, a United States legislation that the first global standard of guidelines investments in fixed assets. primarily aims to prevent tax evasion for the preparation of a sustainability by U.S. taxpayers by using non-U.S. report to promote compliance CORE CAPITAL financial institutions and offshore with certain characteristics, such investment instruments. The basic capital of a Bank under as comparability, rigor, credibility, Basel I. periodicity and verifiability. FED COMEX Acronym for Federal Reserve. The CORE INCOME COMercio EXterior, Spanish lingo for Federal Reserve System is the central Definition given by Santander to the international trade. banking system of the United States. sum of net interest income and net fee and commission income from one CORE DEPOSITS MMFF or more business segments. Is the sum of demand and time Acronym for Mutual Funds, which deposits from retail customers. are pools of money from natural ISO 14,001 and legal persons (denominated International standard of DJSI CHILE participants or contributors) that are environmental management systems In 2015 arrived to Chile the first index managed by an investment company to identify, prioritize and manage with sustainable criteria managed on account and risk of participants. companies’ environmental risks. LEASING (OECD) is an intergovernmental SELECT A financial arrangement in which economic organization with 35 Banco Santander’s high-income a person or company (the lessor) member countries founded to individuals customer segment. transfers the right to use an asset to stimulate economic development and a renter, in exchange for the payment world trade. Members are committed PROPYME SEAL of rental rates during a determined to democracy and the market period of time, at the end of which economy. The OECD represents Created by the Ministry of Economics the renter has the option to purchase 80% of the world’s GDP. On May 7th, in 2011 to acknowledge those large the asset for a pre-arranged price, or 2010 Chile became the first South companies –with at least 5% of turn it back to the lessor. American country to be part of this SME suppliers- that pay invoices to organization. smaller firms in thirty days or less.

LOAN-TO-VALUE (LTV) SDG The ratio of money borrowed on a SOFT COMMODITY The United Nation’s Sustainable property to the property's fair market Soft commodities, or softs, are Development Goals (SDG) are fruit of value. commodities such as coffee, cocoa, the agreement reached by the U.N.'s sugar, corn, wheat, soybean, fruit member-states and are composed and livestock. Generally refers to MARK TO MARKET of a declaration, 17 Sustainable commodities that are grown, rather Refers to accounting for the value Development Goals (SDG) and 169 than mined. of an asset or liability based on the targets. Member-states have agreed current market price instead of book to try to reach them by 2030, in a value. universal call to adopt measures to SPREAD eradicate poverty, protect the planet The difference between two interest and guarantee that all people enjoy MARKET MAKING rates. peace and prosperity. The process whereby a firm attached to the stock market engages in STAKEHOLDER THIRD SECTOR ORGANIZATIONS the buying and selling of financial A person, group or organization Group of entities (associations, securities such as stocks, shares, that has interest or concern in an bonds and currencies, providing foundations, and NGOs among organization. It can either affect or be public bid and ask prices and thereby others) which are not public and are 141 affected by the business. The primary acts to establish a market price for not-for-profit. They undertake social stakeholders in a typical corporation these securities at all times. action projects or defend collective are its investors, employees, interests of any kind. These entities complement the other two sectors, customers and suppliers. MATERIALITY public and private. Process established by the GRI to UF define the content of sustainability GLOBAL COMPACT A system used to express the

reports. Covers a wide variety of 2017 Report Annual adjustability or adjusted value of a activities of internal and external United Nation’s instrument, currency, depending on inflation, information collection in order to announced in 1999 by U.N.’s authorized and administered by the establish the most significant aspects secretary general Kofi Annan at the Central Bank of Chile. to be included: significant economic, World Economic Forum (Davos). environmental and social impacts, or Is part of the initiatives oriented to pay attention to globalization’s those that have a substantial weight VOLCKER RULE in stakeholder’s assessments and social dimension. Consists of Ten The banking system reform decisions. Principles, which cover the human rights, labor regulation, environment law passed in Barack Obama’s and fight against corruption areas government in the United States in NEOCRM (for more details see http://www. 2010. Its name is in honor of Paul Santander’s Customer Relationship unglobalcompact.org). Volcker, former president of the Management platform that Federal Reserve (FED). consolidates customer’s information EQUATOR PRINCIPLES and significantly simplifies client International initiative whose WORKFLOW portfolio management, speeding up guidelines serve financial institutions A workflow consists of an attention and facilitating commercial to determine, evaluate and manage orchestrated and repeatable pattern work. the risks of social and environmental of business activity enabled by the projects. In 2013 the third version systematic organization of resources OCDE (EPIII) was launched, which increased into processes that transform The Organization for Economic the emphasis on human rights, materials, provide services, or Cooperation and Development climate change and transparency. process information. General information

O’Higgins, the legal dissolution of Official Gazette on August 1, 2002 IDENTIFICATION OF THE the latter and the quality of Banco and inscribed in page 19,992 number 142 COMPANY Santiago as legal successor of said 16,346 of the 2002 Commercial Banco Santander Chile was bank, appear in Resolution N° 6 of Register of Santiago’s Real Estate incorporated by public deed the SBIF on January 9, 1997 and Registry. dated September 7, 1977 granted the legal publications in the Official Afterwards, an Extraordinary at the Notary Office of Alfredo Gazette on January 11, 1997, which Shareholders’ Meeting held on April Astaburuaga Gálvez in Santiago, were duly protocolized under N° 69 24, 2007, whose minutes were under the legal name Banco on January 13, 1997 at the Notary reduced to public deed on May 24, de Santiago, and received its Office of Andrés Rubio Flores in 2007 in the Notary Office of Nancy permission to incorporate and Santiago. de la Fuente Hernández, modified function as a bank by Resolution N° On July 18, 2002, an Extraordinary and established that, in accordance 118 of the Superintendency of Banks Shareholders’ Meeting of Banco with the Bank’s by-laws and the and Financial Institutions (SBIF) on Santiago was held, whose minutes approvals of the SBIF, the legal October 27, 1977. were reduced to public deed on names Banco Santander Santiago July 19, 2002 at the Notary Office The Bank’s by-laws were approved or Santander Santiago or Banco of Nancy de la Fuente in Santiago, by Resolution N° 103 of the SBIF on Santander or Santander may also be in which were approved the merger September 22, 1977. An excerpt of used. This reform was approved by between Banco Santander Chile the by-laws and the resolution that Resolution N° 61 of the SBIF on June and Banco Santiago through the approved them were published in 6, 2007. An excerpt of the minutes incorporation of the former into the the Official Gazette on September and the resolution were published latter, acquiring the latter the assets 28, 1977 and inscribed in page 8,825 in the Official Gazette on June 23, and liabilities of the former, and N° 5,017 in the 1977 Commercial 2007 and inscribed in page 24,064 an agreement for the anticipated Register of Santiago’s Real Estate N° 17,563 of the aforementioned dissolution of Banco Santander Chile Registry. register. and the name change of Banco The denomination or legal name Santiago for Banco Santander In addition to the amendments of change from Banco de Santiago Chile. Said change was authorized the by-laws previously mentioned, to Banco Santiago, together with by Resolution N° 79 of the SBIF these have been amended in the merger with former Banco on July 26, 2002, published in the several opportunities with the version ofitsby-laws. Santiago anddefinedanupdated Santander Santiagoor of usingthelegalnamesBanco directors), eliminatedthepossibility 11 to9(maintainingtwoalternate of regularBoardmembersfrom among others,reducedthenumber laws andtheapprovalsofSBIF, Chile, inaccordancewithitsby- last amendment,BancoSantander Real EstateRegistry.Throughthis Commercial RegisterofSantiago’s 27,594 number12,254ofthe2017 2017 andwereinscribedinpage in theOfficialGazetteonApril5, and theresolutionwerepublished An excerptoftheamendment 17 oftheSBIFonMarch29,2017. was approvedbyResolutionN° Fuente Hernández.Thisamendment in theNotaryOfficeofNancydela public deedonFebruary14,2017 whose minuteswerereducedto Meeting heldonJanuary9,2017, the ExtraordinaryShareholders’ last onebeingtheagreeduponat from thecommercial areas,with This areaiscompletelyindependent in thelocaleconomy. to happendueanadverse change increase indelinquencylevels were impact ontheorganizationifan guidelines tominimizeapossible has developednormsandstrict also hasaCreditRiskareawhich monitored bytheSBIF.TheBank note thattheBank’screditriskis portfolio growth.It’simportantto of delinquencylevelsandloan and financialconditioninterms impact overthecompany’sresults economy couldhaveanegative an adversechangeinthelocal customers operateinChile,hence A substantialpartoftheBank’s institution. Amongthem: risk factorsthatmayaffectthe business nature,therearesome Given thecompany’sbanking CHILEAN ECONOMY RISK FACTORS issue Material charged-off loans. to recuperatenon-performingor Bank hasestablishedmechanisms Finally, ifitwerethecase, portfolio. a correctmonitoringoftheloan any deteriorationandundertake section todetectinearlystages Bank hasaspecialmonitoring admission process.Aswell,the a controloverloansfromthe interest rates. changes intheexchangerate and measure theBank’ssensibility to pesos aswellothermodels that foreign currency,UFandnominal with strictlimitsonnetpositions in dedicated tominimizetheserisks The Bankhasaspecializedarea exchange ratesmaygenerate. in interestrates,inflationand that significantfluctuations over theBank’sfinancialcondition which aredefinedastheeffects company isexposedtomarketrisks, Given itslineofbusiness,the MARKET RISKS 143 Annual Report 2017 These limits are revised bi- Ley de Sociedades Anónimas, OTHER OPERATIONAL weekly by Board members and the SBIF and the Central Bank of RISKS

the Bank’s senior management Chile. Thus, future amendments to The Bank, as any large in a specialized committee, and these laws or the norms imposed organization, is exposed to a its measurement is conducted by these organizations may have variety of operational risks, by an area independent of the an adverse effect over the Bank’s including fraud, internal control commercial divisions. Also, the financial condition or restrict the failures, incorrect manipulation or Bank has implemented warning entrance to new lines of business. loss of documents, information systems and action plans in case RISKS ASSOCIATED TO THE systems failures and employee that the internal or the regulatory BANKING BUSINESS mistakes. It should be noted that, limits are exceeded. in order to minimize these risks, The Bank has oriented its business the Bank has a specialized area, Finally, the General Banking Law towards retail segments, as it the Operational Risk Department, and the Central Bank of Chile believes it’s where it can obtain and the support of Internal Audit have established regulation to a better profitability. Thus, which acts independently and limit the Bank’s exposure to these approximately 69% of the Bank’s reports directly to the Audit factors. loans correspond to Individuals Committee. and SMEs. The current business 144 strategy aims to grow selectively EVENTS IN OTHER COUNTRIES in these segments. For this reason Asset prices in Chile, including it should be expected that current banks, are influenced to a certain SIGNIFICANT EVENTS delinquency levels and charge-offs extent by economic, political and may increase in the future. During 2017, Banco Santander social events in other countries in Chile informed as significant The Bank’s business strategy Latin America, the United States events the following: is closely related to the local and the large economies in Asia and global economic situation, and Europe. The latter is due and hence adapts constantly to to the indirect effect that may 1. On January 10, at the changes in the environment so as impact local economic growth Extraordinary Shareholders’ to allow the Bank to benefit from and the companies that invest in Meeting held on January 9, business opportunities that may those countries, and thus on the 2017, agreements were reached arise, as well as take shelter from Bank’s financial condition. approving the following: potential threats. a. Change the Bank’s legal Another important aspect to be name, only in the sense of RESTRICTIONS TO THE considered is the increase in the eliminating the possibility BANKING BUSINESS OR number of non-bank competitors, of using the names Banco CHANGES IN BANKING which is more evident on Santander Santiago or REGULATION consumer loans. This way retailers Santander Santiago; The Chilean banking industry, as and supermarkets, among others, b. Reduce the number of is the case in most developed have increased their presence regular Board members countries, is highly regulated. in this business, trend that is from 11 to 9, maintaining two In particular, the local banking expected to continue in the future. alternates. industry is subject to norms For this reason, consolidation in and regulations imposed by the the industry should lead to larger General Banking Law, by the and more relevant competitors. c. Update share capital to Meeting held on April 26, 2017 contracts with these companies $891,302,881,691, which the following persons were are first reviewed by the Audit includes $215,394,964,605 elected as Board members: Mr. Committee, which watches that corresponding to the Vittorio Corbo Lioi, Mr. Óscar von these are fair for all involved revaluation of the Bank’s share Chrismar Carvajal, Mr. Roberto parties. For this, the committee capital, accumulated between Méndez Torres, Ms. Ana Dorrego counts with reports from the Bank’s January 1, 2002 and December de Carlos, Mr. Andreu Plaza specialized areas and also from 31, 2008; López, Mr. Juan Pedro Santa independent entities, as well as María Pérez, Ms. Lucía Santa Cruz external advise contracted directly d. Suppress the First Transitory Sutil, Mr. Orlando Poblete Iturrate by the committee. clause of the Bank’s by-laws and Mr. Roberto Zahler Mayanz. regarding the effects of the The main services contracted from As well, Ms. Blanca Bustamante merger by absorption of these Group “factories” are the Bravo and Mr. Raimundo Monge former Banco Santander with following: Zegers were elected as alternate Banco Santiago, today Banco directors. 1. On January 18 is informed that Santander Chile; on a meeting held on January 4. On May 3, is informed that on an e. Modify other social aspects of 17, 2017 the Board approved the extraordinary meeting held on the by-laws to adequate them following operation: April 28, 2017, the Board agreed 145 to current regulation; to designate Mr. Vittorio Corbo a. With Isban, contract for the f. Considering the changes in the Lioi as Chairman, Mr. Óscar provision of technological previous figures, an updated von Chrismar Carvajal as first services for the development version of the Bank’s by-laws Vice president and Mr. Roberto of the SME Financing was approved; Méndez Torres as second Vice Customer Journey project, g. Granting of the necessary president. Wallet Corporate Solution and powers of attorney necessary Quality Controls for MIS data. 2017 Report Annual to fulfill the agreements 2. On March 17 is informed that OPERATIONS WITH RELATED adopted at the meeting. on a meeting held on March 16, PARTIES COMMUNICATED AS 2. On March 17 is informed that SIGNIFICANT EVENTS 2017 the Board approved the at its ordinary meeting on following operations: Operations with related parties March 16, 2017 the Board a. With Geoban, contract for the are mainly technology contracts agreed to summon an Ordinary with Isban Spain, Produban development of project Quality Shareholders’ Meeting to be Mexico, Produban Spain, Produban Controls for MIS local RDA held on Abril 26, 2017 with the Brasil and Isban Mexico, for the operational data; purpose of discussing, among maintenance of the Bank’s systems b. With Isban, contract for other matters, the proposal and the development of certain the development of the to distribute a dividend of applications. Santander Group following projects: Santander $1.75459102 per share, equivalent has a common IT architecture and Te Acompaña; warnings to 70% of the attributable net platforms for all the organization distribution and debugging income of the 2016 exercise, and at a worldwide and regional level, criteria; Murex improvements; assign the remaining balance to which implies synergies and higher massive transfers in the increase the Bank’s reserves. security on the development of corporate payment system; 3. On April 27, 2017 is informed that products, in the maintenance of Santander Flame and Basel on the Ordinary Shareholders’ systems and in data processing. All 2017; c. With Produban, contract for Construction and Validation. a. Isban, contract for the the following projects: Basel provision of technological 5. On June 21 is informed that on a 2017 storage; Accounting services for Recovery meeting held on June 20, 2017 Reconciliation integrated Movements Improvement the Board approved the following engine; Santander Flame; Project, Portfolio Management operations: additional protection against Project (former Elite Portfolio) a. Isban Spain, contract for the service denial (Prolexic); Phases II and III, Card provision of technological protection against Phishing Upgrade Project, BBOO TEF services for the following (CyberRisk Surveillance); and Bilateral Contingency projects: Kalos 2017 Project; and Big Data storage and Automation Project, Foreign Model Risk; Logos Project; infrastructure expansion. Currency Massive Payments Verum Project; Advisory Project (USD-EUR) and 3. On April 21, 2017 is informed that Improvements Project; deferred TEF Issuance Project. on a meeting held on April 11, 2017 Functional Improvements the Board approved the following 8. On October 18 is informed that NEO CRIS; Rorac Project; CVA operations: on a meeting held on October Motor Project; Heracles Project 17, 2017 the Board approved the a. With Isban, contract for the and for Processing Platform. following operations: provision of technological 6. On July 19 is informed that on a services for the following a. Isban, contract for the meeting held on July 18, 2017 the projects: improvements to provision of technological Board approved the following the Datalake-2017 intake services for N1 N2 Support operations: component; Supra Core Corporate Payment System a. Isban, contract for the Project, Files Projects, for Datalake Chile; RDA- provision of technological Intranet Key Reset Project, Local Risk Appetite 2017; services for Account Window Frame Handover Intranet Support 2017; and Statements with Security Key Project, White and Customer Asset Control Platform New Project, for the implementation Exception Lists Maintenance Functionalities; of CODCON system, for the Project, Appraisal System New b. With Produban, contract implementation of OPERA Functionalities Project, Mutual 146 for the provision of system, for the implementation Fund Contract Maintainer technological services for On of APAMA system, for EMIR Project, State Endorsed Credit Premise storage and IFRS 9 Project, for corporate BAU (CAE) Project and Fund Infrastructure. Tallyman Project and for Segregation Phase III Project. 4. On May 17 is informed that on a Fundamental Review of 9. On December 20 is informed that meeting held on May 16, 2017, the Trading (FTRB) Project; on a meeting held on December Board approved the following b. Produban, contract for the 19, 2017 the Board approved the operations: provision of technological following operations: a. Isban Spain, contracts for the services for Accord 2017 a. Produban Spain, contract provision of technological replacement Project; for the provision of services for Delegated c. Banco Santander S.A., technological services for Execution and BAU-2017 contract for the provision Privileged Account–CyberArk Transfer; for Declaración of technological services for Management Project; Jurada 1848 for Custody; Santander Toms Project. b. Banco Santander S.A., for the and for AERO Platform 7. On September 27 is informed that purchase of the technological Incorporation of Operating on a meeting held on September services development local Processes; 26, 2017 the Board approved the business unit Isban Chile b. Santander Analytics S.A., and agreement for services following operations: contract for the provision provided by Banco Santander of technological services S.A. to different areas of Banco for Independent Model Santander Chile. from potential threats. opportunities that mayarise,aswelltake shelter so astoallowthe Banktobenefitfrombusiness adapts constantlytochanges intheenvironment the localandglobaleconomic situation,andhence The Bank’sbusinessstrategy is closelyrelatedto 147 AnnualInforme Report Anual 2017 About this Annual Report

This Annual Report gives an account of Banco Santander Chile’s performance on its diverse areas between January 1 and December 31, 2017.

148

The information published In the reported year there were no As is explained in chapter covers the operations of Retail significant changes in size, structure “Sustainability at Santander Chile” Banking, Middle-market Banking or in Banco Santander Chile’s (pg. 52), this document has been and Santander Global Corporate ownership; as well as in calculation prepared in accordance with the Banking, and include Santander methods and preparation basis principles and requirements from Group’s corporate policies and or criteria. Those which occurred Global Reporting Initiative’s G4 global figures. The latter are in previous periods, reflected in guide, including the Financial Sector presented in Euros, while figures figures, have been dully mentioned Supplement, and corresponds to regarding operations in the country in tables and charts. the “essential” category. are expressed in Chilean pesos. GRI G4 Indicators

GRI G4 Description Location Global Explanation 149 Indicator Compact Principle

STRATEGY AND ANALYSIS Provide a statement from the most senior decision- maker of the organization (such as CEO, chair, or G4-1 equivalent senior position) about the relevance of 14 sustainability to the organization and the organization’s strategy for addressing sustainability. Annual Report 2017 Report Annual Provide a description of key impacts, risks, and G4-2 11, 36, 143 opportunities.

ORGANIZATIONAL PROFILE

G4-3 Report the name of the organization. 142, 164

G4-4 Report the primary brands, products, and services. 4-5, 47-49

G4-5 Report the location of the organization’s headquarters. 164 Report the number of countries where the organization operates, and names of countries where either the G4-6 organization has significant operations or that are 134 specifically relevant to the sustainability topics covered in the report. G4-7 Report the nature of ownership and legal form. 142 Report the markets served (including geographical G4-8 breakdown, sectors served, and types of customers and 134 beneficiaries). Report the scale of the organization, including: •Total number of employees • Total number of operations • Net sales (for private sector organizations) G4-9 or net revenues (for public sector organizations) • Total 5 capitalization broken down in terms of debt and equity (for private sector organizations) • Quantity of products and services provided GRI G4 Description Location Global Explanation Indicator Compact Principle

a.Report the total number of employees by employment contract and gender. b.Report the total number of permanent employees by employment type and gender. c.Report the total workforce by employees and supervised workers and by gender.

G4-10 d.Report the total workforce by region and gender. 101 Principle 6 e. Report whether a substantial portion of the organization’s work is performed by workers who are legally recognized as self-employed, or by individuals other than employees or supervised workers, including employees and supervised employees of contractors. f.Report any significant variations in employment numbers. Report the percentage of total employees covered by G4-11 101 Principle 3 collective bargaining agreements. G4-12 Describe the organization’s supply chain. 120 Report any significant changes during the reporting No changes regarding G4-13 period regarding the organization’s size, structure, 115 these items during 2017. ownership, or its supply chain.

COMMITMENTS TO EXTERNAL INITATIVES Report whether and how the precautionary approach or G4-14 57, 70 principle is addressed by the organization. List externally developed economic, environmental and 150 G4-15 social charters, principles, or other initiatives to which the 57 organization subscribes or which it endorses. List memberships of associations (such as industry associations) and national or international advocacy organizations in which the organization: •Holds a G4-16 position in the governance body • Participates in 57 projects or committees • Provides substantive funding beyond routine membership dues • Views membership as strategic.

IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES a.List all entities included in the organization’s consolidated financial statements or equivalent documents. Annual G4-17 Report, 89 b.Report whether any entity in the organization’s States consolidated financial statements or equivalent documents is not covered by the report. a.Explain the process for defining the reported content and the Aspect Boundaries. G4-18 55 b.Explain how the organization has implemented the Reporting Principles for Defining Report Content. List all material Aspects identified in the process for G4-19 55 defining report content. For each material Aspect, report the Aspect Boundary G4-20 55 within the organization. For each material Aspect, report the Aspect Boundary G4-21 55 outside the organization. Report the effect of any restatements of information No reformulations during G4-22 provided in previous reports, and the reasons for such the reported period. restatements. Report significant changes from previous reporting No significant changes G4-23 periods in the Scope and Aspect Boundaries. during the reported period. Indicator GRI G4 GRI G4-31 G4-30 G4-29 G4-28 G4-32 G4-27 G4-26 G4-25 G4-24 GR-34 G4-33 REPORT PROFILE GRI CONTENT INDEX STAKEHOLDER ENGAGEMENT GOVERNANCE STRUCTURE AND COMPOSITION GOVERNANCE ASSURANCE report oritscontents. Provide thecontactpointforquestionsregarding Reporting cycle(suchasannual,biennal). Date ofmostrecentpreviousreport(ifany). information provided. Reporting period(suchasfiscalorcalendaryear)for if thereporthasbeenexternallyassured. c.Report thereferencetoExternalAssuranceReport, b.Report theGRIContentIndexforchosenoption. chosen. a.Report the‘inaccordance’optionorganizationhas and concerns. stakeholder groupsthatraisedeachofthekeytopics concerns, includingthroughitsreporting.Reportthe organization hasrespondedtothosekeytopicsand raised throughstakeholderengagement,andhowthe Report keytopicsandconcernsthathavebeen part ofthereportpreparationprocess. any oftheengagementwasundertakenspecificallyas type andstakeholdergroup,anindicationofwhether engagement, includingfrequencyofengagementby Report theorganization’sapproachtostakeholder stakeholders withwhomtoengage. Report thebasisforidentificationandselectionof organization. Provide alistofstakeholdergroupsengagedbythe on economic,environmental andsocialimpacts. Identify anycommittees responsiblefordecision-making including committeesofthehighest governancebody. Report thegovernancestructure oftheorganization, organization’s sustainabilityreport. executives areinvolvedinseekingassuranceforthe d.Report whetherthehighestgovernmentbodyorsenior the assuranceproviders. c.Report therelationshipbetweenorganizationand any externalassuranceprovided. the sustainabilityreport,reportscopeandbasisof b.If notincludedintheassurancereportaccompanying with regardtoseekingexternalassuranceforthereport. a.Report theorganization’spolicyandcurrentpractice Description verification. Location 20-21, 26- 31, 34-35 a.Pg. 148 c.There 149-159 was no b.Pgs. 164 54 53 53 55 Principle Compact Global Annual. April 2017. December 31,2017. January 1,2017to external verification. conducted anyprocessof Santander hasnot Explanation 151 Annual Report 2017 GRI G4 Description Location Global Explanation Indicator Compact Principle

Report the process for delegating authority for economic, environmental and social topics from the 28-31, 34- G4-35 highest governance body to senior executives and other 35, 67 employees. Report the composition of the highest governance body G4-38 28-30, 67 and its committees. Report whether the Chair of the highest governance body is also an executive officer (and, ifso, his or her G4-39 29 function within the organization’s management and the reasons for this arrangement). Describe the nomination and selection processes for the highest governance body and its committees, and G4-40 28, 31, 145 the criteria used for nominating and selecting highest governance body members. Report processes for the highest governance body to ensure conflicts of interest are avoided and managed. G4-41 32, 68, 145 Report whether conflicts of interest are disclosed to stakeholders. HIGHEST GOVERNANCE BODY’S ROLE IN SETTING PURPOSE, VALUES, AND STRATEGY Report the highest governance body’s senior executive’s role in the development, approval, and updating of the G4-42 organization’s purpose, value or mission statements, 28, 34 strategies, policies, and goals related to economic, environmental and social impacts. a.Report the processes for evaluation of the highest governance body’s performance with respect to governance of economic, environmental, and social topics. Report whether such evaluation is independent or 152 not, and its frequency. Report whether such evaluation 12, 28, 29, G4-44 is a self-assessment. b.Report actions taken in response 31-34 to evaluation of the highest governance body’s performance with respect to governance of economic, environmental, and social topics, including as a minimum, changes in membership and organizational practices. HIGHEST GOVERNANCE BODY’S ROLE IN RISK MANAGEMENT a.Report the highest governance body’s role in the identification and management of economic, environmental and social impacts, risks, and opportunities. Include the highest governance body’s 26-30, 63- G4-45 role in the implementation of due diligence processes. 64, 70 b.Report whether stakeholder consultation is used to support the highest governance body’s identification and management of economic, environmental, and social impacts, risks, and opportunities. Report the highest governance body’s role in reviewing G4-46 the effectiveness of the organization’s risk management 28-30, 70 processes for economic, environmental, and social topics. Report the frequency of the highest governance body’s G4-47 review of economic, environmental and social impacts, 29, 30 risks, and opportunities. REMUNERATION AND INCENTIVES a.Report the remuneration policies for the highest governance body and senior executives.

G4-51 b.Report how performance criteria in the remuneration 33,34 policy relate to the highest governance body’s and senior executives’ economic, environmental and social objectives. G4-56 G4-53 G4-52 G4-LA1 EN23 G4- G4-EN19 G4-EN15 G4-EN6 GR-EN3 G4-EN1 G4-DMA G4-EC9 G4-EC5 G4-EC1 G4-DMA ETHICS AND INTEGRITY EMPLOYMENT SUB-CATEGORY: LABOR PRACTICES AND DECENT WORK CATEGORY: SOCIAL EFFLUENTS AND WASTE EMISSIONS ENERGY MATERIALS CATEGORY: ENVIRONMENTAL ASPECT: ECONOMIC PERFORMANCE Indicator GRI G4 GRI codes ofethics. and normsofbehaviorsuchascodesconduct a.Describe theorganization’svalues,principles,standards if applicable. results ofvotesonremunerationpoliciesandproposals, into accountregardingremuneration,includingthe Report howstakeholders’viewsaresoughtandtaken with theorganization. relationships whichtheremunerationconsultantshave independent ofmanagement.Reportanyother in determiningremunerationandwhethertheyare Report whetherremunerationconsultantsareinvolved Report theprocessesfordeterminingremuneration. employee turnoverbyagegroup, gender,andregion. Total numberandratesofnew employeehiresand Total weightofwastebytypeanddisposalmethod. Reduction ofgreenhousegas(GHG)emissions. Direct greenhousegas(GHG)emissions(Scope1). Reduction ofenergyconsumption. Energy consumptionwithintheorganization. Materials usedbyweightorvolume. Aspect material:Environmentalmanagement. locations ofoperation. Proportion ofspendingonlocalsuppliersatsignificant operation. to localminimumwageatsignificantlocationsof Ratios ofstandardentrylevelwagebygendercompared Direct economicvaluegeneratedanddistributed Material aspect:Economicperformance Description 43,46,68- Location 35,42- 33, 34 33, 34 4, 132 4, 132 4, 132 4, 132 4, 132 4, 132 72-91 69,71 132 122 101 98 121 Principle 6 Principle 8 and 9 Principles 8 and 8 Principles 7 and 9 Principles 8 and 8 Principles 7 and 8 Principles 7 Principle 6 Principle 10 Principle Compact Global is notinformed. and methodoftreatment Partially informed,astype Explanation 153 Annual Report 2017 GRI G4 Description Location Global Explanation Indicator Compact Principle

Benefits provided to full-time employees that are not G4-LA2 provided to temporary or part-time employees, by 100 significant locations of operations. LABOR/MANAGEMENT RELATIONS Banco Santander does not have a policy related Minimum notice periods regarding operational changes, to this aspect. However, G4-LA4 including whether these are specified in collective Principle 3 important changes in agreements. the organization are communicated with anticipation. OCCUPATIONAL HEALTH AND SAFETY Type of injury and rates of injury, occupational diseases, G4-LA6 lost days, and absenteeism, and total number of work 101 related fatalities, by region and by gender. TRAINING AND EDUCATION

GR-DMA Material aspect: Human capital development 95 Average hours of training per year per employee by G4-LA9 96 Principle 6 gender, and by employee category. Programs for skills management and lifelong learning G4-LA10 that support the continued employability of employees 95, 96 and assist them in managing career endings. Percentage of employees receiving regular performance G4-LA11 and career development reviews, by gender and by 94 Principle 6 employee category.

154 DIVERSITY AND EQUAL OPPORTUNITY

G4-DMA Material aspect: Promotion of diversity and inclusion. 99 Composition of governance bodies and breakdown of Partially reported because employees per employee category according to gender G4-LA12 101 Principle 6 there is no breakdown of are group, minority group membership, and other minorities. indicators of diversity. SUB-CATEGORY: HUMAN RIGHTS

NON-DISCRIMINATION In 2017 no discrimination incidents or related complaints were registered. In addition, Banco Santander counts with two documents that treat these issues: Santander Group’s General Total number of incidents of discrimination and Human Rights Policy and the G4-HR3 Principle 6 corrective actions taken. General Code of Conduct. Also adheres to the Global Compact Principles, in which are included the commitment to respect and support the protection of fundamental human rights universally recognized. SUB-CATEGORY: SOCIETY

ANTI-CORRUPTION

GR-DMA Material aspect: Risk management. 58-64 Indicator GRI G4 GRI FS1 G4-PR9 G4-DMA G4-PR5 G4-DMA FS12 FS9 FS4 FS2 PRODUCT PORTFOLIO FINANCIAL SUPPLEMENT COMPLIANCE CUSTOMER PRIVACY PRODUCT AND SERVICE LABELING CUSTOMER HEALTH AND SAFETY SUB-CATEGORY: PRODUCT RESPONSIBILITY ACTIVE OWNERSHIP components appliedtobusinesslines. Policies withspecificenvironmentalandsocial use ofproductsandservices. with lawsandregulationsconcerningtheprovision Monetary valueofsignificantfinefornon-compliance information. Material aspect:Cybersecurityandprotectionof Results ofsurveysmeasuringcustomersatisfaction. Material aspect:Customersatisfaction. holds therighttovotesharesoradvisesonvoting. issues forsharesoverwhichthereportingorganization Voting polic(ies)appliedtoenvironmentalorsocial risk assessmentprocedures. implementation ofenvironmentalandsocialpolicies Coverage andfrequencyofauditstoassess procedures asappliedtobusinesslines. implement theenvironmentalandsocialpolicies Process(es) forimprovingstaffcompetencyto and socialrisksinbusinesslines. Procedures forassessingandscreeningenvironmental Description Location 70, 131,133 103-104 103-104 50 70 Principle Compact Global scope duringtheyear. There werenofinesonthis voting rights. entities overwhichithas shareholder meetingsof environmental aspects,for policy regardingsocialand does haveaformalvoting Empleados Pensionesfund as anadvisor.Santander has votingrightsoracts for entitieswhichit environmental aspects regarding socialand/or have formalvotingpolicies Santander Groupdoesnot sectors. evaluation aboutspecific procedures forrisk as wellotheradditional of theEquatorPrinciples which includethereview environmental policies, social responsibilityand of compliancewith other aspects,thedegree function toassess,among review ofthesustainability Audit Areaconductsa In 2016theGroup’sInternal advisor onthisissue. taught byanexternal was heldonOctober, policies, atrainingsession spread thecontentof To raiseawarenessand Explanation 155 Annual Report 2017 Financial statements

156 Santiago, February 27, 2018

of pertinent internal control for the entity’s consolidated financial REPORT OF INDEPENDENT the preparation and reasonable statements, with the purpose REGISTERED PUBLIC ACCOUNTING presentation of consolidated of designing appropriate audit FIRM financial statements that are procedures given circumstances, exempt of material misstatement, but without the purpose of To the Board of Directors and whether due to error or fraud. expressing an opinion about the Shareholders of Banco Santander effectiveness of the entity’s internal Chile: control. In consequence, we do RESPONSIBILITY OF THE AUDITOR not express such an opinion. An We have conducted an audit Our responsibility consists in audit also includes evaluating the to the attached consolidated expressing our opinion about these accounting principles used and financial statements of Banco consolidated financial statements the reasonability of significant Santander Chile and its subsidiaries, based on our audits. We conduct accounting estimates made by which include the consolidated our audits in accordance to management, as well as evaluating financial situation statements as of generally accepted audit rules and the overall presentation of the December 31, 2017 and 2016 and regulations in Chile. These rules and consolidated financial statements. the corresponding consolidated regulations require that we plan and income statements, integral results We consider that the audit evidence perform our work with the goal to 157 statements, changes in equity and we have obtained is sufficient and obtain reasonable assurance about cash flow statements for the years appropriate to provide a reasonable whether the consolidated financial ended on said dates, as well as basis for our opinion. statements are free of material the corresponding notes on the misstatement. consolidated financial statements. An audit involves performing OPINION procedures to obtain audit In our opinion, the consolidated RESPONSIBILITY OF MANAGEMENT evidence regarding the amounts financial statements referred to 2017 Report Annual OVER THE CONSOLIDATED and disclosures in the consolidated above present fairly, in all material FINANCIAL STATEMENTS financial statements. The selected respects, the financial position Management is responsible for procedures depend on the of Banco Santander Chile and its the preparation and reasonable auditor’s judgement, including the subsidiaries as of December 31, 2017 presentation of these consolidated assessment of the risks of material and 2016, and the results of their financial statements in accordance misstatement of the consolidated operations and their cash flows to the accounting rules and financial statements, whether due for each of the two years ended regulations and instructions given to error or fraud. When performing on said dates in conformity with by the Superintendency of Banks these assessments, the auditor accounting rules and regulations and Financial Institutions. This takes into account the pertinent and instructions given by the responsibility includes the design, internal control for the preparation Superintendency of Banks and implementation and maintenance and reasonable presentation of Financial Institutions.

February 26, 2018 Roberto J. Villanueva B. Santiago, Chile RUT: 7.060.344-6 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION BANCO SANTANDER CHILE AND SUBSIDIARIES

As of and for the periods ended:

December 31, 2017 2016 NOTE MM$ MM$ ASSETS Cash and deposits in Banks 4 1,452,922 2,279,389 Cash items in process of collection 4 668,145 495,283 Trading investments 5 485,736 396,987 Investments under resale agreements 6 - 6,736 Financial derivative contracts 7 2,238,647 2,500,782 Interbank loans, net 8 162,599 272,635 Loans and accounts receivable from customers, net 9 26,747,542 26,113,485 Available-for-sale investments 10 2,574,546 3,388,906 Investments held-to-maturity - - Investments in associates and other companies 11 27,585 23,780 Intangible assets 12 63,219 58,085 Property, plant and equipment 13 242,547 257,379 Current taxes 14 - - Deferred taxes 14 385,608 372,699 Other assets 15 755,183 840,499 TOTAL ASSETS 35,804,279 37,006,645

LIABILITIES Deposits and other demand liabilities 16 7,768,166 7,539,315 158 Cash items in process of being cleared 4 486,726 288,473 Obligations under repurchase agreements 6 268,061 212,437 Time deposits and other time liabilities 16 11,913,945 13,151,709 Financial derivative contracts 7 2,139,488 2,292,161 Interbank borrowings 17 1,698,357 1,916,368 Issued debt instruments 18 7,093,653 7,326,372 Other financial liabilities 18 242,030 240,016 Current taxes 14 6,435 29,294 Deferred taxes 14 9,663 7,686 Provisions 20 324,329 308,982 Other liabilities 21 745,363 795,785 TOTAL LIABILITIES 32,696,216 34,108,598

EQUITY Attributable to equity holders of the Bank: Capital 23 3,066,180 2,868,706 Reserves 23 891,303 891,303 Valuation adjustments 23 1,781,818 1,640,112 Retained earnings (2,312) 6,640 Retained earnings 395,371 330,651 Retained earnings from previous years - - Income for the year 564,815 472,351 Minus: provision for mandatory dividends 23 (169,444) (141,700) Non-controlling interest 25 41,883 29,341 TOTAL EQUITY 3,108,063 2,898,047 TOTAL LIABILITIES AND EQUITY 35,804,279 37,006,645

The attached note between N° 01 and 39 are an integral part of these consolidated statements. As ofandfortheperiodsended: The attachednote betweenN°01and39arean integralpartoftheseconsolidated statements. Dilutedearnings Basicearnings Earnings pershareattributabletoEquityholdersoftheBank: Attributable to: NET INCOMEFORTHEYEAR Income taxexpenses Income frominvestmentinassociatesandothercompanies OPERATING INCOME Total operatingexpenses Other operatingexpenses Impairment ofproperty,plantandequipment Depreciation andamortization Administrative expenses Personnel salariesandexpenses NET OPERATINGPROFIT Provision for loanlosses Other operating income Net foreignexchangegain(loss) Net income(expenses)fromfinancialoperations Fee andcommissionexpense Fee andcommissionincome Interest expense Interest income OPERATING INCOME BANCO SANTANDER CHILE AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS Non-controlling interest Equity holdersoftheBank Income beforetax Net operating profit before provisions for loanlosses Net fee andcommission income Net interest income

30 34 NOTE 34 26 29 26 33 33 28 23 23 32 25 27 27 14 31 11 2,058,446 (299,205) (396,967) 1,523,464 (806,551) 1,822,669 (230,103) (176,495) 1,326,691 (731,755) December 31, (143,613) 720,876 (77,823) (96,014) 279,063 577,263 455,558 564,815 126,956 (5,644) 716,913 12,448 87,163 3,963 2,997 2,997 2,796 MM$ 2017 (367,034) (343,286) 1,694,447 (855,678) (772,337) (176,760) 2,137,044 (226,413) 1,281,366 (395,133) (107,120) (65,359) 254,424 578,824 1,351,161 507,392 (85,198) 474,716 581,836 472,351 431,184 18,299 (234) 2,507 2,507 2,365 3,012 2016 MM$ 159 Annual Report 2017 CONTACT DETAILS

ROBERTO SAPAG Manager Corporate Communications and Sustainability [email protected]

ROBERT MORENO Manager Investor Relations [email protected]

CONSUELO ALVEAR Vice president Sustainability [email protected]

PEDRO GALLARDO Vice president Shareholder Relations [email protected]

SHAREHOLDER ATTENTION From Chile: (2) 2 320 2222 From abroad: (56 2) 2 320 2222

160 CUSTOMER ATTENTION SERVICE VOX (600) 320 3000

CUSTOMER ADVOCACY www.defensoriadelclientedeabif.cl

BANCO SANTANDER CHILE 97.036.000-K Bandera 140, Santiago, Chile www.santander.cl

PRODUCTION

CAROLINA FONCK [email protected]

EDICIONES DE LA LUMBRE www.edicionesdelalumbre.cl

DIOSLASCRIA DISEÑO www.dioslascria.cl www.santander.cl