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Annual Report and Financial Statements BancoEstado 2011 BancoEstado always by your side; over seven thousand FinancialStatements BancoEstado 2011 Annual report and CajaVecina Points BancoEstado for allChileans; over four millionCuentaRUT micro-entrepreneurs over 450thousand BancoEstado withChile;

Annual Report Index Annual Report 2 3 5 37 45 69 77 83 87 91 95

CHAPTER 1 CHAPTER 2 CHAPTER 3 CHAPTER 4 CHAPTER 5 CHAPTER 6 CHAPTER 7 CHAPTER 8 CHAPTER 9

A bank of excellence An Efficient and Social Impact Managing Channels: Financial Risk Management Human Resource Management Consolidated in Sustainable Bank Business The most extensive Management Management: Active by Subsidiaries: Financial Statements Management banking network in Engagement with Empowering Banking Chile Bancarization Services and Financial Inclusion Chairman’s Statement Mission and Vision The Banking Industry National Coverage Financial in Chile: Results and Management Risk Management Training and BancoEstado Financial Summary Strategic Plan Forecasts CajaVecina Development Microempresas S.A. 2012 - 2014 Bank Profitability Risk Indicators Asesorías Financieras Corporate Corporate ServiEstado Health and Wellness Governance: A Public Strategic Projects Management Diversification of Financial Risk BancoEstado Excellence Bank Electronic Funding Sources Corredores de BancoEstado’s Transactions Seguros S.A. Prizes and Awards Customers Global Presence Servicing Network BancoEstado S.A. Milestones 2011 Marketing and Map New York Branch Administradora Communications General de Fondos Evolution of Personal Banking BancoEstado in Divisions Services BancoEstado S.A. figures Management Corredora de Bolsa

Sociedad de Servicios Transaccionales CajaVecina S.A.

BancoEstado Centro de Servicios S.A.

BancoEstado Servicio de Cobranza S.A.

BancoEstado Contacto 24 Horas S.A. Chapter A bank of excellence 1 in Chile

Head Office Chairman’s statement Annual Report Annual Report

6 7 process within BancoEstado. This agreement is positive year, BancoEstado undertook numerous actions aimed The financial year 2011 was a period of significant for both parties and includes several benefits, enhances at increasing its various key audiences’ confidence, achievements for BancoEstado, its customers and development and the organization’s work. This process was especially customers. Our corporate brand is one of the employees. During that year, we made important progress an example of constructive dialogue. We are proud of it, most recognized at a national level, and empowers us as a in the strategic objectives established by the Corporation, and willing to continue developing a long term relationship close company for our customers and civil society as well. contributing to the country's bankarization and with with the National Union of Workers and employees of the We want to promote responsible financial behaviour by the purpose of supporting all Chileans in development Bank. informing people in detail about products and conditions, and entrepreneurship. Thus, business and financial enabling them to make the best decision. We have also management results were consistent with an increasingly BancoEstado’s eight subsidiaries have an active driven many initiatives to comply with new legislation of efficient administration, allowing us to fulfil and participation in each challenge and strategic directions financial SERNAC, becoming thus a model as public bank, strengthen the role of the Bank and its many contributions raised. Their results are a strong support for bankarization, at the service of our customers and all Chileans. to the welfare of people and the development of Chile. by providing customers a wide range of products and services. I would like to underline the excellence and To accomplish our mission, which provides a better Several milestones marked this year. In late 2011, we quality of these business support companies, which is customer service and achieve sustainable bankarization, counted on approximately 4,200,000 Chileans with confirmed by major awards and achievements received efficiency appears as a major challenge that need to be an active CuentaRUT; over 7,100 CajaVecina points in their fields of work. Thus, BancoEstado Corredores improved every year. As in previous years, performance in provide basic financial products and services in the most de Bolsa stands out as leader in fixed income. Likewise, 2011 showed significant progress, reaching the best rate remote places of the country; more than 429,000 micro- BancoEstado Corredores de Seguros —with 12 years in recent years, 54.8%. This achievement is a step forward entrepreneurs directly assisted by the Microfinance experience— leads the market as per the amount of in the materialization of one of the most important Subsidiary, formalizing and strengthening the work bankarized customers thanks to the partnership held guidelines outlined in the Strategic Plan: to achieve a 50% made by Chileans various productive sectors. Automated with one of the largest insurance companies: Metlife. efficiency rate by 2014. transactions have been a key factor in financial services Inc. Co. BancoEstado Microfinance leads entrepreneurs improvement. Currently, 92% of all transactions performed servicing along the country, and CajaVecina became Likewise, during the year the bank managed a US$500 in BancoEstado are made through remote channels, a internationally successful model in bankarization. million bond placement for January 2012. This required a This figure ranks BancoEstado as the entity with more Additionally, the Administradora General de Fondos is deep work in international markets in the U.S., Europe, transactions per capita in Chile, leading the national permanently launching new investment tools to the Asia and Latin America to call over 200 international industry in this field. Being a committed public company, market, and the Centro de Servicios who —with their investors. model for others and at the forefront of the latest trends ServiEstado Offices— contributes in the Bank’s coverage of and technologies, we are making steps in the great service channels. In order to improve the quality of customer services, challenge of bankarization. channels and working hours, and to optimize the A growing number of customers represent an increase bank’s resources, we continued driving the Business The work done in different areas of corporate governance in obligations, especially as a public company and as a Transformation Project, an ambitious initiative to change is reflected in the deepening of bankarization, improved relevant bank in the national financial industry. During that the way we interact with our customers, with special efficiency and of course, better profitability. During the period, we expanded BancoEstado’s commitment in quality attention to remote servicing through on-line or long year, BancoEstado achieved a 15.8% return on equity, customer service with a strong emphasis on transparency distance channels. This task needs almost all areas of the which represents an improvement as per the results and information. This commitment has been agreed bank, benefiting the whole organization and incorporating achieved in previous periods, driving us towards the from the bank’s senior management downwards. Thus, new technologies that will reduce operating costs and goals established - with actions strongly focused in social during 2011 we established the Quality and Transparency accelerate production timelines distribution channels, matters. Committee, formed by the Chief Executive Officer and products and services. Senior Managers. This Committee’s main target is to Thanks to the commitment of our employees, every implement the Quality and Transparency Policy —launched BancoEstado’s transactional network, nowadays strongly day we reach more Chileans with more innovative and in 2011— and maintain strategy consistent with itself and optimized through virtual and electronic resources, efficient. Our employees are our main resource to with the institution’s business guidelines. remains the largest in Chile, reaching places where no achieve our goals. Thus, we always promote dialogue and other bank is present. Every year new ATMs are added agreements to do a better job with a higher quality life. Financial business is an activity based on trust and to our network and, with them, our remote service This year we completed a major collective bargaining respect of rights and duties of each party. During this channels as Internet or the Call Center are available to Annual Report Annual Report

8 9 our customers on a daily basis, the contribution made by their dreams come true", i.e. initiate new activities and the increase of CajaVecina operations has contributed to develop. enhance our leadership. It is important to underline the growth of the ServiEstado network and BancoEstado’s We want to continue promoting our mission and achieving permanent effort to maintain and open new branches the goals established in the Strategic Plan. Despite the Financial Summary along Chile. This work was supplemented with the unstable international financial scenario, BancoEstado reopening of the branch in the locality of Mulchén, has proved to be strong and solid institutions, supporting 2011 has been a year marked by a strong economic In terms of financial results, BancoEstado and its which has been seriously damaged by the earthquake its customers in different lines of work and products and dynamism at the beginning, and an increasing subsidiaries reached two important goals: continue in February 2010. Furthermore, ’s branch, growing with them, positioned itself as a better company uncertainty by the deteriorating external environment increasing its profitability and improve efficiency in which stopped working after the volcanic eruption and every year. at the end of the year closure. However, BancoEstado this process. Indeed, the surplus before tax amounted subsequent flooding that hit the in 2008, has also achieved the objectives proposed. US $314.3 million, which in real terms is 13.3% higher been reopened. This is quite significant, as it stands out We appreciate our staff’s commitment —who strive every than the previous year due to higher revenues and the Bank's commitment towards people of the area, and day to fulfil our objectives— and our customers for trusting From a business perspective, growth in total loans was an adequate control of expenses. In turn, efficiency its contribution to the regional economy and geopolitical our bank. We invite you to see details of our management 6.1%, driven by commercial loans (11.3%), particularly improved by more than three percentage points (54.8%), difficulties faced. and continue contributing to Chile’s bankarization and the in the segment of medium-sized enterprises. Consumers reflecting a permanent and comprehensive effort to realization of everyone’s dreams along the country. loans recorded a low expansion (0.8%) due to the achieve this goal. The opening of the BancoEstado’s branch in implementation of a stronger risk policy in mortgage during this year became a milestone in the commune, as loans. we are the first and only bank with an office in the area. For BancoEstado this opening is quite important as well, since it is present in all provincial capitals in the country. Profitability Committed with Chileans’ development from an early (Profit before tax / equity, in %) age, BancoEstado focused as well in giving new impetus to savings, where the bank maintains its undisputed leadership in the market with 7.6 million customers. This 30% year, we launched the "Save Your Dreams" programme to support and promote financial education in the community 25% 23.2% —specifically in colleges and schools— encouraging children to behave responsibly and with an important 20% 15.8% value-based content, which will "allow them to make 15%

10% BancoEstado 5% System* 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

* Figures not consolidated until 2007 Source: SBIF and BancoEstado

· BancoEstado’s profitability exceeded the system’s average until 2008. · Capitalization and counter-cycle policy affected it in 2009. Segismundo Schulin-Zeuthen · Since 2010 BancoEstado’s profitability begun its recovery. In 2011 it recovered its strength. Chairman Annual Report Annual Report

10 11 Consolidated Corporate Data – BancoEstado and its Subsidiarie(S) (US$ Million – December 2011)

Indicators 2007 2008 2009 2010 2011

Earnings before tax 273 395 215 277 314 The decline in over 20% of expenditure in provisions In terms of solvency, as usual, BancoEstado kept the best Core capital 1,396 1,406 1,910 1,864 1,978 and write-offs, net of written-off loan recoveries, had risk rating in Latin America (according to Standard & Effective Networth 2,031 2,092 2,645 2,813 3,083 a positive impact in 2011’s results, This decrease in Poor's and Moody's), in accordance with the strong rating risk expenditure was highly compensated by additional assigned to the country's sovereign debt. Total Loans 18,678 18,886 22,714 22,848 24,243 provisions, which grew beyond 150%, for precautionary Total consolidated Asset 31,790 31,087 34,637 37,628 40,203 reasons as per forecasts on a declining phase of the Earnings before tax/total assets (%) 0.86 1.27 0.62 0.74 0.78 economic cycle. Earnings before tax/capital and reserves (%) 21.51 28.01 11.2 14.8 15.8 Efficiency ratio (b) 60.97 57.7 58.9 58.0 54.8 Provisions over loans ratio (%) 1.63 2.69 2.75 2.92 2.71 Core capital/total eligible assets (%) (c) 3.87 4.41 5.34 4.62 4.69 Basel ratio (%) (d) 10.78 10.91 12.36 12.14 12.60 Branches 327 342 344 344 342 Caja Vecina and ServiEstado 1,043 2,045 3,406 4,648 7,216 BancoEstado Efficiency Ratio * Automated services (e) 2,320 2,663 2,900 2,995 3,075 (Administrative Expenses / Gross Operating Income) Total annual transactions (million) 302 360 447 581 746

a. Since 2008 Financial Statements are issued under IFRS regulation · ROE (profits/equity) and efficiency b. Administrative expenses over gross margin plus monetary adjustment (administrative support expenditures/Net 80% c. Legal Minimum 3% operating balance) increased in 2011, following 69.3% 68.1% 65.2% d. Legal Maximum 8% 62.7% 61.0% 61.9% the previous year trend. 60.8% 58.9% 58.0% 54.8% e. ATMs, cash dispensers and drop boxes 60% · Provisions ratio over total loans decreased in 2011, after the increase suffered under the Source: BancoEstado and SBIF financial crisis of 2008-2010. 40% 2011 International Risk Rating for BancoEstado 20%

Company Short Term (1) Long Term (2) Forecasts 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Moody's (3) P-1 Aa3 Stable Standard & Poor's (4) A-1 A+ Positive

*Consolidated since 2005 1. Foreign currency debt, equal or under one year Source: BancoEstado 2. Foreign currency debt, over one year · During 2011 BancoEstado maintained its long-term 3. In June 2010 S&P confirmed long term risk rating, decreased the short loan rating and forecasts as well, despite external · BancoEstado’s positive trend in efficiency increased in 2011, enhanced by the term ones and kept forecasts economy issues. Likewise, BancoEstado kept the improvement in incomes and expenditure control. 4. In October 2011 Moody’s confirmed short-term and long-term risk rating, best risk rating in Latin America in the same year. and kept forecasts

Source: Moody's and Standard & Poor's Gabriel Tomic Pablo Silva Ricardo Moreno Director Labour Director Labour Alternate Director Annual Report

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The Board of Directors is In May 2010, the President of the Republic —Sebastian composed of seven Piñera Echenique— appointed Mr. Segismundo Schulin- members Zeuthen as Chairman of BancoEstado, and Mr. Roberto Palumbo as vice-Chairman, Jorge Rodriguez, Salvador Valdés, Gabriel Tomic and Juan Carlos Mendez, act as Directors. Currently, Mr. Pablo Silva acts as Labour Director, and Mr. Ricardo Moreno as alternate.

This Body’s duties are to establish the Bank’s general The Strategic policy and to elaborate its guidelines. The Board of Committee for Directors is responsible for ensuring that BancoEstado’s Quality and presence contributes to the implementation and Transparency was strengthening of its mission as a company, creating or created in 2011 Juan Carlos Méndez Salvador Valdés Jorge Rodríguez removing subsidiaries both in Chile and abroad. As a Director Director Director senior governing body, the Board periodically examines the progress of the operations and activities of the company. It also approves the Balance and Annual Report. The Board reports to the President of the Republic on the Bank’s performance and development, and suggests the destination of profits at the end of each period.

Corporate Governance BancoEstado’s Chairman has the out-of-court A Public Excellence Bank representation of the bank, especially before public authorities, banks and financial institutions at national and international level. He chairs the meetings of the Board of Directors, as well as the Executive Committee, As an autonomous State company, BancoEstado’s Board of Directors: and calls special sessions if needed, establishing for each management and administration is governed by the In charge of the Company's case the corresponding table. The Board of Directors is Organic Law set forth under Law Decree N ° 2,079 of 1977. It is an institution with legal status and assets Senior Policy responsible for ensuring in its own right, supervised by the Superintendency The Vice Chairman subrogates the Chairman in case of of Banks and Financial Institutions, and related to the The bank’s Senior Management is exercised by the Board absence, vacancy or any other cause. This subrogation that BancoEstado’s Government through the Ministry of Finance. In matters of Directors, which is composed of seven members: involves all the duties and powers of the Chairman, presence contributes to not covered under the tool above, BancoEstado is six are staff members under the exclusive trust of the including the ones set by proxy. Likewise, he must subject to the General Banking Law and other provisions President of the Republic and are appointed through perform the duties and powers entrusted or delegated by the implementation and from the private sector. Supreme Decree by the Ministry of Finance. The the Board of Directors and the Executive Committee. strengthening of its mission seventh member, the Labour Director, is elected by The Bank’s Senior Management is exercised by the Board BancoEstado’s employees and counts on an alternate. as a company. of Directors, which is the collegiate body in charge for Chairman and Vice Chairman are positions assigned to the Bank’s general policy. Meanwhile, the Executive two members of the Board. Committee —lead by the Senior Management— is in charge of the senior management functions. Annual Report

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of Directors and the Superintendency of Banks and The Executive Committee is responsible as well for Financial Institutions (SBIF): ensuring the efficient administration and smooth management of the Bank. Thus, the Bank must count • Set the terms and conditions for the various on the appropriate professional and senior staff for operations such as guarantees, maximum amounts and the duties required by a public prime company. The interest rates. Executive Committee appoints, removes, transfers, • Monitoring compliance of agreements, regulations and accepts resignations, send on official mission, establish instructions. disciplinary measures and terminate contracts of senior • Approves the annual budget for investment and staff. expenditure, as well as its amendments, provisions and write-offs, in addition to the Balance and Annual Likewise, the Executive Committee may confer special Report of each period. mandates or delegate any of its members, as well as one Segismundo Schulin-Zeuthen Pablo Piñera Andrés Medina Roberto Palumbo • Reports to the Board of Directors on BancoEstado’s or more committees operating within the company, or in Chairman Chief Executive General Counsel Vice-Chairman Officer business operation and development. senior positions or senior officials specially selected to • Agrees on investments, purchases and disposals of address or resolve any issue deemed appropriate. It also real estate, securities or other property. assigns employees who will act as certifying officers in • Settles credit applications and other operations procedures and documents of the bank, as well as for its authorized to the Bank, regardless of their nature and own deliberations and agreements. amount. • Agrees hiring internal or external credits through The Chief Executive Officer is responsible for the credit lines, loans or otherwise, and settles the immediate administration and has the exclusive trust of issuance of bonds, guarantees or other securities. the President of the Republic. As the Chairman, he has out-of-court representation of the Bank. Among other duties, the Executive Officer must coordinate General Executive Committee: Managers of the different areas; submit status reports Ensuring a comprehensive and or detailed information on the progress of the company; appoint, promote, take disciplinary actions authorized prime administration by internal regulations, or delegate some of his duties to other officers of the Bank. Mr. Pablo Piñera is the current The Executive Committee is composed by the For the benefit of Transparency, no Chief Executive Officer. Chairman, Vice Chairman and Chief Executive Officer, The Executive Committee’s member from the Board of Directors, or and is responsible for the bank’s senior management, actions must be in line with the Executive Committee can intervene BancoEstado’s General Counsel is part of the or vote in any credit transaction, Committee, but participates without a right to vote. In policies and standards investment or any other business related the exercise, this body agrees, implements and executes provided by the monetary to any of the members in participation, any act or contract leading to the fulfillment of the dependency or interference. bank’s objectives. Their actions must be within the authorities. laws and regulations, as well as policies and standards provided by monetary authorities, BancoEstado’s Board Annual Report Annual Report

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A Structure Focused in fulfilling all duties and responsibilities established by the Legal Department The Legal Department holds the bank's Likewise, the Compliance Management aims at reaching Superintendency of Banks and Financial Institutions. legal representation before administrative tribunals, all employees of the Bank and its subsidiaries with a Transparency and Probity courts of law and/or other special courts. The General policy of continuous training in prevention of assets The Audit Committee’s Chairman is Mr. Juan Carlos Counsel is appointed by the President of the Republic and laundering. This Program, based as well in international Together with the Board of Directors and Executive Mendez Gonzalez. Mr. Roberto Palumbo Ossa, Mr. must attend the Board of Directors and the Executive standards, is responsible for managing the Code of Ethics Committee, there are other divisions in BancoEstado Jorge Rodriguez Grossi, Mr, Patricio Meller Bock and Committee’s sessions, without the right to vote. In and self-conduct codes in general. During 2011, 11 new that structure the corporate governance, which protect Mr. Guillermo Ramirez Vilardell are members of this addition, he ensures that agreements, instruments and the Bank’s performance and contribute to strengthen the Committee as well. Mr. Bock and Mr. Ramirez are contracts comply with the applicable legal standards, and company’s mission, protecting ethics and transparency. independent from the bank's management. During 2011 reports on legal matters submitted for his consideration. During 2011, the SBIF rated BancoEstado the Audit Committee held 13 meetings. Andrés Medina under acceptable performance in Audit Committee Since 1995, the Audit Committee was Juan Carlos Méndez Currently, BancoEstado’s General Counsel prevention. Likewise, the New York created by the Executive Committee as a key factor for Audit Committee’s Chairman State Financial Service, granted the internal control, aimed at strengthening and supporting Audit Office BancoEstado’s Comptroller, as an independent “satisfactory compliance” category to the the management of corporate governance. Its role is body from the government, is responsible for the internal New York Office —United States— in BSA complementary to the one assigned to the General control and oversight of the bank’s accounts, services & AML Compliance. Counsel by the Bank’s Organic Law. This Committee Both BancoEstado, as the rest of the banking and offices. He evaluates and promotes improvements is composed of five members, two of which are industry, is regulated by the Superintendency in risk management and internal control of the bank and independent from the management. of Banks and Financial Institutions. This entity its subsidiaries, in order to protect customers’ resources, regulations were incorporated into the Program. On the ensures compliance with laws, regulations, financial assets and the bank's reputation. other hand, the Corporate Management for Customer The Audit Committee is responsible for the maintenance, statutes and other related provisions, and Pedro Bolados Service is responsible for the attention of corporate implementation and operation of the bank's internal exercises broad control over all operations and BancoEstado’s Comptroller claims received through the SBIF, SERNAC, ABIF, the controls, the risks of business activities carried out business. President’s Office, Managers, other external entities and and the compliance with the rules and procedures. Safety and Compliance Management This area is the Administration of the MARS System. It is important to Likewise, they must review external auditors’ reports, As stipulated in the General Banking Law, the responsible for managing regulatory, reputational and note that during 2011, the DICAC developed permanent balance sheets and other financial statements, as well SBIF’s controlling powers are broad and reach operational risks, allowing BancoEstado to be a sustainable working groups with all the responsible areas related as proposals of auditors and risk rating entities. The subsidiaries and business support companies organization and serve various audiences. with processes in order overcome repeated complaints. Audit Committee also reviews all the background of where the bank is a shareholder or holds Álvaro del related operations, and analyzes remuneration and interests, whose existence or incorporation Director Strategic Committee on Quality and Transparency compensation plans for executives. has been previously authorized by the Superintendency. Management has an independent nature and identifies, In August 2011, the Strategic Committee on Quality The objective of this work is to ensure efficiency, advises, warns, monitors and reports compliance risks and Transparency held its first meeting. Its mission maintenance, implementation and operation of risk As per the subsidiaries, the SBIF may, for in the organization, promoting a culture of compliance. is to ensure that the bank delivers reliable and clear management systems and internal control, as well as consolidation purposes with the bank, directly Its work is focused in four areas: Operational Risk, information on BancoEstado and its subsidiaries, This compliance with the rules and procedures governing the request their financial statements and review Prevention of Money Laundering, Regulatory Compliance committee was established after the approval —in banking activity, and identify business risks undertaken all the operations, books, records, accounts, and Corporate Management for Customer Service (DICAC); July 2011— of the Quality and Transparency Policy, in by the bank and its subsidiaries. The Audit Committee documents or information supporting their and their roles go beyond all managements, units and accordance with the provisions established by the SBIF. supervises the operations of the Audit Office and its solvency. subsidiaries of the Bank. independence from management. Additionally, it The initiative is consistent with the trends of financial serves as a liaison and coordinating entity for duties The Operational Risk Management model used has been sector, looking to deliver timely and transparent performed between internal and external auditors, implemented according to best international practices in information to customers and civil society concerning this area and consistent with the requirements of Basel I. products and services offered by banks. Annual Report Annual Report

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of trust (secure, reliable, close to customers) and Division Managers: Daily convenience (supportive in development, low rates and Advisors and External Auditors Complying with BancoEstado’s fees) in the industry, hence the importance of protecting BancoEstado’s subsidiares The Bank hires risk assessment companies to evaluate its position from senior management in order to continue Mission their instruments as part of the normal practices for reaching its strategic objectives. BancoEstado has six managers who report directly to complement banking services public-offered securities issuers. This ensures that Chief Executive Officer. investors materialize their decisions with well-known required by customers. standards and guidelines, increasing transparency The General Credit Management provides the and information on the entity’s conditions as financial instructions and recommendations for an efficient instruments issuer. administration and a good performance in all Bank lending. Additionally, the Bank has an external audit service, Arnoldo Courard which reviews the Bank’s individual and consolidated Chief Credits Manager financial statements. With this, the requirements established by the SBIF and the Superintendency of The Finance Management is responsible for optimizing Securities and Insurance (SVS) are fulfilled. profitability of BancoEstado and all the subsidiaries The Strategic Committee under its control, in order to maximize the resources generated for funding the company’s growth. This entity shall ensure the implementation and on Quality and Carlos Martabit maintenance of such policy, as well as a strategy Transparency's mission Chief Financial Officer consistent with the bank’s guidelines. Likewise, the Quality and Transparency Committee should propose to is to ensure that the The Chief Administration Manager proposes the Bank’s the Executive Committee the strategy and management institution delivers management policies and human capital/resources, as criteria for the organization's policy, as well as the well as the entity’s assets and its procurement policies. criteria for developing indicators and measurement transparent information He is responsible for BancoEstado’s internal and external standards, timely reporting to the Bank’s Senior on BancoEstado and its communication. Management on the results of the different units as per Victoria Martínez management issues. subsidiaries. Chief Administration Officer

The Quality and Transparency Committee holds monthly The Corporate Risk Management contributes to the meetings and counts on the participation of the Chief optimization of the relationship between risk and return Executive Officer, the Chief Credits Manager, the Chief of the Bank’s risk assets, through a comprehensive Administration Officer, the Operations and Systems management. Division Manager, the Companies and Institutions Eduardo De las Heras Manager, the Customers and Offices Manager, and the Corporate Risk Manager Marketing Manager as executive secretary.

BancoEstado has an important position and is well-known by civil society. In fact, it has the highest perception Carlos Martabit Óscar González Álvaro del Barrio Pedro Bolados Chief Financial Officer Planning and Management Compliance Manager Comptroller Control Officer

Organization Chart Annual Report Board of Directors Chairman Segismundo Schulin-Zeuthen 21 Vice-Chairman Audit Committee Roberto Palumbo Chairman Directors Juan Carlos Méndez Juan Carlos Méndez Jorge Rodríguez Members Gabriel Tomic Roberto Palumbo Salvador Valdés Jorge Rodríguez Patricio Meller Labour Director Guillermo Ramírez Pablo Silva Labour Alternate Director Ricardo Moreno

Executive Committee Chairman Segismundo Schulin-Zeuthen Vice-Chairman Roberto Palumbo Chief Executive Officer Pablo Piñera General Counsel Andrés Medina Fernando León Victoria Martínez Eduardo de las Heras Arnoldo Courard Operations and Chief Administration Corporate Risk Manager Chief Commercial Systems Divisions Officer Officer General Counsel Comptroller Manager Andrés Medina Pedro Bolados

The Operations and Systems Management is The Planning and Management Control Division Chief Executive Officer provides information on the Bank's management, its Pablo Piñera responsible for the development and application of technologies and its incorporation in BancoEstado’s planning and goals monitoring, investment plans and business processes. projects for both the senior management and the Fernando León business and administrative support areas. Óscar González Planning and Management Operations and Systems Division Manager Compliance Manager Control Officer Planning and Management Control Officer Álvaro del Barrio Óscar González

Chief Commercial Chief Financial Chief Corporate Risk Operations and Officer Officer Administration Manager Systems Divisions Officer Manager

Arnoldo Courard Carlos Martabit Victoria Martínez Eduardo De las Heras Fernando León

Annual Report

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BancoEstado Subsidiaries: Related Companies Encouraging bankarization in Chile Even though it is not subsidiaries, BancoEstado has Although they are independent companies with their own shares, represents and/or is part at different levels or objectives and strategies, BancoEstado’s subsidiaries percentages in the following institutions: share the Bank’s corporate mission, contributing to • Administrador Financiero Transantiago S.A. (21%) the expansion of bankarization in Chile and supporting • Stock Exchange Inc. (2.0833%) entrepreneurship and development of Chileans. For this • Bolsa Electrónica de Chile S.A. (2.439%) reason, the Executive Committee drives each subsidiary • Operadora de Tarjetas de Crédito Nexus S.A. in terms of corporate governance, creating a Board (12.903%) for each one of them. This Board —created by senior • Sociedad Operadora de la Cámara de Compensación executives from BancoEstado— ensures a comprehensive de Pagos de Alto Valor S.A. (Combanc S.A.) (10.23%) management of each subsidiary, in accordance with its • Transbank S.A. (8.7188%) strategic targets. Subsidiaries have been created as services provided to customers required more specialized attention. This ensures a high quality in service delivery and contributes to reduce costs and provide a more efficient administration. This trend has led to the diversification of the bank's business within its own business line and enables the centre line to focus in strategic development. In the development of two business lines, the Bank has established strategic alliances with world-class partners. In insurances, since 2005 the Bank settled an agreement with the company MetLife Chile Inversiones Limitada, a subsidiary of MetLife Inc. Co. In terms of expanding opportunities for savings and investment, since January 2009, BancoEstado has an alliance with the French bank BNP Paribas Investment Partners, one of the largest banks in the world. MILESTONES 2011

1 january 2 may 7 june 8 june 11 september 12 october 15 november 16 december

BancoEstado celebrated Touristic Female Reopening of the Mulchén Cooperation with the BancoEstado reached 156 Launching of 4.2 million CuentaRUTs Reopening of Chaitén’s the first centenary of the Micro-entrepreneur Branch Chinese Development Bank years at the service of micro-entrepreneurs web site Branch following offices Competitions Chileans CuentaRut has incorporated After the earthquake, the branch In the framework of the visit of BancoEstado’s online store millions of Chileans in the financial Committed with the community and the country, BancoEstado Bandera, , , Sernatur, BancoEstado and SERNAM was seriously damaged, Its workers the Vice President Of China —Xi BancoEstado celebrated one more is an exclusive space for system, That was its prime target, reopened its office in Chaitén, , Cabildo, and launched the contest "Touristic continued working, but located in Jinping— to Chile, both entities year providing security, confidence microenterprise clients where they which today —four years after its which was closed after the Recoleta, The celebration Female Micro-entrepreneur ", the fire-fighter’s building, Finally, signed a cooperation agreement and opportunities to its customers. can find a world of benefits and creation— stands quite significant. was attended by clients, local The Initiative encourages female the office was reopened in June covering various areas, special products. volcanic eruption occurred in authorities and BancoEstado’s participation in the tourism 2011, February 2009. employees. industry.

3 may 4 may 9 june 10 august 13 november 14 november 17 december 18 december 19 december

Collective Bargaining: New Funding for small Campaign "The planet Launching the "Save your New service points in 12 years of Insurance Inauguration of Pozo FOGAPE closed 2011 with Entrepreneur Award Important agreements for business depends on you" dream" Santiago Brokers Almonte’s Branch US$1,507 granted employees BancoEstado and Microfinance The Minister of Finance highlighted BancoEstado in its social role and The objective of this program, Offices in and Chillán, It’s one of the three most BancoEstado inaugurated this 2011 was a quite positive year, as subsidiary rewarded the effort of A 26-months term agreement the options of this instrument, as permanent concern for Chileans fostered by BancoEstado, is besides ServiEstado offices in important banking brokers in the office in a public ceremony, provision of grants to Micro and 15 micro-entrepreneurs in Chile, between the administration and its it allows small businesses to be living standards, implemented bringing children to the benefits Puente Alto and , insurance market, with over 2 attended by local authorities, Small Enterprises granted 2010 has which have been highlighted as workers has been signed. covered in risks and exchange rate a series of measures to promote granted by the savings from early expanded the range of BancoEstado million customers and 5 million customers and BancoEstado’s been exceeded, As of December examples of perseverance and fluctuations. good use of energy resources, age. service points for their customers. insurances. employees, It is the first bank 2011, the amount expected is of innovation. office in that location. 67,000 guarantees.

5 may 6 june 20 december Global Agreement Award for academic 7,000 CajaVecina service underlined BancoEstado’s performance points contribution 200 children and young people CajaVecina reached 7,000 service The Global Agreement document along the country received points along Chile, Those service highlighted the best practices a recognition granted by the points allow customers to perform developed in the 10 key principles Microfinance subsidiary in order to different transaction, such as promoted by this organization, In promote continuous studying. money withdrawals, deposits and particular the CajaVecina pioneer payment of services. project. Annual Report

Filiales BancoEstado Prizes and Awards 2011 BancoEstado:

CSR (Corporate Social Responsibility) Award – 156 years bankarizing Chile Estrategia Newspaper Chilenter Foundation Prize Chilenter Foundation recognized BancoEstado BancoEstado Corredores de Bolsa received the National Award in Consumer Satisfaction 2011 Editorial Gestión awarded BancoEstado for its social for delivering, under bailment, over 900 Stock Exchange award contribution through products supporting bankarization. refurbished computers and three servers to For the third consecutive year, BancoEstado was among different subsidized schools throughout Chile. 1 2 3 4 BancoEstado Corredores de Bolsa was granted two of the companies best evaluated by consumers, The ranking Recycla Chile Award the three awards delivered by the Stock Exchange, was organized 11 years ago by Procalidad, entity which The Stockbroker Subsidiary reached the first place brings together Adimark CFK, Praxis and Universidad The company Recycla Chile awarded BancoEstado in in instruments for financial intermediation and fixed Adolfo Ibáñez. the Sustainable Marketing and Media category, for the Actment of the BancoEstado S.A. BancoEstado BancoEstado BancoEstado S.A. Creation of the Constitutional income, with 22% and 20% share respectively. support given to initiatives promoting environmental Administradora Centro de Contacto Corredores Creation of the Creation of the Institute for Organic Law of Change of General de Fondos Servicios S.A. 24 horas S.A. de Bolsa PROhumana CSR Ranking awarded BancoEstado care. Caja de Crédito National Savings Industrial Credit Banco del Estado Corporate Distinction – Mutual de Seguridad Hipotecario Fund (Decree Law Nº image Micro-enterprises 2,079) Pablo Mayorga Patricia Morales Jaime Reyes Jorge Ramírez BAV 2011 Study BancoEstado held the best indicator of safety in the This subsidiary reached the ninth place in the Ranking The state bank appeared at the 39th place in the ranking workplace in the banking system. as one of the more socially responsible organizations of Brand Asset Valuator —BAV— the largest brands in Chile, according to the CSR ranking prepared by database worldwide, With this result, the company is La Segunda/Adimark GFK Ranking foundation PROhumana, together with Que Pasa back in the top 100 ranking, Among public companies, 1855 1910 1928 1977 2001 magazine. the state bank is the second best ranked brand, after the Adimark GFK and the newspaper La Segunda developed University of Chile at number 24. 5 6 7 8 a survey on the most respected companies and FundPro: Diploma to the Best International Fixed 1884 1926 1953 1995 ranked BancoEstado at the ninth place in probity and Income Fund USACH Award to the Support in Country’s transparency. BancoEstado was awarded with the Diploma to the Best Development BancoEstado BancoEstado BancoEstado Sociedad de Servicios Corredores Microempresas S.A. Servicios de Transaccionales Recognition from the World Institute for Saving Fund in the International Fixed income category The Faculty of Business and Economy of the University de Seguros S.A. Asesorías Financieras Cobranzas S.A. CajaVecina S.A. Banks —international debt fund exceeding 365 days— issued by of Santiago (USACH), awarded BancoEstado as one of the Sergio Larraín Director Chilenter Foundation, Cecilia Morel Chile First Lady, Roberto Palumbo BancoEstado Vice-Chairman. FundPro. companies that contributed the most in the development Creation of the Creation of the Foundation of Banco Starts the Bank’s Cristián Wolleter Soledad Ovando Carlos Eterovic Jorge Stuardo The General Assembly of the World Institute of Saving of this university and the country. Caja de Ahorros Agricultural Credit del Estado de Chile modernization Bank project Banks (WSBI) highlighted CajaVecina and CuentaRUT as Best Companies for Working Mothers and Fathers de Santiago success cases of bankarization. BPM Chile Prize In the latest ranking issued by Ya magazine —from BancoEstado received the recognition issued by the Global Finance: The strongest Bank of America newspaper El Mercurio— and Fundación Chile Unido, the organization formed by the University of Chile and BancoEstado was ranked at the eighth position, two ExcellentiaBPM, to the best implementation of a process Each year, the Global Finance magazine issues a list places higher than in 2010, Meanwhile, BancoEstado management project, specifically the successful method of the world's safest banks, At its twentieth ranking, Micro-enterprises was ranked sixth. implemented in CuentaRUT. BancoEstado was underlined as the safest and strongest entity in Latin America. ACHAP Advertising Festival - Silver Award BancoEstado received the award for best use of radio media in their campaign to prevent fraud. The prize is granted by the Chilean Association of Advertising Agencies. Annual Report

31

Strategic Alliance between BancoEstado and Strategic MetLife Inc. alliance with 4.2 million Launch of BNP Paribas CuentaRUTs Creation of CuentaRUT Investment and 7,130 ServiEstado and CajaVecina Partners CajaVecina points

2004 2007 2009 2011

2003 2005 2008 2010

integration of Opening of New Capitalization Over one million BancoEstado and York Branch of U.S. $ 500 customers using Internet Redbanc ATM million banking network BancoEstado reaches 155 years Annual Report Annual Report

32 33

The Bank for all Chileans emerges banking, savings, agricultural, industrial, mortgage and entrepreneurship in Chile and its people. Two years Today, almost all communes in Chile have a BancoEstado investment, all of which provided different services to later, the ATM network, previously exclusive to the Bank, service point. The strategy aims at bankarizing By 1855, Chile had no banks or financial institutions. support the development of people and country. joined Redbanc, extending the network coverage of all efficiently, being a profitable bank not only for the In that year, and under the administration of President national banks with more than 3,500 ATMs and providing benefit of all its customers, but of the country as a Manuel Montt, was created the Mortgage Fund (Caja de The social mission and universality characterizing customers with relevant support and service points. In whole, This task, present since this institution was Credito Hipotecario) to deliver the first banking products BancoEstado were present from its foundation. One of 2005, BancoEstado celebrated its 150 years history and created, drives the whole team to perform a prime and services to individuals, companies and institutions. its core tasks has been organized and efficient lending, has inaugurated its first branch in New York , at the work in order to enhance BancoEstado social role, which The first customers asked for 6,000 to 40,000 pesos loans focused on productive sectors and customers that private World Financial Center. differentiates BancoEstado from other banks and puts the (at that period’s rate), thus mortgaging their farms. banks would not assist. It was necessary to bring the bank at everyone’s reach, providing access to services benefits of banking throughout the country, even to the The modernization process has brought innovation and opportunities that enhance their entrepreneurship Formal savings promotion began almost 30 years later, further corners, and even if this was not commercially and quality service to the most diverse areas of the and development. when in 1884 was created the Santiago Savings Fund. attractive. The mission of bankarization arose from the Bank and to the various of Chile and the world. One year later, this project which started with a six beginning. 20 years later, BancoEstado was the country's Strengthening bankarization remains a priority and a BancoEstado has responded and adapted to the needs years old child deposit of 100, already had 45,000 savings largest bank and it has been consolidated as the bank for constant challenge for the bank and its subsidiaries. of Chile and its people, serving from its inception an accounts. This trend was spread out along the country all Chileans. Today on site channels include not only offices, but also important role in the development of the country. In 1927 and by 1905, the Fund was already present in 12 of service points as ServiEstado and CajaVecina. Automation a significant proportion of the population already had Chile, Bankarization started, and quite fast. Modernity and Growth and remote assistance have grown as well, becoming their savings accounts in the National Savings Fund, today important tools for reaching not only further areas, 4.2 out of 17 million Chileans have a CuentaRUT, with At the twentieth century —in 1910— both funds were The Banco del Estado de Chile continued growing during but also to address a wide range of customers within which they access to the basic financial services. Thus, merged into the National Savings Bank, focused in the twentieth century. In the 70s, the Constitutional BancoEstado’s network and who enrich it daily with they are part of the country’s growth and development, promoting savings and providing mortgage loans for Organic Law —governing until now all the Bank’s diversity. not only in terms of financial inclusion, but also in terms workers. The momentum was important. Thus, for guidelines and operation— was enacted, inserting Banco of access to new technologies and opportunities for example, the construction of urban communities del Estado into the national financial system, together social and labour participation. Efficient and profitable harbouring more and more people looking for work in with the different actors who were part of it. bankarization will continue driving the bank’s new major cities of the country increased. challenges and thereby contributing to the welfare of Thus, in the last decade of that century, as a public people. During 1927, Chile had about 4,000,000 inhabitants and bank, it became part of Chile’s modernization. Under the National Savings Bank held 1,400,000 accounts and a strategic plan combining economic efficiency with had 147 offices in different regions, By that period was a social role, the company improved its customer created the Agricultural Credit Fund. In 1928 was created service, introduced a results-oriented management the Industrial Credit Institute to foster entrepreneurship and implemented a system to enhance human capital and agricultural and manufacturing development. development of their employees. Thus, the bank BancoEstado’s provided stability, improved their skills and boosted its The Banco del Estado de Chile was formally created development. profitability strengthens 1953, when President Carlos Ibáñez del Campo merged its social role and ensures the Mortgage Fund, the National Savings Bank, the In the year 2000 the bank’s corporate image and brand Agricultural Credit Fund and the Industrial Credit name were changed. BancoEstado appears in Chile a sustained growth. Institute, Operations began in September 1 of that year as a modern and competitive company that keeps as an autonomous state company, with legal status and its historical commitment to the development and own patrimony. Then, the bank had six departments: Annual Report Annual Report

34 35 BancoEstado: Market Share Evolution of BancoEstado (%)

in figures 1990 - 2011 16%

12%

BancoEstado: Total Loans * 8% (US billion - December 2011) 4% 25

20 0 Source: BancoEstado 1990 1995 2000 2005 2010 2011 15 · At closure of 2011, BancoEstado’s market share reached 14.3%, 10

5 * Consolidated since 2008 BancoEstado: Commercial Loans* Source: BancoEstado (US$ Billion - December 2011) 0

1990 1995 2000 2005 2010 2011 12 · Increasing and sustained loans trend during the entire period, · In 2011, total loans reached over US$24.2 billion, 9

6 Loans Evolution (Ratio 1990 = 100) 3

0 * Consolidated since 2008 600 1990 1995 2000 2005 2010 2011 Source: BancoEstado 500 · Permanent support to companies and entrepreneurs. · In 2011, commercial loans (companies) grew with a 400 higher dynamism, 11.3% annual rate.

300 BancoEstado: Mortgage Loans 200 BancoEstado Loans (US$ Billion - December 2011) GDP 100 10 * GDP estimated as of 2011 0 Source: BancoEstado and Banco Central 8 Source: BancoEstado 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 6 · During the last 21 years, BancoEstado’s loans have quintupled, In that same period, GDP increased in 2.8 times. 4 · Between 2000 and 2011 loans increased by 11.5% average per year, while GDP expanded at a 4.4% rate per year. 2

0 1990 1995 2000 2005 2010 2011

· BancoEstado leads mortgage funding in medium and · The bank holds 62% of the current mortgage loans low income segments. appearing in the system (August 2011). Annual Report

BancoEstado: Efficiency Rate 36 (Administrative expenses/gross operating income*)

80%

60%

40%

20% * Consolidated since 2005 Source: BancoEstado 0 1991 1995 2000 2005 2010 2011 · During the last decade the efficiency quotient showed a significant improvement. This trend continued in 2011.

Chapter BancoEstado: ROE An Efficient and (Return on Equity before Taxes) 2 Sustainable Bank 25%

20% * Consolidated since 2005 Source: BancoEstado

15%

10%

5%

0%

1991 1995 2000 2005 2010 2011

· Profitability in time allows to strengthen the social role · In 2011, profitability reached 15.8%. and ensures the bank’s sustained growth.

BancoEstado: Capital and Reserves (US$ Billion – December 2011)

2,0

1,5

1,0 Source: BancoEstado

0,5

0,0 1991 1995 2000 2005 2010 2011

· A strong and solid bank. in 2009, when an extraordinary capitalization allowed a · Capital increases are usually funded with profits; except strong expansion in credit activity. Annual Report Annual Report

38 39

Mission Strategic Plan 2012-2014

To contribute in the democratization of access to the transparency and customers care that has been fostered financial system and its various products and services, nationwide. BancoEstado continues with the goal of bankarizing Chile, which is the centerpiece of its management and core Although forecasts for 2012 are more volatile tan in of its mission. The medium-term strategic plan seeks to the previous period, the above described ratios —as build sustainable bankarization, increasingly reaching a well as loans— are expected to continue improving, wider audience, and permanently improving efficiency contributing in order to do this, BancoEstado has reached We exist so that every Chilean, anywhere, can initiate and profitability. a strong position at a national level and a good rating at international level. With developing countries —which and develop new activities. BancoEstado aims at extending and deepening its mission, are the country’s major trading partners— even under being a massive and relevant bank and supporting the a harder scenario, ratios can continue improving and modernization of State management through its products the company can continue growing. Developing more and at the same time to maintain and deepen a long term competition and supply in difficult times has been a key relationship with its customers. To reach the above, it is feature of the company as a State company and as a essential to achieve a competitive quality management in major player in boosting national economy. critical management processes. With over four million active CuentaRUT, bankarization Thus, together with improving efficiency and profitability, has shown important advances in Chile. For 2012 reaching and maintain a significant position within the BancoEstado is excepted to continue moving in that line national context involving more and more people to it, as well as in the opening of new service points, especially the bank is involved in a permanent innovation process in with CajaVecina with a projection of 3,000 new points order to enhance both the use of mass payments means, during the year. It should be noted that another key focus and low cost and high quality channels. of the strategy seeks to strengthen its support provided by the bank as a State articulator of payments, as a 2011 was a year of achievements in terms of compliance channel to process subsidies or in the payment of wages with the Strategic Plan. The efficiency ratio stood at through its various banking products. Vision 54.8%, reaching the 55% target established for this period. The goal for 2014 is to achieve a 50% efficiency ratio. Income before taxes amounted US$314.3 million, complying as well with the expectations set at the beginning by the bank’s senior management. Profitability, meanwhile, remained between the expected margins.

During 2011, transparency was the core of the Bank's performance, a goal that will continue and deepen during 2012. Looking at promoting responsible financial A bank of excellence, with a high social impact behaviour based on client’s rights and duties, the bank joined the Financial Sernac, adapting all its contracts business management. to suit this new regulation and fulfil the expectations of Annual Report Annual Report

40 41

Income self generation is central to reach these targets. Strategic Guidelines Profitability, Efficiency and Risk Strategic Map 2012 – 2014: In that sense, BancoEstado aims to increase cross Bankarization It is important to maintain success over time. To compete service of subsidiaries and products, especially in retail General Outlook in the financial system without leaving customers service The guiding premise of BancoEstado’s strategy is segments. Likewise, it is important to increase financial Each target defined in the strategic map aims to fulfill aside, it is necessary to make it efficiently and ensuring bankarization, as it implies a close relationship with the income with the right balance between risk and return. the Bank's mission: that any Chilean, anywhere, can an appropriate return to enhance —at the same time— country’s economic development. Achieving business Given the complex scenario that may appear during initiate and develop new activities. Thus, even though the company’s growth. management with social impact allows BancoEstado to 2012, the plan will be more focused on controlling planning has been refined by introducing goals such play an active role in improving people’s living standard operational efficiency and risk, but without losing sight as profitability and efficiency —which are essential in BancoEstado must retain and maximise profitability of and Chile’s development, from servicing each client and of the main guidelines in profitability. modern and strategic financial management— the social an asset that belongs to all Chileans. At the same time supporting entrepreneurs to the development of a joint role and bankarization continue guiding each action and customers —increasingly demanding— require a quality work with large companies and institutions. Cost control is an important element to consider in process executed in the company. service at affordable price and with transparent and management to achieve the goals outlined in the timely information. Inserted in a competitive industry, BancoEstado understands bankarization as the Strategic Plan, especially concerning efficiency. In Customers are the focus of the strategic map, while the Bank should take advantage of market opportunities possibility of providing opportunities and opening doors, that sense, migration of transactions from face —to internal processes and workers are the foundation for and meet its many challenges innovating in products incorporating different stakeholders to the benefits – face channels— primarily aimed at selling products the accomplishment of these objectives. It is important and processes. A correct work can obtain legitimacy and of technology and contributing to modernization. and services —to – remote or on— line channels is a to underline a value-added offer where access, reputation which, in difficult times, support the mission BancoEstado’s target is that every Chilean —anywhere key factor. Likewise, transformation projects play a quality and transparency are complemented with a proposed by the Bank and strengthen it in the long term. along the country— has a bank that fulfils their financial central role. In that area, an anticipated definition of vision of entrepreneurship in a long-term, sustainable needs, allowing them to initiate new activities and terms and deliverables is essential. It is important to perspective. This will be one of the main focuses of work During 2011 BancoEstado recorded a 15.8% return on develop. note as well the importance of improving the system for the year 2012. equity, reaching the target established for this period, of incentives in order to align it with profitability and 2014’s goal is to achieve a return similar to the system’s efficiency. Improving information on each process cost To achieve its mission, the company seeks to reach the It is impossible to have an efficient bankarization average. Meanwhile, in terms of efficiency, the target is and assign responsibilities to each one of them, remains most diverse locations with its services and products, without a permanent improvement of internal processes to reduce the ratio to 50% by 2014. an important initiative when considering the possible developing a service points network focused in meeting pointed to improve quality, especially in the most impacts on cost control management. each client’s financial needs. Looking at being a massive critical processes. Increasing productivity and reducing and important bank, today BancoEstado has various costs become decisive factors for the fulfilment of the products and services, all very different but aimed at goals established by the Bank. The same happens with achieving this central objective. Thus, BancoEstado BancoEstado understands processes and technologies to support customer service, is —for example— an undisputed leader in savings increasing BancoEstado’s market share in the financial mechanisms. BancoEstado reached over 4.2 million active bankarization as the industry nationwide. CuentaRUT, and 7,130 CajaVecina points in virtually 100% of communities in the country by 2011, besides a possibility of providing number of alternatives and banking products for micro- opportunities and opening entrepreneurs nationwide. During 2012, 500 new ATMs will be incorporated in order to support this growth and doors, incorporating achieve a higher loyalty from customers. Along with the Chile’s various actors to above, the Bank established a goal of reaching 5 million CuentaRUTs. its benefits. Annual Report Annual Report

42 43 Mission: business management and social impact Strategic Projects

The implementation of the strategic plan and targets and institutions can leverage incomes, thereby enhancing are supported by a series of strategic projects focused its social role and its bankarization-oriented mission, in transformation, continuous improvement and besides entrepreneurship and development. Profitability constant modernization of BancoEstado. The work for Expand and deepen 2012 is organized into different lines of work. The most To be a competitive bank, it is important to pay bankarization FINANCE SOCIAL IMPACT significant ones are the Business Transformation Program, attention to the characteristics and peculiarities of the Efficiency Risk the Institutional Banking Improvement Programme, the current business context, taking into account the risks Security Projects in Electronic Channels, Regulatory involved. Security Project in Electronic Channels is a projects and Industry Projects. development group seeking to improve monitoring in order to prevent all types of fraud that may appear in The Business Transformation Programme seeks to promote these channels. Thus, the bank is developing profile or multichannel service. This project aims to improve process control systems that increase transfers’ security. customer service experience and further deepen their Likewise, regulatory and industry projects are related Deepening relationships Massive and relevant Bank relationship and knowledge. Thus, we expect to improve to the implementation of initiatives enhancing a greater the timely and comprehensive access to customers- transparency and balance the relationship of customers related information, shorten service level agreement in with the financial system. It is important to underline, CUSTOMERS VALUE-ADDED OFFER processes of business support and build an integrated BancoEstado’s commitment with the financial initiative Access –Quality- Entrepreneurship multichannel business platform. developed by SERNAC, and the complete series of processes and documents review involved. At the wholesale level, the Institutional Banking Improvement Programme includes the development of features and services which differentiate BancoEstado. The latter is a key factor when meeting the targets established by the Bank. Working with large companies Quality standards in Processes and Productivity and cost INTERNAL critical processes technologies supporting reduction PROCESSES mass and excellence trends

The Business Corporate management Transparency and Intangibles segmented in HHRR Accountability Transformation Programme seeks to improve customers service and quality through multi- channel management. Annual Report

44

Business Transformation Programme implementation costs of applications. Likewise, they reduce labour costs while accelerating time production of The Business Transformation Programme became the products, channels and services. centerpiece of BancoEstado’s Strategic Plan. Since 2010 the implementation of the project has been moving During 2011, the Business Transformation Programme towards a redefinition of the different areas of the resumed its focus as a driver to implement solutions. bank, and servicing through different channels in order This adjustment aims to improve delivery times for the to implement solutions that meet customers’ needs, different platforms and inputs referred to its execution. regardless the segment. Along with the above, this By 2012 we hope to count on a new website, which initiative pretends to adjust management with efficiency will incorporate —amongst others— a more competitive targets defined, with a strong emphasis on migration to mobile offer. Thus, all initiatives included in this project remote servicing through electronic channels. will support the medium-term business strategy defined by BancoEstado and thus, they will fulfill the Bank’s Innovation is one of the key features of this project. targets, in customers and nationwide. In retail banking, the Programme aims to modify the interaction with customers and micro-entrepreneurs. The goal is to create a new service for companies and public institutions, through a multi-channel platform, offering the same full range of products and services offered by BancoEstado and its wide service network and remote channels.

The multi-channel trend involves the incorporation of new technologies that every year adjust the architecture

of the Bank's internal services. It has maximized process BancoEstado performs Chapter efficiency, providing a better service where customers over 600 million Social Impact Business can easily use and combine channels such as the Business Management Platform, Internet, Sales and Service Modules, Mobile automated transactions 3 Banking and the Call Center. This steps contributed to improve the delivery of clear and transparent information per year. One of the to customers, allowing both customers and executives to targets for 2012 is to access the same information, regardless of the channel through which they communicate. optimize the website.

All areas of the Bank have been part in the implementation of the Business Transformation Programme, and sharing the benefits and improvements brought. The new technology products and their interconnection can reduce development and

Corporate Senior Executives Annual Report Annual Report

46 47

The Banking Industry: Results and Forecasts 2011

In 2011 the economic scenario was marked by the has the 7th place in financial stability and gets the 37th Thus, we anticipate a lower growth in customers Banking strength deepening of the European financial crisis, the place (from 142 countries) in the indicator measuring the and business loans, which fluctuate around 8% after (Ranking) uncertainty created by the U.S. tax situation and the Financial Market Development, highlighting the ratios advancing nearly 13% in 2011. In this context, a decline repeated downward adjustments in global economic associated with bank soundness (6th place) and financial in quality of portfolios is expected as well, In terms of Canadá 1 growth outlooks, which generated high volatility in services access (16th place). This latter indicator is quite results, even though we expect an increase in profits, Sudáfrica 2 international markets and systematically increased risk relevant to the Chilean financial industry as it shows that it would be lower than the growth observed in previous Panamá 3 premiums and liquidity. Chile is in first place in Latin America. years. Australia 4 Singapur 5 In Chile, the economy was very dynamic, showing a Results 2011 In synthesis, the banking industry will continue Chile 6 growth of over 6%. This was reflected in a significant supporting economic and social development, despite The banking industry reached a good level of activity in Nueva Zelandia 7 decrease in the unemployment rate and a steady the slowdown expected, there is room to increase 2011 and kept strong indicators of solvency, profitability Finlandia 8 advance in the levels of investment and consumption. market penetration and bankarization level reached. and efficiency in a controlled risk environment. Total Líbano However, given the economic cycle and the impairment 9 loans saw a near 13% growth, driven primarily by in the international arena and the increased external Hong Kong 10 business loans, which increased 15% annually, well above uncertainty, the activity slowed towards the end of the Barbados 11 the rate achieved in the previous biennium. On the other year, interrupting the upward trend observed since 2010. Malta 12 hand, consumer loans showed the positive development Noruega 13 of labour market. Consumer loans increased in 12%, Internationally, Chile appears as the most competitive while mortgage lending rose 8%. Israel 14 economy with most financial stability in the . It is highlighted as well for its banking depth. Likewise, the Profitability (ROE) showed a moderate decline over Source: World Economic Forum (2011) local financial system is well capitalized and maintains the previous record, while operational efficiency had adequate levels of reserves. a slight decline from the level reached in 2010. On the other hand, risk —measured as provisions over loans— Financial stability Financial Services Access Indeed, the country reached the 31st place in the recorded marginal variations, reaching a level similar to (Ranking) (Ranking) World Economic Forum’s Competitiveness Index the previous year, while provisions expenditure regarding 2011 and Financial Development Index 2011. This loans and gross operating income remained relatively organization, along with highlighting the local political stable, with marginal improvements compared to Suiza 1 and institutional framework, underlines as well previous closure and the pre-crisis period. Arabia Saudita 1 Luxemburgo 2 the competitiveness of the banking system and the Suiza 2 Sudáfrica 3 sophisticated and efficient financial market. The country Industry Outlook Tanzania 3 Reino Unido 4 Hong Kong 4 Canadá 5 After the good results obtained in 2011, during next year, Emiratos Árabes 5 the banking system will face a less favourable scenario. Suecia 6 In Chile, the banking Malasia 6 It is expected that —in line with a slower economic Panamá 7 Chile 7 industry had a 2011 with growth, mostly associated with the weakening of Hong Kong 8 Singapur 8 external demand and tighter financial conditions— loans 9 good levels of activity and Noruega 9 Bélgica show a moderate dynamism which will affect the ability China 10 Holanda 10 to generate income. solvency. Brasil 11 Chile 16

Source: World Economic Forum (2011) Source: World Economic Forum (2011) Annual Report Annual Report

48 49

Corporate Management

Despite some complex scenarios, 2011 was a rich period managed to move forward in its main strategic guidelines and developing new channels such as CajaVecina. In the to corporate management and additionally improve in terms of experience and results for BancoEstado. and objectives, incorporating the increasingly demanding wholesale segment, meanwhile, we have served the the quality of service, boosting sales platforms, which Concerning corporate governance, progress was made expectations of customers and its diverse audiences. interest of many organizations and public institutions to can provide financial products and services better and in the accomplishment of targets established under the Today, citizens and customers demand higher quality, tender their accounts, competing for them with all the cheaper, With this, the company gets gradually closer to institution’s strategic plan. Thus, important advances accountability and transparency in the daily management strength and safety of BancoEstado as a public company, the target set for 2014: to achieve 50% of institutional were made in bankarization and compliance with the of the organization, a fact that represents a growing but also with a competitive offer of additional services efficiency. bank’s social role - with 4.2 million CajaVecina and 7,130 challenge for the company. In this regard, it is important besides accounts management. CuentaRUT nationwide. With a significant increase in to underline the enactment of the Financial SERNAC law. The Strategic Plan will continue during 2012, despite the mass market and an attractive offer in the wholesale This initiative incorporates regulations that impact with Likewise, consistent with the goals established, the bank greater uncertainty associated with global contingency market, we managed to improve the bank's profitability. new clauses and amendments in BancoEstado’s contracts showed a strong improvement in operational efficiency in the financial system. With an appropriate size, fast On the other hand, while moving forward in the to protect the rights of bank customers. (administrative support expenses over gross operating response rates and a committed and trained team, transformation project and improving internal processes, margin) during 2011 —which improved from 58% in BancoEstado can face potential adverse scenarios. The the bank advanced and improved in terms of efficiency In most segments, the goals established have been 2010, to 54.8%— as a result of higher revenues and a long-term vision with customers, products and services and at an institutional level. fulfilled. The differentiation and approach defined for permanent effort to control administrative expenses. at reasonable prices and comparatively lower than in each one of them has proved successful and adjusted to This situation resulted in the migration of customers to the rest of the market, and an adequate supply for each With a financial industry characterized by high levels of each business model. In the retail segment, strategy is remote servicing channels as the Internet and mobile segment, allows the company to be prepared to go ahead competitiveness and a year marked by social movements focused in controlled costs servicing. In this regard, hard banking. The increasing number of transactions made with the objectives of growth and social support that and the growing demands of civil society, BancoEstado work has been devoted in migrating to remote channels through these methods can reduce the expenses related have been raised for the medium term.

Net Loans Evolution 2005-2011 * Activity Growth 2011 (Real Annual Change, %) (Real Annual Change, %)

24 21.7

20 LOANS BancoEstado Rest of the System 16.7 15.8 14.1 14.4 14.1 16 13.7 Total Net 6.1% 14.1% 9.6 10.7

12 8.5 Commercial 11.3% 15.4% BancoEstado 7.2 Consumer 0.8% 12.1% 8 6.1 Rest of the system 4 Mortgage -0.8% 10.8% 0.6 Consumer: 8.2% 14.2% 0 Installments 7.2% 13.9% -4 Credit Cards 16.7% 19-0% -2.7 2005 2006 2007 2008 2009 2010 2011 Source: SBIF, BancoEstado

* Consolidated since 2008 Source: SBIF

· In 2011, total loans recorded a 6.1% annual increase in BancoEstado, and · Loans evolution in 2011 was boosted by business-related loans (small and micro enterprises), and 14.1% for the rest of the system. consumer loans. Annual Report Annual Report

50 51

BancoEstado’s Consumer

During this period, BancoEstado appears as the most Market Share/Number of Debtors* The corporation BancoEstado has a Claim, Suggestion massive bank in Chile, holding the highest amount (december - 2011) and Congratulation Service Center (MARS), which addresses the activities related to servicing, registration, of consumers in the system. Thousands of customers It is the best positioned —individuals or companies of different sizes— daily BancoEstado, 19% resolution, response and management communications from customers and non-customers. This model is driven access the Bank through different service platforms, Bank 1, 18% bank in confidence and virtually or on-site. Each client is offered a wide range of by the Customer Service Corporate Management (DICAC), Bank 2, 17% services and products specially adjusted to their needs whose mission is to ensure that BancoEstado fulfils the convenience. and appropriated for each segment in order to ensure a Bank 3, 9% requirements established by governing bodies. proper and responsible sale. Rest of the system, 37%

One in five customers with loans in domestic banks is funded by BancoEstado. Confidence (%) 70 * Debtors appear in each bank where they hold debts. Source: SBIF 60

· BancoEstado has the highest amount of debtors 50

in the system: 1,276,878 (19%) 40

30 BancoEstado Bank 2 20 Bank 3 BancoEstado Customers Bank 4 10 7,607,940 Consumer savings accounts 0 Source: Brand Tracking December 2011. 319,674 Consumer current account Jul-10 Jul-11 Abr-10 Abr-11 Oct-10 Oct-11 4,203,511 CuentaRUT Customers Ene-11 776,909 Consumer electronic check-book Convenience 827,915 Consumer credit cards (%) 526,611 Consumer mortgage loans 60 2,125,689 Consumer with insurance services 50 449,583 With consumer or study loans 40 464,018 Micro and small business 30 1,156,596 Online customers BancoEstado Bank 2 108,346 In mobile platform customers 20 Bank 3 Bank 4 1,648,035 Payments of remunerations, pensions and scholarships (retail) 10

0 Source: Brand Tracking Source: BancoEstado December 2011. Jul-10 Jul-11 Abr-10 Abr-11 Oct-10 Oct-11 Ene-11 Annual Report Annual Report

52 53

The increasing number of customers and the large ServiEstado and Internet, Moreover, special emphasis In recent years, BancoEstado became one of the most and continuous improvement of service quality and volumes of electronic transactions lead to the increase was made in providing easy and transparently all the recognized companies, which represents an important customer experience. in inquiries and requests made to the Bank. BancoEstado information needed by clients to access an appropriate asset for the brand. The bank continued improving, is working to cope with the new needs arising from financial product and payment capacity. increasing the already outstanding recall levels. This is Along with this report, BancoEstado has been elaborating online finance. a significant matter to be considered when supporting for seven years a Sustainability Report, which informs sales and development plans established by the on the bank’s work in the economic, social and During this period, we recorded a 53% increase in organization in strategic terms. It is noteworthy that environmental scenarios. In addition, consistent with its such requirements, compared to 2010. The DICAC has Prevention of fraud and cross-communication that distinguishes BancoEstado social role, the institution promotes ethical transparent been able to improve both, procedures and internal electronic crime: strengthening does not separate historical behaviours and values such behaviour at corporate level, which includes compliance management to provide a comprehensive servicing for security with customers as savings or consumer protection, which have been part of regulations and code of ethics conduct for employees these requirements, ensuring the quality of response of the bank’s management throughout its history. The and contractors. given. New technologies and the increasing use above represents as well an important link between the of them, have brought many advantages bank and its customers, and general public. The complaint process, critical and relevant for DICAC, to the management and daily operations in Divisions Management was a focus for continuous improvement throughout the the financial field. Clients and institutions year 2011. By the end of this period, we reached a stable providing different services across multiple Communications and Social During the year, BancoEstado’s business strategy was process with indicators over the figures required. platforms and interfaces are benefited by Responsibility focused in increasing bussiness activity, strengthening its those measures as well. market share in the system as an universal and relevant Throughout multiple tools and platforms, BancoEstado bank. The bank developed a well defined segmentation performs an adecuate management of its corporate Marketing and Unfortunately, along with a greater number strategy in order to differentiate products in different communications, with internal resources such as the of users, Internet fraud is growing. This platforms and focus the sale according to each client’s Intranet, the Commitment Magazine or "La Red al Día", Communications phenomenon is currently occurring in all needs. Today there is a wide scope of demands that must and external resources such as the corporate website places with large financial operations. be addressed with an appropriate price, emphasising During 2011, BancoEstado deepened its relationship both (www.corporativo.bancoestado.cl) and a permanent on service quality and promoting the synergies that a with customers and with the rest of the country strongly communication with the media and public opinion. The Operations in Chile, and therefore diversified value offering as BancoEstado´s can provide as emphasizing transparency and opening new channels of bank discloses relevant information to different target BancoEstado’s customers, have not been competitive advantage. communication and information. the exception. Pursuant to prevent such audiences, with messages specially design for each one of them, addressing the centrepieces of corporate policies crimes and to advance in communication The strategic focus of the platform has been on and values of the institution. and consumers education, during 2011 bankarization, increasing thus Chilean’s access to Marketing Management several areas of the Bank contributed to financial services, especially in low income segments, prevent Internet fraud and thereby helping During the year, BancoEstado added new communication Along with consolidating an “accessible” style and taking which is consistent with the bank’s vision and mission. protect the customer and banking business. channels with the different audiences with the into account the historical values of the institution, The work was done focused on customers, incorporation of the company in social network accounts BancoEstado’s marketing management is strongly We successfully accomplished the goals established with very successful campaigns that had in Facebook and Twitter. Both interfaces allow a emphasising transparency, including relevant information for the year in most of the divisions and segments, a good reception, and with continuous permanent issuance of content and information, facilitate for decision-making and contributing to the promotion maintaining the leadership or relevant position of the improvement of systems and platforms real-time communication with the company and address of a responsible financial behaviour. During 2011, along bank for its different products and markets. designed to provide greater security when online customers’ concerns and problems that may arise. with informing customers about products offer, we working through these channels. The work required a significant coordination amongst developed different campaigns to prevent Internet fraud the different areas of the company, and the experience and promote the distinct service channels as CajaVecina, brought many benefits in terms of internal coordination Annual Report Annual Report

54 55

Retail Banking

The key role retail banking plays in the financial Loans development of the Chilean population and micro- entrepreneurs. In this segment, BancoEstado’s work Consumer Loans represents a significant contribution to bankarization, Consumer loans increased in 2011 compared to the particularly in providing access to financial products and previous year, recovering the level achieved in 2009, services to millions of people. which was a period highlighted by a strong expansion.

Personal Banking In fulfilling its mission, BancoEstado aims at providing everyone and anywhere, access to financial products and services available to initiate and develop new activities. During 2011, the bank made progress in fulfilling its mission and objectives outlined in the Strategic Plan, especially in bankarization. Thus, by the end of the year BancoEstado had over 4.2 million active CuentaRUT, and near 430,000 micro-entrepreneurs accessing services Actual evolution of Consumer Loans especially designed for them. (balance, December rate 2001 = 100)

The personal banking division has a wide range of 450 products and services. Its mid-term goal is focused in 428 achieving significant improvements in efficiency and 400 quality for all customers. Likewise, personal banking 350 is focused in setting each customer under a specified 298 segment, in order to offer everyone a well defined 300 product which best suits their needs. 250 Thus, during 2011 and thanks to the accomplishment of BancoEstado deepened its 200 targets in the different platforms, BancoEstado deepened position as an important its position as a relevant and influential bank in the 150 BancoEstado industry, leading in many cases, in number of clients and and influential bank in the Rest of the System loans which —as savings or debit cards— are key in the 100 accomplishment of this objective and mission. industry, leading in many 50 cases in number of clients and loans. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: SBIF, BancoEstado

· Between 2001 and 2011, BancoEstado´s consumers loans exceeded four-folds. Annual Report Annual Report

56 57

Student Loans Mortgage Loans In 2011, the number of customers in this segment was BancoEstado serves BancoEstado leads mortgage loans in middle and low BancoEstado leads 102,773, with a 24% market share. Loans balance was income segments. However, during 2011, the bank of US$760 million, which is around one third of the different segments with recorded a slight decline in the stock of loans. According middle and low income stock market. It is important to underline that the a crossed commercial to the number of existing operations, the Bank remains segments mortgage BancoEstado has 30% of the market share in students as the main source of funding for this type of activity loans with governamental guarantee. offering for all Chileans. nationwide. In terms of mortgage loan balance, the loans. public entity is the second competitor of the system, with clear leadership in operations aimed at low and medium income families.

Student Loan Operations* Student Loans * Market Share: Mortgage Loans Operations* Market Share: mortgage Loans Balances* (Number of debtors, December 2011) (December 2011) (August 2011) (December 2011)

BancoEstado, 24% BancoEstado, 30% BancoEstado, 62% BancoEstado, 21.7% Bank 1, 32% Bank 1, 27% Bank 1, 12% Bank 1, 23.3% Bank 2, 16% Bank 2, 12% Bank 2, 7% Bank 2, 16.4% Bank 3, 10% Bank 3, 11% Bank 3, 6% Bank 3, 9.9% Others, 17% Others, 21% Others, 13% Others, 28.8%

* Total debtors: 409,572 * Total loans: US$2.6 billion * Total Operations: 1.34 million * Total mortgage loans: US$42.4 billion Source: SBIF Source: SBIF Source: SBIF Source: SBIF

· BancoEstado is the main funding source for mortgage loans in Chile, accounting for 62% · One out of four students using banking loans to of the existing mortgage loans in the banking finance studies, does it through BancoEstado. system. · As the bank grant loans for lower amounts than the rest of the banking system, its market share is lower, 22%. Annual Report Annual Report

58 59

Regardless the client or the amount of the mortgage Investment and Savings Products Market Share in Term Savings Accounts* loan, ensuring quality service has been defined as a The Bank has been BancoEstado has been historically the undisputed (August 2011) priority for BancoEstado’s management. In this regard, leader in savings sector. During the year, the bank was it should be noted that by the end of 2011 the banking internationally recognized focused in long-term planning and future projects’ customers study Servitest granted BancoEstado the first implementation. place as the best bank in service quality in mortgage for its quality of service in lending, achieving the highest satisfaction rate of mortgage lending. industry. Savings Account

In 2011, BancoEstado kept the absolute and historical BancoEstado, 87% leadership in this market. 87% of the 14 million savings Rest of the system, 13% accounts existing in the market correspond to this public institution, which in turn holds 85% of the total amount of savings in the banking system. Up to date, BancoEstado’s Clients with Mortgage BancoEstado’s Mortgage Loans by Debt BancoEstado accounts for 7.6 million customers in this Loans – by Debt Range* Range product. (Percentage as of December 2011) (Percentage as of December 2011) * Total amount of savings accounts: 14 million Source: SBIF Another strategy with important results was the migration of traditional savings books to electronic savings cards. In 2011, nearly 60% of savings accounts have been opened under the latter. That system provides Market Share in Terms Savings Balances* Between UF 400, 60.8% Between UF 400, 24.2% a series of benefits for customers, as they can manage (August 2011) UF 400 - UF 1,000, 26.5% UF 400 - UF 1,000, 36.3% their savings accounts through various channels such UF 1,000 - UF 3,000, 11.9% UF 1,000 - UF 3,000, 37.3% as ATMs, Internet and CajaVecina, with a great impact More than UF 3,000, 0.3% More than UF 3,000, 2.2% in service quality, as it enables customers to make transactions faster, conveniently and safely 24 hours per day, 365 days a year.

BancoEstado, 85% Mutual Funds Rest of the system, 15% * 1UF=US$42.94 as of 12/31/11 * 1UF=US$42.94 as of 12/31/11 BancoEstado operates in mutual funds since the inception Source: BancoEstado Source: BancoEstado of its subsidiary Administradora General de Fondos, in 2004. This platform offers different investment · 87% of BancoEstado’s mortgage loans customers alternative starting at US$9.6, providing access to have loans under UF1,000, i.e. 61% of loans in this this banking product and fostering bankarization. It is segment. important to note that since 2009 BancoEstado has an important alliance with BNP Paribas, which currently owns 49.9% of the subsidiary, contributing its experience and international coverage. · BancoEstado is absolute leader in term savings accounts –with over 85% market share– both in amounts and in number of accounts. Annual Report Annual Report

60 61

During 2011, the launching of three new diversified CuentaRUT’s main feature is its to bankarized capacity, the financial system, regardless of their economic, Electronic check-book and Current Account mutual funds expanded the offer of these products. Those as it has minimal restriction requirements. geographic or social condition. In terms of electronic check-books, which is similar to new mutual funds combine different kinds of instruments a checking account with credit line credit but without and are designed for customers looking at medium and This instrument facilitates the reception of Thus, CuentaRut is part of Chilean’s life, facilitating check-book, the number of customers in BancoEstado long term savings mechanism. remunerations, withdrawals, payments of services and financial services in a fast, comfortable and safe mode. reached 777 thousand. purchases. CuentaRUT’s market share —over the total In 2011, CuentaRut reached: stock of debit cards— is estimated to be 32%. On the other hand, the number of checking accounts Payment Methods • Over 7 million average transactions in ATMs monthly. recorded an increase of 9.6%, reaching almost 320,000 In November 2011, BancoEstado reached 4 million • 2.9 million average transactions in RedCompra CuentaRUT with nearly US$7.6 billion in deposits through this active CuentaRUT, which confirms its commitment with monthly. product. CuentaRut has been key in expanding payment methods. bankarization and financial inclusion nationwide. This • Over 388,000 tax returns, increasing 48% as per This debit account associated with the Chileans’ ID milestone was supported by the advertising campaign 2010. number (RUT) reached 4 million users in only a few "There is a bank whose main concern is making your life • 150,000 Junaeb’s scholarships monthly payments. Credit Cards years. Thus, BancoEstado is leading bank debit cards better. In 4 years, 4 million CuentaRUTs ", reflecting As per the rapid, convenient and safe conditions thanks to the rapid growth of this instrument. how the institution has included millions of people into offered by BancoEstado’s credit cards, they represent an increasingly used method for business operations. In 2011 the Bank continued expanding this product’s BancoEstado’s Market Share in Debit Cards market share for this product. Thus, the number of cards (December 2011) increased in about 247,000, with a 42% increase as per the previous period, reaching over US$219.6 in loans and Active CuentaRUT increasing as well its market share, reaching 11.7% by (Stock - Thousands) the end of 2011. This significant growth is due mainly to BancoEstado, 38% BancoEstado’s Chilena card. Bank 1, 23%

4,500 4,204 Bank 2, 16% 4,000 Bank 3, 12% 3,500

2,881 Others, 11% 3,000 CuentaRUT stands out

2,500 2,262 in the financial industry 2,000

1,500 1,236 as the most massive

1,000 612

500 19 payment method used in Source: BancEstado 0 * 13.2 million active cards 2006 2007 2008 2009 2010 2011 Source: SBIF Chile.

· During 2011 the bank continued its strong expansion in payment · BancoEstado leads bank debit cards thanks to the methods, incorporating over 1.3 million active CuentaRut, reaching fast development of CuentaRut, Between 2008 and thus 4.2 million. 2011 it recorded a 2.8 million increase, which is a three-fold increase. Annual Report Annual Report

62 63 Valid Insurance Policies Thus, once more, and with more than 429 thousand done with entrepreneurs from different fields, knowing (Thousand) customers, BancoEstado continues strengthening its about their difficulties, requirements and needs, and historic leadership in microfinance assistance. This encouraging entrepreneurship and development. support appears in the most diverse productive areas, 5,500

4,999 emphasizing trade and agriculture, followed by transport, As in previous periods, BancoEstado Microfinance 5,000 services and manufacturing and a significant portion of 4,532 received important awards for its contribution to

4,500 4,186 fisheries sector. the development of the country and of thousands

4,000 3,739 of Chileans, i.e. for the impact of its activity in 3,302 3,069 It is important to note that the Microfinance Division social promotion and career development of its own

3,500 3,049 1,924 2,615

3,000 2,737 reached an 11.2% growth in total loans compared to the employees. 1,877 2,409 previous period, surpassing the US$1.6 billion for 2011,

2,500 2,172 1,883 1,759 which include US$1.1 billion in business loans and the 2,000 1,536 During the last decade, 1,549 1,220 rest in consumer and mortgage loans in this segment. 1,500 BancoEstado has 2,262 However, and even though BancoEstado’s market share 1,000 1,862 1,917 1,930 Mortgage loans related 1,445 in this segment remains over 60%, there is a slight 3.7% 1,194 1,189 1,240 1,329 Others permanently supported 1,043 decrease due to the increasing competition in the sector. entrepreneurship and Successful results in this segment are bear front result of a permanent innovation model, focused in the fulfillment development in all kind · Expansion of insurances, with approximately 5 million valid insurances of goals and results. This success is also explained by the of business, specially the covering families and business. constant presence of field managers, a working formula that —in 15 years— became the hallmark of the work smaller ones. Insurance Microfinance Banking BancoEstado act as broker in general and life insurances Microfinance work involves the assistance or funding of and meets the needs of large segments of the population. self-employed customers or business owners with up At the end of 2011 —with a 15% market share as per the to 10 workers (including the owner or manager), and premium operated by the Banking and Retail Brokerage develop productive activities, trade or service related, Microenterprise customers and lending in the country— the institution was ranked third in bank with a turnover under UF 2,400* per year. (US$ million - December 2011 – thousand customers) brokerage, with approximately 5 million valid insurances, corresponding to more than 2.1 million customers Given the social and economic impact generated

increasing, 6.3% over 2010. 39% of the total amount of by a sound management of entrepreneurship, the 429 600 policies, which is just over 1.9 million – corresponds to microfinance sector is an important engine in Chile’s 410 mortgage related insurances. development. BancoEstado’s management in this 500 365 335 segment benefits more than two million people in their 400 Lower income segments are relevant to insurance process of bankarization. Funding access for this segment 284 300 1.104 portfolio, as it represents a contribution to the country’s is a key lever to improve their competitiveness and living 219 1.025 930 760 bankarization. Thus, BancoEstado supports thousands of standard with tools allowing housing and study funding, 200 169 633 Loans (US$ billionas of December 2011)

micro-entrepreneurs with different insurances that are as well as insurances, among other financial services 138 455 90 100 313 Nº Consumers (thousand) often aimed at protecting their livelihoods. Examples specifically designed for the sector. 56 142 184 include insurance for taxi owners, school buses or health 0 81 Source: BancoEstado insurance. During this year, BancoEstado continued promoting the 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 work of many entrepreneurs nationwide, adding over 12,000 new customers to their specialized platform. · In 2011 BancoEstado strongly supported smaller enterprises, incorporating more than 19 thousand new customers.

* The Chilean UF (Unidad de Fomento) is a local unit of account. 1UF=USD$42.94 as of 12/31/11. Annual Report Annual Report FOGAPE:

64 The main instrument of Chile’s government guarantee. 65 Wholesale Banking The small business banking business serves customers in different fields, being the most important trade —with more than 6,300 customers— followed by agriculture BancoEstado’s wholesale banking portfolio consists of with 5,200 customers, services with 5,100 customers, Cash support for financial access for investment and working capital of small, medium, the offer, corporate and institutional transportation with 3,000, manufacturing with 1,880 and banking. The offer in different sectors has enabled micro and small enterprises. education with 1,100 customers. the bank to maintain its relevance in this segment, especially in specific areas as real estate banking, The Guarantee Fund for Small Business (FOGAPE), It is important to note that, unlike other government becoming thus a reasonable, efficient and competitive managed by BancoEstado and supervised by the SBIF, guarantees instruments, FOGAPE is focused by law alternative. Likewise, it is important to underline the continues playing a significant role in the financial on micro and small businesses that need funding for bank’s important participation at institutional level, system, guarantees more than 67,000 funding operations working capital or investment projects, as well as small which is characterized by its long history in public for micro-entrepreneurs, small entrepreneurs and exporters eligible for the same financing needs and servicing and complemented by a range of multiple exporters. With this result, FOGAPE remains as the small entrepreneurs groups with financing needs to services. most used guarantees in the system in Chile, being a develop irrigation, drainage and infrastructure projects. reference for other government guarantees, at national Likewise, access to FOGAPE’s resources is done through Small Business and Latin American level. tender processes from the available guarantees could. Financial institutions authorized by the SBIF could This specialized division, with platforms deployed Guarantees granted in 2011 by FOGAPE represented participate in this process. in different regions nationwide, aims at servicing lending for over U.S. $ 1,507 million through guarantees companies with annual sales between UF 2,400* and of approximately U.S. $ 1,067 million. During 2011 approximately 30 institutions participated UF 40,000*. With 34,619 customers, the market share of in the guarantee tender —Banks and Cooperatives— small business was around 14% in late 2011. During this Over the past 10 years FOGAPE guaranteed more than highlighting the increasing use of Reciprocal Guarantee period, loans under this area increased in 4.9% as per 401,000 transactions, granting more than U.S. $ 9,925 Institutions that require the Fund’s refinancing. the previous period. million in funding and U.S. $ 6,698 million in guarantees.

Small Business Loans (US$ million as of December 2011) 1,072 1,055 1,007

1,000 878 780 800

614 FOGAPE: Number and Amount of Loans and Guarantees Granted 600

463 Average Average Item 2011

349 2000-2005 2006-2011

400 288 288 Loans (Millions - December 2011) Number of loans granted by the Fund 26,184 45,596 67,926 200 Source: BancoEstado Number of companies granted by the Fund 20,751 29,552 44,189 0 New companies enrolled to FOGAPE annually 14,641 15,902 22,503 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total amount of secured granted per year (UF* million) 10.6 29.9 35.3 Total amount of guarantees granted annually (UF* Million) 7.6 19.9 24.9 · During the last decade, BancoEstado has permanently supported small Source: FOGAPE business entrepreneurship and development.

* The Chilean UF (Unidad de Fomento) is a local unit of account. 1UF=USD$42.94 as of 12/31/11. * The Chilean UF (Unidad de Fomento) is a local unit of account. 1UF=USD$42.94 as of 12/31/11. Annual Report Annual Report

66 67

Medium Business Banking Business activity, meanwhile, remained focused on Corporate Banking, Large Companies and During this period, there was a significant increase in funding infrastructure in education, tourism and Institutions total Corporate Banking loans, including contingent and This segment is focused in customer services nationwide, electricity areas, in operational support and equipment leasing, deferred 21% as per 2010, besides a 26% increase fulfilling the needs of all medium-sized business, provision for business, agribusiness, transport, and The market for this segment includes three subsectors in current account balances and 4% in the total amount regardless the geographical area where it operates. mining and forestry contractors. of customers: segment with annual sales between customers. These achievements, along with the 6% Segmentation in this area is determined by the UF 300,000* and UF 1,500,000*; corporate companies increase in customers with loans, position BancoEstado company’s sales. In the Metropolitan Region, the target with annual sales of UF 1,500,000*, and institutional It is important to underline as well the 28% increase and its Large Companies banking as a good partner when market for this bank are companies with annual sales banking. Institutional Banking provides a comprehensive in collection agreements and 24% increase in payment facing new challenges. In this segment, BancoEstado between UF40,001* and UF300,000*, while in regions the value proposal focused in meeting all their specific agreements, leading to approximately 62% growth in the played an active leading role as Agent Bank, as well as target is companies with annual sales over 40,000 with financial needs by providing a prime service whose number of collections executed, with 240,000 additional in the delivery of bilateral lending and specialization, the senior management located within the region (1UF* = centrepiece includes proximity and advice in financial transactions. Concerning payments, the transaction which emphasizes —for example— forwards’ sales. US$42.94, exchange rate of 12/31/2011). services. The strategy in this segment aims at being volume grew 23% as per 2010, which contributed in a major player in the industry, delivering products, cross-banking sales. The strategic objective of this segment is focused on services and financial solutions with high quality increasing current market share to become a major standards. player, increasing the number of customers, and delivering products, services and financial solutions with During 2011, the strategy of the different platforms This bank has a strong high quality standards. The commitment is to develop a for Large Corporations sector remained focused on presence in retail, long-term relationship with each customer, supporting it the diversification of client portfolios. Specifically in the different stages of the business. in the field of real estate banking, concessions and manufacturing, mining construction, the work was focused in controlling risk. and real estate. Numerous milestones underlined this bank’s management The Medium Business On the other hand, corporate banking was focused during 2011. In order to reach the targets defined, the Bank is committed to in bank crossing, allowing thus to deepen customer sales force was increased by 25% and business structure relationships through agreements and financial products was strengthened both in the metropolitan area, and in support its customers through the Money Desk. other with the launching of platforms in in the long run, advising and . Likewise, we increased This branch has a significant presence in the number of foreign trade, leasing and factoring them in the different retail, electricity, industry, business, mining, specialized executives in Regions. telecommunications, transportation, real estate and stages of business. concessions, and has a staff of highly qualified specialists In order to consolidate proximity with customers along in servicing and knowledge of each sector and economic the country and strengthen the business relationship group, and counts on specific policies for servicing, with them, during the year we developed an intensive support and funding. During the year, this area had a program of meetings with clients nationwide, which strong presence in concessions, and made an important included the active presence of members of the contribution in the country's connectivity, in the Executive Committee. Additionally, we held various construction of hospitals, and indirectly supported the lectures and exhibits with recognized national reconstruction and interconnection of the area affected economists in order to inform customers about national by the earthquake. contingency in these matters.

* The Chilean UF (Unidad de Fomento) is a local unit of account. 1UF=USD$42.94 as of 12/31/11. * The Chilean UF (Unidad de Fomento) is a local unit of account. 1UF=USD$42.94 as of 12/31/11. Annual Report

68

On the other hand, Institutional Banking is specialized Meanwhile, payment agreements increased by 24%, in comprehensive assistance for public institutions which lead to an 8% increase in transactions performed, and State agencies, and Armed Forces. with 1,000,000 additional transactions. Additionally This team is constantly competing for business banking 46,000 new clients ascribed payment methods in services tendered, and detecting and assisting clients BancoEstado, which also contributed to the cross banking in need of specialized services and products that often sales. require solutions tailored to their needs, Concerning Corporate Banking transaction services, Chapter During 2011 Institutional Banking business management during 2011 collection agreements increased by 5% and Managing Channels: The was focused in setting long-term partnerships with payment agreements by 16%, which has led to a 55 % largest banking network in institutional clients and continue supporting social State increase in collections performed, with over 8 million 4 Chile policies as for example the comprehensive support additional transactions. In payments, the bank recorded provided in the annual income tax declaration process, a 39% increase in volume of transactions as per 2010, so called “Operación Renta”. During this process, contributing as well to the cross banking sales. BancoEstado held 47% of returns deposited through funds transfer, which consolidates this public entity as the Bank with the largest number of transactions in tax return. Likewise, it is important to note that during the payment process of the Operación Renta 2011, more than 380,000 payments were made through CuentaRUT, i.e. 48% increase as per 2010.

The Institutional Banking business management focuses in long-term Gestión partnerships with de Canales institutional clients and continues supporting social State policies.

CajaVecina Annual Report Annual Report

70 71

National Coverage

BancoEstado has the largest coverage among banking servicing through CajaVecina points, ServiEstado CajaVecina’s slogan is "your neighbourhood’s bank." performance: while in 2010 the amount traded was of institutions in Chile. In recent years, in an ongoing branches and the Call Center. Thus, On-site servicing is Through this platform, any client can perform basic US$1,092 million, during 2011 the amount doubled, effort to reach more and more people, the company has focused in products with forms and schedules specially operations such as drafts, deposits, transfers and loan reaching US$2,213 million. consolidated its leadership in this area with the opening designed for the various segments. payments. of new service channels both on site, and in automated Amongst remote locations with CajaVecina Service channels, which are reaching an extraordinary growth BancoEstado National Coverage Currently, 100% of communes in the country have Points, we would like to highlight the locations Caleta and constant innovation. CajaVecina service points. For that reason, the impact of Tortel, Puerto Guadal, Puerto Beltran, Cerro Castillo and this channel as per bankarization and access to financial Visviri. The work done by the subsidiary had a significant The Bank's service network has service points in all services is key for bankarization and for BancoEstado’s impact on the most densely packed communities, Channel 2011 of the country, except in Antarctica, covering strategic objectives. Likewise, it is important to note contributing with the migration of customers from most of low-income and remote communities. There are N° of offices 341 that in 2011, 62.9 million transactions were done under branches to these alternative channels. In this regard, 213 communes, accounting for 2 million people, where ServiEstado Branches 86 this channel, which is twice the number of transactions service points located in , Maipu, La Florida, BancoEstado is the only financial institution present recorded in 2010. The amounts traded had the same and Calama are very important. CajaVecina Service points 7,130 either with branch or with an alternative channel as ServiEstado, CajaVecina or ATM. 24hrs contact centers 280 N° of ATM (cash dispensers) 1,891 During 2011, the service network —strongly focused in Deposit boxes 265 multi-channel work— continued growing. Besides the Instant balance machines 919 342 branches nationwide and the branch located in New CajaVecina Points York City, USA, we added 99 new ATMs, four ServiEstado Source: BancoEstado branches and over 2,500 CajaVecina service points. The latter platform increased its service points in about 28%

this year, standing out as one of the major milestones of · BancoEstado has the largest service network in 7,130 the period and contributing extensively to the . 7,000 strategic objective of the Bank: bankarization. 6,000 Direct customers service is the principle governing any

5,000 4,564 relationship with customers, either on site or remotely. CajaVecina In this sense, quality is a central and a constant concern 4,000 in all channels offered by BancoEstado to its millions At the end of 2011, BancoEstado had 7,130 CajaVecina 3,327 customers. Thus, the objective is to support customers, points along the country, located in stores and small 3,000 facilitate the implementation of financial operations, shops in neighbourhoods and , many of which 2,000 and contribute thereby to raise each one’s living —before the existence of CajaVecina— lacked financial 2,000

standard, no matter their location or the channel chosen services due to distance, connectivity, access difficulties 1,003 to conduct their banking operations. or the low income of their inhabitants. 1,000 300 2 The value proposition lies in accessible and simple CajaVecina facilitates access to financial services 0 2005 2006 2007 2008 2009 2010 2011 products and services. The core of the offer is self- for people living in various locations, many of them service, through Internet, ATMs, and since 2011 mobile distant from main urban centers. These points have an Source: BancoEstado phones as well. The above is complemented by remote electronic device that connects to the bank remotely. · CajaVecina and CuentaRut drive bankarization: extension of service coverage and greater demand. Annual Report Annual Report

72 73

ServiEstado check-book, cashier’s check, savings account draft, The development of the Internet channel and mobile enables a decrease in operating costs and expands cash advance from the Credit Card and payment of ISP banking is strongly aligned with the Bank's business financial services, i.e. promotes efficient and profitable Since 2004 —through ServiEstado— the Bank offers a settlements. policy of performing Business Management with social bankarization. new model of attention which extends its range of impact, where the institution may achieve the objective channels for checking account transactions, savings, Electronic transactions: a of bankarization providing products and services with BancoEstado leads Chilean Internet banking. In late loan payments and tax payments. During 2011, four new greater efficiency, profitability and controlled risk. 2011, more than 1.1 million customers were operating offices joined this servicing network in different districts commitment in quality and under this channel, entering information about their of the country, extending thus the servicing nationwide. efficiency During 2011, the number of electronic transactions products and services, primarily through recorded near 33% increase as per the figures established www.bancoestado.cl. From the internet portal, Each year the number of automated transactions made Last year, this area recorded an average of 2.4 million under previous period. Thus, automated transactions customers can access a wide variety of services such as by BancoEstado’s customers grew considerably, The transactions per month. In 2011, transactions increased now account for 92.1% of total transactions made by information on products and services, promotions and above has been naturally influenced by global trends in by 12% as per previous period. Likewise, new services customers of BancoEstado. This incremental is key in corporate campaigns, and various functions associated the use of new technologies, but the fact responds as such as increasing the threshold amount have been meeting the goals and strategic plan, especially because with customer service such as balance inquiry, status incorporated – i.e. increasing the maximum amounts well to the strong transformation plan undertaken by offered by ServiEstado in various transactions such as the company to strengthen servicing through remote “Cuenta Vista” account, CuentaRUT and electronic channels, improving efficiency ratios, and quality service.

Internet customers Automated Transactions (Thousands) (Annual)

Million 1,157 92.1% 1,200 1,015

650 89.0% 95%

84.5% 1,000 550 80.8% 687 85% 693 75.8% 800 450 71.9% 517 75% 66.8% 600 58.7% 350 65% 367 57.6% 377 236

53.2% 400

250 49.1% 55% 145

291 98 229 200 150 201 45% 128 176 107 126 0 50 87 35% 2005 2006 2007 2008 2009 2010 2011 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: BancoEstado Nº transactions Fuente: BancoEstado · More than 1.1 million customers of BancoEstado used the Internet for their banking operations during % over total transactions 2011. · The automation of transactions has been crucial for widespreading BancoEstado’s services, as per the · BancoEstado’s customers transactions over the Internet grew exponentially in recent years; during 2011 reduction of operating costs. with a total increase of 52%, reaching over 215 million during the year. · Automated transactions increased by over 33% in 2011, representing 92,1% of the bank’s transactions. Annual Report Annual Report

74 75

reports, transfers, payments for products and services, BancoEstado accounts for over 30% of the total amount recorded significant progress, Thus, customers can the Bank. Thus, for example, BancoEstado implemented investments, savings, on-line shopping and benefits with of banking customers using Internet. This means that one access multiple remote services at any time through security measures to protect customers with a "third third-party support. in three customers who make online transactions does their cell phone or portable device. password" when making transfers to third parties, them through BancoEstado. During 2011, over 215 million amongst other security measures. It is essential to The Internet platform fosters a greater customer transactions were done through this platform. This figure Modernization and expansion of servicing through continue increasing safety and quality of service through loyalty by providing different services and expanding has grown exponentially in the last seven years. electronic channels involves a permanent attention these channels in order to encourage migration to these access to multiple financial products. Thus, in 2011 all to the various risks in the virtual world, especially channels and thereby improving efficiency indexes for mutual funds supply were available through the Internet Soon, the main channel of customer relationships will electronic fraud; which in 2011 was a major focus for the accomplishment of the strategic goals established. channel. Additionally, agreements with companies to be the mobile phone. The increasing penetration of allow customers to pay all their bills online have been smartphones the new banking solutions and mobile expanded. During the year we implemented as well a payments, offers clients the main services and/or pilot online sales system for Credit Card in emerging transactions through these devices. In terms of remote segments. assistance, during 2011 BancoEstado’s mobile portal Automated transactions by gender 215 million transactions have been performed

55% 51% through the website Annual Transactions over the Internet by BancoEstado’s Customers during 2011. This (Million) Men Woman 45% figure has shown an 49% exponentially growth in the last seven years. 215 210 ATM's Internet

160 141 Source: BancoEstado

110 73

60 40 31 28

24 Mobile Portal Summary 2011 10 Clients with at least one monthly connection in the Mobile portal 108,346 2005 2006 2007 2008 2009 2010 2011 Total transactions – Mobile Portal 3,853,987 Total amount of financial transactions US$33,661,207

Source: BancoEstado Fuente: BancoEstado Annual Report

76 Servicing Network Map Offices, ServiEstado, CajaVecina and ATMs along the country

BRANCHES ATMs SERVIESTADO CAJAVECINA

XV. and Parinacota 3 23 2 177

I. Tarapacá 5 29 3 125

II. Antofagasta 11 48 2 185

III. Atacama 9 33 2 171

IV. 16 81 3 369

V. Valparaíso 38 215 11 690

VI. Libertador General Bernando O’Higgins 21 86 3 555

VII. Del Maule 18 94 2 605

VIII. Del Biobío 39 177 10 724

Chapter IX. De La Araucanía 24 89 4 390 Financial Management XIV, De Los Ríos 10 56 1 132 5

X, De Los Lagos 23 91 5 258

XI. Aysén 5 12 1 69

XII. Magallanes 5 35 1 59

XIII. Metropolitana Region 114 822 36 2,621

Chile 341 1,891 86 7,130

Source: BancoEstado

Corporate Money Desk Annual Report Annual Report

78 79

Financial Management

BancoEstado’s Financial Management aims at expanding kept for several consecutive periods the best risk rating Earnings before Taxes* and deepening the company's participation in national in Latin America. (US$Million - December 2011) and international market, looking for the best business opportunities, and working with strategic partners that Bank Profitability contribute to the bank’s growth and the achievement of 350 In 2011, BancoEstado’s earnings before taxes reached 315 the targets set. During 2011, the work showed significant 300 293 278

results, particularly concerning the execution and US$314 million, which is 13% higher than previous year. 259 251 250

completion of projects that were raised as part of the 250 236 216 business plan. During that year, BancoEstado delivered a large sum to 200 177 the treasury through taxes, reaching a total of US$287 171 At the national level, in 2011 the work was focused million. As other public companies, the institution pays 150 144 119 in keeping high levels of liquidity through an efficient taxes for a 57% of its profits. This percentage includes 100 management of resources, operating under a limited 40% additional rate above the one paid by private banks risk spread and diversifying funding sources. Likewise, in Chile. This factor is crucial in the company’s final 50 BancoEstado sought to maintain a diversified investment results. 0 portfolio in terms of time and partners, with adequate volumes and turnover levels as per regulations regarding 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 time, fees and liquidity. * Average US dollar December 2011 Source: BancoEstado At the national level, in 2011 the work was focused in keeping high levels of liquidity through an efficient management of resources, operating under a limited · Earnings before taxes averaged about US$266 · The strong increase of earnings before taxes in risk spread and diversifying funding sources. Likewise, million in 2005-2011. 2011 reached $314 million. BancoEstado sought to maintain a diversified investment At an international level, portfolio in terms of time and partners, with adequate BancoEstado is a well- volumes and turnover levels as per regulations regarding time, fees and liquidity. In insurance, the known strong institution Bank maintained the strategy of increasing its share in which has kept for several all insurable segments and offering more convenient prices to its customers —policyholders— according to the consecutive periods the respective risk. BancoEstado has a strong best risk rating in Latin international presence Internationally, the bank diversified revenue sources and America. expanded the types of business agreements developed confirmed with its New York with different banks in the region. One of the core Office, USA. focuses of BancoEstado is the permanent support provided to its exporting customers, confirming risk credit letters of institutions overseas.

It is important to note that, at an international level, BancoEstado is a well-know strong institution, which has Annual Report Annual Report

80 81

BancoEstado’s tax contribution, through profits and taxes, Nevertheless, as per its public bank condition, (US$ Million – December 2011) BancoEstado is a trusted financial institution, with wide coverage and quality service. National and international financial Net Profit previous Year Income tax Special tax 40% Total Diversification of Funding Sources year management maintained BancoEstado's financial stability, with the best risk 2001 66.2 29.7 80.4 176.2 rating of Chilean’s banking industry, can offer investors a diversified portfolio of 2002 71.8 24.6 66.9 163.3 profitable, safe and reliable instruments. funds. 2003 53.1 29.5 79.4 162.0 2004 42.8 16.8 51.6 111.2 Even though the Bank did not make any international bond issuance, financial management in 2011 moved 2005 19.0 38.3 77.9 135.2 forward in the diversification of international funds, 2006 4.6 38.5 95.1 138.2 both in geographical scope and counterparties’ portfolio. 2007 5.5 33.4 85.9 124.8 This enabled BancoEstado to expand the investor 2008 5.3 55.3 134.6 195.2 base and incorporate new correspondent banks to the 2009 97.2 5.0 7.3 109.5 organization’s work. 2010 92.8 129.1 301.2 523.2 At local level, the Bank maintained a diversified 2011 29.5 72.8 184.5 286.8 investments portfolio in time and counterparties, with Total 2,125.6 volumes and turnover levels that allowed meeting Source: BancoEstado various requirements in terms, rates and liquidity, The portfolio remained around US$7.3 billion, the largest in the domestic banking system.

Additionally, BancoEstado issued a UF 2* million subordinated bond, at a 30-year term. This transaction strengthens the assets of the institution and its business development plans, granting more stability in an uncertain scenario in international markets.

2011 Bond Issuance

Series Type UF Million Issuance rate Placement rate Term in years Placement month

L1 Subordinated 2.0 4.00% 3.76% 30 June 2011

Source: BancoEstado

* The Chilean UF (Unidad de Fomento) is a local unit of account. 1UF=USD$42.94 as of 12/31/11. Chapter 6 Risk Management Annual Report

82

Global Presence new customers in both local and international markets. On the other hand, the Yankee CD program continued attracting new investors, reaching over US$2,000 million Through a worldwide correspondent banks network, by the end of 2011. BancoEstado supports its customers in foreign trade operations. The Bank assumes risks of banking and country counterparts, allowing customers to be Personal Banking Services protected against non-compliance risk when exporting. BancoEstado offers services to Chileans living abroad It also issues guarantees to support clients' business both on site and through the call center. To reach the overseas. Bank via Internet, customers must access the web site www.bancoestado.cl. under the "Chileans abroad" During 2011, the amount of confirmed letters of section, Through this platform, customers may submit credit —which protect exports of the bank’s customers mortgage loan applications, electronic check-books, overseas— reached over U.S. $400 million, surpassing the saving accounts, and send remittances, among other amount achieved in 2010. services.

Another important milestone during the period is that the institution maintained the international classifications granted by Moody's and Standard & Poor's, Aa3 and A+ respectively. Thus, BancoEstado kept the best risk rating in Latin America, consistent with the strong ratings granted to the country,

New York Branch

Supported by the New York's Bank Department, BancoEstado’s New York Branch, USA, was the first international financial institution to open a branch in that city after the attack to the World Trade Center in September 11, 2001. Since then, the platform facilitates BancoEstado’s customers to access multiple services, mainly related to foreign trade. Along with this, through this branch corporate and institutional customers can manage their funds overseas, with different alternatives to manage their investments, their cash and international payments, and loans to Chile or abroad.

This branch contributes as well to the diversification of liabilities, to the expansion of operations and attracting

Head Office Annual Report Annual Report

84 85

Risk Management Despite the difficult financial situation of some Risk Indicators Financial Risk developed economies during 2011, the impact of this scenario in the emerging world activity remained Due to the improvements recorded in lending quality for The main actions in market risk have focused on To ensure autonomy in limited. In particular, Chilean economy showed growth retail segments, the risk of BancoEstado’s loan portfolio enhancing the capabilities of management and support lending process, risk rates that allowed the financial system and BancoEstado —measured as provisions over loans— decreased during systems as part of a modernization process that enables to continue developing their business at rates higher 2011, which is consistent with the rest of the financial and ensures more comprehensive measurements of management is developed market risk. than those of 2010. system’s behaviour. independently from As of 1st January 2011 was executed the new regulation Compared to the rest of the Financial System, in BancoEstado’s banking and negotiation risk recorded business areas. for the determination of provisions contained in the December 2011 BancoEstado showed a favourable significant variations observed at the end of previous compendium of accounting standards issued by the SBIF position in provisions coverage for due loans in business year, highlighting the incorporation of new adjustments in August 12, 2010 under the Circular Nº 3,503. This was and consumer portfolios, while mortgage segment to the fair value measurement of derivative financial implemented in full in each credit portfolio with no showed similar levels as the rest of the system. instruments. incidence on the Bank’s operation, since the effect of this change was provisioned in full during the previous In a growth environment, BancoEstado has been able to Liquidity risk, on the other hand, maintained similar period. control its provisions and write-offs, with a higher level levels as of 2010, ensuring the availability of resources of recoveries. As a result of the above, net charge over to meet the company’s contractual obligations. To ensure the integrity and autonomy in lending process, loans showed a continued improvement in 2010-2011, risk management has been developed completely reaching similar levels to those of 2006. Financial system independent from business areas, ensuring the presence is under the same situation, even when the Bank shows a of effective counterparts, covering all customers’ better index than market average. segments and under a consensual decision-making scheme. It is important to note that under this strategy, the Bank remained excluded from high-impact cases in financial system during 2011. Chapter

Annual Report Human Resources Management Active 7 Commitment with Bancarization 86

Provisions over Total Loans

3.0%

2.5%

2.0%

1.5%

1.0% 2.11% 1.78% 2.92% 2.75% 2,71% 2.17%

0.5% 1.50% 1.63% 1.41% 1.43% 0.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

BancoEstado Rest of the System

Source:BancoEstado

Coverage Provisions/Due Portfolio Net Charges/total loans (Provision expenses and write-offs – recoveries)

2.0%

1.200% 1.134% 1.046% 1.6% 1.39% 1.82% 1.000% 1.26% 1.2% 1.00% 800% 0.93% 1.30% 1.32% 0.70% 600% 0.8% 0.96% 307% 0.81%

400% 243% 204% 0.67%

0.4% 0.71% 132% 61%

200% 56% 0% 0.0%

Commercial Consumer Mortgage Total 2006 2007 2008 2009 2010 2011

BancoEstado BancoEstado Rest of the System Rest of the System

Source:BancoEstado

Head Office Annual Report Annual Report

88 89

Human Resources Management

BancoEstado’s employees represent a crucial resource year, the bank granted 579 undergraduate and graduate to perform its work and achieve its strategic goals and degree scholarships, and 11 employees were accepted in The Quality Life division organized a seminar 2011 Collective Bargaining Process objectives, which is strengthening bankarization and the remedial education program. “challenging the present for a successful Chileans’ development. future”, attended by workers affiliated to the The establishment of constructive labour Training’s focus goes beyond improving skills and Volunteer Exit Plan, in order to be guided in relations and prone to dialogue and to Thus, human resources management is key for an competencies in specific areas. Many programs matters as pension funds management, health benefit the entire organization and its organization with a strong social component. Thus, the developed within the organization aim at improving plans and the different benefit they could employees, is a hallmark of BancoEstado’s bank shows a permanent concern for training, staff soft skills. During 2011 —for example— BancoEstado access after the retirement. identity. During 2011, the new collective development and a suitable working environment. implemented the management skills development bargaining process, culminated with the programme for executives, attended by 50 managers and signature of a 26 months contract. During 2011, human resources management was focused assistant managers, who have joined the Corporation leaders’ team. The target is to contribute in the in continuing the Special Exit Plan, which is an initiative In a process of dialogue and analysis, the installation of practices promoting leadership and promoted after the collective negotiation process. Union, which meets 98% of workers in creation of excellence teams, where leadership is the the Bank – with its delegates nationwide attitude that facilitates professional development and The volunteer Exit Plan involves changes to the Bank and Senior Management of BancoEstado, achievement of strategic challenges. and the development of its employees, such as the participated in a process aimed at opportunity for career development. enhancing labour relations and people’s To enhance customer knowledge and constant servicing development. Likewise, BancoEstado’s employees have several improvement, BancoEstado continued the internship program for branch executives. 50 managers and benefits. Concern for people’s welfare is confirmed by The agreement brought improvements assistant managers attended the program to identify prizes and awards granted to the bank as one of the Best in terms of salaries, allowances, benefits, opportunities for process improvement of quality of Companies for Working Mothers and Fathers, granted by welfare and incentives, among others, One service. In parallel, various leaders in different areas the Fundación Chile Unido and El Mercurio’s magazine significant matter was the 2% increase were trained in effective leadership. 640 chiefs of Ya, which ranked BancoEstado at the eighth place, two in incomes below US$1,541, an increase divisions and branches attended this program, reaching posts above 2010 ranking. In turn, the Microfinance in Christmas bonus, education bonus 1,090 people trained in leadership since the beginning of subsidiary was ranked sixth in the same ranking. and national holidays bonus, besides the the programme. maintenance of the corporate bond and Training and Development the formation of one single fund for the performance bonus, The annual training Health and Wellness Training is crucial to provide a better customer service fund increased to $ 1.3 million. and strengthen institutional management, During this There are different initiatives and programmes inside year, workers from different areas took, overall, more the bank aimed at improving the employees’ living than 650,000 training hours with 57 hours average of standard. DOCTOR 800 service, which provides low-cost training per person annually, and fast medical assistance, reached one year operating and more than 1,500 calls. The Legal Chile Service, To support career development, the bank offers which provides easy-access and fast legal assistance, scholarships for undergraduate and graduate students. continued improving as well during this period. There are also remedial education programs, e-learning courses and special banking-related topics. During the Chapter Subsidiaries Management: Empowering Bankarization 8 and Financial Inclusion

Annual Report

90

To foster a healthy living culture, the bank promotes various actions and programs, both psychological and physical, such as the Pause Gymnastics Programme which has had a great impact in worker’s acceptance during BancoEstado was the four years in action. recognized in 2011 for its During 2011 the bank was awarded by the Mutual work on risk prevention, de Seguridad, an agency of the Chilean Chamber of Construction, as per the work done in risk prevention, and was ranked as one This recognition was due to the good results obtained by the organization in the accident rate 2010, which was of the safest institutions below the average recorded by the rest of the Banks and inside its offices Financial Institutions, and was well below the average of other companies. With these results BancoEstado stood nationwide. as one of the safest entities inside the offices. Annual Report Annual Report

92 93 BancoEstado Microempresas S.A. late 2011, BancoEstado Corredores de Seguros brokered the implementation of a new platform for investment Sociedad de Servicios US$264 million in premiums with five million active management. Asesorías Financieras insurances. Transaccionales CajaVecina S.A. This subsidiary promotes and supports micro-enterprises, In 2011 BancoEstado S.A. Administradora General de Fondos The model created and implemented in 2006 by providing financial solutions as per each client and its The good results achieved by this subsidiary during this year developed a pilot program for call center pre-sale under a BancoEstado, allows customers and clients to perform family’s needs. The subsidiary leads national banks in this are complemented by a number of improvements in their partnership established with the Lota Contact Centre. They a range of transactions such as deposits, withdrawals, segment, highlighted both by a comprehensive service processes and management. First, as a way to strengthen also created a new product development and marketing BancoEstado’s loan payments, transfers, balance inquiries, with in-field specialized executives, and an institutional customer focus and relieve the critical processes that management. services payment and scholarships/pensions recoveries management well known for its social contribution and affect satisfaction in insurance offering, the Customer through any payment method used by BancoEstado. good results not only in Chile but throughout Latin America. Service Management has been restructured and divided into For the fifth consecutive year, as part of its employees’ three different areas: Inquires Management, Complaints support and development programme, this subsidiary In 2011, CajaVecina reached a 64% increase in service During 2011, besides being recognized for good labour Management and Quality Management. Additionally, they supported the funding of further training for those with points, i.e. 7,130 CajaVecina service points in the country, practices and comprehensive support services for micro- created an Assistant Management devoted to operational full secondary education level. This initiative funds 100% becoming thus an important contribution to bankarization entrepreneurs, the subsidiary increased its loans by 11.2%, risk management of insurance business. of costs given by the Banking Studies Institute Guillermo nationwide. with over US$1,570 million in balance. In addition to the Subercaseaux in its Financial Technician Level career. different funding available at this subsidiary, it provides BancoEstado Corredores de Seguros stands out as well The 7,130 service points are distributed throughout the payment methods that are safe for business and family for its good work practices and ongoing support in their BancoEstado S.A. country now covers 100% of the communes of Chile. protection, as well as investment products. workers development. This subsidiary was ranked N° Locations such as Camarones, Pica, Ollagüe, El Salado, 18 among the Best Companies for Working Mothers and Corredores de Bolsa , Bucalemu, Duao, Dichato , In late 2011, this entity’s portfolio counted over 425 Fathers, as per the survey organized by Fundación Chile This subsidiary is one of the largest operators in financial , Ayacara and Puerto Gaudal are part of its service thousand customers, with 63.3% of the market share. The Unido and Ya Magazine, El Mercurio. intermediation in the domestic market. During 2011, network. most represented productive areas are business activities, BancoEstado Corredores de Bolsa held the first place in followed by agriculture, transportation, services and BancoEstado S.A. Administradora financial intermediation instruments and fixed income BancoEstado Centro manufacturing, amongst others. markets, a fact that was recognized by the Santiago Stock General de Fondos Exchange. Its offering is focused on providing financial de Servicios S.A. Besides segmentation and specialization of products, the This subsidiary, which offers savings and investment products and services for individual customers, small BancoEstado Centro de Servicios S.A., known as value-added offer is based and measured in customers’ alternatives to its various customers, recorded 161,712 businesses and large corporations. ServiEstado, increased by 12% the average monthly quality service, closeness and support for its customers. members in 2011, achieving a 16% increase in assets under transactions, reaching 2,483,096 transactions per month. management, and reaching a 3.9% market share. It is BancoEstado S.A. Corredores de Bolsa leads fixed income Additionally, this subsidiary increased its branches from BancoEstado supports micro-enterprises providing financial important to note that BancoEstado S.A. Administradora and financial intermediation markets, with US$44,507 82 to 86 service centers in 2011, contributing thus to solutions specially defined for the needs of each client, and General de Fondos has 9,648 participants in the Housing million and US$109,208 traded in the Santiago Stock strengthening BancoEstado’s social role with a dignified and providing advice in management issues. Fund, with US$16.4 million in assets managed during 2011. Exchange respectively, and keeping a 23.9% and 21% market quality service for every customer. share in these instruments. During the year, this subsidiary BancoEstado Corredores de During 2011, and with a strong focus on innovation, this showed an 18% growth in volumes traded in the retail Besides the various transactions available under ServiEstado subsidiary launched three new Diversified Mutual Funds, shares, reaching more than US$77 million. Furthermore, points, this branch supports the expansion of CuentaRUT Seguros S.A. which combine different kinds of instruments and are together with ServiEstado, the bank reached 37,000 card in associated services such as multi-channel key, cards This subsidiary intermediates life and general insurances intended for customers who seek medium and long term customers in dollars and Euros exchange through its offices. and signatures registration. which cover the needs of 20% of local population, thereby saving mechanisms. It is important to note that in 2011 this Aligned with BancoEstado’s strategic objectives, the positioning itself in third place in Chile’s banking brokers. subsidiary received a prize to one of the most profitable subsidiary also showed progress in strengthening the use During 2011, ServiEstado developed numerous projects They contribute to bankarization and Chile’s development, mutual funds in international fixed income, granted by of self-service channels in the purchase and sale of shares, and initiatives aimed at improving customer service and providing solutions for risks and contingencies, mainly in FundPro. with an increase of internet transactions. experience. Thus, we extended the threshold amount in lower income segments. various transactions and settled prime desks to receive Additionally, this Subsidiary’s Board, together with the non-financial transactions as password delivery or signature During 2011 —with US$59 million in revenues— this Executive Committee, approved the investment in IT registration, thereby minimizing standby time and subsidiary recorded a 31% growth compared to the previous projects for the expansion and development of Mutual expediting service. period. With more than 2.1 million policyholders by the Funds distribution capacity in the bank’s network, and Annual Report

94 BancoEstado Servicios addition, the interest of the company in developing its human capital was reflected in the 32.4% increase in de Cobranza S.A. training hours, compared to 2010. This subsidiary manages financial normalization of its customers since 2000. Currently it counts on 606 employees BancoEstado Contacto and 48 management centers, which are distributed from Arica to . 24 Horas S.A. This entity is responsible for the Bank’s call center activity, During the year, this subsidiary reached a 66% increase and is located in Lota City. During 2011, BancoEstado in write-off recovery in the personal, micro and small Contacto 24 horas reached 10 years of work, and enterprises segment served by them. Additionally, this year celebrated its anniversary with various activities for all management was focused on specialization by segment employees regardless their contract situation. Likewise, and portfolio in order to deal better with the targets they showed good results in the exercise of their functions. established. An example of the above is the Mortgage Normalization programme —under the Mortgage portfolio— In December 2011, the subsidiary recorded more than Chapter through which 40,480 mortgage debts were renegotiated US$7.6 million in revenues, which is 25% over 2010’s Consolidated and rescheduled in 2011, which represents a 7% increase as figure. It is important to note the 42.5% increase in credit Financial Statements per previous year. cards sales and 45.1% increase in insurances by 2011. The 9 monthly volume of calls answered reached approximately This subsidiary works year after year to provide better 293,583, while the monthly records for output activity service to their customers. Under this premise, they averaged 169,095. The effort allowed exceeding the annual opened two extended-hours centers from Monday through target of 85,000 active credit cards at the end of the year. Saturday. Additionally, they continued implementing During this period this channel started selling consumer technologies aimed at improving management as the loans. change of the Call Center’s Predictive Dialler, which increased the number of clients reached, and the Another important milestone was the opening of the implementation of systemic control panels that provide a "Veta" Platform with 60 new positions, which represents a more efficient guiding on the various tasks. symbol of growth in the company. Similarly, we opened the Enterprise Banking Platform in Santiago’s office, with six This company is interested in promoting a good working new positions. environment and in its employees’ development, and improving the performance management model. In The activity of this subsidiary represents a significant contribution to Lota’s local economy in 2011, reaching approximately $ 7.6 million in incomes, which is 35.7% higher than previous year. Likewise, it is important to note the 15% increase in staff over the same period. Committed BancoEstado Contacto 24 to Lota’s community, management and workers from horas, located in Lota City, BancoEstado 24 horas Centro de Contacto S.A. counts with initiatives such as Digital Literacy Course, besides fosters local employment. the support provided to the , among other activities.

BancoEstado Vault BANCO DEL ESTADO DE CHILE YAND FILIALES SUBSIDIARIES Consolidated Statements of Financial Position As of December 31, 2011 and 2010 (In millions of Chilean pesos – MCh$ and in millions of US Dollars - MUS$) Annual Report Annual Report

96 ASSETS 31.12.2011 31.12.2011 31.12.2010 97 MUS$ MCh$ MCh$

Cash and deposits in banks 6,610 3,432,018 2,025,077 Unsettled transactions 163 84,587 203,341 Trading investments 2,849 1,479,136 1,293,963 REPORT OF INDEPENDENT ACCOUNTANTS Investments under repurchase agreements 110 57,169 13,811 Financial derivative contracts 341 176,805 172,089 (Translation from the original in Spanish) Interbank loans 400 207,742 93,340 Loans and accounts receivables from customers 23,587 12,246,228 11,083,448 To the Chairman and Directors Santiago, February 27, 2012 Available-for-sale investments 4,303 2,234,279 3,087,961 Banco del Estado de Chile Held to maturity investment 123 63,846 72,457 Investments in other companies 14 7,290 4,014 Intangible assets 64 33,209 20,407 Property, plant and equipment 456 237,006 235,590 1. We have audited the consolidated statement of financial position of Banco del Estado de Chile and subsidiaries Deferred taxes 837 434,590 353,102 as of December 31, 2011 and the related consolidated statements of income, comprehensive income, changes Other assets 346 179,563 143,235 in equity and cash flows for the year then ended. These financial statements (including the notes thereto), are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial TOTAL ASSETS 40,203 20,873,468 18,801,835 statements based on our audit. The consolidated financial statements of Banco del Estado de Chile for the year ended as of December 31, 2010, were audited by other auditors, who expressed an unqualified opinion on them LIABILITIES in their report dated February 14, 2011. Deposits and other demand liabilities 9,610 4,989,472 4,299,355 Unsettled transactions 97 50,331 146,001 2. We conducted our audits in accordance with auditing standards generally accepted in Chile,Those standards Investments under repurchase agreements 1,034 536,864 407,660 require that we plan and perform the audit to obtain reasonable assurance about whether the financial Time deposits and other time liabilities 17,753 9,217,183 8,345,402 statements are free of material misstatement. An audit includes examining, on a test basis, evidence Financial derivative contracts 299 155,034 227,178 Interbank borrowings 2,296 1,191,835 601,527 supporting the amounts and disclosures in the consolidated financial statements.An audit also includes Issued debt instruments 5,978 3,103,872 3,362,582 assessing the accounting principles used and significant estimates made by Bank´s management, as well as Other financial liabilities 25 13,011 5,514 evaluating the overall consolidated financial statement presentation. eW believe that our audit provide a Current taxes 54 28,108 92,236 reasonable basis for our opinion. Deferred taxes 161 83,785 29,504 Provisions 763 396,378 283,661 3. In our opinion, the consolidated financial statements as of December 31, 2011 present fairly, in all material Other liabilities 149 77,470 66,036 respects, the financial position of Banco del Estado de Chile and subsidiaries as of December 31, 2011 and the results of its operations, comprehensive income, changes in equity and cash flows for the year then ended, in TOTAL LIABILITIES 38,219 19,843,343 17,866,656 accordance with Accounting Standards and instructions issued by the Superintendency of Banks and Financial Institutions. EQUITY Attributable to the owners of the bank 4. As described in Note 2 to the consolidated financial statements, in accordance with the instructions of the Capital 536 278,497 278,497 Superintendency of Banks and Financial Institutions as from December 31, 2011, Banco del Estado de Chile Reserves 1,388 720,685 659,378 adopted the new regulations contained in Chapters B-1,B-2,B-3 and C-1 of the Compendium of Accounting Valuation accounts ( 2) ( 1,011) ( 10,460) Standards. As of December 31, 2010, Banco del Estado de Chile decided to recognize in advance the regulations Retained earnings: of Chapter B-1 of the Compendium of Accounting Standards. The early recognition of this change was debited Net income for the period 185 96,210 76,634 Less: Provision for distribution of income to the benefit of the state ( 129) ( 67,266) ( 72,705) to income of year 2010. Additionally, the Bank decided during 2011 to increase the limit range of additional 1,978 1,027,115 931,344 provisions recognizing the effect in the income for that year. Non-controlling interests 6 3,010 3,835

TOTAL EQUITY 1,984 1,030,125 935,179

TOTAL LIABILITIES AND EQUITY 40,203 20,873,468 18,801,835

The accompanying notes 1 to 37 are an integral part of these Consolidated Financial Statements 98 98 Annual Report BANCO DELESTADO DECHILEYFILIALES The accompanying notes1 to37areanintegral partofthese ConsolidatedFinancial Statements Attributable to: NET INCOMEFOR THE YEAR Income taxexpense Income beforetaxes Income frominvestmentsinothercompanies NET OPERATING INCOME TOTAL OPERATING EXPENSES Other operatingexpenses Impairment Depreciation andamortization Administrative expenses Personnel salariesand expenses NET OPERATING PROFIT Provision forloanlosses Other operatingincome Foreign exchange(loss)gainnet Net income(loss)fromfinancial operations Net feeandcommissionincome Fees andcommissionexpense Fees andcommissionincome Net interestincome Interest expenses Interest income Non-controlling interests Equity ownersoftheBank Operating income (In millionsofChileanpesos–MCh$andinUSDollars-MUS$) As ofandfor theyears endedDecember 31,2011 and2010 Consolidated Statements ofIncome BANCO DELESTADO DECHILEANDSUBSIDIARIES ( ( ( ( ( ( ( ( ( ( 31.12.2011 MUS$ 1,224) 1,175 2,399 1,662 1,662 1,233 1,233 429) 429) 108) 108) 922) 285) 563) 395 205 319 206 206 185 206 314 311 61) 61) 76) 23) 51) 24 24 21 21

3 - ( ( ( ( ( ( ( ( ( ( 31.12.2011 1,245,702 478,844) 107,038 107,038 161,654 640,498 147,882) 292,374) 222,725) 635,622) MCh$ 163,203 863,223 106,475 165,738 205,087 610,080 - 56,165) 12,071) 26,517) 31,350) 39,349) 10,828 96,210 12,280 1,549 ( ( ( ( ( ( ( ( ( ( ( 31.12.2010 492,746) 137,845 630,591 419,551) 127,888) 256,904) 109,712) MCh$ 174,675 524,563 944,114 146,528 740,303 102,546 138,602 28,147) 41,816) 69,236) 38,143) 53,815) 84,787 84,787 76,634 8,482 8,153 575) 757 The accompanying notes1 to37areanintegral partofthese ConsolidatedFinancial Statements (In millionsofChileanpesos–MCh$andinUSDollars-MUS$) As ofandfor theyears endedDecember 31,2011 and2010 Consolidated Statements ofComprehensive Income BANCO DELESTADO DECHILEANDSUBSIDIARIES Non-controlling interests Equity ownersoftheBank Attributable toconsolidatedcomprehensiveincomefortheyear Non-controlling interests Equity ownersoftheBank Attributable toconsolidatedincomefortheyear CONSOLIDATED OTHER COMPREHENSIVEINCOME(LOSS)FOR THE PERIOD TOTAL OTHER COMPREHENSIVEINCOMEFOR THE PERIOD Income taxonothercomprehensiveincome OTHER COMPREHENSIVEINCOME(LOSS)BEFORE TAXES Effect ofcashflow hedge Exchange differencesintranslationofforeigntransactions Available forsaleinvestment OTHER COMPREHENSIVEINCOME(LOSS) INCOME FOR THE PERIODBEFORECOMPREHENSIVE INCOME Income taxexpense Income beforeincometax Income (loss)frominvestmentsinothercompanies OPERATING INCOME Total operatingexpenses Net operatingprofit ( ( ( 31.12.2011 MUS$ 1,233 108) 922) 224 224 203 206 185 224 206 314 314 311 18) 21 21 18 36 24 10

2 3 ( ( ( 31.12.2011 MCh$ 116,487 116,487 107,038 161,654 478,844) 163,203 105,659 105,659 107,038 640,498 56,165) 18,995 18,995 10,828 10,828 96,210 12,525 9,546) 9,449 1,092 5,378 1,549 ( ( ( ( ( ( ( 31.12.2010 MCh$ 137,845 492,746) 15,761) 630,591 138,602 53,815) 84,787 76,844 76,844 7,943) 68,691 84,787 76,634 7,749) 2,257) 5,755) 7,818 8,153 8,153 757 99 Annual Report 100 Annual Report BANCO DELESTADO DECHILEYFILIALES The accompanying notes 1to37 arean integral partof theseConsolidated Financial Statements Equity asofDecember 31,2011MUS$ Equity asofDecember 31,2011 Net incomefortheyear income inbenefitofthestate Provision fordistributionofminimum NY Branch Adjustment fortranslationdifference derivatives Variation ofhedgeaccounting investment Variation ofavailableforsale Dividends paid Transfers Equity asofJanuary01,2011 Equity asofDecember 31,2010 Net incomefortheyear income inbenefitofthestate Provision fordistributionofminimum NY Branch Adjustment fortranslationdifference derivatives Variation ofhedgeaccounting investment Variation ofavailableforsale Dividends paid Equity effectCircularN°.3,489(a) Transfers Equity asofJanuary01,2010 (a) Chargetoincomenetofdeferredtaxesasaresultthe accountingchangeindicatedinNote2tothe (In millionsofChileanpesos–MCh$andinUSDollars-MUS$) For theyears endedDecember 31,2011 and2010 Consolidated Statements ofChangesin Equity BANCO DELESTADO DECHILEANDSUBSIDIARIES consolidated financialstatements. 278,497 278,497 278,497 278,497 Capital MCh$ ------536 ( ( 720,685 659,378 Reserves 659,378 655,604 15,327) MCh$ 76,634 1,526) 1,368 5,300 ------( ( ( Investment Available for sale MCh$ 4,114) 4,114) 5,755) 1,264 ------5,378 1,641 2 ( ( ( Valuation accounts hedges MCh$ Cash flow 7,749) 12,525 7,749) 7,749) 4,776 ------9 ( ( ( ( ( ( Translation difference MCh$ 4,388) 5,480) 5,480) 2,257) 3,223) ------1,092 8) ( ( ( ( ( Income MCh$ 2,663) 7,211) 2,335) 6,883 tax 4,417 3,401 6,883 ------935) 5) ( ( Income for the 76,634) 51,686) 96,210 76,634 MCh$ year 96,210 76,634 76,634 51,686 ------185 Provision for for Provision distribution income for ( ( ( ( ( ( ( the State 67,266) 72,705) of net of net 72,705) 67,405) 51,686) MCh$ 15,327 46,386 9,888) ------129) attributable ( ( ( ( ( ( ( to thebank 1,027,115 owners equity equity 931,344 MCh$ Total 931,344 931,584 46,386) 67,405) 96,210 76,634 46,386 9,888) 1,526) 2,257) 3,332) 2,354) - - 1,092 5,314 3,043 1978 controlling ( ( ( interests 10,025) MCh$ Non- 10,828 1,629) 7,676) 3,010 3,835 3,835 8,153 3,358 1 ------6 ( ( ( ( ( ( ( ( 1,030,125 equity 935,179 MCh$ Total 107,038 935,179 934,942 19,913) 67,405) 46,386) 84,787 38,710 1,629) 2,257) 3,332) 2,354) 1,526) 1,984 1,984 - 1,092 5,314 3,044 The accompanying notes 1to37 arean integral partof theseConsolidated Financial Statements (In millionsofChileanpesos–MCh$andinUSDollars-MUS$) For theyears endedDecember 31,2011 and2010 Consolidated Statements ofCashFlows BANCO DELESTADO DECHILEANDSUBSIDIARIES BANCO DELESTADO DECHILEYFILIALES CASH AND CASHEQUIVALENT AT THE ENDOFPERIOD CASH AND CASHEQUIVALENT AT THE BEGINNINGOFPERIOD NET VARIATION FOR THE PERIODOF CASH AND CASHEQUIVALENT by financing activities Net cash(used in)provided Payment ofdividendnon-controllinginterest Payment ofincomefrompreviousyearatthebenefit of thestate Release ofbonds Bond issuance CASH FLOWSFROMFINANCING ACTIVITIES: Net cashusedininvestingactivities Sale ofassetsreceivedinlieupayment Dividends receivedfrominvestmentsincompanies Sale ofproperty, plantandequipmentintangibleassets Purchase ofproperty, plantandequipmentintangibleassets CASH FLOWSFROMINVESTING ACTIVITIES: by (used in)operatingNet cashflow provided activities Interest andindexationpaid Interest andindexationreceived Commissions paid Commissions received Net decrease(increase)inotherassetsandliabilities Increase inloansobtainedfromtheChileanCentralBank Increase (decrease)inloansobtainedfromforeignbanks Increase (decrease)inloansobtainedfromlocalbanks Decrease inobligationslettersofcredit Increase (decrease)inotherobligationsthroughbrokerageofdocuments Increase (decrease)inotherdemandandtimeliabilities Increase ofdepositsandloans Increase increditorscheckingaccounts (Increase) decreaseinothercreditoperations Decrease (increase)inheld-to-maturityandavailable-for-saleinvestments (Increase) inloans (Increase) decreaseoftradinginstruments Changes inassetsandliabilitiesaffectingoperatingflow: Net commissionaccrued Net interestandadjustments Other chargestoincomethatdonotrepresentcashmovements Write-off ofassetsreceived inlieuofpayment Loss (gain)onsaleofproperty, plantandequipment Net (income)fromsalesofassetsreceivedinlieupayment (Gain) lossfrominvestmentsincompanies Adjustment tomarketvalueofnon-permanentinvestments Provisions forcreditrisks Impairment ofassets Depreciation andamortization Charges (credits)toincomethatdonotrepresentcashflow: NET INCOMEFOR THE YEAR CASH FLOWSFROMOPERATING ACTIVITIES 31.12.2011 ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( MUS$ 1,163) 2,669) 1,467) 1,175) 7,118 7,118 5,435 1,683 2,166 2,171 2,171 1,857 1,661 1,661 (220) 412) 449) 296) 318) 104) (76) (17) 394 394 213 599 555 249 182 969 140 140 429 429 206 71) 16) 29) 80) 82 82 51 51 3) 3) 6 1 2 1 - - 31.12.2011 ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( 3,695,663 2,821,904 1,124,834 1,385,505) 1,127,178 214,019) 873,759 233,200) 603,841) 153,460) 114,402) 761,535) 165,234) 610,080) MCh$ 37,056) 204,584 110,846 311,237 288,012 129,204 964,281 503,049 862,293 222,725 107,038 15,327) 41,446) 39,349) 53,954) 94,568 42,624 72,590 26,517 - 8,116) 8,941) 1,724) 1,549) 2,864 1,095 431 192 94 ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( 31.12.2010 2,821,904 3,323,531 1,006,986) 1,315,380 704,453) 501,627) 239,964 208,962) 156,076) 172,607) 419,578) 978,105) 146,528) 524,563) 412,158) 37,138) 174,675 127,039 109,712 910,410 591,139 305,393 MCh$ 28,147) 11,669) 19,903) 42,371) 41,684) 46,386) 10,619) 33,714 38,143 84,787 24,386 13,684 8,424) 2,748 1,357 102) 757) 443 575 441 28) 101 Annual Report General Background

Registered Name Banco del Estado de Chile

RUT (Chilean tax identity number) 97.030.000-7

Address – Head Office Av, Libertador Bernardo O’Higgins N°1111 Santiago Chile

Web site www.Bancoestado.cl

PO Box Correo 21, casilla 240-V, postal code 6501186

Swift BECH CL RM

Main Switchboard 56-2-9707000

24 Hours Call Center 600-200-7000

This edition has 150 copies in English, Covers were made in 400 grs, top matt, Internal pages were printed in 170 grs, Top matt. Financil st bancoest complete a tements ado Memoria AnualyEstados financieros & financilst Banco EstadoBanco 2011 BancoEstado 2011 Annu Photography /Producer: Pablo Wilson/LaBoca Design andLayout: al report a tements Printout: Ograma LaBoca

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