CORPBANCA/FI | CIK:0001276671 |

ifrs-full:DisclosureOfDerivativeFinancialInstrumentsExplanatory

NOTE 8 DERIVATIVE FINANCIAL INSTRUMENT AND HEDGE ACCOUNTING

a)   As of December 31, 2017 and 2016, the Bank held the following portfolio of derivative financial instruments:

a.1) Derivatives financial assets

a.2) Derivatives financial liabilities

a.3) As of December 31, 2017 and 2016, the portfolio of derivative financial instruments for account hedging and for trading purposes were as follows:

In order to capture the credit risk in the valuation, the fair value of derivatives were adjusted to include the credit risk of the counterparty.

b)        Hedge accounting

b.1) Fair value hedges:

The Bank uses interest rate derivatives to manage its structural risk by minimizing the accounting asymmetries of the Statement of Financial Position. Through different strategies, an item originally contracted at a fixed rate is redenominated to a floating rate, thus reducing the financial stress and consequently the risk value by positioning the expected movements of the yield curve in the structure of the Statement of Financial Position.

The detail of the hedged items and fair value hedging instrument, effective as of December 31, 2017 and 2016 separated by term at maturity, are as follows:

b.2) Cash flow hedges:

Cash flow hedges are used by the Bank to:

a)   Reduce the volatility of cash flows in inflation-adjusted statements of financial position through the use of forward inflation contracts and combinations of swap contracts in pesos and readjustments.

b)   Fix the rate of a portion of the pool of short-term liabilities in pesos, reducing the risk of a significant portion of the Bank’s cost of financing, while maintaining liquidity risk in the pool of liabilities. This is achieved by equalizing the cash flows of hedged items and derivative instruments, modifying uncertain flows by known flows.

c)   Set the funding source rate in floating rate, decreasing the risk that the cost of funds increases.

Below is a detailed account of hedged items and hedging instruments by maturity as of December 31, 2017, and 2016, under cash flow hedges:

The effective portion of increase/decrease in fair value of the cash flow hedging instruments of the hedged items was MCh$127 (MCh$5,603 as of December 31, 2016) (see note 22j) “Equity”) and the ineffective portion of increase/decrease in fair value of the cash flow hedging instruments of the hedged items was, respectively, (MCh$(1,300) (MCh$(413) as of December 31, 2016) (see note 26 “Net Foreign Exchange Income (losses) — Fair value gains (losses) on hedging derivatives”), as of December 31, 2017 and 2016 respectively, were as follows with respect to the following hedged items:

b.3) Hedging net investment in foreign operations:

Itaú Corpbanca, which has a functional currency in Chilean pesos, has business investments abroad corresponding to a branch in New York and subsidiaries in Colombia. As a result of the accounting treatment that these investments must receive, fluctuations in the value of investments caused by the variability of the exchange rate between the Chilean peso against the dollar and the Colombian peso, generate changes in the value of the assets of the parent company.

The objective of hedging is to safeguard the value of equity by managing the exchange rate risk of investments. The hedges of a net investment in a foreign operation, including the hedge of a monetary item that is accounted for as part of a net investment, will be recorded in a manner similar to the cash flow hedges, where:

·    The part of the gain or loss of the hedging instrument that is determined to be effective is recognized in equity, for an amount of MCh$45,759 credit net of deferred taxes (credit of MCh$10,773 as of December 31, 2016);

·    The ineffective part is recognized in the result, not presenting amounts for this concept in 2017 and 2016.

Gains or losses on the hedge of the net investment in foreign operations that have been recognized in other comprehensive income and accumulated in equity are as follows:

The detail of each hedge is explained below:

b.3.1) Hedging net investment in New York Branch

b.3.2) Hedging net investment in Colombia