Commercial Management with Social Impact Fernando Ochoa Castillo Quito, Ecuador March 2012

1. BancoEstado Commercial Managementwith Social Impact Fernando Ochoa Castillo Quito, Ecuador March 2012

2. AGENDA • Institutional and macroeconomic framework • II. Institutional design • III. BancoEstado: its financial inclusion strategy • IV. BancoEstado: its counter-cyclic strategy • Strategic guidelines 2012 -2014 • Final Conclusion

3. Chilean Economy: Fundamentals (I) GDP Growth Fiscal Surplus (% of GDP) Anual inflation rate Unemployment rate (average)

4. Chilean Economy: Fundamentals (II) Current Account (% of GDP) Gross Debt Central Government (% of GDP) Countries selected from lOECD, (dec. 2010) INR and Sovereign Funds (US$ Billions) International Financial Position (% of GDP)

5. Financial Development Appropriated level of financial development, although there are still sectors of the population without access (as % GDP) 1990 2000 2010 Bank Credits 52 69 72 Bank Productive Assets 78 87 87 Pension Fund Assets 25 48 67 Equity Securities 57 88 154 Insurance Company Assets 7 16 19 Company Bonds Stock 5 7 15

6. Bank Industry: Competition Competitive local banking industry, with high participation of foreign banks Number of Institutions 1974 - 2011

7. Bank Industry: Institutionality and Resilience Positive institutional conditions that contribute to the resilience of local banks • Pro-Market financial regulation and risk based supervision • Diversified financial system, highly integrated to global markets • Leveled play field  public banks operate under the same rules as private, except taxation • Efficient corporate governance with  professional management • Prevalence of  "traditional“ banking business  • Solvent Banks with adequate liquidity

8. Bank Industry: Positive Results Risk Index Operative Efficiency ROE Basilea Index

9. AGENDA • Institutional and macroeconomicframework • II. Institutionaldesign • III. BancoEstado: itsfinancialinclusionstrategy • IV. BancoEstado: itscounter-cyclicstrategy • Strategicguidelines 2012 -2014 • Final Conclusion

10. Central Features of BE Unique state commercial bank, with almost 160 years of history Social responsibility without granting subsidies   "efficiently banking” Independence to set policies and allocate credit Ranked third in total bank credit, with the most extensive coverage in the country International Risk Classification: A + Profitable and high potential for sustained growth of assets and profits Market lider in deposits, saving and microfinance

11. Mision, Vision and Positioning

12. Activos y Canales BancoEstado is a lider institution in Chile... ...with an unparalleled distribution network nationalwide

13. Segments, products and client base Comprehensive platform of services for all sizes of business and people Government Corporate BancoEstado service delivery to following segments Middlesizecompanies Retail

14. Subsidiaries Provide financial services that complement the extensive menu offered by the bank

15. AGENDA • Institutional and macroeconomicframework • II. Institutionaldesign • III. BancoEstado: itsfinancialinclusionstrategy • IV. BancoEstado: itscounter-cyclicstrategy • Strategicguidelines 2012 -2014 • Final Conclusion

16. Inclusive Strategy: Family Saving We promote the family saving Saving accounts (aug.2011) Number of active clients: 7.6 millons

17. Inclusive Strategy: Payment Systems We provide modern payment systems for all the chileans and small companies Caja Vecina Accounts (thousands) Active Rut Accounts (thousands)

18. Inclusive Strategy: Family Assets Accumulation We finance the purchase of popular houses Debtors distribution (dec.2011) Amounts distribution (dec. 2011) Debtors BE: 526.611 Stock: MM US$ 10.000 Average Debt: Subsidized : US$ 10.700 Non Subsidized : US$ 42.500

19. Inclusive Strategy: Human Capital Accumulation We support the investment in human capital for low income families Clients Distribution (jun.2011) Amounts Distribution (jun.2011) Stock: MM US$ 2.850 Market: 400.000 clients

20. Inclusive Strategy: Business Development We promote entrepreneurshipment and business development Credits to Small Companies Credits to Micro Companies

21. Inclusive Strategy: Risk Transfer We provide convenient insurance for families to transfer their principal risks Number of current insurance policies (thousands)

22. Inclusive Strategy: Complementing Markets We serve markets without  alternative private suppliers Access to Bank Offices (% of districts total country)

23. Inclusive Strategy: Competition We promote competition through continuous  promotional campaigns widely publicized Consume Credit Rate

24. Inclusive Strategy: Transfers to the Treasury We make significant transfers to fund the Social Security Budget (In MMUS$)

25. Inclusive Strategy: Impact Synthesis In short, millions of customers served, with diverse products, accessible to all families and businesses of all sizes • 7.6 mm with savings accounts • 4.2 mm with Rut accounts (debit) • 2.1 mm in internet • 1.6 mm receive their salary payments, pensions and scholarships • 828 m current credit cards • 527 m with housing credits • 464 m micro and small companies • 450 m with consume or university credits • 320 m with current account • 108 m in mobile site • 675 Public Institutions

26. AGENDA • Institutional and macroeconomicframework • II. Institutionaldesign • III. BancoEstado: itsfinancialinclusionstrategy • IV. BancoEstado: itscounter-cyclicstrategy • Strategicalguidelines 2012 -2014 • Final reflexion

27. Counter-Cyclic Strategy: Base Diagnosis The “sudden stop” of private offer of credit Net Total Credit Flow Private Banking and BE (in MMUS$)

28. Counter-Cyclic Strategy: Capital Constraint During capital constraint BE contributed to unlock the credit channel, while Private Banking increased capital gaps Monthly real growth in bank credit and Basel Index Source: SBIF

29. Counter-Cyclic Strategy: Relative Momentum (I) BE also acted in line with the regional public banks to keep lending channel transmission

30. Counter-Cyclic Strategy: Relative Momentum (II) Other internal and external credit suppliers validated the credit risk strategy of BE Corporative Bonds traded in Chile (in Billion $) Financiamiento Empresas (flujos netos en millones de US$ a mayo 2009) A) Includes private and public companies debt B) Includes short-term and long-term debt of non-financial companies plus accrued interest to April 2009 30

31. Counter-Cyclic Strategy: Specific Actions We design and apply an innovative strategy to address the uncertain economic situation • Attractive credit offer at very competitive prices, anticipating even the Monetary Policy Rate reductions; • Unique focus in loan growth; • We provide financial support to viable businesses of all sizes and people of all levels; • We work closely with customers by establishing alliances with real estate agents (72 hours) and unions; • We use all available state guarantees, and • We carry out campaigns, fairs and open on Saturdays

32. Counter-Cyclic Strategy: Overall goals • Strategic Priorities • Increase credits in 11%  additional offer of US$ 2.000 millons respect to 2008 • Increase our market share in 1% • Maintain the level of credit risk under control via intensive relievers

33. Counter-Cyclic Strategy: Credit guarantees for companies The “FOGAPE” Fund (Small business guarantee fund) grew at record level, led by BE Participation in number of operations, december 2009 Rebate in fees: 50%

34. Counter-Cyclic Strategy: Home credit guarantees Largest percentage of guarantees, grants offer, and lower prices resulted in an increase of demand for these loans, concentrating supply in small size ones Participation by debt segment(%)

35. Counter-Cyclic Strategy: Signals to the market We were aggressive in the supply of credit to SMEs and send clear signals to the competence

36. Counter-Cyclic Strategy: Supply growth (I) Counter-Cyclic supply in all the products……

37. Counter-Cyclic Strategy: Supply growth (II) We met the growth targets in all segments

38. Counter-Cyclic Strategy: Credit Risk The maintenance of standards and use of guarantees keep risk under control Loan loss provisions / Operational Income (%) Source: SBIF and BancoEstado

39. Counter-Cyclic Strategy: Profitability Limited profitability sacrifice with high growth ROE (results / capital plus reservs) Source: SBIF and BancoEstado

40. Counter-Cyclic Strategy: Solvency The Capital injection in BE helped ensure its solvency and boost lending channel Basel Index Actualizar 2010 y 2011

41. Counter-Cyclic Strategy High historical importance of housing and the recent increase of Agriculture in BancoEstado portfolio Credit Distribution by Economic Activity (stocks in %)

42. AGENDA • Institutional and macroeconomicframework • II. Institutionaldesign • III. BancoEstado: itsfinancialinclusionstrategy • IV. BancoEstado: itscounter-cyclicstrategy • Strategicguidelines 2012 -2014 • Final Conclusion

43. Extending and deepening bankarization Keep long term relationships with clients Increase efficiency and keep risk controlled Improve continuously critical internal processes Increase transparency to our clients 2012 Challenges

44. Strategic Map 2012-2014 Strategic Map focused in commercial management with high social impact

45. AGENDA • Institutional and macroeconomicframework • II. Institutionaldesign • III. BancoEstado: itsfinancialinclusionstrategy • IV. BancoEstado: itscounter-cyclicstrategy • Strategicalguidelines 2012 -2014 • Final Conclusion

46. Final Conclusion ¿Why a Public Bank is necessary? • To promote the financial inclusion of the people • To play a counter-cyclical role and introduce more competition in the industry • To support public policies and contribute to the modernization of the State • To promote entrepreneurship and business development • To mobilize family savings • To improve the financial education of the population

47. Final Conclusion BancoEstado experience in Chile, as well as other public banks, shows that these institutions can play an important role in times of crisis, ensuring the credit transmission channel, and helping to minimize the socio-economic impact resulting from these recurring events Risk perception and strategies implemented by BE in the global financial crisis was validated by other internal and external suppliers of credit and, most importantly, its management strengthened the public confidence in general, and clients in particular in BE and the local banking system as a whole. In the future, to be effective in its role in the process of "credit easing", a public bank solvent (well capitalized) is a must, with market relevance, managed efficiently (profitable) and able to keep the risk controlled

48. THANKS

49. ANNEX

50. “CajaVecina”: A small electronic channel operating in isolated locations or stores suburbs CLIENT BANK STORE Electronic Device • Operations • Deposits • Transfers • Balance information • Payment of credits • Payment of services • Advantages • Time saving • Extended hoursservice • Increasedsecurity • On line operations • Receipts delivery • Effective control on line • Isourdirectsupplier of financialservices • Advantages • Commissions • Increase of sales • Local differentiation • Clientfidelization POS