ANNUAL REPORT BANCOESTADO 2010

ANNUAL REPORT BANCOESTADO 2010

ANNUAL REPORT BANCOESTADO 2010 3 I. BANCOESTADO ALWAYS WITH ITS CUSTOMERS - YESTERDAY, TODAY AND TOMORROW 4 Chairman s statement 8 Financial summary 10 Corporate Governance 10 BancoEstado s Board of Directors 11 BancoEstado s management and subsidiaries 12 Audit committee 14 Organization Chart 15 Prizes and awards 2010 16 Key milestones 2010 20 A bank with 155 years of history 24 Evolution of the bank in figures, 1990-2010 27 II. A BANK AT THE SERVICE OF CHILEANS 30 BancoEstado s Vision and mission 31 Strategic plan 2011-2014 35 Transformation projects 37 III. SALES MANAGEMENT: BANCOESTADO IN CHILEAN S BANKARIZATION 38 BancoEstado before the banking industry: results 2010 40 Trends and forecasts 41 Corporate management 45 Marketing and communications 46 Divisions management CONTENTS 63 IV. CHANNEL MANAGEMENT: THE MOST PROMINENT BANK IN CHILE 71 V. FINANCIAL MANAGEMENT 72 Financial management 74 Global Presence 75 VI. RISK MANAGEMENT 79 VII. HUMAN RESOURCES MANAGEMENT 80 Training and development 81 VIII. SUBSIDIARIES MANAGEMENT: COMPREHENSIVE CONCERN FOR OUR CUSTOMERS 85 IX. CONSOLIDATED FINANCIAL STATEMENTS Attached to this report you will find a compact disc containing the financial statements of BancoEstado and its subsidiaries, the document management s discussion and analysis of results of operations and financial condition and digital texts.

I. BANCOESTADO ALWAYS WITH ITS CUSTOMERS YESTERDAY, TODAY AND TOMORROW

Chairman s Statement During the financial year 2010, BancoEstado made We are moving forward in this great challenge. - with more than 7.5 million customers with savings and the path we are following, as reflected by the progress and took further steps aiming at supporting Thus, the bank is increasingly deepening its strategic accounts, representing over 84% of them and their awards and distinctions the bank and its subsidiaries our customers in a difficult year for the country and its planning and the execution of major projects balances in the financial sector. This is a crucial area, have received during 2010, in addition to the ones people. Thus, we achieve significant results in business impacting the retail and wholesale banking. It s a because we are giving millions of Chileans financial obtained in previous years. and financial management, and we can continue dream aiming at changing the relationship with our support so they can have savings mechanisms. Thus, developing our institution as a universal bank serving customers, who are most of them Chileans. customers may access to home ownership, to pay Seeking to improve the information provided to our Chile and Chileans, throughout the country. for their child s education and can have a better various audiences, this document incorporates for I can state with satisfaction that during 2010 we living standard. the first time in the history of the bank the document Most Chileans think that 2010, the Bicentennial year, moved forward in the strategic goal set by the new Management s Discussion and Analysis of Results of was difficult for people, businesses and institutions. administration of BancoEstado, in which I have the In parallel, we made progress in optimizing our Operations and Financial Condition, with specialized Faced with the earthquake of February 27, the bank privilege to participate. In fact, we have the largest resources. The efficiency ratio achieved by the information to bondholders that we hope to be useful played a significant role supporting customers, and customer service network in the country and we are bank in 2010 is the best of recent years (58%). It is for investors who need to learn even more on the helping to successfully address the emergency and present in almost all the communes of the territory, measured by the ratio of current expenditures and indicators associated with our management. the reconstruction. covered through 344 offices, 84 ServiEstado service gross operating income. While this development is centers and over 4,500 CajaVecina points. With an important step, the bank s decision is to continue I want to finish this statement congratulating the The earthquake tested BancoEstado s great strength, the latter we have built an extensive network that improving in this area in the coming years. nearly 12,000 workers of BancoEstado and its which in 2010 reached 155 years of history. In fact, allows us to deliver financial services in many small subsidiaries for the effort and commitment shown many customers were affected by the disaster: more and remote towns. Thus, people can make their A major milestone this year was to seek out long-term to address the emergency during this financial year, than 26,000 microentrepreneurs, over 5,000 small transactions without moving to other cities, saving financing in the international market through a U.S. $ without neglecting the fulfillment of our mission. I businesses and 44 thousand people submitted claims considerable time and money. 500 million bond placed in the United States, at the also want to give our appreciation to the Government for damages to their properties. About 12% of best possible rate reached by a Latin American financial and its authorities which have given us their continued the bank s portfolio is located in the most affected Today, about 2.9 million people use every day their institution. These funds are intended to support support. And especially to our customers who are regions. Quickly, and despite our own damage -60 CuentaRUT accounts, an easy access debit account entrepreneurship and economic growth in the country, entrusting their savings and projects to the bank, branches of different sizes were damaged and 220 that allowed spreading payment methods in the as well as the development needs of our institution. reaffirming thus the mission we ve set: efficiently staff had major damages in their homes- we stood up less-bankarized segments. More than 2 million bankarize every Chilean. to face adversity with them. people receive their monthly salaries, pensions and s per all this activity, at the end of 2010, BancoEstado scholarships through BancoEstado. Nearly 2 million and its subsidiaries reached a 14.8% profit before Overcoming these difficulties, we intended to customers are insured with us. About 800 thousand tax on its equity, higher than the U.S.$292 million reaffirm the path we have set of developing a high customers choose the bank s electronic checkbook. figure reached in 2009. This was achieved while impact business management. This is a path with More than half a million Chileans have bought their maintaining their loans in the highest level historically a strong social emphasis, focused in bankarizing every Chilean. We want to accomplish this mission effectively, doing things focused on our customers, properties through BancoEstado. Over 400,000 micro and small entrepreneurs develop their businesses with our support. achieved by the bank, with limited risks and reaching as well an improvement in long term international risk classification. Sincerely, Segismundo Schulin-Zeuthen Chairman fulfilling tasks and processes faster, at lower costs and with better results in order to provide a better It is important to underline the strength of one of our We managed to consolidate cross-recognition of our customer service. seals - maintaining our market leadership in savings customers and society to the steps we are taking 6 7

Financial Summary In 2010 BancoEstado fully accomplished the goals established, in a scenario of economic recovery that On the other hand, after the 27 February earthquake, the bank took actions to help alleviate the damage improved by almost 1 percentage point over 2009, reaching 58%. CONSOLIDATED CORPORATE DATA - BANCOESTADO AND ITS SUBSIDIARIES (a) (US$ million) was affected by the serious consequences of the earthquake that struck the country in late February. suffered by customers. The impact on results of provisions and write-offs Indicators 2006 2007 2008 2009 2010 From a business perspective, the bank aimed at retaining a significant fraction of the market share achieved in 2009, which reached 16.1%. The goal was accomplished showing a loans performance that, as expected, was lower than the one of other banks, but allowed to keep much of the credit level reached during the financial crisis and even reach an increase. BancoEstado s total loans expanded 0.6% in real terms with a lower dynamism in companies loans (0.4%) than personal loans (0.8%). PROFITABILITY (Profit before taxes / capital and reserves,%) In terms of financial results, BancoEstado and its subsidiaries reached a U.S. $ 296,2 million surplus before tax, which in real terms is 28.9% higher than in the previous year. In turn, profitability reached 14.8%, higher than in 2009, reflecting basically the improvement in revenues performance and the reduction of expenditure on risk in a stronger economic period. In 2010, efficiency (measured as the ratio between administrative expenses and gross operating income) expenditure, net of written-down loan recoveries, decreased compared to the previous year, representing 0.96% of total loans of the bank as of December 2010; a figure that appears favourable compared to the 1,26% appearing in the rest of the financial system. This can be explained by a moderate increase in provisions associated with the risk of customers, punishment control and higher recoveries. During this period, BancoEstado kept the best risk rating in Latin America (according to Standard & Poor s and Moody s), in accordance with the strong rating assigned to the Republic of Chile. A major milestone during 2010 was the issuance of a U.S. $ 500 million bond in the international market, Earnings before tax 365 292 421 230 296 Core capital 1,431 1,491 1,501 2,039 1,990 effective networth 2,218 2,168 2,233 2,824 3,003 Total loans 22,051 19,942 20,164 24,251 24,393 Total consolidated assets 35,583 33,941 33,191 36,980 40,174 Earnings before tax/ total assets (%) 1.03 0.86 1.27 0.62 0.74 Earnings before tax/capital and reserves (%) 25.5 21.51 28.01 11.2 14.8 Efficiency ratio (b) 60.8 60.97 57.7 58.9 58.0 Provisions over loans ratio (%) 1.43 1.63 2.69 2.75 2.92 Core capital/total eligible assets (%) (c) 3.97 3.87 4.41 5.34 4.62 Basel ratio (%) (d) 11.10 10.78 10.91 12.36 12.14 Branches 313 327 342 344 344 CajaVecina and ServiEstado 326 1,043 2,045 3,406 4,648 Automated Services 2,204 2,320 2,663 2,900 2,995 Total annual transactions (million) 280 302 360 447 581 30% 25% 24.4% achieving very good rates. (a) Since 2008 Financial Statements are issued under IFRS regulation. (b) Administrative expenses over gross margin plus monetary adjustment. (c) Legal minimum 3%. (d) Legal minimum 8%. (e) ATMs, cash dispensers and drop boxes. Source: SBIF and BancoEstado BancoEstados results increased 28.9% in 2010, as its ROE. Efficiency improves, following previous years trend. Provisions ratio over total Loans is stabilizing after the increased suffered under financial crisis of 2008-2009. 20% 15% 14.8% 2010 INTERNATIONAL RISK RATING FOR BANCOESTADO 10% 5% 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 BancoEstado System Non-consolidated figures until 2007 Company Short Term (1) Long Term (2) Forecasts Moody s (3) P1 Aa3 Stable Standard & Poor s (4) A1 A+ Positive In 2010 BancoEstado raised its long term credit rating (Moody s). In 2010 BancoEstado kept the best risk rating in Latin America. Source: SBIF and BancoEstado (1) Foreign currency debt, equal or under one year. (2) Foreign currency debt, over one year. (3) In June 2010 Moody s raised long term risk rating and forecasts. (4) In December 2010 S&P confirmed risk ratings and raised forecasts. Source: Moody s and Standard & Poor s. BancoEstado s profitability exceeded the system s average until 2008. Capitalization and counter-cycle policy affected it in 2009. I n 2010 BancoEstado s profitability begun its recovery, and it s expected to be back at the system s average in the coming years. 8 9

Gabriel Tomic Juan Carlos Méndez Pablo Silva Ricardo Moreno Salvador Valdés Jorge Rodríguez Segismundo Schulin-Zeuthen Andrés Medina Pablo Piñera Roberto Palumbo Corporate Governance BancoEstado Management And Subsidiaries BANCOESTADO S BOARD OF DIRECTORS and oversight the bank, regularly reviewing the progress of its operations and activities; to approve the Balance and Annual Report; to inform the In April Mr. José Luis Mardones, who led the institution since 2006, resigned as Chairman of BancoEstado. In May, meanwhile, Jessica Lopez EXECUTIVE COMMITTEE BancoEstado s senior management corresponds estate, securities or other property; settle credit applications and other operations authorized to the bank, regardless of their nature and amount; other business somehow related in participation, dependence or interference. BancoEstado s management and administration is President of the Republic on the bank s performance Saffie resigned as Vice Chairman. to the Executive Committee. It is composed by agree in internal or external credits brokerage Together with the Board of Directors and the governed by the Organic Law set forth under Law and development and suggest the destination of the Chairman, Vice Chairman and Chief Executive through credit lines, loans or otherwise, and settle Executive Committee, there are other authorities Decree No. 2, 079 of 1977. Likewise, matters not profits at the end of each period; and to perform In May 2010, the President of the Republic, Officer, as well as BancoEstado s General Counsel, the issuance of bonds, guarantees or other security; that structure the corporate governance of the covered under the tool above are subject to the other duties as specified by law or regulations. Sebastian Piñera Echeñique, appointed Mr. who participates without a right to vote. appoint, remove, transfer, accept resignations, send bank. These are described below. General Banking Law and other provisions from the Segismundo Schulin-Zeuthen Serrano as Chairman on official mission, set disciplinary measures and private sector. BancoEstado s Chairman is an officer under the of BancoEstado, Mr. Roberto Palumbo Ossa as The Executive Committee is responsible for the terminate contracts of senior staff; provide directly The bank s senior management is exercised by the Board of Directors. This collegiate body is composed of seven members, six of which are under the exclusive trust of the President of the Republic and are appointed through Supreme Decree by the Ministry of Finance. The seventh member, the exclusive trust of the President of the Republic, and has the out-of-court representation of the bank, especially before public authorities, banks and financial institutions, at national and international level. He also chairs the meetings of the Board of Directors and Executive Committee, and calls special sessions, setting the corresponding table. He must Vice Chairman, and Mrs. Jorge Rodriguez Grossi, Salvador Valdés Prieto, Gabriel Tomic Errazuriz and Juan Carlos Méndez as Directors. Chairman: Segismundo Schulin-Zeuthen senior management and operations of the company. It may agree, implement and execute any act or contract leading to the fulfilment of the bank s objectives. Its actions must be within the laws and regulations, and policies and standards provided by monetary authorities, the Board of Directors of BancoEstado and the Superintendency of Banks and or through the bank s officers and employees all the necessary instructions and recommendations for the efficient administration and good performance of the company; grant special mandates and delegate to any of its members, in one or more committees, senior positions or one or several specially selected officers, the attention or execution of matters Chairman: Segismundo Schulin-Zeuthen Vice Chairman: Roberto Palumbo Chief Executive Officer: Pablo Piñera Labour Director, is the employees representative, chosen by themselves, and has an alternate. Chairman and Vice-Chairman are selected amongst those seven members of the Board. The Board s duties are: to state the general policy oversight the company and comply with any other duty entrusted by the Board of Directors and the Executive Committee. The Vice Chairman has the exclusive trust of the President of the Republic and his main duty is to Vice Chairman: Roberto Palumbo Directors: Juan Carlos Méndez Jorge Rodríguez Gabriel Tomic Financial Institutions (SBIF). Among its responsibilities, the Executive Committee may: set the terms and conditions for the bank s operations, such as guarantees, maximum amounts and interest rates; monitor the compliance of deemed appropriate; and designate employees who will act as certifying officers in procedures and documents of the bank, as well as for its own deliberations and agreements. BancoEstado s immediate administration corresponds General Counsel: Andrés Medina of the bank; to elaborate internal regulations; to subrogate the Chairman in case of absence, vacancy Salvador Valdés agreements, regulations and instructions; approve to the Chief Executive Officer, who has the exclusive approve the staff remuneration system; to set the salaries and other allowances of staff that are not collectively negotiable, with the approval of the Ministry of Finance; to create or remove subsidiaries in the country or abroad; to decide on matters or any other cause. This subrogation includes all the duties and powers of the Chairman, including the ones set by delegation. Likewise, he must perform the duties and powers entrusted or delegated by the Board of Directors and the Executive Committee. Labour Director: Pablo Silva Labour Alternate Director: Ricardo Moreno the annual budget for investment and expenditure, as well as its amendments, provisions and writeoffs, and the Balance and Annual Report of each period; report every year to the Board of Directors on business operation and development; agree trust of the President of the Republic. In order to safeguard the necessary transparency of their actions, no member of the Board of Directors or the Executive Committee may participate or submitted by the Executive Committee; to supervise on investments, purchases and disposals of real vote in credit transactions, investments or any 10 11

AUDIT COMMITTEE LEGAL DEPARTMENT BANCOESTADO SUBSIDIARIES Created in 1995 by the Executive Committee, the Audit Committee is an important internal control The Legal department holds the legal representation of the bank before administrative tribunals, courts receiving sanctions for legal or regulatory violations, financial loss or loss of reputation for failures in the Eight subsidiaries, supporting the core business which provide financial services, represent a complement for BancoEstado to provide the banking services needed by its clients in various fields. entity, aimed at strengthening and supporting the of Law, and/or other special courts. Appointed by fulfilment of applicable laws, regulations, codes of management of corporate governance. Its role is complementary to the General Counsel s role, the President, the General Counsel must attend the meetings of the Board of Directors and Executive conduct and standards of good practice. Likewise, the Management assists customers and manages BANCOESTADO SUBSIDIARIES MANAGEMENT partners: in insurance matters, BancoEstado set a six years agreement with Metlife Chile Inversiones Furthermore, the SBIF may, for purposes of consolidation with the bank, directly request the established by Organic Law. It consists of five members, two of which are independent from the management. Committee, without the right to vote. His duty is to ensure that the agreements, instruments and contracts comply with the applicable legal their requirements. BancoEstado S.A. Administradora General de Fondos Pablo Mayorga (*) Limitada, a subsidiary of MetLife Inc. Co.; and in expanding opportunities for savings and investment, BancoEstado entered into an agreement in January financial statements to these subsidiaries, and review all operations, books, records, accounts, documents or information to determine its solvency. This entity is responsible for the maintenance, implementation and operation of the bank s internal controls, the risks of business activities carried out and the enforcement of rules and procedures. Likewise, they must review external auditors reports, balance sheets and other financial statements; proposals of auditors and risk rating entities; review the background of related operations; and analyse remuneration systems and main compensation plans for executives. Its objectives are to ensure efficiency, maintenance, implementation and operation of risk management systems and internal control, as well as the compliance with the rules and procedures governing the banking activity, and identify business risks undertaken by the bank and its subsidiaries; supervise the operations of the Audit Office and its independence from management; to serve as liaison and coordinator of work between internal and external audit, acting as well as a link between them and fulfilling all duties and responsibilities established by the Superintendency of Banks and standards and to report legal issues submitted for his consideration. General Counsel: Andrés Medina AUDIT OFFICE The Comptroller is responsible for the internal control and oversight of the bank s accounts, services and offices. He must evaluate and promote improvements in risk management and internal control of the bank and its subsidiaries, to protect the resources of clients, financial assets and reputation of the bank. Comptroller: Pedro Bolados Compliance Manager: Álvaro Del Barrio DIVISION MANAGERS BancoEstado has six Management Divisions which report directly to Chief Executive Officer. Chief Credits Manager: Arnoldo Courard Chief Financial Officer: Carlos Martabit Chief Administration Officer: Victoria Martínez Corporate Risk Manager: Eduardo De Las Heras Operations and Systems Division Manager: Fernando León BancoEstado Centro de Servicios S.A. Patricia Morales BancoEstado Contacto 24 Horas S.A. Jaime Reyes BancoEstado S.A. Corredores de Bolsa Jorge Ramírez BancoEstado Corredores de Seguros S.A. Joaquín Alegría (**) BancoEstado Microempresas S.A. Asesorías Financieras Soledad Ovando BancoEstado Servicios de Cobranzas S.A. Carlos Eterovic Sociedad de Servicios Transaccionales CajaVecina S.A. Jorge Stuardo While all of these subsidiaries belong to BancoEstado, they are independent companies with their own objectives and strategies. However, they share the corporate mission and are part of the same team. Overall corporate governance of these companies depends on the Executive Committee. 2009 with the French BNP Paribas Investment Partners, one of the largest banks worldwide. Related Entities BancoEstado shares, represents and/or participates at different levels in the following entities. None of these are subsidiaries of the bank. Ownership interest: -Administrador Financiero Transantiago S.A. (21%) -Bolsa de Comercio de Santiago S.A. (2.0833%) -Bolsa Electrónica de Chile S.A. (2.439%) -Operadora de Tarjetas de Créditos Nexus S.A. (12.903%) -Sociedad Operadora de la Cámara de Compensación de Pagos de Alto Valor S.A. (Combanc S.A.) (10.23%) -Transbank S.A. (8.7188%) Supervision and reporting to external agencies Controller As the rest of the financial industry, BandoEstado is regulated by the Superintendency of Banks and Advisors and External Auditors The bank hires risk rating companies to evaluate its instruments as part of the normal practices for public-offered securities issuers. Thus, investors materialize their investment decisions under wellknown risk standards and guidelines, increasing transparency and information on conditions of the entity as an issuer of financial instruments. Additionally, it has a external audit service which reviews the individual and consolidated financial statements of BancoEstado and its Subsidiaries, as required by the SBIF and the Superintendency of Securities and Insurance (SVS), as appropriate. Financial Institutions. During 2010 the Committee held 14 meetings. COMPLIANCE MANAGEMENT The Compliance Manager is responsible for Planning and Management Control Officer: Óscar González Subsidiaries have been created in order to ensure a high quality, lower cost and more efficient Financial Institutions (SBIF), which enforces the laws, regulations, statutes and other related provisions, and extensively controls all operations and business managing regulatory, reputational and operational administration of the services provided to customers activities. Chairman: Juan Carlos Méndez Members: Roberto Palumbo Jorge Rodríguez Patricio Meller Guillermo Ramírez risks, allowing BancoEstado to be a sustainable organization and serve the diverse audiences. The Management has an independent nature and identifies, advises, warns, monitors and reports compliance risks in the organization and promotes a culture of compliance, avoiding exposure to risk of requiring more specialized care. This allows the diversification of the bank s business within the scope of their own line of business and enables the central line to continue in the strategic development. For the development of two business areas, the bank set strategic alliances with world-class As per Article 70, letter b), the SBIF s oversight reach as well subsidiaries, and business support companies according to Article 74, both from the General Banking Law, where the bank is shareholder or has a stake, and which existence or incorporation has been previously authorized by the Superintendency. (*) Pedro Rojas Acted as General Manager of this subsidiary until February 28, 2011. (**) Fernando Silva Acted as General Manager of this subsidiary until December 10, 2010. 12 13

Board of Directors Chairman: Segismundo Schulin-Zeuthen Vice Chairman: Roberto Palumbo Directors: Juan Carlos Méndez Jorge Rodríguez Gabriel Tomic Salvador Valdés Labour Director: Pablo Silva Audit Committee Chairman: Juan Carlos Méndez Members: Roberto Palumbo Jorge Rodríguez Patricio Meller Guillermo Ramírez Labour Alternate Director: Ricardo Moreno Prizes and Awards 2010 Executive Committee General Counsel: Andrés Medina Compliance Manager: Álvaro del Barrio Chief Commercial Officer : Arnoldo Courard Chairman: Segismundo Schulin-Zeuthen Vice Chairman: Roberto Palumbo Chief Executive Officer: Pablo Piñera General Counsel: Andrés Medina Chief Executive Officer: Pablo Piñera Chief Financial Officer: Carlos Martabit Chief Administration Officer: Victoria Martínez Organization Chart Comptroller: Pedro Bolados Planning and Management Control Officer : Óscar González Corporate Risk Manager: Eduardo De Las Heras Operations and Systems Divicion Manager: Fernando León Best seller Prize 2010 The journal Diario Financiero and the university Unviersidad Autónoma de Chile awarded BancoEstado for handling the financial crisis and for its financial performance in 2009. Merco Spain Merco ranked the bank among the 50 most prestigious companies in the country and the first in ethics and CSR awareness. Corporate Mutual Fund Award Fund Pro Platinum Performance assigned to the BancoEstado s Corporate Mutual Fund the diploma to the second best fund in national debt under or equal to 90 days. Internship executives award Meta 4 awarded the program Executives Internship in Claims Resolution for being an innovative practice in human resources. Among the Best Places to Work The Bank took the place 26 in the ranking of the Best Places to Work in Chile, prepared by Great Place to Work Institute and magazine Capital. BancoEstado Micro-Enterprises was ranked in the 5th place. Direct Marketing International Award ALMADI assigned the Silver Medal in the category Direct Mail Product B2C to the campaign Help me my friend. Silver BIG! marketing The campaigns Great Challenges from Wholesale Banking, and Income Tax Operation from Customers Service won the award above. Capital and ProCalidad Consumer satisfaction BancoEstado received a good practices award as per listening its customers. Among the best companies for working mothers and fathers The ranking developed by magazine Ya and Fundación Chile Unido acknowledged the bank for its policies to reconcile work and family life. ACHAP double distinction awards Two spots for CajaVecina were granted with silver and bronze medal in the XI Festival de Televisión, Gráfica, Radio y Creatividad ACHAP 2010. The Lab Y&R highlights BancoEstado as one of the best brands in Chile The Bank was ranked at the place 30 among the 100 best brands in Chile, according to the BrandAsset Valuator 2010. Prize Consumer satisfaction. 14 15

Key Milestones in 2010 FEBRUARY BancoEstado is leader in number of customers using their private Internet site. According to the SBIF, between December 2009 and December 2010 the number of customers who entered with user password to www.bancoestado.cl increased by 46%. Thousands of people went each Saturday to the Paseo Ahumada in Santiago Downtown to enjoy a Chilean film series that BancoEstado offered for free. APRIL Feller Rate gave a AAA rating to BancoEstado, as per the stability of its funding sources, good credit management and leadership in savings and mortgage financing. BancoEstado paid more than 500,000 March bonus, 84% of the total amount of beneficiaries of this government subsidy. BancoEstado celebrated in Parral the closure of JUNE BancoEstado addressed a successful placement of a subordinated bond - Series I2, amounting UF 3 million, equivalent to U.S.$117 million, at a 28 years term with a 3.74% interest rate. BancoEstado collaborated in the fifth version of Expo ArribaMiPyme, which offered services for entrepreneurs and recovery of micro, small and medium businesses affected by the earthquake. the Chilean films road show they sponsored in the communities most affected by the 27 February catastrophe. JANUARY MARCH MAY JULY According to ECLAC, compared to other public banks at a regional level, BancoEstado showed the highest increase in loans during the peak of the international financial crisis. The bank supported the concert Song for Haiti, to raise funds for earthquake victims in that country. BancoEstado strengthened its branches, extended ServiEstado s working hours and set mobile banks to facilitate access to financial services in the districts affected by the earthquake and tsunami in the Biobío and the Maule Regions. In the areas most affected by the earthquake, the The President of the Republic, Sebastián Piñera, appointed as new members of BancoEstado s Board of Directors Mr. Segismundo Schulin-Zeuthen as Chairman; Roberto Palumbo Ossa as Vice President, and Mr. Jorge Rodriguez Grossi, Mr. Salvador Valdés Prieto, Mr. Gabriel Tomic Errazuriz and Mr. Juan Carlos Mendez as Directors. BancoEstado signed an agreement with the National Irrigation Commission to improve farmers funding access to repair and rebuild irrigation works damaged by the earthquake. bank postponed the payment of 6 mortgage dividends for its customers and rescheduled loans for micro and small entrepreneurs. The branch of Talcahuano gets operational again, completing the process of reactivating the offices damaged by the earthquake in the region of Bio-Bio. MetLife Chile Inversiones Limitada paid U.S.$58 million in equity stake to BancoEstado Insurance Brokers. BancoEstado achieved the highest taxes payment in history. The contribution for tax year 2009 was over U.S.$459.4 million. 16 17

AUGUST BancoEstado held its IX Housing Fair. The exhibit included more than 200 projects from 20 real estate companies, with very convenient rates for those who dream of their own home. SEPTEMBER BancoEstado issued in international markets, U.S., Europe and Asia a 10 years bond for US$ 500 million with semiannual interest rate. BancoEstado was ranked as a leader in amount of customers with access codes to enter their website to make transactions. This represents 33% of online customers at national level. OCTOBER BancoEstado signed an agreement with AvalChile to expand and improve access of SMEs to bank financing. According to a study based on ratings from Moody s, Standard & Poor s and Fitch, BancoEstado is the safest bank in Latin America. During Chile s Bicentennial, BancoEstado celebrated 155 years providing financial services to Chileans. NOVEMBER BancoEstado delivered 300 computers to schools and colleges in the Regions most affected by the 27 February earthquake, helping to reduce the digital gap along the country. In Quintay, with the President of the Republic, BancoEstado celebrated the major advances in bankarization with the opening of the CajaVecina number 4,000 and 400,000 microentrepreneurs. BancoEstado s Customers could make Christmas and New Year purchases with credit card at 0% interest rate. BancoEstado commemorated the World Savings Day with representatives of the Global Compact, financial system authorities and students and school teachers from Marqués de Ovando School. DECEMBER BancoEstado delivered for the sixth consecutive time the Muhammad Yunus Entrepreneur Prize, an initiative that recognizes the entrepreneurial capacity of microentrepreneurs, their effort and innovation. BancoEstado s Savings Museum reopened with new facilities, in the premises of the Bank s Headquarters. The Santiago Stock Exchange ranked BancoEstado Brokers in the first place in the ranking of volume traded in financial intermediation instruments and fixed income. Likewise, BancoEstado led the total stock trading operations of all markets, with U.S.$143.5 billion. The Guarantee Fund for Small Entrepreneurs (FOGAPE), managed by BancoEstado, celebrated 30 years of existence and coincided with its fourth bid in 2010, which awarded USD$ 7 million in guarantees. 18 19

1855 Creation of the Caja de Crédito Hipotecario. 1910 Creation of the National Savings Fund. 1928 Creation of the Institute for Industrial Credit. 1977 Enactment of the Constitutional Organic Law of Banco del Estado (Decree No. 2,079). 2001 Change corporate image. 2004 Strategic alliance between BancoEstado and MetLife Inc. Creation of ServiEstado 2007 Launching of CuentaRUT and CajaVecina. 2009 Strategic Alliance with BNP Paribas Investment Partners. 1884 Creation of the Caja de Ahorros de Santiago. 1926 Creation of the Agricultural Credit Bank. 1953 Foundation of Banco del Estado of Chile. 1995 Starts modernization project of the bank. 2003 Integration of BancoEstado and Redbanc ATM network. 2005 Opening of New York Branch. 150 years serving the country. 2008 Capitalization of U.S. $ 500 million. 2010 More than one million customers using Internet banking. Opening of the CajaVecina number 4,000. Reaches the goal of 400,000 microentrepreneur customers. 20 21

BACKGROUND BANCOESTADO EMERGES BancoEstado s history begins in 1855 with the creation On July 24, 1953, the President Carlos Ibáñez del The change of century was an opportunity to change This target must be carried out efficiently, because of the Mortgage Fund (Caja de Crédito Hipotecario) Campo merged the Mortgage Fund, the National BancoEstado s image and name. BancoEstado was the bank resources come from all Chileans. Being under the State supervision during the administration Savings Fund, the Agricultural Credit Fund and the known as a modern institution, keeping its mission efficient means being careful in spending and as of President Manuel Montt. By that time, the country Industrial Credit Institute, creating the Banco del and values, in order that every Chilean, anywhere, efficient and profitable as relevant competition. had no banks and the Fund provided loans and took Estado de Chile, today BancoEstado. On September can be an entrepreneur and develop. Likewise, servicing emerging segments, the bank deposits of individuals, companies and institutions. 1st, 1953 BancoEstado started operating as an aims at adjusting profitability as per lower income autonomous state enterprise, with legal status and In 2002 the networking of Redbanc and BancoEstado and costs involved in providing products and Nearly three decades later, in 1884, the Santiago own patrimony. ATMs was completed, serving all banking customers services to these sectors. BancoEstado s profitability Savings Fund (Caja de Ahorros de Santiago) is created through more than 3,500 ATMs. The modernization strengthens its social role and ensures sustainable to encourage workers savings. A six year old boy The just created Banco del Estado had six departments: process included the introduction of electronic growth of the company. deposit of 100 pesos gave birth to the first account in banking, savings, agriculture, industrial, mortgage banking; a model that combines face-to-face that Savings Fund. One year later, the Fund managed and investment. Its mission was to provide credit channels such as offices, CajaVecina and ServiEstado 45,000 accounts and by 1900 it had offices in 12 in an organized and effective way, pointing at the with automation and remote servicing, as well as cities along the country. productive sectors and individuals that private banks the opening of the New York office and the creation did not attend. of subsidiaries supporting the core business. Both Funds were merged in 1910 to create the National Savings Bank (Caja Nacional de Ahorros), Another role of the bank was bringing the banking In 2003 we celebrated 50 years since Banco del whose focus was savings and mortgage loans for benefits throughout the country, even to the farthest Estado was created. That year marked the progress workers. Those mortgage loans required a payment corners, i.e. bankarizing people. Thus, during made by the bank aiming at strengthening Chileans of 25% in advance, and the remainder in annual the first 20 years, the bank of all Chileans was bankarization, as well as the steps made to have a instalments, which stimulated the construction of consolidated as the largest in Chile. bank that meets the needs of its customers. urban communities. MODERNITY AND GROWTH BancoEstado is currently present in 100% of The National Savings Fund reached 1,400,000 accounts in 1927 and had 147 offices along the country. That same year was opened the Agricultural Credit Fund and one year later, the Industrial Credit Institute. In 1939, the earthquake of Chillán left 30 people dead. The National Savings Fund supported the reconstruction of the devastated area and adopted a flexible credit policy for the victims. One of the events driving the bank to be part of the modernization of the country and its institutions was the transformation projects developed in the mid-90 s. By then, the bank implemented a strategic plan to reconcile economic and social efficiency; to improve customer service; to introduce a management style focused on results, and sought to achieve stability and progress of its workers together with a higher competitiveness. communes along the country through its offices, ServiEstado or CajaVecina points. Its strategy is to achieve an efficient bankarization. Bankarization work involves, in addition to its commercial role, a social inclusion role - which distinguishes it from other banks - to set financial system at everyone s reach, facilitating access to services as well as development and entrepreneurial opportunities for individuals and businesses. 22 23

Evolution of the Bank in Figures, 1990-2010 BANCOESTADO: TOTAL LOANS * (U.S. $ billion December 2010) BANCOESTADO: MARKET SHARE (%) 24 16% 20 12% 16 12 Increasing and sustained loans trend during the entire period. In 2010 total amount of loans reached over US$ 24.4 billion. At closure of 2010, BancoEstado s market share was of 15.2% 8% 8 4% 4 0 1990 1995 2000 2005 2010 0% 1990 1995 2000 2005 2010 Consolidated since 2008 Source: BancoEstado Source: BancoEstado EVOLUTION OF LOANS BANCOESTADO AND GDP (Ratio 1990=100) BANCOESTADO: COMMERCIAL LOANS* (US$ billions - December 2010) 600 12 500 10 During the last 2 decades, BancoEstado s Loans have quintupled. In that same period, the GDP increased in 2.7 times. Between 2000 and 2010 loans increased at a 10,9% average per year, while GDP expanded at a 3,8% rate per year. 400 300 200 8 6 4 Permanent support for companies and entrepre neurs. In 2010 business Loans grew at a lower rate, after the strong growth occurred in 2009. 100 2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Loans BancoEstado GDP 0 1990 1995 2000 2005 2010 Source: BancoEstado and Central Bank Consolidated since 2008 Source: BancoEstado 24 25

BANCOESTADO: MORTGAGE LOANS (US$ billion - December 2010) BANCOESTADO: ROE (RETURN ON EQUITY BEFORE TAXES, %*) 10 25% BancoEstado is one of the leaders in mortgage funding, especially in low-in come segments. The bank as a 24% market share in the total amount of Loans, and has 59% of the current mortgage loans appearing inthe system. 8 6 4 Profitability in time allows to strengthen social role and ensure the bank s sustainable growth. In 2010, profitability recovered and reached 14.8%, after the previous period adjustment (ROE: 11.0%), due to the capitalization and coutercyclical policy developed. 20% 15% 10% 2 5% 0 1990 1995 2000 2005 2010 0 1991 1995 2000 2005 2010 Source: BancoEstado Consolidated since 2005. Source: BancoEstado. BANCOESTADO: EFFICIENCY RATE (Administrative expenses / gross operating result *) BANCOESTADO: CAPITAL AND RESERVES (US$ billion - December 2010) 2.0 80% 1.6 70% 60% During the last decade, the ef ficiency quotient shows a sig nificant improvement. That trend continued during 2010. 1.2 0.8 A strong and solvent bank. Capital increases were funded with profits until 2008. In 2009, the extraordinary capitalization expanded the activity, keeping a high solvency. 50% 0.4 40% 1991 1995 2000 2005 2010 0.0 1991 1995 2000 2005 2010 Consolidated since 2005. Source: BancoEstado Source: BancoEstado 26 27

II. A BANK AT THE SERVICE OF CHILEANS

ANNUAL REPORT BANCOESTADO 2010 ANNUAL REPORT BANCOESTADO 2010 Vision and Mission of BancoEstado Strategic Plan 2011 2014 Visión A bank of excellence, with a high social impact business management. Bankarization is the engine that drives BancoEstado s management and its main focus as well: to democratize access to the financial system and make it available to all Chileans. BancoEstado has a medium-term strategic plan whose main objective is to bankarize in a sustainable manner. The main challenge for the period 2011-2014 will be to combine an aggressive bankarization strategy and the need to improve efficiency and profitability indicators. This, in an auspicious scenario for 2011 in the banking industry, with a projected GDP growth of around 6% and close to 13% for loans in the system. In order to bankarize, this company needs to be a massive and relevant bank. This role involves the use of low cost and high quality mass payment systems, and alternative channels. BancoEstado retains and maximize its profitability, which belongs to every Chilean. Improvements in efficiency require to raise productivity, still ranked at levels under the system and with a structure of assets with a low capacity to generate incomes. STRATEGIC PILLARS Strategic planning is built on BancoEstado s fundamental strategic statements contained in their definitions of vision and mission, as described above, and in the positioning expected amongst its clients. BancoEstado s positioning is characterized by its proximity and long-term relationship with its customers; delivering a competitive quality service; committed in the promotion of entrepreneurship and financial inclusion, and as a state bank which actively promotes bankarization. Mission We exist so that every Chilean, anywhere, can initiate and develop new initiatives. In this context appears the target of improving the efficiency ratio and return on equity (ROE). Thus, 30 31

STRATEGIC GUIDELINES 2011 2014 The challenge of bankarization Improving efficiency and profitability STRATEGIC PLAN 2011 2014 Strategic Map 2011-2014 Various global indicators agree that there This goal is essential for BancoEstado. First, because the BancoEstado strategic plan has been revised is a strong correlation between economic bank must retain and maximize profitability, which is in recent years as a result of a continuous Social Impact Business Management development and bankarization. Developed an asset that belongs to all Chileans. Second, because improvement process. countries are highly bankarized, and a less development in countries implies a lower bankarization as well. For this reason, the national objective of moving towards customers need quality service at an affordable price. Third, because it is embedded in a competitive industry, responsive to market opportunities. And finally, because if BancoEstado is efficient and profitable, it The bank s strategic objectives are expressed the Strategic Map set for the period. The overall approach is a business management with high Financial Efficiency Profitability Risk Bankarization Social Impact development means that the first priority for gains legitimacy to make the necessary investments social impact; all the objectives stated in the BancoEstado is the bankarization of Chile. for future development and growth. Strategic Map aim at achieving the vision and Bankarizing means opening doors, giving BancoEstado committed itself to reach a 50% efficiency mission of BancoEstado. In social terms, the objective is bankarization. In the financial sector, Customer Loyalty and exchange to increase revenue Mass and relevant Bank opportunities, contributing to modernization and bringing people and businesses the benefits of technology. Through bankarization every Chilean, anywhere in the country, will count on bank to meet their financial needs. In all, bankarizing is improving living standards of individuals and their families as well as rate and achieve a return similar to the average of the system by 2014 (and over 16% in 2011). high impact initiatives to improve efficiency and profitability: BancoEstado also promotes a set of short-term initiatives that will impact on revenues and costs in 2011. the objectives are to improve efficiency and profitability. Customers are at the core of the Strategic Map. This map shows the results to be attained with clients in order to achieve the objectives of bankarization and efficiency. It highlights the values offered, which are Clients Access Value Proposal Quality Transparency Closeness enterprises. To achieve this, the bank must be able to provide financial services throughout the entire country. Initiatives impacting the generation of incomes: Increase crossed banking and products, especially in mass segments. characterized by being accessible, close, transparent and provide a high-quality service. Thus, BancoEstado will increase significantly its operating revenues and will become a even more massive, relevant and Internal Processes SLAS in critical processes Increase in productivity and cost reduction in processes Mass support processes and technology Thus, it s essential to expand the network of CajaVecina up to 6,500 points in 2011. Likewise, savings mechanisms must be increased - especially the savings account in which the bank is leading with more than 7.5 million customers with active accounts - and providing housing access for lower-income Chileans. The bank s ongoing commitment is promoting financial inclusion for individuals and companies through the design of different products and low-cost customer service channels specially defined for each segment. Increase financial income with the right balance between risk and profitability. Initiatives impacting costs: Improve information on process costs and assign responsibilities for each process. Accelerate the migration of on-site transactions to on-line transactions channels. Anticipate deadlines and deliverables for transformation projects. Improve the system of incentives to be in line with the emphasis on efficiency and profitability. perfeccionando en los últimos años producto de un proceso de mejora continua. sustainable bank. Bankarizing with efficiency involves significant challenges in internal processes: improve quality standards (SLA) in critical processes through process management methods; improve productivity and/ or cost reduction in critical processes; and install processes and technologies supporting the massrelated target. One of the major bank s assets are people. In this area the objectives are the development of competencies as supervision, leadership, sales and customer service. Intangibles Staff competencies development 32 33

Business Transformation Programme of BancoEstado STRATEGIC PROGRAMS The Strategic Plan involves a set of projects strengthening the implementation of the objectives set in customers, internal processes and intangible assets. In terms of customers, major developments such as the Retail Banking Transformation Program (PTBM) are being carried out. These initiatives deeply transform the relationship with customers, incorporating tools that will improve management and achieve strategic objectives. In turn, the Wholesale Bank Transformation Programme was implemented during 2010. It aimed at strengthening the link and knowledge of customers in this segment, generating the skills needed in technology, service processes and practices in order to meet the strategic objectives defined for each of the services that compose it. Concerning internal processes, one of the major projects involving critical processes aims at improving the service quality and reduce costs and failures rates occurring with customers. As BancoEstado is in a changing process to provide a higher quality service to its customers. For a long time, it has been consistently working on projects that are pillars of the Strategic Plan. That is BancoEstado s Business Transformation Programme. At the Retail Banking level, this programme adjusts the interaction with individuals and microenterprises. At the Wholesale Banking level, it provides a new service for large, medium and small businesses and public institutions. The process seeks to innovate, expand and develop new capacities enhancing the bank s competitiveness and enabling the achievement of the targets set for the period. This great task needs to count on all the bank s areas. In order to develop the above, the bank developed new technologies that change its internal system structures in order to maximize the efficiency of processes and to provide customers multiple channels such as the Business Platform, Internet, Sales and Service Module, Mobile Banking and Call Center. The centerpiece of the Business Transformation Programme and particularly of both banking services defined above is multi-channel marketing, which implies that both the executive and the client have access to the same information, regardless the channel through which they communicate with the bank, to sell products through various channels. The transformation required new technology products that, together, can reduce the costs of developing and deploying applications; can reduce labour costs and speed time needed for production of channels, services and products. Likewise, during this period there has been significant progress in controlling and monitoring the indicators of the technological platform operation and in streamlining the processes for its administration. This resulted in a reduction of incidents, especially those affecting clients, contributing to the improvement of the perceived service quality. Partially operating, the Retail Banking Programme shows its first results as, for example, the issuance of BancoEstado s Mobile Web Site, Electronic Collection and Revision of Powers and Signatures; validation of Electronic Contracts on the Internet 24 hours, and the AP Insurance Sales over the Internet, among other initiatives. Another relevant and high impact line is the Business Management Model, aiming at improving productivity of business executives, as well as improvements implemented in cash and desk management that have helped to reduce transaction costs. As for the Wholesale Banking, the project aims at increasing the link and knowledge of customers, generating the required changes and capabilities, both in technological and service process and practice levels. The implementation started in 2010 and has already shown significant results. One of them is the development of new capacities of the web site for this particular segment of customers. In addition to the improvements in current accounts, this channel will provide more friendly management platforms that will integrate multiple business operations. 34 35

III. SALES MANAGEMENT: BANCOESTADO IN CHILEANS BANKARIZATION

BancoEstado Before the Banking Industry: Results 2010, Trends and Forecasts PROVISIONS OVER TOTAL LOANS (%) In 2010 worldwide economy rebounded after the deep financial and economic crisis experienced in the previous biennium. Industrialized countries showed a slow recovery, affected by significant tax and monetary imbalances that would need time to be adjusted. In contrast, emerging economies kept a strong growth dynamics. This trend will continue while overheating risks and the appreciation of their currencies are appropriately addressed. In Chile, the economic recovery begun in late effects of the earthquake and tsunami that ravaged the country. Indeed, after a few months the activity resumed its pace, showing great dynamism in investment and consumption, which resulted in a strong employment growth and in the improvement of entrepreneurs and consumers expectations. Chile remains one of the countries with the highest financial development in Latin America. The country is especially remarkable in the level of bankarization reached, with a credit depth 3.1 Spain 2.2 Portugal 1.4 Japan 1.4 United Kingdom 2.6 Chile United States 3.5 Brazil 6.2 Colombia 5.7 2009 was temporarily interrupted due to the Source: International Monetary Fund (2010) BANKING DEPTH WORLDWIDE (Banking Loans / GDP, %) Chile shows a high Loan depth in the Region, but is still far from developed countries. Spain Portugal China Japan United Kingdom Germany Chile Brazil Colombia Mexico Mexico Argentina 5.2 153 146 144 105 93 88 77 United States 14 Argentina 13 59 37 28 3.6 Provisions over total Loans in Chile is within controlled ranges that can be compared to developed countries. At the same time, banking shows an appropriate solvency. reaching 77% of the GDP. BASEL RATIO (Net assets / risk-weighted assets, %) Spain 12.2 Portugal 10.6 Japan 15.8 United Kingdom 14.8 Chile 13.6 United States 14.7 Brazil 17.5 Colombia 12.8 Mexico 16.4 Argentina 18.4 Source: Financial Access 2010, The World Bank. Source: International Monetary Fund (2010) 38 39

ANNUAL MEMORIA REPORT ANUAL BANCOESTADO 2010 ANNUAL REPORT BANCOESTADO 2010 SLOW GROWTH AND HIGH RETURNS ON THE BANKING SYSTEM IN 2010 The banking activity and economy expanded at a similar rate, but under the two digit market On the other hand, the average profitability of the banking system continues growing and showing record levels, supported by a lower expenditure in provisions and write-offs and the increase in Bankarization continues developing, driven by the widespreading of payment methods, supported basically on electronic banking that can expand services at reduced costs. Corporate Management During 2010, BancoEstado s activity was focused in developing bankarization to have a greater inclusion of all sectors in society, particularly the lower income ones. Financial sustainability is A conservative and responsible management was performed during the period. This management allowed to hold the record volume of activity reached by the bank in 2009, after the capitalization THE EARTHQUAKE OF FEBRUARY 27 Satisfied for having responded to the country and each of our customers After the earthquake, BancoEstado strengthened its work teams to face the disaster and to support its customers. This involved: forecasts appeared earlier this year. Indeed, the expansion of output and employment are not strongly reflected in the evolution of bank loans. In 2010, total loans expanded 6.1%. Performance for mortgage and consumer loans was in line with the recovery of domestic demand and reached a rough 9% annual growth. Meanwhile, commercial loans increased only 4.3%. Due to the impact of the international financial crisis on local economy and, additionally, to the increased demands resulting from the interest margins and commissions. In parallel, operational efficiency (administrative support expenses over gross operating margin) shows a slight decline since late 2009, ending the year at 46.0%, given a relatively lower growth in operating revenues as per administrative support costs. INDUSTRY OUTLOOK FOR 2011 2011 outlook shows a further expansion in bank lending, driven by a vigorous economy and high employment levels. Thus, we can anticipate a In short, the industry rebounded in 2010 and consolidated its results, anticipating good forecasts for 2011 and future years. In a favourable scenario of economic growth and institutional stability, the banking system is expected to continue providing economic and social development for the country, increasingly expanding access to financial products and services to all families and businesses. essential for succeeding in this task. The bank needs to be profitable to have the resources to develop its activities. It also sought to respond quickly to the requirements arising from the earthquake of February 27. The quake, which meant a $30 billion loss for the country, affected 26,000 clients in the microenterprise segment, five thousand from small business, and 44,000 customers who submitted claims for damage in their properties. Given this complex scenario, the bank and its staff had a quick first reaction and created work teams along the of that year. The focus at a business level remained on customer guidance, through segmentation in order to reach customers with the appropriate products and services. The need for a more efficient operation, both in expense control and revenue growth, was emphasized at all levels of the organization. Thus, in 2010 the bank reached a slight expansion of loans and increased profits, maintaining a limited and controlled risk. Postponement of 6 mortgage payments for customers from the Maule and Bio-Bio regions (45 thousand operations benefited). Delay in 2 instalments of consumer loans and/ or study loans for customers affected by the earthquake (57 thousand operations benefited). More than 26 thousand microentrepreneur customers benefited (34 thousand operations) Special communication channels to report claims. 43,666 reports of damaged properties received (the greatest bulk of the banking system). new legislation and the introduction of new measurement models, provisions ratio over total loans showed a strong increase. However, it is currently quite stable, even though it remains at a level above the previous closure. strong growth in consumer loans (15%), followed by housing loans (13%) and commercial (12%). At the same time, profits are expected to further increase, but at lower rates than in 2010 given the higher base for comparison. year focused in properly solving an unprecedented overload. BancoEstado s total loans expanded at a moderate 0.6% in 2010, after having grown 22% in 2009. Insurance: 99% of claims settled and/or paid by the bank (36,600 thousand paid). BancoEstado and the Ministry of Agriculture signed an agreement to provide funding for farmers who need to repair or rebuild damaged irrigation systems. Special conditions for those who lost their homes and called for a new loan. 40 41

NET LOANS EVOLUTION 2005-2010 * (Annual variation %) BancoEstado s clients The results of the period confirm that in 2010 by the wide range of services and products 24 7,544,682 savings accounts clients BancoEstado is still the most massive bank of Chile. Many thousands of clients, including offered to meet their needs. 20 16 12 8 4 14.4 14.1 16.7 15.8 9.6 13.7 8.5 10.7 21.7 7.2 In 2010 total Loans recorded a moderate growth: BancoEstado s expansion was of 0.6%, and 7% for the rest of the system. BancoEstado Rest of the System 291,752 current accounts clients 2,881,000 CuentaRut clients 799,199 electronic check book clients individuals and companies access the bank virtually, remote or in person every day, attracted MARKET SHARE / N OF DEBTORS* (September - 2010) One in five people with loans in domestic banks are funded by BancoEstado. 0-4 -2,7 0.6 2005 2006 2007 2008 2009 2010 581,195 credit cards clients 534,254 mortgage loans clients 16% Bank 2 * Consolidated since 2008 Source: SBIF. 1,999,936 clients with insurance services Rest of the System 37% ACTIVITY GROWTH 2010 (Annual Actual variation, %) loans BancoEstado (%) Rest of the system Totals net 0.6% 7.2% Business 0.4% 4.9% People 0.8% 11.2% Housing 2.6% 11.1% Consumer: In instalments -8.8% 9.8% Credit cards 11.1% 26.2% Source: SBIF Loans evolution in 2010 was driven by individuals-oriented loans, specially mortgage Loans. 438,296 clients with consumer or students loans 436,000 micro and small business clients 1,015,467 clients on-line 2,249,000 people receiving their monthly payments as remunerations, pensions and scholarships 671 public institutions clients Source: BancoEstado. Bank 1 18% * 6,1 million debtors; debtors appear in every bank where they hold debts. Source:: SBIF Bank 3 BancoEstado BancoEstado has the highest amount of debtors recorded in the system: 1,184,000 (19%) Claims management showed positive results for customers by year s end. In December 2010 the timely response within the deadlines established, was of 85.6%. 10% 19% It is important to note that BancoEstado receives less complaints (3.8/10,000 debtors) than the competition within the financial sector (4.4/10,000 debtors). 42 43

CLAIMS SUBMITTED TO FINANCIAL INSTITUTIONS* (average/10,000 debtors) 6 Marketing and Communications 5 4 3 2 1 0 Source: SBIF. At the same time, the bank reported a strong improvement its efficiency ratio (measured as the ratio between administrative expenses and gross operating income), which stood at 58%. This result is due to a higher income from indexation and the ongoing and systematic effort to control administrative expenses. 3.8 4.4 BancoEstado Competing Industry** System Average 3.7 *Includes claims and other queries received in writing at the SBIF until Sep-10. **Relevant competition are the five major private banks BANCOESTADO EFFICIENCY RATIO * (Administrative support costs / gross operating income,%) 75% BancoEstado recorded a lower level of claims than its relevant competing companies. During 2010, BancoEstado maintained its communication channels with customers and relevant audiences through marketing and corporate communications. MARKETING MANAGEMENT A In early 2010, the bank was focused in appropriate and timely inform in its actions in order to help the earthquake victims and the community in general. The support provided to customers was focused on individuals and small and microenterprises affected through the postponement in payment of consumer loans, dividends, and insurance instalments. Once the country went back to normal, the bank decided to increase access to banking products such as CajaVecina and CuentaRUT in less bankarized segments, which took hold in September with the launching of the Chilean credit card: unique in the market with less opening requirements and more flexibility in payment methods. Communications and social responsibility In terms of corporate communications, the bank has internal means such as the Intranet and the magazine Compromiso, in addition to the weekly electronic newsletter that supports the bank s business management, named La Red al Día. On the other hand, the website www.corporativo. bancoestado.cl addresses external communications. This website provides clear and timely information to its stakeholders, as well as the information required by Law N 20,285 of Public Information Access. The bank also maintains channels of communication with the media to reach its public audience. Besides this report, BancoEstado has been elaborating for the last six years a Sustainability Report. This document informs on the bank s The improvement trend in BancoEstado s efficiency continued during 2010, strongly supported by the higher incomes from indexation and the ongoing and systematic effort to control administrative expenses. 65% 55% 45% 69.3% 68.1% 65.2% 62.7% 60.8% 61.0% 61.9% 58.9% 58.0% In terms of marketing recognition, in 2010 the bank obtained two Big! awards and a silver Amauta award. Likewise, CajaVecina received two awards for two spots in the XI Festival de Television, Gráfica, Radio y Creatividad Integrada ACHAP 2010 and was ranked in the 30 place at the BAV ranking of brands. management in the social, economic and environmental areas. In addition, and consistent with its social role, the institution promotes ethical and transparent behaviour at the corporate level, including compliance of regulations and code of ethics and conduct for employees and contractors. 2002 2003 2004 2005 2006 2007 2008 2009 2010 *Consolidated since 2005. Source: BancoEstado. 44 45

Divisions Management ACTUAL INCREASE IN CONSUMER LOANS (Balance, December Rate 2001 = 100) During 2010, BancoEstado s business strategy aimed The market for personal banking in 2010 was LOANS at consolidating the increase in activity achieved strongly influenced by the effects of the earthquake. during the previous year, strengthening its sales capacity and accompanying the national economic recovery. In parallel, BancoEstado kept its strategic focus in bankarization, increasing Chileans access to financial services, especially those with low income, which is consistent with its vision and mission. BancoEstado developed a strategy to minimize the impact of the earthquake on their customers, postponing payments of consumer loans in March and April, and postponing as well six mortgage dividends between March and August. Likewise, during the year the bank had to deal with different situations related to insurance payments. Consumer loans After growing 13.3% in 2009, consumer loans experienced a fall in 2010. Despite the above, BancoEstado ranks fourth in this market (10.5% market share). 450 400 350 300 250 200 396 255 As a strategic guideline in personal banking, 150 BancoEstado succeeded in the fulfilment of its goals BancoEstado is committed to achieve significant 100 in most of divisions and segments. improvements in efficiency and quality for its customers. To move in this direction, during 2010 50 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 RETAIL BANKING the bank sought to remain relevant and influential in the market, increase efficiency in managing Retail banking plays a key role in financial development of Chilean population and small entrepreneurs. transaction costs and increase the number of customers, as well as the link with them through crossed products. BancoEstado Rest of the System * Source: SBIF and BancoEstado Personal banking During 2010 BancoEstado maintained a strategy with attractive products and prices for its customers, All the above showed improvements during 2010. On one hand, sales quality of personal and mortgage loans as well as CuentaRUT - improved. On the Between 2001 and 2010 BancoEstado s Consumer Loans increased four-fold, despite the fall occurred this year after the strong expansion of 2009. without sacrificing income and risk indicators, and other hand, we designed and/or fine-tuned value improving the efficiency indicators. offers for each customer segment and sub-segment. 46 47

STUDENT LOAN CUSTOMERS * (Number of debtors, December 2010) MARKET SHARE: MORTGAGE LOANS BALANCES * Market share: mortgage 23.7% BancoEstado Rest of the System 13% 27% BancoEstado Student Loans BancoEstado is one of the leaders in study funding. Mortgage Loans BancoEstado is leading middle and low income Rest of the System 27.9% 14.9% Bank 2 Indeed, loans granted under this portfolio doubled mortgage-oriented segments. During 2010, the between 2006 and 2010. Bank continued promoting mortgage loans at low In 2010 the number of customers in this segment was of 97 thousand, capturing 27% of total Bank 1 40% 8% Bank 3 interest rates and supported the real estate sector with fairs and exhibitions. Bank 1 23.7% 9.8% Bank 3 debtors of the system, with a US$748 million loan balance (one third of the stock market.). It should be noted that 95% of the loans granted by the bank 12% Bank 2 Although the bank participates in all the mortgage debt tranches, most of its operations are focused in tranches under UF 1,000, which represent 88% * Total Mortgage Loans by MMM$ 19.349 Source: SBIF are associated with incentive plans (CORFO Secured of its housing clients and 61% of their loans in this Loans, CORFO funded loans, CORFO funded and guaranteed loans and Loans under Law No. 20,027) *Total debtors: 365,016 Source: SBIF. segment. MARKET SHARE: MORTGAGE LOANS OPERATIONS* (October 2010) STUDENT LOANS* (US$ million) Bank 1 11% Rest of the System 14% Bank 3 4% Bank 2 11% 33% BancoEstado 59% BancoEstado Bank 1 28% Rest of the System 15% Total stock: US$ 2.28 billion Source: SBIF. Bank 2 14% 11% Bank 3 * Total amount of operations:: 1,25 millones. Source: SBIF. BancoEstado is one of the leaders in mortgage Loans, with 24% of the market share. BancoEstado is the main mortgage Loans financing entity in Chile, with 59% of the current loans appearing in the banking system. 48 49

BANCOESTADO S MORTGAGE LOANS BY DEBT RANGE (Percentage as of December 2010) Over UF 3,000 2.3% 25.7% Up to UF 400 Between UF 1,000 and UF 3,000 37.2% Savings and investment products The bank offers various savings and investment products to its customers in its specialized centres, which are promoted through various campaigns. 34.8% Between UF 400 and UF 1,000 Margarita Marín Term Savings In 2010 BancoEstado had the absolute and historical leadership in term savings. 87% from the 13.7 million savings book in the market are BancoEstado s, which in turn holds 84% of the total amount of savings, equivalent to US$5,12 billion. * Nº de operaciones totales: 1,25 millones. Source: BancoEstado. Consistent with the above, in social housing BancoEstado made a significant contribution during 2010, funding about 24,000 houses under the Special Housing Program (DS04). 88% of BancoEstado s mortgage loans customers have Loans under UF 1,000, i.e. 61% of the Loans in this segment. BANCOESTADO S CLIENTS WITH MORTGAGE LOANS - BY RANGE (Percentage as of December 2010) Between UF 1,000 and UF 3,000 Between 400 and UF 1,000 25.3% 11.6% 0.3% Over UF 3,000 62.8% Up to UF 400 A home close from heaven Margarita Marin Naranjo s first and unique job was at the Telephone Company of Chile, first in the office of La Serena and since 1980 at the premises of that company in Santiago down town, San Martin street. When arriving to the capital, she luckily found a place for rent at walking distance of her workplace, in an old, comfortable and safe building in Tucapel Jiménez street. Until today Ms. Marin lives there, first as a tenant for 12 years, and now in her own apartment acquired through a mortgage loan of BancoEstado. In the early nineties, the Municipality of Santiago started a housing program to reverse the neglect and deterioration suffered by most of the historic city centre. To encourage the establishment of middle-income families there, the Ministry of Housing provided support through an urban renewal grant, and commercial banks through mortgage loans. Margarita was waiting for the opportunity to have her own home. She applied and received the housing subsidy and BancoEstado granted her a 20-years term mortgage loan, with which she bought an apartment in the same building where she was previously renting. She retired in 2001 and then made an amortization of debt. I did it to reduce instalments. When I was working I had no problems paying the dividends, but since I retired it has been a little more difficult but I ve continued paying and, God willing, this year I will pay off the loan, she said. It is a 70 square meters apartment on the seventh floor of this building, very close from heaven she says smiling. It is her home and she is happy because everything is nearby. She s fine living downtown in Santiago. Now she s retired, she spends the days working with her husband in a lingerie microenterprise he has in the commune of Renca. we have to continue working hard, she modestly explains. Since the very beginning, BancoEstado has been committed to Chileans savings as a key instrument for development. It counts on more than 7.5 million customers in this product. Mutual Funds BancoEstado operates in mutual funds since 2004. Its subsidiary, Administradora General de Fondos, accounts for 9.1% of the participants in the industry and stands in fifth place in the market. During the year, BancoEstado expanded the alternatives in savings and investment for its customers with the release and incorporation of the new Bicentennial Income Mutual Fund. This fixed income instrument is an alternative for customers interested in medium and long term savings and investments. Moreover, the National Shares Mutual Fund of BancoEstado stood at second place in the market by number of participants and at the fifth place as per assets managed in its category. * Nº de operaciones totales: 1,25 millones. Source: BancoEstado. 50 51

MARKET SHARE IN TERM SAVINGS, NOVEMBER 2010 MARKET SHARE IN TERM SAVINGS ACCOUNTS - TOTAL* Payment methods CuentaRUT CuentaRut has been essential in widespreading payment methods. BancoEstado is leading debit 13% Rest of the System cards thanks to the rapid growth of this instrument. CuentaRut s main feature is its inclusion capacity, ACTIVE CUENTARUT (Stock - thousands) BancoEstado 87% BancoEstado is absolute leader in term savings accounts, both in amount and in number of accounts. as it has minimum opening requirements. Among other operations, this instrument, which is a debit card, receive remuneration payments, make *Total amount of accounts: 13.7 millons. transfers in cash, pay services and make purchases. 3,000 73% CuentaRut holders have an income under 2,500 2,881 US$427, 30% live in rural areas far from urban centres, and more than four in ten holders of these 2,000 2,262 Source: SBIF MARKET SHARE IN TERM SAVINGS BALANCES* cards have no other banking product or just have a savings account. BancoEstado s growth in active CuentaRut cards remained during 2010, reaching almost 2.9 million with 27% increase as per 2009. 1,500 1,000 500 0 19 612 1,236 2006 2007 2008 2009 2010 The above situation strengthened the leadership of the bank in debit cards, reaching a 30% market Source: BancoEstado. share, including mainly CuentaRUT cards and those associated with checking accounts and e- checking During 2010 the bank continued strongly expanding payment methods, exceeding 2.8 million active CuentaRuts. 16% Rest of the System accounts. BancoEstado 84% *Total term savings: US$ 6.1 billion Source: SBIF 52 53

ANNUAL REPORT BANCOESTADO 2010 ANNUAL REPORT BANCOESTADO 2010 subsidiary. Electronic check-book and current account At the end of 2010, BancoEstado had over BANCOESTADO S MARKET SHARE IN DEBIT CARDS (December 2010) BancoEstado s electronic check-books increased 3.3% in 2010, reaching about 800 thousand customers. Likewise, the number of accounts grew by 7.2% compared to 2009. BancoEstado is ranked in the fourth USD$213.7 million in brokered premiums. 42.3% of the insurances (1.9 million) is associated with home loans. The portfolio of this subsidiary accounts for 484,000 mortgage loans, and 99.8% of them have VALID INSURANCE POLICIES (thousands) place in this matter. fire and earthquake insurance, which has helped Bank 2 19% Bank 1 22% Rest of the System 14% Bank 3 15% 30% BancoEstado * Credit Cards As per the rapid, convenient and safe conditions offered by BancoEstado s credit cards, they represent an increasingly used method. In 2010, the bank maintained its leadership in customer growth with this product. The 31% increase as per 2009, ranked the Bank at the fourth place in number of cards, with 10.2% market share. An important milestone during the period was the launching of the new credit card Chilean, aiming at low incomes people, which has the particularity alleviate the situation of customers affected by the earthquake and tsunami. Because of this phenomenon the bank received 43,666 claims in buildings. 99% has already been liquidated and 33,715 payments have been released, totalling US$135.4 million. The management of such insurance which is complex within this industry because of the number of claims - was addressed by a special work program, which speeded up the reception of claims. They received the equivalent to 6 years of operations under normal circumstances and included branches, call centres and internet 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1,549 506 1,043 2,172 978 1,194 2,309 1,220 1,189 2,776 1,536 1,240 3,083 1,759 1,329 3,328 2002 2003 2004 2005 2006 2007 2008 2009 2010 1,445 1,883 3,739 1,877 1,862 4,186 1,924 2,262 4,532 2,615 1,917 to let the customer to define the amount of monthly assistance. *10.6 millions of active cards Source: Transbank. BancoEstado leads bank credit cards, thanks to the fast growth of CuentaRut; which increased in more than 1.6 millions in 2008-2010. payments. Insurance BancoEstado act as broker in life and general insurances that meet the needs of large segments of the population. At the end of 2010, it was ranked third in bank brokerage with over 4.5 billion of valid insurances, corresponding to approximately 2 The monthly survey of quality of service levels for internal and final customers showed a significant improvement in satisfaction rates, averaging 61% of evaluations with results between 6 and 7 during the year. This, despite the considerable increase in requests for payments, due to the earthquake. Mortgage loans related Others Source: BancoEstado. Widespreanding of insurances, with more than 4.5 million valid insurances covering families and companies. million customers, 8.9% more than in 2009. Lower income segments are relevant for their insurance portfolio, as it represents as well a contribution to the country s bankarization. This dissemination of insurances was possible by the strategic partnership of the bank and MetLife. In May 2010, that company paid $ 58 million corresponding to the last liability of its share in that 54 55

MICROENTERPRISE BANKING Microenterprise Work includes the assistance or funding self-employed customers or business owners that employ up to 10 workers (including the owner or manager) (1) and develop productive BancoEstado recorded a 10.6% real growth in loans, which amounted US$1.1 million. The complex scenario developed after the Cristián Lara MICRORENTERPRISE CUSTOMERS AND LENDING (US$ million and thousand customers) activities, trade or service related, with a turnover earthquake on February 27 involved adapting under 2,400 UF per year. The microenterprise sector is considered key to the country and to BancoEstado, given the social and economic impact generated by a sound management of business entrepreneurs, benefiting more than 2 million people in the bankarizing process. Funding access for microentrepreneurs is a key lever to improve their competitiveness and enable them to improve their living standard with tools allowing housing, study and insurance funding, among other financial services specifically designed for this sector. During the period, the bank increased its loans under a controlled risk and put special emphasis on offering its customers the possibility of using State guarantees. Thus, BancoEstado consolidated its historical leadership at a national level in terms of microenterprise assistance, confirming the above with the achievement of 400 thousand customers in October. In addition, during that period, plans to face the emergency. Coordination with other agencies, including the State Development Network, the Development Corporation (CORFO) and the Ministry of Agriculture, was critical and meant significant support to microentrepreneurs. Part of the work during that period was also to maintain good results and achieve the goals set in early 2010. This required the innovative development of alternative models to reach our customers. The success in this area is also explained by the permanent presence of officers in the field, a way of working that since 1996 has become the hallmark of the subsidiary and has allowed to know firsthand the difficulties, demands and needs of thousands entrepreneurs. As in earlier periods, the subsidiary BancoEstado Microenterprise received important awards and recognitions for its management and the impact of their activities on social promotion. A microentrepreneur with an innovative spirit The Entrepreneurship Prize Muhammad Yunus, created by BancoEstado five years ago to recognize the efforts of Chilean entrepreneurs awarded in 2010 Mr. Crisitán Lara Martínez in the Innovation category. Mr. Lara developed, an innovative initiative which contributes to economic activity, employment generation and environmental stewardship of his city, Valdivia. Until recent years Christian Lara worked as a telephone company clerk, but he dreamed of a more motivating alternative related to his computer studies. Thus, he opened a toner refill shop in 2005. A loan from BancoEstado and the support of his account manager in Valdivia s Branch allowed him to move to a better location. Good business results and his concern on recycling were the starting point of a micro-enterprise process that culminated today with the creation of an alternative product: Lord Print, a trademark for a remanufactured toner that was successfully launched on the local market. Investment in facilities and equipment for the development of this application was possible with a bank loan as well. This innovative microentrepreneur explains that this work represents intellectual talent, working labour development and savings to our customers as per the high cost of original products. He adds that empty toners so far ended in thrash and refilling them is important for a city like Valdivia, which is specially sensitive about the need to protect the environment. Thus, BancoEstado s support has been crucial, and the Muhammad Yunus prize is a big boost for this initiative. Recycling, natural resources and renewable energy are in the sights of other projects that Cristian Lara hopes to develop someday It s important to work on something of interest, more than making money, I want to make my dreams come true. 1,200 1,000 800 600 400 200 0 56 86 90 152 138 196 169 334 2002 2003 2004 2005 2006 2007 2008 2009 2010 Loans (Millions - December 2010) N º of Clients (thousands) Source: BancoEstado. 219 In 2010 BancoEstado strongly supported smaller enterprises, incorporation of over 45 thousand new microentrepreneur customers. 486 284 675 335 812 365 993 410 1,098 (1) Definition of enterprise size as per Chilean production development systim. The details on the winners of the Entrepreneur Award Muhammad Yunus in 2010 is in www.corporativo.bancoestado.cl 56 57

Small Business Banking Closeness in the relationship of small business Educational institutions, public and private This specialized banking holds 65 platforms with the bank has been key to achieve the above. schools are also a very important segment. This deployed along the country, with 160 accounts BancoEstado s account manager is present in the item reached a 5.9% loan growth during 2010. managers whose mission is to assist and serve field, knows the actual status of the businessman, Likewise, trade and services are areas that customers, which are companies with annual sales its facilities and the business cycle. Thus, he can BancoEstado Small Business considers priority. between UF 2,400 and UF 40,000. In 2010, small timely react and be proactive in meeting his/her companies market share was around 15%. requirements. BancoEstado reacted immediately after the earthquake and addressed the situation of The management challenge in 2010 was ensuring Agriculture is important for this bank, which has customers affected by the emergency, giving the loyalty in most of customers who - in 2009 - developed financing tools, lending policies and necessary clearance to recover their production Eliana Obregón requested the support of counter-cyclic policies developed by BancoEstado. The challenge for next business knowledge in order to address their needs with a high competitiveness. units and reschedule commitments agreed with the bank. Support in times of crisis year will be expanding the number of customers. SMALL BUSINESS LOANS (U.S.$ million) 1,300 1,100 900 700 500 300 100 308 318 373 494 655 2002 2003 2004 2005 2006 2007 2008 2009 2010 833 938 1,145 1,075 During the last decade, BancoEstado was permanently supporting entrepreneurship and development of smaller business. The four-floor building of the Subsidized/Private School Villa El Sol rises imposingly at El Morro and Alejandro Guzman, municipality of El Bosque, in the south of Santiago. BancoEstado loan support made possible its construction in 2009, in a period of international financial crisis. We needed to grow and adjust to the requirements of full day school, recalls the school holder, the teacher Eliana Obregon Briones. Thus, with our own contributions and the promise of funding from another bank, the works started in early 2009. However, the lending process took too long so, as we were urged, we chose the alternative of BancoEstado, which was our salvation. Obregon said that BancoEstado understood our situation, positively evaluated the project and we soon got the support that allowed us to take it forward and even build an annex facility for our preschool area. The Villa El Sol School was created in 1983. By that time, it counted only on 57 students, and courses were from first through fourth grade. Today the school has 1,357 students from kindergarten up to 12th grade. Its track record, the good results achieved in the SIMCE test and the strong positioning achieved in the municipality of El Bosque indicate that it is consolidated educational project. Meanwhile, the relationship with BancoEstado became deepen. We are very pleased by the support and interest of their accounts managers in our management and projects, said Eliana Obregon. In 2010 another school of scientific and humanistic education for 650 students in the municipality of Isla de Maipo was developed. That project required a US$1.2 million leaseback operation which is currently under process. And by the year 2012 another institution is being planned, now in the V region, plus a gym to continue with the implementation of the Head school. Those projects count as well on BancoEstado s support. Loans (Billions - December 2010) Source: BancoEstado. 58 59

ANNUAL REPORT BANCOESTADO 2010 ANNUAL REPORT BANCOESTADO 2010 FOGAPE: 30 years servicing small business WHOLESALE BANKING The Guarantee Fund for Small Businesses (FOGAPE) managed by BancoEstado and supervised by the SBIF, continues playing a useful role in supporting entrepreneurship and sustaining the payment chain of different-sized companies. This mechanism, which in 2010 has marked 30 years, is crucial for small business, because it facilitates access to financial markets in terms and amounts. The FOGAPE is the most used system of guarantees by SMEs, and in Latin America has become the main reference on the subject. During the first 9 months of the year, management had a 50% discount on fees for the use of the guarantee paid by SMEs. To sustain the Fund in the long term, in September we proceeded to normalized prices. A tender of FOGAPE guarantees for UF $52 million was planned for 2010, but after the earthquake in February it rose to UF 54 million, equivalent to US$2,300 million. The bidding reached a historical participation of 30 institutions, including banks and subsidiaries, savings and credit unions and mutual guarantee institutions (IGR). In 2010 the Fund undertook a historic amount of over 78 000 transactions, exceeding the record of 2009, with 52,500 guarantees, and 2005, with 34,500 operations. Likewise, it placed a new record in the amount of secured financing, for approximately USD$2,900 million, 77% over previous year s results. FOGAPE: TOTAL LOANS AND SECURED FINANCING Milestone 2008 2009 2010 Variation % 2009-2010 Number of credits guaranteed by the Fund 24,080 52,510 78,716 50% Total amount of secured loans per year (UF) 12,286,252 37,832,395 66,944,889 77% Number of enterprises guaranteed by the Fund 38,133 48,240 66,129 37% Number of IFIS participating in tenders 19 26 30 15% BancoEstado s wholesale banking portfolio consists of Medium and Large business, corporate and institutional banking. Medium Business Banking This bank assist companies with annual sales between UF 40,000 and UF 300,000. During 2010, its management was focused in continuing with the market penetration plan, which showed a 12% increase in the number of customers and a 2% real in loans. Commercial activity during that period was particularly focused on credit support to companies affected by the international financial crisis of 2009 and the earthquake. To help clients who suffered damage in its facilities, the medium business bank implemented the rescheduling of its loans, giving them the time necessary to return to their activity and resume the payment of its liabilities. This bank was present as well in the financing of infrastructure in the field of education, tourism and health; in operational support and equipment in trade, agribusiness, transport, mining contractors and forestry sectors. Likewise, the execution of agreements for the payment of remunerations and suppliers with Corporate, large companies and institutions The market for this area includes three sub-sectors of customers: large companies (annual sales between UF 300,000 and UF 1,500,000); corporate companies (annual sales over UF 1,500,000), and institutional banking. In the case of large companies, BancoEstado s management in 2010 aimed at achieving a closer relationship, providing advice, support and commitment. Business management resulted in an 18% real increase in loans and 12% for clients. With corporate companies, the bank s management sought to deepen the relationship with customers through crossed products and banks, in order to maintain the market penetration achieved in the previous period. In this segment, during 2010 the bank was part in 15 transactions relevant to the local banking industry (syndicated and bilateral bank loans), reaching a credit exposure of US$1,062 million, which is 23% of the total. These results and the countercyclical work in 2009 contributed to consolidate the vision of BancoEstado Transaction services The increasing trend of transaction services continued during 2010. The number of agreements increased by 9% as per 2009, reaching nearly 4,000, with a total of 1,570,000 workers benefited, which is 11% more than in 2009. More than 2,249,000 people receive their monthly wages, pensions and annual tax returns through BancoEstado. In that operation, the return credited to BancoEstado accounts increased to 58% of the total, under the agreement with the Treasury of the Republic. 1,165,000 families received a family bonus through the bank and 180,000 payments of emergency scholarships from the National Board of Student Aid and Scholarships (JUNAEB) were released as well. During 2010, BancoEstado signed important agreements to pay wages and provide banking services to businesses, municipalities and other institutions such as the Military Work Service. This institution agreed with the bank the payment of honoraria to civilians hired to clean and rebuild the areas affected by the earthquake. FOGAPE Guarantees granted per year the clients of this bank has helped to deepen the business relationship with them and extend the as an efficient, timely and reliable alternative both in normal and crisis times and a major financial range of services BancoEstado provides to their institution that supports all the companies in their dependents and contractors. operations, projects and investments. 60 61

IV. CHANNEL MANAGEMENT: THE MOST PROMINENT BANK IN CHILE

CAJAVECINA POINTS BancoEstado shows the highest coverage of all banking institutions in the country, consolidating its leadership in this subject, offering financial services to the largest number of Chileans. It is present in every district of the country (346), except in the Antarctica, covering low-income and isolated communities. Likewise, in 76 communes of Chile, accounting for 2 million people, BancoEstado is the only bank having a branch or auxiliary branch. Additionally, BancoEstado is also present with its CajaVecina points in 122 communes that have no branches, with a total population of more than one million people. During 2010, the bank s multi-channel service network continued growing. At the end of this year, BANCOESTADO NATIONAL COVERAGE Source: BancoEstado. BancoEstado has the largest servicing points network along the country. BancoEstado has a network of 344 branches, 1,812 ATMs of its own -supplemented by 6,141 private ATMs (Redbanc) along Chile - 918 instant balance machines, and 265 deposit boxes located in different branches, plus 84 ServiEstado branches. 4,564 CajaVecina points must be added to this network, as a channel whose presence grew 37% during 2010. Remote assistance provided through the Lota Call Center and the Internet banking platform increased as well. In all these servicing channels, the relationship with customers is based on the personal assistance principle, both in person or remotely, and it will be Channel 2010 BancoEstado subsidiaries 344 ServiEstado branches 84 CajaVecina servicing points 4,564 Lota Contact Center units 220 ATMs (cash dispensers) 1,812 Deposit boxes 265 Instant balance machines 918 increasingly incorporating advice services wherever feasible, aiming at a higher quality of attention. The goal is to massively support clients in their daily lives and in their financial transactions, through BancoEstado s payment methods. The value proposition lies in accessible and simple products and services. The core of the offer is selfservice, through Internet, ATMs and cell phones, and remote assistance through CajaVecina points, the call center and ServiEstado branches. On-site attention is focused on products and opening hours specially defined as per the target group, using sales teams and express sales modules. CajaVecina At the end of the period, BancoEstado counts on 4,564 CajaVecina points located at stores and small shops in neighborhoods and towns lacking financial services due to distance, connectivity, access difficulties or to the low incomes of their inhabitants. In order facilitate financial services to people living in those locations, BancoEstado signed a strategic alliance with the Fondo de Desarrollo Tecnológico (Technology Development Fund), to install an electronic device in these places which is connected to the bank. Any client may perform basic operations such as drafts, deposits, transfers and loan payments, using CajaVecina, under the slogan your neighborhood bank. 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2 300 Source: BancoEstado. 1,003 2005 2006 2007 2008 2009 2010 A place that benefits all Claudio Rozas Concha is the operator of the CajaVecina number 4000, launched by BancoEstado in November 2010. He was born and raised in Quintay and he was a fisherman like his father until, disappointed by the low expectations of this activity, he decided a decade ago to retire, in order to stay with his wife, Teresa del Carmen Otazo, working in Claudito, a mini-market that both have started two years before in this beautiful cove beach in the Region of Valparaiso. They are long standing customers of BancoEstado. some years ago they requested huge bank loans to buy a fishing boat and expand their 2,000 3,327 4,564 business premises. The relationship is now consolidated thanks to the incorporation of a CajaVecina, which serves the local community and a lot of visitors who, especially in summer time, disrupt this coastal town s life. The existence of this bank service point ended with the forced trips to Valparaiso the residents had do several times in a month in some cases, to make their bank transactions and paperwork, with the consequent waste of time and money for food and bus tickets or fuel for their vehicles. The trip was expensive for us and we used to spend at least half a day in bank transactions and in companies CajaVecina & CuentaRUT drive bankarization: extension of service coverage and greater demand. Claudio Rozas we had to visit, said Claudio Rozas. Now people can do their deposits and withdrawals right from here, use their CuentaRUT, pay dividends and water, electricity, cable TV, telephone, and freeways bills; they can pay installments for air ticket purchases and even the ones of a cemetery. He says that CajaVecina has improved the living standard of all the inhabitants of Quintay. For us, as owners of a mini-market, this meant an increase in number of customers who, along with doing their transactions, they increase the demand for the products we sell here. So, in the end, we all have been benefited. 64 65

ServiEstado for 89% of the bank s total in this period. This During this period, a mobile portal to be used with ServiEstado has been created in 2004 to offer a increase is essential in order to reduce operating cell phone with Internet connection (m.bancoestado. new model of attention, expanding BancoEstado s costs and widespread financial services. cl) has been issued, ranking BancoEstado amongst service, and focusing on current account the most innovative banks in the sector. transactions, savings and payments of loans and In the use of Internet, BancoEstado is a leader taxes. During 2010, 26 million transactions have been performed in the 84 ServiEstado service points along the country. Transactions through this channel increased 25.3% in 2010, compared to 2009, and the number of branches raised from 79 to 84. More electronic transactions During 2010, the number of automated transactions of BancoEstado increased 37% over the previous year. At the same time, these transactions accounted among Chilean banking institutions, with over 1 million customers in late 2010 operating through this channel (www.bancoestado.cl). During the year, the number of customers increased 46%, incorporating 322,000 new customers. Nearly one in three customers (30%) in the banking sector which operates on Internet uses the bank s platform. In 2010, customers of BancoEstado made about 141 million transactions on the Internet. Proportionally, the bank s customers make more electronic transactions than the rest of the system: 15% versus 13%, respectively. Modernization, continuous improvement and safe conditions of the bank s website were crucial in the increase of internet use. INTERNET CUSTOMERS (Thousands) THOUSANDS 1,100 1,000 900 800 700 600 693 1,015 500 400 AUTOMATED TRANSACTIONS (annual) 300 200 100 0 98 145 236 367 2005 2006 2007 2008 2009 2010 Source: BancoEstado MILLION 100% 89.0% 84.5% 80.8% 550 80% 71.9% 75.8% 66.8% 450 60% 49.1% 53.2% 57.6% 58.7% 350 40% 250 291 377 517 The automation of transactions has been crucial for widespreading BancoEstado s services, as per the reduction of operating costs. Automated transactions increased by over 37% in 2010, representing 89% of the bank s transactions. Most of BancoEstado s Customers of BancoEstado use Internet for banking operations. Transactions performed by BancoEstado s customers on the Internet have grown exponentially in recent years; in 2010 only, they increased 94%, reaching over 141 million in that year. 150 176 201 229 20% 50 87 107 128 126 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0% Number of transactions. % over total transactions. Source: BancoEstado. 66 67

ANNUAL REPORT BANCOESTADO 2010 ANNUAL MEMORIA REPORT ANUAL BANCOESTADO 2010 Country Map and Bank Coverage By Commune CAJAVECINA, BANK AND SERVIESTADO BRANCHES INCLUDED MARKET SHARE ON INTERNET CUSTOMERS* (December 2010) BancoEstado Branches ATM S ServiEstado CajaVecina Total Rest of the System 15.2% 15.3% Bank 3 Arica y Parinacota 3 20 2 113 138 Bank 1 19.7% BancoEstado is a leader in banking customers using Internet, with a 30% market share. The increase in 2010 was of 46%, as over 322 thousand new clients were incorporated. Tarapacá Antofagasta 4 27 3 77 12 50 2 131 111 195 30.4% BancoEstado * 3.34 million customers Source: SBIF Atacama 9 30 2 85 126 Bank 2 19.3% Coquimbo 16 69 3 197 285 Valparaíso 38 190 11 436 675 ANNUAL TRANSACTIONS OVER THE INTERNET BY BANCOESTADO CUSTOMERS (Million) Lib. General Bernardo O`Higgins Del Maule 21 75 3 345 18 77 2 366 444 463 MILLION Biobío 38 149 9 440 636 150 130 141 La Araucania 24 80 4 240 348 110 90 De Los Ríos 10 53 2 65 130 70 73 De Los Lagos 23 84 5 149 261 50 30 24 28 31 40 Aysén 5 10 1 55 71 10 2005 2006 2007 2008 2009 2010 Magallanes 5 30 1 44 80 Source: BancoEstado Metropolitana 118 773 34 1,821 2,746 CHILE 344 1,812 84 4,564 6,709 68 69

MEMORIA ANUAL BANCOESTADO 2010 V. FINANCIAL MANAGEMENT

Financial Management As a company with public responsibility, during 2010BancoEstado implemented a prudent financial management in order to maintain its traditional soundness, safeguarding customers interests and contributing to Chile and Chileans development. Bank Profitability BancoEstado s earnings before tax reached USD$ 292 million, surpassing last lustrum s average and significantly over 2009 figures. Likewise, consolidated profit before tax over the bank s capital 57% effective annual rate of its profits. This figure includes an additional 40% rate above the one paid by private banks in Chile. This factor is crucial in final results of the company. TAXES PAID BY BANCOESTADO. BY PROFIT AND TAXES US$ MILLIONS Year Net Profit Income Special Total Previous Year Tax Tax 40% 2001 38.3 17.2 46.5 101.9 Diversification of funding sources BancoEstado has excellent stability and solvency conditions, and the best risk rating in Chile s banking industry. Consequently, it can offer investors profitable, safe and reliable financial instruments. Targets established for this period considered maintaining adequate levels of liquidity, through an efficient management and the diversification of funding sources. Resources obtained allowed a smooth management of growth projects and customer requirements. and reserves climbed to 14.8%. In 2010, BancoEstado reached a historic volume of US$ 558.6 million paid to the Treasury through taxes and transfer of profits, confirming its strong support to the country s development. As other public companies, BancoEstado pay taxes for a 2002 39.0 13.4 36.3 88.6 2003 35.2 19.6 52.7 107.5 2004 31.0 12.2 37.3 80.5 2005 15.5 31.3 63.6 110.4 2006 3.7 30.9 76.3 110.9 2007 5.0 30.7 79.0 114.8 The funding diversification strategy used by BancoEstado resulted in a US$ 500 million bond issued in international markets of the U.S., Europe and Asia. This placement, due in 10 years, reached a quite better interest rate than other similar issuances by other banks. 2008 4.2 43.4 105.7 153.2 In this operation, which enabled the incorporation of 2009 93.5 4.8 7.0 105.3 more than 130 international investors, the demand 2010 99.1 137.9 321.6 558.6 exceeded 3.5 times the amount of the issuance. Total 918.814 This issuance reflects the interest generated by the soundness, solvency and financial strength of the EARNINGS BEFORE TAXES (Million dollars at December 2010) Source: BancoEstado BOND ISSUE 2010 bank, opening new funding opportunities. Previously, BancoEstado had placed a US$ 117 million subordinated bond, at a 28-year term, MMUS$ Type Millions Issue rate Placement Term in Month & (%) (%) years year strengthening the assets of the institution and its business development plans. Earnings before taxes averaged about US$ 270 million in the period 2005-2010 Strong recovery of earning before tax in 2010. 350 300 250 200 248 272 Likewise, BancoEstado subscribed with the German KFW Bank a 5-year term bilateral credit of US$ 140 million. The Yankee CD s funding program made by the New York branch stands out as well. 150 186 151 307 263 263 226 292 Subordinado U.F. 3.0 4.50 3.74 28.0 01-2010 Senior US$ 500 4.125 4.325 10.0 09-2010 Source: BancoEstado 180 100 124 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Average US dollar December 2010 Source: BancoEstado 72 73

ANNUAL REPORT BANCOESTADO 2010 Global Presence US$ 500 MILLION BOND PLACEMENT Successful placement positions BancoEstado in international markets of U.S., Europe and Asia The bond will have a unique capital maturity at the tenth year. 4.323% interest rate, equivalent to 170 base points over U.S. Treasury benchmark. Requests from over 130 international investors. BancoEstado supports its customers in foreign trade operations through a worldwide correspondent banks network. It assumes risks from banking and country counterparts, enabling customers to be protected against risk of non compliance when exporting. It also issues guarantees to back customers business overseas. During 2010, the amount of letters of credit confirmed which protect the exports of bank customers overseas - amounted over US$ 300 million. International rating agencies gave BancoEstado and its instruments - a favorable evaluation. In this sense, one of the milestones of 2010 was the highest rating granted by Moody s, from A1 to NEW YORK BRANCH BancoEstado s New York Branch provides financial services to its bank corporate and institutional customers to manage funds overseas, such as various options for managing investments, cash, international payments and loans to Chile or overseas. This branch also contributes to the task of diversifying funding sources through a deposit program developed since 2009, which in 2010 reached about US$ 1,600 million in 7-days to 3-years term deposits. PERSONAL BANKING SERVICES BancoEstado offers services to Chileans living VI. RISK MANAGEMENT The demand exceeded 3.5 times the amount Aa3, in the long-term foreign currency deposits. abroad both in person or through the call center. of the issuance. Likewise, S&P granted a A+ international rating To reach the bank via internet, customers must The placement opens new funding opportunities and support the needs of our customers. The Issuance confirms BancoEstado s soundness, solvency and financial strength. as per the bank s solvency. Thus, BancoEstado held the best risk rating in Latin America according to Standard & Poor s and Moody s, consistently with the strong ratings granted to the country. access the website www.bancoestado.cl, under the Chilean Overseas section. Through this platform, customers can submit mortgage loan applications, electronic check-book, housing and deferred debit saving accounts, and send remittances, among other services. 74

Affected by the global economic downturn occurred in 2009, the Chilean economy showed a significant During this period, the SBIF issued new regulations on credit risk provisions, which came into effect in RISK INDICATORS Both, BancoEstado and the financial system showed PROVISIONS COVERAGE / PORTFOLIO 90-DAYS DUE recovery of its growth rate in 2010. The development January 2011. Main changes were introduced in a slight increase in risk capital provisions, due to the of credit risk policies which were consistent with the individual debt analysis and additional provisions, implementation of new risk models and regulatory institution s long-term strategy allowed BancoEstado in order to mitigate business cycle fluctuations. changes. to continue expanding its business. BancoEstado kept the necessary safeguards in 2010 500% One of the most significant events affecting the to face the impacts of these changes. Likewise, provisions coverage on BancoEstado s portfolio with over 90 days default shows a favorable 400% 469% country s economy was the February earthquake, whose magnitude and extent affected a significant number of customers, to whom BancoEstado duly supported by granting facilities for the payment of Risk management has been developed independently from commercial areas, ensuring the existence of effective counterparts in the lending process, and fully covering all the business segments, within a position, compared to the rest of the financial system for each portfolio (consumer, commercial and mortgage). 300% 200% 276% *The high weighting of housing in total portfolio conditions the aggregated coverage, when compared to the rest of the system their loans. A strong and consistent policy in mortgage loans protected by earthquake insurance benefitted those customers whose homes were damaged or destroyed, mitigating the risk of such loans. framework of deliberative decisions. There were also minor increases in provisions, writeoff control and higher levels of recoveries, supporting the reduction of net charge on BancoEstado s loans. As a result, BancoEstado returned to the same level 100% 0% 137% 119% Business Loans Consumer Loans Mortgage* TOTAL* 26% 17% 53% 108% before 2008 financial crisis. This trend appears as well in the rest of the financial system. Banco Estado Rest of the System Source: BancoEstado and SBIF TOTAL LOAN PLACEMENT PROVISIONS RATIO (%) NET CHARGES (Provisions expenses - recoveries) / Total loans 3.50% 3.00% 2.0% 1.82% 2.50% 2.00% 1.50% 1.00% 2.11% 1.78% 1.50% 1.41% 1.43% 1.63% 2.17% 2.75% 2.92% 1.6% 1.2% 1.00% 1.39% 1.30% 1.32% 1.26% 0.50% 0.00% 2002 2003 2004 2005 2006 2007 2008 2009 2010 0.8% 0.70% 0.67% 0.81% 0.96% 0.4% 2006 2007 2008 2009 2010 BancoEstado Rest of the System Source: SBIF & BancoEstado BancoEstado Rest of the System Source: BancoEstado and SBIF 76 77

ANNUAL REPORT BANCOESTADO 2010 FINANCIAL RISK BancoEstado makes permanent efforts to identify, measure, monitor and limit risks, in order to make more efficient business decisions. During that period, main activities have been focused on improving the comprehensive framework of both market risk and liquidity policies. Provide a independent measurement, monitoring and control of these risks for each business unit. Incorporate new advanced technological systems and applications into the market risk and liquidity measurement and control process during the year, raising quality and reliability of these measurements. Adjust assets and liabilities as per valorization, regulatory imputation, market risk and liquidity risk. OPERATIONAL RISK BancoEstado implemented an Operational Risk Management Model according to international best practices, and consistent with the requirements of Basel II. The strategy to managing this risk considered the integration of a process approach, with the Information Security and Business Continuity institutional management. This model is managed by the Operational Risk Committee, the Heads of Processes in the Bank and its subsidiaries, and the Performance and Operational Security Division. The Operational Risk Committee is composed by members of senior management. It is responsible for approving the risk levels accepted by the institution, and requests Process Managers the necessary risks, the constant monitoring of key indicators defined and the recording of losses and incidents in process. Main achievements during 2010: Establishment of risk tolerance levels, for the most critical processes. Integration of Operational Risk Management practices with Process Management practices. Preparation and distribution of a Best Practices Guidelines for Operational Risk Management, to support staff training in this subject. Consolidation of the Operational Risk System to report and monitor risk indicators and loss basis. VII. HUMAN RESOURCES MANAGEMENT actions to keep risks under control. Define and monitor the established limits. Perform periodical tests on market and liquidity risks behavior To date, the most relevant processes are addressed under stress scenarios, as well as the ability of the by the Operational Risk Management. Those models used to capture them properly. processes allow the identification of the most critical 78

ANNUAL REPORT BANCOESTADO 2010 Employees are the key resource for BancoEstado in the fulfillment of its objectives. Thus, priority attention is paid to personnel training and development, as well as to count on adequate working conditions. The commitment of the staff with the institution is evident and is reflected, for example, in the quick response of the bank to operate back normally in the regions affected by the earthquake. In 2010 BancoEstado had 8,739 direct employees, 98% of which were under continuing contract. 61% of the total staff works in branches and central areas in the Metropolitan Region, followed by Valparaíso with 6.8% and the Concepción, with 6.7%. 42% of the staff are women. During 2010 s financial year, 52% of the contracts have been granted to female personnel, reflecting a rise in this trend. BancoEstado continues developing the internship program in Customer Service and Conflict Resolution for senior executives. 12 officers participated on the first program and 32 in the second one. This activity tries to put in direct contact, face to face, executives and customers, to better understand their needs, improve the assistance given and Another initiative confirming BancoEstado s priority given to its customers is the Customer Listening Program, developed in 17 district management of the personal banking. More than 140 customers participated in 2010, attending meetings together with their account managers. BancoEstado has been concerned about a better life quality for its staff and to increase productivity, which has resulted in different initiatives such as preventive health campaigns and psychological support, the creation of a telephone medical advice service to staff and their families, and legal counseling by phone and on Internet; the creation of blogs and virtual communities; and a recognition program for outstanding workers. After the earthquake, social support programs to workers from the affected regions have been carried out. All this activity has resulted in several awards in 2010. BancoEstado is one of the 35 best companies to work in the country, according to a study carried out by the Great Place to Work - Chile. It is ranked at the 26th place, with 76% of positive responses from its employees. At the same time, BancoEstado is one of the ten best companies for working mothers and fathers in Chile, according to the Fundación Chile Unido and Ya magazine from TRAINING AND DEVELOPMENT 7,500 workers took several training courses on issues related to their duties in the bank. 644 workers attended courses and studies related to the banking business. The annual average training hours per employee in 2010 was of 54 in the bank, with a total of 530,910 hours for all the staff. In addition, 324 emergency instructors received 1,944 training hours. The number of workers who received scholarships and support for university careers rose 12.3% over the previous year, from 464 to 521. VIII. SUBSIDIARIES MANAGEMENT: COMPREHENSIVE CONCERN FOR OUR CUSTOMERS address their concerns. El Mercurio newspaper. 80

BANCOESTADO MICROEMPRESAS S.A. ASESORÍAS FINANCIERAS This subsidiary promotes and supports microentrepreneurship, giving financial solutions to the needs according to each microenterprise. BancoEstado is leading this segment at a national level. This requires on-site presence and knowledge on both the specific nature of this sector and the each client s needs. This subsidiary inaugurated its branch 200 in Porvernir, as a way to commemorate the bicentenary of Chile. At the end of the year, it reached 201 branches. During the financial year 2010, BancoEstado Microempresas S.A. reached a significant 10.6% coestado as per the last installment of its shares in BancoEstado Corredores de Seguros S.A.. This payment confirms the success of the strategic alliance established in November 2004 between the two companies, whose purpose of widespreading insurance policies enabled them to reach large segments with new offers for them. The fire insurance portfolio for mortgage loans received 60,720 claims due to the earthquake of February 2010. This number of claims is equivalent to six years of normal operations, concentrated in a short period. 72% of the claims referred to buildings and 28% to contents. BancoEstado s mortgage customers, who count on impact suffered by this subsidiary in its customer service flow after the earthquake. BANCOESTADO S.A. ADMINISTRADORA GENERAL DE FONDOS. After six years offering savings and investment alternatives, BancoEstado S.A. Administradora General de Fondos accounts for 9.1% of total participants in this industry, and stands in the 5th place in the market. During 2010, it reached a 20% growth in financial resources managed, and 17% in mutual fund holders. This subsidiary s Mutual Fund Acciones Nacionales (National Shares) reached 13,000 to mandatory contributions to the Pension Funds Companies, with very low investment levels (US$ 10.7) and tax benefits. At the end of 2010, three new internal regulations for diversified mutual funds, supplementing BancoEstado s offer, have been sent to the Superintendency of Securities and Insurance. On the other hand, the strategic partnership with French bank BNP Paribas, allowed the access of national investors to sophisticated financial instruments at a national and international level, with a minimum investment. Another milestone during that period was the 2nd million - 20% of transactions is currently being done by internet. At the end of the year, BancoEstado Corredores de Bolsa S.A. continues leading fixed income markets and financial intermediation, with US$ 100,098 million in financial intermediation instruments traded in the Santiago Stock Exchange, and US$ 43,263 million in fixed income instruments, i.e. 22% and 20% market share respectively. Together with ServiEstado, in 2010 the bank reached over 37,000 customers buying and selling foreign currency in this subsidiary throughout the country, maximizing the multichannel access to financial services. remote areas, but also for densely packed areas abandoned by the industry, either because of their low income levels or risk factors. During this period, BancoEstado consolidated its national leadership in coverage through CajaVecina, reaching a total of 4,564 service points, representing 37.2% increase over 2009. BANCOESTADO CENTRO DE SERVICIOS S.A. In 2010, BancoEstado Centro de Servicios S.A. - better known as ServiEstado rose 25.3% in the number of transactions as per the previous year, surpassing 26 million. ServiEstado branches increased from 79 to 84 in the same period. real growth in loans. Customers exceeded 410,000 by the end of 2010. BANCOESTADO CORREDORES DE SEGUROS S.A. This subsidiary intermediates life and general insurance policies that cover about 11% of the national population and contributes to the country s development and bankarization. It also provides solutions in risks and contingencies for the lower income segments. Its portfolio considers insurance policies according to each social sub-segment. In May 2010, MetLife Chile Inversiones Limitada, a Met Life Inc. Co. subsidiary, paid $58 million to Ban- earthquake insurance coverage since 2000, could repair their homes and recover their living standard, as they received a UF 3 million payment approximately in benefits. At the end of 2010, this subsidiary was ranked at the third place of bank brokers, with over 4.5 billion valid insurance policies, corresponding approximately to 2 million customers, 8.9% more than in 2009. During the year, the monthly survey on service quality held to internal and final customers showed a strong improvement in satisfaction levels, reaching a 6 or 7 score in 61% of the reviews. This is a significant achievement, considering the strong participants in 2010, with USD$ 127.1 million in financial resources managed. It was ranked at the 5th place as per its size, and 2nd as per number of participants. This fund had an attractive profitability close to 30% in 2010. The subsidiary incorporated the Bicentennial Income Mutual Fund, offering a medium and long term savings and investment option for customers looking for over one year term fixed-income instruments. It requires low investment amounts (from US$ 10.7) and has high liquidity. Another interesting alternative during 2010 was the Voluntary Pension Saving (APV), as a complement place obtained by BancoEstado Corporativo (Corporate) Mutual Fund in the Platinum Performance Awards, granted by Fund Pro, in the category of 90-days-term national debt. BANCOESTADO CORREDORES DE BOLSA S.A. It is one of the largest of financial intermediation operators in local market. Nowadays, its challenges are in the development of financial solutions to satisfy the needs of all kind of customers, especially individuals. In 2010 this subsidiary showed a strong growth of shares traded by third parties, exceeding US$ 64.1 SOCIEDAD DE SERVICIOS TRANSACCIONALES CAJAVECINA S.A. The model created and implemented by BancoEstado in 2006 allows customers and non customers to perform a range of transactions: deposits, withdrawals, BancoEstado s loan payments, transfers, balance inquiries, payments of services and scholarships/pensions recoveries through any payment method used by the bank. During 2010, the subsidiary further expanded CajaVecina points along the country, not only to provide access to financial services for people from Besides cash transactions, this subsidiary supports the expansion of the CuentaRUT card for related services, such as multi-channel password, cards and signed registration forms. BANCOESTADO SERVICIOS DE COBRANZAS S.A. This subsidiary manages financial normalization of debtors. The extension of opening hours from Monday to Saturday between 8:00 and 20:00 hours is one of the milestones of that year concerning products and services, as it facilitates timely payment of debtors. 82 83

To improve the contact with its debtors, during 2010 BancoEstado implemented a new predictive dialer. This device will include voice messaging services, SMS messages and virtual campaigns as well, which will lead this call center at the cutting edge of these technologies. In 2010, this subsidiary together with external companies- reached a 45.9% increase in writeoffs recovery as per 2009, for individuals, micro and small enterprises segments. BANCOESTADO CONTACTO 24 HORAS S.A. This subsidiary is responsible for the Bank s Call Center, which operates in the city of Lota. Due to the merge of the web, ATM and CajaVecina services during 2010, BancoEstado Contacto 24 Horas S.A. expanded its activities, integrating the help desk operations with the Contact Centre. Corporate banking has been included as well. Its activity during 2010 made an important contribution of USD$5.6 million to Lota s economy, which is 24.4% over the figure of 2009. As per the earthquake, this subsidiary was closed for two months, which lead to a reduction in monthly incoming and outgoing calls by 15.3% and 18.0% respectively. One of the milestones of 2010 was the incorporation of the predictive dialer, which supports accounting tasks and customer information management. IX. CONSOLIDATED FINANCIAL STATEMENTS The subsidiary increased credit card sales by 35.5% and insurance cards by 35.1%, reaching the 65,000 active credit cards annual goal. 84

INDEPENDENT AUDITORS REPORT To the Chairman and Board of Directors of Banco del Estado de Chile 1. We have audited the consolidated statements of financial position of Banco del Estado de Chile and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the years then ended. These financial statements (including the related notes) are the responsibility of the Bank s management. Our responsibility is to express an opinion on these financial statements, based on our audits. 2. We conducted our audits in accordance with generally accepted auditing standards in Chile. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Bank s management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 3. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Banco del Estado de Chile and subsidiaries as of December 31, 2010 and 2009 and the results of its operations and its cash flows for the years then ended, in conformity with the Accounting Standards and instructions issued by the Superintendency of Banks and Financial Institutions. 4. As explained in Note 2, the Bank has chosen to partially anticipate the recognition of the provisions in Chapter B-1 of the Compendium of Accounting Standards. This recognition resulted in a charge in the income for the year ended December 31, 2010 for MCh$9,273 (including deferred taxes effects). 5. Our audit also comprehended the translation of Chilean peso amounts into U.S. dollar amounts and we are not aware of any modifications that should be made for such translation to be in conformity with the basis stated in Note 1.2 c. Such U.S. dollar amounts and financial statements translation into English are presented solely for the convenience of readers outside Chile. February 14, 2011 Jorge Ortiz Martínez 87

BANCO DEL ESTADO DE CHILE AND SUBSIDIARIES Consolidated Statements of Financial Position As of December 31, 2010 and 2009 (In millions of Chilean pesos MCh$ and in millions of US Dollars - MUS$) BANCO DEL ESTADO DE CHILE AND SUBSIDIARIES Consolidated Statements of Income As of and for the years ended December 31, 2010 and 2009 (In millions of Chilean pesos MCh$ and in millions of US Dollars - MUS$) 31.12.2010 MUS$ 31.12.2010 MCh$ 31.12.2009 MCh$ 31.12.2010 MUS$ 31.12.2010 MCh$ MM$ 31.12.2009 MCh$ ASSETS Cash and deposits in banks 4,327 2,025,077 1,159,475 Unsettled transactions 434 203,341 173,604 Trading investments 2,765 1,293,963 305,684 Investments under repurchase agreements 30 13,811 55,416 Financial derivative contracts 368 172,089 221,389 Interbank loans 199 93,340 50,969 Loans and accounts receivables from customers 23,682 11,083,448 10,773,582 Available-for-sale investments 6,598 3,087,961 3,316,640 Held to maturity investment 155 72,457 139,935 Investments in other companies 9 4,014 3,927 Intangibles 44 20,407 23,830 Property, plant and equipment 503 235,590 230,005 Deferred taxes 754 353,102 290,532 Other assets 306 143,235 148,540 TOTAL ASSETS 40,174 18,801,835 16,893,528 LIABILITIES Deposits and other demand liabilities 9,187 4,299,355 3,608,754 Unsettled transactions 312 146,001 93,783 Investments under repurchase agreements 871 407,660 419,329 Time deposits and other time liabilities 17,832 8,345,402 7,149,387 Financial derivative contracts 485 227,178 232,590 Interbank borrowings 1,285 601,527 719,533 Issued debt instruments 7,185 3,362,582 3,204,316 Other financial liabilities 12 5,514 11,570 Current taxes 197 92,236 186,690 Deferred taxes 63 29,504 62,914 Provisions 606 283,661 207,096 Other liabilities 141 66,036 62,624 TOTAL LIABILITIES 38,176 17,866,656 15,958,586 EQUITY: Attributable to the owners of the bank Capital 595 278,497 278,497 Reserves 1,409 659,378 655,604 Valuation accounts ( 22) ( 10,460) ( 2,517) Interest income 2,017 944,114 652,017 Interest expenses ( 896) ( 419,551) ( 171,380) Net interest and indexation income 1,121 524,563 480,637 Fees and commission income 373 174,675 161,290 Fees and commission expense ( 60) ( 28,147) ( 21,614) Net fee and commission income 313 146,528 139,676 Net loss from financial operations ( 89) ( 41,816) ( 129,596) Foreign exchange gain (loss) net 219 102,546 175,967 Other operating income 18 8,482 32,763 Total operating income 1,582 740,303 699,447 Provision for loan losses ( 235) ( 109,712) ( 146,487) NET OPERATING PROFIT 1,347 630,591 552,960 Personnel salaries expenses ( 549) ( 256,904) ( 252,160) Administrative expenses ( 273) ( 127,888) ( 121,347) Depreciation and amortization ( 82) ( 38,143) ( 34,088) Impairment ( 1) ( 575) - Other operating expenses ( 148) ( 69,236) ( 40,212) TOTAL OPERATING EXPENSES ( 1,053) ( 492,746) ( 447,807) NET OPERATING INCOME 294 137,845 105,153 Income (loss) from investments 2 757 ( 219) Income before taxes 296 138,602 104,934 Income tax expense ( 115) ( 53,815) ( 44,869) NET INCOME FOR THE YEAR 181 84,787 60,065 Attributable to : Equity owners of the Bank 164 76,634 51,686 Non-controlling interests 17 8,153 8,379 181 84,787 60,065 Retained earnings: Net income for the period 164 76,634 51,686 Less: Provision for distribution of income to the benefit of the state ( 156) ( 72,705) ( 51,686) 1,990 931,344 931,584 Non-controlling interests 8 3,835 3,358 TOTAL EQUITY 1,998 935,179 934,942 TOTAL LIABILITIES AND EQUITY 40,174 18,801,835 16,893,528 88 89

BANCO DEL ESTADO DE CHILE AND SUBSIDIARIES Consolidated Statements of Comprehensive Income As of and for the years ended December 31, 2010 and 2009 (In millions of Chilean pesos - MCh$ and in millions of US Dollars - MUS$) BANCO DEL ESTADO DE CHILE AND SUBSIDIARIES Consolidated Statements of Changes in Equity As of and the years ended December 31, 2010 and 2009 (In millions of Chilean pesos MCh$ and in millions of US Dollars - MUS$) 31.12.2010 MUS$ 31.12.2010 MCh$ 31.12.2009 MCh$ Net operating profit 1,347 630,737 552,960 Total operating expenses ( 1,053) ( 492,892) ( 447,807) Capital MCh$ Reserves MCh$ Available for sale Investment MCh$ Cash flow hedges MCh$ Valuation accounts Translation difference MCh$ Income tax MCh$ Income for the year MCh$ Provision for distribution of neta income for the government MCh$ Total attributable to the bank equity owners MCh$ Noncontrolling interests MCh$ Total equity MCh$ OPERATING INCOME 294 137.845 105.153 Income (loss) from investments in other companies 2 757 ( 219) Income before income tax 296 138,602 104,934 Income tax expense ( 115) ( 53,815) ( 44,869) INCOME FOR THE PERIOD BEFORE COMPREHENSIVE INCOME 181 84,787 60,065 Other Comprehensive Income Available for sale investment ( 12) ( 5,755) 15,751 Exchange differences in translation of foreign transactions ( 5) ( 2,257) ( 6,906) Effect of cash flow hedge ( 17) ( 7,749) - OTHER COMPREHENSIVE INCOME BEFORE INCOME TAXES ( 34) ( 15,761) 8,845 Income tax on other comprehensive income 17 7,818 ( 8,978) TOTAL OTHER COMPREHENSIVE INCOME FOR THE PERIOD ( 17) ( 7,943) ( 133) CONSOLIDATED OTHER COMPREHENSIVE INCOME FOR THE PERIOD 164 76,844 59,932 Attributable to consolidated income for the year Equity owners of the Bank 164 76,634 51,686 Non-controlling interests 17 8,153 8,379 181 84,787 60,065 Attributable to consolidated comprehensive income for the year Equity owners of the Bank 147 68,691 51,553 Non-controlling interests 17 8,153 8,379 164 76,844 59,932 Equity as of January 01, 2009 4,000 594,048 ( 14,110) - 3,683 8,043 108,968 ( 2,371) 702,261 1,508 703,769 Transfers - 108,968 - - - - ( 108,968) - - - - Dividends paid - ( 47,412) - - - - - 2,371 ( 45,041) ( 7,637) ( 52,678) Variation of available for sale investment - - 15,751 - - ( 8,978) - - 6,773-6,773 Adjustment for translation difference NY Branch - - - - ( 6,906) - - - ( 6,906) - ( 6,906) Capital increase 274,497 - - - - - - - 274,497-274,497 Sale of ownership interest in subsidiary - - - - - - - - - 1,108 1,108 Provision for distribution of minimum income in benefit of the state - - - - - - - ( 51,686) ( 51,686) - ( 51,686) Net income for the year - - - - - - 51,686-51,686 8,379 60,065 Equity as of December 31, 2009 278,497 655,604 1,641 - ( 3,223) ( 935) 51,686 ( 51,686) 931,584 3,358 934,942 Equity as of January 01, 2010 278,497 655,604 1,641 - ( 3,223) ( 935) 51,686 ( 51,686) 931,584 3,358 934,942 Transfers - 5,300 - - - - ( 51,686) - ( 46,386) - ( 46,386) Equity effect Circular No.3,489 (a) - ( 1,526) - - - - - - ( 1,526) - ( 1,526) Dividends paid - - - - - - - 46,386 46,386 ( 7,676) 38,710 Variation of available for sale investment - - ( 5,755) - - 3,401 - - ( 2,354) - ( 2,354) Variation of hedge accounting derivatives - - - ( 7,749) - 4,417 - - ( 3,332) - ( 3,332) Adjustment for translation difference NY Branch - - - - ( 2,257) - - - ( 2,257) - ( 2,257) Provision for distribution of minimum income in benefit of the state - - - - - - - ( 67,405) ( 67,405) - ( 67,405) Net income for the year - - - - - - 76,634-76,634 8,153 84,787 Equity as of December 31, 2010 278,497 659,378 ( 4,114) (7,749) ( 5,480) 6,883 76,634 ( 72,705) 931,344 3,835 935,179 Equity as of December 31, 2010 MUS$ 595 1,409 ( 9) ( 16) ( 12) 15 164 (156) 1,990 8 1,998 (a) Charge to income net of deferred taxes as a result of the accounting change indicated in Note 2 to the Consolidated Financial Statements. 90 91

BANCO DEL ESTADO DE CHILE AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2010 and 2009 (In millions of Chilean pesos - MCh$ and in millions of US Dollars - MUS$) CASH FLOWS FROM OPERATING ACTIVITIES 31.12.2010 MUS$ 31.12.2010 MCh$ 31.12.2009 MCh$ Net Income for the Year 181 84,787 60,065 Charges (credits) to income that do not represent cash flow: Depreciation and amortization 82 38,143 34,088 Impairment of assets 1 575 - Provisions for credit risks 235 109,712 146,487 Adjustment to market value of non-permanent investments 72 33,714 231,402 (Gain) loss from investments in companies ( 2) ( 757) 219 Net (income) from sales of assets received in lieu of payment - ( 102) ( 19) Loss (gain) on sale of fixed assets - ( 28) 105 (Gain) on sale of permanent investments - - ( 12,449) Write-off of assets received in lieu of payment 1 443 631 Other charges to income that do not represent cash movements 271 127,039 109,008 Net interest and adjustments ( 1,121) ( 524,563) ( 480,637) Net commission accrued (313) ( 146,528) ( 139,676) Changes in assets and liabilities affecting operating flow: (Increase) decrease of trading instruments ( 2,090) ( 978,105) ( 117,505) (Increase) in loans (896) (419,578) (1,738,489) Decrease (increase) in held-to-maturity and available-for-sale investments ( 2,152) (1,006,986) 1,066,565 (Increase) decrease in other credit operations ( 90) ( 42,371) 219,553 Increase in creditors in checking accounts 1,263 591,139 157,732 Increase of deposits and loans 2,810 1,315,380 938,181 Increase (decrease) in other demand and time liabilities ( 42) ( 19,903) 135,862 Increase (decrease) in other obligations through brokerage of documents ( 25) ( 11,669) 62,725 Decrease in obligations in letters of credit ( 369) ( 172,607) ( 223,222) Increase (decrease) in loans obtained from local banks 29 13,684 ( 4,130) Increase (decrease) in loans obtained from foreign banks 52 24,386 ( 64,803) Increase in loans obtained from the Central Bank ( 333) ( 156,076) 156,076 Net decrease (increase) in other assets and liabilities ( 464) ( 217,285) ( 39,102) Commissions received 373 174,675 161,290 Commissions paid ( 60) ( 28,147) ( 21,614) Interest and indexation received 1,945 910,410 945,088 Interest and indexation paid ( 881) ( 412,158) ( 431,490) Net cash flow (used in) operating activities ( 1,523) ( 712,776) 1,151.941 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment and intangibles ( 89) ( 41,684) ( 73,287) Sale of fixed assets and intangible assets 3 1,357 1,142 Investment in Company - - 4 Sale of investments in companies - - 13,557 Dividends received from investments in companies 1 340 397 Sale of assets received in lieu of payment 6 2,748 650 Net cash (used in) provided by investing activities ( 79) ( 37,239) ( 57,537) CASH FLOWS FROM FINANCING ACTIVITIES: Capital increases - - 274,497 Bond issuance 653 305,393 217,907 Release of bonds ( 23) ( 10,619) ( 6,937) Payment of income from previous year at the benefit of the state ( 99) ( 46,386) ( 47,412) Net cash provided by financing activities 531 248,388 438,055 Net variation for the period of cash and cash equivalent ( 1,071) ( 501,627) 1,532,459 General Facts R.U.T (Chilean tax identity number) 97.030.000-7 Head Office Avenida Libertador Bernardo O Higgins Nº 1111 Santiago de Chile Web Site www.bancoestado.cl Postal Code and Ardes Correo 21, Casilla 240 - V, Código Postal 6501186 Swift BECH CL RM Main Switchboard (56)-(2)-970 7000 BancoEstado 24 Horas (24 Hour Line) 600 200 7000 Cash and cash equivalent at the beginning of period 7,101 3,323,531 1,791,072 Cash and cash equivalent at the end of period 6,030 2,821,904 3,323,531 92

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