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SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549


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FORM 20-F


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Annual Report Pursuant to Section 13 or 
  15(d) of the Securities
  Exchange Act of 1934


For the Fiscal Year Ended December 31, 2003 
Commission File Number 001-15266


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BANCO DE CHILE  (Exact name of Registrant as specified in its
charter)


BANK OF CHILE(Translation of Registrant's name into English)

Republic of Chile (Jurisdiction of incorporation or organization)

Banco de Chile 
  Ahumada 251 
  Santiago, Chile 
  (562) 637-1111 (Address of principal executive offices)

Securities registered or to be registered pursuant to Section
    12(b) of the Act:

|Title of each class                                                                                                                                                                                       | Name of each exchange on which registered                                                    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------
|American Depositary Shares,
          each representing 600 shares of 
          common stock, without nominal (par) value (ADSs)
      Shares of common
            stock, without nominal (par) value | New York Stock Exchange
      New York Stock Exchange
        (for listing
    purposes only)

Securities registered or to be registered pursuant to Section
    12(g) of the Act:None Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:NoneIndicate the number of outstanding shares of each of the Issuer's
classes of capital or common
  stock as of the close of the period covered by the annual
  report:

Shares of common stock: 68,079,783,605

|Indicate by check mark whether the registrant (1) has filed all reports
    required to be filed by Section 13 or 15(d) of the Securities Exchange Act
    of 1934 during the preceding 12 months (or for such shorter period that the
    registrant was required to file such reports), and (2) has been subject to
    such filing requirements for the past 90 days.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Yes          No


Indicate by check mark which financial statement item the registrant has
    elected to follow.


Item 17        Item
18


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TABLE OF
CONTENTS

Page

PART I

|Item
    1. | Identity
     of Directors, Senior Management and Advisers      | 2  
|----------- | --------------------------------------------------------------- | ---
|Item 2.     | Offer
     Statistics and Expected Timetable                    | 2  
|Item 3.     | Key
     Information                                            | 3  
|Item 4.     | Information
     on the Company                                 | 15 
|Item 5.     | Operating
     and Financial Review and Prospects               | 85 
|Item 6.     | Directors,
     Senior Management and Employees                 | 117
|Item 7.     | Major
     Shareholders and Related Party Transactions          | 130
|Item 8.     | Financial
     Information                                      | 131
|Item 9.     | The
     Offer and the Listing                                  | 133
|Item 10.    | Additional
     Information                                     | 135
|Item 11.    | Quantitative
     and Qualitative Disclosures About Market Risk | 150
|Item 12.    | Description
     of Securities Other Than Equity Securities     | 161

PART II

|Item
    13. | Defaults,
     Dividends, Arrearages and Delinquencies                            | 161
|------------ | --------------------------------------------------------------------------------- | ---
|Item 14.     | Material
     Modifications to the Rights of Security Holders and Use of Proceeds | 161
|Item 15.     | Controls
     and Procedures                                                      | 161
|Item 16.     | [Reserved]                                                                        | 162
|Item 16A.    | Audit
     Committee Financial Expert                                             | 162
|Item 16B.    | Code
     of Ethics                                                               | 162
|Item 16C.    | Principal
     Accountant Fees and Services                                       | 162
|Item 16D.    | Exemptions
     from the Listing Standards for Audit Committees                   | 163

PART III

|Item
    17.                      | Financial
     Statements | 163
|--------------------------------- | ------------------------- | ---
|Item 18.                          | Financial
     Statements | 163
|Item 19.                          | Exhibits                  | 163
|Index
    to Financial Statements | F-1                      

i

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THE MERGER

On
January 1, 2002, Banco de Chile merged with Banco de A. Edwards in a transaction in which
Banco de Chile was the surviving corporate entity.  As used in this annual report, unless
the context otherwise requires, references to Banco de Chilerelating to any date or
period prior to January 1, 2002 (the effective date of the merger) are to Banco de Chile
as it existed prior to the consummation of the merger, and such references relating to
any date or period after January 1, 2002 are to Banco de Chile after the consummation of
the merger.

PRESENTATION OF
FINANCIAL INFORMATION

We
prepare our audited consolidated financial statements in Chilean pesos and in accordance
with generally accepted accounting principles in Chile, known as Chilean GAAP, and the
rules of the Superintendencia de Bancos e Instituciones Financieras, known as the Chilean
Superintendency of Banks. Together, these requirements differ in certain significant
respects from generally accepted accounting principles in the United States, known as
U.S. GAAP. References to Chilean GAAP in this annual report are to Chilean GAAP, as
supplemented by the applicable rules of the Chilean Superintendency of Banks. See note
28 to our audited consolidated financial statements contained elsewhere in this annual
report for a description of the material differences between Chilean GAAP and U.S. GAAP,
as they relate to us and our consolidated subsidiaries, and a reconciliation to U.S. GAAP
of net income and shareholders equity.

Pursuant
to Chilean GAAP, unless otherwise indicated, financial data for all full-year periods
through December 31, 2003 included in our audited consolidated financial statements and
in the other financial information contained elsewhere in this annual report have been
restated in constant Chilean pesos of December 31, 2003.

In
this annual report, references to $, U.S.$, U.S. dollars and dollars are to
United States dollars, references to pesos or Ch$ are to Chilean pesos, and
references to UF are to Unidades de Fomento. The Unidad de Fomento, or UF, is a unit
of account which is linked to, and which is adjusted daily to reflect changes in, the
Consumer Price Index. As of December 31, 2003, one UF equaled U.S.$28.23 and Ch$16,920.
See note 1(c) to our audited consolidated financial statements. Percentages and certain
dollar and peso amounts contained in this annual report have been rounded for ease of
presentation.

This
annual report contains translations of certain Chilean peso amounts into U.S. dollars at
specified rates solely for your convenience. These translations should not be construed
as representations that the Chilean peso amounts actually represent such U.S. dollar
amounts, were converted from U.S. dollars at the rate indicated in preparing our audited
consolidated financial statements or could be converted into U.S. dollars at the rate
indicated. Unless otherwise indicated, such U.S. dollar amounts have been translated
from Chilean pesos based on the Observed Exchange Rate, as described in Item 3. Key
InformationSelected Financial DataExchange Rates, reported by the Banco Central de
Chile, or the Central Bank, for December 30, 2003 (the latest practicable date, as
December 31, 2003 was a banking holiday in Chile). The Observed Exchange Rate on June
23, 2004 was Ch$643.42=U.S.$1.00. The rate reported by the Central Bank is based on the
rate for the prior business day in Chile and is the exchange rate specified by the
Chilean Superintendency of Banks for use by Chilean banks in the preparation of their
financial statements. The Federal Reserve Bank of New York does not report a noon buying
rate for Chilean pesos.

Unless
otherwise specified, all references in this annual report to loans are to loans and
financial leases before deduction of allowances for loan losses, and all market share
data presented in this annual report are based on information published periodically by
the Chilean Superintendency of Banks.  Non-performing loans include loans as to which
either principal or interest is overdue and loans that do not accrue interest.
 Restructured loans as to which no payments are overdue are not ordinarily classified as
non-performing loans.  Past due loans include, with respect to any loan, the portion of
principal or interest that is 90 or more days overdue; the entire outstanding balance of
any loan is included in past due loans only after legal collection

1

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proceedings
have been commenced.  This practice differs from that normally followed in the United
States, where the amount classified as past due would include the total principal and
interest on all loans which have any portion overdue.  See Item 4.  Information on the
CompanySelected Statistical InformationClassification of Loan Portfolio Based on the
Borrowers Payment Performance.

Unless
otherwise specified, all references to shareholders equity as of December 31 of any
year are to shareholdersequity after deducting our respective retained net income for
such year, but all references to average shareholders equity for any year are to
average shareholders equity including our respective retained net income.

Certain
figures included in this annual report and in our audited consolidated financial
statements have been rounded for ease of presentation.  Percentage figures included in
this annual report have not in all cases been calculated on the basis of such rounded
figures but on the basis of such amounts prior to rounding.  For this reason, percentage
amounts in this annual report may vary slightly from those obtained by performing the
same calculations using the figures in our audited consolidated financial statements.
 Certain other amounts that appear in this annual report may similarly not sum due to
rounding.

MACRO-ECONOMIC AND
MARKET DATA

In this
annual report, all macro-economic data relating to the Chilean economy is based on
information published by the Central Bank.  All market share and other data relating to
the Chilean financial system as well as data on average return on shareholders equity
are based on information published by the Chilean Superintendency of Banks.  Information
regarding the consolidated risk index of the Chilean financial system as a whole is not
available.  The Chilean Superintendency of Banks publishes the unconsolidated risk index
for the financial system three times yearly in February, June and October.

PART I

Table of Contents


Item 1.    Identity
of Directors, Senior Management and Advisers

Not
Applicable.

Table of Contents


Item 2.    Offer
Statistics and Expected Timetable

Not
Applicable.

2

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Table of Contents


Item 3.    Key
Information

SELECTED FINANCIAL
DATA

The
following table presents historical financial information about us as of the dates and
for each of the periods indicated.  The following table should be read in conjunction
with, and is qualified in its entirety by reference to, our audited consolidated
financial statements appearing elsewhere in this annual report.  Our audited consolidated
financial statements are prepared in accordance with Chilean GAAP and the rules of the
Chilean Superintendence of Banks, which together differ in certain significant respects
from U.S. GAAP.  Note 28 to our audited consolidated financial statements provides a
description of the material differences between Chilean GAAP and U.S. GAAP and a
reconciliation to U.S. GAAP of net income for the years ended December 31, 2001, 2002 and
2003 and shareholders equity at December 31, 2002 and 2003.

Under
Chilean GAAP, the merger between Banco de Chile and Banco de A. Edwards is accounted for
as a pooling of interest on a prospective basis.  As such, the historical financial
statements for periods prior to the merger are not restated under Chilean GAAP.  Under
U.S. GAAP, the merger between the two banks, which have been under common control of Quiñenco
S.A., since March 27, 2001, is accounted for in a manner similar to a pooling of
interests under U.S. GAAP.  As a consequence of the merger, we are required to restate
our previously issued U.S. GAAP historical financial information to retroactively present
the financial results for the merged bank as if Banco de Chile and Banco de A. Edwards
had been combined throughout the periods during which common control existed.  Under U.S.
GAAP, the reported financial information for periods presented prior to March 27, 2001
reflects book values of Banco de A. Edwards, which had been under Quiñenco S.A.s control
since September 2, 1999.  See note 28 to our audited consolidated financial statements.

|                                           | At or for the year ended December 31,                                   
|------------------------------------------ | ------------------------------------------------------------------------
|                                           |                                                                         
|                                           | 1999                                                                    
|                                           |                                                                         
|                                           | (in millions of constant Ch$ as of December 31, 2003, except share data)
|                                          
|CONSOLIDATED INCOME STATEMENT DATA        
|                                          
|Chilean GAAP:                             
|Interest revenue                           | Ch$ 527,891                                                             
|Interest expense                           | (317,954)                                                               
|                                           |                                                                         
|Net interest revenue                       | 209,937                                                                 
|Provisions for loan losses                 | (53,046)                                                                
|Total fees and income from                
|services, net                              | 40,543                                                                  
|Total other operating income (loss), net   | 19,183                                                                  
|Total other income and expenses, net       | 5,091                                                                   
|Total operating expenses                   | (141,873)                                                               
|Loss from price-level                     
|restatement                                | (5,812)                                                                 
|                                           |                                                                         
|                                          
|Income before income taxes                 | 74,023                                                                  
|Income taxes                               | (2,050)                                                                 
|                                           |                                                                         
|Net income                                 | 71,973                                                                  
|                                           |                                                                         
|                                          
|Earnings per share(1)                      | 1.60                                                                    
|Dividends per share(2)                     | 1.21                                                                    
|Number of shares (in millions)             | 44,932.70                                                               
|                                          
|U.S. GAAP(3):                             
|Interest revenue                           | 285,931                                                                 
|Interest expense                           | (175,805)                                                               
|Net interest revenue                       | 110,126                                                                 
|Provisions for loan losses                 | (68,177)                                                                
|Net income                                 | (8,225)                                                                 
|Earnings per share(1)                      | (0.36)                                                                  
|Weighted average number of total shares(4) | 23,147                                                                  

3

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|                                   | At or for the year ended December 31,                                   
|---------------------------------- | ------------------------------------------------------------------------
|                                   |                                                                         
|                                   | 1999                                                                    
|                                   |                                                                         
|                                   | (in millions of constant Ch$ as of December 31, 2003, except share data)
|                                  
|CONSOLIDATED BALANCE SHEET DATA    |                                                                         
|                                  
|Chilean GAAP:                     
|Cash and due from banks            | 449,841                                                                 
|Financial investments              | 1,181,795                                                               
|Loans, net of allowances           | 3,667,699                                                               
|Other assets                       | 194,657                                                                 
|                                   |                                                                         
|Total assets                       | 5,493,992                                                               
|                                   |                                                                         
|                                  
|Deposits                           | 3,130,590                                                               
|Other interest bearing liabilities | 1,587,218                                                               
|Other liabilities                  | 364,772                                                                 
|                                   |                                                                         
|Total liabilities                  | 5,082,580                                                               
|Shareholders equity               | Ch$ 411,412                                                             
|                                  
|U.S. GAAP(3):                     
|Financial investments              | 258,964                                                                 
|Loans, net                         | 2,035,351                                                               
|Total assets                       | 2,601,034                                                               
|Total liabilities                  | 2,361,546                                                               
|Total shareholders equity         | 239,488                                                                 

|                                                                 | At or for the year ended December 31,
|---------------------------------------------------------------- | -------------------------------------
|                                                                 |                                      
|                                                                 | 1999                                 
|                                                                 |                                      
|                                                                
|CONSOLIDATED RATIOS                                             
|                                                                
|Chilean GAAP:                                                   
|Profitability and Performance                                   
|Net interest margin(5)                                           | 4.15%                                
|Return on average total assets(6)                                | 1.16                                 
|Return on average shareholders equity(7)                        | 19.49                                
|                                                                
|Capital                                                         
|Average shareholders equity as a percentage of total assets     | 5.93                                 
|Bank regulatory capital as a percentage of minimum regulatory   
|capital                                                          | 235.44                               
|Ratio of liabilities to regulatory capital(8)                    | 14.97                                
|                                                                
|Credit Quality                                                  
|Category B-, C and D loans as a percentage of total loans        | 5.74                                 
|Past due loans as a percentage of total loans                    | 1.11                                 
|Allowances for loan losses as a percentage of loans category B-,
|C and D loans                                                    | 52.27                                
|Allowances for loan losses as a percentage of past due loans     | 270.08                               
|Allowances for loan losses as a percentage of total loans        | 3.00                                 
|Past due amounts as a percentage of shareholders equity         | 12.38                                
|Consolidated risk index                                          | 2.03                                 
|                                                                
|Operating Ratios                                                
|Operating expenses/operating revenue                             | 52.61                                
|Operating expenses/average total assets                          | 2.28                                 
|                                                                
|U.S. GAAP:                                                      
|Profitability and Performance                                   
|Net interest margin(9)                                           | 2.18                                 
|Return on average total assets(10)                               | (0.13)%                              

__________________________


|(1) | Earnings
per share data are calculated by dividing net income by the weighted average of shares
outstanding during the year.       See footnote (4) to this table for an explanation of
the weighted average calculation.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Dividends
per share data are calculated by dividing the amount of the dividend paid by the weighted
average of shares       outstanding during the year.  See footnote (4) to this table for
an explanation of the weighted average calculation.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | All
U.S. GAAP numbers use Article 9 presentation.  All U.S. GAAP figures have been calculated
taking into account the U.S. GAAP       adjustments set forth in note 28 to our audited
consolidated financial statements.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Common
shares outstanding are presented giving effect to the weighted average number of shares
of the merged bank outstanding       during the year.  The aggregate number is calculated
based on an exchange ratio of 3.135826 shares of Banco de Chile for each
      outstanding share of Banco de A. Edwards.  Banco de A. Edwards had 7,381.41 million
shares outstanding immediately prior to the       merger.  For the years ended December
31, 1999 and 2000, the weighted average number of shares represents Banco de A. Edwards
      outstanding shares presented in terms of Banco de Chile shares using the exchange
ratio discussed above.  For the year ended       December 31, 2001,  Banco de Chile's and
Banco de A. Edwards' shares have been combined as of March 27, 2001.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Net
interest revenue divided by average interest earning assets.
|--- | ----------------------------------------------------------------

|(6) | Net
income (loss) divided by average total assets.
|--- | --------------------------------------------------

|(7) | Net
income (loss) divided by average shareholders equity.
|--- | ----------------------------------------------------------

|(8) | Total
liabilities divided by bank regulatory capital.
|--- | -----------------------------------------------------

|(9) | Net
interest revenue under U.S. GAAP divided by average interest earning assets.
|--- | --------------------------------------------------------------------------------

|(10) | Net
income under U.S. GAAP divided by average total assets.
|---- | -----------------------------------------------------------

4

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# Exchange Rates

Chile
has two currency markets, the Mercado Cambiario Formal, or the Formal Exchange
Market, and the Mercado Cambiario Informal, or the Informal Exchange Market. Under
the Central Bank Act, which is an organic constitutional law requiring a special
majority vote of the Chilean Congress to be modified, the Central Bank determines
which purchases and sales of foreign currencies must be carried out in the Formal Exchange
Market. The Formal Exchange Market is comprised of the banks and other entities authorized
to purchase and sell foreign currencies by the Central Bank. The conversion from pesos to
U.S. dollars of all payments and distributions with respect to the ADSs must be carried
out at the spot market rate in the Formal Exchange Market.

For
purposes of the operation of the Formal Exchange Market, the Central Bank sets a monthly
reference exchange rate, or dolar acuerdo, taking internal and external inflation
into account. The reference exchange rate is adjusted daily to reflect variations in
parities between the peso and each of the U.S. dollar, the Euro and the Japanese yen. The
daily Observed Exchange Rate for a given date is the average exchange rate of the
transactions conducted in the Formal Exchange Market on the immediately preceding banking
day, as certified by the Central Bank.

Prior
to September 1999, authorized transactions by banks were generally transacted within a
certain band above or below the reference exchange rate. In order to maintain the average
exchange rate within such limits, the Central Bank would intervene by selling and buying
foreign currencies on the Formal Exchange Market.

On
September 2, 1999, the Central Bank resolved to eliminate the exchange rate band as an
instrument of exchange rate policy, introducing more flexibility to the exchange market.
For this measure, the monetary authority considered the international financial scenario,
the domestic inflation rate, the level of the external accounts, and the market
development of hedge exchange financial instruments. At the same time, the Central Bank
announced that an intervention in the exchange market would take place only in special and
qualified cases.

Purchases
and sales of foreign currencies that may be effected outside the Formal Exchange Market
can be carried out in the Informal Exchange Market. The Informal Exchange Market reflects
transactions carried out at informal exchange rates by entities not expressly authorized
to operate in the Formal Exchange Market, such as certain foreign exchange houses and
travel agencies. There are no limits on the extent to which the rate of exchange in the
Informal Exchange Market can fluctuate above or below the Observed Exchange Rate. On
December 30, 2003 (the latest practicable date, as December 31, 2003 was a banking
holiday in Chile), the average exchange rate in the Informal Exchange Market was Ch$592.75
per U.S.$1.00, or 1.11% lower than the published Observed Exchange Rate of Ch$599.42 per
U.S. $1.00.

5

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The
following table sets forth the annual low, high, average and period-end Observed Exchange
Rate for U.S. dollars for each year beginning in 1999, as reported by the Central Bank:

|         | Daily Observed Exchange Rate Ch$ per U.S.$(1)
|-------- | ---------------------------------------------
|         |                                              
|Year     | Low(2)                                       
|         |                                              
|        
|1999     | Ch$ 468.69                                   
|2000     | 501.04                                       
|2001     | 557.13                                       
|2002     | 641.75                                       
|2003     | 593.10                                       
|December | 593.10                                       
|2004    
|January  | 559.21                                       
|February | 571.35                                       
|March    | 588.04                                       
|April    | 596.61                                       
|May      | 622.25                                       
|June(4)  | 636.02                                       

_______________


Source:  Central
Bank.


|(1) | Nominal
figures.
|--- | ----------------

|(2) | Exchange
rates are the actual low and high, on a day-by-day basis for each period.
|--- | ----------------------------------------------------------------------------------

|(3) | The
average of monthly average rates during the year.
|--- | -----------------------------------------------------

|(4) | Period
from June 1, 2004 through June 23, 2004.
|--- | -----------------------------------------------

The
Observed Exchange Rate on June 23, 2004 was Ch$643.42 = U.S.$1.00. The Federal Reserve
Bank of New York does not report a noon buying rate for Chilean pesos.

6

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# RISK FACTORS

The
risks and uncertainties described below are not the only ones that we face. Additional
risks and uncertainties that we do not know about or that we currently think are
immaterial may also impair our business operations. Any of the following risks if they
actually occur, could materially and adversely affect our business, results of operations,
prospects and financial condition.

We
are subject to market risks that are presented both in this subsection and in Item
5. Operating and Financial Review and Prospects.

# Risks Relating to our
Operations and the Banking Industry

The
growth of our loan portfolio may expose us to increased loan losses, and its rate of
growth may decrease in the future.

From
December 31, 1998 to December 31, 2003, our aggregate loan portfolio, net of interbank
loans (on an unconsolidated basis) grew by 121.2% in nominal terms and 92.3% in real terms
to Ch$6,065,621 million. During the same period, our consumer loan portfolio grew by
172.6% in nominal terms and 137.1% in real terms to Ch$478,093 million, each in accordance
with the loan classification system of the Chilean Superintendency of Banks. On a combined
basis (combining Banco de Chile and Banco de A. Edwards), from December 31, 1998 to
December 31, 2003, the aggregate loan portfolio of both banks, net of interbank loans (on
an unconsolidated basis) grew by 32.0% in nominal terms and 14.8% in real terms to
Ch$6,065,621 million. During the same period, on a combined basis, the consumer loan
portfolio of both banks grew by 62.0% in nominal terms and 40.9% in real terms to
Ch$478,093 million, each calculated in accordance with the loan classification system of
the Chilean Superintendency of Banks.(Because the method of aggregation of loans
used by the Chilean Superintendency of Banks for its public information differs in minor
respects from that used by us for internal accounting purposes, the foregoing figures may
differ from the figures included in our audited consolidated financial statements.)
Further expansion of our loan portfolio (particularly in the lower-middle to middle income
consumer and small- and medium-sized corporate business areas) can be expected to expose
us to a higher level of loan losses and require us to establish higher levels of
allowances for loan losses. Our loan portfolio may not continue to grow at the same or
similar rates in the future.

According
to the Chilean Superintendency of Banks, from December 31, 1998 to December 31, 2003, the
aggregate amount of loans outstanding in the Chilean banking system (on an unconsolidated
basis) grew by 39.6% in nominal terms and 21.4% in real terms to Ch$32,831,720 million. A
decline in the rate of growth of the Chilean economy could adversely affect the rate of
growth of our loan portfolio and our risk index and, accordingly, increase our required
allowances for loan losses. See Item 4. Information on the CompanySelected
Statistical Information.

Restrictions
imposed by banking regulations may restrict our operations and thereby adversely affect
our financial condition and results of operations.

We
are subject to regulation by the Chilean Superintendency of Banks. In addition, we are
subject to regulation by the Central Bank with regard to certain matters, including
interest rates and foreign exchange transactions. See Item 4. Information on the
CompanyRegulation and Supervision. During the Chilean financial crisis of 1982
and 1983, the Central Bank and the Chilean Superintendency of Banks strictly controlled
the funding, lending and general business matters of the banking industry in Chile.

Pursuant
to the Ley General de Bancos, or the General Banking Law, all Chilean banks may
engage in additional businesses depending on the risk of the activity and the strength of
the bank. The General Banking Law also applies to the Chilean banking system a modified
version of the capital adequacy guidelines issued by the Basel Committee on Banking
Regulation and Supervisory Practices, or Basel Committee, and limits the

7

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discretion of the
Chilean Superintendency of Banks to deny new banking licenses. There can be no assurance
that regulators will not in the future impose more restrictive limitations on the
activities of banks, including us, than those that are currently in effect. Any such
change could have a material adverse effect on our financial condition or results of
operations.

We
reported a negative cash flow from operating activities for the years ended December 31,
2000, 2001 and 2003, which could have an adverse effect on our ability to operate in
the future.

During
2000, 2001 and 2003, we reported a negative cash flow from our operations. During those
years, we invested a large amount of cash in Central Bank securities in order to meet our
technical reserve requirements as a result of higher current account and other demand
deposits levels, resulting in negative operating cash flow. From time to time, we may need
to invest large amounts of cash in order to meet regulatory requirements. Given current
low interest rates, our customers tend to maintain deposits in checking accounts and in
other demand deposits, which are included in the technical reserve requirement, which may
also result in a need to invest more cash in highly liquid products such as Central Bank
securities. Either or both of these needs may affect our cash flow from operations. There
can be no assurance that we will not report a negative cash flow from operating activities
in the future.

Increased
competition and industry consolidation may adversely affect our operations.

The
Chilean market for financial services is highly competitive. We compete with other Chilean
private sector domestic and foreign banks, with Banco del Estado de Chile, a public sector
bank, and with large department stores that make consumer loans to a large portion of the
Chilean population. In 2002, two new private sector banks affiliated with Chiles
largest department stores began their operations, mainly as consumer and medium-sized
corporate niche banks. In 2003, a new niche bank oriented at servicing corporations began
its operations, and two new authorizations were granted by the Chilean Superintendency of
Bank for the creation of additional banks, oriented at servicing both individuals and
corporations. The lower-middle to middle income portions of the Chilean population and the
small- and medium-sized companies have become the target markets of several banks, and
competition with respect to these customers is likely to increase. As a result, net
interest margins in these subsegments are likely to decline. Although we believe that
demand for financial products and services from lower-middle to middle income individuals
and from small- and medium-sized companies will continue to grow during the remainder of
the decade, there can be no assurance that net interest margins will be maintained at
their current levels.

We
also face competition from non-bank competitors with respect to some of our credit
products, such as credit cards and consumer loans. Non-bank competition from large
department stores has become increasingly significant in the consumer lending sector. In
addition, we face competition from competitors such as leasing, factoring and automobile
finance companies, with respect to credit products, and mutual funds, pension funds and
insurance companies, with respect to savings products and mortgage loans. Currently, banks
continue to be the main suppliers of leasing, factoring and mutual funds, and the
insurance sales business has experienced rapid growth. See Item 4. Information on
the CompanyBusiness OverviewCompetition.

The
increase in competition within the Chilean banking industry in recent years had led to,
among other things, consolidation in the industry. For example, on August 1, 2002, Banco
Santiago and Banco Santander-Chile, the then-second and third largest banks in Chile,
respectively, merged creating Chiles largest bank. In 2003, Banco del Desarrollo
merged with Banco Sudameris. We expect the trends of increased competition and
consolidation to continue and result in the formation of new large financial groups.
Consolidation, which can result in the creation of larger and stronger banks, may
adversely affect our financial condition and results of operations by affecting the net
interest margins we are able to generate and by increasing our costs of operations.

8

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Our
exposure to small businesses and lower-middle income individuals could lead to higher
levels of past due loans and subsequent charge-offs.

Although
we historically emphasized banking for large and medium-sized businesses, an increasing
number of our corporate customers (approximately 9.6% of the value of the total loan
portfolio) currently consist of small companies (those with annual sales of less than
Ch$300 million) and, to a lesser extent, individual customers (approximately 2.6% of the
value of the total loan portfolio at December 31, 2003) in the lower income individuals
subsegment (annual income between Ch$1.8 million and Ch$5.4 million). Our strategy
includes increasing lending and providing other services to attract additional
lower-middle income individuals and small companies as customers. Small companies and
lower-middle to middle income individuals are likely to be more severely affected by
adverse developments in the Chilean economy than large corporations and high income
individuals. Consequently, in the future we may experience higher levels of past due
loans, which could result in higher allowances for loan losses. There can be no assurance
that the levels of past due loans and subsequent charge-offs will not be materially higher
in the future. See Item 4. Information on the CompanyBusiness
OverviewPrincipal Business Activities.

An
affiliate of ours may be obligated to sell shares of our stock in the public market if we
do not pay sufficient dividends.

As
of December 31, 2003, Sociedad Administradora de la Obligacion Subordinada SAOS S.A., or
SAOS, our affiliate, holds 42% of our shares as a consequence of our 1996 reorganization.
The reorganization was partially due to our 1989 repurchase from the Central Bank of
certain non-performing loans that we had previously sold to the Central Bank and later
exchanged for a subordinated obligation without a fixed term, known as deuda
subordinada, or subordinated debt. Under the terms of a repayment obligation in
favor of the Central Bank that SAOS assumed to replace the Central Bank subordinated debt,
SAOS may be required to sell some of our shares to the public. See Item 4.
Information on the CompanyHistory and Development of the BankHistoryThe
1982-1983 Economic Crisis and the Central Bank Subordinated Debt.

In
exchange for assuming the Central Bank indebtedness, SAOS received from SM-Chile S.A., a
holding company that controls us and SAOS, 63.6% of our shares as collateral for this
indebtedness. As a result of our merger with Banco de A. Edwards, the percentage of our
shares held by SAOS decreased to 42.0%. Dividends received from us are the sole source of
SAOSs revenue, which it must apply to repay this indebtedness. However, under
SAOSs agreement with the Central Bank, we have no obligation to distribute dividends
to our shareholders. To the extent distributed dividends are not sufficient to pay the
amount due on this indebtedness, SAOS is permitted to maintain a cumulative deficit
balance with the Central Bank that SAOS commits to pay with future dividends. If the
cumulative deficit balance exceeds an amount equal to 20% of our capital and reserves, the
Central Bank may require SAOS to sell a sufficient number of shares of our stock owned by
SAOS to pay the entire accumulated deficit amount. As of April 30, 2004, SAOS maintained a
deficit balance with the Central Bank of Ch$37,080 million, equivalent to 7.2% of our
capital and reserves. As of the same date, Ch$102,438 million would have represented 20%
of our capital and reserves. If from time to time in the future our shareholders decide to
retain and capitalize all or part of our annual net income in order to finance our future
growth, and to distribute stock dividends among our shareholders, the Central Bank may
require us to pay the portion of the net income corresponding to shares owned by SAOS in
cash to SAOS. If we distribute stock dividends and the Central Bank does not require us to
pay that portion in cash, the shares received by SAOS must be sold by SAOS within the
following 12 months. The shareholders of SM-Chile will have a right of first refusal with
respect to that sale.

We
are unable to determine the likelihood that the Central Bank would require SAOS to sell
shares of our common stock or that SAOS will otherwise be required to sell any stock
dividends distributed by us, nor can we determine the number of such shares SAOS may be
required to sell. If SAOS is required to sell shares of our stock in the public market,
that sale could adversely affect the prevailing market price of our stock.

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Our results of operations
are affected by interest rate volatility.

Our
results of operations depend to a great extent on our net interest revenue. In 2003, net
interest revenue represented 52.9% of our operating revenue. Changes in market interest
rates could affect the interest rates earned on our interest-earning assets differently
from the interest rates paid on our interest-bearing liabilities, leading to a reduction
in our net interest revenue. Interest rates are highly sensitive to many factors beyond
our control, including the reserve policies of the Central Bank, deregulation of the
financial sector in Chile, domestic and international economic and political conditions
and other factors. Any volatility in interest rates could have a material adverse effect
on our financial condition or results of operations. The average annual short-term
interest rate (based on the rate paid by Chilean financial institutions) for 90 to 360 day
deposits was 3.74% in 2001, 1.94% in 2002, and 1.76% in 2003. The average long-term
interest rate based on the Chilean Central Banks eight-year duration bonds was 5.52%
in 2001, 4.54% in 2002, and 3.96% in 2003. See Item 5. Operating and Financial
Review and ProspectsOverviewInflation and Item 5. Operating and
Financial Review and Prospects OverviewInterest Rates.

# Risks Relating to our
ADSs

Our principal
shareholders may have interests that differ from those of our other shareholders and
their significant shareownership may have an adverse effect on the future market
price of our ADSs and shares.

As
of December 31, 2003, L.Q. Inversiones Financieras S.A., a holding company beneficially
owned by Quiñenco S.A., beneficially owned approximately 52.45% of our outstanding
voting rights. These principal shareholders are in a position to elect a majority of the
members of our board of directors, direct our management and control substantially all
matters that are to be decided by a vote of the shareholders, including fundamental
corporate transactions.

Actions
by our principal shareholders with respect to the disposition of the shares or ADSs they
beneficially own, or the perception that such actions may occur, may adversely affect the
trading price of our shares on the various stock exchanges on which they are listed and,
consequently, the market price of the ADSs.

There
may be a lack of liquidity and a limited market for our shares and ADSs.

We
merged with Banco de A. Edwards, a Chilean Bank, effective as of January 1, 2002. Prior to
the merger, there was no public market for our shares outside Chile or for our ADSs. While
our ADSs have been listed on the New York Stock Exchange, or NYSE, since the first quarter
of 2002, there can be no assurance that an active trading market for our ADSs will be
sustained. During 2003, a daily average of 10,770 American Depositary Receipts, or ADRs,
were traded on the NYSE. Although our shares are traded on the Santiago Stock Exchange,
the Valparaiso Stock Exchange and the Chilean Electronic Stock Exchange, the market for
our shares in Chile is small and illiquid. At December 31, 2003, approximately 11.91% of
our outstanding shares are held by shareholders other than our principal shareholders,
including SM-Chile and SAOS.

If
an ADS holder withdraws the underlying shares from the ADR facility, the small size of the
market and its low liquidity in general, and our concentrated ownership in particular, may
impair the ability of the ADS holder to sell the shares in the Chilean market in the
amount and at the price and time such holder desires, and could increase the volatility of
the price of our ADSs.

You
may be unable to exercise preemptive rights.

The
Ley Sobre Sociedades Anonimas No. 18,046 and the Reglamento de Sociedades
Anonimas, or the Chilean Corporations Law and its regulations require that whenever we
issue new common stock for cash, we grant preemptive rights to all of our shareholders
(including holders of ADSs) to purchase a sufficient number

10

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of shares to maintain their
existing ownership percentage. Such an offering would not be possible unless a
registration statement under the Securities Act of 1933, as amended, or the Securities
Act, were effective with respect to such rights and common stock or an exemption from the
registration requirements thereunder were available.

We
may elect not to make a registration statement available with respect to the preemptive
rights and the common stock, in which case you may not be able to exercise your preemptive
rights. If a registration statement is not filed, the depositary will sell such
holders preemptive rights and distribute the proceeds thereof if a premium can be
recognized over the cost of any such sale.

Developments
in other emerging markets may adversely affect the market price of the ADSs and shares.

The
market price of the ADSs may be adversely affected by declines in the international
financial markets and adverse world economic conditions. The market for Chilean securities
is, to varying degrees, influenced by economic and market conditions in other emerging
market countries, especially those in Latin America. Although economic conditions are
different in each country, investors reactions to developments in one country can
affect the securities markets and the securities of issuers in other countries, including
Chile. Since the fourth quarter of 1997, the international financial markets have
experienced volatility. Developments in other countries may adversely affect the market
price of the ADSs. If the current economic situation in Argentina continues to
deteriorate, or if similar developments occur in other international financial markets in
the future, the market price of the ADSs could be adversely affected.

Chile
has in the past imposed controls on foreign investment and repatriation of investments
that affected an investment in, and earnings from, our ADSs.

Equity
investments in Chile by persons who are not Chilean residents have historically been
subject to various exchange control regulations that restrict the repatriation of the
investments and earnings therefrom. In April 2001, the Central Bank eliminated most of the
regulations that affected foreign investors, although foreign investors still have to
provide the Central Bank with information related to equity investments and must conduct
such operations within the Formal Exchange Market. Additional Chilean restrictions
applicable to holders of our ADSs, the disposition of the shares underlying them or the
repatriation of the proceeds from such disposition or the payment of dividends may be
imposed in the future, and we cannot advise you as to the duration or impact of such
restrictions if imposed.

If
for any reason, including changes in Chilean law, the depositary were unable to convert
Chilean pesos to U.S. dollars, investors would receive dividends and other distributions,
if any, in Chilean pesos.

We
are required to withhold for tax purposes 35% of any dividend we pay to you.

Owners
of ADSs are entitled to receive dividends on the underlying shares to the same extent as
the holders of shares. Dividends received by holders of ADSs will be paid net of foreign
currency exchange fees and expenses of the depositary and will be subject to Chilean
withholding tax of up to 35% of the dividend, which we will withhold and pay to the
Chilean tax authorities. Any dividend distributions made in property (other than common
stock) will be subject to the same Chilean tax rules as cash dividends.  See "Item 10.
 Additional Information--Taxation--Chilean Tax Considerations."

# Risks Relating to Chile

Currency
fluctuations could adversely affect the value of our ADSs and any distributions on the
ADSs.

The
Chilean governments economic policies and any future changes in the value of the
Chilean peso against the U.S. dollar could affect the dollar value of our common stock and
our ADSs. The peso has been subject to large devaluations in the past and could be subject
to significant fluctuations in the future. In the

11

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period from December 31, 1998 to
December 31, 2003, the value of the U.S. dollar relative to the Chilean peso increased
approximately 10.0%, as compared to an 8.2% decrease in value in the period from December
31, 1994 to December 31, 1998.

Chilean
trading in the shares underlying our ADSs is conducted in pesos. Cash distributions with
respect to our shares of common stock are received in Chilean pesos by the depositary,
which then converts such amounts to U.S. dollars at the then-prevailing exchange rate for
the purpose of making payments in respect of our ADSs. If the value of the Chilean peso
falls relative to the U.S. dollar, the dollar value of our ADSs and any distributions to
be received from the depositary will be reduced. In addition, the depositary will incur
customary currency conversion costs (to be borne by the holders of our ADSs) in connection
with the conversion and subsequent distribution of dividends or other payments. See
Item 10. Additional InformationExchange Controls.

Inflation
could adversely affect the value of our ADSs and financial condition and results of
operations.

Although
Chilean inflation has moderated in recent years, Chile has experienced high levels of
inflation in the past. High levels of inflation in Chile could adversely affect the
Chilean economy and, indirectly, the value of our ADSs. The annual rate of inflation (as
measured by changes in the Consumer Price Index and as reported by the Instituto
Nacional de Estadisticas, or the Chilean National Institute of Statistics)
during the last five years ended December 31, 2003 and the first five months of 2004 was:

|Year                                              | Inflation
(Consumer Price
Index)
|------------------------------------------------- | --------------------------------
|                                                  |                                 
|1999                                              | 2.3%                            
|2000                                              | 4.5                             
|2001                                              | 2.6                             
|2002                                              | 2.8                             
|2003                                              | 1.1                             
|2004 (through May 31)                             | 1.1%                            
|                                                 
|________________                                 
|Source:  Chilean National Institute of Statistics

Although
we currently benefit from inflation in Chile due to the structure of our assets and
liabilities (i.e., we have a significant amount of deposits that are not indexed to
the inflation rate and do not accrue interest while a significant portion of our loans are
indexed to the inflation rate), our operating results and the value of our ADSs in the
future may be adversely affected by changing levels of inflation, and Chilean inflation
could change significantly from the current level.

Our
growth and profitability depends on the level of economic activity in Chile and elsewhere.

A
substantial amount of our loans are to borrowers doing business in Chile. Accordingly, the
recoverability of these loans in particular, and our results of operations and financial
condition in general, are dependent to a significant extent on the level of economic
activity in Chile. The Chilean economy has been influenced, to varying degrees, by
economic conditions in other emerging market countries. There can be no assurance that the
Chilean economy will continue to grow in the future or that future developments in or
affecting the Chilean economy, will not materially and adversely affect our business,
financial condition or results of operations. Furthermore, although our operations (with
the exception of our branch in New York, our agency in Miami and our three representative
offices located in Buenos Aires, Sao Paulo and Mexico City) are currently limited to
Chile, we may in the future pursue a strategy of expansion into other Latin American
countries. The potential success of such strategy will depend in part on political, social
and economic developments in such countries.

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According
to data published by the Central Bank, the Chilean economy grew at a rate of 3.4% in 2001,
2.2% in 2002 and 3.3% in 2003. The reduction in growth prevailing in recent years, as
compared to the 1990s, has adversely affected the overall asset quality of the Chilean
banking system. According to information published by the Chilean Superintendency of
Banks, the unconsolidated risk index of the Chilean financial system as a whole increased
from 1.50% in October 1998 to 1.82% in October 2003 (the latest figures available for the
financial system).Our results of operations and financial condition could also be
affected by changes in economic or other policies of the Chilean government, which has
exercised and continues to exercise a substantial influence over many aspects of the
private sector, or other political or economic developments in Chile.

Argentinas
insolvency and default on its public debt which deepened the existing financial economic
and political crisis in that country, has adversely affected Chile. If Argentinas
economic environment does not improve, the economy in Chile, as both a neighboring country
and a trading partner, could also be adversely affected and could experience slower growth
than in recent years.

Chile
has corporate disclosure and accounting standards different from those you may be
familiar with in the United States.

The
accounting, financial reporting and securities disclosure requirements in Chile differ
from those in the United States. Accordingly, the information about us available to you
will not be the same as the information available to shareholders of a U.S. company.

There
are also important differences between Chilean and U.S. accounting and financial reporting
standards. As a result, Chilean financial statements and reported earnings generally
differ from those that would be reported based on U.S. accounting and reporting standards.
See note 28 to our audited consolidated financial statements.

As
a regulated financial institution, we are required to submit to the Chilean
Superintendency of Banks unaudited unconsolidated balance sheets and income statements,
excluding any note disclosure, prepared in accordance with Chilean GAAP on a monthly
basis. The Chilean Superintendency of Banks makes this information public within
approximately three months of receipt. The Chilean Superintendency of Banks also makes
summary financial information available within three weeks of receipt. Such disclosure
differs in a number of significant respects from information generally available in the
United States with respect to U.S. financial institutions.

Chilean
disclosure requirements for publicly listed companies differ from those in the United
States in some important respects. In addition, although Chilean law imposes restrictions
on insider trading and price manipulation, the Chilean securities markets are not as
highly regulated and closely supervised as the U.S. securities markets.

Chilean
law provides for fewer and less well-defined shareholders rights.

Our
corporate affairs are governed by our estatutos, or bylaws, and the laws of Chile.
Under such laws, our shareholders may have fewer or less well-defined rights than they
might have as shareholders of a corporation incorporated in a U.S. jurisdiction. For
example, our shareholders would not be entitled to appraisal rights in the event of a
merger or other business combination undertaken by us.

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# FORWARD-LOOKING
STATEMENTS

This annual
report contains forward-looking statements. These statements appear throughout this annual
report, including, without limitation, under Item 4. Information on the
Company and Item 5. Operating and Financial Review and Prospects.
Examples of such forward-looking statements include:

- projections of
operating revenues, net income (loss), net income (loss) per share, capital expenditures,
dividends, capital structure or other financial items or ratios;

- statements of
our plans, objectives or goals, including those related to anticipated trends,
competition and regulation;

- statements
about our future economic performance or that of Chile or other countries in which we
operate; and

- statements of
assumptions underlying such statements.

Words
such as believe, anticipate, plan, expect,
intend, target, estimate, project,
potential, predict, forecast, guideline,
could, may, will, should and similar
expressions are intended to identify forward-looking statements but are not the exclusive
means of identifying such statements. These statements may relate to (1) our asset
growth and financing plans, (2) trends affecting our financial condition or results
of operations and (3) the impact of competition and regulations, but are not limited
to such topics. Forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and actual results may differ materially from those
described in such forward-looking statements included in this annual report as a result of
various factors (including, without limitation, the actions of competitors, future global
economic conditions, market conditions, foreign exchange rates and operating and financial
risks), many of which are beyond our control. The occurrence of any such factors not
currently expected by us would significantly alter the results set forth in these
statements.

Factors
that could cause actual results to differ materially and adversely include, but are not
limited to:

- changes in
general economic, business, political or other conditions in Chile or changes in general
economic or business                   conditions in Latin America;

- changes in
capital markets in general that may affect policies or attitudes towards lending to Chile
or Chilean companies;

- increased
costs;

- unanticipated
increases in financing and other costs or the inability to obtain additional debt or
equity financing on                   attractive terms; and

- the factors
discussed under "Item 3.  Key InformationRisk Factors."

You
should not place undue reliance on forward-looking statements, which speak only as of the
date that they were made. This cautionary statement should be considered in connection
with any written or oral forward-looking statements that we may issue in the future. We do
not undertake any obligation to release publicly any revisions to such forward-looking
statements after the filing of this annual report to reflect later events or circumstances
or to reflect the occurrence of unanticipated events.

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Table of Contents


Item 4. Information on
the Company

HISTORY AND
DEVELOPMENT OF THE BANK

Overview

Our
bank was founded in 1893, and we believe that we have been, for much of our recent
history, among the largest and most profitable Chilean banks in terms of return on assets
and shareholders equity. We are engaged primarily in commercial banking in Chile,
providing general banking services to a diverse customer base that includes large
corporations, small and mid-sized businesses and individuals.

Our
legal name is Banco de Chile S.A., and we are organized as a banking corporation under the
laws of the Republic of Chile and are licensed by the Chilean Superintendency of Banks to
operate as a commercial bank. Our principal executive offices are located at Ahumada 251,
Santiago, Chile. Our telephone number is +56 (2) 637-1111 and our website is
www.bancochile.cl. Our registered agent in the United States is Banco de Chile, New York
Branch. Its office is located at 535 Madison Avenue, 9th Floor, New York, New York 10022;
its telephone number is +1 (212) 758-0909.

We
are a full-service financial institution providing, directly and indirectly through our
subsidiaries and affiliates, a wide variety of credit and non-credit products and services
to all segments of the Chilean financial market. Our operations are organized in six
principal business areas:

- large
corporations;

- middle market
companies;

- international
banking;

- retail banking;

- treasury and
money market operations; and

- operations
through subsidiaries.

Our
corporate banking services include commercial loans, including working capital facilities
and trade finance, foreign exchange, capital market services, cash management and
non-credit services such as payroll and payment services. We also provide a wide range of
treasury and risk management products to our corporate customers, and we provide our
individual customers with credit cards, residential mortgage, auto and consumer loans as
well as traditional deposit services such as checking and savings accounts and time
deposits.

We
offer international banking services through our branch in New York, our agency in Miami,
representative offices in Buenos Aires, Sao Paulo and Mexico City and a worldwide network
of correspondent banks. In addition to our commercial banking operations, through our
subsidiaries, we offer a variety of non-banking financial services including securities
brokerage, mutual fund management, financial advisory services, factoring, insurance
brokerage, securitization and collection and sales services.

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As of
December 31, 2003, we had:

- total assets
of Ch$9,249,902 million (U.S.$15,431 million);

- loans
outstanding of Ch$6,255,346 million (U.S.$10,436 million);

- deposits of
Ch$5,313,863 million (U.S.$8,865 million); and

- shareholders'
equity including net income of Ch$695,676 million (U.S.$1,161 million).

According
to information published by the Chilean Superintendency of Banks, as of December 31, 2003,
we were the second largest private bank in Chile in terms of total loans (excluding
interbank loans) with a market share of 18.5%.

We
are headquartered in Santiago, Chile and, as of December 31, 2003, had 9,133 employees and
delivered financial products and services through a nationwide network of 224 branches,
2,970 automated teller machines, or ATMs, (823 of which are owned by us) located
throughout Chile, and other electronic distribution channels.

# History

We
were established in 1893 as a result of the merger of Banco Nacional de Chile, Banco
Agricola and Banco de Valparaiso, which created the largest privately held bank in Chile.
To the best of our knowledge, we retained this status until the mid-1990s and remained the
largest private bank in Chile until mid-2002.

Beginning
in the early 1970s, the Chilean government assumed control of a majority of Chilean banks,
then in operation, and all but one of the foreign banks operating at the time closed their
branches and offices in Chile. Throughout this era, we remained privately owned, with the
Chilean government owning participating shares which it sold to private investors in 1975.

We
developed a well-recognized name in Chile and expanded our operations in foreign markets
where we developed an extensive network of correspondent banks. In 1906, we established a
representative office in London, which we maintained until 1985, when our foreign
operations were centralized at the New York branch.

In
1987, the General Banking Law was amended to permit banks to offer, through subsidiaries,
certain services which Chilean regulators considered complementary to commercial banking
services. As a consequence, in 1987 and 1988, we established four subsidiaries to provide
the full range of financial products and services permitted by the amended General Banking
Law. The General Banking Law was further amended in 1997 to permit banks, through their
subsidiaries, to offer factoring, securitization and insurance brokerage services. As a
result, in 1999 we established our insurance brokerage and factoring subsidiaries.

Merger
with Banco de A. Edwards

At
a special board meeting held on August 7, 2001, our board of directors unanimously
approved a preliminary merger agreement with Banco de A. Edwards, resolved to seek the
necessary regulatory approvals and resolved to summon a general extraordinary
shareholders meeting to approve the merger once the regulatory approvals had been
obtained. At an extraordinary shareholders meeting held on December 6, 2001, our
shareholders approved the merger with Banco de A. Edwards, which became effective on
January 1, 2002. In January 2002, we were listed in the NYSE under the symbol BCH. During
2002, our shares were also listed on the Latin American Stock Exchange of the Madrid Stock
Exchange, or Latibex, and on the London Stock Exchange, or the LSE.

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In
2002, we focused our attention on our integration with Banco de A. Edwards in an effort to
expand our customer base and improve our competitive position across a broad spectrum of
market segments and products. Consequently, 2002 was a year of significant strategic
decision-making, and of multiple adjustments to our operating structure. During the course
of 2002, we decided to maintain a multiple brand strategy, and we currently use the
Banco de Chile brand name with our corporate and middle-income individual
clients, the Banco Edwards brand name with our high-income individual clients,
the Banco Credichile brand name with our lower-income individual clients and
the Leasing Andino brand name for all our leasing transactions. We concluded
the merger process at the end of 2002 with the consolidation of the new corporate
structure and the integration of our technological platforms. We believe that we achieved
operational and technological continuity, thereby assuring our continued level of quality
in customer service. During the process, we merged and integrated more than 50 branches,
with successful results in terms of customer retention. In 2001 and 2002, we incurred
merger related costs of approximately Ch$14,735 million and Ch$31,193 million,
respectively. In 2003, no further costs related to the merger were incurred.

In
2003, we began to more fully benefit from the opportunities and strengths that were made
available by the merger. We also established and developed the groundwork for Neos, our
technological investment platform project, which we believe will improve our service
standards and increase efficiency.

The
1982-1983 Economic Crisis and the Central Bank Subordinated Debt

During
the 1982-1983 economic crisis, the Chilean banking system experienced significant
instability. The financial crisis required that the Central Bank and the Chilean
government provide assistance to most Chilean private sector banks, including us.

During
this period, we experienced significant financial difficulties, as a result of which the
Chilean government assumed administrative control over us. In 1985 and 1986, we increased
our capital and sold shares representing 88% of our capital to more than 30,000 new
shareholders. As a result, no single shareholder held a controlling stake in our company.
In 1987, the Chilean Superintendency of Banks returned to our shareholders the control and
administration of the bank.

Subsequent
to the 1982-1983 economic crisis, like most major Chilean banks, we sold certain of our
non-performing loans to the Central Bank at face value on terms that included a repurchase
obligation. The repurchase obligation was later exchanged for subordinated debt of each
participating bank issued in favor of the Central Bank. In 1989, pursuant to Law No.
18,818, banks were permitted to repurchase the portfolio of non-performing loans
previously sold to the Central Bank for a price equal to the economic value of such loans,
provided that a bank assumed a subordinated obligation equal to the difference between the
face value of its loans and their economic value. In November 1989 we repurchased our
portfolio of non-performing loans from the Central Bank and assumed the Central
Banks subordinated debt relating to our non-performing loans.

The
original repayment terms of our Central Bank subordinated debt, which at December 31, 1989
equaled approximately Ch$1,049,198 million, or U.S.$1,750 million, required that a certain
percentage of our income before provisions for the subordinated debt be applied to repay
this obligation. The Central Bank subordinated debt did not have a fixed maturity, and
payments were made only to the extent that we earned income before provisions for the
subordinated debt. In 1993 we applied 72.9% of our income before provisions for the
Central Bank subordinated debt to the repayment of this debt. In 1994 we applied 67.6% and
in 1995 we applied 65.8% of our income before provisions for the Central Bank subordinated
debt to the repayment of this debt.

In
November 1996, pursuant to Law No. 19,396, our shareholders approved a
reorganization by which Banco de Chile was converted to a holding company named SM-Chile.
In turn, SM-Chile organized a new wholly owned banking subsidiary named Banco de Chile to
which it contributed all of its assets and liabilities other than the Central Bank
subordinated debt. SM-Chile then created SAOS, a second wholly owned

17

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subsidiary that,
pursuant to a prior agreement with the Central Bank, assumed a new repayment obligation in
favor of the Central Bank that replaced the Central Bank subordinated debt in its
entirety.

This
Central Bank indebtedness, for which SAOS is solely responsible and for which there is no
recourse to us or SM-Chile, was equal to the unpaid principal of the Central Bank
subordinated debt that it replaced but had terms that differed in some respects, the most
important of which included a rescheduling of the debt for a term of 40 years providing
for equal annual installments and a pledge of our shares as collateral for such debt. The
Central Bank indebtedness bears interest at a rate of 5.0% per year and is denominated in
UF. See Item 5. Operating and Financial Review and
ProspectsOverviewInflationUF-denominated Assets and Liabilities
for a further explanation of UF.

In
exchange for assuming the Central Bank indebtedness, SAOS received from SM-Chile, a
holding company that beneficially owns us and SAOS, 63.6% of our shares as collateral for
this indebtedness. As a result of our merger with Banco de A. Edwards, the percentage of
our shares held by SAOS decreased to 42.0%. Dividends received from us are the sole source
of SAOSs revenue, which it must apply to repay this indebtedness. However, under
SAOSs agreement with the Central Bank, we have no obligation to distribute dividends
to our shareholders. To the extent distributed dividends are not sufficient to pay the
amount due on this indebtedness, SAOS is permitted to maintain a cumulative deficit
balance with the Central Bank that SAOS commits to pay with future dividends. If the
cumulative deficit balance exceeds an amount equal to 20% of our capital and reserves, the
Central Bank may require SAOS to sell a sufficient number of shares of our stock owned by
SAOS to pay the entire accumulated deficit amount. As of April 30, 2004, SAOS maintained a
deficit balance with the Central Bank of Ch$37,080 million, equivalent to 7.2% of our
capital and reserves. As of the same date, Ch$102,438 million would have represented 20%
of our capital and reserves. See Item 3. Key InformationRisk
FactorsRisks Relating to our Operations and the Banking IndustryAn affiliate
of ours may be obligated to sell shares of our stock in the public market if we do not pay
sufficient dividends.

If
from time to time in the future our shareholders decide to retain and capitalize all or
part of our annual net income in order to finance our future growth, and to distribute
stock dividends among our shareholders, the Central Bank may require us to pay the portion
of the net income corresponding to shares owned by SAOS in cash to SAOS. If we distribute
stock dividends and the Central Bank does not require us to pay that portion in cash, the
shares received by SAOS must be sold by SAOS within the following 12 months. The
shareholders of SM-Chile will have a right of first refusal with respect to that sale.

# Capital Expenditures

The
following table reflects our capital expenditures in each of the three years ended
December 31, 2001, 2002 and 2003:

|                                       | For the Year Ended December 31,                      
|-------------------------------------- | -----------------------------------------------------
|                                       |                                                      
|                                       | 2001                                                 
|                                       |                                                      
|                                       | (in millions of constant Ch$ as of December 31, 2003)
|                                      
|Computer equipment                     | Ch$ 7,005                                            
|Furniture, machinery and installations | 2,768                                                
|Real estate                            | 375                                                  
|Vehicles                               | 66                                                   
|                                       |                                                      
|Subtotal                               | 10,214                                               
|Software                               | 953                                                  
|                                       |                                                      
|Total                                  | Ch$ 11,167                                           
|                                       |                                                      

Our
budget for capital expenditures in 2004 is Ch$25,834 million, substantially all of which
will be used in Chile. Capital expenditures planned for 2004 consist mainly of
expenditures for information technology, including the implementation of a technological
innovation platform project designed to improve efficiency and service quality, which we
refer to as Neos. Other capital expenditures include disbursements

18

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necessary
to maintain and improve our existing branch office infrastructure and other maintenance
required in the ordinary course of our business.

# BUSINESS OVERVIEW

# Business Strategy

Our
long-term strategy is to maintain our position as a leading bank in Chile, providing a
broad range of financial products and services to large corporations, small and mid-sized
companies and individuals nationwide. As part of this strategy, we operate under a
multi-brand approach in order to target the different market segments, taking advantage of
our well positioned brand names: Banco de Chile, Banco de A.
Edwards, Banchile, Banco Credichile and Leasing
Andino. Our strategy is focused on:

- delivering
superior customer service that responds to the specific needs of our customers in each
market segment;

- enhancing
profitability by increasing revenues from fee-based services through the development of
new services and active                   cross-selling of such services to our customers;

- continuing to
focus on measures that control costs and otherwise enhance productivity to improve our
existing efficiency                   standards; and

- further
developing the international products and services that we offer to our customers.

The
key components of our strategy are described below.

Deliver
Superior Customer Service

Our
banking strategy is focused on developing long-term relationships with our customers by
emphasizing customer service and providing a broad range of financial products and
services. As the Chilean economy recovers, we expect that our corporate and individual
customers will continue to require more comprehensive credit and non-credit financial
services than in the past.

- In the large
corporations business area, we are focused on increasing offerings of specialized lending
products, treasury and cash management services.

- In the middle
market companies business area, we intend to increase our lending activities and
offerings of fee-based services such as electronic banking, import-export financial
services, financial advisory services and cash management services.

- To expand our
high- and middle-income individual customer base, we intend to (1) market a broad range
of products and services to high- and middle-income individuals, (2) cross-sell products
and services such as mutual funds, lease financing, factoring, insurance and securities
brokerage services and (3) develop new services targeted to the specific needs of these
customers.

- To increase
the relative importance of the business generated by lower to middle-income individuals,
we intend to (1) develop new products and services at competitive prices, (2) strengthen
our distribution channels, (3) overhaul the branches that service these clients and (4)
reposition our retail banking image by using the Banco Credichilebrand name.

19

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Expand
Fee-Based Services

In
recent years, our margins from traditional lending activities have declined significantly
and, as a result, we have increasingly shifted our focus to developing other sources of
revenue such as fee-based products and services. Our consolidated income from fees and
other services has continued to grow over the last three years and was Ch$103,389 million
in 2003, an increase of 30.2% from Ch$79,407 million in 2002. We seek to continue to grow
fee revenue by developing new services and by cross-selling these services to our base of
existing customers. In our corporate business, we intend to actively market fee-based
services such as electronic banking, receivables collection, payroll services, supplier
payments, investment advisory services and cash management. In our retail banking business
area, we seek to increase revenues from fee-based services such as telephone and
electronic banking, ATMs, general checking services, credit cards, mutual funds,
securities brokerage and insurance brokerage.

Maintain
Focus on Operating Efficiencies

In
2003, our consolidated operating expenses represented approximately 52.9% of our operating
revenue.As the Chilean banking sector continues to grow, we believe that a
low-cost structure will become increasingly important to compete profitably.

We
have invested heavily in technology during recent years (approximately Ch$7,653 million in
2002 and Ch$3,418 million in 2003) and plan to continue to focus on technology in the
future to achieve further improvements in customer service and operating efficiency. In
2003, we began the first stage of Neos, and in 2003, capital expenditures associated with
Neos amounted to Ch$2,871 million. We estimate that our Neos related capital expenditures
will amount to Ch$11,946 million in 2004.

Provide
Competitive International Products and Services

We
intend to provide to our primarily Chilean customer base a complete array of international
products at competitive prices. Our primary focus in this respect will be on trade
financing of customer related operations, one of our traditional areas of international
activity. To implement this strategy, we intend to take advantage of our New York branch
and Miami agency to strengthen our relationships with Chilean businesses engaged in
international trade.

There
can be no assurance that we will be able to realize our strategic objectives. For a
discussion of certain risks applicable to our operations and to Chile that may affect our
ability to meet our objectives, see Item 3. Key InformationRisk Factors.

20

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# Ownership Structure

The
following diagram shows ownership structure at December 31, 2003:

# Share Repurchase Program

On
March 20, 2003, at an extraordinary shareholders meeting, our shareholders approved
the establishment of a share repurchase program to be conducted on the various Chilean
stock exchanges on which our shares are listed and/or through a tender offer conducted in
accordance with the Chilean Corporations Law. Up to one percent of our issued shares may
be bought directly in the Chilean stock exchanges in a twelve-month period, without
requiring a tender offer. The program is expected to last for two years from June 5, 2003.

Under
the terms of the share repurchase program, the maximum percentage of shares to be
repurchased cannot exceed the equivalent of three percent of our paid-in capital and the
minimum price that we will pay for the shares must be the weighed average of the closing
prices of the shares as quoted by the Santiago Stock Exchange for the 45 business days
preceding the repurchase. The maximum price that we may pay for the shares is 15% in
excess of that average.

The
Central Bank authorized the program on June 2, 2003, subject to the following conditions:

- we must
request prior approval of the offering price from the Central Bank when we decide to sell
any shares acquired under the program; and

- the shares may
only be purchased through retained net income from prior years.

The
Chilean Superintendency of Banks authorized the program on July 2, 2003.

On
March 25, 2004, our board of directors resolved to commence a tender offer for
1,701,994,590 of our shares, representing 2.5% of our total capital, at a purchase price
of Ch$31 per share. The tender offer expired on April 26, 2004. 5,000,844,940 shares were
tendered in the tender offer. Given that the number of

21

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acceptance orders received exceeded
the number of shares we were authorized to repurchase, pursuant to the terms of the offer,
we repurchased shares on a pro-rata basis.

The
shares bought under the share repurchase program must be sold within 24 months of their
respective acquisition. Otherwise, paid-in capital must be reduced by the amount of the
repurchased shares that were not resold. Shareholders will have a preferential right to
acquire the repurchased shares if we decide to sell them unless our board of directors
approves the sale of up to 1.0% of our shares during a twelve-month period on any stock
exchange on which our shares are listed. Repurchased shares, although registered in our
name, do not have voting or dividend rights.

# Principal Business
Activities

We
are a full-service financial institution providing, directly and indirectly through our
subsidiaries and affiliates, a wide variety of credit and non-credit products and services
to all segments of the Chilean financial market. The following diagram illustrates, in
summary form, our principal business areas, which operate through us or, in the case of
Operations through subsidiaries, through our subsidiaries:

22

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The
following table provides information on the composition of our loan portfolio and our
consolidated net income before tax for the year ended December 31, 2003, allocated among
our principal business areas:

|                                     | Loans                                                                         | Consolidated net income before tax(1)
|------------------------------------ | ----------------------------------------------------------------------------- | -------------------------------------
|                                     |                                                                               |                                      
|                                     | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                     |                                                                               |                                      
|Large corporations                   | Ch$ 2,606,504                                                                 | 41.8%                                
|Middle market companies              | 1,559,263                                                                     | 24.9                                 
|International banking                | 270,717                                                                       | 4.3                                  
|Retail banking                       | 1,732,369                                                                     | 27.7                                 
|Treasury and money market operations | 8,501                                                                         | 0.1                                  
|Operations through subsidiaries      | 77,992                                                                        | 1.2                                  
|Other (adjustments and eliminations) | -                                                                             | -                                    
|                                     |                                                                               |                                      
|Total                                | Ch$ 6,255,346                                                                 | 100.0%                               
|                                     |                                                                               |                                      

____________________


|(1) | Consolidated
net income before tax consists of the sum of operating revenues and other income and
expenses, net, and the       deduction for operating expenses and provisions for loan
losses.  The net income before tax breakdown shown is used for internal       reporting,
planning and marketing purposes and is based on, among other things, our estimated
funding cost and direct and       indirect cost allocations.  This breakdown may differ
in some respects from breakdowns of our operating income for financial       reporting
and regulatory purposes.  Separate information on the operations, assets and income of
our eight financial services       subsidiaries and affiliates is provided below under
"--Operations through Subsidiaries."
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
following table provides our consolidated operating revenues, for the period indicated,
allocated among our principal business areas:

|                                     | For the Year Ended December 31,                      
|------------------------------------ | -----------------------------------------------------
|                                     |                                                      
|                                     | 2001                                                 
|                                     |                                                      
|                                     | (in millions of constant Ch$ as of December 31, 2003)
|                                    
|Large corporations                   | Ch$ 61,991                                           
|Middle market companies              | 86,222                                               
|International banking                | 18,567                                               
|Retail banking                       | 86,801                                               
|Treasury and money market operations | 17,251                                               
|Operations through subsidiaries      | 20,848                                               
|Other (adjustments and eliminations) | (14,888)                                             
|                                     |                                                      
|Total                                | Ch$ 276,792                                          
|                                     |                                                      

The
following table provides a geographic market breakdown of our operating revenues for the
years indicated.

|                                | For the Year Ended December 31,                      
|------------------------------- | -----------------------------------------------------
|                                |                                                      
|                                | 2001                                                 
|                                |                                                      
|                                | (in millions of constant Ch$ as of December 31, 2003)
|                               
|Chile                           | Ch$ 262,263                                          
|Banking operations              | 241,415                                              
|Operations through subsidiaries | 20,848                                               
|Foreign branch operations       | 14,529                                               
|New York                        | 11,220                                               
|Miami                           | 3,309                                                
|                                |                                                      
|Total                           | Ch$ 276,792                                          
|                                |                                                      

Large
Corporations

In
general, our large corporations business area services domestic companies with annual
sales in excess of Ch$12,000 million, multinational corporations, financial institutions,
governmental entities and companies affiliated with Chiles largest conglomerates
(regardless of size). This business area offers these

23

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companies a broad range of products
and services tailored to their specific needs. These services include deposit-taking and
lending in both pesos and foreign currency, trade and project financing and various
non-credit services, such as collection, supplier payments and payroll management. In
addition, our large corporations business area offers a broad range of banking products
and services including working capital financing, lines of credit, commercial loans,
leasing, corporate financial services, foreign trade financing, letters of credit in
domestic and foreign currencies, mortgage loans, payment and asset management services,
checking accounts and time deposits, and, through our subsidiaries, brokerage, mutual
funds and investment fund management services. All of our branches (except the Credichile
branches) provide services to our large corporations business area customers directly and
indirectly.

Our
large corporate customers are engaged in a wide spectrum of industry sectors. As of
December 31, 2003, this business area had primarily made loans to customers engaged in:

- financial
services (approximately 30.1% of all loans made by this business area);

- construction
(approximately 15.4% of loans made by this business area);

- manufacturing
(approximately 13.8% of all loans made by this business area);

- trade
(approximately 12.4% of all loans made by this business area); and

- agriculture
(approximately 8.8% of all loans made by this business area).

See Selected
Statistical Information.

At
December 31, 2003, we had approximately 2,117 large corporate debtors. Loans to large
corporations totaled approximately Ch$2,606,504 million at December 31, 2003, representing
41.8% of our total loans at that date. Our large corporations business area accounted for
Ch$50,583 million of our consolidated net income before tax for the year ended
December 31, 2003.

The
following table sets forth the composition of our portfolio of loans to large corporations
as of December 31, 2003:

|                    | As of December 31, 2003                                                                                                                      
|------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------
|                    |                                                                                                                                              
|                    | (in millions of constant Ch$ as of December
                                                                31, 2003, except for percentages)
|                   
|Commercial loans    | Ch$ 1,625,068                                                                                                                                
|Foreign trade loans | 432,204                                                                                                                                      
|Contingent loans    | 247,802                                                                                                                                      
|Leasing contracts   | 124,956                                                                                                                                      
|Mortgage loans      | 70,920                                                                                                                                       
|Consumer loans      | 274                                                                                                                                          
|Other loans         | 105,280                                                                                                                                      
|                    |                                                                                                                                              
|Total               | Ch$ 2,606,504                                                                                                                                
|                    |                                                                                                                                              

Our
large corporations business areas loan portfolio consists principally of unsecured
loans with maturities between one and six months and of medium- and long-term loans to
finance fixed assets, investment projects and infrastructure projects. In addition, our
large corporations business area issues contingent credit obligations in the form of
letters of credit, bank guarantees and similar obligations in support of the operations of
our large corporate customers. See Selected Statistical Information.

The
market for loans to large corporations in Chile in recent years has been characterized by
reduced profit margins, due in part to the greater direct access of such customers to
domestic and international capital markets and other sources of funds. As a result, we
have been increasingly focused on generating fee services,

24

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such as payroll processing,
dividend payments and billing services as well as computer banking services. This strategy
has enabled us to maintain profitable relationships with our large corporate customers
while preserving the ability to extend credit when appropriate opportunities arise.

We
are party to approximately 3,414 payment service contracts and approximately 839
collection service contracts with large corporate customers. Under these payment
contracts, we provide large corporate customers with a system to manage their accounts and
make payments to suppliers, pension funds and employees, thereby reducing administrative
costs. We believe that cash management and payment service contracts provide a source of
low-cost deposits and the opportunity to cross-market our products and fees to payees,
many of whom maintain accounts with us. Under our collection contracts, we act as a
collection agent for our large corporate customers, providing centralized collection
services for their accounts receivables and other similar payments.

Middle
Market Companies

We
serve the financing needs of small and medium-size companies through our middle market
companies business area. We generally define middle market companies as those with annual
sales of between Ch$300 million and Ch$12,000 million and small or emerging companies as
those with annual sales of between Ch$45 million and Ch$300 million. As of December 31,
2003, our middle market companies business area had approximately 66,765 checking account
holders, of which approximately 74% are small or emerging companies. In terms of loans
amounts, however, approximately 60.9% of the middle market companies business areas
total loan portfolio represents loans to medium-size companies.

Our
middle market companies business area offers its customers a broad range of financial
products, including project financing, working capital financing, mortgage loans and debt
rescheduling, as well as other alternatives such as leasing operations, factoring, mutual
funds, insurance and securities brokerage services and collection services (through our
Banchile subsidiaries). We also offer our clients full advisory services aimed at
facilitating foreign trade, as well as comprehensive financing and service alternatives.

We
have developed a set of services designed to facilitate and optimize the operational and
financial management of small and medium size companies. These services include payment
services (such as employee compensation, taxes and employee benefits), payments to
suppliers and automated bill payments. We provide most of these services through remote
service channels, such as the internet and, as of December 31, 2003, delivered such
services to approximately 24,400 customers. We also provide account receipts and
instrument collection services through electronic means. All of these products and
services are available through our nationwide branch network.

Through
our subsidiaries, our middle market companies business area offers our customers a full
range of financial advisory, stock brokerage, mutual fund management and general and life
insurance brokerage services.

25

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The
following table sets forth the composition of our portfolio of loans to middle market
companies as of December 31, 2003:

|                    | As of December 31, 2003                                                                                                           
|------------------- | ----------------------------------------------------------------------------------------------------------------------------------
|                    |                                                                                                                                   
|                    | (in millions of constant Ch$ as of December 31,
                                                     2003, except for percentages)
|                   
|Commercial loans    | Ch$ 749,408                                                                                                                       
|Mortgage loans      | 315,641                                                                                                                           
|Leasing contracts   | 139,278                                                                                                                           
|Foreign trade loans | 119,210                                                                                                                           
|Contingent loans    | 98,498                                                                                                                            
|Consumer loans(1)   | 11,098                                                                                                                            
|Other loans         | 126,130                                                                                                                           
|                    |                                                                                                                                   
|Total               | Ch$ 1,559,263                                                                                                                     
|                    |                                                                                                                                   

_______________


|(1) | Certain
commercial loans to individuals are classified as consumer loans.
|--- | -------------------------------------------------------------------------

Our
middle market companies business areas loan portfolio consists primarily of short-
and long-term commercial loans and mortgage loans. At December 31, 2003, this
business area had primarily made loans to customers engaged in:

- trade (23.9%
of loans made by this business area);

- financial
services (18.2% of loans made by this business area);

- agriculture
(16.5% of loans made by this business area);

- manufacturing
(15.6% of loans made by this business area);

- transport and
storage (5.9% of loans made by this business area); and

- construction
(5.9% of loans made by this business area).

See Selected
Statistical Information.

At
December 31, 2003, we had Ch$1,559,263 million of outstanding loans to small and
medium-size companies, representing 24.9% of our total loan portfolio at that date. Small
and medium-size banking clients accounted for approximately Ch$38,155 million of our
consolidated net income before tax for the year ended December 31, 2003.

Commercial
Loans. Our middle market companies business areas commercial loans, which mainly
consist of project financing and working capital loans, are denominated in pesos, UF or
U.S. dollars. Commercial loans may have fixed or variable rates of interest and generally
mature between one and three months from the date of the loan. At December 31, 2003,
our middle market companies business area had outstanding commercial loans of Ch$749,408
million, representing 48.2% of the middle market companies business areas total
loans and 12.0% of our total loans at that date.

Mortgage
Loans. Our middle market companies business areas commercial mortgage loans are
denominated in UF and generally have maturities of between five and 30 years. At
December 31, 2003, this business area had granted mortgage loans outstanding of
approximately Ch$315,641 million, representing 20.2% of the middle market companies
business areas total loans and 5.0% of our total loans at such date.

26

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International
Banking

Through
our international banking business area, we offer a range of international services,
principally import and export financing, letters of credit, guarantees and other forms of
credit support, as well as currency swaps, banking services and treasury services for our
corporate clients in Chile and abroad.

Our
international banking business area has two main lines of business: foreign currency
products and management of our international network. This business area deals with all
banking products that involve foreign currency, including those related to foreign trade.
Our international banking business area designs foreign currency products, educates our
account officer sales force about our foreign currency products, monitors our market share
participation and promotes the use of our foreign currency products. Included in this
business area is a group of foreign trade specialists that advises our customers about our
services related to insurance, shipping and customs, with the objective of obtaining the
most desirable conditions for the non-banking stages of our customers foreign trade
transactions.

Our
international banking business area does not, however, have credit granting authority for
these purposes. Instead, the area participates in a team effort with the account officers
who establish credit limits, and our international banking trade specialists interact
directly with our customers, ensuring that the price they pay for our services is adequate
and that the quality of the services provided meets pre-established levels.

As
of December 31, 2003, we had Ch$658,280 million in foreign trade loans, representing 10.5%
of our total loans as of that date, and Ch$106,810 million in letters of credit and other
contingent obligations related to foreign trade operations, representing 1.7% of our total
loans as of that date.

Our
international banking business area also manages our international network. This network
is made up of a branch in New York and an agency in Miami, three representative offices
(located in Mexico City, Sao Paulo and Buenos Aires) and approximately 700 correspondent
banks. We have established credit relations with 200 correspondent banks and an account
relationship with approximately 43 correspondent banks.

We
use our international network in order to:

- obtain all our
foreign currency funding for either trade or general purposes (short- or medium-term) for
our Santiago, Chile head office and our foreign branches;

- supply
additional savings alternatives to our predominantly Chilean customers;

- provide
banking services to our corporate customers who operate outside of Chile;

- provide
treasury and cash management services and lending alternatives to our corporate customers
on an international basis;

- diversify our
loan and investment portfolio by identifying, mainly through our representative offices,
opportunities in dealing with selected customers in pre-approved countries; and

- obtain
commercial information on foreign companies that do business in Chile and business
opportunities for our Chilean customers seeking to expand to new markets abroad.

27

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The
following table sets forth, as of December 31, 2003, the composition of our portfolio
of loans originated through our New York branch and Miami agency:

|                    | As of December 31, 2003                                                                                                      
|------------------- | -----------------------------------------------------------------------------------------------------------------------------
|                    |                                                                                                                              
|                    | New York Branch                                                                                                              
|                    |                                                                                                                              
|                    | (in millions of constant Ch$ as of December
                                                                        31, 2003)
|                   
|Foreign trade loans | Ch$ 29,673                                                                                                                   
|Commercial loans    | 58,264                                                                                                                       
|Interbank loans     | 391                                                                                                                          
|Contingent loans    | 3,045                                                                                                                        
|Other loans         | 799                                                                                                                          
|                    |                                                                                                                              
|Total               | Ch$ 92,172                                                                                                                   
|                    |                                                                                                                              

The
following table sets forth, as of December 31, 2003, the sources of funding for our
New York branch and for the Miami agency:

|                                  | As of December 31, 2003                                                                                                                        
|--------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------
|                                  |                                                                                                                                                
|                                  | New York Branch                                                                                                                                
|                                  |                                                                                                                                                
|                                  | (in millions of constant Ch$ as of December 31, 2003, except for
                                                                  percentages)
|                                 
|Current accounts                  | Ch$ 85,376                                                                                                                                     
|Certificates of deposits and time
|deposits                          | 199,694                                                                                                                                        
|Other demand deposits             | 50,574                                                                                                                                         
|Contingent liabilities            | 3,045                                                                                                                                          
|Foreign borrowings                | 43,292                                                                                                                                         
|Other liabilities                 | 4,578                                                                                                                                          
|                                  |                                                                                                                                                
|Total                             | Ch$ 386,559                                                                                                                                    
|                                  |                                                                                                                                                

New
York Branch. Our wholly owned New York branch was established in 1982 and provides a
range of general banking services, including deposit-taking, mainly to non-residents of
the United States. At December 31, 2003, the New York branch had total assets of
Ch$417,810 million, including a loan portfolio of Ch$92,172 million, representing 1.5% of
our total loan portfolio. Of the New York branchs loans, Ch$58,264 million were
commercial loans, mostly to large private corporations in Chile and in other Latin
American countries. The remaining Ch$33,908 million were principally foreign trade loans,
amounting to Ch$29,673 million, and contingent loans (letters of credit and stand-by
letters of credit), amounting to Ch$3,045 million. In 2003, our New York branch recognized
a net income of Ch$10,661 million, primarily as a result of the sale of Latin American
investment securities.

Investments
in bonds and foreign securities were Ch$258,266 million at December 31, 2003, most of
which consisted of private sector bonds. The New York branchs allowances for loan
losses totaled Ch$681 million, which represented 0.7% of the branchs loan portfolio
at December 31, 2003. In addition, our New York branch had Ch$100 million in country
risk allowances.

Funding
sources for the New York branch include current account, money market accounts and
deposits for less than 30 days of Ch$224,432 million, time deposits of Ch$111,212 million
and foreign borrowings of Ch$43,292 million, which is also the outstanding balance of the
branchs long-term syndicated bank loans.

As
of December 31, 2003, the New York branch had capital of Ch$31,250 million (including net
income of Ch$10,661 for the year).

At
December 31, 2003, the New York branch did not have past due loans. Although the New York
branch manages its assets and liabilities locally, it follows the same credit processes as
are followed in Santiago, Chile and all credit decisions are made by our account officers
in Santiago, Chile.

28

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Miami
Agency. Our wholly owned Miami agency was opened in 1995 and provides a range of
traditional commercial banking services, mainly to non-residents of the United States,
including deposit-taking, providing credit to finance foreign trade and making loans to
individuals or Chilean companies involved in foreign trade. Additionally, our Miami agency
provides correspondent banking services to financial institutions, including working
capital loans, letters of credit and bankers acceptances. At December 31, 2003,
our Miami agency had total assets of Ch$159,333 million, a loan portfolio of Ch$77,512
million representing 1.2% of our total loan portfolio, and an investment portfolio of
Ch$61,070 million. Our Miami agencys loan portfolio at December 31, 2003
consisted primarily of Ch$37,494 million of commercial loans to Latin American private
sector companies, including Chilean companies with operations in other Latin American
countries, and Ch$31,141 million of foreign trade loans. The agencys funding sources
include demand deposits, money market accounts and deposits for less than 30 days
(Ch$77,225 million), time deposits (Ch$71,045 million) and contingent liabilities
(Ch$4,337 million). The equity of the Miami agency as of December 31, 2003 was
Ch$6,229 million, including net income of Ch$734 million for the year.

At
December 31, 2003, the Miami agency did not have past due loans. Allowances for loan
losses amounted to Ch$580 million, not including the Ch$495 million in country risk
allowances. Although the Miami agency manages its assets and liabilities locally, it
follows the same credit processes as are followed in Santiago, Chile, and all credit
decisions are made by our account officers in Santiago, Chile.

Individual
customer accounts and our deposit taking activities are monitored under strict customer
approval procedures that are encompassed in our anti-money laundering program.

Representative
offices. The principal function of our representative offices in Argentina, Brazil and
Mexico is to search for business opportunities in the areas of trade finance and private
sector financing and to monitor the development and evolving economies of these countries.
These offices serve as points of contact for our customers who have business with or
operate directly within these countries.

Retail
Banking

Our
retail banking business area serves the needs of retail customers from high- to
lower-middle income individuals, with service being segmented according to the
clients income. At December 31, 2003, loans made by this business area represented
27.7% of our total loan portfolio. Approximately Ch$36,561 million of our net income
before tax for the year ended December 31, 2003 was accounted for by our retail banking
business area.

The
following table sets forth the composition of our retail banking business areas loan
portfolio as of December 31, 2003:

|                    | As of December 31, 2003                                                                                                       
|------------------- | ------------------------------------------------------------------------------------------------------------------------------
|                    |                                                                                                                               
|                    | (in millions of constant Ch$ as of December
                                                 31, 2003, except for percentages)
|                    |                                                                                                                               
|Mortgage loans      | Ch$ 741,469                                                                                                                   
|Consumer loans      | 466,721                                                                                                                       
|Commercial loans    | 86,766                                                                                                                        
|Leasing contracts   | 4,722                                                                                                                         
|Contingent loans    | 912                                                                                                                           
|Foreign trade loans | 37                                                                                                                            
|Other loans(1)      | 431,742                                                                                                                       
|                    |                                                                                                                               
|Total               | Ch$ 1,732,369                                                                                                                 
|                    |                                                                                                                               

__________________


|(1) | Other
loans include primarily mortgage loans financed by our general borrowings and lines of
credit.
|--- | ----------------------------------------------------------------------------------------------------

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High-
and Middle-Income Individuals. We define high- and middle-income individuals as those
with annual income in excess of Ch$5.4 million (in 2003, per capita annual income in Chile
was approximately Ch$2.5 million).

Our
high- and middle-income individuals subsegment offers our customers a broad range of
retail banking products, including residential mortgage loans, lines of credit and other
consumer loans, credit cards, checking accounts, savings accounts and time deposits. We
also offer mutual funds and brokerage services to individuals as described under
Operations through Subsidiaries below. At December 31, 2003, we had
outstanding extensions of credit to approximately 259,141 high- and middle-income
individuals, including approximately 35,361 residential loans, 223,785 lines of credit,
110,838 other consumer loans and 237,758 credit card accounts. At the same date, this area
maintained 302,487 checking accounts, 123,213 savings accounts and 59,743 time deposits.

We
provide service to high- and middle-income individual customers through a network of 172
branches including four specialized Private Banking centers, 18 specialized
transaction centers and 2,970 ATMs (823 of which are owned by us) located throughout Chile
that form part of a network operated by Redbanc S.A., a company owned by us and 13 other
private sector financial institutions. Since 1994, we have offered a nationwide
phone-banking service that permits our high- and middle-income individual customers to
receive balances and other account-related information, transfer funds between accounts
and effect a wide variety of credit transactions. In 1997, we launched a full 24-hour
banking service under the brand TodaHora and our homepage on the
internet to better serve our high- and middle-income individual customers.

Installment
Loans. Our consumer installment loans to high- and middle-income individuals are
generally incurred, up to a customers approved credit limit, to finance the cost of
goods or services, such as cars, travel and household furnishings. Consumer loans are
denominated in both pesos and UF, bear interest at fixed or variable rates of interest and
generally are repayable in installments of up to 36 months.

At
December 31, 2003, we had Ch$309,318 million in installment loans, which accounted
for 66.3% of the retail banking business areas consumer loans. A majority of
installment loans are denominated in pesos and are payable monthly.

Mortgage
Loans. At December 31, 2003, there were outstanding mortgage loans of Ch$687,602
million to high- and middle-income individuals, which represented 39.7% of the retail
banking business areas total loans and 11.0% of our total loan portfolio. A feature
of our mortgage loans to individuals is that mortgaged property typically secures all of a
mortgagors credit with us, including credit card and other loans.

Our
residential mortgage loans generally have maturities between five and 30 years and are
generally denominated in UF. To reduce our exposure to interest rate fluctuations and
inflation with respect to our residential loan portfolio, a majority of these residential
loans are currently funded through the issuance of mortgage finance bonds, which are
recourse obligations with payment terms that are matched to the residential loans and
which bear a real market interest rate plus a fixed spread over the rate of change in the
UF. Chilean banking regulations limit the amount of a residential mortgage loan that may
be financed with a mortgage finance bond to the lesser of 75% of the purchase price of the
property securing the loan or the appraised value of such property. In addition, we
generally require that the monthly payments on a residential mortgage loan not exceed 25%
of the borrowers household after-tax monthly income.

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We
have promoted the expansion of a mortgage-lending product, which we call Mutuos
Hipotecarios as an alternative form to traditional financing of mortgage loans
with mortgage bonds. Whereas our traditional mortgage loans are financed by means of
mortgage finance bonds, Mutuos Hipotecarios are financed with our general funds,
especially long-term subordinated bonds. Mutuos Hipotecarios is a product that is
tradable among banks, investment funds and insurance companies. Mutuos Hipotecarios
offer the opportunity to finance 80% of the lower of the purchase price or the appraised
value of the property, as opposed to the 75% that a standard mortgage would allow.

At
December 31, 2003, we were Chiles second largest private sector bank in terms
of amount of mortgage loans and, based on information prepared by the Chilean
Superintendency of Banks; we accounted for approximately 17.3% of the residential mortgage
loans in the Chilean banking system and approximately 23.3% of such loans made by private
sector banks.

Credit
Cards. We issue both Visa and MasterCard credit cards, and our product portfolio
includes both personal and corporate cards. In addition to traditional cards, our credit
card portfolio also includes co-branded cards (Travel Club and Global Pass),
and 41 affinity card groups (of which 31 are associated with our co-branded programs and
e-cards under the brand name NetCard).

As
of December 31, 2003, we had 260,305 valid accounts, with 399,005 cards in the high-middle
income individuals subsegment. Total charges on our cards during 2003 amounted to
Ch$335,234 million, with Ch$288,256 million corresponding to purchases and service
payments in Chile and abroad and Ch$46,978 million corresponding to cash advances (both
within Chile and abroad). These charge volumes represent a 27.0% market share in terms of
volume of use of bank credit cards issued in Chile.

As
of December 31, 2003, our credit card loans in the high- and middle-income individuals
subsegment amounted to Ch$61,461 million and represented 13.2% of our retail banking
business areas consumer loans.

Two
Chilean companies that are affiliated with us, Transbank S.A. and Nexus S.A., provide us
with merchant acquisition and credit card processing services. As of December 31, 2003,
Transbank had 18 shareholders and Nexus had seven shareholders, all of which are banks. As
of December 31, 2003, our equity ownership in Transbank was 17.4% and our equity interest
in Nexus was 25.8%.

We
believe that the Chilean market for credit cards has a high potential for growth,
especially among consumers in the middle-income subsegment, that average merchant fees
will continue to decline and that stores that do not currently accept credit cards will
generally begin to do so. We also believe that, in addition to the other banks that
operate in Chile, our main competitors are department store cards and other non-banking
businesses involved in the issuance of credit cards.

Debit
Cards. We have different types of cards with debit options. Depending on their
specifications, these cards can be used for banking transactions on the ATMs that operate
on the local network, Redbanc, the Visa International PLUS network, the local network of
merchants participating in the local Redcompra debit program or the international network
of merchants associated with the Electron program. We have given these debit cards
different names (Chilecard Normal, Chilecard Plus, Chilecard Electron,
Chilecard Empresas, Banjoven, Cheque Electronico, Multiedwards, Cuenta Directa
and Cuenta Familiar) based on their specific functions and the relevant brand and
target market to which they are oriented. In order to promote the use of debit cards in
Chile, in October 2000 we and other banks associated with Transbank launched a promotional
campaign to encourage the use of Redcompra debit cards as a means of payment at local
stores. We have attained a 30.3% market share of debit card transactions, with more than
10.1 million transactions performed in 2003.

31

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Lines
of Credit. We had 223,785 approved lines of credit to customers in our high- and
middle-income individuals subsegment at December 31, 2003 and outstanding advances to
164,544 individuals totaling Ch$89,299 million, or 5.2% of the retail banking business
area total loans.

Our
individual lines of credit are generally available on a revolving basis, up to an approved
credit limit, and may be used for any purpose. Advances under lines of credit are
denominated in pesos and bear interest at a rate that is set monthly. At the
customers option, a line of credit loan may be renewed and re-priced for successive
monthly periods, in each case subject to minimum monthly payments.

Deposit
Products. We seek to increase our deposit-taking activities as a means of diversifying
our sources of funding. We believe that the deposits of our individual customers provide
us with a relatively low cost, stable funding source, as well as the opportunity to
cross-market our other products and services. We offer a broad range of checking accounts,
time deposits and savings accounts to our individual customers. Checking accounts are
peso-denominated and mostly non-interest bearing (approximately 0.2% of total retail
checking accounts are interest-bearing) and savings accounts are denominated in UF and
bear interest at a fixed rate. Time deposits are denominated in pesos, UF and U.S.
dollars. Most time deposits bear interest at a fixed rate with a term of 30 to 360 days.

While
historically demand has been mainly for UF-denominated deposits during times of high
inflation, demand for deposits denominated in pesos has increased in the current
environment of lower and more stable inflation rates in Chile.

At
December 31, 2003, the retail banking business area administered 302,487 checking accounts
for approximately 293,509 customers with an aggregate balance of Ch$324,902 million. At
such date, our checking account balances totaled approximately Ch$1,227,877 million and
represented 14.4% of our total liabilities.

Lower
Income Individuals  Credichile. We offer products and services to the
lower-middle to middle income portions of the Chilean population through Credichile, which
we established specifically to serve the needs of customers in this market subsegment.
Credichile represents a distinct delivery channel for our products and services in this
market subsegment, maintaining a separate brand and network of 52 Credichile branches and
nine other credit centers. Credichile offers our customers a range of products, including
consumer loans, credit cards, auto loans and residential mortgage loans and a special
demand deposit account (see Bancuenta below) targeted at
low-income customers. At December 31, 2003, Credichile had approximately 142,783
customers and total loans outstanding of Ch$159,552 million, representing 2.6% of our
total loan portfolio at that date.

Improved
economic conditions in Chile over the last decade and the growth of the Chilean middle
class has resulted in increased demand for consumer credit by lower-middle income
individuals, whom we classify as persons with annual income between Ch$1.8 million and
Ch$5.4 million. Many of these individuals have not had prior exposure to banking products
or services. Credichile focuses on developing and marketing innovative segment-oriented
products to satisfy the needs of individuals in this subsegment while introducing them to
the banking system and complements the services offered in our other business areas,
especially our large corporations business area, by offering services to employers such as
direct deposit capabilities that engender the use of our services by employees.

The
Chilean Superintendency of Banks requires greater allowances for loan losses with lower
credit classifications, such as those of Credichile. Credichile employs its own credit
scoring system and other criteria to evaluate and monitor credit risk. Credichile seeks to
ensure the quality of our loan portfolio through adherence to our loan origination
procedures, particularly the use of our credit scoring system and credit management
policies, including the use of credit bureaus and the services of the Chilean
Superintendency of Banks. Credichile uses rigorous procedures for collection of past due
loans. Socofin S.A., our specialized collection subsidiary, provides collection services.
We believe that we have the necessary procedures and

32

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infrastructure in place to manage the
exposure to a higher degree of credit risk that Credichile presents. These procedures
allow us to take advantage of the higher growth and earnings potential of this subsegment
of the banking industry while helping to manage the exposure to higher risk. See
Item 3. Key InformationRisk FactorsRisks Relating to our Operations and
the Banking IndustryThe growth of our loan portfolio may expose us to increased loan
losses, and its rate of growth may decrease in the future.

Consumer
Lending. Credichile provides short- to medium-term consumer loans and credit card
services. As of December 31, 2002, Credichile had approximately 125,071 consumer loans
that totaled Ch$90,096 million outstanding at December 31, 2003. As of the same date,
Credichile customers had 28,404 valid credit card accounts, with loans of Ch$5,846 million
and total charges of Ch$2,378 million.

Bancuenta.
          Credichile introduced Bancuenta as a basic deposit product that provides
          consumers flexibility and ease of use, and which allows us to tap a section of
          the consumer market that previously was not part of the banking system. The
          Bancuenta account is a non-interest bearing demand deposit account without
          checking privileges targeted at customers who want a secure and comfortable
          means of managing and accessing their money. The customer may use the ATM card
          linked to the Bancuenta account (which may include a revolving line of credit)
          to make deposits or automatic payments to other Credichile accounts through a
          network of ATMs available through the Redbanc system.

At
December 31, 2003, Credichile had approximately 451,207 Bancuenta accounts. Bancuenta
account holders pay an annual fee, a fee each time the account holder draws on the
Bancuenta line of credit and interest on any outstanding balance under the line of credit.
All fees and interest due on a Bancuenta account are withdrawn automatically on a monthly
basis from funds available in the account. Bancuenta allows us to offer our large
corporate customers the ability to pay their employees by direct deposit of funds into the
individual employees account at Credichile. We believe this product can lead to
stronger long-term relationships with our large and middle market corporate customers and
with the employees of such customers.

Treasury
and Money Market Operations

Our
treasury and money market operations business area provides a wide range of financial
services to our customers including currency intermediation, forwards contracts, interest
rate swaps, transactions under repurchase agreements and investment products based on
bonds, mortgage notes and deposits. We also offer investments in mutual funds and stock
brokerage services.

In
addition to providing services, our treasury and money market business area is focused on
managing currency, interest rate and maturity gaps, ensuring adequate liquidity levels and
managing our investment portfolio. This business area also performs the intermediation of
fixed-income instruments, currencies and derivatives. Interest rate gap management is
aimed at generating an adequate funding structure, prioritizing our capitalization and
asset and liability cost structure and funding source diversification.

The
treasury and money market business area is also in charge of monitoring compliance with
regulatory deposit limits, technical reserves and maturity and rate matches, and monitors
our adherence to the security margins defined by regulatory limits, as well as risk limits
for rate, currency and investment gaps. The treasury and money market business area
continually monitors the funding costs of the local financial system, comparing them with
our costs.

Our
investment portfolio as of December 31, 2003 amounted to Ch$1,916,324 million, of which
71.2% corresponded to securities issued by the Central Bank and the Chilean Government,
14.2% corresponded to securities from foreign issuers, 12.1% corresponded to securities
issued by local financial institutions and 2.5% corresponded to securities issued by
Chilean corporate issuers. Our investment strategy is designed with a view to
supplementing our expected profitability, risks and economic variable projections. Our
investment strategy is kept within regulatory limits as well as internal limits defined by
our financial committee and our Asset and Liability Management Committee, or ALCO.

33

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Operations
through Subsidiaries

We
have made several strategic long-term investments in financial services companies, which
are engaged in activities complementary to our commercial banking activities. Our
principal goal in making these investments is to develop a comprehensive financial
services group capable of meeting the diverse financial needs of our current and potential
clients.

Chiles
General Banking Law, which took effect in 1981, restricted the ability of Chilean banks to
provide non-banking financial services, although prior thereto we had established a
leasing subsidiary in 1977 and a mutual fund subsidiary in 1980. In 1987, the law was
amended and banks were permitted to offer, through subsidiaries, certain services
considered complementary to commercial banking activities. During the period from 1987 to
1989, we established two additional subsidiaries to provide the full range of financial
products and services that could be offered indirectly by Chilean banks under Chilean law.
These products and services include financial leasing, financial advisory services, mutual
funds and securities brokerage services. The General Banking Law was further amended in
1997 to extend the scope of permissible activities of banks and their subsidiaries to
include factoring, securitization and insurance brokerage, all of which have been
incorporated by us as new activities.

On
April 23, 1999, we increased our 65% interest in Leasing Andino S.A. by acquiring,
together with Banchile Asesoria Financiera S.A., all of the shares of Leasing Andino owned
by Orix Corporation. On July 1, 1999, we acquired the remaining 6,380 shares outstanding
in Leasing Andino and, consequently, held 100% of this companys share capital.
Leasing Andino was then dissolved and we assumed all of its rights and obligations. We are
continuing the financing lease activities developed by Leasing Andino, and have maintained
the Leasing Andino brand and trademark.

On
June 27, 2002, we acquired 100% of the shares of Promarket S.A. and Socofin. These
subsidiaries are closed corporations (sociedad anonima cerrada). For a description
of the business activities of these subsidiaries, see Sales Services and
Collection Services.

The
following table sets forth information with respect to our financial services subsidiaries
at December 31, 2003:

|                                     | As of or for the year ended December 31, 2003        
|------------------------------------ | -----------------------------------------------------
|                                     |                                                      
|                                     | Assets                                               
|                                     |                                                      
|                                     | (in millions of constant Ch$ as of December 31, 2003)
|                                     |                                                      
|Banchile Corredores de Bolsa S.A     | Ch$ 248,664                                          
|Banchile Administradora General de  
|Fondos S.A                           | 10,849                                               
|Banchile Factoring S.A               | 70,875                                               
|Banchile Asesoria Financiera S.A     | 1,443                                                
|Banchile Corredores de Seguros Ltda. | 3,839                                                
|Banchile Securitizadora S.A          | 7,272                                                
|Promarket S.A                        | 703                                                  
|Socofin S.A                          | Ch$ 3,792                                            

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The
following table sets out our ownership interest in our financial services subsidiaries at
December 31, 2003:

|                                               | Ownership
|---------------------------------------------- | ---------
|                                               |          
|                                               | Direct   
|                                               |          
|                                              
|Banchile Administradora General de Fondos S.A. | 99.98%   
|Banchile Corredores de Seguros Ltda.           | 99.75    
|Banchile Corredores de Bolsa S.A.              | 99.68    
|Banchile Factoring S.A.                        | 99.52    
|Banchile Asesoria Financiera S.A.              | 99.94    
|Banchile Securitizadora S.A.                   | 99.00    
|Promarket S.A.                                 | 99.00    
|Socofin S.A.                                   | 99.00    

Each
of these subsidiaries is incorporated under the laws of Chile.

Securities
Brokerage Services. We provide securities brokerage services through Banchile
Corredores de Bolsa S.A. Banchile Corredores is registered with the Superintendencia de
Valores y Seguros, or the Chilean Superintendency of Securities and Insurance, the
regulator of Chilean open stock corporations, as a securities broker and is a member of
the Santiago Stock Exchange and the Chilean Electronic Stock Exchange. Since it was
founded in 1989, Banchile Corredores has provided stock brokerage services, fixed income
investments and foreign exchange products to individuals and businesses through our branch
network. During the year ended December 31, 2003, Banchile Corredores had an aggregate
trading volume on the Santiago Stock Exchange and the Chilean Electronic Stock Exchange of
approximately Ch$3,102,399 million. At December 31, 2003, Banchile Corredores had equity
of Ch$29,959 million, and for the year ended December 31, 2003, had net income of Ch$9,010
million, which represented 6.9% of our consolidated net income for such period.

Mutual
and Investment Fund Management. Since 1980, we have provided mutual fund management services through
Banchile Administradora General de Fondos (formerly Banchile Administradora de Fondos
Mutuos S.A.). As of December 31, 2003, according to data prepared by the Chilean
Superintendency of Securities and Insurance, Banchile Administradora General de Fondos was
the largest mutual fund manager in Chile, managing 28.5% of all Chilean mutual funds
assets. At December 31, 2003, Banchile Administradora General de Fondos operated
35 mutual funds and managed Ch$1,414,227 million in net assets on behalf of 116,255
corporate and individual participants. Banchile Administradora General de Fondos also
operates an investment fund, Banchile Trust, and manages Ch$7,000 million in assets on
behalf of 370 participants.

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The
following table sets forth information regarding the various mutual funds managed by
Banchile Administradora General de Fondos at December 31, 2003:

|                           |                                  | Net Asset Value              
|-------------------------- | -------------------------------- | -----------------------------
|                           | As of December 31, 2003         
|Name of Fund               | Type of Fund                     | (in millions of constant Ch$)
|Utilidades                 | Fixed income (short/medium term) | Ch$  354,047                 
|Liquidez 2000              | Fixed income (short term)        | 163,399                      
|Deposito XXI               | Fixed income (medium/long term)  | 184,185                      
|Corporativo                | Fixed income (short term)        | 149,591                      
|Estrategico                | Fixed income (medium/long term)  | 89,858                       
|Corporate Dollar Fund      | Fixed income (short term)        | 85,704                       
|Horizonte                  | Fixed income (medium/long term)  | 58,039                       
|Patrimonial                | Fixed income (short term)        | 54,027                       
|Performance                | Fixed income (short/medium term) | 67,401                       
|Banchile Acciones          | Equity                           | 40,263                       
|Ahorro                     | Fixed income (medium/long term)  | 36,024                       
|Alianza                    | Debt/Equity (medium/long term)   | 34,993                       
|Disponible                 | Fixed income (short term)        | 17,343                       
|Crecimiento                | Fixed income (short term)        | 13,814                       
|Inversion                  | Fixed income (medium/long term)  | 10,226                       
|Operacional                | Fixed income (short term)        | 8,876                        
|Capitalisa Accionario      | Equity                           | 6,537                        
|Renta Futura               | Fixed income (short/medium term) | 6,177                        
|Euro Money Market Fund     | Fixed income (short term)        | 4,409                        
|Emerging Fund              | Debt/Equity                      | 3,950                        
|Latin America Fund         | Debt/Equity                      | 3,911                        
|Cobertura                  | Fixed income (medium/long term)  | 3,853                        
|Dolar Fund                 | Fixed income (medium/long term)  | 3,687                        
|U.S. Fund                  | Debt/Equity                      | 2,973                        
|Global                     | Debt/Equity                      | 1,720                        
|U.S. High Technology Fund  | Debt/Equity                      | 1,660                        
|Asia Fund                  | Debt/Equity                      | 1,402                        
|Euro Fund                  | Debt/Equity                      | 1,348                        
|Technology Fund            | Debt/Equity                      | 1,132                        
|U.S. Stability Fund        | Debt/Equity                      | 922                          
|International Bond         | Fixed income (medium/long term)  | 668                          
|Euro Technology Fund       | Debt/Equity                      | 635                          
|Medical & Health-Care Fund | Debt/Equity                      | 633                          
|U.S. Bond Fund             | Fixed income (medium/long term)  | 420                          
|Telecommunication Fund     | Debt/Equity                      | 400                          
|                           |                                 
|Total                      |                                  | Ch$  1,414,227               
|                           |                                 

At
December 31, 2003, Banchile Administradora General de Fondos had equity of Ch$9,454
million and for the year ended December 31, 2003, had net income of Ch$5,767 million,
which represented 4.4% of our consolidated net income for such period.

Factoring
Services. We provide factoring services to our customers through Banchile Factoring
S.A. Through this service, we purchase our customers outstanding debt portfolios,
such as bills, notes, promissory notes or contracts, advancing them the cash flows
involved and performing the collection of the related instruments. As of December 31,
2003, Banchile Factoring had net income of Ch$1,910 million, with a 27.2% return on
shareholders equity and an estimated 21.0% market share in Chiles factoring
industry.

Financial
Advisory Services. We provide financial advisory and other investment banking services
to our customers through Banchile Asesoria Financiera S.A. The services offered by
Banchile Asesoria Financiera are directed primarily to our corporate customers and include
advisory services regarding mergers and acquisitions, restructuring, project financing and
strategic alliances. As of December 31, 2003, Banchile Asesoria Financiera had equity of
Ch$1,212 million, and for the year ended December 31, 2003, had net income of Ch$781
million.

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Insurance
Brokerage. We provide insurance brokerage services to our customers through Banchile
Corredores de Seguros Ltda. At the beginning of 2000 we began to offer life insurance
policies associated with consumer loans and non-credit related insurance to our individual
clients and the general public. As of December 31, 2003, Banchile Corredores de Seguros
had equity of Ch$3,271 million, and for the year ended December 31, 2003, had net income
of Ch$718 million. Banchile Corredores de Seguros had a 2.4% market share by amount of
policies sold by insurance brokerage companies during 2001, the latest year for which
information is available for insurance brokerage companies.

Securitization
Services.We offer investment products to meet the demands of institutional
investors such as private pension funds and insurance companies through Banchile
Securitizadora S.A. This subsidiary securitizes financial assets, which involves the
issuance of a debt instrument, with a credit rating, that can be traded in the Chilean
marketplace, backed by a bundle of revenue-producing assets of the client company. As of
December 31, 2003, Banchile Securitizadora had a net equity of Ch$547 million, and for the
year ended December 31, 2003 had net income of Ch$26 million. Banchile Securitizadora had
a 15.7% market share by volume of assets securitized as of March 31, 2004.

Sales
Services.Promarket manages the direct sales force that sells and promotes our
products and services (such as checking accounts, consumer loans and credit cards),
together with those of our subsidiaries, and researches information about potential
customers. As of December 31, 2003, Promarket had equity of Ch$278 million, and for the
year ended December 31, 2003 had net loss of Ch$72 million.

Collection
Services.We provide judicial and extra-judicial collection services of loans
on our behalf or on behalf of third parties through Socofin. As of December 31, 2003,
Socofin had equity of Ch$775 million, and for the year ended December 31, 2003 had a net
income of Ch$138 million.

Distribution
Channels and Electronic Banking

Our
distribution network provides integrated financial services and products to our customers
through a wide range of channels. This network includes ATMs, branches, on-line banking
and phone-banking devices. We own and operate 823 ATMs, and are connected to the
nationwide Redbanc ATM network of approximately 2,970 ATMs. In addition, we are connected
to the nationwide Banco Estado ATM network of approximately 801 ATMs. These ATMs allow
customers to conduct self-service banking transactions during banking and non-banking
hours.

As
of December 31, 2003, we had a network of 224 retail branches throughout Chile. The
branch system serves as a distribution network for all of the products and services
offered to our customers. Our full-service branches accept deposits, disburse cash, offer
the full range of our retail banking products such as consumer loans, automobile
financing, credit cards and checking accounts, lend to small- and medium-size companies
and provide information to current and potential customers.

We
offer electronic banking services to our customers 24 hours a day through our internet
website, www.bancochile.cl, which has homepages that are segmented by market. Our
retail homepage offers a broad range of services, including the payment of bills,
electronic fund transfers, stop payment and non-charge orders, as well as a wide variety
of account inquiries. Our middle market companies homepage offers services including our
office banking service, Banconexion Web, which enables our middle market companies
customers to perform all of their banking transactions from their offices. Both homepages
offer our customers the sale of third-party products with exclusive benefits. We also have
a homepage designed for our investor customers, through which they can perform
transactions such as stock trading, time deposit taking and opening savings accounts. Our
foreign trade customers can rely on our international business homepage, which enables
them to inquire about the status of their foreign trade transactions and perform
transactions such as opening letters of credit, recording import collection and hedging on
instructions and letters of credit. In 2003, approximately 124,900 individual customers
and 26,600 corporate customers performed close to 8.4 million transactions monthly on our
website.

37

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In
addition, we provide our customers with access to a 24-hour phone-banking call center that
grants them access to account information and allows them to effect fund transfers and
certain payments. This service, through which we receive approximately 1,146,000 calls per
month, has enabled us to develop customer loyalty campaigns, sell financial services and
products, answer specialized inquiries about our remote services and receive and resolve
complaints by customers and non-customers.

We
are, in conjunction with 13 other private Chilean banks, a shareholder of Redbanc S.A., a
corporation that executes electronic transfer services and provides support services to
banks through the installation, operation, maintenance and development of equipment and
systems for the automatic and electronic transfer of funds. The availability of this
transfer capability facilitates our ability to service our customers efficiently.

In
2001, in association with Banco de Credito e Inversiones, we created a company called
Comercio Electronico Artikos Chile S.A. with the purpose of providing Chilean companies
with the opportunity to trade their products and services on an electronic basis through
the internet. We supplement this service with a wide range of financial services and
electronic payment means. Artikos Chile uses the Commerce One platform, a world leader in
business-to-business technological solutions.

Competition

Overview

The
Chilean market for banking and other financial services is highly competitive, and we face
significant competition in each of our principal areas of operation. The Chilean financial
services market consists of a number of distinct sectors. The most important sector,
commercial banking, includes 25privately owned banks and one public sector bank,
Banco del Estado. The privately owned banks have traditionally been divided between those
that are principally Chilean-owned, of which there are twelve, and those that are
principally foreign-owned, of which there are 13. At December 31, 2003, three banks, Banco
Santander-Chile (22.6%), our bank (18.5%) and the public sector bank, Banco del Estado
(13.0%) together accounted for 54.1% of all outstanding loans by Chilean financial
institutions, net of interbank loans. Chilean-owned banks together accounted for 60.1% of
total loans outstanding while foreign-owned banks accounted for 39.9% of total loans
outstanding.

As
a commercial bank offering a range of services to all types of businesses and individual
customers, we face a variety of competitors, ranging from other large, privately owned
commercial banks to more specialized entities like niche banks. The principal
commercial banks in Chile include Banco Santander-Chile, Banco de Credito e Inversiones
and BBVA Banco BHIF, which we consider to be our primary competitors. Nevertheless, we
face competition to a lesser extent from Banco del Estado, which has a larger distribution
network and larger customer base than we do. Banco del Estado, which operates under the
same regulatory regime as Chilean private sector banks, was the third largest bank in
Chile at December 31, 2003, with outstanding loans, net of interbank loans, of
Ch$4,255,307 million, representing a 13.0% market share, according to data published by
the Chilean Superintendency of Banks.

In
the large corporations business area, we consider our strongest competitors to be Banco
Santander-Chile, Banco de Credito e Inversiones and BBVA Banco BHIF. We also consider
these banks to be our most significant competitors in the middle market companies business
area.

38

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In
the retail banking business area, we compete with other private sector Chilean banks, as
well with Banco del Estado. Among private Chilean banks, we consider our strongest
competitors in this business area to be Banco Santander-Chile and Banco de Credito e
Inversiones, as each of these banks has developed business strategies that focus on the
lower-middle to middle income subsegments of the Chilean population. In the individual
banking sector, particularly with respect to high-income individuals, we compete with both
private Chilean and foreign-owned banks and consider our strongest competitors in this
market to be Banco Santander-Chile and Citibank.

The
Chilean banking industry has experienced increased levels of competition in recent years,
including from foreign banks, which has led to, among other things, consolidation in the
industry. Consequently, strategies have, on an overall basis, been aimed at reducing costs
and improving efficiency standards. Our income may decrease due to the extent and
intensity of competition.

We
expect the trend of increased competition and consolidation to continue, particularly in
connection with the formation of new large financial groups and the creation of new niche
banks. In this regard, in mid-1996 Banco Santander of Spain took control of Banco Osorno
and merged it into its Chilean operations, changing its name to Banco Santander-Chile. In
addition, Banco O Higgins and Banco de Santiago merged in January 1997, forming
Banco Santiago. In 1999, Banco Santander of Spain took control of Banco Santiago. In
August 2002, Banco Santiago and Banco SantanderChile, the second and fourth largest
banks in Chile at that date, respectively, merged and became Chiles largest bank. In
2003, Banco del Desarrollo merged with Banco Sudameris. Although we believe that we are
currently large enough to compete effectively in our target markets, any further
consolidation in the Chilean financial system may adversely affect our competitive
position in the Chilean financial services industry.

Historically,
commercial banks in Chile have competed in the retail market against each other, with
finance companies and with department stores, the latter two having traditionally been
focused on consumer loans to middle- and low-income subsegments. However, finance
companies have gradually disappeared as most of them have been merged into the largest
banks.

Non-bank
competition from large department stores has become increasingly significant in the
consumer lending sector. Indeed, two new consumer-oriented banks, affiliated with
Chiles largest department stores have been established during recent years. Although
these new banks had a market share of less than 1% as of December 31, 2003, according to
the Chilean Superintendency of Banks, the opening of these banks is likely to bring
increased competition into the consumer banking business.

In
addition, some local investor groups have announced their intention to incorporate new
banks in 2004. We expect that the addition of these new banks will lead to greater
competition, particularly in banking services directed to middle-income individuals.

39

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The
following table provides certain statistical information on the Chilean financial system
as of December 31, 2003:

|                                 | As of December 31, 2003                                                  
|-------------------------------- | -------------------------------------------------------------------------
|                                 |                                                                          
|                                 | Assets                                                                   
|                                 |                                                                          
|                                 | Amount                                                                   
|                                 |                                                                          
|                                 | (in millions of constant Ch$ as of December 31, 2003, except percentages)
|                                 |                                                                          
|Domestic private sector    banks | Ch$ 21,407,497                                                           
|Foreign-owned banks              | 20,420,456                                                               
|                                 |                                                                          
|Private sector total             | Ch$ 41,827,953                                                           
|Banco del Estado                 | 7,431,151                                                                
|                                 |                                                                          
|Total banking system             | Ch$ 49,259,104                                                           

___________________


|Source: | Chilean
Superintendency of Banks
|------- | --------------------------------

|(1) | Net
of interbank loans.
|--- | -----------------------

|(2) | Shareholders'
equity includes net income for purposes of this table.
|--- | --------------------------------------------------------------------

Loans

The
following table sets forth our market share in terms of loans (excluding interbank loans),
and our principal private sector competitors, as of the dates indicated:

|                                 | Bank Loans(1)     
|-------------------------------- | ------------------
|                                 |                   
|                                 | As of December 31,
|                                 |                   
|                                 | 1999              
|                                 |                   
|Banco Santander-Chile            | 12.3%             
|Banco de Chile                   | 12.4              
|Banco de Credito e Inversiones   | 8.1               
|BBVA Banco BHIF                  | 5.4               
|Banco Santiago(2)                | 16.1              
|Banco de A. Edwards(3)           | 7.7               
|                                 |                   
|Total market share for six banks | 62.0%             
|                                 |                   

___________________


|Source: | Chilean
Superintendency of Banks
|------- | --------------------------------

|(1) | For
ease of comparison, interbank loans have been eliminated.
|--- | -------------------------------------------------------------

|(2) | Banco
Santiago merged with Banco Santander-Chile in August 2002.
|--- | ----------------------------------------------------------------

|(3) | Banco
de A. Edwards merged with us on January 1, 2002.
|--- | ------------------------------------------------------

40

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Risk
Index

At
October 31, 2003, our unconsolidated risk index of 2.40% was higher than the financial
systems 1.82%. For a discussion of risk index, see Selected Statistical
Information. The following graph illustrates the five-year history of our
unconsolidated loan portfolio risk index compared to the risk index of total loans in the
Chilean financial system as of October 31 for each of the years indicated.

___________________


Source: Chilean
Superintendency of Banks


Our unconsolidated risk index primarily increased in 2002 and 2003 (relative to prior years) as a result of our merger with
Banco de A. Edwards.

The
following table sets forth the unconsolidated risk index of the six largest private sector
banks and that of the financial system as a whole (including such six banks) at October 31
in each of the last five years:

|                               | Unconsolidated Risk Index As of
|------------------------------ | -------------------------------
|                               |                                
|                               | October 31,                    
|                               |                                
|                               | 1999                           
|                               |                                
|Banco Santiago(1)              | 1.39%                          
|Banco de A. Edwards(2)         | 2.79                           
|Banco de Credito e Inversiones | 1.57                           
|BBVA Banco BHIF                | 2.11                           
|Banco Santander-Chile          | 1.23                           
|Banco de Chile                 | 2.07                           
|Financial system               | 1.98%                          

___________________


|Source: | Chilean
Superintendency of Banks
|------- | --------------------------------

|(1) | Banco
Santiago merged with Banco Santander-Chile in August 2002.
|--- | ----------------------------------------------------------------

|(2) | Banco
de A. Edwards merged with us on January 1, 2002.
|--- | ------------------------------------------------------

41

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Credit
Quality

At
December 31, 2003, according to information published by the Chilean Superintendency of
Banks, we had an unconsolidated ratio of past due loans to total loans of 1.74%. The
following table sets forth the ratio of past due loans to total loans for the six largest
private sector banks at December 31 in each of the last three years:

|                               | Past Due Loans to Total Loans
|------------------------------ | -----------------------------
|                               |                              
|                               | As of December 31,           
|                               |                              
|                               | 2001                         
|                               |                              
|Banco Santiago(1)              | 1.37%                        
|Banco de A. Edwards(2)         | 3.31                         
|Banco de Credito e Inversiones | 1.37                         
|Banco de Chile                 | 1.29                         
|BBVA Banco BHIF                | 2.10                         
|Banco Santander-Chile          | 1.36                         
|                               |                              
|Total for six banks            | 1.65%                        
|                               |                              

___________________


|Source: | Chilean
Superintendency of Banks
|------- | --------------------------------

|(1) | Banco
Santiago merged with Banco Santander-Chile in August 2002.
|--- | ----------------------------------------------------------------

|(2) | Banco
de A. Edwards merged with us on January 1, 2002.
|--- | ------------------------------------------------------

Deposits

We
had deposits of Ch$4,867,113 million at December 31, 2003 on an unconsolidated basis.
In unconsolidated terms, our 17.3% of the market share for deposits, including borrowings
from domestic financial institutions, placed us in second place among private sector
banks. The following table sets forth the market shares in terms of deposits for the six
private sector banks with the largest market share as of December 31 in each of the last
three years:

|                                 | Deposits          
|-------------------------------- | ------------------
|                                 |                   
|                                 | As of December 31,
|                                 |                   
|                                 | 2001              
|                                 |                   
|Banco Santiago(1)                | 13.4%             
|Banco de A. Edwards(2)           | 6.6               
|BBVA Banco BHIF                  | 5.3               
|Banco de Credito e Inversiones   | 9.2               
|Banco de Chile                   | 12.7              
|Banco Santander-Chile            | 12.7              
|                                 |                   
|Total market share for six banks | 59.9%             
|                                 |                   

___________________


|Source: | Chilean
Superintendency of Banks
|------- | --------------------------------

|(1) | Banco
Santiago merged with Banco Santander-Chile in August 2002.
|--- | ----------------------------------------------------------------

|(2) | Banco
de A. Edwards merged with us on January 1, 2002.
|--- | ------------------------------------------------------

Shareholders
Equity

With
Ch$565,123 million in shareholders equity (not including net income), according to
information published by the Chilean Superintendency of Banks, at December 31, 2003,
we were the second largest private sector commercial bank in Chile in terms of
shareholders equity.

42

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The
following table sets forth the level of shareholders equity for the largest private
sector banks in Chile as of December 31 in each of the last three years:

|                               | Shareholders' Equity                                                                                                                 
|------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------
|                               |                                                                                                                                      
|                               | As of December 31,                                                                                                                   
|                               |                                                                                                                                      
|                               | 2001                                                                                                                                 
|                               |                                                                                                                                      
|                               | (in millions of constant Ch$ as of December 31,
                                                                                2003)
|Banco de A. Edwards(1)         | Ch$ 238,508                                                                                                                          
|Banco Santiago(2)              | 437,160                                                                                                                              
|BBVA Banco BHIF                | 237,133                                                                                                                              
|Banco de Credito e Inversiones | 228,834                                                                                                                              
|Banco de Chile                 | 323,846                                                                                                                              
|Banco Santander-Chile          | Ch$ 376,357                                                                                                                          

___________________


|Source: | Chilean
Superintendency of Banks
|------- | --------------------------------

|(1) | Banco
de A. Edwards merged with us on January 1, 2002.
|--- | ------------------------------------------------------

|(2) | Banco
Santiago merged with Banco Santander-Chile in August 2002.
|--- | ----------------------------------------------------------------

Return
on Average Shareholders Equity

Our
return on average shareholders equity (including net income for the year) for the
year ended December 31, 2003 was 20.4%, according to information published by the Chilean
Superintendency of Banks. The following table sets forth our return on average
shareholders equity and the returns of our principal competitors and the Chilean
financial system, in each case as of December 31 in each of the last five years:

|                               | Return on Average Shareholders' Equity
                                                              Year Ended December 31,
|------------------------------ | ----------------------------------------------------------------------------------------------------------------------------
|                               |                                                                                                                             
|                               | 1999                                                                                                                        
|                               |                                                                                                                             
|Banco de A. Edwards(1)         | (4.2)%                                                                                                                      
|Banco Santiago(2)              | 12.3                                                                                                                        
|BBVA Banco BHIF                | 5.7                                                                                                                         
|Banco de Chile                 | 19.5                                                                                                                        
|Banco de Credito e Inversiones | 14.1                                                                                                                        
|Banco Santander-Chile          | 16.8                                                                                                                        
|                               |                                                                                                                             
|Total average financial system | 9.2%                                                                                                                        
|                               |                                                                                                                             

___________________


|Source: | Chilean
Superintendency of Banks
|------- | --------------------------------

|(1) | Banco
de A. Edwards merged with us on January 1, 2002.
|--- | ------------------------------------------------------

|(2) | Banco
Santiago merged with Banco Santander-Chile in August 2002.
|--- | ----------------------------------------------------------------

Efficiency

For
the year ended December 31, 2003, our operating expenses as a percentage of our operating
revenues, or efficiency ratio, was 55.4%, mainly influenced by non-recurring charges
related to the merger.

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The
following table sets forth the efficiency ratios of the six largest private sector Chilean
banks at December 31 in each of the last three years:

|                               | Efficiency Ratio(1)
|------------------------------ | -------------------
|                               |                    
|                               | As of December 31, 
|                               |                    
|                               | 2001               
|                               |                    
|Banco Santiago(2)              | 50.3%              
|Banco de A. Edwards(3)         | 65.3               
|Banco Santander-Chile          | 46.6               
|Banco de Credito e Inversiones | 55.5               
|Banco de Chile                 | 56.3               
|BBVA Banco BHIF                | 64.1               
|Average for six banks          | 54.4%              

___________________


|Source: | Chilean
Superintendency of Banks
|------- | --------------------------------

|(1) | Calculated
by dividing operating expense by operating revenue.
|--- | --------------------------------------------------------------

|(2) | Banco
Santiago merged with Banco Santander-Chile in August 2002.
|--- | ----------------------------------------------------------------

|(3) | Banco
de A. Edwards merged with us on January 1, 2002.
|--- | ------------------------------------------------------

REGULATION AND
SUPERVISION

In
Chile, only banks may maintain checking accounts for their customers, conduct foreign
trade operations and, together with financial companies, accept time deposits. The
principal authorities that regulate financial institutions in Chile are the Chilean
Superintendency of Banks and the Central Bank. Chilean banks are primarily subject to the
General Banking Law and secondarily, to the extent not inconsistent with that law, the
provisions of the Chilean Corporations Law governing public corporations, except for
certain provisions that are expressly excluded.

The
modern Chilean banking system dates back to 1925 and has been characterized by periods of
substantial regulation and state intervention as well as periods of deregulation. The most
recent period of deregulation commenced in 1975 and culminated in the adoption of a series
of amendments to the General Banking Law. That law, amended most recently in 2004, granted
additional powers to banks, including general underwriting powers for new issues of
certain debt and equity securities and the power to create subsidiaries to engage in
activities related to banking, such as brokerage, investment advisory, mutual fund
services, administration of investment funds, factoring, securitization products and
financial leasing services. Following the Chilean banking crisis of 1982 and 1983, the
Chilean Superintendency of Banks assumed control of 19 banks representing approximately
51% of the total loans in the banking system. As part of the assistance that the Chilean
government provided to Chilean banks, the Central Bank permitted banks to sell to it a
certain portion of their problem loan portfolios at the book value of the loan portfolios.
Each bank then repurchased such loans at their economic value (which, in most cases, was
substantially lower than the book value at which the Central Bank had acquired the loans),
with the difference to be repaid to the Central Bank out of future income. Pursuant to Law
No. 18,818, which was passed in 1989, this difference was converted into subordinated
debt.

The Central Bank

The
Central Bank is an autonomous legal entity created by the Chilean Constitution. It is
subject to the Chilean Constitution and its organic constitutional law, the ley
organica constitucional. To the extent not inconsistent with the Chilean
Constitution or the Central Banks organic constitutional law, the Central Bank is
also subject to private sector laws, but is not subject to the laws applicable to the
public sector. It is directed and administered by a board of directors composed of five
members designated by the President of Chile, subject to Senate approval.

44

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The
legal purpose of the Central Bank is to maintain the stability of the Chilean peso and the
orderly functioning of Chiles internal and external payment system. The Central
Banks powers include setting reserve requirements, regulating the amount of money
and credit in circulation, and establishing regulations and guidelines regarding finance
companies, foreign exchange (including the Formal Exchange Market) and banks
deposit-taking activities.

The Chilean
Superintendency of Banks

Banks
are supervised and controlled by the Chilean Superintendency of Banks, an independent
Chilean governmental agency. The Chilean Superintendency of Banks authorizes the creation
of new banks and has broad powers to interpret and enforce legal and regulatory
requirements applicable to banks and financial companies. Furthermore, in case of
noncompliance with its legal and regulatory requirements, the Chilean Superintendency of
Banks has the ability to impose sanctions. In extreme cases, it can appoint, with the
prior approval of the board of directors of the Central Bank, a provisional administrator
to manage a bank. It must also approve any amendment to a banks bylaws or any
increase in its capital.

The
Chilean Superintendency of Banks examines all banks from time to time, generally at least
once a year. Banks are also required to submit unconsolidated unaudited financial
statements to the Chilean Superintendency of Banks on a monthly basis and to publish their
unaudited financial statements at least four times a year in a newspaper with countrywide
coverage. Financial statements as of December 31 must be audited. In addition, banks are
required to provide extensive information regarding their operations at various periodic
intervals to the Chilean Superintendency of Banks. A banks annual financial
statements and the opinion of its independent auditors must also be submitted to the
Chilean Superintendency of Banks.

Any
person wishing to acquire, directly or indirectly, 10.0% or more of the share capital of a
bank must obtain the prior approval of the Chilean Superintendency of Banks. The absence
of such approval will cause the holder of such shares so acquired not to have the right to
vote such shares. The Chilean Superintendency of Banks may only refuse to grant its
approval, based on specific grounds set forth in the General Banking Law.

According
to Article 35 bis of the General Banking Law the prior authorization of the Chilean
Superintendency of Banks is required for:

- the merger
of two or more banks;

- the
acquisition of all or a substantial portion of a banks' assets and liabilities by another
bank;

- the control
by the same person, or controlling group, of two or more banks; or

- a
substantial increase in the share ownership of a bank by a controlling shareholder of
that bank.

Such
prior authorization is required solely when the acquiring bank or the resulting group of
banks would own a significant market share in loans, defined by the Chilean
Superintendency of Banks to be more than 15.0% of all loans in the Chilean banking system.
The intended purchase, merger or expansion may be denied by the Chilean Superintendency of
Banks. Alternatively, a purchase, merger or expansion, when the acquiring bank or
resulting group would own a market share in loans defined by the Chilean Superintendency
of Banks to be more than 20.0% of all loans in the Chilean banking system, may be
conditioned on one or more of the following:

45

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- that the
bank or banks maintain an effective equity higher than 8.0% and up to 14.0% of their risk
weighted assets;

- that the
technical reserve established in Article 65 of the General Banking Law be applicable when
deposits exceed one and a half times the resulting banks paid-in capital and
reserves; or

- that the
margin for interbank loans be diminished to 20.0% of the resulting bank's effective
equity.

If
the acquiring bank or resulting group would own a market share in loans defined by the
Chilean Superintendency of Banks to be more than 15% but less than 20%, the authorization
will be conditioned on the bank or banks maintaining an effective equity not lower than
10% of their risk-weighted assets for the time set forth by the Chilean Superintendency of
Banks, which may not be less than one year.

Pursuant
to the regulations of the Chilean Superintendency of Banks, the following ownership
disclosures are required:

- banks are
required to inform the Chilean Superintendency of Banks of the identity of any person
owning, directly or indirectly, 5.0% or more of such banks shares;

- holders of
ADSs must disclose to the depositary the identity of beneficial owners of ADSs registered
under such holders'                   names; and

- the
depositary is required to notify the bank as to the identity of beneficial owners of
ADSs, which such depositary has registered and the bank, in turn, is required to notify
the Chilean Superintendency of Banks as to the identity of the beneficial owners of the
ADSs representing 5.0% or more of such banks shares.

In
addition, the regulations require bank shareholders who individually hold 10.0% or more of
a banks capital stock and who are controlling shareholders to periodically inform
the Chilean Superintendency of Banks of their financial condition.

Limitations on Types of
Activities

Chilean
banks can only conduct those activities allowed by the General Banking Law, including:
making loans, factoring and leasing activities, accepting deposits and, subject to
limitations, making investments and performing financial services. Investments are
restricted to real estate for the banks own use, gold, foreign exchange and debt
securities. Through subsidiaries, banks may also engage in other specific financial
service activities such as securities brokerage services, mutual fund management,
investment fund management, financial advisory, securitization and leasing activities.
Subject to specific limitations and the prior approval of the Chilean Superintendency of
Banks and the Central Bank, Chilean banks may own majority or minority interests in
foreign banks.

On
March 2, 2002 the Central Bank authorized banks to pay interest on checking accounts. On
March 20, 2002 the Chilean Superintendency of Banks published guidelines establishing that
beginning on June 1, 2002, banks could offer a new checking account product that pays
interest. The Chilean Superintendency of Banks also stated that these accounts may be
subject to minimum balance limits and different interest rates depending on average
balances held in the account. This product is optional and banks may also charge fees for
the use of this new product. For banks with a solvency score of less than A the Central
Bank has also imposed additional caps to the interest rate that can be charged.

46

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Deposit Insurance

The
Chilean government guarantees up to 90.0% of the principal amount of certain time and
demand deposits held by individuals in the Chilean banking system. The Chilean government
guarantee covers those obligations with a maximum value of UF108 per person (Ch$1,827,360
or U.S.$3,049 as of December 31, 2003) per calendar year.

Reserve Requirements

Deposits
are subject to a reserve requirement of 9.0% for demand deposits and 3.6% for time
deposits. The Central Bank has statutory authority to increase these percentages to up to
40% for demand deposits and up to 20% for time deposits, to implement monetary policy.

In
addition, we are subject to a reserve requirement applicable to Chilean banks pursuant to
which we must hold a certain amount of assets in cash or in highly liquid instruments.
This reserve is equal to the amount by which the daily balance of:

- deposits in
checking accounts;

- other
demand deposits or obligations payable on demand and incurred in the ordinary course of
business;

- other
deposits unconditionally payable immediately or within a term of less than 30 days; and

- time
deposits payable within ten days

in the aggregate exceeds 2.5 time
the amount of our capital and reserves.

Chilean
regulations also require that gaps between assets and liabilities maturing within less
than 30 days not exceed a banks basic capital and that gaps among assets and
liabilities maturing within less than 90 days not exceed twice a banks equity.

The
interest rate mismatches of a banks foreign currency liabilities may not exceed 8.0%
of its effective equity ratio.

Minimum Capital

Under
the General Banking Law, a bank must have a minimum paid-in capital and reserves of
UF800,000 (Ch$13,536 million or U.S.$22.0 million as of December 31, 2003). However, a
bank may begin its operations with 50.0% of such amount, provided that it has a effective
equity ratio (defined as effective equity as a percentage of risk weighted assets) of not
less than 12.0%. When such a banks paid-in capital reaches UF600,000 (Ch$10,152
million or U.S.$17.0 million as of December 31, 2003) the effective equity ratio
requirement is reduced to 10.0%.

Capital Adequacy
Requirements

According
to the General Banking Law, each bank should have an effective equity of at least 8.0% of
its risk weighted assets (net) of required allowances. Effective equity is defined as the
aggregate of:

- a bank's
paid-in capital and reserves, known as capital basico, or net capital base;

47

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- its
subordinated bonds, considered at the issuing price (but decreasing 20.0% for each year
during the period commencing six years prior to maturity), but not exceeding 50.0% of its
net capital base; and

- its
voluntary allowances for loan losses, up to 1.25% of risk weighted assets to the extent
these allowances exceed those required by law or regulation.

Banks
should also have a net capital base of at least 3.0% of its total assets (net) of required
allowances. An amendment to the General Banking Law enacted on November 7, 2001 eliminated
the exclusion of the investment in subsidiaries and foreign branches from the calculation
of net capital base.

The
calculation of risk-weighted assets is based on a five category risk classification system
to be applied to a bank assets that is based on the Basel Committee recommendations.

Lending Limits

Under
the General Banking Law, Chilean banks are subject to certain lending limits, including
the following material limits:

- a bank may
not extend to any entity or individual (or any one group of related entities), directly
or indirectly, unsecured credit in an amount that exceeds 5.0% of the banks
effective equity, or in an amount that exceeds 25.0% of its effective equity if the
excess over 5.0% is secured by certain assets with a value equal to or higher than such
excess. In the case of foreign export trade financing, the 5.0% ceiling for unsecured
credits is raised to 10.0% and the 25.0% ceiling for secured credits to 30.0%. In the
case of financing infrastructure projects built through the concession mechanism, the
5.0% ceiling for unsecured credits is raised to 15.0% if secured by a pledge over the
concession, or if granted by two or more banks or finance companies which have executed a
credit agreement with the builder or holder of the concession;

- a bank may
not extend loans to another financial institution subject to the General Banking Law in
an aggregate amount exceeding 30.0% of its effective equity;

- a bank may
not directly or indirectly grant a loan whose purpose is to allow an individual or entity
to acquire shares of the                   lender bank;

- a bank may
not lend, directly or indirectly, to a director or any other person who has the power to
act on behalf of the                   bank; and

- a bank may
not grant loans to related parties (including holders of more than 1.0% of its shares) on
more favorable terms than those generally offered to non-related parties. Loans granted
to related parties are subject to the limitations described in the first bullet point
above. In addition, the aggregate amount of loans to related parties may not exceed a banks
effective equity.

In
addition, the General Banking Law limits the aggregate amount of loans that a bank may
grant to its employees to 1.5% of its effective equity, and provides that no individual
employee may receive loans in excess of 10.0% of this 1.5% limit. Notwithstanding these
limitations, a bank may grant to each of its employees a single residential mortgage loan
for personal use once during such employees term of employment.

48

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Allowances for Loan
Losses

Chilean
banks are required to provide to the Chilean Superintendency of Banks detailed information
regarding their loan portfolio on a monthly basis. Each bank is also required to maintain
global allowances for loan losses, the amount of which must at least equal the aggregate
amount of its outstanding loans multiplied by the greater of (1) its risk
index or (2) 0.75%. See Selected Statistical Information for an
explanation of the risk index and other information regarding allowances for
loan losses. As of October 31, 2003, our unconsolidated risk index was 2.40% compared with
an average for the Chilean financial system as a whole (i.e., all banks) of 1.82%,
as of that date (the latest available information for 2003 for the Chilean financial
system).

Banks
in Chile are also required to maintain individual allowances for loans on which any
payment of principal or interest is 90 days or more overdue. Individual allowances for
loan losses equal to 100.0% of the past due portion of such past due loan are required to
the extent that the loan is unsecured. In the event that non-payment of a portion of a
loan permits a bank to accelerate the loan, and the bank commences legal proceedings
against the debtor to collect the full amount of the loan, the individual loan loss
allowances must be equal to 100.0% of the loan within 90 days as of the filing of the
lawsuit. The Chilean Superintendency of Banks has ruled that in the case of past due
loans, individual allowances for loan losses should be made only for the difference
between 100.0% of the past due portion of a past due loan (or the full amount of the loan
if the preceding sentence applies) and the allowances made for such loan when calculating
the global loan loss allowances. As of December 31, 2003, the aggregate amount of our
individual allowances for loan losses was 22.0% of the required minimum allowances for
loan losses. Prior to January 1, 2004, a bank could also voluntarily maintain additional
allowances for loan losses in excess of the minimum amounts required as global and
individual allowances.

Classification of Banks

The
Chilean Superintendency of Banks regularly examines and evaluates each financial
institutions credit management process, including its compliance with the loan
classification guidelines, and on that basis classifies banks and other financial
institutions into five categories. In accordance with amended regulations effective as of
January 1, 2004, Category I is reserved for financial institutions that have been rated
level A (the highest rating) in terms of solvency and management. Category II is reserved
for financial institutions that have been rated level A in terms of solvency and level B
in terms of management; or level B in terms of solvency and level A in terms of management
or level B in terms of solvency and level B in terms of management. Category III is
reserved for financial institutions that have been rated level B in terms of solvency, and
level B in terms of management for two or more consecutive review periods; or level A in
terms of solvency and level C in terms of management or level B in terms of solvency and
level C in terms of management. Category IV is reserved for financial institutions that
are rated level A or B in terms of solvency that have been rated level C in terms of
management for two or more consecutive review periods. Category V is reserved for
financial institutions that have been rated level C in terms of solvency, irrespective of
their level of management.

For
classification purposes, banks are rated according to their solvency using the following
guidelines: Level A banks are those banks whose effective equity (after deduction of
accumulated losses during the financial year) to risk weighted assets ratio is equal or
greater than 10.0 %. Level B banks are those whose effective equity (after deduction of
accumulated losses during the financial year) to risk weighted assets ratio is equal or
greater than 8.0% and lower than 10.0%, and level C banks are those whose effective equity
(after deduction of the accumulated losses during the financial year) to risk weighted
assets ratio is lower than 8.0%.

49

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For
classification purposes, a banks management is rated as follows: Level A banks are
those banks that are not rated as level B or C banks. Level B banks are those banks that
show some level of weakness in their internal controls, information systems, timely follow
up of risks, private risk rating or capacity to face contingency scenarios. Level C banks
are those banks that have shown significant deficiencies in their internal controls,
information systems, timely follow up of risks, private risk rating or capacity to face
contingency scenarios.

We
have been classified in Category I since December 1991, when the classification system
established by the Chilean Superintendency of Banks became applicable to us.

In
addition, in accordance with the new regulations effective as of January 1, 2004, banks
are classified in categories 1, 2, 3 and 4 depending on how the models and methods used by
the bank to classify its loan portfolio and determine allowances for loan losses and
possible losses vary from those determined by the Chilean Superintendency of Banks.
Category 1 banks are those banks whose methods and models are satisfactory to the Chilean
Superintendency of Banks. Category 1 banks are entitled to continue using the same methods
and models they currently have in place. A bank classified as a Category 2 bank must
maintain the minimum levels of allowances established by the Chilean Superintendency of
Banks while its board of directors is made aware of the problems detected by the Chilean
Superintendency of Banks and takes steps to correct them. Finally, banks classified as
categories 3 and 4 banks must maintain the minimum levels of allowances established by the
Chilean Superintendency of Banks until they are authorized by the Chilean Superintendency
of Banks to do otherwise.

Classification
of Loan Portfolio

For
purposes of these new classifications, loans are divided into: (i) consumer loans
(including loans granted to individuals for the purpose of financing the acquisition of
consumer goods or payment of services); (ii) residential mortgage loans (including loans
granted to individuals for the acquisition, construction or repair of residential real
estate, in which the value of the property covers at least 100% of the amount of the
loan); (iii) leasing operations (including consumer leasing, commercial leasing and
residential leasing); (iv) factoring operations and (v) commercial loans (includes all
loans other than the loans described in (i) through (iv) above).

In
accordance with the new regulations effective as of January 1, 2004, the models and
methods used to classify our loan portfolio must follow the following guiding principles,
which have been established by the Chilean Superintendency of Banks.

Models
based on the individual analysis of borrowers

- Requires
the assignment of a risk category level to each borrower and its respective loans.

- Must
consider the following risk factors within the analysis: industry or sector of the
borrower, owners or managers of the borrower, its financial situation, its payment
capacity and payment behavior.

One
of the following risk categories must be assigned to each loan and borrower upon finishing
the analysis:

- Classifications
A1, A2 and A3 correspond to borrowers with no apparent credit risk.

- Classification
B corresponds to borrowers with some credit risk but no apparent deterioration of payment
capacity.

50

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- Classifications
C1, C2, C3, C4, D1 and D2 correspond to borrowers whose loans have deteriorated.

- For loans
classified as A1, A2, A3 and B, the board of directors of a bank is authorized to
determine the levels of required allowances. For loans classified in Categories C1, C2,
C3, C4, D1 and D2, the bank must have the following levels of allowances:

|Classification | Estimated range of loss | Allowance
|-------------- | ----------------------- | ---------
|C1             | Up to 3%                | 2%       
|C2             | More than 3% up to 19%  | 10%      
|C3             | More than 19% up to 29% | 25%      
|C4             | More than 29% up to 49% | 40%      
|D1             | More than 49% up to 79% | 65%      
|D2             | More than 79%           | 90%      

Models
based on group analysis

- Suitable for the
evaluation of a large number of borrowers whose individual loan amounts are relatively
small. These models are intended to be used primarily to analyze loans to individuals and
small companies.
- Levels of required
services are to be determined by us, according to the estimated loss that may result from
the loans, by classifying the loan portfolio using one or both of the following models:

A model based on the
characteristics of the borrowers and their outstanding loans. Borrowers and their loans
with similar characteristics will be placed into groups and each group will be assigned a
risk level.A model based on the
behavior of a group of loans. Loans with analogous past payment histories and similar
characteristics will be placed into groups and each group will be assigned a risk level.
- A model based on the
characteristics of the borrowers and their outstanding loans. Borrowers and their loans
with similar characteristics will be placed into groups and each group will be assigned a
risk level.
- A model based on the
behavior of a group of loans. Loans with analogous past payment histories and similar
characteristics will be placed into groups and each group will be assigned a risk level.

# Additional Allowances

Under
the new regulations, banks may create allowances above the limits described above only to
cover specific risks that have been authorized by their board of directors. The concept of
voluntary allowances has been eliminated by the new regulation.

Obligations Denominated
in Foreign Currencies

Foreign
currency denominated obligations of Chilean banks are subject to four requirements:

- There is a
reserve requirement of 9.0% for demand deposits and 3.6% for time deposits.  See
   Reserve Requirements above;

- A banks
risk adjusted net asset (liability) foreign currency position cannot exceed 20% of its
net capital base;

51

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- Under
Central Bank regulations applicable since August 31, 1999, (1) the aggregate amount of
our net foreign currency liabilities having an original maturity of less than 30 days
cannot exceed our net capital base and (2) the aggregate amount of our net foreign
currency liabilities having an original maturity of less than 90 days cannot exceed twice
our net capital base; and

- Since June
30, 2000, the interest rate mismatches of our foreign currency liabilities may not exceed
8.0% of our net capital base.

# Capital Markets

Under
the General Banking Law, banks in Chile may purchase, sell, place, underwrite and act as
paying agents with respect to certain debt securities. Likewise, banks in Chile may place
and underwrite certain equity securities. Bank subsidiaries may also engage in debt
placement and dealing, equity issuance advice and securities brokerage, as well as in
financial leasing, mutual fund and investment fund administration, factoring, investment
advisory services and merger and acquisition services. The Chilean Superintendency of
Banks generally regulates these subsidiaries. However, the Chilean Superintendency of
Securities and Insurance regulates some of these subsidiaries. The Chilean Superintendency
of Securities and Insurance is the regulator of the Chilean securities market and of open
stock corporations.

# Legal Provisions
Regarding Banking Institutions with Economic Difficulties

The
General Banking Law provides that if specified adverse circumstances exist at any bank,
its board of directors must correct the situation within 30 days from the date of receipt
of the relevant financial statements. If the board of directors is unable to do so, it
must call a special shareholders meeting to increase the capital of the bank by the
amount necessary to return the bank to financial stability. If the shareholders reject the
capital increase, or if it is not effected within the term and in the manner agreed to at
the meeting, or if the Chilean Superintendency of Banks does not approve the board of
directors proposal, the bank will be barred from increasing its loan portfolio beyond that
stated in the financial statements presented to the board of directors and from making any
further investments in any instrument other than in instruments issued by the Central
Bank. In such a case, or in the event that a bank is unable to make timely payment in
respect of its obligations or if a bank is under provisional administration of the Chilean
Superintendency of Banks, the General Banking Law provides that the bank may receive a
two-year term loan from another bank. The terms and conditions of such a loan must be
approved by the directors of both banks, as well as by the Chilean Superintendency of
Banks, but need not be submitted to the borrowing banks shareholders for their
approval. In any event, a creditor bank cannot grant interbank loans to an insolvent bank
in an amount exceeding 25.0% of the creditor banks effective equity. The board of
directors of a bank that is unable to make timely payment of its obligations must present
a reorganization plan to its creditors in order to capitalize the credits, extend their
respective terms, forgive debts or take other measures for the payment of the debts. If
the board of directors of a bank submits a reorganization plan to its creditors and such
arrangement is approved, all subordinated debt issued by the bank, whether or not matured,
will be converted by operation of law into common stock in the amount required for the
ratio of effective equity to risk-weighted assets not to be lower than 12.0%. If a bank
fails to pay an obligation, it must notify the Chilean Superintendency of Banks, which
shall determine if the bank is solvent.

# Dissolution and
Liquidation of Banks

The
Chilean Superintendency of Banks may establish that a bank should be liquidated for the
benefit of its depositors or other creditors when such bank does not have the necessary
solvency to continue its operations. In such case, the Chilean Superintendency of Banks
must revoke a banks authorization to exist and order its mandatory liquidation,
subject to agreement by the Central Bank. The Chilean Superintendency of Banks must also
revoke a banks authorization if the reorganization plan of such bank has been
rejected twice. The resolution by the Chilean Superintendency of Banks must state the
reason for ordering the

52

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liquidation and must
name a liquidator, unless the Superintendent of Banks assumes this responsibility. When a
liquidation is declared, all checking accounts, other demand deposits received in the
ordinary course of business, other deposits unconditionally payable immediately or that
have a maturity of no more than 30 days, and any other deposits and receipts payable
within 10 days, are required to be paid by using existing funds of the bank, its deposits
with the Central Bank or its investments in instruments that represent its reserves. If
these funds are insufficient to pay these obligations, the liquidator may seize the rest
of the banks assets, as needed. If necessary and in specified circumstances, the
Central Bank will lend the bank the funds necessary to pay these obligations. Any such
loans are preferential to any claims of other creditors of the liquidated bank.

# Investments in Foreign
Securities

Under
current Chilean banking regulations, banks in Chile may grant loans to foreign individuals
and entities and invest in certain foreign currency securities. Chilean banks may only
invest in equity securities of foreign banks and certain other foreign companies which may
be affiliates of the bank or which would support the banks business if such
companies were incorporated in Chile. Banks in Chile may also invest in debt securities
traded in formal secondary markets. Such debt securities shall qualify as (1) securities
issued or guaranteed by foreign sovereign states or their central banks or other foreign
or international financial entities, and (2) bonds issued by foreign companies. Such
foreign currency securities must have a minimum rating as follows:

|Rating Agency       | Short Term | Long Term
|------------------- | ---------- | ---------
|Moody's             | P2         | Baa3     
|Standard and Poor's | A3         | BBB-     
|Fitch IBCA          | F2         | BBB-     

A
Chilean bank may invest in securities having a minimum rating as follows, provided that in
case the total amount of these investments exceeds 20%, (or 30% in certain cases), of the
effective equity of the bank, an allowance of 100% of the excess shall be established by
the bank:

|Rating Agency       | Short Term | Long Term
|------------------- | ---------- | ---------
|Moody's             | P2         | Ba3      
|Standard and Poor's | A3         | BB-      
|Fitch IBCA          | F2         | BB-      

If
investments in these securities and certain loans referred to below exceed 70% of the
effective equity of the bank, an allowance for 100% of the excess shall be established,
unless the excess, up to 70% of the banks effective equity, is invested in
securities having a minimum rating as follows:

|Rating Agency       | Short Term | Long Term
|------------------- | ---------- | ---------
|Moody's             | P1         | Aa3      
|Standard and Poor's | A-1+       | AA-      
|Fitch IBCA          | F1+        | AA-      

Subject
to specific conditions, a bank may grant loans in dollars to subsidiaries or branches of
Chilean companies located abroad, to companies listed on foreign stock exchanges
authorized by the Central Bank and, in general, to individuals and entities domiciled
abroad, as long as the Central Bank is kept informed of such activities.

In
the event that the sum of the investments of a bank in foreign currency and of the
commercial and foreign trade loans granted to foreign individuals and entities exceeds
70.0% of the effective equity of such bank, the excess is subject to a mandatory reserve
of 100.0%

53

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# PROPERTY, PLANTS AND
EQUIPMENT

We
are domiciled in Chile, and own the approximately 71,000 square meter building, located at
Ahumada 251, Santiago, Chile, that serves as our executive offices, and which serves as
the executive offices for most our subsidiaries. In addition, we own an approximately
15,000 square meter building located at Huerfanos 740, Santiago, Chile, where the
remainder of our executive offices are located. At December 31, 2003, we owned the
properties on which 125 of our full service branches are located (approximately 98,000
square meters of office space). We lease office space for our remaining 99 full service
branches and for the New York branch and Miami agency, as well as for our representative
offices. We also own properties throughout Chile for back office and administrative
operations, as well as for storage of documents and other purposes. We believe that our
facilities are adequate for our present needs and suitable for their intended purposes.

We
also own approximately 140,000 square meters in mainly recreational physical facilities in
Chile, which we use to assist our employees in maintaining a healthy work and life balance
and which we use for incentive and integration activities.

54

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# SELECTED STATISTICAL
INFORMATION

The
following information is included for analytical purposes and should be read in
conjunction with our audited consolidated financial statements as well as Item 5.
Operating and Financial Review and Prospects.

# Average Balance Sheets,
Interest Earned on Interest Earning Assets and Interest Paid on Interest Bearing
Liabilities

The
average balances for interest earning assets and interest bearing liabilities, including
interest and readjustments received and paid, have been calculated on the basis of our
daily balances and on the basis of monthly balances for our subsidiaries. These average
balances are presented in Chilean pesos (Ch$), in UF and in foreign currencies
(principally U.S. dollar). The UF is a unit of account which is linked to, and which is
adjusted daily to reflect changes in, the Consumer Price Index. See notes 1(b) and
(c) to our audited consolidated financial statements.

The
nominal interest rate has been calculated by dividing the amount of interest and principal
readjustment gain or loss during the period by the related average balance, both amounts
expressed in constant pesos. The nominal rates calculated for each period have been
converted into real rates using the following formulas:

| | 
| | 

Where:

Rp = real average rate for
peso-denominated assets and liabilities (in Ch$ and UF) for the period;

Rd = real average rate for foreign
currency-denominated assets and liabilities for the period;

Np = nominal average rate for
peso-denominated assets and liabilities for the period;

Nd = nominal average rate for foreign
currency-denominated assets and liabilities for the period;

D = devaluation rate of the Chilean
peso to the dollar for the period; and

I = inflation rate in Chile for the period
(based on the variation of the Consumer Price Index).

The
real interest rate can be negative for a portfolio of peso-denominated loans when the
inflation rate for the period is higher than the average nominal rate of the loan
portfolio for the same period. A similar effect could occur for a portfolio of foreign
currency-denominated loans when the inflation rate for the period is higher than the sum
of the devaluation rate for the period and the corresponding average nominal rate of the
portfolio.

The
formula for the average real rate for foreign currency-denominated assets and liabilities
(Rd) reflects a gain or loss in purchasing power caused by the difference between the
devaluation rate of the Chilean peso and the inflation rate in Chile during the period.

55

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The
following example illustrates the calculation of the real interest rate for a U.S. dollar
asset bearing a nominal annual interest rate of 10% (Nd = 0.10), assuming a 5% annual
devaluation rate (D = 0.05) and a 12% annual inflation rate (I = 0.12):

In
the example, since the inflation rate was higher than the devaluation rate, the real rate
is lower than the nominal rate in dollars. If, for example, the annual devaluation rate
were 15%, using the same numbers, the real rate in Chilean pesos would be 12.9%, which is
higher than the nominal rate in dollars. Using the same numbers, if the annual inflation
rate were greater than 15.5%, the real rate would be negative.

Because
of the significant revaluation of the Chilean peso against the U.S. dollar in 2003 (the
published Observed Exchange Rate was Ch$599.42 per U.S. $1.00 on December 31, 2003 as
compared to Ch$712.38 per U.S. $1.00 on December 31, 2002), and the fact that nominal
interest rates and the inflation rate were comparatively low in 2003, most real interest
rates on foreign currency assets and liabilities shown in the tables in
Selected Statistical Information are negative for 2003.

Contingent
loans (consisting of guarantees and open and unused letters of credit) have been treated
as interest bearing assets. Although the nature of the income derived from such assets is
similar to a fee, Chilean banking regulations require that such income be accounted for as
interest revenue. As a result of this treatment, the comparatively low rates of interest
earned on these assets have a distorting effect on the average interest rate earned on
total interest earning assets.

The
real rate for contingent loans has been stated as the nominal rate, since we do not have
an effective funding obligation for these loans. The foreign exchange gains or losses on
foreign currency denominated assets and liabilities have not been included in interest
revenue or expense. Similarly, interest on financial investments does not include trading
gains or losses on these investments.

Nonperforming
loans that are not yet 90 days or more overdue have been included in each of the various
categories of loans, and therefore affect the various averages. Nonperforming loans
consist of loans as to which either principal or interest is overdue (i.e., non
accrual loans) and restructured loans earning no interest. Nonperforming loans that are 90
days or more overdue are shown as a separate category of loans (Past due
loans). Interest and/or indexation readjustments received on all non-performing
loans during the periods are included as interest revenue.

Included
in interbank deposits are current accounts maintained in the Central Bank and overseas
banks. Such assets have a distorting effect on the average interest rate earned on total
interest earning assets because:

- of balances
maintained in the Central Bank, only the portion that is legally required to be held for
liquidity purposes earns                   interest; and

- balances
maintained in overseas banks earn interest on certain accounts in certain countries.

Consequently, the average interest
earned on such assets is comparatively low. These deposits are maintained by us in these
accounts to comply with statutory requirements and to facilitate international business,
rather than to earn income.

The
monetary gain or loss on interest earning assets and interest bearing liabilities is not
included as a component of interest revenue or interest expense because inflation effects
are taken into account in the calculation of real interest rates.

56

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The
following tables show, by currency of denomination, average balances and, where
applicable, interest amounts, nominal and real rates for our assets and liabilities for
the years ended December 31, 2001, 2002 and 2003:

|                        | Year Ended December 31,                                                  
|----------------------- | -------------------------------------------------------------------------
|                        |                                                                          
|                        | 2001                                                                     
|                        |                                                                          
|                        | Average balance                                                          
|                        |                                                                          
|                        | (in millions of constant Ch$ as of December 31, 2003, except percentages)
|                        |                                                                          
|Assets                  |                                                                          
|                       
|Interest earning assets
|                       
|Interbank deposits     
|Ch$                     | Ch$                                                                      
|UF                      |                                                                          
|Foreign currency        |                                                                          
|                        |                                                                          
|Total                   |                                                                          
|                        |                                                                          
|Financial investments  
|Ch$                     |                                                                          
|UF                      |                                                                          
|Foreign currency        |                                                                          
|                        |                                                                          
|Total                   |                                                                          
|                        |                                                                          
|Commercial loans       
|Ch$                     |                                                                          
|UF                      |                                                                          
|Foreign currency        |                                                                          
|                        |                                                                          
|Total                   |                                                                          
|                        |                                                                          
|Consumer loans         
|Ch$                     |                                                                          
|UF                      |                                                                          
|Foreign currency        |                                                                          
|                        |                                                                          
|Total                   |                                                                          
|                        |                                                                          
|Interbank loans        
|Ch$                     |                                                                          
|UF                      |                                                                          
|Foreign currency        |                                                                          
|                        |                                                                          
|Total                   |                                                                          
|                        |                                                                          
|Leasing contracts      
|Ch$                     |                                                                          
|UF                      |                                                                          
|Foreign currency        |                                                                          
|                        |                                                                          
|Total                   |                                                                          
|                        |                                                                          
|Foreign trade loans    
|Ch$                     |                                                                          
|UF                      |                                                                          
|Foreign currency        |                                                                          
|                        |                                                                          
|Total                   |                                                                          
|                        |                                                                          
|Mortgage loans         
|Ch$                     |                                                                          
|UF                      |                                                                          
|Foreign currency        |                                                                          
|                        |                                                                          
|Total                   |                                                                          
|                        |                                                                          
|Contingent loans       
|Ch$                     |                                                                          
|UF                      |                                                                          
|Foreign currency        |                                                                          
|                        |                                                                          
|Total                   |                                                                          
|                        |                                                                          
|Past due loans         
|Ch$                     |                                                                          
|UF                      |                                                                          
|Foreign currency        |                                                                          
|                        |                                                                          
|Total                   |                                                                          
|                        |                                                                          
|Total interest         
|earning assets         
|Ch$                     |                                                                          
|UF                      |                                                                          
|Foreign currency        |                                                                          
|                        |                                                                          
|Total                   | Ch$                                                                      
|                        |                                                                          

57

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|                                                    | Year Ended
            December 31,
|--------------------------------------------------- | -----------------------------------
|                                                    |                                    
|                                                    | 2001                               
|                                                    |                                    
|                                                    | Average balance                    
|                                                    |                                    
|                                                    |                                    
|Assets                                              |                                    
|                                                   
|Noninterest
earning assets Cash and due from banks
|Ch$                                                 | Ch$                                
|UF                                                  |                                    
|Foreign
    currency                                |                                    
|                                                    |                                    
|Total                                               |                                    
|                                                    |                                    
|Allowances for loan losses                          |                                    
|Ch$                                                 |                                    
|UF                                                  |                                    
|Foreign
    currency                                |                                    
|                                                    |                                    
|Total                                               |                                    
|                                                    |                                    
|Fixed assets                                        |                                    
|Ch$                                                 |                                    
|UF                                                  |                                    
|Foreign
    currency                                |                                    
|                                                    |                                    
|Total                                               |                                    
|                                                    |                                    
|Other assets                                        |                                    
|Ch$                                                 |                                    
|UF                                                  |                                    
|Foreign
    currency                                |                                    
|                                                    |                                    
|Total                                               |                                    
|                                                    |                                    
|Total
          non  interest
    earning assets   |                                    
|Ch$                                                 |                                    
|UF                                                  |                                    
|Foreign
    currency                                |                                    
|                                                    |                                    
|Total                                               |                                    
|                                                    |                                    
|Total assets                                        |                                    
|Ch$                                                 |                                    
|UF                                                  |                                    
|Foreign
    currency                                |                                    
|                                                    |                                    
|Total                                               | Ch$                                
|                                                    |                                    

58

---



|                                      | Year Ended December 31,                                                  
|------------------------------------- | -------------------------------------------------------------------------
|                                      |                                                                          
|                                      | 2001                                                                     
|                                      |                                                                          
|                                      | Average balance                                                          
|                                      |                                                                          
|Liabilities                           | (in millions of constant Ch$ as of December 31, 2003, except percentages)
|                                      |                                                                          
|Interest bearing liabilities          |                                                                          
|                                     
|Interest bearing  demand deposits    
|Ch$                                   | Ch$                                                                      
|UF                                    |                                                                          
|Foreign currency                      |                                                                          
|                                      |                                                                          
|Total                                 |                                                                          
|                                      |                                                                          
|Savings accounts                     
|Ch$                                   |                                                                          
|UF                                    |                                                                          
|Foreign currency                      |                                                                          
|                                      |                                                                          
|Total                                 |                                                                          
|                                      |                                                                          
|Time deposits                        
|Ch$                                   |                                                                          
|UF                                    |                                                                          
|Foreign currency                      |                                                                          
|                                      |                                                                          
|Total                                 |                                                                          
|                                      |                                                                          
|Central Bank  borrowings             
|Ch$                                   |                                                                          
|UF                                    |                                                                          
|Foreign currency                      |                                                                          
|                                      |                                                                          
|Total                                 |                                                                          
|                                      |                                                                          
|Repurchase  agreements               
|Ch$                                   |                                                                          
|UF                                    |                                                                          
|Foreign currency                      |                                                                          
|                                      |                                                                          
|Total                                 |                                                                          
|                                      |                                                                          
|Mortgage finance bonds               
|Ch$                                   |                                                                          
|UF                                    |                                                                          
|                                      |                                                                          
|Foreign currency                      |                                                                          
|Total                                 |                                                                          
|                                      |                                                                          
|Other interest bearing liabilities(1)
|Ch$                                   |                                                                          
|UF                                    |                                                                          
|Foreign currency                      |                                                                          
|                                      |                                                                          
|Total                                 |                                                                          
|                                      |                                                                          
|Total interest bearing liabilities   
|Ch$                                   |                                                                          
|UF                                    |                                                                          
|Foreign currency                      |                                                                          
|                                      |                                                                          
|Total                                 | Ch$                                                                      
|                                      |                                                                          

___________________


|(1) | Other
interest bearing liabilities primarily include foreign borrowings, subordinated bonds,
bonds and borrowings from domestic financial institutions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

59

---



|                                                                  | Year Ended December 31,                                                  
|----------------------------------------------------------------- | -------------------------------------------------------------------------
|                                                                  |                                                                          
|                                                                  | 2001                                                                     
|                                                                  |                                                                          
|                                                                  | Average balance                                                          
|                                                                  |                                                                          
|Liabilities                                                       | (in millions of constant Ch$ as of December 31, 2003, except percentages)
|                                                                  |                                                                          
|Noninterest  bearing     liabilities                            
|                                                                 
|Noninterest  bearing     demand deposits                        
|Ch$                                                               | Ch$                                                                      
|UF                                                                |                                                                          
|Foreign currency                                                  |                                                                          
|                                                                  |                                                                          
|Total                                                             |                                                                          
|                                                                  |                                                                          
|Contingent liabilities                                           
|Ch$                                                               |                                                                          
|UF                                                                |                                                                          
|Foreign currency                                                  |                                                                          
|                                                                  |                                                                          
|Total                                                             |                                                                          
|                                                                  |                                                                          
|Other noninterest bearing                                       
|Ch$                                                               |                                                                          
|UF                                                                |                                                                          
|Foreign currency                                                  |                                                                          
|                                                                  |                                                                          
|Total                                                             |                                                                          
|                                                                  |                                                                          
|Shareholders equity                                             
|Ch$                                                               |                                                                          
|UF                                                                |                                                                          
|Foreign currency                                                  |                                                                          
|                                                                  |                                                                          
|Total                                                             |                                                                          
|                                                                  |                                                                          
|Total noninterest  bearing liabilities and shareholders  equity
|Ch$                                                               |                                                                          
|UF                                                                |                                                                          
|Foreign currency                                                  |                                                                          
|                                                                  |                                                                          
|Total                                                             |                                                                          
|                                                                  |                                                                          
|Total liabilities and shareholders equity                       
|Ch$                                                               |                                                                          
|UF                                                                |                                                                          
|Foreign currency                                                  |                                                                          
|                                                                  |                                                                          
|Total                                                             | Ch$                                                                      
|                                                                  |                                                                          

60

---



Interest Earning
Assets and Net Interest Margin

The
following table analyzes, by currency of denomination, the levels of our average interest
earning assets and net interest, and illustrates the comparative margins obtained, for
each of the periods indicated.

|                                      | Year Ended December 31,                                                      
|------------------------------------- | -----------------------------------------------------------------------------
|                                      |                                                                              
|                                      | 2001                                                                         
|                                      |                                                                              
|                                      | (in millions of constant Ch$ as of December 31, 2003,
except for percentages)
|                                     
|Total average interest earning assets
|Ch$                                   | Ch$ 914,365                                                                  
|UF                                    | 3,377,479                                                                    
|Foreign currency                      | 1,488,815                                                                    
|                                      |                                                                              
|Total                                 | 5,780,659                                                                    
|                                      |                                                                              
|Net interest earned(1)               
|Ch$                                   | 70,643                                                                       
|UF                                    | 117,290                                                                      
|Foreign currency                      | 35,584                                                                       
|                                      |                                                                              
|Total                                 | Ch$ 223,517                                                                  
|                                      |                                                                              
|Net interest margin, nominal basis(2)
|Ch$                                   | 7.73%                                                                        
|UF                                    | 3.47                                                                         
|Foreign currency                      | 2.39                                                                         
|                                      |                                                                              
|Total                                 | 3.87%                                                                        
|                                      |                                                                              

___________________

|(1) | Net
interest earned is defined as interest revenue earned less interest expense incurred.
|--- | -----------------------------------------------------------------------------------------

|(2) | Net
interest margin, nominal basis is defined as net interest earned divided by average
interest earning assets.
|--- | ----------------------------------------------------------------------------------------------------------------

Changes in Net
Interest RevenueVolume and Rate Analysis

The
following tables compare, by currency of denomination, changes in our net interest
revenue between 2002 and 2003 and between 2001 and 2002 caused by (1) changes in the
average volume of interest earning assets and interest bearing liabilities and (2) changes
in their respective nominal interest rates.  Volume and rate variances have been
calculated based on movements in average balances over the period and changes in nominal
interest rate, average interest earning assets and average interest bearing liabilities.
 The net change attributable to changes in both volume and rate has been allocated
proportionately to the change in volume and the change in rate.

61

---



|                              | Increase (Decrease) from 2001 to 2002 due to changes in | Net change from 2001 to 2002 | Increase (Decrease) from 2002 to 2003 due to changes in | Net change from 2002 to 2003
|----------------------------- | ------------------------------------------------------- | ---------------------------- | ------------------------------------------------------- | ----------------------------
|                              | Volume                                                  | Rate                         | Volume                                                  | Rate                        
|Assets                        | (in millions of constant Ch$ as of December 31, 2003)  
|                             
|Interest earning assets       |                                                         |                              |                                                         |                             
|                             
|Interbank deposits           
|Ch$                           | Ch$                                                    | Ch$                         | Ch$                                                    | Ch$                        
|UF                            |                                                        |                             |                                                        |                            
|Foreign currency              | 3,150                                                   | (5,396)                      | (2,246)                                                 | (1,533)                     
|                              |                                                         |                              |                                                         |                             
|Total                         | 3,150                                                   | (5,396)                      | (2,246)                                                 | (1,533)                     
|                              |                                                         |                              |                                                         |                             
|Financial investments        
|Ch$                           | 27,028                                                  | 6,748                        | 33,776                                                  | 20,997                      
|UF                            | 7,802                                                   | (12,046)                     | (4,244)                                                 | (55,315)                    
|Foreign currency              | (3,762)                                                 | (4,926)                      | (8,688)                                                 | (485)                       
|                              |                                                         |                              |                                                         |                             
|Total                         | 31,068                                                  | (10,224)                     | 20,844                                                  | (34,803)                    
|                              |                                                         |                              |                                                         |                             
|Commercial loans             
|Ch$                           | 77,705                                                  | (24,889)                     | 52,816                                                  | 32,144                      
|UF                            | 37,121                                                  | (23,794)                     | 13,327                                                  | (5,446)                     
|Foreign currency              | 5,177                                                   | (10,724)                     | (5,547)                                                 | (1,064)                     
|                              |                                                         |                              |                                                         |                             
|Total                         | 120,003                                                 | (59,407)                     | 60,596                                                  | 25,634                      
|                              |                                                         |                              |                                                         |                             
|Consumer loans               
|Ch$                           | 42,124                                                  | (4,061)                      | 38,063                                                  | 6,535                       
|UF                            | 1,028                                                   | (342)                        | 686                                                     | (193)                       
|Foreign currency              |                                                        |                             |                                                        |                            
|                              |                                                         |                              |                                                         |                             
|Total                         | 43,152                                                  | (4,403)                      | 38,749                                                  | 6,342                       
|                              |                                                         |                              |                                                         |                             
|Interbank loans              
|Ch$                           | (28)                                                    | (342)                        | (370)                                                   | (308)                       
|UF                            |                                                        |                             |                                                        |                            
|Foreign currency              | 19                                                      | (1,494)                      | (1,475)                                                 | (241)                       
|                              |                                                         |                              |                                                         |                             
|Total                         | (9)                                                     | (1,836)                      | (1,845)                                                 | (549)                       
|                              |                                                         |                              |                                                         |                             
|Leasing contracts            
|Ch$                           | (53)                                                    | (15)                         | (68)                                                    | 512                         
|UF                            | 6,962                                                   | (1,002)                      | 5,960                                                   | 4,066                       
|Foreign currency              | 2,430                                                   | (4,694)                      | (2,264)                                                 | (6,982)                     
|                              |                                                         |                              |                                                         |                             
|Total                         | 9,339                                                   | (5,711)                      | 3,628                                                   | (2,404)                     
|                              |                                                         |                              |                                                         |                             
|Foreign trade loans          
|Ch$                           | 281                                                     |                             | 281                                                     | 1,675                       
|UF                            | 66                                                      |                             | 66                                                      | 470                         
|Foreign currency              | 2,001                                                   | (4,193)                      | (2,192)                                                 | (94)                        
|                              |                                                         |                              |                                                         |                             
|Total                         | 2,348                                                   | (4,193)                      | (1,845)                                                 | 2,051                       
|                              |                                                         |                              |                                                         |                             
|Mortgage loans               
|Ch$                           |                                                        |                             |                                                        |                            
|UF                            | 46,546                                                  | (2,904)                      | 43,642                                                  | (8,741)                     
|Foreign currency              |                                                        |                             |                                                        |                            
|                              |                                                         |                              |                                                         |                             
|Total                         | 46,546                                                  | (2,904)                      | 43,642                                                  | (8,741)                     
|                              |                                                         |                              |                                                         |                             
|Contingent loans             
|Ch$                           | 457                                                     | (1,763)                      | (1,306)                                                 | 1                           
|UF                            | 755                                                     | (355)                        | 400                                                     | 27                          
|Foreign currency              | 28                                                      | (85)                         | (57)                                                    | 33                          
|                              |                                                         |                              |                                                         |                             
|Total                         | 1,240                                                   | (2,203)                      | (963)                                                   | 61                          
|                              |                                                         |                              |                                                         |                             
|Past due loans               
|Ch$                           |                                                        |                             |                                                        |                            
|UF                            | 214                                                     | (501)                        | (287)                                                   | (1)                         
|Foreign currency              |                                                        |                             |                                                        |                            
|                              |                                                         |                              |                                                         |                             
|Total                         | 214                                                     | (501)                        | (287)                                                   | (1)                         
|                              |                                                         |                              |                                                         |                             
|Total interest earning assets
|Ch$                           | 147,514                                                 | (24,322)                     | 123,192                                                 | 61,556                      
|UF                            | 100,494                                                 | (40,944)                     | 59,550                                                  | (65,133)                    
|Foreign currency              | 9,043                                                   | (31,512)                     | (22,469)                                                | (10,366)                    
|                              |                                                         |                              |                                                         |                             
|Total                         | Ch$ 257,051                                             | Ch$ (96,778)                 | Ch$ 160,273                                             | Ch$ (13,943)                
|                              |                                                         |                              |                                                         |                             

62

---



|                                   | Increase (Decrease) from 2001 to 2002 due to changes in | Net change from 2001 to 2002 | Increase (Decrease) from 2002 to 2003 due to changes in | Net change from 2002 to 2003
|---------------------------------- | ------------------------------------------------------- | ---------------------------- | ------------------------------------------------------- | ----------------------------
|                                   | Volume                                                  | Rate                         | Volume                                                  | Rate                        
|                                   | (in millions of constant Ch$ as of December 31, 2003)  
|                                  
|Liabilities                       
|                                  
|Interest bearing liabilities      
|                                  
|Interest bearing demand deposits  
|Ch$                                | Ch$                                                    | Ch$                         | Ch$                                                    | Ch$                        
|UF                                 |                                                        |                             |                                                        |                            
|Foreign currency                   |                                                        |                             |                                                        |                            
|                                   |                                                         |                              |                                                         |                             
|Total                              |                                                        |                             |                                                        |                            
|                                   |                                                         |                              |                                                         |                             
|Savings accounts                  
|Ch$                                |                                                        |                             |                                                        |                            
|UF                                 | 3,665                                                   | (2,489)                      | 1,176                                                   | 159                         
|Foreign currency                   |                                                        |                             |                                                        |                            
|                                   |                                                         |                              |                                                         |                             
|Total                              | 3,665                                                   | (2,489)                      | 1,176                                                   | 159                         
|                                   |                                                         |                              |                                                         |                             
|Time deposits                     
|Ch$                                | 56,195                                                  | (24,805)                     | 31,390                                                  | (3,351)                     
|UF                                 | (23,247)                                                | (31,450)                     | (54,697)                                                | (6,365)                     
|Foreign currency                   | 5,632                                                   | (13,146)                     | (7,514)                                                 | 63                          
|                                   |                                                         |                              |                                                         |                             
|Total                              | 38,580                                                  | (69,401)                     | (30,821)                                                | (9,653)                     
|                                   |                                                         |                              |                                                         |                             
|Central Bank borrowings           
|Ch$                                | 1,120                                                   | (749)                        | 371                                                     | 243                         
|UF                                 | 56                                                      | (96)                         | (40)                                                    | (25)                        
|Foreign currency                   |                                                        |                             |                                                        | 18                          
|                                   |                                                         |                              |                                                         |                             
|Total                              | 1,176                                                   | (845)                        | 331                                                     | 236                         
|                                   |                                                         |                              |                                                         |                             
|Repurchase agreements             
|Ch$                                | 4,189                                                   | (4,090)                      | 99                                                      | 32                          
|UF                                 | (190)                                                   | (290)                        | (480)                                                   | 600                         
|Foreign currency                   | 2,476                                                   | (3,235)                      | (759)                                                   | (404)                       
|                                   |                                                         |                              |                                                         |                             
|Total                              | 6,475                                                   | (7,615)                      | (1,140)                                                 | 228                         
|                                   |                                                         |                              |                                                         |                             
|Mortgage finance bonds            
|Ch$                                |                                                        |                             |                                                        |                            
|UF                                 | 42,403                                                  | 897                          | 43,300                                                  | (21,998)                    
|Foreign currency                   |                                                        |                             |                                                        |                            
|                                   |                                                         |                              |                                                         |                             
|Total                              | 42,403                                                  | 897                          | 43,300                                                  | (21,998)                    
|                                   |                                                         |                              |                                                         |                             
|Other interest bearing liabilities
|Ch$                                | 3,791                                                   | (8,719)                      | (4,928)                                                 | 791                         
|UF                                 | 13,409                                                  | (1,134)                      | 12,275                                                  | (2,652)                     
|Foreign currency                   | 44                                                      | (7,712)                      | (7,668)                                                 | 1,458                       
|                                   |                                                         |                              |                                                         |                             
|Total                              | 17,244                                                  | (17,565)                     | (321)                                                   | (403)                       
|                                   |                                                         |                              |                                                         |                             
|Total interest bearing liabilities
|Ch$                                | 65,295                                                  | (38,363)                     | 26,932                                                  | (2,285)                     
|UF                                 | 36,096                                                  | (34,562)                     | 1,534                                                   | (30,281)                    
|Foreign currency                   | 8,152                                                   | (24,093)                     | (15,941)                                                | 1,135                       
|                                   |                                                         |                              |                                                         |                             
|Total                              | Ch$ 109,543                                             | Ch$ (97,018)                 | Ch$ 12,525                                              | Ch$ (31,431)                
|                                   |                                                         |                              |                                                         |                             

Investment Portfolio

The
following table sets forth our investment in Chilean government and corporate securities
and certain other financial investments as of December 31, 2001, 2002 and 2003.
 Financial investments traded on a secondary market are shown adjusted to market value,
following specific instructions from the Chilean Superintendency of Banks.  These
instructions provide for the recognition of such adjustments against income except in the
case of a permanent portfolio, where an equity account, Unrealized gains (losses) on
permanent financial investments, may be directly adjusted, subject to certain
restrictions.

63

---



|                                                         | December 31,                                                                | Weighted Average Nominal Rate
|-------------------------------------------------------- | --------------------------------------------------------------------------- | -----------------------------
|                                                         |                                                                             |                              
|                                                         | 2001                                                                        | 2002                         
|                                                         |                                                                             |                              
|                                                         | (in millions of constant Ch$ as of December 31, 2003, except for rate data)
|                                                        
|Central Bank and Government Securities                  
|Marketable debt securities                               | Ch$ 547,221                                                                 | Ch$ 599,067                  
|Marketable debt securities with limited secondary market | 400,872                                                                     | 273,446                      
|Chilean government securities                            | 27,217                                                                      | 5,532                        
|Investments purchased under agreements to resell         | 30,817                                                                      | 32,499                       
|Investments collateral under agreements to repurchase    | 79,823                                                                      | 196,984                      
|                                                         |                                                                             |                              
|Subtotal                                                 | 1,085,950                                                                   | 1,107,528                    
|                                                         |                                                                             |                              
|Corporate Securities and Other Financial Investments    
|Investments in Chilean financial institutions            | 6,492                                                                       | 45,494                       
|Mortgage finance bonds issued by us                      | 144,191                                                                     |                             
|Foreign government notes                                 | 256,758                                                                     | 51,617                       
|Investments in foreign countries                         | 127,776                                                                     | 279,890                      
|Other financial investments                              | 28,874                                                                      | 48,123                       
|Investments collateral under agreements to repurchase    | 66,156                                                                      | 82,238                       
|                                                         |                                                                             |                              
|Subtotal                                                 | 630,247                                                                     | 507,362                      
|                                                         |                                                                             |                              
|Total                                                    | Ch$ 1,716,197                                                               | Ch$ 1,614,890                
|                                                         |                                                                             |                              

At December
31, 2003, financial instruments issued by the Central Bank were the only financial
instruments we held whose aggregate book value exceeded 10% of our shareholders equity.
 These financial instruments are accounted for in the audited consolidated financial
statements at market value.  See note 1(f) to our audited consolidated financial
statements.  The value of such investments at December 31, 2003 is as follows:

|Issuer       | Carrying Value                                        | Market Value 
|------------ | ----------------------------------------------------- | -------------
|             |                                                       |              
|             | (in millions of constant Ch$ as of
December 31, 2003)
|            
|Central Bank | Ch$ 1,292,977                                         | Ch$ 1,292,977

The
following table sets forth an analysis of our investments at December 31, 2003, by time
remaining to maturity and the weighted average nominal rates of such investments:

|                                                              | Within one Year(1)                                                          | Rate  | After one year but within five years | Rate  | After five years | Rate | Total         | Rate 
|------------------------------------------------------------- | --------------------------------------------------------------------------- | ----- | ------------------------------------ | ----- | ---------------- | ---- | ------------- | -----
|                                                              |                                                                             |       |                                      |       |                  |      |               |      
|                                                              | (in millions of constant Ch$ as of December 31, 2003, except for rate data)
|Central Bank and Government Securities                        |                                                                             |       |                                      |       |                  |      |               |      
|Marketable debt securities                                    | Ch$ 968,401                                                                 | 3.45% | Ch$                                 | %    | Ch$             | %   | Ch$ 968,401   | 3.45%
|Chilean government securities                                 | 41,848                                                                      | 5.01  |                                     |      |                 |     | 41,848        | 5.01 
|Investments purchased under agreements to         resell      | 29,660                                                                      | 3.68  |                                     |      |                 |     | 29,660        | 3.68 
|Investments collateral under         agreements to repurchase | 324,576                                                                     | 3.23  |                                     |      |                 |     | 324,576       | 3.23 
|                                                              |                                                                             |       |                                      |       |                  |      |               |      
|Subtotal                                                      | 1,364,485                                                                   | 3.45  |                                     |      |                 |     | 1,364,485     | 3.45 
|                                                              |                                                                             |       |                                      |       |                  |      |               |      
|Corporate Securities and Other Financial Investments         
|Investments in Chilean financial institutions                 | 131,945                                                                     | 3.00  |                                     |      |                 |     | 131,945       | 3.00 
|Mortgage finance bonds issued by us                           | 33,613                                                                      | 1.39  |                                     |      |                 |     | 33,613        | 1.39 
|Foreign government notes                                      | 186,559                                                                     | 2.72  |                                     |      |                 |     | 186,559       | 2.72 
|Other financial investments                                   | 97,409                                                                      | 6.40  | 8,956                                | 7.11  |                 |     | 106,365       | 6.46 
|Investments collateral under agreements         to repurchase | 93,357                                                                      | 4.94  |                                     |      |                 |     | 93,357        | 4.94 
|                                                              |                                                                             |       |                                      |       |                  |      |               |      
|Subtotal                                                      | 542,883                                                                     | 3.75  | 8,956                                | 7.11  |                 |     | 551,839       | 3.80 
|                                                              |                                                                             |       |                                      |       |                  |      |               |      
|Total                                                         | Ch$ 1,907,368                                                               | 3.54% | Ch$ 8,956                            | 7.11% | Ch$             | %   | Ch$ 1,916,324 | 3.55%
|                                                              |                                                                             |       |                                      |       |                  |      |               |      

__________________


|(1) | In
accordance with the regulations of the Chilean Superintendency of Banks, trading
investments are classified as due within 1 year.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

64

---



The following table
sets forth an analysis under U.S. GAAP of investments and deposits held to maturity by
type:

|                       | As of December 31,                                   
|---------------------- | -----------------------------------------------------
|                       |                                                      
|                       | 2001                                                 
|                       |                                                      
|Instruments            | Carrying Value                                       
|                       |                                                      
|                       | (in millions of constant Ch$ as of December 31, 2003)
|Foreign private sector |                                                      
|debt securities        | 8,188                                                
|Foreign financial     
|institutions debt     
|securities             | 1,860                                                
|U.S. government debt  
|securities             | 37,396                                               
|Chilean government    
|securities             | Ch$ 413,006                                          
|                       |                                                      
|Total                  | Ch$ 460,450                                          
|                       |                                                      

Loan Portfolio

The
following table analyzes our loans by type of loan and risk classification.  All loan
amounts stated below are before deduction of allowances for loan losses.  Total loans
reflect our loan portfolio, including past due principal amounts.

|                           | December 31,                                         
|-------------------------- | -----------------------------------------------------
|                           |                                                      
|                           | 1999                                                 
|                           |                                                      
|                           | (in millions of constant Ch$ as of December 31, 2003)
|                          
|Commercial loans:         
|General commercial loans   | Ch$ 1,596,010                                        
|Foreign trade loans        | 400,035                                              
|Interbank loans            | 19,161                                               
|Leasing contracts          | 199,640                                              
|Other outstanding loans    | 285,439                                              
|                           |                                                      
|Subtotal commercial loans  | 2,500,285                                            
|                           |                                                      
|Mortgage loans:           
|Residential                | 346,653                                              
|Commercial                 | 418,892                                              
|                           |                                                      
|Subtotal mortgage loans    | 765,545                                              
|                           |                                                      
|Consumer loans             | 192,771                                              
|                           |                                                      
|Past due loans:           
|Commercial loans           | 32,360                                               
|Residential mortgage loans | 3,514                                                
|Consumer loans             | 2,789                                                
|Leasing contracts          | 3,373                                                
|                           |                                                      
|Subtotal past due loans    | 42,036                                               
|                           |                                                      
|                          
|Contingent loans           | 280,592                                              
|                           |                                                      
|Total loans                | Ch$ 3,781,229                                        
|                           |                                                      

The loan
categories are as follows:

Commercial
loansare long-term and short-term loans made in Chilean pesos, on an adjustable or fixed
rate basis, to finance working capital or investments.

Consumer
loansare loans to individuals, made in Chilean pesos, generally on a fixed rate basis,
to finance the purchase of consumer goods or to pay for services. They also include
credit card balances subject to interest charges.

65

---



Mortgage
loansare inflation-indexed, fixed rate, long-term loans with monthly payments of
principal and interest secured by a real property mortgage. Mortgage loans are financed
in one of two ways, as traditional mortgage loans that are financed by mortgage finance
bonds; or as flexible mortgages that are financed by our own funds. At present, the
amount of a mortgage loan cannot be more than 75% of the value of the mortgaged property
if it is financed by mortgage finance bonds and 80% of the value of the mortgaged
property in the case of flexible mortgages.

Foreign
trade loansare fixed rate, short-term loans made in foreign currencies (principally U.S.
dollars) to finance imports and exports.

Interbank
loansare fixed rate, short-term loans to financial institutions that operate in Chile.

Leasing
contractsare agreements for the financial leasing of capital equipment and other
property.

Other
outstanding loansinclude lines of credit, bills of exchange and mortgage loans, which
are financed by our general borrowings.

Past due
loans are loansthat are overdue as to any payment of principal or interest by 90 days or
more.

Contingent
loansconsist of guarantees granted by us in Chilean pesos, UF and foreign currencies,
principally U.S. dollars, as well as open and unused letters of credit. Unlike U.S.
GAAP, Chilean GAAP requires such loans to be included on a banks balance sheet. See
note 28 to our consolidated audited financial statements.

Any
collateral provided generally consists of a mortgage on real estate, a pledge of
marketable securities, a letter of credit or cash.  The existence and amount of
collateral varies from loan to loan.

Maturity and
Interest Rate Sensitivity of Loans as of December 31, 2003

The
following table sets forth an analysis by type and time remaining to maturity of our
loans at December 31, 2003:

|                        | Balance as of December 31, 2003                       | Due within
1 month | Due after 1
month but
within 6 months | Due after 6
months but
within 12 months | Due after 1
year but
within 3 years | Due after 3
years but
within 5 years | Due after
5 years
|----------------------- | ----------------------------------------------------- | ------------------ | ------------------------------------- | --------------------------------------- | ----------------------------------- | ------------------------------------ | -----------------
|                        |                                                       |                    |                                       |                                         |                                     |                                      |                  
|                        | (in millions of constant Ch$ as of December 31, 2003)
|Commercial loans        | Ch$ 2,557,000                                         | Ch$ 498,489        | Ch$ 693,165                           | Ch$ 304,409                             | Ch$ 542,825                         | Ch$ 210,215                          | Ch$ 307,897      
|Consumer loans          | 478,093                                               | 97,168             | 85,464                                | 82,421                                  | 177,208                             | 30,265                               | 5,567            
|Mortgage loans          | 1,128,030                                             | 12,189             | 40,767                                | 49,154                                  | 197,540                             | 189,156                              | 639,224          
|Foreign trade loans     | 658,280                                               | 67,979             | 479,376                               | 104,864                                 | 5,834                               | 152                                  | 75               
|Interbank loans         | 13,223                                                | 8,501              | 3,155                                 | 156                                     | 1,411                               |                                     |                 
|Leasing contracts       | 268,956                                               | 6,928              | 27,768                                | 31,098                                  | 86,107                              | 49,670                               | 67,385           
|Other outstanding loans | 636,649                                               | 262,235            | 43,628                                | 11,391                                  | 37,822                              | 37,158                               | 244,415          
|Past due loans          | 105,503                                               | 105,503            |                                      |                                        |                                    |                                     |                 
|                        |                                                       |                    |                                       |                                         |                                     |                                      |                  
|Subtotal                | 5,845,734                                             | 1,058,992          | 1,373,323                             | 583,493                                 | 1,048,747                           | 516,616                              | 1,264,563        
|Contingent loans        | 409,612                                               | 80,361             | 184,804                               | 68,691                                  | 62,031                              | 11,974                               | 1,751            
|                        |                                                       |                    |                                       |                                         |                                     |                                      |                  
|Total loans             | Ch$ 6,255,346                                         | Ch$ 1,139,353      | Ch$ 1,558,127                         | Ch$ 652,184                             | Ch$ 1,110,778                       | Ch$ 528,590                          | Ch$ 1,266,314    
|                        |                                                       |                    |                                       |                                         |                                     |                                      |                  

66

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The following table presents the interest rate sensitivity of our outstanding
 loans due after one year as of December 31, 2003, not including contingent loans:

|                 | As of December 31, 2003                                 
|---------------- | --------------------------------------------------------
|                 |                                                         
|                 | (in millions of constant
   Ch$ as of December 31, 2003)
|Variable rate    |                                                         
|Ch$              |                                                         
|UF               |                                                         
|Foreign currency |                                                         
|                 |                                                         
|Total            |                                                         
|Fixed rate       |                                                         
|Ch$              |                                                         
|UF               |                                                         
|Foreign currency |                                                         
|                 |                                                         
|Total            |                                                         
|                 |                                                         
|Total            |                                                         
|                 |                                                         

67

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Loans by Economic Activity

The following table sets forth at the dates indicated an analysis of our loan
 portfolio based on the borrower's principal economic activity. Loans to individuals
 for business purposes are allocated to their respective economic activity. The
 table does not reflect outstanding contingent loans.

|                                                                | As of December
  31,                                                           
|--------------------------------------------------------------- | -------------------------------------------------------------------------------
|                                                                |                                                                                
|                                                                | 2001                                                                           
|                                                                |                                                                                
|                                                                | Loan 
  Portfolio                                                              
|                                                                |                                                                                
|                                                                | (in millions
  of constant Ch$ as of December 31, 2003, except for percentages)
|Agriculture, Livestock, Forestry,
  Agribusiness, Fishing       |                                                                                
|Agriculture and livestock                                       | Ch$ 165,684                                                                    
|Fruit                                                           | 142,252                                                                        
|Forestry and wood extraction                                    | 26,668                                                                         
|Fishing                                                         | 91,161                                                                         
|                                                                |                                                                                
|Subtotal                                                        | 425,765                                                                        
|Mining and Petroleum                                            |                                                                                
|Mining and quarries                                             | 46,912                                                                         
|Natural gas and crude oil extraction                            | 14,735                                                                         
|                                                                |                                                                                
|Subtotal                                                        | 61,647                                                                         
|Manufacturing                                                   |                                                                                
|Tobacco, food and beverages                                     | 127,686                                                                        
|Textiles, clothing and leather
  goods                          | 50,236                                                                         
|Wood and wood products                                          | 38,364                                                                         
|Paper, printing and publishing                                  | 12,413                                                                         
|Oil refining, carbon and rubber                                 | 58,799                                                                         
|Production of basic metal, non-mineral,
  machine and equipment | 150,372                                                                        
|Other manufacturing industries                                  | 28,158                                                                         
|                                                                |                                                                                
|Subtotal                                                        | 466,028                                                                        
|Electricity, Gas and Water                                      |                                                                                
|Electricity, gas and water                                      | 54,005                                                                         
|                                                                |                                                                                
|Subtotal                                                        | 54,005                                                                         
|Construction                                                    |                                                                                
|Residential buildings                                           | 92,094                                                                         
|Other constructions                                             | 201,403                                                                        
|                                                                |                                                                                
|Subtotal                                                        | 293,497                                                                        
|Commerce                                                        |                                                                                
|Wholesale                                                       | 106,343                                                                        
|Retail, restaurants and hotels                                  | 340,114                                                                        
|                                                                |                                                                                
|Subtotal                                                        | 446,457                                                                        
|Transport, Storage and Communications                           |                                                                                
|Transport and storage                                           | 99,862                                                                         
|Communications                                                  | 28,119                                                                         
|                                                                |                                                                                
|Subtotal                                                        | 127,981                                                                        
|Financial Services                                              |                                                                                
|Financial insurance and companies                               | 338,068                                                                        
|Real estate and other financial
  services                      | 367,047                                                                        
|                                                                |                                                                                
|Subtotal                                                        | 705,115                                                                        
|Community, Social and Personal
  Services                       |                                                                                
|Community, social and personal
  services                       | 88,736                                                                         
|                                                                |                                                                                
|Subtotal                                                        | 88,736                                                                         
|Consumer Loans                                                  | 363,887                                                                        
|Residential Mortgage Loans                                      | 681,614                                                                        
|                                                                |                                                                                
|Total                                                           | Ch$ 3,714,732                                                                  
|                                                                |                                                                                

68

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Foreign Country Outstanding Loans

Our cross-border outstanding loans are principally trade-related. These loans
 include loans to foreign financial institutions and foreign corporations, some
 of which are guaranteed by their Chilean parent company. The table below lists
 the total amounts outstanding to borrowers in certain foreign countries at the
 end of the last three years, and thus does not include foreign trade-related
 loans to domestic borrowers.

|                     | As of December
     31,                                   
|-------------------- | ----------------------------------------------------------
|                     |                                                           
|                     | 2001                                                      
|                     |                                                           
|                     | (in millions
     of constant Ch$ as of December 31, 2003)
|                     |                                                           
|Albania              | Ch$ 16                                                    
|Argentina            | 37,868                                                    
|Australia            | 4                                                         
|Austria              | 878                                                       
|Belgium              | 161                                                       
|Bolivia              | 865                                                       
|Brazil               | 36,587                                                    
|British West Indies  | 28,344                                                    
|Canada               | 161                                                       
|China                |                                                          
|Colombia             | 4,117                                                     
|Denmark              |                                                          
|Ecuador              | 69                                                        
|El Salvador          | 5,532                                                     
|Finland              | 212                                                       
|France               | 2,127                                                     
|Germany              | 42                                                        
|Holland              | 47                                                        
|Hong Kong            | 258                                                       
|India                | 178                                                       
|Israel               | 16                                                        
|Italy                |                                                          
|Japan                | 3,053                                                     
|Korea                | 32                                                        
|Kuwait               |                                                          
|Malaysia             |                                                          
|Mexico               | 35,282                                                    
|Monaco               |                                                          
|Morocco              |                                                          
|Netherlands          |                                                          
|New Zealand          |                                                          
|Norway               |                                                          
|Panama               | 10,531                                                    
|Paraguay             | 55                                                        
|Peru                 | 19,224                                                    
|Portugal             |                                                          
|Singapore            | 58                                                        
|Slovenia             |                                                          
|South Africa         | 18                                                        
|South Korea          | 546                                                       
|Spain                | 309                                                       
|Switzerland          | 427                                                       
|Sweden               | 384                                                       
|Taiwan               |                                                          
|United Arab Emirates | 27                                                        
|United Kingdom       | 948                                                       
|United States        | 22,185                                                    
|Uruguay              | 102                                                       
|Venezuela            | 3,483                                                     
|Yugoslavia           |                                                          
|                     |                                                           
|Total                | Ch$ 214,146                                               
|                     |                                                           

69

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We also maintain deposits abroad, as needed to conduct our
 foreign trade transactions and manage liquidity. The table below lists the largest
amounts of foreign deposits by country at the end of the past three years:

|               | December 31,                                              
|-------------- | ----------------------------------------------------------
|               |                                                           
|               | 2001                                                      
|               |                                                           
|               | (in millions
     of constant Ch$ as of December 31, 2003)
|               |                                                           
|Australia      | Ch$ 19                                                    
|Austria        | 30                                                        
|Belgium        | 113                                                       
|Canada         | 150                                                       
|China          | 199                                                       
|Denmark        | 53                                                        
|Finland        | 40                                                        
|France         | 418                                                       
|Germany        | 1,683                                                     
|Italy          | 386                                                       
|Japan          | 326                                                       
|Netherlands    | 111                                                       
|Norway         | 15                                                        
|Spain          | 426                                                       
|Sweden         | 100                                                       
|Switzerland    | 298                                                       
|United Kingdom | 340                                                       
|United States  | 83,581                                                    
|               |                                                           
|Total          | Ch$ 88,288                                                
|               |                                                           

Credit Review Process

Our credit review system requires that two or more loan officers approve any
 loan to our customers, and that at least one of the loan officers have sufficient
authority to cover our total risk exposure with respect to that customer.

The evaluation of total customer credit risk takes into account the direct
 risk outstanding and the added risk involved in the proposed transaction, the
 indirect risks associated with guarantees or security given by the customer,
 and the risk associated with other entities or individuals who have a direct
 or indirect affiliation with the customer, including in each case outstanding
 principal (adjusted for inflation), interest and the balance of any unused lines
 of credit and other credit transactions approved but not completed.

Transactions in which the total customer credit risk is more than UF150,000 (approximately
 Ch$2,500 million) require the approval of a credit committee, which includes
 three directors and our Chief Executive Officer. Transactions in which the total
 customer credit risk is equal to or less than UF150,000 may be approved by other
 executives, depending on the amount involved, as follows:

|                                                               | Limit in UF       
|-------------------------------------------------------------- | ------------------
|                                                               |                   
|Credit committee including members of the board
  of directors | up to legal limits
|Chief executive officer                                        | up to UF 150,000  
|Senior credit risk officer                                     | up to UF 125,000  
|Executive credit risk officers                                 | up to UF 100,000  
|Other credit risk officers                                     | up to UF 60,000   
|Executive vice president of corporate banking                  | up to UF 50,000   
|Other department heads                                         | up to UF 15,000   
|Other officers                                                 | under UF 10,000   

70

---

In addition to reviewing the credit limit, the business area extending the
 credit must review the terms of the loan, the interest rate and any security
to be obtained.

To evaluate a customer's credit risk, our commercial executives use various
 computerized data bases that provide information such as the customer's profile,
 indebtedness to us, financial statements, monthly sales information, profitability
 reports, indebtedness to other Chilean financial institutions and payment history
 with other creditors. For this purpose, the Chilean Superintendency of Banks
 makes information regarding a customer's indebtedness within the financial system
 available to banks. For individual customers, scoring and other automated systems
 are used to determine the customer's profile and payment capacity in terms of
 income, education, family obligations, other financial obligations and other
 factors.

Our credit process is based on credit policies approved by our board of directors
 and procedures established by the credit committee. The credit risk management
 area is responsible for evaluating for us in the aggregate the risk presented
 by our current or potential customers. We also rely upon the collective efforts
 of our professional analysts who conduct reviews at the request of any of our
 commercial divisions and senior management. These reports analyze the amount
 of a credit, its use, its term, the customer's financial situation, the customer's
 profile and the market in which the customer operates. These reports are prepared
 in four different formats: in-depth, summary, follow-up and project analysis.
 The risk control division reviews periodically the quality of our loans, including
 the related loan classifications. This division has a team of inspectors who
 audit on an ongoing basis the compliance with the credit review process by the
 commercial executives who are involved in the credit analysis process, the various
 categories of risk assigned to customers, the reports on past due loans and
 our evaluation of debtors.

Classification of Loan Portfolio

Chilean banks are required
  to classify their outstanding exposures on an ongoing basis for the purpose
  of determining the amount of allowances for loan losses. The Chilean Superintendency
  of Banks establishes the guidelines used by banks for such classifications,
  although banks are given some latitude in devising more stringent classification
  systems within such guidelines. The Chilean Superintendency of Banks amended
  its guidelines effective as of January 1, 2004. The amended guidelines do not
  apply to periods prior to January 1, 2004, and the amended guidelines have
  not been followed in preparing the information presented in Selected
 Statistical Information. For a description of the amended guidelines see Item
 4. Information on the CompanyRegulation and SupervisionClassification of BanksClassification
 of Loan Portfolio. The Chilean Superintendency of Banks regularly examines
 and evaluates each financial institution's credit management process, including
 its compliance with the loan classification guidelines.

The information presented
  in Selected Statistical Information has
  been prepared in accordance with the guidelines of the Chilean Superintendency
  of Banks in effect as of December 31, 2003, which we refer to as the
  previous guidelines. Under the previous guidelines, the Chilean Superintendency
  of Banks classified banks and other financial institutions into three categories.
  Category I was reserved for institutions that fully comply with the loan classification
 guidelines. Institutions were rated in Category II if their loan classification
 system revealed deficiencies that needed to be corrected by the bank's management.
 Lastly, Category III indicated significant deviations from the Chilean Superintendency
 of Banks guidelines that clearly reflected inadequacies in the evaluation
  of the risk and estimated losses associated with loans. We were classified
 as a Category I bank under the previous guidelines.

71

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Under
  the previous guidelines, for purposes of classification, loans were divided
  into consumer loans, residential mortgage loans and commercial loans, which
  for these classification purposes included all loans other than consumer loans
  and residential mortgage loans. In the case of commercial loans, the classification
  was based on the estimated losses on all loans outstanding to the borrower,
  as determined by the bank. In the case of consumer and residential mortgage
  loans, the extent to which payments are overdue determined the classification.
  Commercial and consumer loans were rated under the previous guidelines A, B,
  B-, C or D, while residential mortgage loans were rated only A, B or B-. For
  a description of the new classifications in effect under the amended guidelines
  that are effective as of January 1, 2004, see Item 4. Information on the CompanyRegulation
 and SupervisionClassification of Banks. Our total exposure to each of our
 customers and the classification of their loans are continuously reviewed
 by our commercial officers and by the risk control division. The allowances
required for each category of loans under the previous guidelines were as follows:

|         | Commercial
     loans 
    range of 
  estimated losses | Consumer loans 
    past due 
  status(1) | Residential 
    mortgage loans 
  past due status(1) | Allowances 
    as a percentage
    of aggregate
  exposure
|-------- | ------------------------------------------------------- | ----------------------------------------- | ----------------------------------------------------- | -----------------------------------------------------------
|         |                                                         |                                           |                                                      
|Category | From                                                    | To                                        | From                                                  | To                                                         
|         |                                                         |                                           |                                                       |                                                            
|         |                                                         |                                           | (Days)                                                | (Days)                                                     
|A        |                                                        |                                          |                                                      |                                                           
|B        | 1%                                                      | 5%                                        | 1                                                     | 30                                                         
|B-       | 5                                                       | 39                                        | 31                                                    | 60                                                         
|C        | 40                                                      | 79                                        | 61                                                    | 120                                                        
|D        | 80%                                                     | 100%                                      | >121                                                  | 121                                                        

___________________


|(1) | In addition, we maintained additional allowances
  for consumer and residential mortgage loans, including renegotiated loans.
|--- | -----------------------------------------------------------------------------------------------------------------------------

The previous guidelines applicable to commercial loans required that we classify
the greater of:

the commercial loans outstanding to our 400 largest debtors;
                        or
                the commercial loans outstanding to our largest debtors, aggregating 75%
                        of the total amount of loans included in our commercial loan portfolio.


The previous guidelines also required that we classify 100% of our residential
     mortgage and consumer loans. For these purposes, the loan amount included
outstanding principal, whether or not past due, and accrued and unpaid interest.

According to our internal credit policies, we classified our loans through December
        31, 2003 using the previous guidelines. The criteria for determining the range
        of estimated losses for purposes of the classification of commercial loans was
as follows:

|Category A: | A
                borrower's loans were Category A if
                we had no doubt as to the borrower's ability to repay
                the loans in a timely manner, except to the extent reflected in the
                loan's original terms, including all interest due, and the revenues
                generated from the business of the borrower are sufficient to service
                the debt. If the borrower's business did not generate the revenues
                needed for debt service, or if repayment depended on revenues generated
                by another entity, its loans were not included in this category, even
                if fully secured.
|------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

72

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|Category B:  | This
                category included loans outstanding to borrowers
                who had shown some degree of non-compliance with their obligations
                        under the original conditions of their loans, but whose
                past financial records and market history indicated that such non-compliance
                should be temporary and, in any case, should not significantly affect
                the terms for repayment. This category also included loans to customers
                involved in economic activities that represented a higher risk for
                        us. Category B was also
                the highest category for loans outstanding to borrowers
                whose source of repayment depended on revenues generated by another
                entity, and loans outstanding to borrowers whose business did not
                        generate the revenues needed for debt service, but only if the loans
                        were fully secured.
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Category B-: | Loans included in this category were principally loans
                outstanding to borrowers who were experiencing financial difficulties
                and whose operational revenues or liquid assets were insufficient to service
                the loans and where the security for the loan covered 61% to 95% of the
                outstanding amount. Also included in this category were loans outstanding
                to borrowers whose financial history was insufficient or difficult to
                establish. Loans bearing interest rates that, due to our cost of funds,
                generate a financial loss of between 5% and 39% of the outstanding amount
                were also included in this category. Our internal guidelines prohibited
                us from categorizing as better than B- any loan to a customer for which
                the loan was currently subject to legal collection proceedings even if
        the customer's loan was more than fully secured.            
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Category C:  | This category included loans outstanding to borrowers
                who were experiencing serious financial difficulties and whose operational
                revenues or liquid assets were insufficient to service the loans and where
                the security for the loan would cover 21% to 60% of the outstanding amount.
                Loans bearing interest rates that, due to our cost of funds, generate
                a financial loss of between 40% and 79% of the outstanding amount were
                also included in this category. We expected to suffer some degree of loss
        with respect to loans to borrowers in this category.                                                                                                                                                                                                                                                                                                                                                                    
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Category D:  | This category included loans outstanding to borrowers
                for which the estimated recovery amount on all loans is 20% or less. A
        charge-off of most of these outstanding loans was expected.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Analysis of Our Loan Classification

The following tables provide statistical data regarding the classification of
  our loans at the end of each of the last five years. As discussed above, our
  risk analysis system requires that loans to all customers be evaluated and classified,
  including past due and contingent loans:

|                      | As
    of December 31, 1999                              
|--------------------- | ---------------------------------------------------------
|                      |                                                          
|Category              | Commercial
             Loans                            
|                      |                                                          
|                      | (in
    millions of constant Ch$ as of December 31, 2003)
|A                     | Ch$ 1,338,050                                            
|B                     | 1,543,146                                                
|B                    | 174,093                                                  
|C                     | 20,479                                                   
|D                     | 5,615                                                    
|                      |                                                          
|Total evaluated loans | Ch$ 3,081,383                                            
|                      |                                                          
|Total loans           | Ch$ 3,116,338                                            
|                      |                                                          
|Percentage evaluated  | 98.88%                                                   

73

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|                      | As of December
  31, 2000                              
|--------------------- | -------------------------------------------------------
|                      |                                                        
|Category              | Commercial Loans                                       
|                      |                                                        
|                      | (in millions
  of constant Ch$ as of December 31, 2003)
|A                     | Ch$ 1,481,093                                          
|B                     | 1,542,520                                              
|B                    | 182,266                                                
|C                     | 22,815                                                 
|D                     | 7,096                                                  
|                      |                                                        
|Total evaluated loans | Ch$ 3,235,790                                          
|                      |                                                        
|Total loans           | Ch$ 3,275,955                                          
|                      |                                                        
|Percentage evaluated  | 98.77%                                                 

|                      | As of December
  31, 2001                              
|--------------------- | -------------------------------------------------------
|                      |                                                        
|Category              | Commercial Loans                                       
|                      |                                                        
|                      | (in millions
  of constant Ch$ as of December 31, 2003)
|A                     | Ch$ 1,351,295                                          
|B                     | 1,590,443                                              
|B                    | 173,098                                                
|C                     | 52,901                                                 
|D                     | 6,805                                                  
|                      |                                                        
|Total evaluated loans | Ch$ 3,174,542                                          
|                      |                                                        
|Total loans           | Ch$ 3,219,655                                          
|                      |                                                        
|Percentage evaluated  | 98.60%                                                 

|                        | As of December
  31, 2002                              
|----------------------- | -------------------------------------------------------
|                        |                                                        
|Category                | Commercial
  Loans                                     
|                        |                                                        
|                        | (in millions
  of constant Ch$ as of December 31, 2003)
|A                       | Ch$ 2,233,961                                          
|B                       | 2,278,171                                              
|B                      | 219,415                                                
|C                       | 121,439                                                
|D                       | 30,902                                                 
|                        |                                                        
|Total
  evaluated loans | Ch$ 4,883,888                                          
|                        |                                                        
|Total
  loans           | Ch$ 4,934,909                                          
|                        |                                                        
|Percentage
  evaluated  | 98.97%                                                 

|                        | As of December
  31, 2003                              
|----------------------- | -------------------------------------------------------
|                        |                                                        
|Category                | Commercial Loans                                       
|                        |                                                        
|                        | (in millions
  of constant Ch$ as of December 31, 2003)
|A                       | Ch$ 2,227,167                                          
|B                       | 2,308,827                                              
|B                      | 179,748                                                
|C                       | 66,098                                                 
|D                       | 35,712                                                 
|                        |                                                        
|Total
  evaluated loans | Ch$ 4,817,552                                          
|                        |                                                        
|Total
  loans           | Ch$ 4,860,248                                          
|                        |                                                        
|Percentage
  evaluated  | 99.12%                                                 

74

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Classification of Loan Portfolio Based on the Borrower's Payment Performance

Interest and indexation
  readjustments from overdue loans are only recognized when and to the extent
  effectively received. Overdue loans are classified in groups of one to 29 days
  overdue, 30 to 89 days overdue, and 90 or more days overdue. This last group
  is referred to as past due loans. Past due loans
 must be covered by individual allowances for loan losses equivalent to 100%
 of any unsecured portion thereof, but only if, and to the extent that, the aggregate
 of all allowances for loan losses exceeds global allowances for loan losses.
 See Allowances for Loan LossesIndividual Allowances for Loan Losses.

The following table sets forth as of December 31 of each of the last five years
 the amounts that are current as to payments of principal and interest and the
amounts that are overdue:

|                                     | Domestic Loans                                       
|------------------------------------ | -----------------------------------------------------
|                                     |                                                      
|                                     | As of December
31,                                   
|                                     |                                                      
|                                     | 1999                                                 
|                                     |                                                      
|                                     | (in millions
of constant Ch$ as of December 31, 2003)
|Current                              | Ch$ 3,485,925                                        
|Overdue
1-29 days                    | 26,298                                               
|Overdue
30-89 days                   | 12,291                                               
|Overdue
90 days or more (past due) | 42,036                                               
|                                     |                                                      
|Total
loans                          | Ch$ 3,566,550                                        
|                                     |                                                      

|                                     | Foreign Loans                                        
|------------------------------------ | -----------------------------------------------------
|                                     |                                                      
|                                     | As of December
31,                                   
|                                     |                                                      
|                                     | 1999                                                 
|                                     |                                                      
|                                     | (in millions
of constant Ch$ as of December 31, 2003)
|Current                              | Ch$ 214,679                                          
|Overdue
1-29 days                    |                                                     
|Overdue
30-89 days                   |                                                     
|Overdue
90 days or more (past due) |                                                     
|                                     |                                                      
|Total
loans                          | Ch$ 214,679                                          
|                                     |                                                      

|                                                       | Total Loans                                          
|------------------------------------------------------ | -----------------------------------------------------
|                                                       |                                                      
|                                                       | As of December
31,                                   
|                                                       |                                                      
|                                                       | 1999                                                 
|                                                       |                                                      
|                                                       | (in millions
of constant Ch$ as of December 31, 2003)
|Current                                                | Ch$ 3,700,604                                        
|Overdue 1-29 days                                      | 26,298                                               
|Overdue 30-89 days                                     | 12,291                                               
|Overdue
90 days or more (past due)                   | 42,036                                               
|                                                       |                                                      
|Total loans                                            | Ch$ 3,781,229                                        
|                                                       |                                                      
|Overdue loans expressed as a
percentage of total loans | 2.13%                                                
|Past due loans as a percentage
of total loans          | 1.11%                                                

We suspend the accrual
  of interest on any loan when it is determined to be a loss or when it becomes
  past due. The amount of interest that would have been recorded on overdue loans
  if they had been accruing interest was Ch$4,202 million for the year ended
December 31, 2003.

75

---



Loans included in the previous table, which have been restructured and bear
 no interest, are as follows:

|      | As of December
  31,                                   
|----- | -------------------------------------------------------
|      |                                                        
|      | 1999                                                   
|      |                                                        
|      | (in millions of constant Ch$
  as of December 31, 2003)
|     
|Ch$   | Ch$ 1,691                                              
|UF    | 428                                                    
|      |                                                        
|Total | Ch$ 2,119                                              
|      |                                                        

The amount of interest that we would have recorded on these loans for the
 year ended December 31, 2003 if these loans had been earning a market interest
rate was Ch$236 million.

In addition, other loans that have been restructured, mainly through the extension
 of their maturities, and that bear interest are as follows:

|                                 |                                                           
|-------------------------------- | ----------------------------------------------------------
|                                 | As of December
     31,                                   
|                                 |                                                           
|                                 | 2002(1)                                                   
|                                 |                                                           
|                                 | (in millions of constant Ch$
     as of December 31, 2003)
|Total
  other restructured loans | Ch$ 133,532                                               
|                                 |                                                           

___________________


|(1) | Information related to prior periods is not available.
|--- | ------------------------------------------------------

During the year ended December 31, 2003, interest recorded in income on these
loans amounted to Ch$13,468 million.

Allowances for Loan Losses

Chilean banks are required to maintain allowances for loan losses in amounts
 determined in accordance with regulations issued by the Chilean Superintendency
 of Banks. A bank may also maintain a voluntary allowances in excess of the minimum
 required amount so as to provide additional coverage for potential loan losses.
 We have historically followed the practice of maintaining voluntary allowances.
 Under these regulations, the minimum amount of required allowances for loan losses
 is the greater of (1) a bank's global allowances for loan losses and (2) the
 aggregate amount of its individual allowances for loan losses.

76

---



Global Allowances for Loan Losses

The amount of global allowances
  for loan losses required to be maintained by a bank is equal to the aggregate
  amount of its outstanding loans multiplied by the greater of (1) the bank's risk index, as
 defined below, and (2) 0.75%.

A bank's risk index is based on the classification of its loans, determined
 as described above. Under the previous guidelines, the index was computed as
 follows. First, the aggregate amount of evaluated loans in each category from
 A through D is multiplied by the corresponding required percentage determining
 allowances for loan losses. The percentages under the previous guidelines were
 follows:

|Category | Allowance Percentage
|-------- | --------------------
|         |                     
|         | A                   
|         | B                   
|         | B-                  
|         | C                   
|         | D                   

The risk index itself was then calculated by dividing (1) the aggregate amount
 so calculated by (2) the aggregate amount ( i.e., the outstanding principal,
 whether or not past due, and accrued and unpaid interest) of all evaluated loans.
 The chart below illustrates the evolution of our consolidated risk index over
 the last five years:

|Consolidated
     Risk Index
|----------------------------
|At December 31,             
|                            
|                            
|                            
|                            
|                            
|                            

The chart below illustrates the evolution of our unconsolidated risk index
 over the last five years:

|Unconsolidated
     Risk Index
|------------------------------
|At December 31,               
|                              
|                              
|                              
|                              
|                              
|                              

For a description of the
  categories and allowance percentages under the amended guidelines that are
  effective as of January 1, 2004, see Item 4. Information
 on the CompanyRegulation and SupervisionClassification of Banks.

According to the Chilean Superintendency of Banks, the average risk index
 of all financial institutions in Chile, both foreign and domestic, was 1.82%
 as of October 31, 2003. At the same date, our average unconsolidated risk index
 was 2.40%. Our average unconsolidated risk index was greater than the average
 for all financial institutions in Chile primarily as a result of the impact
 of the poor economic environment on our corporate clients and the merger with
 Banco de A. Edwards, whose risk index was higher than ours prior to the merger.

77

---



Individual Allowances for Loan Losses

Chilean banks are also required to establish individual allowances for loan
 losses that are more than 90 days past due. The individual allowances for loan
 losses must equal 100% of each overdue loan or the portion of such loan that
 is not secured with collateral acceptable to the Chilean Superintendency of
 Banks. Individual allowances for loan losses, however, are required only if,
 and to the extent that, they exceed in the aggregate global allowances for loan
 losses.

Voluntary Allowances for Loan Losses

We follow an allowance policy that includes recording voluntary allowances
 for loan losses beyond what is required by the Chilean Superintendency of Banks,
 where changes in the portfolio concentrations or economic considerations affecting
 or reasonably expected to affect the credit payment capacity of borrowers are
 not adequately addressed through regulatorily mandated allowances. Thus, over
 the period from 1999 to 2003, during which the unconsolidated risk index rose
 from 2.13% to 2.41%, we recognized a decrease in allowances for loan losses
 from 3.00% to 2.87% as a percentage of total loans.

The table below sets forth our allowances for loan losses as they would be
 computed on the basis of our risk index based on the basis of a minimum 0.75%
 of the loans, our global allowances for loan losses, our potential aggregate
 individual allowances for loan losses, the minimum allowances for loan losses
 to be established by us in accordance with the regulations of the Chilean Superintendency
 of Banks, our voluntary allowances for loan losses, our total allowances for
 loan losses and such total allowances expressed as a percentage of our total
 loans at the end of each of the last five years:

|                                                                    | As of December
     31,                                                           
|------------------------------------------------------------------- | ----------------------------------------------------------------------------------
|                                                                    |                                                                                   
|                                                                    | 1999                                                                              
|                                                                    |                                                                                   
|                                                                    | (in millions
     of constant Ch$ as of December 31, 2003, except for percentages)
|Allowances based on risk index                                      | Ch$ 76,759                                                                        
|Allowances based on 0.75%                                           | 28,359                                                                            
|Global allowances for loan losses                                   | 66,842                                                                            
|Individual allowances for loan losses                               | 13,991                                                                            
|                                                                    |                                                                                   
|Required minimum allowances                                         | 80,833                                                                            
|Voluntary allowances                                                | 32,697                                                                            
|                                                                    |                                                                                   
|Total allowances for loan losses                                    | Ch$ 113,530                                                                       
|                                                                    |                                                                                   
|Total allowances for loan losses as a percentage
    of total loans | 3.00%                                                                             

78

---



Analysis of
Substandard Loans and Amounts Past Due

The
following table analyzes our substandard loans (i.e., all of the loans included in
categories B-, C and D) and past due loans and the allowances for loan losses existing at
the dates indicated.  We have no restructured loans (troubled debt restructurings as
defined in Statement of Financial Accounting Standards No. 15 published by the Financial
Accounting Standards Board, or FASB) that are not included in the following tables.

|                                                 | As of December 31,                                                           
|------------------------------------------------ | -----------------------------------------------------------------------------
|                                                 |                                                                              
|                                                 | 1999                                                                         
|                                                 |                                                                              
|                                                 | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                                
|Total loans                                      | Ch$ 3,781,229                                                                
|Substandard loans B-, C and D                    | Ch$ 217,218                                                                  
|Substandard loans as a percentage of total loans | 5.74%                                                                        
|Amounts past due(1)                             
|To the extent secured(2)                         | Ch$ 28,045                                                                   
|To the extent unsecured                          | 13,991                                                                       
|                                                 |                                                                              
|Total amount past due                            | Ch$ 42,036                                                                   
|                                                 |                                                                              
|                                                
|Amounts past due as a percentage of total loans  | 1.11%                                                                        
|To the extent secured(2)                         | 0.74                                                                         
|To the extent unsecured                          | 0.37                                                                         
|                                                
|Allowances for loans losses as a percentage of: 
|Total loans                                      | 3.00                                                                         
|Total loans excluding contingent loans           | 3.24                                                                         
|Total amounts past due                           | 270.08                                                                       
|Total amounts past due-unsecured                 | 811.45%                                                                      

___________________


|(1) | In accordance with Chilean regulations, past due loans are loans that are 90 days or more overdue on any payments of principal
      or interest.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Security generally consists of mortgages on real estate, pledges of marketable securities, letters of credit or cash.                            

79

---



Analysis of
Allowances for Loan Losses

The
following table analyzes our allowances for loan losses and changes in the allowances
attributable to charge-offs, new allowances, allowances released and the effect of
price-level restatement on allowances for loan losses:

|                                                   | December 31,                                         
|-------------------------------------------------- | -----------------------------------------------------
|                                                   |                                                      
|                                                   | 1999                                                 
|                                                   |                                                      
|                                                   | (in millions of constant Ch$ as of December 31, 2003)
|                                                  
|Allowances for loan losses at beginning of period  | Ch$ 96,163                                           
|Banco de A. Edwards balances as of January 1, 2002 |                                                     
|Charge-offs                                        | (33,656)                                             
|Allowances established                             | 55,238                                               
|Allowances released(1)                             | (2,192)                                              
|Price-level restatement(2)                         | (2,023)                                              
|                                                   |                                                      
|Allowances for loan losses at end of period        | Ch$ 113,530                                          
|                                                   |                                                      
|Ratio of charge-offs to average loans              | 0.89%                                                
|Allowances for loan losses at end of period as    
|a percentage of total loans                        | 3.00%                                                

___________________


|(1) | Represents the aggregate amount of allowances for loan losses released during the year as a result of charge-offs, recoveries or
      a determination by management that the level of risk existing in the loan portfolio has been reduced.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Reflects the effect of inflation on the allowances for loan losses at the beginning of each period, adjusted to constant pesos
      as of December 31, 2003.                                                                               

Allowances
increased between 1999 and 2002 largely due to the Chilean recession in 1999, which
caused deterioration in our debt portfolio and an increase in our risk index during 1999,
2000, 2001 and 2002.  As a result of an improvement in economic conditions in 2003, and a
more effective credit and collection policy at the bank,  allowances and the risk index
decreased in 2003. Based on the information we have available about our debtors, we
believe that our allowances for loan losses are sufficient to cover known potential
losses and losses inherent in a loan portfolio of this size and nature.

Our
policy with respect to charge-offs follows the regulations established by the Chilean
Superintendency of Banks.  Under these regulations, a consumer loan must be written off
not more than six months after the loan is overdue and other unsecured loans, or parts
thereof, must be written off not more than 24 months after being classified as past due.
 Secured loans must be written off within 36 months after being classified as past due.

The
following table presents detailed information on write-offs and shows the charge-offs
breakdown by loan category:

|                           | Year ended December 31,                              
|-------------------------- | -----------------------------------------------------
|                           |                                                      
|                           | 1999                                                 
|                           |                                                      
|                           | (in millions of constant Ch$ as of December 31, 2003)
|                          
|Consumer loans             | Ch$ 14,744                                           
|Residential mortgage loans | 1,695                                                
|Commercial loans           | 12,703                                               
|Leasing contracts          | 4,278                                                
|Foreign loans              | 236                                                  
|                           |                                                      
|Total                      | Ch$ 33,656                                           
|                           |                                                      

80

---



Loan
recoveries by type of loan are shown in the table below:

|                                                             | Year ended December 31,                              
|------------------------------------------------------------ | -----------------------------------------------------
|                                                             |                                                      
|                                                             | 1999                                                 
|                                                             |                                                      
|                                                             | (in millions of constant Ch$ as of December 31, 2003)
|                                                            
|Consumer loans                                               | Ch$ 3,992                                            
|Residential mortgage loans                                   | 200                                                  
|Commercial loans                                             | 3,578                                                
|Leasing contracts                                            | 406                                                  
|Investments                                                  |                                                     
|                                                             |                                                      
|Subtotal                                                     | Ch$ 8,176                                            
|Recoveries and sales of loans acquired from the Central Bank | 1,353                                                
|                                                             |                                                      
|Total                                                        | Ch$ 9,529                                            
|                                                             |                                                      

Allocation of
Allowances for Loan Losses

The
following tables set forth, as of December 31 of each of the last five years, the
proportions of our required minimum allowances for loan losses attributable to our
commercial, consumer and residential mortgage loans, and the amount of voluntary
allowances (which are not allocated to any particular category) at each such date.

|                           | 1999                 | 2000                                                 
|-------------------------- | -------------------- | -----------------------------------------------------
|                           |                      |                                                      
|                           | Allowance amount (1) | Allowance amount as a percentage of loans in category
|                           |                      |                                                      
|Commercial loans           | Ch$ 58,768           | 1.89%                                                
|Consumer loans             | 9,603                | 4.91                                                 
|Residential mortgage loans | 1,079                | 0.23                                                 
|                           |                      |                                                      
|Total allocated allowances | Ch$ 69,450           | 1.84%                                                
|Leasing contracts          | 8,232                | 0.22                                                 
|Foreign loans              | 3,151                | 0.08                                                 
|Voluntary allowances       | 32,697               | 0.86                                                 
|                           |                      |                                                      
|Total allowances           | Ch$ 113,530          | 3.00%                                                
|                           |                      |                                                      

|                           | 2001                 | 2002                                                 
|-------------------------- | -------------------- | -----------------------------------------------------
|                           |                      |                                                      
|                           | Allowance amount (1) | Allowance amount as a percentage of loans in category
|                           |                      |                                                      
|Commercial loans           | Ch$ 75,976           | 2.36%                                                
|Consumer loans             | 10,780               | 4.91                                                 
|Residential mortgage loans | 1,840                | 0.32                                                 
|                           |                      |                                                      
|Total allocated allowances | Ch$ 88,596           | 2.21%                                                
|Leasing contracts          | 9,964                | 0.25                                                 
|Foreign loans              | 4,316                | 0.10                                                 
|Voluntary allowances       | 34,881               | 0.87                                                 
|                           |                      |                                                      
|Total allowances           | Ch$ 137,757          | 3.43%                                                
|                           |                      |                                                      

81

---



|                           | 2003                
|-------------------------- | --------------------
|                           |                     
|                           | Allowance amount (1)
|                           |                     
|Commercial loans           | Ch$ 120,741         
|Consumer loans             | 17,934              
|Residential mortgage loans | 6,129               
|                           |                     
|Total allocated allowances | Ch$ 144,804         
|Leasing contracts          | 8,273               
|Foreign loans              | 5,757               
|Voluntary allowances       | 20,557              
|                           |                     
|Total allowances           | Ch$ 179,391         
|                           |                     

___________________


|(1) | In millions of constant pesos as of December 31, 2003.
|--- | ------------------------------------------------------
|(2) | Based on our loan classification.                     

The following table
sets forth our charge-offs for 2001, 2002 and 2003 by major economic sector and provides
further detail of charge-offs that have already been described in the previous discussion
of allowances for loan losses:

|                           | Year ended December 31,                              
|-------------------------- | -----------------------------------------------------
|                           |                                                      
|                           | 2001                                                 
|                           |                                                      
|                           | (in millions of constant Ch$ as of December 31, 2003)
|                          
|Commercial:               
|Agriculture                | Ch$ 665                                              
|Mining                     | 21                                                   
|Manufacturing              | 2,109                                                
|Construction               | 63                                                   
|Commerce                   | 4,967                                                
|Transport                  | 601                                                  
|Financial services         | 1,697                                                
|Community                  | 1,598                                                
|                           |                                                      
|Subtotal:                  | Ch$ 11,721                                           
|Consumer loans             | 9,148                                                
|Residential mortgage loans | 3,170                                                
|Leasing contracts          | 3,744                                                
|Foreign Loans              | 301                                                  
|                           |                                                      
|Total                      | Ch$ 28,084                                           
|                           |                                                      

Composition of
Deposits and Other Commitments

The
following table sets forth the composition of our deposits and similar commitments at
December 31, 2001, 2002 and 2003. See Item 4.  Information on the CompanySelected
Statistical InformationAverage Balance Sheets, Interest Earned on Interest Earning
Assets and Interest Paid on Interest Bearing Liabilities for the average rate paid on
each of the following deposit categories.

|                         | December 31,                                         
|------------------------ | -----------------------------------------------------
|                         |                                                      
|                         | 2001                                                 
|                         |                                                      
|                         | (in millions of constant Ch$ as of December 31, 2003)
|                        
|Current accounts         | Ch$ 682,219                                          
|Other demand liabilities | 282,667                                              
|Savings accounts         | 100,112                                              
|Time deposits            | 2,650,851                                            
|Other commitments(1)     | 125,010                                              
|                         |                                                      
|Total                    | Ch$ 3,840,859                                        
|                         |                                                      

___________________


|(1) | Includes preliminary leasing accounts payable relating to purchase of equipment.
|--- | --------------------------------------------------------------------------------

82

---



Maturity of Deposits

The following table
sets forth information regarding the currency and maturity of our deposits at December
31, 2003, expressed in percentages.  UF-denominated deposits are similar to Chilean
peso-denominated deposits in all respects, except that the principal is readjusted
periodically based on variations in the Chilean Consumer Price Index.

|                                           | Ch$     | UF      | ForeignCurrency | Total  
|------------------------------------------ | ------- | ------- | --------------- | -------
|                                           |         |         |                 |        
|                                          
|Demand deposits                            | 43.69%  | 2.83%   | 36.75%          | 35.59% 
|Savings accounts                           |        | 18.58   |                | 3.01   
|Time deposits:                            
|Maturing within three months               | 50.47   | 42.52   | 60.04           | 51.23  
|Maturing after three but within six months | 3.78    | 14.79   | 2.29            | 5.24   
|Maturing after six but within 12 months    | 1.86    | 16.69   | 0.87            | 4.05   
|Maturing after 12 months                   | 0.20    | 4.59    | 0.05            | 0.88   
|                                           |         |         |                 |        
|Total time deposits                        | 56.31   | 78.59   | 63.25           | 61.40  
|                                           |         |         |                 |        
|Total deposits                             | 100.00% | 100.00% | 100.00%         | 100.00%
|                                           |         |         |                 |        

The
following table sets forth information regarding the currency and maturity of deposits in
excess of U.S.$100,000 at December 31, 2003:

|                                           | Ch$                                                   | UF          | ForeignCurrency | Total        
|------------------------------------------ | ----------------------------------------------------- | ----------- | --------------- | -------------
|                                           |                                                       |             |                 |              
|                                           | (in millions of constant Ch$ as of December 31, 2003)
|                                          
|Time deposits:                            
|Maturing within three months               | Ch$ 1,388,222                                         | Ch$ 282,864 | Ch$ 404,698     | Ch$ 2,075,784
|Maturing after three but within six months | 118,486                                               | 8,109       | 136,042         | 262,637      
|Maturing after six but within 12 months    | 61,625                                                | 319         | 145,543         | 207,487      
|Maturing after 12 months                   | 6,764                                                 |            | 33,028          | 39,792       
|                                           |                                                       |             |                 |              
|Total time deposits                        | Ch$ 1,575,097                                         | Ch$ 291,292 | Ch$ 719,311     | Ch$ 2,585,700
|                                           |                                                       |             |                 |              

Minimum Capital
Requirements

The
following table sets forth our minimum capital requirements set by the Chilean
Superintendency of Banks as of the dates indicated:

|                                                | As of December 31,                                   
|----------------------------------------------- | -----------------------------------------------------
|                                                |                                                      
|                                                | 2001                                                 
|                                                |                                                      
|                                                | (in millions of constant Ch$ as of December 31, 2003)
|                                               
|Banco de Chiles regulatory capital             | Ch$ 323,846                                          
|Minimum regulatory capital required             | (163,835)                                            
|                                                |                                                      
|Excess over minimum regulatory capital required | Ch$ 160,011                                          
|                                                |                                                      

Short-term
Borrowings

Our
short-term borrowings (other than deposits) totaled Ch$252,821 million as of December 31,
2001, Ch$541,886 million as of December 31, 2002 and Ch$818,289 million as of December
31, 2003.

The
principal categories of our short-term borrowings are amounts borrowed under foreign
trade lines of credit, domestic interbank loans and repurchase agreements.  The table
below presents the amounts outstanding at the end of each period indicated and the
weighted average nominal interest rate for each period by type of short-term borrowing:

83

---



|                                                | For the year ended December 31,                                            
|----------------------------------------------- | ---------------------------------------------------------------------------
|                                                |                                                                            
|                                                | 2001                                                                       
|                                                |                                                                            
|                                                | Year-EndBalance                                                            
|                                                |                                                                            
|                                                | (in millions of constant Ch$ as of December 31, 2003, except for rate data)
|                                               
|Investments under agreements to repurchase      | Ch$ 164,755                                                                
|Central Bank borrowings                         | 34,046                                                                     
|Borrowings from domestic financial institutions | 25,952                                                                     
|Foreign borrowings                              | 10,885                                                                     
|Other obligations                               | 17,183                                                                     
|                                                |                                                                            
|Total short-term borrowings                     | Ch$ 252,821                                                                
|                                                |                                                                            

The
following table shows the average balance and the weighted average nominal rate for each
short-term borrowing category during the periods indicated:

|                                                | For the year ended December 31,                                            
|----------------------------------------------- | ---------------------------------------------------------------------------
|                                                |                                                                            
|                                                | 2001                                                                       
|                                                |                                                                            
|                                                | AverageBalance                                                             
|                                                |                                                                            
|                                                | (in millions of constant Ch$ as of December 31, 2003, except for rate data)
|                                               
|Investments under agreements to repurchase      | Ch$ 177,652                                                                
|Central Bank borrowings                         | 31,614                                                                     
|Borrowings from domestic financial institutions | 7,407                                                                      
|Sub-total                                       | Ch$ 216,673                                                                
|Foreign borrowings                              | 19,384                                                                     
|Total short-term borrowings                     | Ch$ 236,057                                                                
|                                                |                                                                            

The
following table presents the maximum month-end balances of our principal sources of
short-term borrowings during the periods indicated:

|                                                | Maximum 2001 month-end balance                        | Maximum 2002 month-end balance | Maximum 2003 month-end balance
|----------------------------------------------- | ----------------------------------------------------- | ------------------------------ | ------------------------------
|                                                |                                                       |                                |                               
|                                                | (in millions of constant Ch$ as of December 31, 2003)
|                                                |                                                       |                                |                               
|Investments under agreements to repurchase      | Ch$ 218,312                                           | Ch$ 449,513                    | Ch$ 426,741                   
|Central Bank borrowings                         | 61,951                                                | 10,001                         | 34,347                        
|Borrowings from domestic financial institutions | 45,959                                                | 137,978                        | 119,802                       
|Foreign borrowings                              | Ch$ 50,323                                            | Ch$ 211,587                    | Ch$ 329,275                   

84

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Table of Contents


Item 5.
Operating and Financial Review and Prospects

OPERATING RESULTS

Introduction

The
following discussion should be read together with our audited consolidated financial
statements and the section entitled Item 4.  Information on the CompanySelected
Statistical Information.  Certain amounts (including percentage amounts) that appear in
this annual report may not total due to rounding.

We
prepare our audited consolidated financial statements in accordance with Chilean GAAP
(including the rules of the Chilean Superintendency of Banks relating thereto), which
differ in certain significant respects from U.S. GAAP.  Note 28 to our audited
consolidated financial statements provides a description of the material differences
between Chilean GAAP and U.S. GAAP as they relate to us and includes a reconciliation to
U.S. GAAP of net income for the years ended December 31, 2001, 2002 and 2003 and
shareholders equity at December 31, 2002 and 2003.

Pursuant
to Chilean GAAP, the financial data presented in this section for all full-year periods
are restated in constant pesos of December 31, 2003.  See Presentation of Financial
Information and note 1 to our audited consolidated financial statements.

As
described below, changes in interest rates and in the rates of inflation as well as
economic and political factors affecting Chile have a substantial impact on our financial
performance.  See Item 4.  Information on the CompanySelected Statistical Information for
a description of risk characteristics associated with each type of loan in our loan
portfolio.

Overview

Completion
of Integration with Banco de A. Edwards

The
completion of the integration of our operations with those of Banco de A. Edwards in late
2002 had a significant impact on our operating results for 2003.  For example, in 2003
our return on average equity was 20%, as compared to 9% in 2002.  Similarly, net income
increased 146% in 2003 as compared to 2002.  We believe that, given the highly
competitive nature of the Chilean banking industry, our ability to sustain our current
levels of net income and return on average equity will be largely dependant on our
ability to achieve new efficiency and productivity gains.  We seek to achieve such
efficiency and productivity gains through our Neos program and other similar initiatives.
 We also seek to improve our service quality, and to strengthen the competitive position
of our subsidiaries, foreign branches and other distribution channels by taking advantage
of our multi-brand strategy.

Impact
of Economic Conditions in Chile

The
Chilean economy grew rapidly every year between 1984 and 1998, expanding at a real
average annual rate of approximately 7.3% from 1990 through 1998.  Despite its growth, it
remained smaller than the economies of other Latin American countries.  In 1999, the
Chilean economy contracted at a real rate of 0.8%, and the unemployment rate reached
8.9%.  In 2000 and 2001, the Chilean economy recovered somewhat, and the Chilean economy
grew 4.5% in 2000 and 3.4% in 2001.  Nevertheless, unemployment remained high, reaching
7.9% in 2001.  In 2002, the growth of the Chilean economy slowed somewhat, as the Chilean
economy grew 2.2%.  In 2002, unemployment declined slightly, reaching 7.8% during the
fourth quarter of 2002.   In 2003, the Chilean economy grew 3.3%, and unemployment
decreased slightly to 7.4% during the fourth quarter of 2003.  There can be no assurance
that future negative developments in the Chilean economy will not impair our ability to
proceed with our strategic plan or our business, financial condition or results of
operations.  Our financial condition and results of operations could also be adversely
affected by changes in

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economic
or other policies of the Chilean government (which has exercised and continues to
exercise a substantial influence over many aspects of the private sector) or other
political or economic developments in Chile, as well as regulatory changes or
administrative practices of Chilean authorities, over which we have no control.  See Item
3.  Key InformationRisk FactorsRisks Relating to ChileOur growth and profitability
depends on the level of economic activity in Chile and elsewhere and Item 3.  Key
InformationRisk FactorsRisks Relating to ChileInflation could adversely affect the
value of our ADSs and financial condition and results of operations.

Central
Bank Subordinated Debt

As
discussed in Item 4.  Information on the CompanyHistory and Development of the BankHistoryThe
1982-1983 Economic Crisis and the Central Bank Subordinated Debt, subsequent to the
1982-1983 economic crisis, most major Chilean banks, including us, sold certain of their
non-performing loans to the Central Bank at face value on terms that included a
repurchase obligation by such banks.  This repurchase obligation was later exchanged for
subordinated debt of the banks issued in favor of the Central Bank.

In
November 1996, pursuant to Law No. 19,396, our shareholders approved a reorganization by
which we were converted to a holding company named SM-Chile.  In turn, SM-Chile organized
a new wholly owned banking subsidiary named Banco de Chile to which we contributed all of
our assets and liabilities other than the Central Bank subordinated debt.  SM-Chile then
created SAOS, a second wholly owned subsidiary that, pursuant to a prior agreement with
the Central Bank, assumed a new repayment obligation in favor of the Central Bank that
replaced the Central Bank subordinated debt in its entirety.

In
exchange for assuming the Central Bank indebtedness, SAOS received from SM-Chile 63.6% of
our shares as collateral for this indebtedness.  As a result of our merger with Banco de
A. Edwards, the percentage of our shares held by SAOS has decreased to 42%.  Dividends
received from us are the sole source of SAOSs revenue, which it must apply to repay this
indebtedness.  However, under SAOSs agreement with the Central Bank regarding this
indebtedness, we have no obligation to distribute dividends to our shareholders.  To the
extent distributed dividends are not sufficient to pay the amount due on this
indebtedness, SAOS is permitted to maintain a cumulative deficit balance with the Central
Bank that SAOS commits to pay with future dividends.  If the cumulative deficit balance
exceeds an amount equal to 20% of our capital and reserves, the Central Bank may require
SAOS to sell a sufficient number of shares of our stock owned by SAOS to pay the entire
deficit amount accumulated.  As of April 30, 2004, SAOS maintained a deficit balance with
the Central Bank of Ch$37,080 million, equivalent to 7.2% of our capital and reserves.
 If from time to time in the future our shareholders decide to retain and capitalize all
or part of our annual net income in order to finance our future growth, and to distribute
stock dividends, the Central Bank may require us to pay the portion of the net income
corresponding to shares owned by SAOS in cash to SAOS.  If we distribute stock dividends
and the Central Bank does not require us to pay that portion in cash, the shares received
by SAOS must be sold by SAOS within the following 12 months.  See Item 4.  Information
on the CompanyHistory and Development of the Bank.  Any distribution of dividends by us
to SAOS would be made pro rata to SAOS and all of our other shareholders according to
their percentage interest in our company.

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Inflation

Chile
has experienced high levels of inflation in the past, which significantly affected our
financial condition and results of operations.  However, the rate of inflation in Chile
has declined in recent years and was 2.6% in 2001, 2.8% in 2002 and 1.1% in 2003.  Our
results of operations reflect the effect of inflation in the following ways:

- a substantial portion
of our assets and liabilities are denominated in UFs, a unit of account, the value of
which in pesos is                   indexed daily to reflect inflation recorded in the
previous month, with the net gain or loss resulting from such
                  indexation reflected in income;
- our assets,
liabilities and shareholders equity are restated monthly to adjust for inflation, with
the net gain or loss                   resulting from the adjustment reflected in income;
and
- the rates of interest
earned and paid on peso-denominated assets and liabilities to some degree reflect
inflation and                   expectations regarding inflation.

The
financial data included in this annual report as of the end of any year or for any year
in the five-year period ended December 31, 2003, including the audited consolidated
financial statements and the statistical information set forth under Item 4. Information
on the CompanySelected Statistical Information, are stated in constant Chilean pesos as
of December 31, 2003, thereby minimizing the distorting effect of inflation on
period-to-period comparisons.

UF-denominated
Assets and Liabilities. The UF is revalued in monthly cycles. On every day in the
period beginning the tenth day of the current month through the ninth day of the
succeeding month, the nominal peso value of the UF is indexed up (or down in the event of
deflation) in order to reflect each day a pro rata amount of the prior calendar months
change in the Consumer Price Index. One UF was equal to Ch$16,262.66 at December 31,
2001, Ch$16,744.12 at December 31, 2002 and Ch$16,920.00 at December 31, 2003. The
effect of any changes in the nominal peso value of our UF-denominated assets and
liabilities is reflected in our results of operations as an increase (or decrease, in the
event of deflation) in interest revenue and expense. Our net interest revenue will be
positively affected by inflation (and negatively affected by deflation) to the extent
that our average UF-denominated assets exceed our average UF-denominated liabilities,
while net interest revenue will be negatively affected by inflation (and positively
affected by deflation) when average UF-denominated liabilities exceed average
UF-denominated assets. Our average UF-denominated assets exceeded our average
UF-denominated liabilities by Ch$846,178 million during the year ended December 31, 2001,
Ch$1,664,202 million during the year ended December 31, 2002 and Ch$1,614,417 million
during the year ended December 31, 2003. See Item 4. Information on the CompanySelected
Statistical Information.

Peso-denominated
Assets and Liabilities. Rates of interest prevailing in Chile during any period reflect
in significant part the rate of inflation during the period and expectations regarding
future inflation. The responsiveness to such prevailing rates of our peso-denominated
interest earning assets and interest bearing liabilities varies. See Interest Rates. We
maintain a substantial amount of non-interest bearing peso-denominated demand deposits.
The ratio of such deposits to average interest bearing peso-denominated liabilities was
78% during 2001, 57% during 2002 and 66% during 2003. Because a large part of such
deposits are not sensitive to inflation, any decline in the rate of inflation adversely
affects our net interest margin on assets funded with such deposits and any increase in
the rate of inflation increases the net interest margin on such assets.

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Price-Level
Restatements.Chilean GAAP requires that the effect of inflation on a banks net
monetary asset position (monetary assets less monetary liabilities) be reflected in its
results of operations as a gain (or loss) from price-level restatement. A banks net
monetary asset position can be determined by subtracting its net nonmonetary asset
position (nonmonetary assets less nonmonetary liabilities) from shareholders equity. As
such, under Chilean GAAP, the gain (or loss) from price-level restatement in results of
operations is determined by subtracting the price-level restatement adjustment of net
nonmonetary assets from the price-level restatement adjustment of shareholders equity.
The inflation rate used for purposes of such adjustments is the change in the Consumer
Price Index during the 12 months ended November 30 of the reported year. The change in
the Consumer Price Index used for price-level restatement purposes was 3.1% in 2001, 3.0%
in 2002 and 1.0% in 2003. See note 1(b) to our audited consolidated financial
statements. The actual change in the Consumer Price Index was 2.6% in the year ended
December 31, 2001, 2.8% in the year ended December 31, 2002 and 1.1% in the year ended
December 31, 2003.

Interest
Rates

Interest
rates earned and paid on our assets and liabilities to some degree reflect inflation and
expectations regarding future inflation as well as shifts in short-term interest rates
related to the Central Banks monetary policies.  The Central Bank manages short-term
interest rates based on its objectives of achieving low inflation and stable exchange
rates.  Because our liabilities generally re-price faster than our assets, changes in the
rate of inflation or short-term interest rates are reflected in the rates of interest we
pay on our liabilities before they are reflected in the rates of interest we earn on our
assets. Accordingly, our net interest margin on assets and liabilities usually is
adversely affected in the short-term by increases in inflation or short-term interest
rates and benefits in the short-term from decreases in inflation or short-term interest
rates, although the existence of non-interest bearing peso-denominated demand deposits
tends to mitigate both effects.  See InflationPeso-denominated Assets and Liabilities.  In
addition, because our peso-denominated liabilities have relatively short re-pricing
periods, those liabilities generally are more responsive to changes in inflation or
short-term interest rates than our UF-denominated liabilities.

The
average annual short-term interest rate based on the rate paid by Chilean financial
institutions for 90 to 360 day deposits was 3.74% in 2001, 1.94% in 2002 and 1.76% in
2003.  The average long-term interest rate based on the Chilean Central Banks eight-year
duration bonds was 5.52% in 2001, 4.54% in 2002 and 3.96% in 2003.

Foreign
Currency Exchange Rates

A
significant portion of our assets and liabilities are denominated in foreign currencies,
principally U.S. dollars, and we historically have maintained and may continue to
maintain gaps between the balances of such assets and liabilities.  The gap between
foreign currency-denominated assets and foreign currency-denominated liabilities was
Ch$71,282 million at December 31, 2001, Ch$73,557 million at December 31, 2002 and
Ch$22,710 million at December 31, 2003.  See note 20 to our audited consolidated
financial statements.  This gap includes assets and liabilities denominated in foreign
currencies and assets and liabilities denominated in Chilean pesos that contain repayment
terms linked to changes in foreign currency exchange rates.  Because foreign
currency-denominated assets and liabilities, as well as interest earned or paid on such
assets and liabilities and gains (losses) realized upon the sale of such assets, are
translated into pesos in preparing our audited consolidated financial statements, our
reported income is affected by changes in the value of the peso with respect to foreign
currencies (principally the U.S. dollar). For their part, adjustments to U.S.
dollar-indexed assets are reflected as adjustments in net interest earnings and offset
results in the foreign exchange position.  The exchange rate variation over capital and
reserves of our foreign branches is adjusted against equity and not against net income.

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Mortgage
Finance Bonds Issued and Held by Banco de Chile

We
generally fund our residential mortgage loans through the issuance of UF-denominated
notes, or mortgage finance bonds, which are recourse obligations with payment terms
matched to the related mortgage loans, bearing interest at a spread below the interest
rate applicable to such mortgage loans.  However, if we were ever liquidated, holders of
mortgage finance bonds would be secured by a pool of mortgages.  See Item 4.
 Information on the CompanyBusiness OverviewPrincipal Business ActivitiesRetail BankingHigh-
and Middle-Income IndividualsMortgage Loans.  Mortgage finance bonds traditionally are
placed with institutions, such as pension funds, mutual funds and insurance companies,
seeking long-term fixed-income investments.

However,
we also purchase, for our own account, mortgage finance bonds that we issue and hold for
future sale.  Unlike U.S. GAAP, under which mortgage finance bonds we issue and hold for
future sale are offset against the related liability, under Chilean GAAP, for periods
prior to 2002, mortgage finance bonds and the related liability appeared on our
consolidated balance sheet separately as financial investments, other financial
investments and other interest bearing liabilities, mortgage finance bonds,respectively.
 During 2002, we modified the accounting treatment of financial investments in mortgage
finance bonds that we issue in accordance with new instructions of the Chilean
Superintendency of Banks, mandating that the reporting requirements under Chilean GAAP be
equivalent to the requirements of U.S. GAAP.  For periods prior to 2002, and because the
interest earned and paid on these mortgage finance bonds is the same and hence has no
impact on net interest revenue, the effect of not excluding these bonds from average
interest earning assets was to reduce our net interest margin (net interest revenue
divided by average interest earning assets) from what it would have been under U.S. GAAP.
 Similarly, any other income analysis or financial ratios based on the size of our
consolidated balance sheet on either the asset or liability side was different from how
it would have been had the consolidated balance sheet been prepared according to U.S.
GAAP.  At December 31, 2003, we had issued and outstanding Ch$1,014,452 million of
mortgage finance bonds.  For a detailed description of the accounting matters related to
investments in mortgage finance bonds that we issue see notes 2 and 28 to our audited
consolidated financial statements and Changes In Accounting Principles.

According
to the General Banking Law, if a bank faces insolvency and a reorganization plan is
proposed, the bank must transfer its mortgage loan portfolio to the highest bidder as
long as such bid is equal to or higher than the amount due to the banks other creditors
pursuant to the reorganization plan.  The successful bidder pays a portion of the amount
due on the mortgage finance bonds equal to the amount paid for the bonds.  If the auction
does not succeed, the holders of the mortgage finance bonds are subject to the provisions
of the reorganization plan.  In the event of mandatory liquidation of a bank, the same
rules apply, provided that in order for an offer to be accepted it must be equal to or
higher than 90% of the face value of the mortgage finance bonds, unless the holders of a
majority of the issued and outstanding mortgage finance bonds approve the offer in a
meeting especially called for this purpose by the liquidator.

Contingent
Loans

Contingent
loans consist of unfunded letters of credit, guarantees, performance bonds and other
unfunded commitments. Chilean banks charge their customers a fee on contingent loans as
well as interest for the periods of the contingent debt.  Fees are considered fee income,
and interest is recorded as interest revenue.  Accordingly, we treat contingent loans as
interest earning assets.  As a result of this treatment, the comparatively low rates of
interest earned on these assets have a distorting effect on the average interest rate
earned on total interest earning assets.  See Item 4.  Information on the CompanySelected
Statistical InformationAverage Balance Sheets, Interest Earned on Interest Earning
Assets and Interest Paid on Interest Bearing Liabilities.

In
addition, under Chilean GAAP, rights and obligations with respect to contingent loans are
treated as contingent assets and liabilities on our consolidated balance sheets.  This
practice differs from U.S. GAAP, under which such contingent amounts are not recognized
on the consolidated balance sheets but are disclosed

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off-balance sheet in
memorandum accounts.  Accordingly, to the extent we maintain contingent loans and
contingent liabilities, our consolidated balance sheets will appear different from how
they would have appeared had they been prepared under U.S. GAAP.  See note 28 to our
audited consolidated financial statements.

At
December 31, 2003, we had Ch$409,612 million of contingent loans and Ch$409,638 million
of contingent liabilities outstanding.

Critical Accounting
Estimates

We
prepare our consolidated financial statements in conformity with Chilean GAAP and the
specific accounting rules of the Chilean Superintendency of Banks.  The notes to our
audited consolidated financial statements contain a summary of the accounting policies
that are significant to us, as well as a description of the significant differences
between these policies and U.S. GAAP. The notes include additional disclosures required
under U.S. GAAP, a reconciliation between shareholders equity and net income to the
corresponding amounts that would be reported in accordance with U.S. GAAP and a
discussion of recently issued accounting pronouncements.

Both
Chilean and U.S. GAAP require management to make certain estimates and assumptions, as
some of the amounts reported in the financial statements are related to matters that are
inherently uncertain.  We believe that the following discussion describes those areas
that require the most judgment or involve a higher degree of complexity in the
application of the accounting policies that currently affect our financial condition and
results of operations.

Allowances
for loan losses

Chilean
banks are required to maintain loan loss allowances in amounts determined in accordance
with the regulations issued by the Chilean Superintendency of Banks.  Under these
regulations, we must classify our portfolio based on payment capability.  The minimum
amount of required loan loss allowances are determined based on fixed percentages of
estimated loan losses assigned to each category.  Additionally, Chilean banks may also
maintain voluntary allowances in excess of the minimum required amount in order to
provide additional coverage for potential loan losses.

Under
U.S. GAAP, allowances for loan losses are made to account for estimated losses in
outstanding loans for which there is doubt about the borrowers capacity to repay the
principal.

The
classification of our loan portfolio for Chilean GAAP purposes and allowances for loan
losses under U.S. GAAP is determined through a combination of specific reviews,
statistical modeling and estimates.  Certain aspects require judgments, such as the
identification of deteriorating loans, the probability of default, the expected loss, the
value of collateral and current economic conditions.  Even though we consider our
allowances for loan losses to be adequate, the use of different estimates and assumptions
could produce different allowances for loan losses, and amendments to the allowances may
be required in the future as a consequence of changes in the value of collateral, the
amounts of cash to be received or other economic events.

A
detailed description of this accounting policy is discussed in Item 4.  Information on
the CompanySelected Statistical InformationAllowances for Loan Losses and in note 1
and 28 to our audited consolidated financial statements.

Investment
securities

Under
both Chilean GAAP and U.S. GAAP financial instruments are stated at fair value, except
for those classified as held-to-maturity under U.S. GAAP, which are carried at
amortized cost.  Fair values are based on quoted market prices or, if not available, on
internally developed pricing models fed by

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independently obtained
market information.  However, market information is often limited or in some instances
not available.  In such circumstances management applies its professional judgment.
 Other factors that could also affect estimates are incorrect model assumptions, market
dislocations and unexpected correlations.  Notwithstanding the level of subjectivity
inherent in determining fair value, we believe our estimates of fair value are adequate.
 The use of different models or assumptions could lead to changes in our reported results.

Price-level
restatement

Chilean
GAAP requires that financial statements be restated to reflect the full effects of loss
in the purchasing power of the Chilean peso on the financial position and results of
operations of reporting entities.  The method prescribes that the historical cost of all
non-monetary accounts be restated for general price-level changes between the date of
origin of each item and the year-end.

Our
audited consolidated financial statements have been price-level restated in order to
reflect the effects of the changes in the purchasing power of the Chilean peso during
each year.  All non-monetary assets and liabilities and all equity accounts have been
restated to reflect the changes in the Consumer Price Index from the date they were
acquired or incurred to year-end. Consistent with general banking practices in Chile, no
specific purchasing power adjustments of income statement amounts are made. The
purchasing power gain or loss included in net income reflects the effects of Chilean
inflation on the monetary assets and liabilities held by us.

For
comparative purposes, the historical December 31, 2001 and 2002 audited consolidated
financial statements and their accompanying notes have been presented in constant Chilean
pesos as of December 31, 2003.  As described in note 1(q) of our audited consolidated
financial statements, certain balances of previous years financial statements have been
reclassified to conform with the present year presentation.

The price-level
adjusted audited consolidated financial statements do not purport to represent appraised
values, replacement cost, or any other current value of assets at which transactions
would take place currently and are only intended to restate all nonmonetary consolidated
financial statement components in terms of local currency of a single purchasing power
and to include in the net result for each year the gain or loss in purchasing power
arising from the holding of monetary assets and liabilities exposed to the effects of
inflation.  See the discussion of price-level restatement in note 1(b) to our audited
consolidated financial statements.

Goodwill

Under
U.S. GAAP, we have significant intangible assets related to goodwill.  We record all
assets and liabilities acquired in purchase acquisitions, including goodwill and other
acquired intangibles, at fair value as required by the Statement of Financial Accounting
Standards No. 141, published by the FASB.  These include amounts pushed down from Quiñenco.
 Goodwill and indefinite-lived assets are no longer amortized over their estimated useful
lives using straight-line and accelerated methods, and are subject to impairment if
events or circumstances indicate a possible inability to realize the carrying amount.
 The initial goodwill and intangibles recorded and subsequent impairment analysis
requires management to make subjective judgments concerning estimates of how the acquired
asset will perform in the future using a discounted cash flow analysis.  Additionally,
estimated cash flows may extend beyond ten years and, by their nature, are difficult to
determine.  Events and factors that may significantly affect the estimates include, among
others, competitive forces, customer behavior and attrition, changes in revenue growth
trends, cost structures and technology and changes in interest rates and specific
industry or market sector conditions.  Impairment is recognized earlier whenever
warranted.  For a further discussion of accounting practices for goodwill under U.S.
GAAP, see note 28 to our audited consolidated financial statements.

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Changes in
Accounting Principles

Until
October 31, 2002, other financial investments included mortgage finance bonds issued by
us and held for future sale. Effective October 31, 2002, we modified our accounting
treatment of financial investments in mortgage finance bonds issued by us in accordance
with instructions from the Chilean Superintendency of Banks, eliminating from assets the
amount recoded for mortgage finance bonds issued by us, including a market value
adjustment, and reducing from liabilities, the respective mortgage finance bond
obligations.  See note 2 to our audited consolidated financial statements.

Differences between
Chilean and United States Generally Accepted Accounting Principles

Chilean
GAAP varies in certain important respects from U.S. GAAP, including some of the methods
that are used to measure the amounts shown in the audited consolidated financial
statements, additional disclosures required by U.S. GAAP and the accounting treatment of
the merger.  Those differences, as well as other significant differences between Chilean
GAAP and U.S. GAAP, are described in greater detail in note 28 to our audited
consolidated financial statements.

Results of
Operations for the Years Ended December 31, 2001, 2002 and 2003

The
following section discusses the results of operations for the years ended December 31,
2001, 2002 and 2003.  To the extent that it is available and is useful in analyzing our
results, we have included information based on the business areas that we use for
internal reporting.  We also present our results on a consolidated basis.

We
use a business area-based profitability system to manage our business.  This system
allows us to extract income and expense information by client and also allows us to view
information by office or branch and by business area.  The profitability system uses the
accounting balances and the interest rates as agreed upon with the client.  In order to
assess the income per transaction, the system compares the interest rate agreed upon with
the client with our own cost of funds.  We use internal cost of funds tables for various
transactions.  The tables for each type of transaction are updated daily, and an
operating cost per transaction and per client is extracted.  Costs are allocated to the
business areas.  The system has been developed in recent years, and has been subject of
continued improvement.  Consequently, some changes in cost allocations have taken place.
 In addition, there have been variances between each year particularly in connection with
our merger with Banco de A. Edwards.

Our
business areas are organized as follows:

- large corporations;
- middle market
companies;
- international banking;
- retail banking;
- treasury and money
market operations; and
- operations through
subsidiaries.

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The
accounting policies used for the business areas are those used for our consolidated
management reports.  Corporate and personal customers are assigned to account executives.
 Each executive works exclusively within one business area.  Some costs are allocated to
the business areas and others are split between two or more business areas based on a
single transaction.  Thereafter, any unallocated costs are included as other in order
to arrive at the consolidated balance sheet and income statement.

The
business area information is subject to general internal and external auditing procedures
to ensure the integrity of the information before it is used in the management decision
making purposes.  The business area information presented has also been adjusted in order
to tie results to the income statement, as presented in accordance with Chilean GAAP in
our audited consolidated financial statements.  The most significant differences in
classification are as follows:

- We measure the net
interest margin of loans and deposits on an individual transaction and client basis,
based on the                   difference between the effective customer rate and our
related fund transfer price in terms of maturity, repricing                   and
currency.
- The results associated
with our gap management (mismatches) have been allocated among different business areas.
- Our management model
used to measure the performance of our business areas considers results that are directly
related to                   performance and not all overhead expenses of corporate and
support departments, voluntary allowances, taxes and                   other
non-operating income and expenses.
- In addition to direct
costs (consisting mainly of labor and administrative expenses) we allocate the majority
of our indirect                   operating costs to each business area based on the type
and amount of the relevant transactions.  These costs are                   mainly
related to the use of technology and computer equipment.  Other indirect costs are
allocated using                   activity-based costing methodology.
- We allocate
theoretical rental costs to each branch we own based on market rental values so that the
results of these                   branches are comparable to rental-property branches.

Net Income Before Tax
by Business Area

The following table
sets forth net income before tax for each business area for each of the years ended
December 31, 2001, 2002 and 2003.  The line item Other includes the effect of
conforming internal accounting policies to Chilean GAAP and a number of non-allocated
costs, such as human resources related expenses, voluntary provisions and depreciation
costs.  For internal reporting purposes, we control and monitor these costs separately
and do not include them in the determination of business area profitability. Also
included within Other are specific portions of income such as rental income.

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|                                      | Year Ended December 31,                                                       | % Increase (Decrease)
|------------------------------------- | ----------------------------------------------------------------------------- | ---------------------
|                                      | 2001                                                                          | 2002(1)              
|                                      |                                                                               |                      
|                                      | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                     
|Large corporations                    | Ch$ 17,923                                                                    | Ch$ 10,290           
|Middle market companies               | 46,823                                                                        | 23,929               
|International banking                 | 10,979                                                                        | (6,731)              
|Retail banking                        | 28,619                                                                        | 25,144               
|Treasury and money market operations. | 11,719                                                                        | 23,287               
|Subsidiaries                          | 10,093                                                                        | 13,633               
|Other                                 | (37,089)                                                                      | (37,556)             
|                                      |                                                                               |                      
|Net income before tax                 | Ch$ 89,067                                                                    | Ch$ 51,996           
|                                      |                                                                               |                      

|(1) | The 2002 business area information presented in this table has been adjusted in order to conform it to the
business area information presented for 2003.  In 2003, the management model used to measure the performance
of our business areas was modified in order to allocate a higher proportion of our overhead costs to Other.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
177.8% increase in net income before taxes in 2003 was primarily attributable to a
significant decrease in provisions for loan losses, a significant increase in fees and
income from services, a decrease in operating expenses and an increase in recoveries of
loans that had previously been charged-off.  These results were primarily attributable to
the recovery of the Chilean economy and the merger.

The
significant decrease in net income before taxes in 2002 as compared to 2001 was primarily
attributable to higher amounts of provisions for loan losses and charge-offs on assets
received in lieu of payment as a result of the slowdown in the Chilean economy and in
Latin America.

Large
Corporations.The almost five-fold increase in the large corporations business areas
net income before taxes in 2003 was primarily attributable to a 73.6% decrease in
provisions for loan losses. To a lesser extent, the increase in net income before taxes
was also attributable to a decrease in charge-offs on assets received in lieu of payments
and an increase in fee income from financial services. These factors more than offset a
small decrease in net interest revenue, which was primarily attributable to a decrease in
inflation in 2003.

The
42.6% decrease in the large corporations business areas net income before taxes in 2002
was primarily attributable to increased provisions for loan losses and charge-offs on
assets received in lieu of payment; both of which were primarily attributable to the
slowdown in the Chilean economy and in Latin America.  The decrease in net income was
also attributable to an increase in operating expenses, which was offset by a 47.7%
increase in operating revenues.  Both the increase in operating expenses and operating
revenues were attributable to the merger.

Middle
Market Companies.The 59.5% increase in the middle market companies business areas net
income before taxes in 2003 was primarily attributable to a decrease in provisions for
loan losses and, to a lesser extent, lower charge offs on assets received in lieu of
payment.

The
48.9% decrease in the middle market companies business areas income before taxes in 2002
was primarily attributable to the slowdown in the Chilean economy, increased provisioning
for loan losses and an increase in operating expenses which, together, more than offset
the 28.8% increase in operating revenues attributable to the merger.

International
Banking.In 2003, the international banking business area recorded net income of
Ch$12,202 million, as compared to a net loss of Ch$6,731 million recorded in 2002. The
change from a net loss to net income was primarily attributable to earnings obtained from
the sale of Latin American investment securities. The change from a net loss to net
income was also attributable to a decrease in operating expenses.

94

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The
international banking business areas net loss in 2002 was primarily attributable to
Argentinas economic crisis.  In 2002, our New York branch recognized a charge to net
income of approximately U.S.$19 million, as a result of the impairment of Argentine
corporate bonds.  The decrease in the market value of these securities reflected the
uncertainty and depressed economic conditions prevailing in Argentina at that time.

Retail
Banking.The 45.4% increase in the retail banking business areas net income before
taxes in 2003 was primarily attributable to lower provisions for loan losses and an
increase in recoveries of loans that had previously been charged-off. Additionally,
increased loan volumes and a decrease in operating expenses more than offset a reduction
in spreads on our loans and the negative effect of the decrease in the inflation rate.

The
12.1% decrease in the retail banking business areas net income before taxes for in 2002
was primarily attributable to an increase in operating expenses and in provisions for
loan losses, which more than offset an increase in loan volumes and spreads.

Treasury
and Money Market Operations.The 17.8% decrease in the treasury and money market
operations business areas net income before taxes in 2003 was primarily attributable to
a decrease in long-term interest rates and decreased interest rate volatility, which
reduced our earnings from our Chilean investment portfolio as compared to 2002.

The
98.7% increase in the treasury and money market operations business areas net income
before taxes in 2002 was primarily attributable to a decrease in interest rates in Chile
during the year, which led to higher mark to market and trading earnings in our
investment portfolio.  The treasury and money market business areas results in 2002 were
also positively impacted by the 17.7% increase in the average investment portfolio as a
result of the merger.

Operations
through Subsidiaries.The 56.0% increase in net income before taxes from our
subsidiaries in 2003 was primarily attributable to significant growth in fee income from
our subsidiary operations. The increase was primarily attributable to an increase in the
trading volume of stocks and U.S. dollars traded by our securities brokerage subsidiary;
an increase in the average amount of funds managed by our mutual fund management
subsidiary and an increase in the net income of our factoring subsidiary, which was
primarily the result of increased volume and a decrease in its provisions for loan losses.

The
35.1% increase in net income before taxes from our subsidiaries in 2002 was primarily
attributable to the merger and, to a lesser extent, an increase in operating revenues
associated with higher business volumes mainly at our mutual and investment fund
subsidiary, our financial advisory services subsidiary and, to a lesser extent, our
factoring services subsidiary.

95

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Net Income

The
following table sets forth the principal components of our net income, as detailed in our
audited consolidated financial statements for the years ended December 31, 2001, 2002 and
2003:

|                                      | Year Ended December 31,                                                       | % Increase (Decrease)
|------------------------------------- | ----------------------------------------------------------------------------- | ---------------------
|                                      |                                                                               |                      
|                                      | 2001                                                                          | 2002                 
|                                      |                                                                               |                      
|                                      | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                      |                                                                              
|Net interest revenue                  | Ch$ 223,517                                                                   | Ch$ 371,265          
|Provisions for loan losses            | (47,736)                                                                      | (101,650)            
|Fees and income from services, net    | 44,598                                                                        | 79,407               
|Other operating income (loss), net    | 8,677                                                                         | (30,850)             
|Other income and expenses, net:      
|Loan loss recoveries                  | 10,035                                                                        | 12,033               
|Other income and expenses, net        | 132                                                                           | (17,999)             
|Minority interest                     | (1)                                                                           | (1)                  
|Operating expenses                    | (144,145)                                                                     | (250,517)            
|Net loss from price-level restatement | (6,010)                                                                       | (9,692)              
|                                      |                                                                               |                      
|Net income before income taxes        | 89,067                                                                        | 51,996               
|Income taxes                          | 1,406                                                                         | 1,165                
|                                      |                                                                               |                      
|Net income                            | Ch$ 90,473                                                                    | Ch$ 53,161           
|                                      |                                                                               |                      

2002
and 2003. Our net income for 2003 was Ch$130,553 million, an increase of 146% from
Ch$53,161 million in 2002, which primarily reflected a 40.9% decrease in provisions for
loan losses, a 30.2% increase in fee income; a change from other operating loss,
net of Ch$30,850 million in 2002 to other operating income, net of Ch$96,391 million in
2003; a 10.4% decrease in operating expenses and an increase in the recovery of loans that
had previously been charged-off. These factors were partially offset by lower net interest
revenue and higher income taxes.

2001
and 2002. Our net income for 2002 was Ch$53,161 million, a decrease of 41.2% from
Ch$90,473 million in 2001, primarily reflecting significant merger related expenses and
higher provisions for loan losses and, to a lesser extent, to the recognition of mark to
market losses on Argentine securities accounted for as available for sale. These factors
were partially offset by higher net interest revenue and fee income.

Net
Interest Revenue

The tables
included under the headings Interest Revenue and Interest
Expense set forth information regarding our consolidated interest revenue and
expenses and average interest earning assets and average interest bearing liabilities for
the years ended December 31, 2001, 2002 and 2003. This information is derived from
the tables included elsewhere in this annual report under Item 4. Information on the
CompanySelected Statistical Information and is qualified in its entirety by
reference to such information.

|                       | Year Ended December 31,                                                       | % Increase (Decrease)
|---------------------- | ----------------------------------------------------------------------------- | ---------------------
|                       |                                                                               |                      
|                       | 2001                                                                          | 2002                 
|                       |                                                                               |                      
|                       | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                       |                                                                              
|Interest revenue       | Ch$ 536,330                                                                   | Ch$ 696,603          
|Interest expense       | (312,813)                                                                     | (325,338)            
|                       |                                                                               |                      
|Net interest revenue   | Ch$ 223,517                                                                   | Ch$ 371,265          
|                       |                                                                               |                      
|Net interest margin(1) | 3.87%                                                                         | 4.52%                

___________________


|(1) | Net
interest margin is net interest revenue divided by average interest earning assets.
 Pursuant to Chilean GAAP, net interest margin included mortgage finance bonds issued
        and held by us as interest earning assets in 2001.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

96

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The
following table sets forth the effect on our net interest revenue of changes in the
average volume of interest earning assets and interest bearing liabilities and the effect
of average nominal interest rates on interest earning assets and interest bearing
liabilities during the periods indicated:

|                                                                                                             | Increase (Decrease)                                  
|------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------
|                                                                                                             |                                                      
|                                                                                                             | 2001/2002                                            
|                                                                                                             |                                                      
|                                                                                                             | (in millions of constant Ch$ as of December 31, 2003)
|                                                                                                             |                                                      
|Due to changes in average volume of interest earning assets and interest bearing liabilities                 | Ch$ 147,508                                          
|Due to
changes in average nominal interest rates of interest earning assets and interest bearing liabilities | 240                                                  
|                                                                                                             |                                                      
|Net change                                                                                                   | Ch$ 147,748                                          
|                                                                                                             |                                                      

2002
and 2003. Net interest revenue decreased by 39.5% from Ch$371,265 million in 2002 to
Ch$224,470 million in 2003 primarily as a result of a 177 basis point (a basis point is a
value equaling one one-hundredth of a percent) decrease in our net interest margin and, to
a lesser extent, a 0.5% decrease in the average volume of interest earning assets. Our net
interest margin decreased from 4.52% in 2002 to 2.75% in 2003 primarily as a result of:

- the impact
of the 15.9% appreciation of the Chilean peso against the U.S. dollar in 2003, as we
maintained a higher net asset position in assets and liabilities denominated in Chilean
pesos, readjusted in accordance with changes in the U.S. dollar exchange rate, thus
reducing our net interest revenue. In 2003, we also maintained a net liability position
in U.S. dollars which partially offset the decrease in net interest revenue and increased
the foreign exchange transaction line item;

- the
decrease in the inflation rate (from 2.8% in 2002 to 1.1% in 2003), which resulted in
lower nominal rates on the portion of interest earning assets financed by non-interest
bearing liabilities; and

- the absence
of significant repricing benefits during 2003, as the Central Bank left its benchmark
interest rate unchanged at 2.75% between February and December 11, 2003, which reduced
our net financial margin as compared to 2002. During 2002, successive decreases in
interest rates benefited the 2002 net financial margin as our interest bearing
liabilities have a shorter repricing period than our interest earning assets.

The
0.5% decrease in average interest earning assets in 2003 was primarily the result of a
decrease in the amount of foreign currency denominated regulatory reserves we are required
to maintain,and a decrease in financial investments. We reduced the level of such
regulatory reserves and financial investments in response to the Central Banks
reduction, in May 2003, of its foreign currency denominated demand and time deposits
requirements.

2001
and 2002. Net interest revenue increased by 66.1% from Ch$223,517 million in 2001 to
Ch$371,265 million in 2002 primarily as a result of the combined effects of a 42.1%
increase in average interest earning assets as a result of the merger and a 65 basis point
(a basis point is a value equaling one one-hundredth of a percent) increase in net
interest margin, from 3.87% in 2001 to 4.52% in 2002. The increase in net interest margin
(our net interest revenue divided by average interest earning assets) was primarily the
result of:

- our efforts
to improve lending spreads by increasing higher yield products such as consumer loans,
lines of credit, mortgage loans financed by our general borrowing and factoring loans.

- the
positive impact of a decrease in nominal interest rates in 2002, as our interest bearing
liabilities have a shorter repricing period than our interest earning assets. In 2001,
our net interest margin also benefited from a decrease in nominal interest rates.

97

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- a better
funding mix, reflected in the improvement of the ratio of average interest bearing
liabilities to average interest earning assets from 76.4% in 2001 to 75.4% in 2002.

- the
positive impact of the 8.6% depreciation of the Chilean peso against the U.S. dollar
during 2002, as we kept a higher net asset position in assets and liabilities denominated
in Chilean pesos, readjusted in accordance with changes in the U.S. dollar exchange rate
(this position is usually hedged with a net liability position in U.S. dollars and,
consequently, increased our net interest revenue but originated accounting losses shown
in the foreign exchange transaction line item in 2002).

Interest
Revenue

The
following table sets forth information regarding our interest revenue and average interest
earning assets for the years ended December 31, 2001, 2002 and 2003:

|                                                          | Year Ended December 31,                                                       | % Increase (Decrease)
|--------------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------
|                                                          |                                                                               |                      
|                                                          | 2001                                                                          | 2002                 
|                                                          |                                                                               |                      
|                                                          | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                                          |                                                                              
|Interest revenue(1)                                       | Ch$ 536,330                                                                   | Ch$ 696,603          
|                                                          |                                                                               |                      
|Average interest earning assets:                         
|Commercial loans(2)                                       | Ch$ 2,033,405                                                                 | Ch$ 3,046,135        
|Consumer loans                                            | 206,683                                                                       | 394,576              
|Mortgage loans(3)                                         | 806,332                                                                       | 1,243,318            
|Foreign trade loans                                       | 432,365                                                                       | 618,174              
|Interbank loans                                           | 100,864                                                                       | 100,420              
|Past due loans(4)                                         | 52,565                                                                        | 146,192              
|Contingent loans(5)                                       | 291,409                                                                       | 370,266              
|Leasing contracts                                         | 173,977                                                                       | 241,633              
|                                                          |                                                                               |                      
|Total loans                                               | Ch$ 4,097,600                                                                 | Ch$ 6,160,714        
|Financial investments(6)                                  | 1,562,343                                                                     | 1,838,388            
|Interbank deposits                                        | 120,716                                                                       | 215,444              
|                                                          |                                                                               |                      
|Total                                                     | Ch$ 5,780,659                                                                 | Ch$ 8,214,546        
|                                                          |                                                                               |                      
|Average rates earned on total interest earning assets(7):
|Average nominal rates                                     | 9.28%                                                                         | 8.48%                
|Average real rates                                        | 10.28%                                                                        | 7.39%                

___________________


|(1) | Interest
revenue includes fees we charge in respect of contingent loans.  See
"--Overview--Contingent Loans."
|--- | -------------------------------------------------------------------------------------------------------------

|(2) | Excludes
leasing contracts.
|--- | ---------------------------

|(3) | Includes
residential and general purpose mortgage loans.
|--- | --------------------------------------------------------

|(4) | Includes
interest accrued and unpaid on principal until the date on which payment becomes overdue.
|--- | --------------------------------------------------------------------------------------------------

|(5) | Consists
of unfunded letters of credit, guarantees, performance bonds and other unfunded
commitments.
|--- | -----------------------------------------------------------------------------------------------------

|(6) | "Financial
investments" includes primarily bonds issued by the Central Bank and foreign governments.
|--- | ----------------------------------------------------------------------------------------------------

|(7) | See
"Item 4.  Information on the Company--Selected Statistical Information--Average Balance
Sheets, Interest Earned on Interest Earning Assets and Interest Paid on Interest
        Bearing Liabilities."
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
following table sets forth the effect on our interest revenue of changes in (1) the
average volume of interest earning assets and (2) the average nominal interest rates on
interest earning assets, during the periods presented in the preceding table:

|                                                                                   | Increase (Decrease)                                  
|---------------------------------------------------------------------------------- | -----------------------------------------------------
|                                                                                   |                                                      
|                                                                                   | 2001/2002                                            
|                                                                                   |                                                      
|                                                                                   | (in millions of constant Ch$ as of December 31, 2003)
|                                                                                   |                                                      
|Effect due to changes in average volume of interest earning assets                 | Ch$ 257,051                                          
|Effect due to changes in average nominal interest rates of interest earning assets | (96,778)                                             
|                                                                                   |                                                      
|Net change                                                                         | Ch$ 160,273                                          
|                                                                                   |                                                      

2002
and 2003. Interest revenue decreased by 38.5% from Ch$696,603 million in 2002 to
Ch$428,704 million in 2003 primarily as a result of a decrease in the average nominal
interest rates earned from 8.48% in 2002 to 5.24% in 2003. The decrease in average nominal
interest rates earned was principally a

98

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result of a decrease in the inflation rate (from
2.8% in 2002 to 1.1% in 2003) and in the interest rates on Chilean peso-denominated
interest earning assets. Average interest earning assets decreased slightly from
Ch$8,214,546 million in 2002 to Ch$8,174,715 million in 2003 as a result of a reduction in
Central Bank foreign currency-denominated demand and time deposits requirements.

2001
and 2002. Interest revenue increased by 29.9% from Ch$536,330 million in 2001 to
Ch$696,603 million in 2002 as a result of a 42.1% increase in average interest earning
assets, which was partially offset by a decrease in average nominal rates earned. Average
interest earning assets increased from Ch$5,780,659 million in 2001 to Ch$8,214,546
million in 2002 primarily as a consequence of the merger, which resulted in higher
balances in consumer loans, commercial loans, mortgage loans, past due loans and financial
investments. Average nominal interest rates earned declined from 9.28% in 2001 to 8.48% in
2002 primarily as a result of the reduction in real interest rates caused by the continued
monetary relaxation policy implemented by the Chilean government in order to expand
domestic demand. The reduction in real interest rates was partially offset by an increase
in the inflation rate from 2.6% in 2001 to 2.8% in 2002.

Interest
Expense

The
following table sets forth information regarding our interest expense and average interest
bearing liabilities for the years ended December 31, 2001, 2002 and 2003:

|                                                                        | Year Ended December 31,                                                       | % Increase (Decrease)
|----------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------
|                                                                        |                                                                               |                      
|                                                                        | 2001                                                                          | 2002                 
|                                                                        |                                                                               |                      
|                                                                        | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                                                        |                                                                              
|Interest expense                                                        | Ch$ 312,813                                                                   | Ch$ 325,338          
|                                                                        |                                                                               |                      
|Average interest bearing liabilities:                                  
|Time deposits(1)                                                        | Ch$ 2,676,102                                                                 | Ch$ 3,550,307        
|Savings accounts                                                        | 95,517                                                                        | 171,009              
|Total Central Bank borrowings                                           | 33,881                                                                        | 61,145               
|Investments sold under agreements to repurchase                         | 177,652                                                                       | 375,422              
|Mortgage finance bonds                                                  | 842,115                                                                       | 1,280,975            
|Other interest bearing liabilities(2)                                   | 593,158                                                                       | 756,370              
|                                                                        |                                                                               |                      
|Total                                                                   | Ch$ 4,418,425                                                                 | Ch$ 6,195,228        
|                                                                        |                                                                               |                      
|Average rates paid on total interest bearing liabilities(3):           
|Average nominal rates                                                   | 7.08%                                                                         | 5.25%                
|Average real rates                                                      | 7.41%                                                                         | 4.19%                
|Average (Chilean peso-denominated) non-interest bearing demand deposits | Ch$ 1,067,260                                                                 | Ch$ 1,593,738        

___________________


|(1) | Includes
interest-earning demand deposits.
|--- | ------------------------------------------

|(2) | Combines
interest bearing demand deposits and other interest bearing liabilities.
|--- | ---------------------------------------------------------------------------------

|(3) | See
"Item 4.  Information on the Company--Selected Statistical Information--Average Balance
Sheets, Interest Earned on Interest Earning Assets and Interest Paid on Interest
        Bearing Liabilities."
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
following table sets forth the effect on our interest expense from changes in
(1) average volume of interest bearing liabilities and (2) average nominal
interest rates paid on interest bearing liabilities, during the periods presented:

|                                                                                        | Increase (Decrease)                                  
|--------------------------------------------------------------------------------------- | -----------------------------------------------------
|                                                                                        |                                                      
|                                                                                        | 2001/2002                                            
|                                                                                        |                                                      
|                                                                                        | (in millions of constant Ch$ as of December 31, 2003)
|                                                                                        |                                                      
|Effect due to changes in average volume of interest bearing liabilities                 | Ch$ 109,543                                          
|Effect due to changes in average
nominal interest rates of interest bearing liabilities | (97,018)                                             
|                                                                                        |                                                      
|Net change                                                                              | Ch$ 12,525                                           
|                                                                                        |                                                      

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2002
and 2003. Interest expense decreased by 37.2% from Ch$325,338 million in 2002 to
Ch$204,234 million in 2003. The decrease was primarily attributable to a significant
decrease in average nominal interest rates paid, from 5.25% in 2002 to 3.42% in 2003, and,
to a lesser extent, by the impact of a 3.7% decrease in the average volume of interest
bearing liabilities, from Ch$6,195,228 million in 2002 to Ch$5,963,821 million in 2003,
mainly due to a decrease in mortgage finance bonds and time deposits. The decrease in the
average nominal interest rate paid was primarily attributable to lower inflation and lower
real interest rates paid on Chilean peso-denominated liabilities.

2001
and 2002. Interest expense increased by 4.0% from Ch$312,813 million in 2001 to
Ch$325,338 million in 2002, primarily as a result of the 40.2 % increase in average
interest bearing liabilities from Ch$4,418,425 million in 2001 to Ch$6,195,228 million in
2002 (primarily in time deposits and mortgage finance bonds) as a consequence of the
merger. The increase in average interest bearing liabilities was partially offset by a
decrease in the average nominal interest rates paid on such liabilities, from 7.08% in
2001 to 5.25% in 2002.

Provisions
for Loan Losses

Chilean
banks are required to maintain allowances to cover possible credit losses that at least
equal their loans to customers multiplied by the greater of (1) their risk index and
(2) 0.75%. The risk index is derived from managements classification of a
banks portfolio using the conceptual guidelines and definitions of the Chilean
Superintendency of Banks and managements estimate of the likelihood of default. For
statistical information with respect to our substandard loans and allowances for loan
losses, see Item 4. Information on the CompanySelected Statistical
Information and note 7 to our audited consolidated financial statements. The amount
of provisions charged to income in any period consists of net provisions for possible loan
losses and voluntary provisions.

The
following table sets forth information with respect to our provisions and allowances for
loan losses and charge-offs for each of the years ended December 31, 2001, 2002 and
2003:

|                                                          | Year Ended December 31,                                                       | % Increase (Decrease)
|--------------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------
|                                                          |                                                                               |                      
|                                                          | 2001                                                                          | 2002                 
|                                                          |                                                                               |                      
|                                                          | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                                          |                                                                              
|Provisions:                                               |                                                                               |                      
|Total provisions for loan losses                          | Ch$ 47,736                                                                    | Ch$ 101,650          
|Charge-offs:                                             
|Total charge-offs                                         | 28,084                                                                        | 112,075              
|Loan loss recoveries:                                    
|Total loan loss recoveries                                | 10,035                                                                        | 12,033               
|Other asset quality data:                                
|Total loans                                               | Ch$ 4,014,331                                                                 | Ch$ 6,223,129        
|Consolidated risk index                                   | 2.42%                                                                         | 3.00%                
|Unconsolidated risk index                                 | 2.48%                                                                         | 3.10%                
|Minimum required global allowances (0.75% minimum)        | Ch$ 30,107                                                                    | Ch$ 46,673           
|Allowances for loan losses(1)                             | Ch$ 137,757                                                                   | Ch$ 218,202          
|Allowances for loan losses as a percentage of total loans | 3.43%                                                                         | 3.51%                

___________________


|(1) | "Allowances
for loan losses" includes voluntary loan loss allowances greater than those required by
the Chilean Superintendency of Banks.  These allowances are created when we
        believe that changes in the portfolio concentrations or economic conditions
affecting or reasonably expected to affect borrowers' credit payment capacities are not
adequately         addressed by the regulatorily mandated reserves.  In addition, from
time to time we include other global allowances within our voluntary allowances.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2002
and 2003.Our overall provisions for loan losses decreased by 40.9% from Ch$101,650
million in 2002 to Ch$60,069 million in 2003, which primarily reflected the establishment
of significant provisions in 2002 that were not established in 2003 and the improvement in
the Chilean economy. The decrease in our overall provisions for loan losses were also
attributable to the 15.9% appreciation of the Chilean peso against the U.S. dollar, which
resulted in a decrease in the amount of our Chilean peso-denominated provisioning for

100

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foreign currency-denominated loans. As a result, the ratio of provisions to average loans
decreased to 0.96% in 2003 from 1.65% in 2002. Our consolidated risk index, changed from
3.00% at the end of 2002, to 2.36% as of December 31, 2003.

2001
and 2002. Our overall provisions for loan losses increased by 112.9% from Ch$47,736
million in 2001 to Ch$101,650 million in 2002, mainly as a result of the merger, as we
were required to increase our provisions for loan losses in order to level Banco de A.
Edwards commercial loan portfolio credit risk classifications with ours. The merger
also resulted in increased provisioning for loan losses as a result of the unification of
the risk criteria used to determine the amount of provisioning needed in connection with
our consumer loans after the merger. The following factors also resulted in the
substantial increase in our overall provisions for loan losses in 2002:

- Sluggish
economic growth, unfavorable terms of trade and high level of unemployment in Chile
adversely affected the financial condition of many medium size companies. In line with
our credit risk policies, this required us to establish significant provisions in this
business area during 2002.

- The
economic crises in Argentina caused us to establish provisions in the amount of Ch$9,539
million for loans to Argentine debtors in order to adequately cover the risk associated
with such loans.

- Domestic
demand for second homes and resort projects decreased significantly in 2002, which
resulted in the establishment of significant provisions related to the real estate and
construction sector.

- The 8.6%
depreciation in the Chilean peso against the U.S. dollar resulted in an increase in the
provisioning for loans denominated in U.S. dollars.

The increase in provisions for loan
losses in 2002 was partially offset by a release in voluntary allowances of approximately
Ch$17,395 million. On a consolidated basis, our risk index increased from 2.42% in 2001 to
3.00% in 2002.

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Fees
and Income from Services, Net

The
following table sets forth certain components of our fees and income from services (net of
fees paid to third parties that provide support for those services, principally fees
relating to Credichiles sales force and receipts and collection services provided to
us) for the years ended December 31, 2001, 2002 and 2003:

|                                                                      | Year Ended December 31,                                                       | % Increase (Decrease)
|--------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------
|                                                                      |                                                                               |                      
|                                                                      | 2001                                                                          | 2002                 
|                                                                      |                                                                               |                      
|                                                                      | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                                                      |                                                                              
|Credit cards                                                          | Ch$ 3,603                                                                     | Ch$ 6,461            
|Sight accounts and ATMs                                               | 5,482                                                                         | 9,381                
|Demand deposits and overdrafts                                        | 12,923                                                                        | 20,383               
|Credit lines                                                          | 2,158                                                                         | 5,033                
|Mutual funds                                                          | 7,432                                                                         | 11,950               
|Stock brokerage                                                       | 2,605                                                                         | 3,625                
|Collection services                                                   | 2,316                                                                         | 2,610                
|Receipts and payment of services                                      | 4,700                                                                         | 5,748                
|Collection of over-due loans                                          | -                                                                             | 6,398                
|Income and revenue from goods received in lieu of payment             | (346)                                                                         | 1,231                
|Letters of credit, guarantees, collaterals and other contingent loans | 3,376                                                                         | 4,082                
|Insurance                                                             | 4,942                                                                         | 6,140                
|Financial advisory services                                           | 1,010                                                                         | 1,929                
|Foreign trade and currency exchange                                   | 1,533                                                                         | 1,766                
|Prepaid loans                                                         | 857                                                                           | 1,208                
|Leasing                                                               | (177)                                                                         | 1,201                
|Factoring                                                             | 57                                                                            | 294                  
|Custody and trust services                                            | 638                                                                           | 595                  
|Fees from sales force                                                 | (4,371)                                                                       | (8,553)              
|Teller services (Servipag)                                            | (2,714)                                                                       | (2,765)              
|Others                                                                | (1,426)                                                                       | 690                  
|                                                                      |                                                                               |                      
|Total                                                                 | Ch$ 44,598                                                                    | Ch$ 79,407           
|                                                                      |                                                                               |                      

2002
and 2003. Fees and income from services, net increased by 30.2% from Ch$79,407 million
in 2002 to Ch$103,389 million in 2003. The increase in 2003 was primarily attributable to
the improved performance by our stock brokerage subsidiary; an increase in financial
advisory service fees; additional fee income from our insurance business and from Socofin,
our collection services subsidiary; increased fee income associated with checking accounts
and sight accounts (primarily as a result of an increase in the number of checking
accounts); a new fee structure associated mainly with overdrafts and ATM transaction fees
and increased credit cards fees.

2001
and 2002. Fees and income from services, net increased by 78.1% from Ch$44,598 million
in 2001 to Ch$79,407 million in 2002. Although this increase resulted primarily from the
merger, a portion of the increase is attributable to higher fees obtained from credit
cards, lines of credit and overdrafts as a result of our strategy of optimizing the fees
we charge and the broadening of our fee generating products in 2002. In addition, the
increase in fees and income from services, net also reflects additional fee income from
Socofin, our collection services subsidiary, which was consolidated into our results as of
the third quarter of 2002, and which accounted for 8.1% of total fees in 2002.

Other
Operating Income (Loss), Net

Other operating
income (loss), net, consists of net gains and losses from trading activities and net gains
and losses from foreign exchange transactions. Trading results include gains and losses
realized on the sale of financial investments as well as gains and losses arising from
marking certain financial investments to market at period-end. Net gains and losses from
foreign exchange transactions include gains and losses realized upon the sale of foreign
currency and foreign exchange derivatives and gains and losses arising from

102

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the period-end
translation of foreign currency-denominated assets and liabilities into pesos. Foreign
exchange results do not include net adjustments on U.S. dollar-indexed domestic currency
transactions, or the exchange rate variation on foreign branches capital and
reserves. Foreign exchange results do include existing interest rate differences in
currency derivatives.

The
following table sets forth certain components of our other operating income (loss), net,
in the years ended December 31, 2001, 2002 and 2003:

|                                   | Year Ended December 31,                                                       | % Increase (Decrease)
|---------------------------------- | ----------------------------------------------------------------------------- | ---------------------
|                                   |                                                                               |                      
|                                   | 2001                                                                          | 2002                 
|                                   |                                                                               |                      
|                                   | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                   |                                                                              
|Gains on trading activities, net   | Ch$ 6,037                                                                     | Ch$ 1,131            
|Foreign exchange transactions, net | 2,640                                                                         | (31,981)             
|                                   |                                                                               |                      
|Total                              | Ch$ 8,677                                                                     | Ch$ (30,850)         
|                                   |                                                                               |                      

2002
and 2003. We recorded other operating income of Ch$96,391 million in 2003, compared
to an other operating loss of Ch$30,850 million in 2002, primarily as a result of a
significant increase in income from foreign exchange transactions and, to a lesser extent,
increased gains on trading activities. The increase in foreign exchange transactions was
primarily attributable to our decision to maintain a higher net liability position in U.S.
dollars at a time when the Chilean peso was appreciating against the U.S. dollar in 2003.
This effect was partially offset by our net asset position in Chilean peso-denominated
assets, which were readjusted in U.S. dollars.

Total
gains on trading activities in 2003 totaled Ch$5,330 million, compared to Ch$1,131 million
in 2002, primarily as a result of earnings obtained from the sale of Argentine securities.

2001
and 2002. Other operating income (loss), net changed to a loss of Ch$30,850 million in
2002 from income of Ch$8,677 million in 2001, primarily as a result of losses on foreign
exchange transactions in 2002 and, to a lesser extent, lower gains on trading activities
in the same year. The losses on foreign exchange transactions were largely attributable to
our maintaining higher net liability position in U.S. dollars at a time when the Chilean
peso was depreciating against the U.S. dollar (we also maintained a net asset position in
Chilean peso-denominated assets, which were readjusted in U.S. dollars and which improved
our results for net interest revenue).

Total
gains on trading activities in 2002 totaled Ch$1,131 million compared to Ch$6,037 million
in 2001. The decline in gains on trading activities was primarily the result of the
U.S.$19 million impairment on certain Argentine corporate bonds, as a result of the
unlikelihood of registering a significant increase in the market value of such securities.
In 2002, higher mark to market and trading gains were obtained from Central Bank
securities and mortgage finance bonds due to declining local interest rates.

Other
Income and Expenses, Net

Other income
and expenses, net consists of gains arising from the recovery of loans previously
charged-off, non-operating income, non-operating expenses and income and gains arising
from our affiliates accounted for by the equity method, offset by any minority interest
participation in the net income of our subsidiaries. See notes 9, 17 and 19 to our audited
consolidated financial statements.

103

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The
following table sets forth certain components of our other income and expenses,
net, in the years ended December 31, 2001, 2002 and 2003:

|                                                      | Year Ended December 31,                                                       | % Increase (Decrease)
|----------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------
|                                                      |                                                                               |                      
|                                                      | 2001                                                                          | 2002                 
|                                                      |                                                                               |                      
|                                                      | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                                      |                                                                              
|Loan loss recoveries previously charged-off           | Ch$ 9,007                                                                     | Ch$ 11,308           
|Loan loss recoveries reacquired from the Central Bank | 1,028                                                                         | 725                  
|                                                      |                                                                               |                      
|Subtotal                                              | 10,035                                                                        | 12,033               
|                                                     
|Non-operating income                                  | 7,671                                                                         | 6,463                
|Non-operating expenses                                | (7,494)                                                                       | (23,482)             
|                                                      |                                                                               |                      
|Subtotal                                              | 177                                                                           | (17,019)             
|                                                     
|Income from investments in other companies            | (45)                                                                          | (980)                
|Minority interest                                     | (1)                                                                           | (1)                  
|                                                      |                                                                               |                      
|Total                                                 | Ch$ 10,166                                                                    | Ch$ (5,967)          
|                                                      |                                                                               |                      

2002
and 2003. Other income and expenses, net changed to income of Ch$8,746 million in 2003
from an expense of Ch$5,967 million in 2002, primarily as a result of an increase in the
recovery of loans that had previously been charged-off, a decrease in non-operating
expenses and a decrease in provisions and charge-offs on assets received in lieu of
payment. The change was also attributable to the fact that certain non-recurring expenses
(such as certain provisions and charge-offs on premises) were recorded in 2002 as a result
of the merger. See note 17 to our audited consolidated financial statements.

2001
and 2002. Despite the increase in loan loss recoveries, other income and expenses,
net, decreased to an expense of Ch$5,967 million in 2002 compared to income of Ch$10,166
million in 2001, primarily as a result of higher non-recurring operating expenses such as
losses incurred in connection with assets received in lieu of paymentas a consequence of an increase in charge-offs, an increase in provisions
and lower earnings from the sale of such assets and an increase in provisions and
charge-offs associated with the closing of branches as a result of the merger.

Our
losses in income from investment in other companies in 2002 were mainly associated with
Artikos Chile, our affiliate that offers e-commerce services to our corporate customers
and, to a lesser extent, with Empresa de Tarjetas Inteligentes S.A., our affiliate that
researches, develops and evaluates new payment card solutions based on potential smartcard
business operations. The results of these two affiliates primarily resulted from lower
than expected income generated during 2002 and high depreciation and amortization expenses
related to technological investments needed for this technology-intensive businesses.

104

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Operating
Expenses

The
following table sets forth information regarding our operating expenses in the years ended
December 31, 2001, 2002 and 2003:

|                                        | Year Ended December 31,                                                       | % Increase (Decrease)
|--------------------------------------- | ----------------------------------------------------------------------------- | ---------------------
|                                        |                                                                               |                      
|                                        | 2001                                                                          | 2002                 
|                                        |                                                                               |                      
|                                        | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                        |                                                                              
|Personnel salaries and expenses         | Ch$ 84,485                                                                    | Ch$ 135,443          
|Administrative and other expenses:     
|Advertising                             | 6,763                                                                         | 8,584                
|Building maintenance                    | 4,035                                                                         | 7,914                
|Rentals and insurance                   | 4,574                                                                         | 9,303                
|Office supplies                         | 2,754                                                                         | 4,666                
|Other expenses                          | 33,130                                                                        | 62,453               
|                                        |                                                                               |                      
|Total administrative and other expenses | Ch$ 51,256                                                                    | Ch$ 92,920           
|Depreciation and amortization           | 8,404                                                                         | 22,154               
|                                        |                                                                               |                      
|Total                                   | Ch$ 144,145                                                                   | Ch$ 250,517          
|                                        |                                                                               |                      

2002and 2003. Our operating expenses decreased by 10.4% from Ch$250,517 million in 2002 to
Ch$224,436 million in 2003, mainly as a result of cost savings associated with the merger.
Personnel salaries and expenses decreased 7.6% in 2003 as a result of an employee
headcount reduction, which was partially offset by an increase in personnel salaries in
2003. The merger also resulted in a decrease in administrative costs, particularly those
associated with the maintenance of fixed asset and rental expenses. Decreased depreciation
expenses during 2003 were related to higher charge-offs during 2002 of discontinued
software and assets in leased branches that were closed during the first half of 2002.

2001
and 2002. Our operating expenses increased by 73.8% from Ch$144,145 million in 2001 to
Ch$250,517 million in 2002, primarily as a result of the merger, as both personnel and
administrative expenses increased. Higher merger-related operating expenses incurred in
2002 included severance payments related to headcount reductions, improvements in
information technology, outplacement and financial advisory expenses and branch
refurbishment costs. In addition, a one-time bonus payment of approximately Ch$1,500
million was made in the fourth quarter of 2002 in connection with the four-year collective
bargaining agreement we entered into with one of our labor unions, which contributed to
increased personnel salaries in 2002. We do not expect to be involved in any new
collective bargaining agreements for the next three years. In addition, the incorporation
of the subsidiaries Socofin and Promarket increased our cost base by Ch$7,330 million in
2002.

The
annual increase in depreciation and amortization expenses was also primarily attributable
to the merger, which resulted in charge-offs of discontinued software and increased
depreciation of new equipment acquired to integrate the two banks information
technology systems following the merger.

Loss
from Price-Level Restatement

Chilean
GAAP requires that adjustments be made to nonmonetary assets (including fixed assets),
liabilities and shareholders equity at the end of each reported period to reflect
the effects of inflation during such period. The net effect of this inflation adjustment
is reflected in our results of operations under gain (loss) from price-level
restatement. See OverviewInflation.

2002
and 2003.The loss from price-level restatement decreased from Ch$9,692 million in
2002 to Ch$4,036 million in 2003 primarily as a result of a decrease in the inflation rate
used for adjustment purposes from 3.0% in 2002 to 1.0% in 2003.

105

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2001
and 2002. The loss from price-level restatement increased from Ch$6,010 million in
2001 to Ch$9,692 million in 2002 primarily as a result of the effect of the merger, which
increased the net amounts of non-monetary assets and liabilities. The increase was
partially offset by a slight decrease in the inflation rate used for adjustment purposes
from 3.1% in 2001 to 3.0% in 2002.

Income
Tax

The
statutory corporate income tax rate in Chile was 16% in 2002 and 16.5% in 2003. As an
inducement for Chilean banks to refinance their indebtedness with the Central Bank, Law
No. 19,396 provided that if a bank chose to refinance such indebtedness, such banks
income tax rate would not increase. As a result, we have been permitted under Law No.
19,396 to deduct dividend payments made to SAOS. In addition, any other payments made by
SAOS or its shareholders to the Central Bank in connection with the Central Bank
indebtedness are tax deductible. Consequently, our effective tax rate is significantly
lower than the statutory corporate income tax rate because we deduct such dividend
payments from our taxable income. Additionally, but to a lesser extent, differences in the
tax treatment for provisions on individual loans and for charge-offs for past due loans
have an impact on our effective tax rate. Moreover, all real estate taxes paid on
properties that are leased to customers are deductible from our taxable income.

2002
and 2003. We recorded a tax expense of Ch$13,902 million in 2003, as compared to a tax
benefit of Ch$1,165 million in 2002. The change was primarily attributable to (1) a higher
income tax base in 2003, as a result of the 178% increase in net income before taxes
between periods, (2) an increase in the corporate income tax rate from 16.0% in 2002 to
16.5% in 2003, (3) a lower tax benefit in 2003 relating to the amortization of the
complementary accounts on accumulated deferred taxes for periods prior to 1999 and (4)
non-recurring earnings in 2002 related to the recognition of deferred taxes as a
consequence of the increase in the corporate income tax rate in 2002.

2001
and 2002. We recorded a Ch$1,165 million tax benefit in 2002, as compared to a tax
benefit of Ch$1,406 million in 2001. This was primarily attributable to (1) the
amortization of complementary accounts on accumulated deferred taxes for periods prior to
1999, which resulted in the recognition of a net tax benefit, and (2) a positive impact on
deferred taxes related to the change in the corporate income tax rate from 15% in 2001 to
16% in 2002.

# Chilean and U.S. GAAP
Reconciliation

We
prepare our audited consolidated financial statements in accordance with Chilean GAAP,
which differs in certain significant respects from U.S. GAAP. See note 28 to our audited
consolidated financial statements for a description of the material differences between
Chilean GAAP and U.S. GAAP, as they relate to us and our consolidated subsidiaries,
reconciliation to U.S. GAAP of net income and shareholders equity and a discussion
of new accounting rules under U.S. GAAP. The following table sets forth net income and
shareholders equity for the years ended December 31, 2002 and 2003 under
Chilean GAAP and U.S. GAAP:

|                                    | Year Ended December 31,                              
|----------------------------------- | -----------------------------------------------------
|                                    |                                                      
|                                    | 2001                                                 
|                                    |                                                      
|                                    | (in millions of constant Ch$ as of December 31, 2003)
|                                    |                                                      
|Net income (Chilean GAAP)           | Ch$ 90,473                                           
|Net income (U.S. GAAP)              | 50,260                                               
|                                   
|Shareholders' equity (Chilean GAAP) | 414,319                                              
|Shareholders' equity (U.S. GAAP)    | Ch$ 1,177,298                                        

106

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Significant
differences exist between our net income and shareholders equity under Chilean GAAP
as presented in Item 5. Operating and Financial Review and Prospects, and our
net income and shareholders equity under U.S. GAAP as presented in note 28 to our
audited consolidated financial statements. The differences are primarily in the context of
the accounting treatment used for the merger. The principal differences are as follows:

- Under
Chilean GAAP, the merger was accounted for as a pooling of interests on a
prospective basis. As such, the historical financial statements for periods prior to the
merger are not restated under Chilean GAAP and we are considered to be the surviving
entity. Under U.S. GAAP, the merger of the two banks is accounted for as a merger of
entities under common control, as L.Q. Inversiones Financieras, a holding company
beneficially owned by Quiñenco, controlled both banks since March 27, 2001.
Consequently, U.S. GAAP requires that we restate our U.S. GAAP historical financial
statements to retroactively reflect the merger as if both banks had been combined since
March 27, 2001. Under U.S. GAAP, for periods prior to March 27, 2001, the information
presented in our audited consolidated financial statements is that of Banco de A.
Edwards, as it had been under Quiñencos control since September 2, 1999.

- The pooling
of interests method under Chilean GAAP eliminates any interbank balances and aggregates
the results of both banks using their historical book values. Under U.S. GAAP, to the
extent that we and Banco de A. Edwards were under common control, the assets and
liabilities of Banco de A. Edwards were transferred into our accounts at their book
value. However, as Quiñenco only owned 51.18% of Banco de A. Edwards, we
effectively acquired from minority interest holders that portion that was not held by Quiñenco
and so we applied purchase accounting. As a result, we must calculate goodwill based on
the difference between the purchase price (i.e., the market value of our shares) and the
fair value of the proportion of assets and liabilities acquired from minority interest
holders at the date of the merger. As part of this process, under U.S. GAAP, we were also
required to value previously unrecorded intangible assets, such as the Banco de A.
Edwards brand name, and to include these assets in our financial records. Such assets
remain unrecorded under Chilean GAAP. The different basis of the assets and liabilities
caused by this treatment has an effect on changes in depreciation and amortization in
subsequent periods.

- Under U.S.
GAAP, when accounting for a merger of entities under common control, the book values of
the merged entities that are held in the books of the common parent must be pushed down
to the merged entity. This means that any goodwill in the books of Quiñenco at the
time that it acquired each bank and any fair value differences created from those
purchases must be included in our U.S. GAAP accounting records. In practice this means
that the goodwill and fair value adjustments created from Quiñencos
purchases of Banco de A. Edwards shares in September, October and December 1999 and from
Quiñencos purchase of our shares in March 2001 are pushed down to us. As
there is no analogous accounting treatment under Chilean GAAP, there is a considerable
difference in the asset and liability bases under each body of accounting principles.

These
differences are explained in greater detail in note 28(a) to our audited consolidated
financial statements.

107

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# LIQUIDITY AND CAPITAL
RESOURCES

# Overview

Liquidity risk
is the risk that we will be unable to meet our payment obligations and potential payment
obligations as and when they become due without incurring unacceptable losses. To manage
that risk, we maintain at all times a diversified stock of highly liquid assets that can
be quickly mobilized in extraordinary circumstances, including cash, financial
investments, and Central Bank and government securities. Additionally, we have established
lines of credit with foreign and domestic banks and have access to Central Bank borrowings
to increase liquidity as necessary.

Our
general policy is to maintain sufficient liquidity to ensure our ability to honor
withdrawals of deposits, make repayments of other liabilities at maturity, extend loans
and meet our working capital needs. As a bank, we satisfy our working capital needs
through general funding. The majority of our funding is derived from deposits and other
borrowings from the public. We believe that our working capital is sufficient to meet our
present needs. The minimum amount of liquidity is determined by the reserve requirements
set by the Central Bank. These reserves are currently 9.0% of demand deposits and 3.6% of
time deposits. We are currently in compliance with all of these requirements.

In
addition, we are subject to a technical requirement applicable to Chilean banks pursuant
to which we must hold a certain amount of assets in cash or in highly liquid instruments.
This reserve is equal to the amount by which the daily balance of:

- deposits in
checking accounts;

- other
demand deposits or obligations incurred in the ordinary course of business;

- other
deposits unconditionally payable immediately or within a term of less than 30 days; and

- time
deposits payable within ten days

in the aggregate
exceeds 2.5 times the amount of our capital and reserves.

Chilean
regulations also require that gaps between assets and liabilities maturing within less
than 30 days not exceed a banks basic capital and that gaps among assets and
liabilities maturing within less than 90 days not exceed twice a banks equity.

The
senior members of our finance division evaluate liquidity by projecting daily cash flows
over the following 100 days to verify that adequate liquidity is maintained, in compliance
with limits imposed by Chilean banking regulations and those set internally by us.

# Cash Flows

The
tables below set forth our principal sources of cash. Our subsidiaries are not an
important source of cash for us and therefore, have no impact on our ability to meet our
cash obligations. No legal or economic restrictions exist on the ability of our
subsidiaries to transfer funds to us in the form of loans or cash dividends as long as our
subsidiaries abide by the regulations in the Chilean Corporations Law regarding loans to
related parties and minimum dividend payments.

108

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|                                                    | Year Ended December 31,                              
|--------------------------------------------------- | -----------------------------------------------------
|                                                    |                                                      
|                                                    | 2001                                                 
|                                                    |                                                      
|                                                    | (in millions of constant Ch$ as of December 31, 2003)
|                                                    |                                                      
|Net cash provided by (used in) operating activities | Ch$ (138,573)                                        
|                                                    |                                                      

2002
and 2003

We
recorded cash used in operating activities of Ch$114,229 million in 2003, primarily as a
result of an increase in the amount of Central Bank and government securities required to
be held by us in order to comply with the guidelines of the Chilean Superintendency of
Banks.

2001
and 2002

Cash provided
by operating activities reached Ch$422,301 million in 2002 compared to cash used in
operating activities of Ch$138,573 million in 2001, mainly due to a decrease in our
financial investments. This decrease was principally related to the expiration of the
Pagare 1836, a Central Bank debt security, and the lower volume of federal
funds and Brazilian and Mexican securities maintained by the New York Branch.

|                                      | Year Ended December 31,                              
|------------------------------------- | -----------------------------------------------------
|                                      |                                                      
|                                      | 2001                                                 
|                                      |                                                      
|                                      | (in millions of constant Ch$ as of December 31, 2003)
|                                      |                                                      
|Net cash used in investing activities | Ch$ (141,767)                                        
|                                      |                                                      

2002
and 2003

Cash flows
used in investing activities decreased to Ch$166,362 million in 2003 from Ch$253,036
million in 2002, primarily as a result of a decrease in the funds used in spot foreign
exchange transactions.

2001
and 2002

Cash flows
used in investing activities increased to Ch$253,036 million in 2002 from Ch$141,767
million in 2001 primarily as a result of an increase in the volume of our loan portfolio,
and an increase in other assets.

|                                                    | Year Ended December 31,                              
|--------------------------------------------------- | -----------------------------------------------------
|                                                    |                                                      
|                                                    | 2001                                                 
|                                                    |                                                      
|                                                    | (in millions of constant Ch$ as of December 31, 2003)
|                                                    |                                                      
|Net cash provided by (used in) financing activities | Ch$ 329,591                                          
|                                                    |                                                      

2002
and 2003

The
change from cash used in financing activities of Ch$262,894 million in 2002 to cash
provided by financing activities of Ch$461,822 million in 2003 was primarily attributable
to an increase in savings accounts and time deposits and, to a lesser extent, an increase
in short-term foreign borrowings and investments under repurchase agreements.

109

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2001
and 2002

The
change from cash provided by financing activities of Ch$329,591 million in 2001 to cash
used in financing activities of Ch$262,894 million in 2002 was primarily attributable to a
decrease in savings accounts and time deposits.

# Other Borrowings

Our
long-term and short-term borrowings are summarized below. In accordance with the
guidelines established by the Superintendency of Banks, we do not present a classified
balance sheet. Borrowings are described as short-term when they have original maturities
of less than one year or are due on demand. All other borrowings are described as
long-term, including the amounts due within one year on such borrowings.

|                                                       | As of December 31, 2002                                                       | As of December 31, 2003
|------------------------------------------------------ | ----------------------------------------------------------------------------- | -----------------------
|                                                       |                                                                               |                        
|                                                       | Long-term                                                                     | Short-term             
|                                                       |                                                                               |                        
|                                                       | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                                       |                                                                              
|Central Bank Credit lines for renegotiation of loans.. | Ch$ 3,801                                                                     | -                      
|Other Central Bank borrowings                          | -                                                                             | -                      
|Mortgage finance bonds                                 | 1,094,881                                                                     | -                      
|Bonds                                                  | 4,639                                                                         | -                      
|Subordinated bonds                                     | 280,431                                                                       | -                      
|Borrowings from domestic financial institutions        | 127                                                                           | 50,866                 
|Foreign borrowings                                     | 335,087                                                                       | 180,360                
|Investments under agreements to repurchase             | -                                                                             | 279,442                
|Other obligations                                      | 46,320                                                                        | 31,218                 
|                                                       |                                                                               |                        
|Total other interest bearing liabilities               | Ch$ 1,765,286                                                                 | Ch$ 541,886            
|                                                       |                                                                               |                        

Central
Bank borrowings

Central Bank
borrowings include credit lines for the renegotiation of loans and other Central Bank
borrowings. Credit lines were provided by the Central Bank for the renegotiation of
mortgage loans due to the need to refinance debts as a result of the economic recession
and crisis of the Chilean banking system from 1982 to 1985. The credit lines for the
renegotiations of mortgage loans are linked to the UF index and carry a real annual
interest rate of 2.4%. The maturities of the outstanding amounts are as follows:

|                                                          | As of December 31,2003                              
|--------------------------------------------------------- | ----------------------------------------------------
|                                                          | (in millions of constant Ch$ as of
December 31,2003)
|                                                         
|Due within 1 year                                         | Ch$ 2,975                                           
|Due after 1 year but within 2 years                       | --                                                  
|Due after 2 years but within 3 years                      | --                                                  
|Due after 3 years but within 4 years                      | --                                                  
|Due after 4 years but within 5 years                      | --                                                  
|Due after 5 years                                         | --                                                  
|                                                          |                                                     
|Total long-term (Credit lines for renegotiation of loans) | 2,975                                               
|Total short-term (Other Central Bank borrowings)          | 24,906                                              
|                                                          |                                                     
|Total Central Bank borrowings                             | Ch$ 27,881                                          
|                                                          |                                                     

110

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Mortgage
finance bonds

Mortgage
finance bonds are used to finance the granting of mortgage loans. The outstanding
principal amounts of the bonds are amortized on a quarterly basis. The range of maturities
of these bonds is between five and twenty years. The bonds are linked to the UF index and
carry a weighted average annual interest rate of 6.2% as of December 31, 2003.

The
maturities of outstanding mortgage bond amounts as of December 31, 2003 are as follows:

|                                     | As of December 31, 2003                                                                                                   
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------
|                                     |                                                                                                                           
|                                     | (in millions of constant Ch$ as of
                                                                     December 31, 2003)
|                                    
|Due within 1 year                    | Ch$ 84,397                                                                                                                
|Due after 1 year but within 2 years  | 87,257                                                                                                                    
|Due after 2 years but within 3 years | 88,085                                                                                                                    
|Due after 3 years but within 4 years | 86,401                                                                                                                    
|Due after 4 years but within 5 years | 83,345                                                                                                                    
|Due after 5 years                    | 584,967                                                                                                                   
|                                     |                                                                                                                           
|Total mortgage finance bonds         | Ch$ 1,014,452                                                                                                             
|                                     |                                                                                                                           

Bonds

The maturities
of outstanding bond amounts as of December 31, 2003 are as follows:

|                                     | As of December 31, 2003                                                                                                   
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------
|                                     |                                                                                                                           
|                                     | (in millions of constant Ch$ as of
                                                                     December 31, 2003)
|                                    
|Due within 1 year                    | Ch$ 905                                                                                                                   
|Due after 1 year but within 2 years  | 858                                                                                                                       
|Due after 2 years but within 3 years | 858                                                                                                                       
|Due after 3 years but within 4 years | 506                                                                                                                       
|Due after 4 years but within 5 years | -                                                                                                                         
|Due after 5 years                    | -                                                                                                                         
|                                     |                                                                                                                           
|Total bonds                          | Ch$ 3,127                                                                                                                 
|                                     |                                                                                                                           

Bonds
are linked to the UF Index and carry an average real annual interest rate of 6.9% as of
December 31, 2003, with interest and principal payments due semi-annually. The bonds were
originally intended to finance loans that had a maturity of greater than one year.

Subordinated
bonds

In
2002 we issued bonds totaling UF1,580,000 at a discount of UF98,670. The bonds are linked
to the UF index with interest and principal payments due semi-annually. The discount on
the issuance of the bonds is amortized over the life of the bond. As of December 31, 2003,
the effective real interest rate is 7.0%, taking into consideration the discount on
issuance.

The
bonds are intended to finance loans having a maturity greater than one year. As of
December 31, 2003 the outstanding maturities of the bonds, which are considered long-term,
are as follows:

111

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|                                     | As of December 31,
                                                            2003                                                                        
|------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|                                     |                                                                                                                                                            
|                                     | (in millions of
                                                   constant Ch$ as of
                                                   December 31, 2003)
|                                    
|Due within 1 year                    | Ch$ 25,571                                                                                                                                                 
|Due after 1 year but within 2 years  | 19,307                                                                                                                                                     
|Due after 2 years but within 3 years | 19,307                                                                                                                                                     
|Due after 3 years but within 4 years | 19,307                                                                                                                                                     
|Due after 4 years but within 5 years | 19,307                                                                                                                                                     
|Due after 5 years                    | 168,398                                                                                                                                                    
|                                     |                                                                                                                                                            
|Total subordinated bonds             | Ch$ 271,197                                                                                                                                                
|                                     |                                                                                                                                                            

Subordinated
bonds are considered in the calculation of effective equity for the purpose of
determining our minimum capital requirements.

Borrowings
from domestic financial institutions

Borrowings
from domestic financial institutions, which are used to fund our general activities, carry
a weighted average annual real interest rate of 2.3% and have the following outstanding
maturities as of December 31, 2003:

|                                                      | As of December 31,
                                                            2003                                                                        
|----------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                      |                                                                                                                                                            
|                                                      | (in millions of
                                                   constant Ch$ as of
                                                   December 31, 2003)
|                                                     
|Due within 1 year                                     | Ch$ 103                                                                                                                                                    
|Due after 1 year but within 2 years                   | -                                                                                                                                                          
|Due after 2 years but within 3 years                  | -                                                                                                                                                          
|Due after 3 years but within 4 years                  | -                                                                                                                                                          
|Due after 4 years but within 5 years                  | -                                                                                                                                                          
|Due after 5 years                                     | -                                                                                                                                                          
|                                                      |                                                                                                                                                            
|Total long-term                                       | 103                                                                                                                                                        
|Total short-term                                      | 49,779                                                                                                                                                     
|                                                      |                                                                                                                                                            
|Total borrowings from domestic financial institutions | Ch$ 49,882                                                                                                                                                 
|                                                      |                                                                                                                                                            

Foreign
borrowings

We
have short-term and long-term borrowings from foreign banks. The outstanding maturities of
these borrowings as of December 31, 2003 are as follows:

|                                     | As of December 31,
                                                            2003                                                                        
|------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|                                     |                                                                                                                                                            
|                                     | (in millions of
                                                   constant Ch$ as of
                                                   December 31, 2003)
|                                    
|Due within 1 year                    | Ch$ 431,098                                                                                                                                                
|Due after 1 year but within 2 years  | 13,015                                                                                                                                                     
|Due after 2 years but within 3 years | 127                                                                                                                                                        
|Due after 3 years but within 4 years | 6,620                                                                                                                                                      
|Due after 4 years but within 5 years | -                                                                                                                                                          
|Due after 5 years                    | -                                                                                                                                                          
|                                     |                                                                                                                                                            
|Total long-term                      | 450,860                                                                                                                                                    
|Total short-term                     | 267,109                                                                                                                                                    
|                                     |                                                                                                                                                            
|Total foreign borrowings             | Ch$ 717,969                                                                                                                                                
|                                     |                                                                                                                                                            

All
of these loans are denominated in U.S. dollars, are principally used to fund our foreign
trade loans and carry an average annual nominal interest rate of 3.8% as of December 31,
2003.

112

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Other
obligations

|                                    | As of December 31,                                                                                                     
|----------------------------------- | -----------------------------------------------------------------------------------------------------------------------
|                                    |                                                                                                                        
|                                    | 2002                                                                                                                   
|                                    |                                                                                                                        
|                                    | (in millions of constant Ch$ as of December
                                                                  31, 2003)
|                                   
|Other long-term obligations:       
|Payable accounts                    | Ch$ 883                                                                                                                
|Obligations with Chilean government | 45,437                                                                                                                 
|                                    |                                                                                                                        
|Total other long-term obligations   | 46,320                                                                                                                 
|Other short-term obligations        | 31,218                                                                                                                 
|                                    |                                                                                                                        
|Total other obligations             | Ch$ 77,538                                                                                                             
|                                    |                                                                                                                        

As
of December 31, 2003, other obligations had the following maturities:

|                                     | As of December 31,
                                                            2003                                                                        
|------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|                                     |                                                                                                                                                            
|                                     | (in millions of
                                                   constant Ch$ as of
                                                   December 31, 2003)
|                                    
|Due within 1 year                    | Ch$ 945                                                                                                                                                    
|Due after 1 year but within 2 years  | 1,200                                                                                                                                                      
|Due after 2 years but within 3 years | 1,418                                                                                                                                                      
|Due after 3 years but within 4 years | 1,479                                                                                                                                                      
|Due after 4 years but within 5 years | 1,408                                                                                                                                                      
|Due after 5 years                    | 3,396                                                                                                                                                      
|                                     |                                                                                                                                                            
|Total long-term                      | 9,846                                                                                                                                                      
|Total short-term                     | 49,754                                                                                                                                                     
|                                     |                                                                                                                                                            
|Total other obligations              | Ch$ 59,600                                                                                                                                                 
|                                     |                                                                                                                                                            

# Asset and Liability
Management

Our
asset and liability management policy is to maximize net interest revenue and return on
assets and shareholders equity in light of interest rate, liquidity and foreign
exchange risks and within the limits of Chilean banking regulations and our internal risk
management policies. Subject to these constraints, we may from time to time take
mismatched positions as to interest rates or, in certain limited circumstances, foreign
currencies when justified, in our view, by market conditions and prospects, and subject to
our asset and liability management policies. Our board of directors determines our asset
and liability policies. See Item 11. Quantitative and Qualitative Disclosure About
Market Risk.

# Funding

The
following table sets forth our average daily balance of liabilities for the years ended
December 31, 2001, 2002 and 2003, in each case together with the related average nominal
interest rates paid thereon:

|                                       | Year Ended December 31,                                                      
|-------------------------------------- | -----------------------------------------------------------------------------
|                                       |                                                                              
|                                       | 2001                                                                         
|                                       |                                                                              
|                                       | Average Balance                                                              
|                                       |                                                                              
|                                       | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                      
|Non-interest bearing demand           
|deposits                               | Ch$ 1,067,260                                                                
|Time deposits                          | 2,676,102                                                                    
|Savings accounts                       | 95,517                                                                       
|Mortgage finance bonds                 | 842,115                                                                      
|Central Bank borrowings                | 33,881                                                                       
|Contingent liabilities                 | 291,173                                                                      
|Other non-interest bearing            
|liabilities                            | 113,808                                                                      
|Other interest bearing     liabilities | 770,810                                                                      
|Total liabilities                      | Ch$ 5,890,666                                                                
|                                       |                                                                              

113

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Our
most important source of funding is our customer deposits, which consist primarily of
peso-denominated non-interest bearing demand deposits and peso- and UF-denominated
interest bearing time deposits. Non-interest bearing demand deposits represented 21.8% of
our average total liabilities in 2003, and are our least expensive source of funding. Time
deposits and mortgage finance bonds represented 52.0% of our average liabilities in 2003
and 57.1% in 2002.

Our
current funding strategy is to continue to utilize all sources of funding in accordance
with their cost and availability and with our general asset and liability management
strategy. We also intend to continue to broaden our customer deposit base, to emphasize
core deposit funding and to fund our mortgage loans with the matched funding available
through the issuance of mortgage finance bonds in Chiles capital markets. See
Item 4.  Information on the CompanyBusiness
OverviewPrincipal Business ActivitiesRetail Banking.

# OFF-BALANCE SHEET
ARRANGEMENTS

In
the normal course of business, we are a party to a number of off-balance sheet activities
that contain credit, market and operational risk that are not reflected in our
consolidated financial statements. These activities include commitments to extend credit
not otherwise accounted for as contingent loans, such as overdrafts and credit card lines
of credit, and long-term contractual obligations under operating leases or service
contracts.

We
provide customers with off-balance sheet credit support through loan commitments. Such
commitments are agreements to lend to a customer at a future date, subject to compliance
with the contractual terms. Since substantial portions of these commitments are expected
to expire without our having to make any loans, total commitment amounts do not
necessarily represent our actual future cash requirements. The amounts of these loan
commitments were Ch$432,875 million and Ch$578,538 million as of December 31, 2002 and
2003, respectively. The amounts of subscribed leasing contracts were Ch$41,847 million and
Ch$40,190 million as of December 31, 2002 and 2003, respectively.

Our
interest rate swap agreements are treated as off-balance sheet financial instruments and
the net interest effect, which is the difference between interest income and interest
expense arising from such agreements, is recorded in net income in the period in which
such differences originate. However, interest rate and cross-currency swaps, which are
entered into in order to hedge the foreign investment portfolio, are recorded at their
estimated fair market values.

The
credit risk of both on- and off-balance sheet financial instruments varies based on many
factors, including the value of collateral held and other security arrangements. To
mitigate credit risk, we generally determine the need for specific covenant, guarantee and
collateral requirements on a case-by-case basis, depending on the nature of the financial
instrument and the customers creditworthiness. We may also receive comfort letters
and oral assurances. The amount and type of collateral held to reduce credit risk varies,
but may include real estate, machinery, equipment, inventory and accounts receivable, as
well as cash on deposit, stocks, bonds and other marketable securities that are generally
held in our possession or at another appropriate custodian or depository. This collateral
is valued and inspected on a regular basis to ensure both its existence and adequacy.
Additional collateral is requested when appropriate.

114

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# Financial Guarantees

The
following is a summary of instruments that are considered financial guarantees in
accordance with FASB Interpretation No. 45:

|                          | As of December 31,
                                                            2003                                                                        
|------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|                          |                                                                                                                                                            
|                          | (in millions of
                                                   constant Ch$ as of
                                                   December 31, 2003)
|                         
|Performance bonds         | Ch$ 245,888                                                                                                                                                
|Standby letters of credit | 32,074                                                                                                                                                     
|Foreign office guarantees | 24,033                                                                                                                                                     
|                          |                                                                                                                                                            
|Total                     | Ch$ 301,995                                                                                                                                                
|                          |                                                                                                                                                            

Guarantees
in the form of performance bonds, standby letters of credit and foreign office guarantees
are issued in connection with agreements made by customers to counterparties. If the
customer fails to comply with the agreement, the counterparty may enforce the performance
bonds, standby letters of credit or foreign office guarantees as a remedy. Credit risk
arises from the possibility that the customer may not be able to repay us for these
guarantees.

The
expiration of guarantees per period are as follows:

|                          | Due within 1 year                                     | Due after 1 year but within 3 years | Due after 3 years but within 5 Years | Due after 5 years | Total      
|------------------------- | ----------------------------------------------------- | ----------------------------------- | ------------------------------------ | ----------------- | -----------
|                          |                                                       |                                     |                                      |                   |            
|                          | (in millions of constant Ch$ as of December 31, 2003)
|                         
|Performance bonds         | Ch$ 176,856                                           | Ch$ 56,798                          | Ch$ 10,180                           | Ch$ 2,054         | Ch$ 245,888
|Standby letters of credit | 19,920                                                | 8,989                               | 3,165                                | -                 | 32,074     
|Foreign office guarantees | 20,161                                                | 3,872                               | -                                    | -                 | 24,033     
|                          |                                                       |                                     |                                      |                   |            
|Total                     | Ch$ 216,937                                           | Ch$ 69,659                          | Ch$ 13,345                           | Ch$ 2,054         | Ch$ 301,995
|                          |                                                       |                                     |                                      |                   |            

# TABULAR DISCLOSURE OF
CONTRACTUAL OBLIGATIONS

The
following tables set forth our contractual obligations and commercial commitments by time
remaining to maturity. As of December 31, 2003, the scheduled maturities of our
contractual obligations, including accrued interest, were as follows:

|                                                           | Due within 1 year                                     | Due after 1 year but within 3 years | Due after 3 years but within 5 Years | Due after 5 years | Total        
|---------------------------------------------------------- | ----------------------------------------------------- | ----------------------------------- | ------------------------------------ | ----------------- | -------------
|                                                           |                                                       |                                     |                                      |                   |              
|Contractual Obligations                                    | (in millions of constant Ch$ as of December 31, 2003)
|                                                          
|Deposit and other term liabilities(1)                      | Ch$ 3,215,921                                         | Ch$ 38,320                          | Ch$ 8,527                            | -                 | Ch$ 3,262,768
|Mortgage finance bonds                                     | 84,397                                                | 175,342                             | 169,747                              | Ch$ 584,966       | 1,014,452    
|Bonds issued                                               | 26,476                                                | 40,330                              | 39,120                               | 168,398           | 274,324      
|Central Bank credit lines from renegotiations     of loans | 2,975                                                 | -                                   | -                                    | -                 | 2,975        
|Other Central Bank borrowings                              | 24,906                                                | -                                   | -                                    | -                 | 24,906       
|Borrowings from domestic financial institutions            | 49,882                                                | -                                   | -                                    | -                 | 49,882       
|Foreign borrowings                                         | 698,207                                               | 13,142                              | 6,620                                | -                 | 717,969      
|Other obligations                                          | 50,699                                                | 2,618                               | 2,886                                | 3,397             | 59,600       
|Lease contracts                                            | 5,954                                                 | 7,771                               | 4,951                                | 21,366            | 40,042       
|Services contracts                                         | 29,834                                                | 40,085                              | 30,049                               | 592,274           | 692,242      
|Investments under agreements to repurchase                 | 426,741                                               | -                                   | -                                    | -                 | 426,741      
|                                                           |                                                       |                                     |                                      |                   |              
|Total                                                      | Ch$ 4,615,992                                         | Ch$ 317,608                         | Ch$ 261,900                          | Ch$ 1,370,401     | Ch$ 6,565,901
|                                                           |                                                       |                                     |                                      |                   |              

__________________


|(1) | Excludes
demand accounts and savings accounts.
|--- | ----------------------------------------------

115

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As
of December 31, 2003, the scheduled maturities of other commercial commitments, including
accrued interest, were as follows:

|                                   | Due within 1 year                                     | Due after 1 year but within 3 years | Due after 3 years but within 5 Years | Due after 5 years | Total      
|---------------------------------- | ----------------------------------------------------- | ----------------------------------- | ------------------------------------ | ----------------- | -----------
|                                   |                                                       |                                     |                                      |                   |            
|                                   | (in millions of constant Ch$ as of December 31, 2003)
|                                  
|Commercial Commitments             |                                                       |                                     |                                      |                   |            
|Letters of Credit                  | Ch$ 107,643                                           | -                                   | -                                    | -                 | Ch$ 107,643
|Guarantees                         | 216,937                                               | Ch$ 69,659                          | Ch$ 13,345                           | Ch$ 2,054         | 301,995    
|                                   |                                                       |                                     |                                      |                   |            
|Total other commercial commitments | Ch$ 324,580                                           | Ch$ 69,659                          | Ch$ 13,345                           | Ch$ 2,054         | Ch$ 409,638
|                                   |                                                       |                                     |                                      |                   |            

116

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Table of Contents


Item 6. Directors,
Senior Management and Employees

DIRECTORS AND SENIOR
MANAGEMENT

Directors

Our
administration is conducted by our board of directors which, in accordance with our
estatutos, or bylaws, consists of eleven directors and two alternate directors. The
entire board of directors is elected every three years. Our current board of directors was
elected in March 2002 and their term expires in March 2005. Cumulative voting is permitted
for the election of directors. Our Chairman and our Chief Executive Officer are appointed
by the board of directors and holds their office at the board of directors
discretion. Scheduled meetings of the board of directors are held at least once a month.
Extraordinary board of directors meetings may be called by the Chairman, when requested by
a majority of the directors or, in limited circumstances, when requested by one director.

Our
current directors are as follows:

|Directors                     | Position           | Age
|----------------------------- | ------------------ | ---
|                              |                    |    
|Segismundo Schulin-Zeuthen S. | Chairman           | 58 
|Andronico Luksic C.           | Vice Chairman      | 50 
|Guillermo Luksic C.           | Director           | 47 
|Jacob Ergas E.                | Director           | 69 
|Jorge Awad M.                 | Director           | 58 
|Rodrigo Manubens M.           | Director           | 44 
|Gonzalo Menendez D.           | Director           | 54 
|Maximo Pacheco M.             | Director           | 50 
|Francisco Perez M.            | Director           | 45 
|Manuel Sobral F.              | Director           | 49 
|Maximo Silva B.               | Director           | 58 
|Edmundo Eluchans U.           | Alternate Director | 53 
|Jorge Diaz V.                 | Alternate Director | 60 

Segismundo
Schulin-Zeuthen S. has been the Chairman of our board of directors since 1999.
Previously he had been our Chief Executive Officer. He joined us in 1985 and served as
Assistant General Manager until 1986. Prior to joining us, Mr. Schulin-Zeuthen held
positions at Banco Morgan Finansa and at Nacional Financiera. Mr. Schulin-Zeuthen is also
a member of the board of directors of the Santiago Stock Exchange, ICARE and the
Asociacion de Bancos e Instituciones Financieras (the Chilean Association of Banks and
Financial Institutions). Mr. Schulin-Zeuthen is also Chairman of the board of directors of
Banchile Corredora de Bolsa, a member of the board of directors of Visa International, and
Chairman of the board of directors of Visa Latin American and Caribbean Region.
Mr. Schulin-Zeuthen holds a degree in commercial engineering from the Universidad de
Chile.

Andronico
Luksic C. was elected as a member and Vice Chairman of our board of directors in
March 2002. He is a member of the NYSE, the advisory committee to the David
Rockefeller Center for Latin American Studies at Harvard University, the Latin
American Advisory Committee (LAAC) at Harvard Business School, the board of trustees
to Babson College, the advisory board of the Panama Canal Authority and the ABAC (APEC
Business Advisory Council). Mr. Luksic is Vice Chairman of Quiñenco and a member of
the board of directors at Compañia Cervecerias Unidas S.A., Manufacturas de Cobre
Madeco S.A., Industria Nacional de Alimentos S.A. and SOFOFA, the Sociedad de Fomento
Fabril. Mr. Luksic is also a Trustee of the Chile-Pacific Foundation. He was Chairman
of the board of directors of Banco OHiggins and subsequently Chairman of the board
of directors of Banco Santiago until May 1999. Mr. Luksic was Director and Chairman
of the board of directors of Banco de A. Edwards from September 1999 to December 2001. Mr.
Luksic is a brother of Mr. Guillermo Luksic.

117

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Guillermo
Luksic C. has been a member of our board of directors since March 2001. He is the
former Vice Chairman of the board. Mr. Luksic is Chairman of the board of directors of
Quiñenco S.A., Compañia Cervecerias Unidas S.A., CNT Telefonica del Sur S.A.
and Madeco S.A. and a Director of Industria Nacional de Alimentos S.A. He is also a member
of the advisory council of Fundacion Paz Ciudadana and the Center of Public Studies, of
the board of Universidad Finis Terrae and of the board of trustees of Thunderbird, The
American Graduate School of International Management. Mr. Luksic is a brother of Mr.
Andronico Luksic.

Jacob
Ergas E. has been a member of our board of directors since January 2002.
Mr. Ergas is also Director of Banchile Administradora General de Fondos. He was
Chairman of the board of directors of Banedwards S.A. Administradora de Fondos Mutuos,
Banedwards S.A. Fondos de Inversion and Banedwards Corredora de Seguros Limitada. He was
Director of Promarket, Banedwards Compañia de Seguros de Vida S.A. and Banedwards
Asesoria Financiera S.A. He was Director and Vice Chairman of Banco de A. Edwards
from 1986 to December 2001 and also Director of the Chilean Association of Banks and
Financial Institutions. He is Chairman of the board of directors of J. Ergas Inversiones y
Rentas Limitada, Ever I BAE S.A., Ever II HNS S.A., Inmobiliaria Paidahue S.A. and INERSA
S.A.

Jorge
Awad M. has been a member of our board of directors since 1996. From 1989 to 1996 he
was a member of the board of directors of Banco de Santiago. Mr. Awad is the Chairman of
the board of directors of Lan Chile since 1994, and a member of the board of directors of
several other companies including Envases del Pacifico S.A. and Diario La Nacion.
He is also a professor of Business Entrepreneurship at the Universidad de Chile, from
which he holds a degree in commercial engineering.

Rodrigo
Manubens M. has been a member of our board of directors since March 2001.
Mr. Manubens was a member of the board of directors of Banco de A. Edwards from 1999
until April 2001. From 1985 to May 1999 Mr. Manubens was a member of the board of Banco
OHiggins and continued in that role when it merged into Banco Santiago. From 1995 to
1999 he was Chairman of Banco Tornquist in Argentina and a member of the board of Banco
Sur in Peru and Banco Asuncion in Paraguay. Mr. Manubens also served for a 10-year period
as a Director and chairman of Endesa Chile S.A. He is also chairman of Banchile
Compañia de Seguros de Vida S.A., Banchile Corredora de Seguros Limitada, and
Banchile Factoring and a member of the board of directors of Banchile Corredora de Bolsa.
Mr. Manubens holds a degree in business from Universidad Adolfo Ibañez and a
masters of science from the London School of Economics and Political Science.

Gonzalo
Menendez D. has been a member of our board of directors since March 2001. Mr. Menendez
is also a member of the board of directors of Quiñenco, Antofagasta PLC, Minera
Michilla S.A., Mining Group Antofagasta Minerals S.A., Antofagasta Railway, and Aguas de
Antofagasta S.A. From 1980 to 1985, Mr. Menendez was the Chief Executive Officer of
Antofagasta Railway. From 1985 to 1992, he was the Chief Executive Officer of Banco
OHiggins. Since 1990, he has been a Director and is now chairman of the Latin
American Export Bank. From 1993 to 1999, Mr. Menendez was a member of the board of
directors and of the executive committee of Banco Santiago. From 1994 to 1998 he was the
Chief Executive Officer of Empresas Lucchetti S.A. From 1999 to 2001, Mr. Menendez was a
member of the board of directors of Banco de A. Edwards. Mr. Menendez has been a
Professor of Finance, Chilean Economic and Business Policy at Universidad de Chile and
Counselor of Universidad de Antofagasta, the Center of Public Studies, the Fundacion
Pascual Baburizza, Fundacion Andronico Luksic A., Fundacion Coanil and Universidad
Diego Portales. Mr. Menendez is also the Chairman of Inversiones Vita S.A., Banchile
Asesoria Financiera, Banchile Administradora General de Fondos and Socofin, and a member
of the boards of directors of Banchile Compañia de Seguros de Vida, Compañia
Nacional de Telefonos, Telefonica del Sur S.A., and Compañia de Telefonos de
Coyhaique S.A. Mr. Menendez holds a degree in business administration and accounting from
the Universidad de Chile.

118

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Maximo
Pacheco M. has been a member of our board of directors since March2001. Mr.
Pacheco is Senior Vice President of International Paper in Brazil, member of the board of
directors of Carter Holt Harvey in New Zealand, and member of the board of directors of
Corporacion Cultural de la I. Municipalidad de Santiago and Industria Nacional de
Alimentos S.A. Mr. Pacheco holds a degree in commercial engineering from the Universidad
de Chile.

Francisco
Perez M.has been a member of our board of directors since March 2001. Since
July 1998, Mr. Perez has been the Chief Executive Officer of Quiñenco. He was
formerly the Chief Executive Officer of Compañia Cervecerias Unidas, of which he is
still a Director. He is also a member of the board of directors of Entel. Prior to 1991,
Mr. Perez was Chief Executive Officer of Citicorp-Chile and also worked for Bankers Trust.
Mr. Perez holds a degree in business administration from the Pontificia Universidad
Catolica de Chile and a masters degree in business administration from the University of
Chicago.

Manuel
Sobral F.has been a member of our board of directors since 1999. Mr. Sobral
was a member of the board of directors of Banchile Corredores de Bolsa from 1999 to 2001,
and has been a member of the board of directors of Banchile Factoring since 2003. He has
been a member of the boards of directors of Inversiones Concepcion and Inversiones Aculeo
since 1988.

Maximo
Silva B.has been a member of our board of directors since 1987. Mr. Silva is
chairman of the board of directors of Isapre Banmedica S.A., Clinica Santa Maria S.A. and
Clinica Davila y Servicios Medicos S.A. and a member of the boards of directors of
Banchile Asesoria Financiera S.A., since 2002, Socofin S.A., since 2003, and Banmedica
S.A. From 1996 until April 2003, he was the Chairman of the Asociacion de Clinicas
Privadas de Chile and Isapre Salud Colmena, Colombia. Mr. Silva was Chiles Minister
of Labor in 1982, and he holds a law degree from the PontificiaUniversidad
Catolica de Chile.

Edmundo
Eluchans U. was elected as an Alternate Director in March 2002. Mr. Eluchans was
a Director of Banco del Trabajo, Banco OHiggins and Banco Santiago. He is also a
Director of Promarket and member of the Administrative Council of Banchile Corredora de
Seguros Limitada. Mr. Eluchans is also a Director of several corporations and
commercial institutions in Chile, and the principal partner at the Chilean law firm of
Edmundo Eluchans y Cia. He was a Director at Banco de A. Edwards from March 2001 to
December 2001, after having been designated as an Alternate Director in March 2000.

Jorge
Diaz V. was elected as an Alternate Director in March 2002. Mr. Diaz is the
Chairman of the board of directors of Redbanc, and a Director of Servipag and FCMI
Administradora de Fondos de Inversion S.A. Mr. Diaz was the Intendent at the Chilean
Superintendency of Banks from 1976 to 1980, Director of Banco del Pacifico from 1980 to
1981, the administrator (appointed by the Chilean Superintendency of Banks) at Banco Unido
de Fomento from 1982 to 1985, Chief Executive Officer of Banco Concepcion (now Corpbanca)
from 1986 to 1992 and advisor of OHiggins Central Hispano S.A. until 1999. He was a
Director at Banco de A. Edwards from March 2001 to December 2001, after having been
elected as an Alternate Director in March 2000. He holds a degree in economics from the
Pontificia Universidad Catolica de Chile.

119

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# Senior Management

Our
current executive officers are as follows:

|Executive Officers   | Position                                       | Age
|-------------------- | ---------------------------------------------- | ---
|                     |                                                |    
|Pablo Granifo L.     | Chief Executive Officer                        | 45 
|Nelson Rojas P.      | General Legal Counsel                          | 50 
|Julio Guzman H.      | Manager-- Corporate and International Division | 49 
|Luis Felipe Bravo F. | Manager-- Credit Risk Division                 | 60 
|Alejandro Herrera A. | Manager-- Individual Banking and Branches      | 47 
|Marcelo Caracci L.   | Manager-- Operations and Technology Division   | 54 
|Arturo Concha U.     | Manager-- Financial Division                   | 50 
|Jennie E. Coleman A. | Manager-- Human Resources Division             | 50 
|Arturo Tagle Q.      | Manager-- Planning and Research Division       | 44 
|Alvaro Cambara L.    | Manager-- Marketing Division                   | 47 
|Pedro Bolados M.     | Manager-- Risk Control Division                | 45 
|Cristian Wolleter V. | Manager-- Middle Market Division               | 51 
|Alicia Sandoval Q.   | Manager-- Special Business Division            | 54 
|Juan Cooper A.       | Manager-- Credichile Division                  | 43 

Pablo
Granifo L. was appointed our Chief Executive Officer in October 2001. He was Chief
Executive Officer of Banco de A. Edwards from November 2000 to October 2001, after having
been a commercial manager at Banco Santiago from 1995 to 1999 and a corporate manager at
Banco Santiago from 1999 to January 2000. Mr. Granifo is a member of the board of
directors of Banchile Administradora General de Fondos, Banchile Asesoria Financiera and
Banchile Factoring, and he is a member of the executive committee of Banchile Corredores
de Seguros Ltda. He holds a degree in business from the Pontificia Universidad Catolica de
Chile.

Nelson
Rojas Preter has been our General Legal Counsel and Secretary of our Board since April
2004. He previously served as in-house legal counsel since 2002. Mr. Rojas joined Banco de
A. Edwards in 1987 where he was the General Legal Counsel and Secretary of the board from
1997 until 2002. He is actually Vice-President of the Legal Affairs Committee of the
Chilean Bank Association. Mr. Rojas holds a degree in law from the Universidad de Chile.

Julio
Guzman H. has been the Manager of the Corporate and International division since
January 2002, after having been the General Manager of Banco de A. Edwards. He joined
Banco de A. Edwards in 1992 after working at Banco Santiago, Citibank N.A. and Banco de
Chile. Mr. Guzman is a member of the board of directors of Banchile Administradora General
de Fondos S.A. and Banchile Securitizadora S.A. He holds a degree in business from the
Pontificia Universidad Catolica de Chile.

Luis
Felipe Bravo F. has been the Manager of the Credit Risk Division since January 2002.
Mr. Bravo joined us in 1986 and has been Manager of Corporate and International
Credit, Manager of Corporate Banking and Manager of Credit Risk. Prior to that time, he
was a Director of Carvalho Hosken and Credit Manager at Citibank N.A. Mr. Bravo holds
degrees in commercial engineering and accounting.

Alejandro
Herrera A. has been the Manager of the Individual Banking and Branches Division since
January 2002, after having served in the same position at Banco de A. Edwards. He joined
Banco de A. Edwards in 2000, after having been the Manager of Individual Banking and
Branches Division at Banco Sudamericano between 1996 and 1999, and as the Chief Executive
Officer of Administradora de Fondos Mutuos Santiago S.A. between 1994 and 1995. Prior to
that time he worked at Banco Santiago as Branches Manager for the Santiago region. Mr.
Herrera is a member of the board of directors of Banchile Administradora General de Fondos
S.A., Banchile Securitizadora S.A., Promarket S.A. and he is a member of the executive
committee of Banchile Corredores de Seguros Ltda. He holds a degree in business from the
Pontificia Universidad Catolica de Valparaiso.

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Marcelo
Caracci L. has been the Manager of the Operations and Technology Division since May
2001. Prior to that time, Mr. Caracci was founder and Director of Sonda Bancos and Sonda
Peru, both technology companies. He participated actively in the development and startup
of Redbanc, Transbank, Servipag and Deposito Central de Valores. He holds a degree in
civil engineering from the Pontificia Universidad Catolica de Chile.

Arturo
Concha U. has been the Manager of the Financial Division since May 1987. Mr. Concha
joined us in 1986 after serving as Chief Financial Officer at Banco Bice and Banco
Colocadora Nacional de Valores. Mr. Concha serves as Chairman of the board of directors of
the Sociedad Interbancaria de Depositos de Valores de S.A. Mr. Concha is a member of
the board of directors of Banchile Corredores de Bolsa S.A. and Banchile Securitizadora
S.A. Mr. Concha holds degrees in commercial engineering and accounting from the Pontificia
Universidad Catolica de Chile and has attended executive education programs at Harvard
Business School.

Jennie
E. Coleman A. has been the Manager of the Human Resources Division since March 2003,
when she joined us. Prior to that time, Mrs. Coleman was the Manager of the Human
Resources Division at Banco Santiago from 1998 until 2002 and also Manager of
Organizational Development at Banco Santiago, where she previously held the position of
training chief executive. Mrs. Coleman holds a degree in public administration from the
Universidad de Chile.

Arturo
Tagle Q. has been the Manager of the Planning and Research Division since January
2002. Mr. Tagle joined us in 1995 after serving as General Manager of the Chilean Bankers
Association and Director of Research at the Chilean Superintendency of Banks. Mr. Tagle is
the Chief Executive Officer of Sociedad Matriz del Banco de Chile S.A. and SAOS. He holds
a degree in commercial engineering from the Pontificia Universidad Catolica de Chile and a
masters degree in business administration from the University of Chicago.

Alvaro
Cambara L. has been the Manager of the Marketing Division since January 2002, after
having been the Manager of the Individual Banking Division and the Marketing Manager of
that division. Prior to that time, Mr. Cambara held several positions in our
Corporate and Marketing divisions, after having been Marketing Manager at AFP Provida S.A.
Mr. Cambara holds a degree in business from Pontificia Universidad Catolica de Chile.

Pedro
Bolados M. has been the Manager of the Risk Control Division since January 2002, after
having served as Comptroller of Banco de A. Edwards. He joined Banco de A. Edwards in 1992
after being Corporate Audit Vice President at Citibank N.A. in Latin America. Mr. Bolados
holds an executive masters degree in business administration from the Pontificia
Universidad Catolica de Chile.

Cristian
Wolleter V. has been the Manager of the Middle-Market Division since May 1999. Mr.
Wolleter joined us in 1981. He is also a member of the board of directors of Banchile
Factoring and Banchile Asesoria Financiera S.A. Prior to joining our company, Mr. Wolleter
held various positions at Financiera Tasco and Agrobanco, where he was Chief Credit
Officer. Mr. Wolleter is a member of the board of directors of Banchile Factoring
S.A. and Banchile Asesorias Financieras S.A. Mr. Wolleter holds a degree in commercial
engineering from the Universidad de Chile.

Alicia
Sandoval Q. has been the Manager of the Special Business Division since January 2002,
after having served as the Manager of Specialized Credits in the Corporate Division. Prior
to that time, Mrs. Sandoval was an advisor to the Chief Executive Officer of Industria
Azucarera Nacional S.A. where she also served as Assistant Manager and an analyst at
Corporacion de Fomento. She is also a member of the board of Banchile Asesoria Financiera
S.A. Mrs. Sandoval holds degrees in commercial engineering and accounting from the
Universidad de Chile.

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Juan
Cooper A. has been the Manager of the Credichile Division since February 2003, after
having been the Chief Executive Officer of Altavida Compañia de Seguros de Vida
S.A. from 2001 to 2002. Prior to that time, he worked at Banco Santiago, as the Manager of
the Santiago Express Division, from 1993 to 2000 and in other positions since 1985. Mr.
Cooper is also a member of the board of Promarket S.A. Mr. Cooper has a degree in business
from the Universidad de Chile and a masters degree in business administration from the
Pontificia Universidad Catolica de Chile.

Our
directors do not have any service contracts with the company that provide for benefits
upon termination of employment.

# COMPENSATION

Consistent
with Chilean law, we do not disclose to our shareholders, or otherwise make public,
information regarding the compensation of our individual directors or officers. For the
year ended December 31, 2003, the aggregate amount of compensation paid to all
of our directors was Ch$1,566 million, as remuneration for their services, as established
at the general shareholders meetings, and for attendance fees, and no amounts were
set aside or accrued by us to provide pension, retirement or similar benefits for our
directors and executive officers. This amount does not include Ch$3,147 million paid to
our senior management and Ch$1,215 million paid to directors and executive officers of our
subsidiaries. The Chilean Corporations Law does not require us to have a compensation
committee. Pursuant to the Chilean Corporations Law, our directors committee must approve
executive officers compensation.

# Indebtedness of
Directors and Executive Officers

The
Chilean Corporations Law provides that any transaction in which a director has a personal
interest or is acting on behalf of a third party must be previously approved by the board
of directors. The transaction may be approved only when the board has been informed of
such directors interest and the terms of such transaction are similar to those
prevailing in the market. If the proposed transaction involves amounts considered
material, the board must previously determine that such transaction is consistent with
conditions prevailing in the market. If it is not possible for the board to reach such a
judgment, the board may appoint two independent evaluators. The evaluators final
conclusions must be made available to shareholders and directors for a period of 20
business days, during which shareholders representing 5% or more of the issued voting
shares may request the board to summon a shareholders meeting to resolve the matter,
with the agreement of two-thirds of the issued voting shares.

For
purposes of this regulation, the law provides that the amount of a proposed transaction is
material if (1) it exceeds 1% of the companys paid-in capital and reserves (provided
that it also exceeds 2,000 UF), or (2) it exceeds 20,000 UF. All resolutions approving
such transactions must be reported to the companys shareholders at the next annual
shareholders meeting. Violations of this provision may result in administrative or
criminal sanctions and civil liability to shareholders or third parties who suffer losses
as a result of such violation.

Chilean
law contains additional provisions restricting transactions with affiliates not involving
directors or executive officers. The Chilean Corporations Law requires that our
transactions with related parties be on market terms or on similar terms to those
customarily prevailing in the market. We are required to compare the terms of any such
transaction to those prevailing in the market at the date the transaction is to be entered
into. Directors of companies that violate this provision are liable for losses resulting
from such violation. As disclosed in note 16 to our audited consolidated financial
statements, we incurred an aggregate of Ch$7,551.7 million in expenses and
Ch$155.8 million in income from transactions other than loans with related parties
in 2003.

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As
authorized by the General Banking Law, and within applicable regulatory limits, we also
hold several outstanding loans owed by different affiliated corporations. All such loans

- were made in
the ordinary course of business;

- were made on
substantially the same terms, including interest rate and collateral, as those prevailing
at the time for comparable transactions with other persons; and

- did not
involve more than the normal risk of collectibility or present other unfavorable
features.

We
held an aggregate of Ch$113,778.8 million in loans to, including
Ch$25,202 million in collateral pledged by, related parties as of December 31,
2003. See note 16 to our audited consolidated financial statements for details
concerning these transactions.

# BOARD PRACTICES

# NYSE Corporate
Governance Comparison

Pursuant
to Section 303A.11 of the Listed Company Manual of the NYSE, we are required to provide a
summary of the significant ways in which our corporate governance practices differ from
those required for U.S. companies under the NYSE listing standards. We are a Chilean bank
with shares listed on the Santiago Stock Exchange, the LSE and the Latibex. Our corporate
governance practices are governed by our bylaws, the General Banking Law, the Chilean
Corporations Law, the Ley de Mercado de Valores No. 18,045, or the Securities
Market Law, and the regulations issued by the Chilean Superintendency of Banks.

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The
table below discloses the significant differences between our corporate governance
practices and the NYSE standards.

|NYSE Standards                                                                                                                                                                                                                                       |  | Our Corporate Governance Practice                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Director Independence.Majority of board of directors must be independent. Controlled companies, which would include our company if it were a
U.S. issuer, are exempt from this requirement. §303A.01                                               |  | Pursuant to the General Banking Law; we are not required to make a
determination as to the independence of our directors.

Pursuant to the Chilean Corporations Law, we must determine whether the
members of our Directors Committee (all of whom are members of our board of
directors) are independent.

The definition of independence applicable to us pursuant to the Chilean
Corporations Law differs in certain respects from the definition applicable to
U.S. issuers under the NYSE rules.

Under the Chilean Corporations Law, a director is deemed to be an independent
member of the Directors Committee if such member would have, been elected as
a Director at the Shareholders Meeting after excluding the votes of any
controller or party related to it.
|                                                                                                                                                                                                                                                    
|Executive Sessions.Non-management directors must meet regularly in executive sessions without management. Independent directors should meet
alone in an executive session at least once a year. §303A.03                                             |  | There is no similar requirement under our bylaws or under applicable Chilean law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                    
|Audit committee.Audit committee satisfying the independence and other requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as
amended, and the more stringent requirements under the NYSE standards is required. §§303A.06, 303A.07 |  | We will be required to comply with Rule 10A-3 by July 31, 2005.  The members
of our audit committee are not required to satisfy the NYSE independence and
other audit committee standards that are not prescribed by Rule 10A-3.

For a description of the duties of our audit committee under applicable
Chilean law, see Governance Practices The Audit Committee.                                                                                                                                                                                                                                                                                                                                                                                                      

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|NYSE Standards                                                                                                                                                                                                                                                                                                                                                                    |  | Our Corporate Governance Practice                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Nominating/corporate governance committee. Nominating/corporate governance committee of independent directors is required. The committee must
have a charter specifying the purpose, duties and evaluation procedures of the committee. Controlled companies, which would include our company
if it were a U.S. issuer, are exempt from these requirements. §303A.04            |  | We are not required to have, and do not have, a nominating/corporate governance committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                 
|Compensation committee. Compensation committee of independent directors is required, which must approve executive officer compensation. The
committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. Controlled companies, which would
include our company if it were a U.S. issuer, are exempt from this requirement. §303A.05 |  | We are not required to have a compensation committee. Pursuant to the Chilean Corporations Law, our directors committee must approve executive
officers compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                 
|Equity compensation plans. Equity compensation plans require shareholder approval, subject to limited exemptions.                                                                                                                                                                                                                                                                 |  | Equity compensation plans require shareholder approval, subject to limited exemptions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                 
|Code of Ethics. Corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any waiver for
directors or executive officers. §303A.10                                                                                                                                                                                                |  | We have adopted a code of ethics applicable to all of our directors and executive officers, which has been included as an exhibit to this annual
report on Form 20-F. We are required by Item 16B of Form 20-F to disclose any waivers granted to our chief executive officer, chief financial
officer, principal accounting officer and persons performing similar functions. Our code of ethics sets forth the principles and values that
govern personnel conduct as well as other issues such as; conflicts of interests, usage of the privileged information, internal controls for fraud
prevention and labor responsibility.

# Governance Practices

Historically,
we have had a directors committee, as required by the Chilean Corporations Law.
Based on a recent resolution of the Chilean Superintendency of Banks and in response to
the Sarbanes-Oxley Act of 2002, we have recently established an audit committee and a
disclosure committee.

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The
Directors Committee

The
three members of our directors committee are directors appointed by the board. The
members serve on the committee for the same period as they serve as directors and can be
re-elected. The majority of the members of the directors committee must be
independent of the controlling shareholder according to Chilean law. Our directors
committee must meet at least four times a year. The following directors were appointed as
members of the directors committee by the board of directors at a meeting held on
March 21, 2002:

- Jorge Awad M.
(Chair);

- Gonzalo
Menendez D.; and

- Manuel Sobral
F.

Mr.
               Jorge Awad M. and Mr. Manuel Sobral satisfy the requirement that they be
               independent of the controlling shareholder.

The
directors committee may appoint independent personnel to carry out specific duties.
The main duties of the directors committee are:

- reviewing and
approving all related party transactions;

- reviewing our
individual and consolidated financial statements and accounting policies;

- reviewing the
audit reports prepared by our internal comptroller and supervising our controlling
                  divisions;

- reviewing the
work of our external auditors and interacting with rating agencies;

- proposing to
the board of directors the external auditors and rating agencies to be proposed to
                  our annual general shareholders' meeting;

- discussing the
compensation structure for senior management;

- discussing
money laundering prevention policies and compliance therewith;

- reviewing and
discussing management's self evaluation process; and

- reviewing
complaints presented by our clients to the Chilean Superintendency of Banks.

The
Audit Committee

In
May 2003, the Chilean Superintendency of Banks adopted a resolution requiring that, from
January 2004, all Chilean banks establish an audit committee composed of three members,
two of whom must be directors appointed by the board of directors. All audit committee
members must be independent, and under applicable Chilean law our board of directors must
set the standards applicable to determine directors independence based on applicable
international criteria. Our audit committee operates pursuant to a charter document and
the instructions of the Chilean Superintendency of Banks. Our audit committee must meet at
least eight times a year. The Chilean Superintendency of Banks recommends that at least
one of the members of the audit committee be experienced with respect to the accounting
procedures and financial aspects of banking operations.

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The
following directors were appointed as members of the audit committee by the board of
directors at a meeting held on May 29, 2003:

- Jorge Awad M.;

- Gonzalo
Menendez D.; and

- Manuel Sobral
F.

The
duties of the audit committee include:

- proposing
external auditors to the directors' committee or to the board of directors;

- proposing
rating agencies to the directors' committee or to the board of directors;

- reviewing
audits and internal reports;

- coordinating
with internal and external auditors;

- reviewing
annual and interim financial statements and informing the board of directors of the
                  results of such reviews;

- reviewing the
reports, procedures and extent of the work of external auditors;

- reviewing the
procedures and content of reports from external risk evaluators;

- discussing the
effectiveness and reliability of internal control procedures;

- reviewing the
performance of information systems, their sufficiency,  reliability and use in
                  decision making;

- discussing the
observance of internal regulations related to compliance with laws and regulations;

- reviewing and
deliberating on issues related to conflicts of interests;

- investigating
suspected fraudulent activities;

- reviewing the
inspection reports, instructions and presentations from the Chilean Superintendency
                  of Banks;

- reviewing
compliance with the annual program of internal auditing; and

- informing the
board of directors of any change in accounting principles and its effects.

Other
duties of the audit committee include, as needed:

- reviewing
money laundering procedures;

- asking
internal auditors to perform specific tasks;

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- making
recommendations on specific tasks to external auditors; and

- intervening in
any other situation where intervention is warranted in the committee's discretion.

The
audit committee submits a report regarding its activities to our board of directors after
each audit committee meeting, and presents an annual report at our annual
shareholders meeting.

The
Disclosure Committee

In
May 2003 we also established a disclosure committee that formalizes the tasks necessary to
ensure the accuracy and completeness of information disclosed by us to our shareholders
and the market. The members of the disclosure committee include our Manager of Investor
Relations, our Principal Accounting Officer, our senior in-house counsel in charge of
international banking, the Manager of the Risk Control Division, the Manager of the
Planning and Research Division, the Manager of the Planning and Research Area and, as
needed, persons from our other divisions. These persons have been involved in the drafting
of this annual report and are involved in the preparation of our quarterly disclosures.

# EMPLOYEES

The
following table shows the breakdown of our full-time, permanent employees at the dates
indicated:

|                                             | As of December 31,
|-------------------------------------------- | ------------------
|                                             |                   
|                                             | 2001              
|                                             |                   
|Banco de Chile                               | 4,052             
|Overseas branches and representative offices | 55                
|Subsidiaries                                 | 428               
|                                             |                   
|Total                                        | 4,535             
|                                             |                   

At
December 31, 2003, we had 9,133 employees (on a consolidated basis) of which approximately
1,667 (18.3%) were unionized. All management positions are held by non-unionized
employees. We are party to four collective bargaining agreements (one of which we assumed
as part of the merger with Banco A. Edwards) covering our unionized employees. Three
collective bargaining agreements were signed in September 2001 and expire in December
2005; the other was signed in January 2003 and expires in December 2006. We have not
experienced a strike in the last 10 years and consider relations with our employees to be
satisfactory.

The
significant increase in the number of our employees during 2002 is primarily the result of
the merger with Banco de A. Edwards and the incorporation of Socofin, our new collection
services subsidiary, in June 2002.

We
have a comprehensive personnel training and development program that includes internal
courses on operational, technical and commercial subjects as well as participation in
external seminars. In 2003, the total cost of training programs was approximately 1.0% of
total personnel salaries and expense. We do not maintain any pension or retirement
programs for the vast majority of our employees. We do, however, pay certain long-serving
key employees a severance payment upon retirement. Although we have, in the past, provided
productivity bonuses to individual employees on a discretionary basis, we do not maintain
a formal profit-sharing plan.

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# SHARE OWNERSHIP

Andronico
Luksic and Guillermo Luksic, members of our board of directors since March 2002 and March
2001, respectively, together with members of their family, control Quiñenco S.A.
Quiñenco S.A. owns 20.22% of our outstanding shares. The shares owned by Messrs.
Andronico and Guillermo Luksic do not have preferential voting rights.

Mr. Jacob
Ergas, a member of our board of directors since January 2, 2002, controls
          Ever I Bae S.A., Inversiones Aspen Ltda., Inversiones e Inmobiliaria el Rosal
          S.A., Inversiones Interover S.A. and Inversiones el Norte y el Rosal S.A. These
          holding companies own 4.92%, 1.60%, 0.57%, 0.03%, and 0.0007% of our outstanding
          shares, respectively. The shares owned by Mr. Ergas do not have preferential
          voting rights.

None
of our other directors or members of senior management (other than Messrs. Andronico
Luksic, Guillermo Luksic and Jacob Ergas) owns 1% or more of our outstanding common stock.
Our directors and senior managers do not have different or preferential voting rights with
respect to those shares they own.

We
do not have any arrangements for involving employees in our capital, including any
arrangements that involve the issue or grant of options of our shares or securities.

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Table of Contents


Item 7. Major
Shareholders and Related Party Transactions

MAJOR SHAREHOLDERS

The
following table sets forth information concerning the beneficial ownership of our shares
as of May 31, 2004 for the following:

- each person or
entity who is known by us to own beneficially more than 5% of our outstanding share
                  capital or voting power; and

- our directors
and members of our executive management group, as a group.

The
calculation of percentages in the Percentage of Outstanding Shares column in
the table below is based upon the number of our ordinary shares issued and outstanding as
of May 31, 2004. There are no shares subject to options.

|Name                                        | Shares Beneficially Owned | Percentage of Shares | Shares Owned of Record | Percentage of Outstanding Shares | Number of Votes   | Percentage of Votes
|------------------------------------------- | ------------------------- | -------------------- | ---------------------- | -------------------------------- | ----------------- | -------------------
|                                            |                           |                      |                        |                                  |                   |                    
|L.Q. Inversiones Financieras S.A.(1)        | -                         | -                    | 13,762,345,978         | 20.22                            | 34,228,775,667    | 51.57              
|Inversiones L.Q.-SM S.A.(2)                 | -                         | -                    | -                      | -                                | 1,277,323,323     | 1.92               
|Ever I Bae S.A.(3)                          | -                         | -                    | 3,352,452,374          | 4.92                             | 3,352,452,374     | 5.05               
|Inversiones Aspen Ltda(3)                   | -                         | -                    | 1,093,065,478          | 1.60                             | 1,093,065,478     | 1.65               
|Inversiones e Inmobiliaria el Rosal S.A.(3) | -                         | -                    | 392,034,250            | 0.58                             | 392,034,250       | 0.59               
|Inversiones Interover S.A. (3)              | -                         | -                    | 24,770,287             | 0.04                             | 24,770,287        | 0.04               
|Inversiones el Norte y el Rosal S.A. (3)    | -                         | -                    | 472,336                | 0.00                             | 472,336           | 0.00               
|JP Morgan Chase Bank (4)                    | -                         | -                    | 458,430,600            | 0.67                             | 458,430,600       | 0.69               
|SM-Chile S.A.(5)                            | 41,175,754,216            | 60.48                | 12,582,052,427         | 18.48                            | -                 | -                  
|SAOS (5)                                    | -                         | -                    | 28,593,701,789         | 42.00                            | -                 | -                  
|Directors and executive officers as a group
|(27 persons)                                | -                         | -                    | 31,467,741             | 0.05                             | 100,445,806       | 0.15               
|Banco de Chile (6)                          | -                         | -                    | 1,701,994,590          | 2.50                             | -                 | -                  
|Other shareholders                          | 26,904,029,389            | 39.52                | 6,086,995,755          | 8.94                             | 25,450,018,894    | 38.34              
|                                            |                           |                      |                        |                                  |                   |                    
|Total                                       | 68,079,783,605            | 100.00%              | 68,079,783,605         | 100.00%                          | 66,377,789,015(6) | 100.00%            
|                                            |                           |                      |                        |                                  |                   |                    

|(1) | LQ
Inversiones Financieras S.A. is a holding company beneficially owned by Quinenco S.A.  At
December 31,       2003, 82.4% of the common shares of Quinenco S.A. were beneficially
owned by members of the Luksic family or       their affiliates.  Quinenco S.A. is a
corporation organized under the laws of Chile, and is engaged in a       wide range of
business activities in Chile, including (1) banking and financial services through their
      interest in us, (2) the production, bottling and distribution of beer, wine, soft
drinks and other beverages       (through a 30.8% interest in Compania Cervecerias Unidas
S.A.), (3) telecommunications (through ownership of       a controlling interest in
Compania Nacional de Telefonos Telefonica del Sur S.A. and Compania de Telefonos       de
Coyhaique S.A.), (4) copper and aluminum manufacturing operations and consumer product
packaging (through       a controlling interest in Madeco S.A.), (5) copper and gold
mining operations, in railway operations and       real estate (through Antofagasta  Plc)
and (6) other investments in real estate,  hotel administration and       the
confectionary business.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Inversiones
L.Q.-SM S.A. is a wholly owned subsidiary of L.Q. Inversiones Financieras S.A.
|--- | ------------------------------------------------------------------------------------------

|(3) | Ever
I Bae S.A., Inversiones Aspen Ltda., Inversiones e Inmobiliaria el Rosal S.A.,
Inversiones Interover       S.A. and Inversiones el Norte y el Rosal S.A. are holding
companies under the control of Mr. Jacob Ergas.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | JP
Morgan Chase Bank is the depositary bank of our ADS facility.
|--- | ----------------------------------------------------------------

|(5) | The
sum of the shares directly held by SAOS and SM-Chile equals the amount of shares
beneficially owned by       SM-Chile because SM-Chile is the parent company of SAOS.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Shares
repurchased by Banco de Chile according to the Share Repurchase Program.  Repurchased
shares do not       have voting or dividend rights.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

# RELATED PARTY
TRANSACTIONS

In the
ordinary course of our business, we engage in a variety of transactions with certain of
our affiliates and related parties. Financial information concerning these transactions is
set forth in note 16 to our audited consolidated financial statements. The Chilean
Corporations Law requires that our transactions with related parties be on market terms or
on similar terms to those customarily prevailing in the market. We are required to compare
the terms of any such transaction to those prevailing in the market on the date the

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transaction is entered into. Directors of companies that violate this provision are liable
for losses resulting from such violations.

In
addition, the Chilean Corporations Law provides that any transaction in which a director
has a personal interest or is acting on behalf of a third party must be previously
approved by a majority of the disinterested directors on the companys board of
directors. The terms of such transaction must be similar to those prevailing in the
market. If the proposed transaction involves amounts considered to be material, the
disinterested directors must previously determine that the terms and conditions of the
transaction are consistent with those prevailing in the market. If it is not possible for
the board to reach such a judgment on its own, the board may appoint two independent
evaluators. The evaluators final conclusions must be made available to shareholders
and directors for a period of 20 business days, during which shareholders representing 5%
or more of the issued voting shares may request the board to summon a shareholders
meeting to resolve the matter, with the agreement of two-thirds of the issued voting
shares required for approval. For purposes of this requirement, the Chilean Corporations
Law considers that the amount of a proposed transaction is material if (1) it exceeds 1%
of the companys paid-in capital and reserves, (provided that it also exceeds
UF2,000) or (2) it exceeds UF20,000.

All
resolutions approving such transactions must be reported to the companys
shareholders at the next annual shareholders meeting. Violations of this provision
may result in administrative or criminal sanctions and civil liability to shareholders or
third parties who suffer losses as a result of such violation. We believe that we have
complied with the applicable requirements of the Chilean Corporations Law in all
transactions with related parties and affirm that we will continue to comply with such
requirements. See note 16 to our audited consolidated financial statements for a more
detailed accounting of transactions with related parties.

We
did not enter into any related party transactions in 2003.

# Loans to Related Parties

As authorized
by the General Banking Law, and within the regulatory limits, we hold several outstanding
loans owed by different corporations related to us. All such loans (a) were made in the
ordinary course of business, (b) were made on terms, including interest rates and
collateral, substantially the same as those prevailing at the time for comparable
transactions with other persons, and (c) did not involve more than the normal risk of
collectibility or present other unfavorable features. See note 16 to our audited
consolidated financial statements.

Table of Contents


Item 8. Financial
Information

CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION

Audited Consolidated
Financial Statements

Please refer to "Item 18.  Financial Statements."

Legal Proceedings

We
are subject to claims and are a party to legal proceedings incidental to the normal course
of business.

Neither
we nor any of our subsidiaries are a party to any legal or governmental proceeding that is
pending or, to our knowledge, threatened or contemplated against us or any of our
subsidiaries such that, if determined adversely to us or any of our subsidiaries, would
have a materially adverse effect, either individually or in the aggregate, on our
business, financial condition or results of operations.

131

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# Dividends

The
dividends on our shares are proposed by our board of directors and are approved by our
shareholders at the annual ordinary shareholders meeting following the year with
respect to which the dividends are proposed. Our annual ordinary shareholders
meeting is held in the first three months of each year. Following shareholder approval,
the dividends are declared and paid. Dividends are paid to shareholders of record on the
fifth business day preceding the date set for payment of the dividend. The applicable
record dates for the payment of dividends to holders of our ADSs are, to the extent
practicable, the same. Under the Chilean Corporations Law and regulations issued
thereunder, Chilean public corporations are generally required to distribute at least 30%
of their earnings as dividends, but a bank is permitted to distribute less than such
minimum amount in any given year if the holders of at least two-thirds of the banks
outstanding stock so determine. Under the General Banking Law, a Chilean bank may only pay
a single dividend per year (i.e. interim dividends are not permitted). It is our
current policy to pay 100% of our earnings as dividends.

Our
dividend policy is affected to some extent by the rights of SAOS, our affiliate, pursuant
to its assumption of the Central Bank indebtedness discussed in Item 5. Operating
and Financial Review and ProspectsOverviewCentral Bank Subordinated
Debt.

We
currently have one class of capital shares. In March, 2004, we paid a dividend of
Ch$1.9176 per share.

Dividends
payable to holders of our ADSs are net of conversion expenses of the depositary and are
subject to Chilean withholding tax currently at the rate of 35%, subject to certain
credits. Owners of our ADSs are not charged any fees with respect to cash or stock
dividends.

Pursuant
to current Chilean foreign exchange regulations, a shareholder who is not a resident of
Chile need not register as a foreign investor in order to receive dividends, sale proceeds
or other amounts with respect to its shares remitted outside Chile, but the investor must
inform the Central Bank about any such transactions and must remit foreign currency
through the Formal Exchange Market. Under the foreign investment contract, the depositary,
on behalf of our ADS holders, will be granted access to the Formal Exchange Market to
convert cash dividends from Chilean pesos to U.S. dollars and to pay such U.S. dollars to
ADS holders outside Chile.

The
following table sets forth the cash dividends declared on each share of our common stock
and per ADS during the periods indicated:

|                                                    | As of and for the Year Ended December 31,
|--------------------------------------------------- | -----------------------------------------
|                                                    |                                          
|                                                    | 1999                                     
|                                                    |                                          
|                                                    | (in constant Ch$ as of December 31, 2003)
|                                                   
|Dividend per common share(1)                        | 1.21                                     
|Dividend per F shares(1)                            | n.a.                                     
|Dividends per ADS of F shares(1) (2)                | n.a.                                     
|Dividend per Banco de A. Edwards     shares(1)      | 1.77                                     
|Dividends per ADS of Banco de A.     Edwards(1) (3) | 292.05                                   

_______________


Note: n.a. = not
applicable.


|(1) | Dividends
per share and per ADS data are calculated by dividing the amount of the dividend paid by
      the weighted average of shares outstanding during the year.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Calculated
on the basis of 600 shares per ADS.
|--- | ----------------------------------------------

|(3) | Calculated
on the basis of 165 shares per ADS.
|--- | ----------------------------------------------

In
2002, as a consequence of the merger, we paid a dividend to holders of our common shares
and to holders of F shares. Once the dividends were paid, the F shares were converted into
common shares. See Item 10. Additional InformationMemorandum and Articles of
AssociationCapitalization.

132



Whether
future dividends will be paid will depend upon our earnings, financial condition, capital
requirements, governmental regulations and policies and other factors. Accordingly, there
can be no assurance that dividends in future years will be paid at a rate similar to
dividends paid in past years.

# SIGNIFICANT CHANGES

No
significant changes in our financial condition have occurred since the date of the most
recent audited consolidated financial statements included in this annual report.

Table of Contents


Item 9. The Offer and
Listing

Nature of Trading Market

Shares of
our common stock are traded on the Chilean stock exchanges. They have been listed on the
Santiago Stock Exchange since 1894, on the Electronic Stock Exchange since 1989 and on the
Valparaiso Stock Exchange since 1894. The Santiago Stock Exchange is the principal trading
market for our shares.

The
Chilean securities markets are substantially smaller, less liquid and more volatile than
major securities markets in the United States. The Santiago Stock Exchange, which is
Chiles principal exchange, had a market capitalization of approximately U.S.$85.5
billion as of December 31, 2003 and an average monthly trading volume of approximately
U.S.$626 million for 2003. The Santiago Stock Exchange was established in 1893 and is a
private company whose equity consists of 48 shares held by 46 shareholders. As of December
31, 2003, 260 series of shares were listed on the Santiago Stock Exchange.

The
Santiago Stock Exchange accounts for approximately 76.4% of all amounts traded in Chile.
The ten largest companies in terms of market capitalization represented, as of December
31, 2003, approximately 48.5% of the Santiago Stock Exchanges aggregate market
capitalization and during 2003 accounted for approximately 48.3% of its total volume.
During 2003, 19.2% of the companies listed on the Santiago Stock Exchange had their shares
traded on an average of 70% or more of the exchanges trading days. Approximately
22.8% of equity trading in Chile is conducted on the Chilean Electronic Stock Exchange, an
electronic trading market that was created by banks and non-member brokerage houses. The
remaining 0.8% of equity is traded on the Valparaiso Stock Exchange.

ADSs,
each representing 600 shares of common stock, without nominal (par) value, have been
listed on the NYSE since January 2, 2002 under the symbol BCH. JPMorgan Chase
Bank is our depositary for purposes of issuing the ADRs evidencing our ADSs. As of
December 31, 2003, a maximum of 863,813 ADSs were outstanding (equivalent to
518,287,800 shares of common stock or 0.76% of the total number of issued shares of common
stock). It is not practicable for us to determine the proportion of ADSs beneficially
owned by U.S. persons. 100% of record holders addresses are in the United States.
Since certain of our ADSs are held by brokers or other nominees, the number of direct
record holders in the United States may not be fully indicative of the number of direct
beneficial owners in the United States or of where the direct beneficial owners of such
shares are resident.

We
listed our shares on Latibex, and trading of our shares started on that exchange on
October 8, 2002 under the code XBCH, grouped in trading units of 600 shares. In addition,
since December 20, 2002, our shares are listed on the LSE.

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The
table below shows, for the periods indicated, the annual, quarterly and monthly high and
low closing prices (in nominal Chilean pesos) of the shares of our securities on the
Santiago Stock Exchange, the Electronic Stock Exchange, and the Valparaiso Stock Exchange:

|                        | Santiago Stock Exchange | Electronic Stock Exchange | Valparaiso Stock Exchange
|----------------------- | ----------------------- | ------------------------- | -------------------------
|                        |                         |                           |                          
|                        | Common Stock            | Common Stock              | Common Stock             
|                        |                         |                           |                          
|                        | High                    | Low                       | High                     
|                        |                         |                           |                          
|                        | (Ch$ per share )(1)     | (Ch$ per share )(1)       | (Ch$ per share )(1)      
|Annual Price History    |                         |                           |                          
|1999                    | 25.0                    | 11.5                      | 25.0                     
|2000                    | 27.0                    | 21.0                      | 26.0                     
|2001                    | 28.0                    | 21.7                      | 28.0                     
|2002                    | 26.0                    | 16.8                      | 25.2                     
|2003                    | 32.0                    | 19.2                      | 32.0                     
|                       
|Quarterly Price History
|2002                    |                        
|1stQuarter              | 26.0                    | 20.0                      | 25.2                     
|2ndQuarter              | 19.9                    | 18.1                      | 20.0                     
|3rdQuarter              | 18.7                    | 16.8                      | 18.7                     
|4thQuarter              | 19.8                    | 17.9                      | 19.5                     
|2003                    |                        
|1stQuarter              | 22.5                    | 19.2                      | 22.5                     
|2ndQuarter              | 24.6                    | 20.7                      | 25.0                     
|3rdQuarter              | 25.6                    | 22.5                      | 25.6                     
|4thQuarter              | 32.0                    | 25.7                      | 32.0                     
|2004                    |                        
|1stQuarter             
|                       
|Monthly Price History  
|December 2003           | 28.9                    | 27.3                      | 28.5                     
|January 2004            | 29.2                    | 27.6                      | 29.4                     
|February 2004           | 32.0                    | 28.8                      | 32.0                     
|March 2004              | 31.9                    | 26.5                      | 31.9                     
|April 2004              | 30.0                    | 28.6                      | 31.0                     
|May 2004                | 31.8                    | 29.5                      | 31.7                     

___________________


|Sources: | Santiago
Stock Exchange, Electronic Stock Exchange, Valparaiso Stock Exchange--Official Quotation
Bulletin.
|-------- | -----------------------------------------------------------------------------------------------------------

|(1) | Pesos
per share reflect nominal price at trade date.
|--- | ----------------------------------------------------

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The
table below shows the annual, quarterly and monthly high and low closing prices in U.S.
dollars and in Euros, respectively, as reported by the NYSE and Latibex:

|                        | NYSE            | Latibex                 
|----------------------- | --------------- | ------------------------
|                        |                 |                         
|                        | ADS(1)          | Trading Units(2)        
|                        |                 |                         
|                        | High            | Low                     
|                        |                 |                         
|                        | (U.S.$ per ADS) | (Euros per Trading Unit)
|Annual Price History    |                 |                         
|2003                    | 30.00           | 15.91                   
|Quarterly Price History
|2003                    |                
|1stQuarter              | 18.15           | 15.91                   
|2ndQuarter              | 21.48           | 17.29                   
|3rdQuarter              | 22.95           | 19.38                   
|4thQuarter              | 30.00           | 23.05                   
|2004                    |                
|1stQuarter             
|Monthly Price History  
|December 2003           | 28.40           | 27.42                   
|January 2004            | 30.75           | 28.21                   
|February 2004           | 33.65           | 29.89                   
|March 2004              | 32.10           | 25.30                   
|April 2004              | 29.25           | 27.95                   
|May 2004                | 29.95           | 28.15                   

___________________


|Sources: | NYSE
and Latibex--Official Quotation Bulletin.
|-------- | ----------------------------------------------

|(1) | One
ADS represents 600 shares of common stock.
|--- | ----------------------------------------------

|(2) | One
Trading Unit represents 600 shares of common stock.
|--- | -------------------------------------------------------

We
have been subjected to two trading suspensions since 2001. Trading was suspended on the
Santiago Stock Exchange on January 2, 2001 until 10:00 a.m. on January 3, 2001. This
suspension was the result of a report by Reuters that L.Q. Inversiones had requested
authorization from the Chilean Superintendency of Securities and Insurance to acquire an
additional 25% stake in SM-Chile. Trading was also suspended on the Santiago Stock
Exchange on March 26, 2004 from 9:30 a.m. until 10:00 a.m., when we notified the Santiago
Stock Exchange of the tender offer issued by us for 1,701,994,590 shares.

Table of Contents


Item 10.    Additional
Information

MEMORANDUM AND
ARTICLES OF ASSOCIATION

Set forth
below is a brief summary of the significant provisions of our bylaws, or estatutos
and Chilean law. This description contains all material information concerning our shares,
but does not purport to be complete and is qualified in its entirety by reference to our
estatutos (a copy of which has been filed as an exhibit to this annual report), the
General Banking Law, the Chilean Corporations Law and the Securities Market Law. For a
description of the provisions of our estatutos related to our board of directors
and our audit committee, see Item 6. Directors, Senior Management and
Employees and for those related to our dividends, see Item 8. Financial
InformationConsolidated Statements and Other Financial
InformationDividends.

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We
are an open stock (public) corporation. Open stock (public) corporations are those with
500 or more shareholders, or companies in which 100 or more shareholders own at least 10%
of the subscribed capital (excluding those whose individual holdings exceed 10%), and all
other companies that are registered in the Securities Registry of the Chilean
Superintendency of Securities and Insurance. The Chilean Corporations Law sets forth the
rules and requirements for establishing open stock corporations. Shareholder rights in a
Chilean bank that is also an open stock corporation are governed by the banks
estatutos, which effectively serve as both the articles of incorporation and the
bylaws of a company incorporated in the United States. Article 137 of the Chilean
Corporations Law provides that all provisions of the Chilean Corporations Law take
precedence over any contrary provision in a corporations estatutos. Both the
Chilean Corporations Law and our estatutos provide that legal actions by
shareholders against us (or our officers or directors) to enforce their rights as
shareholders or by one shareholder against another in their capacity as such are to be
brought in Chile in arbitration proceedings.

The
Chilean securities markets are principally regulated by the Chilean Superintendency of
Securities and Insurance under the Securities Market Law and the Chilean Corporations Law.
In the case of banks, compliance with these laws is supervised by the Chilean
Superintendency of Banks. These two laws provide for disclosure requirements, restrictions
on insider trading and price manipulation and protection of minority investors. The
Securities Market Law sets forth requirements relating to public offerings, stock
exchanges and brokers, and outlines disclosure requirements for companies that issue
publicly offered securities.

# Capitalization

There
is currently one outstanding series of our capital stock. We have a total of
68,079,783,605 outstanding shares. All of our shares are fully subscribed and paid and
there are no legal restrictions on the payment of dividends from our net income, except
that we may only pay a single dividend per year (i.e., interim dividends are not
permitted). Chilean public corporations are generally required to distribute at least 30%
of their earnings as dividends, but a bank is permitted to distribute less than such
minimum amount in any given year if the holders of at least two-thirds of the banks
outstanding stock so determine. All of our shares have full voting rights.As part
of our merger with Banco de A. Edwards, Banco de A. Edwards shareholders received F
shares of Banco de Chile. The F shares had all of the same rights as our common
stock, except that they entitled holders to receive dividends in 2002 with respect to
Banco de A. Edwards 2001 income. Once these dividends were declared and paid, the F
shares automatically converted on a one-for-one basis into shares of our common stock.
Accordingly, the F shares no longer exist.

Under
Chilean law, the shareholders of a company, acting at an extraordinary shareholders
meeting, have the power to authorize an increase in the companys capital. When an
investor subscribes for issued shares, the shares are registered in such investors
name, even if not paid for, and the investor is treated as a shareholder for all purposes
except with regard to receipt of dividends and the return of capital. The investor becomes
eligible to receive dividends or the return of capital once it has paid for the shares; if
it has paid for only a portion of such shares, it is entitled to reserve a corresponding
pro-rata portion of the dividends declared with respect to such shares unless the
companys bylaws provide otherwise. If an investor does not pay for shares for which
it has subscribed on or prior to the date agreed upon for payment, the company is entitled
under Chilean law to auction the shares on the stock exchange and collect the difference,
if any, between the subscription price and the auction proceeds. However, until such
shares are sold at auction, the subscriber continues to exercise all the rights of a
shareholder (except the right to receive dividends or the return of capital. In the case
of banks, authorized shares and issued shares that have not been paid for within the
period fixed for their payment by the Chilean Superintendency of Banks are cancelled and
are no longer available for issuance by the company.

The
Chilean Corporations Law provides that the purchaser of shares of a company implicitly
accepts its bylaws and any agreements adopted at shareholders meetings.

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# Ownership Restrictions

Under
the Securities Market Law and the regulations of the Chilean Superintendency of Banks,
shareholders of open stock corporations are required to report the following to the
Chilean Superintendency of Securities and Insurance and the Chilean stock exchanges:

- any direct
or indirect acquisition or sale of shares that results in the holders acquiring or
disposing of, directly or indirectly, 10% or more of an open stock corporations
share capital; and

- any direct
or indirect acquisition or sale of shares or options to buy or sell shares, in any
amount, if made by a holder of 10% or more of an open stock corporations capital or
if made by a director, liquidator, main officer, general manager or manager of such
corporation.

In addition, any person who acquires
10% or more of our shares must include in the report whether the purpose of the
acquisition is to acquire controlof us or if he or she is making a financial
investment. A beneficial owner of ADSs representing 10% or more of our share capital will
be subject to these reporting requirements under Chilean law.

According
to the regulations of the Chilean Superintendency of Banks, Chilean banks that issue ADSs
are required to inform the Chilean Superintendency of Banks if any person, directly or
beneficially, acquires ADSs representing 5% or more of the total amount of shares of
capital stock issued by such bank.

Under
the Securities Market Law and the regulations of the Chilean Superintendency of Banks,
persons or entities intending to acquire control, directly or indirectly, of an open stock
corporation are also required to inform the public of such intentionat least 10
business days in advance but in any case, as soon as negotiations regarding the change of
control begin (i.e.,when information and documents concerning the target are
delivered to the potential acquiror) through a filing with the Chilean Superintendency of
Securities and Insurance, the stock exchanges and the companies controlled by and that
control the target and through a notice published in two Chilean newspapers, which notice
must disclose, among other information, the person or entity purchasing or selling and the
price and conditions of any negotiations.

Prior
to such publication, a written communication to such effect must be sent to the target
corporation, to the controlling corporation, to the corporations controlled by the target
corporation, to the Chilean Superintendency of Securities and Insurance and to the Chilean
stock exchanges. Title XV of the Securities Market Law provides the definition of a
controlling power, direct holding and related party.

The
General Banking Law provides that, as a matter of public policy, no person or company may
acquire, directly or indirectly, more than 10% of the shares of a bank without the prior
authorization of the Chilean Superintendency of Banks, which may not be unreasonably
withheld. The prohibition also applies to beneficial owners of ADSs. In the absence of
such authorization, any person or group of persons acting in concert would not be
permitted to exercise voting rights with respect to the shares or ADSs acquired. In
determining whether to issue such an authorization, the Chilean Superintendency of Banks
considers a number of factors enumerated in the General Banking Law, including the
financial stability of the purchasing party.

The
General Banking Law also requires the prior authorization of the Chilean Superintendency
of Banks for:

- the merger
of two or more banks;

- the
acquisition of all or a substantial portion of a bank's assets and liabilities by another
bank;

137

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- the control
by the same person or controlling group of two or more banks; or

- a
substantial increase in the share ownership by a controlling shareholder of a bank.

The
prior authorization is required solely when the acquiring bank or the resulting group of
banks would own a significant market share in loans, defined by the Chilean
Superintendency of Banks to be more than 15.0% of all loans in the Chilean banking system.
The intended purchase may be denied by the Chilean Superintendency of Banks, or may be
conditioned on one or more of the following:

- that the
bank or banks maintain an effective equity higher than 8.0% and up to 14.0% of their risk
weighted assets;

- that the
technical reserve requirements established by Article 65 of the General Banking Law be
applicable when deposits exceed one and a half times the resulting banks paid-in
capital and reserves; or

- that the
margin for interbank loans be diminished to 20% of the resulting bank's total capital.

The
General Banking Law and the regulations issued by the Chilean Superintendency of Banks
create the presumption that individuals that are holders of shares and who beneficially
own more than 1% of the shares are related to the bank and imposes certain restrictions on
the amounts and terms of loans to them made by the related bank. This presumption also
applies to beneficial owners of ADSs representing more than 1% of the shares.

# Preemptive Rights and
Increases of Share Capital

The
Chilean Corporations Law provides that whenever a Chilean company issues new shares for
cash, it must offer its existing shareholders the right to purchase a sufficient number of
shares to maintain their existing ownership percentages in the company. Pursuant to this
requirement, we will offer preemptive rights in connection with any future issue of shares
to the depositary as the registered owner of the shares underlying the ADSs. However, the
depositary will not be able to make the preemptive rights available to U.S. holders of
ADSs unless a registration statement under the Securities Act, is effective with respect
to the underlying shares or an exemption from the registration requirements thereunder is
available.

We
intend to evaluate, at the time of any preemptive rights offering, the practicality under
Chilean law and Central Bank regulations in effect at the time of making such rights
available to our ADS holders, as well as the costs and potential liabilities associated
with the registration of such rights and the related shares of common stock under the
Securities Act, and the indirect benefits to us of thereby enabling the exercise by all or
certain U.S. holders of ADSs of their preemptive rights and any other factors we consider
appropriate at the time. There can be no assurance that any registration statement would
be filed. If we do not file a registration statement and no exemption from the
registration requirements under the Securities Act is available, the depositary will sell
such holders preemptive rights and distribute the proceeds if a premium can be
recognized over the cost of such sale.

In
the event that the depositary is not able, or determines that it is not feasible, to sell
such rights at a premium over the cost of any such sale, all or certain U.S. holders of
ADSs may receive no value for such rights. Non-U.S. holders of ADSs may be able to
exercise their preemptive rights regardless of whether a registration statement is filed.
The inability of all or certain U.S. holders of ADSs to exercise preemptive rights in
respect of shares of common stock underlying such ADSs could result in such holders not
maintaining their percentage ownership of the common stock following a preemptive rights
offering unless the holder made additional market purchases of ADSs or shares of common
stock.

138

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Under
Chilean law, preemptive rights are exercisable or freely transferable by shareholders
during a period that cannot be less than 30 days following the grant of such rights.
During such period, and for an additional 30-day period thereafter, a Chilean company is
not permitted to offer any unsubscribed shares for sale to third parties on more favorable
terms than those offered to its shareholders. At the end of such additional 30-day period,
a Chilean open stock corporation is authorized to sell unsubscribed shares to third
parties on any terms, provided that they are sold on a Chilean stock exchange.
Unsubscribed shares that are not sold on a Chilean stock exchange can be sold to third
parties only on terms no more favorable to the purchaser than those offered to
shareholders.

# Shareholders
Meetings and Voting Rights

An
ordinary annual meeting of shareholders is held within the first three months of each
year, generally in March. The ordinary annual meeting of shareholders is the corporate
body that approves the annual financial statements, all dividends in accordance with the
dividend policy determined by our board of directors and any other matter that does not
require an extraordinary shareholders meeting and elects our board of directors. The
last ordinary annual meeting of our shareholders was held on March 18, 2004.Extraordinary meetings may be called by our board of directors when deemed
appropriate, and ordinary or extraordinary meetings must be called by our board of
directors when requested by shareholders representing at least 10% of the issued voting
shares or by the Chilean Superintendency of Banks.

Notice
to convene the ordinary annual meeting or an extraordinary meeting is given by means of
three notices that must be published in a newspaper of our corporate domicile (currently
Santiago, Chile) or in the Official Gazette in a prescribed manner, and the first
notice must be published not less than 15 calendar days nor more than 20 calendar days in
advance of the scheduled meeting. Notice must also be given to the Chilean Superintendency
of Banks and the Santiago, Valparaiso and Electronic Stock Exchanges. Currently, we
publish our official notices in the Diario El Mercurio.

The
notice of a shareholders meeting must be mailed not fewer than 15 calendar days
prior to the date of such meeting and, in the case of an ordinary annual
shareholders meeting, shareholders holding a prescribed minimum investment must be
sent an annual report of our activities which includes audited consolidated financial
statements. Shareholders who do not fall into this category but who request it must also
be sent a copy of our annual report. In addition to these requirements, we regularly
provide, and management currently intends to continue to provide, together with the notice
of shareholders meeting, a proposal for the final annual dividend.

The
quorum for a shareholders meeting is established by the presence, in person or by
proxy, of shareholders representing at least an absolute majority of the issued shares; if
a quorum is not present at the first meeting on first call, the meeting can be reconvened
(in accordance with the procedures described in the previous paragraph) and, upon the
meeting being reconvened, shareholders present at the reconvened meeting are deemed to
constitute a quorum regardless of the percentage of the shares represented.

The
shareholders meetings pass resolutions by the affirmative vote of an absolute
majority of those voting shares present or represented at the meeting. A vote by a
two-thirds majority of the issued shares, however, required at any shareholders
meeting to approve any of the following actions:

- a change in
corporate form, merger or spin-off;

- an
amendment to our term of existence or early dissolution;

- a change in
corporate domicile;

- a decrease
of corporate capital;

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- the
approval of capital contributions in kind and a valuation of the assets contributed;

- a
modification of the powers of shareholders or limitations on the powers of our board of
directors;

- a reduction
in the number of members of our board of directors;

- the
transfer of 50% or more of the corporate assets or the formation or amendment of any
business plan that contemplates the transfer of 50% or more of our corporate assets;

- any
non-cash distribution in respect of the shares;

- the
granting of guarantees to secure third-party obligations in excess of 50% of our
corporate assets, unless granted to a subsidiary; or

- the
repurchase of shares.

Shareholders
may cumulate their votes for the election of directors and cast the same in favor of one
person.

In
general, Chilean law does not require a Chilean open stock corporation to provide the
level and type of information that U.S. securities laws require a reporting company to
provide to its shareholders in connection with a solicitation of proxies. Shareholders are
entitled to examine the books of a company within the 15-day period before its ordinary
annual meeting.

The
Chilean Corporations Law provides that whenever shareholders representing 10% or more of
the issued voting shares so request, a Chilean companys annual report must include,
in addition to the materials provided by the board of directors to shareholders, any
shareholders comments and proposals in relation to the companys affairs.
Similarly, the Chilean Corporations Law provides that whenever the board of directors of
an open stock corporation convenes an ordinary meeting of the shareholders and solicits
proxies for that meeting, or distributes information supporting its decisions or other
similar material, it is obligated to include as an annex to its annual report any
pertinent comments and proposals that may have been made by shareholders owning 10% or
more of the companys voting shares who have requested that such comments and
proposals be included.

Only
shareholders registered as such with us on the fifth business day prior to the date of a
meeting are entitled to attend and vote their shares. A shareholder may appoint another
individual (who need not be a shareholder) as his proxy to attend and vote on his behalf.
Every shareholder entitled to attend and vote at a shareholders meeting has one vote
for every share subscribed.

# Dividend, Liquidation
and Appraisal Rights

Under
the Chilean Corporations Law, Chilean companies are generally required to distribute at
least 30% of their earnings as dividends. However, under the General Banking Law, banks
are permitted to distribute less than such minimum amount in any given year if holders of
at least two-thirds of the banks common stock so determine. In the event of any loss
of capital or decrease in the legal reserve, no dividends can be distributed until the
loss is recovered. Also, a bank cannot distribute dividends above the legal minimum if
doing so would result in the bank exceeding its maximum indebtedness ratio or its lending
limits. See Item 8. Financial InformationConsolidated Statements and Other
Financial InformationDividends.

Dividends
that are declared but not paid by the date set for payment at the time of declaration are
adjusted from the date set for payment to the date they are actually paid, and interest is
accrued thereon. The right to receive a dividend lapses if it is not claimed within five
years from the date the dividend is payable.

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We
may declare a dividend in cash or in shares. When a share dividend is declared above the
legal minimum (which minimum must be paid in cash), our shareholders must be given the
option to elect to receive cash. A U.S. holder of our ADSs may, in the absence of an
effective registration statement under the Securities Act or an available exemption from
the registration requirement thereunder, effectively be required to receive a dividend in
cash. See Preemptive Rights and Increases of Share Capital.

In
the event of our liquidation, the holders of our fully paid shares would participate
equally and ratably, in proportion to the number of paid-in shares held by them, in our
assets available after payment of all our creditors.

In
accordance with the General Banking Law, our shareholders would have no appraisal rights
in the event of a business combination or otherwise.

# Approval of Financial
Statements

Our
board of directors is required to submit our audited consolidated financial statements to
the shareholders annually for their approval. The approval or rejection of the financial
statements is entirely within our shareholders discretion. If our shareholders
reject our financial statements, our board of directors must submit new financial
statements not later than 60 calendar days from the date of the rejection. If our
shareholders reject our new financial statements, our entire board of directors is deemed
removed from office and a new board of directors is elected at the same meeting. Directors
who individually approved our financial statements are disqualified from running for
re-election for the ensuing period.

# Registrations and
Transfers

We act
as our own registrar and transfer agent, as is customary among Chilean companies. In the
case of jointly owned shares, an attorney-in-fact must be appointed to represent the joint
owners in dealings with us.

# Amendments to the
Chilean Securities Laws and Chilean Corporations Law

On December
20, 2000, the Chilean Congress enacted Law No. 19,705, which amended the Securities Market
Law and the Chilean Corporations Law. Among the amendments introduced, Law No. 19,705
established that certain transactions may only be performed via a tender offer. In
particular, the acquisition of shares with the intention of obtaining control of an open
stock corporation, an offer to buy shares representative of 3% or more of the outstanding
shares after obtaining control of an open stock corporation and the sale of shares by
controlling shareholders when the price paid is substantially higher than the market price
must all be performed by means of a tender offer. According to the Chilean Superintendency
of Securities and Insurance, a price should be deemed substantially higher than the market
price when it is 10% higher than the average market price for a period starting 90
calendar days and ending 30 calendar days before the proposed transaction.

The
amendments introduced to the Chilean Corporations Law by the enactment of Law No. 19,705
also established that:

- open stock
corporations must create directors committees with the power to revise and approve
transactions when the interest of the controlling shareholders is involved in those
transactions. A majority of the committees members must be independent directors,
if there are any;

- open stock
corporations can offer stock options to their officers and employees when their general
shareholders meeting approves an increase of capital with the issuance of new
shares, within a limit of 10% of the new shares issued;

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- open stock
corporations can buy back their own shares with a limit of 5% of the paid-in capital and
reserves;

- mutual
funds, as shareholders, can vote for the companys board of directors, but they
cannot vote for a member of the board who is related to the controlling shareholders of
the company; and

- directors
and shareholders who hold 5% or more of the outstanding shares have the right to sue for
indemnification on behalf of the company for any damages that the company may suffer as a
result of a third partys actions.

# EXCHANGE CONTROLS

The
Central Bank is responsible for, among other things, monetary policies and exchange
controls in Chile. Appropriate registration of a foreign investment in Chile grants the
investor access to the Formal Exchange Market. Foreign investments can be registered with
the Foreign Investment Committee under Decree Law No. 600 or can be registered with the
Central Bank under the Central Bank Act.

On
April 16, 2001, the Central Bank agreed that, effective April 19, 2001:

- the prior
foreign exchange restrictions would be eliminated; and

- a new
Compendio de Normas de Cambios Internacionales, or Compendium of Foreign Exchange
Regulations, would be applied.

The
main objective of this change, as declared by the Central Bank, is to facilitate capital
movements from and into Chile and encourage foreign investment.

The
following specific restrictions were eliminated:

- a reserve
requirement with the Central Bank for a period of one year. This mandatory reserve was
previously imposed on foreign loans and funds brought into Chile to purchase shares other
than those acquired in the establishment of a new company or in the capital increase of
the issuing company. This reserve requirement was decreased from 30% to 0% of the
proposed investment on September 16, 1998;

- the
requirement for prior approval by the Central Bank for certain operations, such as
repatriation of investments and payments to foreign                         creditors;

- the
mandatory return of foreign currencies to Chile; and

- the
mandatory conversion of foreign currencies into Chilean pesos.

Under
the new regulations, only the following limitations are applicable to these operations:

- the Central
Bank must be provided with information related to certain operations, such as foreign
investments and foreign credits; and

- certain
operations,such as money transfers to and from Chile must be conducted within the
Formal Exchange Market.

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The
Central Bank also eliminated Chapter XXVI of the Compendium of Foreign Exchange
Regulations, which regulated the establishment of an ADR facility by a Chilean
company. According to the new rules, it is not necessary to seek the Central Banks
prior approval in order to establish an ADR facility. The establishment of an ADR facility
is now regarded as an ordinary foreign investment. The establishment of an ADR facility
now simply requires that the Central Bank be informed of the transaction, and that the
transaction be conducted exclusively through the Formal Exchange Market.

# Foreign Investment
Contract

We
are a party, as legal successor of Banco de A. Edwards, to the currently existing
foreign investment contract with the Central Bank and the depositary (a copy of which was
filed as an exhibit to our Registration Statement on Form F-4 (File No. 333-14020) filed
with the Securities and Exchange Commission on October 18, 2001). Absent the foreign
investment contract, under applicable Chilean exchange controls, investors would not be
granted access to the Formal Exchange Market for the purpose of converting pesos to U.S.
dollars and repatriating from Chile amounts received with respect to deposited shares or
shares withdrawn from deposit on surrender of ADSs (including amounts received as cash
dividends and proceeds from the sale in Chile of the underlying shares and any rights
arising therefrom).

The
following is a summary of the material provisions of the foreign investment contract. This
summary does not purport to be complete and is qualified in its entirety by reference to
the foreign investment contract. Under the foreign investment contract, the Central Bank
agrees to grant to the depositary, on behalf of ADR holders, and to any investor not
residing or domiciled in Chile who withdraws shares upon delivery of ADRs (we refer to
such shares as withdrawn shares), access to the Formal Exchange Market to convert pesos to
U.S. dollars (and remit such U.S. dollars outside of Chile) in respect of shares
represented by ADSs or withdrawn shares, including amounts received as:

- cash
dividends;

- proceeds
from the sale in Chile of withdrawn shares (subject to receipt by the Central Bank of a
certificate from the holder of the withdrawn shares (or from an institution authorized by
the Central Bank) that such holders residence and domicile are outside Chile and a
certificate from a Chilean stock exchange (or from a brokerage or securities firm
established in Chile) that such withdrawn shares were sold on a Chilean stock exchange);

- proceeds
from the sale in Chile of rights to subscribe for additional shares;

- proceeds
from our liquidation, merger or consolidation; and

- other
distributions, including without limitation those resulting from any recapitalization as
a result of holding shares represented by ADSs or withdrawn shares.

Transferees
of withdrawn shares will not be entitled to any of the foregoing rights unless the
withdrawn shares are redeposited with the depositary. Investors receiving withdrawn shares
in exchange for ADRs will have the right to redeposit such shares in exchange for ADRs,
provided that the conditions to redeposit are satisfied.

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The
foreign investment contract provides that a person who brings foreign currency into Chile
to purchase shares with the benefit of the foreign investment contract must convert the
foreign currency into pesos on the same date as the foreign currency is brought into Chile
and then has five banking business days within which to invest the currency in shares in
order to receive the benefits of the foreign investment contract. If the person decides
within that period not to acquire shares, he or she can access the formal exchange market
to reacquire dollars, provided that the applicable request is presented to the Central
Bank within seven banking business days of the initial conversion into pesos. Shares
acquired as described above may be deposited for ADSs and receive the benefits of the
foreign investment contract, subject to:

- receipt by
the Central Bank of a certificate from the depositary that such deposit has been effected
and that the related ADRs have been issued; and

- receipt by
the custodian of a declaration from the person making such deposit waiving the benefits
of the foreign investment contract with respect to the deposited shares.

Access
to the Formal Exchange Market under any of the circumstances described above is not
automatic. Such access requires approval of the Central Bank based on a request presented
through a banking institution established in Chile. The foreign investment contract
provides that if the Central Bank has not acted on the request within seven banking days,
the request will be deemed approved.

Under
current Chilean law, the foreign investment contract cannot be changed unilaterally by the
Central Bank, and there are judicial precedents (which are not binding with respect to
future judicial decisions) indicating that the foreign investment contract may not be
abrogated by future legislative changes. There can be no assurance, however, that
additional Chilean restrictions applicable to the holders of ADRs, the disposition of
underlying shares or the repatriation of the proceeds from such disposition could not be
imposed in the future, nor can we assess the duration or impact of such restrictions if
imposed.

# TAXATION

# Chilean Tax
Considerations

The
following discussion is based on certain Chilean income tax laws presently in force,
including Ruling No. 324 of January 29, 1990 of the Servicio de Impuestos Internos,
or the Chilean Internal Revenue Service, and other applicable regulations and rulings. The
discussion summarizes the principal Chilean income tax consequences of an investment in
ADSs or shares of common stock by an individual who is not domiciled in, or a resident of,
Chile or a legal entity that is not organized under the laws of Chile and does not have a
permanent establishment located in Chile, which we refer to as a foreign holder. For
purposes of Chilean tax law, an individual holder is a resident of Chile if he or she has
resided in Chile for more than six consecutive months in one calendar year or for a total
of more than six months, whether consecutive or not, in two consecutive tax years. An
individual holder is domiciled in Chile if he or she resides in Chile with the purpose of
staying in Chile (such purpose to be evidenced by circumstances such as the acceptance of
employment within Chile or the relocation of his or her family to Chile). This discussion
is not intended as tax advice to any particular investor, which can be rendered only in
light of that investors particular tax situation.

Under
Chilean law, provisions contained in statutes such as tax rates applicable to foreign
holders, the computation of taxable income for Chilean purposes and the manner in which
Chilean taxes are imposed and collected may be amended only by another statute. In
addition, the Chilean tax authorities issue rulings and regulations of either general or
specific application and interpret the provisions of Chilean tax law. Chilean taxes may
not be assessed retroactively against taxpayers who act in good faith relying on such
rulings and regulations, but Chilean tax authorities may change rulings and regulations
prospectively. There is no general income tax treaty in force between Chile and the United
States.

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Cash
Dividends and Other Distributions

Cash dividends
paid by us with respect to ADSs or shares of common stock held by a foreign holder will be
subject to a 35.0% Chilean withholding tax, which is withheld and paid over by us, which
we refer to as the Chilean withholding tax. A credit against the Chilean withholding tax
is available based on the level of corporate income tax, or first category tax, actually
paid on the taxable income to which the dividend is imputed; however, this credit does not
reduce the Chilean withholding tax on a one-for-one basis because it also increases the
base on which the Chilean withholding tax is imposed. In addition, distribution of book
income in excess of retained taxable income is subject to the Chilean withholding tax, but
such distribution is not eligible for the credit. Under Chilean income tax law, for
purposes of determining the level of the first category tax paid, dividends generally are
assumed to have been paid out of oldest retained taxable profits. The effective rate of
withholding tax to be imposed on dividends paid by us will vary depending upon the amount
of first category tax paid by us on the earnings to which the dividends are attributed. In
our case, the amount paid as first category tax is lower than it would be based on our
income because the dividends paid to SAOS are accounted for as a cost to us. Presently,
the first category tax rate is 17%. Whether the first category tax is imposed or not, the
effective overall combined rate of Chilean taxes imposed with respect to our distributed
profits is 35.0%.

The
foregoing tax consequences apply to cash dividends paid and dividend distributions made in
property, other than shares of common stock. Share dividends are not subject to Chilean
taxation.

Capital
Gains

Gain
realized on the sale, exchange or other disposition by a foreign holder of ADSs (or ADRs
evidencing ADSs) will not be subject to Chilean taxation, provided that such disposition
occurs outside Chile or that it is performed under the rules of Title XXIV of the Chilean
Securities Market Law, as amended by Law No. 19,601. The deposit and withdrawal of shares
of common stock in exchange for ADRs will not be subject to any Chilean taxes.

Gain
recognized on the sale or exchange of shares of common stock (as distinguished from sales
or exchanges of ADSs representing such shares of common stock) by a foreign holder will be
subject to both the first category tax and the Chilean withholding tax (the former being
creditable against the latter) if (1) the foreign holder has held such shares of common
stock for less than one year since exchanging ADSs for the shares of common stock, (2) the
foreign holder acquired and disposed of the shares of common stock in the ordinary course
of its business or as a regular trader of stock or (3) the sale is made to a company in
which the foreign holder holds an interest (10.0% or more of the shares in the case of
open stock corporations). In all other cases, gain on the disposition of shares of common
stock will be subject only to the first category tax levied as a sole tax. However, if it
is impossible to determine the taxable capital gain, a 5.0% withholding will be imposed on
the total amount to be remitted abroad, without any deductions, as a provisional payment
of the total tax due.

The
tax basis of shares of common stock received in exchange for ADSs will be the acquisition
value of such shares on the date of the exchange. The valuation procedure set forth in the
deposit agreement, which values shares of common stock that are being exchanged at the
highest price at which they trade on the Santiago Stock Exchange on the date of the
exchange, generally will determine the acquisition value for this purpose. Consequently,
the conversion of ADSs into shares of common stock and sale of such shares of common stock
for the value established under the deposit agreement will not generate a capital gain
subject to taxation in Chile.

The
distribution and exercise of preemptive rights relating to the shares of common stock will
not be subject to Chilean taxation. Amounts received in exchange for the shares or
assignment of preemptive rights relating to the shares will be subject to both the first
category tax and the Chilean withholding tax (the former being creditable against the
latter to the extent described above).

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Law
No. 19,738 of June 19, 2001, an amendment to the Chilean Income Tax Law, established an
exemption for the payment of income tax by foreign institutional investors such as mutual
funds, pension funds and others, that obtain capital gains in the sales through a Chilean
stock exchange, a tender offer or any other system authorized by the Chilean
Superintendency of Securities and Insurance, of shares of publicly traded corporations
that are significantly traded in stock exchanges. The Chilean Internal Revenue Service has
not enacted any rule nor issued any ruling about the applicability of this regulation to
foreign holders of ADSs.

A
foreign institutional investor is an entity that is either:

- a fund that
makes public offers of its shares in a country whose public debt has been rated
investment grade by an international risk classification agency qualified by the Chilean
Superintendency of Securities and Insurance;

- a fund that
is registered with a regulatory entity of a country whose public debt has been rated
investment grade by an international risk classification agency qualified by the Chilean
Superintendency of Securities and Insurance, provided that the investments in Chile,
including securities issued abroad that represent Chilean securities, held by the fund
represent less than 30.0% of its share value;

- a fund that
holds investments in Chile that represent less than 30.0% of its share value, provided
that it proves that no more than 10.0% of its share value is directly or indirectly owned
by Chilean residents;

- a pension
fund that is exclusively formed by individuals that receive their pensions on account of
capital accumulated in the fund;

- a fund
regulated by the Foreign Capital Investment Funds Law, Law No. 18,657, in which case all
holders of its shares must reside abroad or be                         qualified as local
institutional investors; or

- another
kind of institutional foreign investor that complies with the regulatory requirements of
the prior report of the Chilean Superintendency of Securities and Insurance and the
Chilean Internal Revenue Service.

In
order to be entitled to the exemption, foreign institutional investors, during the time in
which they operate in Chile, must:

- be
organized abroad and not be domiciled in Chile;

- not
participate, directly or indirectly, in the control of the issuers of the securities in
which it invests and not hold, directly or indirectly, 10.0% or more of such companies capital
or profits;

- execute an
agreement in writing with a Chilean bank or securities broker in which the intermediary
is responsible for the execution of purchase and sale orders and for the verification, at
the time of the respective remittance, that such remittances relate to capital gains that
are exempt from income tax in Chile or, if they are subject to income tax, that the
applicable withholdings have been made; and

- register in
a special registry with the Chilean Internal Revenue Service.

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Pursuant
to an amendment to the Chilean Income Tax Law published on November 7, 2001, Law No.
19,768, the sale or disposition of shares of Chilean public corporations that are
significantly traded on stock exchanges is exempted from Chilean taxes on capital gains if
the sale or disposition was made:

- on a local
stock exchange or any other stock exchange authorized by the Chilean Superintendency of
Securities and Insurance or in a tender offer process according to Title XXV of the
Chilean Securities Market Law, so long as the shares (a) were purchased on a public stock
exchange or in a tender offer process pursuant to Title XXV of the Chilean Securities
Market Law, (b) are newly issued shares issued in a capital increase of the corporation,
or (c) were the result of the exchange of convertible bonds (in which case the conversion
price is considered to be the price of the shares). In this case, gains exempted from
Chilean taxes shall be calculated using the criteria set forth in the Chilean Income Tax
Law; or

- within 90
days after the shares would have ceased to be traded in specified volumes on a stock
exchange. In such case, the gains exempted from Chilean taxes on capital gains will be up
to the average price per share of the last 90 days. Any gains above the average price
will be subject to the first category tax.

Capital
gains subject to taxation in Chile may be generated in the case where the sale of the
shares is made on a day other than the date in which the exchange is recorded. On October
1, 1999, the Chilean Internal Revenue Service issued Ruling No. 3708, allowing Chilean
issuers of ADSs to amend the deposit agreements to which they are parties in order to
include a clause that states that, in the case that the exchanged shares are sold by the
ADSs holders in a Chilean stock exchange, either on the same day in which the
exchange is recorded in the shareholders registry of the issuer or within the two
prior business days to such date, the acquisition price of such exchanged shares shall be
the price registered in the invoice issued by the stock broker that participated in the
sale transaction. Consequently, should we include this clause in the deposit agreement,
the capital gain that may be generated if the exchange date is different than the date in
which the shares received in exchange for ADSs were sold, will not be subject to taxation.

Other
Chilean Taxes

No
Chilean inheritance, gift or succession taxes apply to the transfer or disposition of the
ADSs by a foreign holder but such taxes generally will apply to the transfer at death or
by a gift of shares of common stock by a foreign holder. No Chilean stamp, issue,
registration or similar taxes or duties apply to foreign holders of ADSs or shares of
common stock.

# United States Federal
Income Tax Considerations

The
following discussion summarizes the principal U.S. federal income tax considerations
relevant to an investment in the ADSs or shares of common stock by a holder that is a
citizen or resident of the United States or a U.S. domestic corporation or that otherwise
will be subject to U.S. federal income tax on a net income basis in respect of the ADSs or
shares of common stock, who is referred to as a U.S. holder, but it does not purport to be
a comprehensive description of all of the tax considerations that may be relevant to a
decision to purchase ADSs or shares of common stock. In particular, this discussion is
directed only to U.S. holders that will hold ADSs or shares of common stock as capital
assets and that have the U.S. dollar as their functional currency, and does not address
the tax treatment of U.S. holders that are subject to special tax rules, such as banks,
dealers in securities or currencies, traders in securities electing to mark to market,
financial institutions, insurance companies, tax-exempt entities, holders of 10% or more
of our voting shares, persons holding ADSs or shares of common stock as a position in a
straddle or conversion transaction, or as part of a synthetic
security or other integrated financial transaction. Prospective purchasers who are
U.S. holders are advised to consult their own tax advisors as to the overall United States
federal, state and local tax consequences of their ownership of ADSs and the underlying
shares of common stock.

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The
statements of United States tax laws set out below are based on the laws in force as of
the date of this annual report and may be subject to any changes in United States law
occurring after such date, including changes that may have retroactive effect.

ADRs

In
general, U.S. holders of ADRs evidencing ADSs will be treated, for United States federal
income tax purposes, as the beneficial owners of the underlying shares of common stock
that are represented by those ADSs and evidenced by those ADRs.

Cash
Dividends and Other Distributions

The
gross amount of cash dividends paid out of our current or accumulated earnings and profits
(as determined for U.S. federal income tax purposes) with respect to the shares of common
stock or ADSs, including the net amount of the Chilean withholding tax withheld on the
distribution (after taking into account the credit for the first category tax), will be
includable in the gross income of a U.S. holder as sovereign source dividend income on the
day the dividends are received by the U.S. holder, in the case of shares of common stock,
or by the depositary, in the case of shares of common stock represented by ADSs, and will
not be eligible for the deduction for dividends received allowed to corporations under the
Internal Revenue Code of 1986, as currently in force, or the Revenue Code. Dividends paid
in Chilean pesos will be includable in the income of a U.S. holder in a U.S. dollar amount
calculated by reference to the exchange rate in effect on the day they are received by the
U.S. holder, in the case of shares of common stock, or the depositary, in the case of
shares of common stock represented by ADSs. U.S. holders should consult their own tax
advisors regarding the treatment of foreign currency gain or loss, if any, on any Chilean
pesos received that are converted into U.S. dollars on a date subsequent to receipt.

Subject
to certain exceptions for short-term and hedged positions, the U.S. dollar amount of
dividends received by an individual prior to January 1, 2009 with respect to the ADSs will
be subject to taxation at a maximum rate of 15% if the dividends are qualified
dividends. Dividends paid on the ADSs will be treated as qualified dividends if (i)
the ADSs are readily tradable on an established securities market in the United States and
(ii) we were not, in the year prior to the year in which the dividend was paid, and is
not, in the year in which the dividend is paid, a passive foreign investment company, or
PFIC, a foreign personal holding company, or FPHC, or a foreign investment company, or
FIC. The ADSs are listed on the NYSE and will qualify as readily tradable on an
established securities market in the United States so long as they are so listed. Based on
our audited financial statements and relevant market and shareholder data, we believe that
we were not treated as a PFIC, FPHC or FIC for U.S. federal income tax purposes with
respect to its 2003 taxable year. In addition, based on our audited financial statements
and our current expectations regarding the value and nature of our assets, the sources and
nature of our income, and relevant market and shareholder data, we do not anticipate
becoming a PFIC, FPHC or FIC for its 2004 taxable year.

Based
on existing guidance, it is not entirely clear whether dividends received with respect to
the common stock will be treated as qualified dividends, because the common stock is not
itself listed on a U.S. exchange. In addition, the U.S. Treasury has announced its
intention to promulgate rules pursuant to which holders of ADSs or common stock and
intermediaries through whom such securities are held will be permitted to rely on
certifications from issuers to establish that dividends are treated as qualified
dividends. Because such procedures have not yet been issued, it is not clear whether we
will be able to comply with them. Holders of ADSs and common stock should consult their
own tax advisers regarding the availability of the reduced dividend tax rate in the light
of their own particular circumstances.

The
Chilean withholding tax (after taking into account the credit for the first category tax)
will be treated as a foreign income tax that a U.S. holder may elect to deduct in
computing its income tax or, subject to generally applicable limitations and conditions
under the Revenue Code, to credit against its U.S. federal

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income tax liability. For
purposes of calculating the foreign tax credits, dividends paid on the common stock or
ADSs will generally constitute foreign source passive income or
financial services income for U.S. tax purposes. Foreign tax credits may not
be allowed for withholding taxes imposed in respect of certain short-term or hedged
positions in securities or in respect of arrangements in which a U.S. holders
expected economic profit is insubstantial. U.S. holders should consult their own advisors
concerning the implications of these rules in light of their particular circumstances.

Distributions
of additional shares of common stock (or rights to subscribe for shares of common stock)
to U.S. holders with respect to the ADSs or shares of common stock that are made as part
of a pro rata distribution to all of our shareholders generally will not be subject to
U.S. federal income tax.

A
non-U.S. holder, i.e., a holder of shares of common stock or ADSs that is a
nonresident alien individual or a foreign corporation generally will not be subject to
U.S. federal income or withholding tax on dividends received on shares of common stock or
ADSs, unless that income is effectively connected with the conduct by the non-U.S. holder
of a trade or business in the United States.

Capital
Gains

Gain
or loss realized by a U.S. holder on the sale, exchange or other disposition of ADSs or
shares of common stock will be subject to U.S. federal income taxation as a capital gain
or loss in an amount equal to the difference between the holders adjusted basis in
the ADSs or the shares of common stock and the amount realized on the disposition. The
gain or loss generally will be a capital gain or loss. Capital gains realized by an
individual U.S. holder are generally subject to a reduced tax rate with respect to
property held for more than one year.

Gains
realized by a U.S. holder on a sale or other disposition of ADSs or shares of common stock
generally will be treated as U.S. source income. Because a U.S. holder generally may not
use a foreign tax credit to reduce its U.S. federal income tax liability in respect of its
U.S. source income, in the case of a disposition of shares of common stock (which, unlike
a disposition of ADSs, would be taxable in Chile), the U.S. holder generally would not be
able to utilize foreign tax credits in respect of any Chilean tax imposed on such a
disposition unless such holder has other income from foreign sources, in the appropriate
category, for purposes of the foreign tax credit limitation rules. U.S. holders should
consult their tax advisors regarding the application of the foreign tax credit limitation
rules to their investment in, and disposition of, the ADSs and shares of common stock.

Deposits
and withdrawals of shares of common stock by U.S. holders in exchange for ADSs will not
result in the realization of gain or loss for U.S. federal income tax purposes.

A
non-U.S. holder of shares of common stock or ADSs will not be subject to U.S. federal
income or withholding tax on gain realized on the sale of shares of common stock or ADSs,
unless (1) such gain is effectively connected with the conduct by the non-U.S. holder of a
trade or business in the United States or (2) in the case of gain realized by an
individual non-U.S. holder, the non-U.S. holder is present in the United States for 183
days or more in the taxable year of the sale and certain other conditions are met.

Backup
Withholding and Information Reporting

In
general, dividends paid to a U.S. holder and proceeds from a disposition of the ADSs or
shares of common stock will be subject to information reporting requirements and the
payments may be subject to U.S. backup withholding tax if the U.S. holder does not provide
a taxpayer identification number or otherwise establish an exemption. Under certain
circumstances, such payments made to a non-U.S. holder also may be subject to U.S.
information reporting requirements and U.S. backup withholding tax, unless the holder
certifies its non-U.S. status or otherwise establishes an exemption.

149

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The
foregoing discussion of Chilean and United States tax considerations is intended only to
provide a general description of the principal relevant factors. The discussion is not
intended as tax advice to any particular investor, which advice can be rendered only in
light of that investors particular tax situation. Investors should consult their tax
advisors about the federal, state, local and foreign tax consequences to them of the
purchase, ownership and disposition of ADSs or shares of common stock.

# DOCUMENTS ON DISPLAY

We
are subject to the information requirements of the Exchange Act. In accordance with these
requirements, we file reports, including annual reports on Form 20-F, and other
information with the Securities and Exchange Commission. You may obtain copies of this
annual report and the exhibits thereto, as well as other information we have filed, at the
Securities and Exchange Commissions public reference rooms located at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Securities and Exchange
Commissions Regional Office at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60611-2511. Copies of such material may be obtained by mail
from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. You may obtain information on
the operation of the Public Reference Section by calling the Securities and Exchange
Commission at 1-800-732-0330. The Securities and Exchange Commission maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports and information
statements and other information regarding us. Any filings we make electronically with the
Securities and Exchange Commission, including this annual report, information statements
and other information about us can be downloaded from the Securities and Exchange
Commissions website and can also be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.

Table of Contents


Item 11.    Quantitative
and Qualitative Disclosures About Market Risk

Introduction

We
are exposed to market risks in our asset liability management portfolio and in our trading
portfolio. Our asset liability management portfolio is comprised of our nontrading
activities and includes retail and corporate deposits; mortgage bonds; foreign borrowings,
consumer, commercial and mortgage loans; and foreign trade transactions. Our trading
portfolio is comprised of our trading activities and includes government securities,
corporate bonds, foreign exchange positions, forwards on foreign exchange and currency and
interest rate swaps.

# The Risk Process

We
control financial risk primarily through a series of limits, which are approved by ALCO.
See Market Risk: Models and MeasurementAsset Liability Portfolio
and Market Risk: Models and MeasurementThe Trading Portfolio for
an explanation of these limits. ALCOs membership is comprised of the Chairman of our
board of directors, our Chief Executive Officer and the managers of the Planning and
Research Division, the Financial Division and the Corporate and International Division.
ALCO sets limits based on an analysis of our business strategy, market volatility,
liquidity of the products involved, management experience and our overall risk tolerance.

The
frequency with which we monitor our exposure to market risk depends on the nature of the
portfolio. Market risk for the trading portfolio is monitored on a daily basis. A risk
report, highlighting the level of market risk, with its evolution and risk concentrations
by asset class and business unit is distributed to several business area managers of
Planning and Research Division, the Financial Division and the Corporate and International
Division and to the other ALCO members.

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Market
risk for the asset liability portfolio is monitored on a monthly basis. The risk report
for the asset liability portfolio focuses on interest rate risk for local and foreign
currency and on the evolution of our assets and liabilities positions is monitored in
local and foreign currency. The report is distributed to several business area managers
and to ALCO members.

We
have an independent financial risk department that reports directly to the Manager of the
Planning and Research Division. The financial risk department oversees our local financial
activities as well as those of our international operations. Its responsibilities include:

- the
tracking of positions and the daily update of databases with market prices;

- risk
measurement, which involves the quantification of financial exposure, under normal and
stress circumstances, using different risk models;

- risk
monitoring, where the level and the evolution of the different risks we are exposed to is
analyzed;

- the
distribution of the risk report to senior management and ALCO members; and

- the
verification of compliance with the boards established risk tolerance levels and
limits and identification of any policy exceptions.

The
financial risk department is responsible for warning our business areas when they are
about to exceed our risk limits. ALCO is also notified whenever any of our business areas
is about to exceed our risk limits. If the risk limit is exceeded, the responsible
business area must explain why the risk limit was exceeded, and ALCO must meet to decide
whether to eliminate the excess risk or grant a provisional limit increase. ALCO updates
risk limits once a year, unless market conditions change, in which case risk limits are
updated more frequently, as needed.

# Market Risk Exposures

Market
risk refers to potential losses arising from unfavorable market movements in interest
rates or foreign exchange rates, as well as the correlation among these factors and their
volatility. We are exposed to the material market risks described below because of the
financial positions we maintain. The following section quantifies the potential impact of
these risks.

Interest
rate risk

We
are exposed to interest rate risk in both our asset liability portfolio and in our trading
portfolio. For the asset liability portfolio, interest rate risk arises from differences
in the maturity or timing of our assets and liabilities. Changes in interest rates also
affect the underlying economic value of our assets and liabilities, as the present value
of future cash flows changes when interest rates change. For the trading portfolio,
interest rate risk is the change in the value arising from changes in interest rates.

Currency
risk

We
are exposed to currency risk because of differences between the asset and liability
positions that we maintain in each currency, known as currency mismatches. We maintain
mismatches in local currency against the U.S. dollar and, to a lesser extent, against the
euro and the Japanese yen. Other mismatches are not significant.

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At
December 31, 2003, our consolidated foreign currency-denominated assets and liabilities
were denominated principally in U.S. dollars:

|                | At December 31, 2003
|--------------- | --------------------
|                |                     
|                | Assets              
|                |                     
|                | (in millions of Ch$)
|                |                     
|U.S. dollar(1)  | Ch$ 2,241,062       
|Euro            | 23,092              
|Pound sterling  | 461                 
|Swiss franc     | 2,095               
|Canadian dollar | 434                 
|Japanese yen    | 17,253              
|Other           | 284                 
|                |                     
|Total           | Ch$ 2,284,681       
|                |                     

___________________


|(1) | Includes
Ch$488,458 million in assets and Ch$1,188 million in liabilities denominated in foreign
currencies and payable in Chilean pesos indexed to         the U.S. dollar exchange rate.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As
is explained below, we use two models to measure our asset liability managements
portfolios exposure to interest rate risk: an interest rate gap model and a duration
gap model.

Inflation
risk

We
are exposed to inflation risk because of differences between the asset and liability
positions that we maintain in UF (inflation indexed) and in peso (non inflation indexed).
We have generally maintained more peso-denominated liabilities than peso-denominated
assets and more UF-denominated assets than UF-denominated liabilities. We believe that
inflation risk is not significant, as inflation has steadily declined from 18.7% in 1991
to 1.1% in 2003.

152

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# Balance Sheet Structure

The
composition of our assets, liabilities and shareholders equity at December 31, 2003
by currency and term was as follows:

|                                                                               | At December 31, 2003                                                         
|------------------------------------------------------------------------------ | -----------------------------------------------------------------------------
|                                                                               |                                                                              
|                                                                               | Ch$                                                                          
|                                                                               |                                                                              
|                                                                               | (in millions of constant Ch$ as of December 31, 2003, except for percentages)
|                                                                               |                                                                              
|Assets(2):                                                                     |                                                                              
|Cash and due from banks                                                        | Ch$ 684,253                                                                  
|Other assets(1)                                                               
|Less than one year                                                             | 1,820,469                                                                    
|From one to three years                                                        | 366,753                                                                      
|More than three years                                                          | 96,832                                                                       
|                                                                               |                                                                              
|Total financial assets                                                         | Ch$ 2,968,307                                                                
|                                                                               |                                                                              
|Other                                                                          | 190,706                                                                      
|Bank premises and equipment                                                    | 126,895                                                                      
|Investment in other companies                                                  | 5,296                                                                        
|Allowances for loan losses                                                     | (177,536)                                                                    
|                                                                               |                                                                              
|Total assets                                                                   | Ch$ 3,113,668                                                                
|                                                                               |                                                                              
|Percentage of total financial assets by currency                               | 32.88%                                                                       
|                                                                              
|Liabilities and shareholders' equity(2):                                      
|Non-interest bearing demand deposits                                           | Ch$ 1,449,181                                                                
|Other liabilities(1)                                                          
|Less than one year                                                             | 2,319,912                                                                    
|From one to three years                                                        | 17,658                                                                       
|More than three years                                                          | 560                                                                          
|                                                                               |                                                                              
|Total financial liabilities                                                    | Ch$ 3,787,311                                                                
|                                                                               |                                                                              
|Other                                                                          | 192,010                                                                      
|Shareholders' equity                                                           | 565,123                                                                      
|2003 net income                                                                | 130,553                                                                      
|                                                                               |                                                                              
|Total liabilities and shareholders' equity                                     | Ch$ 4,674,997                                                                
|                                                                               |                                                                              
|Percentage of total financial liabilities
and shareholders' equity by currency | 45.66%                                                                       
|Asset/liability gap                                                            | Ch$ (1,561,329)                                                              
|                                                                               |                                                                              

___________________


|(1) | Includes
assets and liabilities payable in Chilean pesos that are indexed according to the U.S.
dollar exchange rate.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(2) | Includes
forward contracts.
|--- | ---------------------------

# Market Risk: Models and
Measurement

The
data needed for our market risk models are obtained from brokers or government agencies
with access to information provided by Reuters or Bloomberg or from information on prices
located at issuers Internet sites. We maintain a daily risk factor database for
currency parities, bond prices and interest rates for different maturities and currencies.

Asset
Liability Portfolio

ALCOs
policies with respect to the asset liability portfolio protect net interest revenue on a
pre-tax basis and the value of equity from advance changes in interest rates, while
complying with the limits that have been imposed by Chilean banking regulators and those
internally set by us.

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Currency
risk associated with our asset liability portfolio is managed using the Value at Risk, or
VaR, methodology. See Value at Risk.

The
Interest Rate Gap Model

Fluctuations
in interest rates affect our reported earnings through changes in our net interest income
and lead to repricing risk. Repricing risk results from differences in the timing of
interest rate changes and the timing of cash flows that occur in the pricing and maturity
of a banks interest earning assets and liabilities. Any mismatch of interest earning
assets and interest earning liabilities exists whenever an unequal amount of interest
earning assets or interest earning liabilities mature or reprice in any given period, and
is known as an interest gap position. A positive gap denotes assets sensitivity and
normally means that an increase in interest rates would have a positive effect on net
interest revenue, while a decrease in interest rates would have a negative effect on net
interest revenue.

Our
Financial Division is responsible for managing our interest rate gap for local and foreign
currency and for defining internal financial transfer prices, especially minimum and
maximum fund raising rates and the cost of funds for each of our active transactions. For
this purpose, the finance division buys and sells all matched funds so that the business
areas do not have to assume the transactions financial risk. We only take mismatched
interest rate positions in accordance with the policies and procedures established by
ALCO.

To
compute our exposure to repricing risk, we prepare, on a monthly basis, gap profiles for
inflation-indexed portfolios, non-inflation indexed portfolios and for dollar portfolios.
To compute the different gap profiles we use the following tenor buckets:

- monthly,
from one month to three months;

- quarterly,
from 90 days to a year;

- annually,
from one to five years;

- from five
to seven years;

- from seven
to ten years; and

- more than
ten years.

Next, we calculate the potential
impact on net interest revenue over the next twelve months based on a parallel shift in
yield curves for inflation indexed (parallel shift of 120 basis points), non-inflation
(parallel shift of 170 basis points for one and two months, and 150 basis points for three
months up to a year) and dollar positions (parallel shift of 50 basis points). To limit
repricing risk, ALCO has established that total potential losses resulting from the
parallel shift cannot exceed a certain amount of net interest revenue. The following
tables show the average, low and high repricing risk for the years 2002 and 2003:

154

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|                          | Repricing Risk 2002         
|------------------------- | ----------------------------
|                          |                             
|                          | Low                         
|                          |                             
|                          | (in millions of nominal Ch$)
|                          |                             
|Pesos position            | Ch$ 1,211                   
|UF position               | 3,113                       
|Foreign currency position | Ch$    627                  

|                          | Repricing Risk 2003         
|------------------------- | ----------------------------
|                          |                             
|                          | Low                         
|                          |                             
|                          | (in millions of nominal Ch$)
|                          |                             
|Pesos position            | Ch$ 1,263                   
|UF position               | 5,345                       
|Foreign currency position | Ch$     96                  

To
capitalize on the expected decrease in interest rates, during 2003 we maintained our
policy to finance UF-denominated long-term loans using peso-denominated liabilities,
particularly non-interest bearing demand deposits, and to a lesser extent, foreign
currency deposits. The overall risk of this strategy, which we refer to as net repricing
risk, is calculated by subtracting our peso- and foreign currency-denominated liabilities
from our UF-denominated assets. Net repricing risk increased marginally, from Ch$3,968
million in 2002 to Ch$4,588 million in 2003.

The
Duration Gap

Changes
in interest rates also affect a banks underlying economic value. This is called
economic risk. The duration gap seeks to protect the economic value of our equity from
unexpected changes in interest rates. To do so, potential losses for existing gaps for
inflation indexed and non-inflation position, and for dollar positions, are calculated
assuming interest rate shifts based on different volatility scenarios. ALCO has
established limits that regulate potential losses resulting from these scenario analyses
as a percentage of capital.

The
following tables show the average low and high economic risk exposure as a percentage of
capital for the years 2002 and 2003. The last column shows our interest rate sensitivity
as of December 31, 2003.

|                          | Economic Risks as a % of Capital 2002
|------------------------- | -------------------------------------
|                          |                                      
|                          | Low                                  
|                          |                                      
|Pesos position            | 0.41%                                
|UF position               | 0.26                                 
|Foreign currency position | 0.30%                                

|                          | Economic Risks as a % of Capital 2003
|------------------------- | -------------------------------------
|                          |                                      
|                          | Low                                  
|                          |                                      
|Pesos position            | 0.27%                                
|UF position               | 0.94                                 
|Foreign currency position | 0.02%                                

Compared
to 2002, during 2003, the average economic risk for the UF positions increased primarily
due to an increase in the volatilities for interest rates in UF. Since our position in
pesos is basically short term (i.e., less than a year), the high volatility in the peso
interest rates has not translated into an increased in our economic risk. Average economic
risk for the foreign currency position decreased from 0.49% in 2002 to 0.22% because we
have maintained our policy to hedge our exposure to interest rates denominated in foreign
currencies. Overall, total economic risk decreased from 2.32% of our capital in 2002 to
1.75% in 2003.

155

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Central
Bank Gap Requirement. The Central Bank mandates that an interest rate risk limit not
exceed 8% of a banks total capital for commercial banks. The calculation is based on
a table per time period compounded by fixed changes in interest rates (100 basis points,
or 1%, for the short term and 75 basis points, or 0.75%, for the longer terms) and fixed
sensitivity factors for the different time buckets (from 30 days to 20 years). During
2003, this indicator ranged from 3.52% to 6.11%.

The
Trading Portfolio

Because
no single measure can reflect all aspects of market risk, we use several risk measures,
both statistical and non-statistical, to control the market risk of our investment
portfolio. The statistical measure is VaR. The non-statistical measures are stress
testing, Basis Point Value, or BPV, basis risk and volume limit for fixed income portfolio
and currency mismatch.

Value
at Risk (VaR)

VaR
is used to measure and to control market risk for trading transactions. VaR provides an
estimate of the potential risk of market loss over a specified time horizon at a defined
level of confidence. Our bank began performing VaR analysis in January 2001, our stock
brokerage subsidiary began performing VaR analysis in July 2003.

Trading
positions refer to portfolios comprised of instruments that are tradable on the market and
that are sufficiently liquid so that daily market valuations and daily risk measurements
are necessary to manage actual and potential losses on a timely basis. There is no
portfolio classification for held to maturity in Chile. Consequently, all
instruments that are tradable on the market must be classified as trading or available for
sale instruments. Trading positions include all Central Bank bond portfolios, mortgage
bonds, corporate bonds issued by local or foreign issuers and sovereign bonds.

The
VaR estimates are based on the Riskmetrics methodology to measure market risk.
Riskmetrics uses a 95% confidence interval, a one-day holding period and an
exponential moving average model with 74 historical observations to forecast variances and
covariances. The calculated VaR is adjusted by market liquidity, modeling bid-ask spreads.

In
addition to the total VaR, VaRs estimated by market factors and asset class are also
computed.

VaR
estimated by market factor shows the amount of risk due to:

- foreign
exchange risk measured as the exposure to the volatility of the U.S. dollar; and

- interest
rate risk represented in terms of the exposure to nine key points on the relevant yield
curve for the Chilean peso, UF and U.S. dollar.

The VaR
estimated by asset class shows the amount of risk due to:

- our foreign
exchange portfolio;

- our short
term fixed income portfolio, which includes: forwards, short-term instruments issued by
the Chilean Central Bank, time deposits in                         Chilean pesos, UF and
U.S. dollars and floating notes; and

- our fixed
income portfolio, which includes long term Central Bank securities, mortgage bonds, local
corporate bonds, foreign corporate bonds and interest rate swaps and cross currency
swaps.

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Our
financial Risk Department rechecks the VaR model on an ongoing basis to assess its
accuracy. The results of these backtests have supported the reliability of our VaR model.

During
2003, the bank changed its VaR methodology in order to take into considerations
correlations effects. The following tables show the median, low and high daily VaR for the
years 2002 and 2003, along with VaR at December 31, 2002 and 2003.

|                                | Period Ended December 31, 2002 | At December 31, 2002
|------------------------------- | ------------------------------ | --------------------
|                                |                                |                     
|                                | Median VaR                     | Minimum VaR         
|                                |                                |                     
|                                | (in millions of nominal Ch$)  
|                               
|Foreign exchange                | 26                             | -                   
|Interest rate risk              | 1,817                          | 998                 
|Less: portfolio diversification | (18)                           | 48                  
|                               
|Total VAR                       | 1,825                          | 1,046               
|                               

|                                | Period Ended December 31, 2003 | At December 31, 2003
|------------------------------- | ------------------------------ | --------------------
|                                |                                |                     
|                                | Median VaR                     | Minimum VaR         
|                                |                                |                     
|                                | (in millions of nominal Ch$)  
|                               
|Foreign exchange                | 56                             | -                   
|Interest rate risk              | 971                            | 278                 
|Less: portfolio diversification | (43)                           | 79                  
|                               
|Total VAR                       | 984                            | 357                 
|                               

The
chart below compares the VaR estimates with no-action-profit and loss (NAPL)
over the last 12 months ended on December 2003. NAPL describes the hypothetical profit and
loss on the position that would have been incurred if the previous days closing
position had been kept for the next 24 hours and then revalued.

In
the chart below, the bars represent the daily NAPL whereas the two lines above and below
the bars represent the daily VaR, plus and minus. Because we use a 95% confidence
interval, the cone delimited by the +/- VaR lines should contain 95% of all bars. The
decrease in the VaR estimates beginning November 2003 reflects the exclusion of mortgage
bonds issued by the bank from the trading portfolio, since these instruments are held for
investment purposes. We check the VaR model on an ongoing basis to assess its accuracy.
During 2003, the NAPL exceeded the calculated VaR on six occasions, which is within the
model expectations.

157

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Assumptions
and Limitations of the VaR Model.Our VaR model assumes that changes in
market risk factors have a normal distribution and that the parameters of this joint
distribution have been estimated correctly. The normal distribution assumption, however,
may result in our underestimating the probability of extreme market moves. For this
reason, we also assess stress risk, or the potential loss due to extreme changes in risk
factors. Stress testing is explained more thoroughly below. Another limitation to VaR
testing is that while we compute VaR at the close of business, trading positions may
change substantially during the course of the trading day and, thus, go unnoticed.

Non-statistical
Risk Measures

Stress
Risk.Stress risk is our exposure to unlikely but plausible changes (known as outlier
events) in risk factors resulting from maintaining prevailing positions after the close of
a business/trading day. An extreme event is defined as a price variation that is beyond
the 95% confidence level defined for normal analysis. Once the market movements for
specific risk factors have been determined, they are applied to the portfolio. Then the
portfolio is revalued to see the effect of the market move on the value of the portfolio.
On a daily basis, the financial risk department performs a stress analysis. The stress
analysis is done under two different methods. A standard VaR approach (parametric) and a
historical simulation approach since we believe that VaR may be subject to model risk. The
standard VaR approach assumes that each risk factor experiences a decline in value greater
than 3.5 standard deviations of the mean return and assumes zero correlation among asset
classes. The financial risk department also computes a VaR figure using the historical
simulation method. This amount is obtained from historical data that goes back 381 days
from the date of the calculation.

Basis
Point Value (BVP). The BVP is the change in an instruments value associated with
the change in the reference yield of 1 basis point, or 0.01%. The BVP risk limit has been
approved by ALCO. As of December 2003, the BVP for the peso portfolio was $73 million, for
the UF portfolio $200 million, and the USD portfolio $20 million.

Basis
Risk. Basis risk is the possibility of loss from imperfectly matched risk, offsetting
positions in two related but not identical markets. We control our exposure to the basis
risk between our foreign bonds portfolio and the interest rate swaps used to hedge them.
As of December 2003, one basis point of basis risk was worth $ 12 million.

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Position
Limit for Fixed Income Portfolio and Currency Mismatch.To limit our exposure to
interest rate risk, especially in periods of low volatility, we limit the size of our
fixed income portfolio.

ALCO
has determined that our net foreign currency mismatches cannot exceed a certain percentage
of our capital. This percentage is lower than the net foreign currency mismatches limit
established by the Central Bank, as described below.

Central
Bank regulations do not permit the difference between a banks assets and liabilities
denominated in foreign currencies to exceed 20% of a banks paid-in capital and
reserves (on an unconsolidated basis). At December 31, 2003, our foreign exchange gap was
Ch$17,757 million, equivalent to 3.13 % of our paid-in capital and reserves. This gap
includes assets and liabilities denominated in U.S. dollars as well as those denominated
in pesos and adjusted by the variation of the U.S. dollar/Chilean peso exchange rate, and
off balance sheet items such as interest rate swaps and currency swaps.

The
rate of devaluation or appreciation of the peso against the U.S. dollar is expected to
have the following material effects:

- If we
maintain a net asset position in U.S. dollars, and the peso devaluates against the
dollar, we record a related gain (conversely, if the peso appreciates we record a related
loss).

- If we
maintain a net liability position in U.S. dollars, and the peso devaluates against the
dollar, we record a related loss (conversely, if the peso appreciates we record a related
gain).

The
bulk of foreign exchange trading that we undertake is intended to hedge the exposure of
our customers to the prevailing rate of exchange. It is our policy to make foreign
currency-denominated loans only to customers whose activities generate foreign
currency-denominated cash flow or that are indexed to a foreign currency, or if the market
value of a customers assets is indexed to the rate of exchange. At December 31,
2003, approximately 16.3% of our consolidated total loan portfolio was denominated in
foreign currencies.

We enter into forward exchange
contracts that are essentially of two types:

- transactions
covering U.S. dollars against other foreign currencies; and

- transactions
covering only Chilean pesos and UFs against U.S. dollars.

The
following table presents notional amounts of our derivatives contracts at
December 31, 2003:

|                                                       | At December 31, 2003
                                                                                                   Notional Amount
|------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------
|                                                       |                                                                                                                                        
|                                                       | (in millions of constant Ch$ as of
December 31, 2003)                                                                                  
|Exchange rate forwards denominated in foreign currency | Ch$ 52,561                                                                                                                             
|Foreign currency futures (purchased)                   | 982,265                                                                                                                                
|Foreign currency futures (sold)                        | 1,305,745                                                                                                                              
|Chilean currency futures (purchased)                   | 49,068                                                                                                                                 
|Chilean currency futures (sold)                        | 143,820                                                                                                                                
|Interest rate swaps                                    | 967,466                                                                                                                                
|                                                       |                                                                                                                                        
|Total                                                  | Ch$ 3,500,925                                                                                                                          
|                                                       |                                                                                                                                        

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The
following table presents foreign currency exchange rate risk instruments as of
December 31, 2003, in notional amounts, and weighted average exchange rates by
expected (contractual) maturity dates, for the next five years:

|                                                       | As of December 31, 2003                              
|------------------------------------------------------ | -----------------------------------------------------
|                                                       |                                                      
|                                                       | 2004                                                 
|                                                       |                                                      
|                                                       | (in millions of constant Ch$ as of December 31, 2003)
|Exchange rate forwards denominated in foreign currency |                                                      
|Purchased:                                            
|Pay U.S. Dollar/receive Japanese Yen                   | Ch$   16,330                                         
|Average contractual exchange rate(1)                   | 5.53                                                 
|Pay U.S. Dollars/receive Euros                         | 14,180                                               
|Average contractual exchange rate(1)                   | 704.20                                               
|Pay U.S. Dollars/receive Pound sterling                | 538                                                  
|Average contractual exchange rate(1)                   | 997.20                                               
|Pay U.S. Dollars/receive Switzerland franc             | 54                                                   
|Average contractual exchange rate(1)                   | 460.11                                               
|Pay U.S. Dollars/receive Denmark crown                 | 41                                                   
|Average contractual exchange rate(1)                   | 93.97                                                
|Sold:                                                 
|Pay Japanese Yen/receive U.S. dollars                  | 10,689                                               
|Average contractual exchange rate(1)                   | 5.53                                                 
|Pay Argentine peso/receive dollars                     | 4,636                                                
|Average contractual exchange rate(1)                   | 3.24                                                 
|Pay Euros/receive U.S. dollars                         | 4,513                                                
|Average contractual exchange rate(1)                   | 733.91                                               
|Pay U.S. Pound Sterling/receive U.S. dollars           | 1,580                                                
|Average contractual exchange rate(1)                   | 1,017.89                                             
|                                                       |                                                      
|Total                                                  | Ch$   52,561                                         
|                                                       |                                                      
|                                                      
|                                                      
|Foreign currency futures                              
|Purchased:                                            
|Pay Chilean pesos/receive U.S. dollars                 | 695,089                                              
|Average contractual exchange rate(1)                   | 621.11                                               
|Pay UF/receive U.S. dollars                            | 277,802                                              
|Average contractual exchange rate(1)                   | 664.11                                               
|Pay Chilean pesos/receive Euros                        | 6,813                                                
|Average contractual exchange rate(1)                   | 734.85                                               
|Pay Chilean pesos/receive Pound sterling               | 1,063                                                
|Average contractual exchange rate(1)                   | 1,054.78                                             
|                                                       |                                                      
|Total                                                  | Ch$  980,767                                         
|                                                       |                                                      
|Sold:                                                 
|Pay U.S. Dollars/receive Chilean pesos                 | 1,001,251                                            
|Average contractual exchange rate(1)                   | 627.97                                               
|Pay U.S. Dollars/receive UF                            | 269,918                                              
|Average contractual exchange rate(1)                   | 679.39                                               
|Pay Euros/receive Chilean pesos                        | 3,018                                                
|Average contractual exchange rate(1)                   | 743.4                                                
|Pay Switzerland francs/receive Chilean pesos           | 55                                                   
|Average contractual exchange rate(1)                  
|                                                       | 487.05                                               
|Pay Denmark crown/receive Chilean pesos                | 44                                                   
|Average contractual exchange rate(1)                   | 100.43                                               
|                                                       |                                                      
|Total                                                  | Ch$ 1,274,286                                        
|                                                       |                                                      
|                                                      
|Chilean currency futures                              
|Purchased:                                            
|Pay UF/receive Chilean pesos                           | 49,068                                               
|Average contractual exchange rate(1)                   | 16,920.00                                            
|                                                       |                                                      
|Total                                                  | Ch$   49,068                                         
|                                                       |                                                      
|Sold:                                                 
|Pay Chilean pesos/receive UF                           | 142,128                                              
|Average contractual exchange rate(1)                   | 16,920.00                                            
|                                                       |                                                      
|Total                                                  | Ch$  142,128                                         
|                                                       |                                                      

___________________


|(1) | The
average contractual exchange rate represents the amount of specified currency equal to
U.S.$1.00
|--- | ----------------------------------------------------------------------------------------------------

160

---



# Foreign Operations

We
apply the same policies and procedures described above with respect to the New York branch
and the Miami agency. The only difference is the participation of their respective general
managers on the proposal of limits and flow distribution standards. The Manager of the
Corporate and International Division is a permanent member of ALCO. We place particular
emphasis on monitoring interest rate risk over the total financial position and market
risk of the portfolio of sovereign and corporate bonds maintained by the branch and the
agency. The New York branch and the Miami agency do not maintain any other positions
significant enough to warrant risk calculation. We perform control over the New York
branch and the Miami agency individually and on a consolidated basis with the head office
in Chile.

# Credit Risk for
Derivatives

We
make use of derivative transactions in the course of business to meet the financial needs
of our customers, to generate revenues through our trading activities, and to manage our
exposure to fluctuations in interest and currency rates. We use the same credit risk
management procedures when entering into derivative transactions as we do for traditional
lending products. Our primary counter-parties in derivative transactions are
investment-grade financial institutions.

In
terms of outstanding exposure to credit risk, the true measure of risk from derivative
transactions is the mark-to-market value of the contracts at a point in time (i.e.,
the cost to replace the contract at the current market rates should the counter-party
default prior to the settlement). For most derivative transactions, the notional principal
amount does not change hands; it is simply an amount that is used as a reference upon
which to calculate payments. While notional principal is the most commonly used volume
measure in the derivative and foreign exchange markets, it is not a measure of credit
risk. As of December 31, 2003, the credit exposure of our foreign exchange forwards
was Ch$227,337 million.

Table of Contents


Item 12. Description of
Securities Other than Equity Securities

Not
Applicable.

PART II

Table of Contents


Item 13. Defaults,
Dividend Arrearages and Delinquencies

None

Table of Contents


Item 14. Material
Modifications to the Rights of Security Holders and Use of Proceeds

None.

Table of Contents


Item 15. Controls and
Procedures

We
carried out an evaluation under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer, of the
effectiveness of the design and operation of our disclosure controls and procedures as of
December 31, 2003. There are inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of human error and the
circumvention or overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of achieving
their control objectives. Based upon our evaluation, our chief executive officer and chief
financial officer concluded that the disclosure controls and procedures as of December 31,
2003 were effective to provide reasonable assurance that information required to be
disclosed in the reports we file and submit under the Exchange Act, as amended, is
recorded, processed, summarized and reported as and when required.

161

---



There
has been no change in our internal control over financial reporting during 2003 that has
materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

Table of Contents


Item 16. [Reserved]

Table of Contents


Item 16A. Audit
Committee Financial Expert

Our
board of directors has determined that Mr. Jorge Awad M., a member of our audit
committee, qualifies as an audit committee financial expert and as independent
within the meaning of this Item 16A.

Table of Contents


Item 16B. Code of Ethics

We
have adopted a code of ethics, as defined in Item 16B of Form 20-F under the Exchange Act.
Our code of ethics applies to our chief executive officer, chief financial officer,
principal accounting officer and persons performing similar functions, as well as to our
directors and other employees without exception. Our code of ethics is filed as an exhibit
to this Form 20-F.

Table of Contents


Item 16C. Principal
Accountant Fees and Services

Audit and Non-Audit Fees

The
following table sets forth the fees billed to us by our independent auditors, Ernst &
Young Limitada, during the fiscal years ended December 31, 2002 and 2003:

|                   | Year ended December 31,                              
|------------------ | -----------------------------------------------------
|                   |                                                      
|                   | 2002                                                 
|                   |                                                      
|                   | (in millions of constant Ch$ as of December
31, 2003)
|Audit fees         | Ch$ 266                                              
|Audit-related fees | 84                                                   
|Tax fees           | -                                                    
|Other fees         | -                                                    
|                   |                                                      
|Total fees         | Ch$ 350                                              

Audit
fees in the above table are the aggregate fees billed by Ernst & Young Limitada in
connection with the audit of our annual financial statements. This includes: (i) reviews
and advisory services related to filings with the LSE and the Securities and Exchange
Commission, (ii) the statutory audit required by local regulations, (iii) the audit of the
New York and Miami branches and (iv) the audit of the consolidated financial statements
required by Item 18 of form 20-F.

Audit-related
fees in the above table are the aggregate fees billed by Ernst & Young Limitada for:
(i) control and attestation reports related to a limited review of internal controls for
ten of our branches and (ii) support related to financial accounting and reporting
standards and certification pursuant to Section 404 of the Sarbanes-Oxley Act.

Tax
fees in the above table are fees billed by Ernst & Young Limitada for tax compliance
services, tax consultations and tax planning services.

Other
fees in the above table are fees billed by Ernst & Young Limitada primarily related to
training services, advisory services in the form of agreed upon procedures related to
computer access controls and compensation research studies.

162

---



Pre-Approval Policies
and Procedures

Our
Audit Committee approves all audit, audit-related services, tax services and other
services provided by Ernst & Young Limitada. Any services provided by Ernst &
Young Limitada that are not specifically included within the scope of the audit must be
pre-approved by the audit committee prior to any engagement. These policies and procedures
have been in place since May 2003.

Table of Contents


Item 16D. Exemptions
from the Listing Standards for Audit Committees

Not
Applicable.

PART III

Table of Contents


Item 17. Financial
Statements

Our financial
statements have been prepared in accordance with Item 18 hereof.

Table of Contents


Item 18. Financial
Statements

Our audited
consolidated financial statements are included in this annual report beginning at page
F-1.

Table of Contents


Item 19. Exhibits

LIST OF EXHIBITS

|Exhibit No. | Exhibit
|----------- | -------

|1.1 | Estatutosof Banco de Chile, which serve as our articles of incorporation and bylaws, together with
an English translation (filed as an exhibit to our
annual report on Form 20-F (File No.
001-15266) for the year ended December 31, 2001 and incorporated herein by reference).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.1 | Form
of Deposit agreement among Banco de Chile, JPMorgan Chase Bank as depositary, and the
holders from time to time of ADSs (incorporated by reference to
                                               our registration statement on Form F-4
(File No. 333-14020) filed on October 18, 2001).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.2 | Form
of Foreign Investment Contract among Banco de A. Edwards, Citibank, N.A. and the Central
Bank of Chile relating to the foreign exchange treatment of
                                               an investment in ADSs, together with an
English translation thereof (incorporated by reference to Banco de A. Edwards registration
statement on Form F-1                                                (Registration No.
33-97594) filed on September 29, 1995).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.3 | Amendment
to Foreign Investment Contract among Banco de Chile (as successor to Banco de A.
Edwards), Morgan Guaranty Trust Company of New York and the
                                               Central Bank of Chile, dated January 2,
2002, together with an English translation thereof (filed as an exhibit to our annual
report on Form 20-F (File No.                                                001-15266)
for the year ended December 31, 2001 and incorporated herein by reference).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

163

---



|8.1 | List
of subsidiaries.
|--- | ---------------------

|11.1 | Code
of ethics (English translation).
|---- | -------------------------------------

|12.1 | Certification
under Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ------------------------------------------------------------------

|12.2 | Certification
under Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ------------------------------------------------------------------

|13.1 | Certification
under Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | ------------------------------------------------------------------

164

---



Table of Contents


INDEX TO THE
CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                             | Page
|---------------------------------------------------------------------------------------------------------------------------- | ----
|Reports of Independent Auditors Ernst & Young Limitada                                                                       | F-2 
|Consolidated Balance Sheets as of December 31, 2002 and 2003                                                                 | F-3 
|Consolidated
Statements of Income for each of the three years in the period ended December 31, 2003                          | F-5 
|Consolidated Statements
of Cash Flows for each of the three years in the period ended December 31, 2003                      | F-6 
|Consolidated Statements of Changes
in Shareholders Equity for each of the three years in the period ended December 31, 2003 | F-7 
|Notes to the Consolidated Financial Statements                                                                               | F-8 

---

|Ch$   | = | Chilean pesos                                                                              
|----- | - | -------------------------------------------------------------------------------------------
|MCh$  | = | Millions of Chilean pesos                                                                  
|US$   | = | United States dollars                                                                      
|ThUS$ | = | Thousands of United States dollars                                                         
|UF    | = | Unidades de Fomento, an inflation-indexed, peso denominated monetary unit. The UF rate is
|      |   | set daily based on changes in the Chilean Consumer Price Index.                            

---

Application of
Constant Chilean Pesos

The December 31, 2001
and 2002 consolidated financial statements have been restated for general price-level
changes and expressed in constant Chilean pesos of December 31, 2003 purchasing power.

F-1

---



Table of Contents


Report of
Independent Auditors

To the Board of
Directors and Shareholders of
Banco de Chile and Subsidiaries:

We have audited the
accompanying consolidated balance sheets of Banco de Chile and Subsidiaries (the Bank)
as of December 31, 2002 and 2003 and the related consolidated statements of income, cash
flows and changes in shareholders equity for each of the three years in the period ended
December 31, 2003.  These financial statements are the responsibility of the Banks
management.  Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States).  Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements.  An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the 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 financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the
financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Banco de Chile and subsidiaries as of December 31,
2002 and 2003, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in Chile and the regulations issued by the
Chilean Superintendency of Banks and Financial Institutions, which differ in certain
respects from U.S. generally accepted accounting principles (see Note 28 to the
consolidated financial statements).

As more fully
described in Note 2 to these consolidated financial statements, during the year ended
December 31, 2002 the Bank modified the accounting treatment of financial investments in
mortgage finance bonds issued by the Bank, in accordance with regulations issued by the
Chilean Superintendency of Banks and Financial Institutions.

ERNST & YOUNG LIMITADA

Santiago, Chile, June
8, 2004

F-2

---



Table of Contents


BANCO DE CHILE AND
SUBSIDIARIES

CONSOLIDATED BALANCE
SHEETS
                                                                                (Restated
for general price-level changes and expressed in millions of constant
                                                                                     Chilean
pesos as of December 31, 2003 and thousands of U.S. dollars)

|                                                     | As of December 31,
|---------------------------------------------------- | ------------------
|                                                     |                   
|ASSETS                                               | NOTE              
|                                                     |                   
|                                                     | (Note 1 (o))      
|CASH AND DUE FROM BANKS                              | 3                 
|Non-interest bearing                                 |                   
|Interbank deposits-interest bearing                  |                   
|                                                     |                   
|Total cash and due from banks                        |                   
|                                                     |                   
|FINANCIAL INVESTMENTS                                | 4                 
|Government securities                                |                   
|Investments under agreements to resell               |                   
|Other financial investments                          |                   
|Investment collateral under agreements to repurchase |                   
|                                                     |                   
|Total financial investments                          |                   
|                                                     |                   
|LOANS, NET                                           | 5                 
|Commercial loans                                     |                   
|Consumer loans                                       |                   
|Mortgage loans                                       |                   
|Foreign trade loans                                  |                   
|Interbank loans                                      |                   
|Leasing contracts                                    | 6                 
|Other outstanding loans                              |                   
|Past due loans                                       |                   
|Contingent loans                                     |                   
|Allowance for loan losses                            | 7                 
|                                                     |                   
|Total loans, net                                     |                   
|                                                     |                   
|OTHER ASSETS                                        
|Bank premises and equipment, net                     | 8                 
|Investments in other companies                       | 9                 
|Assets received in lieu of payment, net              |                   
|Other                                                | 10 (a)            
|                                                     |                   
|Total other assets                                   |                   
|                                                     |                   
|TOTAL ASSETS                                         |                   
|                                                     |                   

The accompanying notes
1 to 30 are an integral part of these consolidated financial statements

F-3

---



BANCO DE CHILE AND
SUBSIDIARIES

CONSOLIDATED BALANCE
SHEETS                                                                        (Restated
for general price-level changes and expressed in millions of constant
Chilean pesos as of
December 31, 2003 and thousands of U.S. dollars)

|                                                      | As of December 31,
|----------------------------------------------------- | ------------------
|                                                      |                   
|                                                      | NOTE              
|                                                      |                   
|                                                      | (Note 1 (o))      
|LIABILITIES AND SHAREHOLDERS' EQUITY                  |                   
|                                                     
|DEPOSITS                                             
|Non-interest bearing                                 
|Current accounts                                      |                   
|Bankers' drafts and other deposits                    |                   
|                                                      |                   
|Total non-interest bearing                            |                   
|                                                     
|Interest bearing                                      |                   
|Savings accounts and time deposits                    |                   
|                                                      |                   
|Total deposits                                        |                   
|                                                      |                   
|                                                     
|OTHER INTEREST BEARING LIABILITIES                    | 11                
|Central Bank credit lines for renegotiations of loans |                   
|Other Central Bank borrowings                         |                   
|                                                      |                   
|Total Central Bank borrowings                         |                   
|                                                     
|Investments under agreements to repurchase            |                   
|Mortgage finance bonds                                |                   
|Bonds                                                 |                   
|Subordinated bonds                                    |                   
|Borrowings from domestic financial institutions       |                   
|Foreign borrowings                                    |                   
|Other obligations                                     |                   
|                                                      |                   
|Total other interest bearing liabilities              |                   
|                                                      |                   
|                                                     
|OTHER LIABILITIES                                    
|Contingent liabilities                                | 10 (c)            
|Other                                                 | 10 (b)            
|Minority interest                                     |                   
|                                                      |                   
|Total other liabilities                               |                   
|                                                      |                   
|                                                     
|Commitments and contingencies                         | 22                
|                                                     
|SHAREHOLDERS' EQUITY                                  | 15                
|Capital and reserves                                  |                   
|Net Income for the year                               |                   
|                                                      |                   
|Total Shareholders equity                            |                   
|                                                      |                   
|                                                      |                   
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY            |                   
|                                                      |                   

The accompanying notes
1 to 30 are an integral part of these consolidated financial statements

F-4

---



Table of Contents


BANCO DE CHILE AND
SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF INCOME
                                                                       (Restated for
general price-level changes and expressed in millions of constant
                                                                            Chilean pesos
as of December 31, 2003 and thousands of U.S. dollars)

|                                                                            | Years ended December 31,
|--------------------------------------------------------------------------- | ------------------------
|                                                                            |                         
|                                                                            | NOTE                    
|                                                                            |                         
|                                                                            | (Note 1 (o))            
|INTEREST REVENUE AND EXPENSE                                               
|Interest revenue                                                            |                         
|Interest expense                                                            |                         
|                                                                            |                         
|Net interest revenue                                                        |                         
|                                                                            |                         
|PROVISION FOR LOAN LOSSES                                                   | 7                       
|FEES AND INCOME FROM SERVICES                                               | 17                      
|Income from fees and other services                                         |                         
|Other services expenses                                                     |                         
|                                                                            |                         
|Total fees and income from services, net                                    |                         
|                                                                            |                         
|OTHER OPERATING INCOME (LOSS)                                              
|Gains from trading activities                                               |                         
|Losses from trading activities                                              |                         
|Foreign exchange transactions, net                                          |                         
|                                                                            |                         
|Total other operating income (loss), net                                    |                         
|                                                                            |                         
|OTHER INCOME AND EXPENSES                                                  
|Loan loss recoveries                                                        | 19                      
|Non-operating income                                                        | 17                      
|Non-operating expenses                                                      | 17                      
|Equity participation
in net income (loss) in investments in other companies | 9                       
|Minority interest                                                           |                         
|                                                                            |                         
|Total other income and expenses                                             |                         
|                                                                            |                         
|OPERATING EXPENSES                                                         
|Personnel salaries and expenses                                             |                         
|Administrative and other expenses                                           |                         
|Depreciation and amortization                                               |                         
|                                                                            |                         
|Total operating expenses                                                    |                         
|                                                                            |                         
|NET LOSS FROM PRICE-LEVEL RESTATEMENT                                       | 1 (b)                   
|                                                                            |                         
|INCOME BEFORE INCOME TAXES                                                  |                         
|INCOME TAXES                                                                | 21                      
|                                                                            |                         
|                                                                           
|NET INCOME                                                                  |                         
|                                                                            |                         

The accompanying notes
1 to 30 are an integral part of these consolidated financial statements

F-5

---



Table of Contents


BANCO DE CHILE AND
SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF CASH FLOWS
                                                                       (Restated for
general price-level changes and expressed in millions of constant
                                                                            Chilean pesos
as of December 31, 2003 and thousands of U.S. dollars)

|                                                                            | Years ended December 31,
|--------------------------------------------------------------------------- | ------------------------
|                                                                            |                         
|                                                                            | 2001                    
|                                                                            | MCh$                    
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |                         
|Net income                                                                  | 90,473                  
|Items that do not represent cash flows:                                    
|Depreciation and amortization                                               | 8,404                   
|Provisions for loan losses                                                  | 47,736                  
|Provisions for assets received in lieu of payment                           | 181                     
|Net change in trading investments                                           | (297,368)               
|Equity participation in net (income) loss in investments in other companies | 45                      
|Net (gain) loss on sales of assets received in lieu of payment              | (167)                   
|Net gain on sales of bank premises and equipment                            | (93)                    
|Net loss from price-level restatement                                       | 6,010                   
|Minority interest                                                           | 1                       
|Other charges not representing cash flows                                   | 9,437                   
|Net change in interest accruals                                             | (3,232)                 
|                                                                            |                         
|NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                         | (138,573)               
|                                                                            |                         
|                                                                           
|CASH FLOWS FROM INVESTING ACTIVITIES                                       
|Net (increase) decrease in loans                                            | (89,150)                
|Net decrease (increase) in investments purchased under agreements to resell | (17,801)                
|Purchases of bank premises and equipment                                    | (10,214)                
|Proceeds from sale of bank premises and equipment                           | 466                     
|Investments in other companies                                              | (1,271)                 
|Dividends received from investments in other companies                      | 229                     
|Proceeds from sale of assets received in lieu of payment                    | 2,820                   
|Net changes in other assets and liabilities                                 | (26,846)                
|                                                                            |                         
|NET CASH USED IN INVESTING ACTIVITIES                                       | (141,767)               
|                                                                            |                         
|                                                                           
|CASH FLOWS FROM FINANCING ACTIVITIES                                       
|Net increase in current accounts                                            | 54,513                  
|Net increase (decrease) in savings accounts and time deposits               | 207,909                 
|Net increase in bankers drafts and other deposits                           | 11,570                  
|Net increase (decrease) in investments sold under agreements to repurchase  | 25,211                  
|Increase in mortgage finance bonds                                          | 169,749                 
|Repayment of mortgage finance bonds                                         | (93,868)                
|Proceeds from bond issues                                                   | 73,804                  
|Repayments of bond issues                                                   | (354)                   
|Net increase (decrease) in short-tem borrowings                             | 42,078                  
|Proceeds from issuance of long-term borrowings                              | 295,264                 
|Repayment of long-term borrowings                                           | (371,024)               
|Dividends paid                                                              | (85,261)                
|                                                                            |                         
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                         | 329,591                 
|                                                                            |                         
|                                                                           
|EFFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND DUE FROM BANKS                | (15,665)                
|NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS                          | 33,586                  
|CASH AND DUE FROM BANKS AT BEGINNING OF YEAR                                | 515,639                 
|CASH ACQUIRED IN MERGER WITH BANCO EDWARDS                                  |                        
|                                                                            |                         
|CASH AND DUE FROM BANKS AT END OF YEAR                                      | 549,225                 
|                                                                            |                         
|                                                                           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                          
|Cash paid during the year for:                                             
|Interest paid                                                               | 318,221                 
|Income taxes paid                                                           | 21,054                  
|Non- cash investing transaction during the year for:                       
|Issuance of stock for net assets of Banco de A. Edwards, as follows:       
|Cash acquired                                                               |                        
|Financial investments and loans, net                                        |                        
|Bank premises and equipment                                                 |                        
|Other assets                                                                |                        
|Liabilities                                                                 |                        
|                                                                            |                         
|Sub-Total                                                                   |                        
|Stock issued                                                                |                        
|                                                                            |                         
|Total                                                                       |                        
|                                                                            |                         

The accompanying notes
1 to 30 are an integral part of these consolidated financial statements

F-6

---



Table of Contents


BANCO DE CHILE AND
SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
                                                                       (Restated for
general price-level changes and expressed in millions of constant
                                                                            Chilean pesos
as of December 31, 2003 and thousands of U.S. dollars)

|                                                                                           |                  |                      
|------------------------------------------------------------------------------------------ | ---------------- | ---------------------
|                                                                                           | Number of shares | Paid in share capital
|                                                                                           |                  |                      
|                                                                                           | Millions         | MCh$                 
|                                                                                          
|Balance as of January 1, 2001                                                              | 44,932,7         | 231,822              
|Dividends paid                                                                             |                 |                     
|Price-level restatement                                                                    |                 | 7,187                
|Net change in unrealized gains (losses) on permanent financial investments                 |                 |                     
|Net adjustment for translation differences                                                 |                 |                     
|Net Income for the year                                                                    |                 |                     
|                                                                                           |                  |                      
|Balance as of December 31, 2001                                                            | 44,932,7         | 239,009              
|                                                                                           |                  |                      
|Balance as of December 31, 2001 restated in constant Chilean pesos as of December 31, 2003 |                 | 248,641              
|                                                                                           |                  |                      
|Balance as of January 1, 2002                                                              | 44,932,7         | 239,009              
|Capital increase due to merger (Note 15)                                                   | 23,147,1         | 224,804              
|Transfer to retained earnings                                                              |                 |                     
|Dividends paid                                                                             |                 |                     
|Price-level restatement                                                                    |                 | 13,914               
|Absorption of subsidiaries companies                                                       |                 |                     
|Net change in unrealized gains (losses) on permanent financial investments                 |                 |                     
|Net adjustment for translation differences                                                 |                 |                     
|Net Income for the year                                                                    |                 |                     
|                                                                                           |                  |                      
|Balance as of December 31, 2002                                                            | 68,079,8         | 477,727              
|                                                                                           |                  |                      
|Balance as of December 31, 2002 restated in constant
Chilean pesos as of December 31, 2003 |                 | 482,504              
|                                                                                           |                  |                      
|Balance as of January 1, 2003                                                              | 68,079,8         | 477,727              
|Transfer to retained earnings                                                              |                 |                     
|Dividends paid                                                                             |                 |                     
|Price-level restatement                                                                    |                 | 4,777                
|Net change in unrealized gains (losses) on permanent financial investments                 |                 |                     
|Net adjustment for translation differences                                                 |                 |                     
|Net Income for the year                                                                    |                 |                     
|                                                                                           |                  |                      
|Balance as of December 31, 2003                                                            | 68,079,8         | 482,504              
|                                                                                           |                  |                      

The accompanying notes
1 to 30 are an integral part of these consolidated financial statements

F-7

---



Table of Contents


BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
                                                                      (Restated for
general price - level changes and expressed in millions of constant
                                                                                           Chilean
pesos as of December 31, 2003)

# 1. Summary of
Significant Accounting Policies

(a) Basis of presentation

Banco de Chile (Banco de
Chile) is a corporation organized under the laws of the Republic of Chile, regulated
by the Chilean Superintendencia de Bancos e Instituciones Financieras (the
Superintendency of Banks) and from 2001 also regulated by the United States
Securities and Exchange Commission (SEC) as a result of the merger with Banco
de A. Edwards, a Chilean Bank previously listed on the New York Stock Exchange
(NYSE). Banco de Chiles shares are also listed on the Madrid Stock
Exchange to be traded on the Latinamerican securities market (LATIBEX) and the
London Stock Exchange through its ADR program.

Banco de Chile and its subsidiaries
(collectively the Bank) operate in a single industry sector. Within this
industry, the Bank offers a broad range of banking services to customers ranging from
individuals to large corporations. The services are managed in the following segment areas
for internal reporting purposes: large corporate banking, middle market corporate banking,
retail and personal banking services, international banking services and treasury banking
services. The Banks subsidiaries provide other services including securities
brokerage, mutual fund management, factoring, securitization activities, insurance
brokerage and financial advisory services.

The accompanying consolidated
financial statements have been prepared in accordance with generally accepted accounting
principles in Chile and regulations of the Superintendency of Banks. For the convenience
of the reader, the consolidated financial statements have been translated into English,
certain reclassifications have been made and certain subtotals and clarifying account
descriptions have been added.

As a result of the merger with Banco
de A. Edwards (see Note 15), as of January 1, 2002, the Bank increased its capital and
recognized all the Banco de A. Edwards assets and liabilities, after the elimination
of intercompany transactions. The table below presents the subsidiaries of Banco de A.
Edwards and its related participation as of December 31, 2001, that were dissolved or
absorbed by Banco de Chiles subsidiaries with the same line of business:

|Subsidiary                                                | Interest Owned %
|--------------------------------------------------------- | ----------------
|Banedwards S.A. Asesoria Financiera (*)                   | 99.90           
|Banedwards Administradora de Fondos de Inversion S.A. (*) | 99.51           
|Banedwards S.A. Corredores de Bolsa (*)                   | 99.16           
|Banedwards S.A. Administradora de Fondos Mutuos           | 99.00           
|Banedwards Corredora de Seguros Ltda. (*)                 | 99.00           
|Banedwards Factoring S.A. (*)                             | 99.00           

__________________


|(*) | Subsidiary
absorbed by Banchile companies of the same line of business.
|--- | -----------------------------------------------------------------------

In accordance with accounting
principles generally accepted in Chile, the consolidated financial statements do not give
retroactive effect to the merger. Note 28 presents the most significant differences
between Chilean GAAP and United States Generally Accepted Accounting Principles. As more
fully explained in that note, under United States accounting rules the consolidated
financial statements give retroactive effect to accounting for the merger in a manner
similar to a pooling of interests, due to the fact that at the time of the merger both
entities were under common control, with all periods presented as if Banco de Chile and
Banco de A. Edwards had been combined since the date that common control existed.

F-8

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

# 1. Summary of
Significant Accounting Policies (continued)

(a) Basis of presentation (continued)

The preparation of financial
statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. In certain cases generally accepted
accounting principles require that assets or liabilities be recorded or disclosed at their
fair values. The fair value is the amount at which an asset could be bought or sold or in
the case of a liability could be incurred or settled in a current transaction between
willing parties, other than in a forced or liquidation sale. Where quoted markets are not
available the Bank has estimated such values based on the best information available,
including using modeling and other valuation techniques.

The consolidated financial statements
include the financial position and results of operations of Banco de Chile and its
majority-owned subsidiaries. All significant intercompany transactions and balances have
been eliminated in the consolidation. The majority-owned subsidiaries of Banco de Chile as
of December 31, 2002 and 2003 are as follows:

|Subsidiary                                     | Interest Owned%
|---------------------------------------------- | ---------------
|                                               |                
|                                               | 2002           
|                                               |                
|Banchile Administradora General de Fondos S.A. | 99.98          
|Banchile Asesoria Financiera S.A.              | 99.52          
|Banchile Corredores de Seguros Ltda.           | 99.75          
|Banchile Corredores de Bolsa S.A.              | 99.68          
|Banchile Factoring S.A.                        | 99.52          
|Banchile Securitizadora S.A.                   | 99.00          
|Socofin S.A.                                   | 99.00          
|Promarket S.A.                                 | 99.00          

(b) Price-level
restatement

The consolidated financial statements
are prepared on the basis of general price-level accounting in order to reflect the effect
of changes in the purchasing power of the Chilean peso for the Bank and its Chilean
subsidiaries during each year. At the end of each reporting period, the consolidated
financial statements are stated in terms of the general purchasing power of the Chilean
peso using changes in the Chilean consumer price index (CPI) as determined by
the Chilean National Institute of Statistics as follows:

- Non-monetary
assets, liabilities, and Shareholders equity accounts are restated in terms of
year-end purchasing power using the prior month rule, as described below.

- Consistent
with general banking practices in Chile, no specific purchasing power adjustments are
made to the income statement accounts.

- Monetary
items are not restated, as such items are, by their nature, stated in terms of current
purchasing power in the consolidated financial statements.

- The
price-level restatement debit or credit in the income statement represents the monetary
loss or gain in purchasing power from holding monetary assets and liabilities exposed to
the effects of inflation.

F-9

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

# 1. Summary of
Significant Accounting Policies (continued)

(b) Price-level
restatement (continued)

- For
comparative purposes, the consolidated financial statements for periods through December
31, 2002 have been restated in Chilean pesos of general purchasing power as of December
31, 2003 (constant pesos), to reflect changes in the CPI from the financial
statement dates to December 31, 2003. This updating does not change the prior years
financial statements or information in any way except to update the amounts therein to
constant pesos of similar purchasing power. Amounts previously presented in constant
Chilean pesos as of each balance sheet date have been adjusted by the percentage changes
in the Chilean CPI to December 31, 2003, as follows:

|Year | Change in Index
|---- | ---------------
|    
|2001 | 4.0%(1)        
|2002 | 1.0%(2)        

__________________


|(1) | Equivalent
to the amounts for 2001 multiplied by the change in the CPI for 2002, then by the change
in the CPI for 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(2) | Equivalent
to the amounts for 2002 multiplied by the change in the CPI for 2003.
|--- | --------------------------------------------------------------------------------

The general price-level restatements
are calculated using the CPI, and are based on the prior month rule, in which
the inflation adjustments are based on the CPI at the close of the month preceding the
close of the respective period or transaction. The CPI is considered by the business
community, the accounting profession, and the Chilean government to be the index that most
closely complies with the technical requirement to reflect the variation in the general
level of prices in the country and, consequently, is widely used for financial reporting
purposes in Chile.

The values of the CPI used for
price-level restatement purposes are as follows:

|Year | Index (*) | Change in Index
|---- | --------- | ---------------
|    
|2001 | 110.10    | 3.1%           
|2002 | 113.36    | 3.0%           
|2003 | 114.44    | 1.0%           

__________________


|* | Index
as of November 30, of each year under prior month rule described above.
|- | -----------------------------------------------------------------------------

The price-level adjusted consolidated
financial statements do not purport to represent appraised values, replacement cost, or
any other current value of assets at which transactions would take place currently and are
only intended to restate all non-monetary financial statement components in terms of local
currency of a single purchasing power and to include in the net result for each year the
gain or loss in purchasing power arising from the holding of monetary assets and
liabilities exposed to the effects of inflation.

The net charge to income for
price-level restatement is comprised of the following restatements of non-monetary assets
and liabilities. These figures are expressed in constant Chilean pesos of December 31,
2003.

|                                      | Year ended December 31,
|------------------------------------- | -----------------------
|                                      |                        
|                                      | 2001                   
|                                      | MCh$                   
|                                     
|Shareholders' equity                  | (9,798)                
|Bank premises and equipment           | 2,545                  
|Investment in other companies         | 576                    
|Other, net                            | 667                    
|                                      |                        
|Net loss from price-level restatement | (6,010)                
|                                      |                        

F-10

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

# 1. Summary of
Significant Accounting Policies (continued)

(c) Index-linked assets
and liabilities

Certain of the Banks
interest-bearing assets and liabilities are denominated in index-linked units of account.

The principal index-linked unit used
in Chile is the Unidad de Fomento (UF), a unit of account, which changes daily
to reflect changes in the CPI. The carrying amounts of such assets and liabilities change
with the respective changes in the UF and serve to offset the monetary gains or losses
from holding such assets and liabilities. As the Banks UF-denominated assets exceed
its UF-denominated liabilities, any increase in the Chilean CPI results in a net gain on
indexation. Values for the UF are as follows (historical Chilean pesos per UF).

|December 31, | Ch$      
|------------ | ---------
|2001         | 16,262.66
|2002         | 16,744.12
|2003         | 16,920.00

The UF daily indexation adjustments
from the 10th day of the month in question to the 9th day of the subsequent month are
determined based on the previous months changes in the Chilean CPI. The effect of
changes in the UF index on interest earning assets and interest bearing liabilities is
reflected in the income statement as an increase or decrease in interest income or
expense.

(d) Interest revenue and
expense recognition

Interest revenue and expense are
recognized on an accrual basis using the effective interest method. Loans, investments and
liabilities are stated at their cost, adjusted for accrued interest and the indexation
adjustment applicable to such balances that are index-linked.

The Bank suspends the accrual of
interest and principal indexation adjustments on loans when it is determined to be a loss
or when it becomes past due. Accrued interest remains on the Banks books and is
considered a part of the loan balance when determining the provisions for loan losses.
Payments received on past due loans are recognized as income, after reducing the balance
of accrued interest, if applicable.

(e) Foreign currency and
derivative activities

The Bank enters into forward foreign
exchange contracts and spot exchange contracts for its own account and the accounts of its
customers. The Bank accounts for forward contracts between foreign currencies at fair
value with realized and unrealized gains and losses on these instruments recognized in
other income. Forward contracts between the U.S. dollar and the Chilean peso or the U.F.
are valued at the closing spot exchange rate of each balance sheet date, with the initial
discount or premium being amortized over the life of the contract. In addition to forward
contracts, the Bank enters into foreign exchange futures contracts. Futures contracts are
marked to market on a daily basis, with the gains and losses recognized in income.

In addition, the Bank makes loans and
accepts deposits in amounts denominated in foreign currencies. Such assets and
liabilities, which are principally denominated in U.S. dollars, are translated at the
applicable rate of exchange at the balance sheet date.

The amount of net gains and losses on
foreign exchange includes the recognition of the effects that variations in the exchange
rates have on assets and liabilities denominated in foreign currencies and their gains or
losses on foreign exchange spot and forward transactions undertaken by the Bank. The
results of such foreign exchange transactions undertaken by the Bank and its subsidiaries
are included as other non-operating income (for gross gains) and other non-operating
expenses (for gross losses).

F-11

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

# 1. Summary of
Significant Accounting Policies (continued)

(e)
          Foreign currency and derivative activities (continued)

The Banks interest rate swap
agreements are treated as off-balance-sheet financial instruments and the net interest
effect, which corresponds to the difference between interest income and interest expense
arising from such agreements, is recorded in net income in the period that such
differences originate, except for interest rate and cross currency swaps designated as a
hedge of the foreign investment portfolio, which are recorded at their estimated fair
market values.

(f) Financial investments

Financial investments traded on a
secondary market are shown adjusted to market value, following specific instructions from
the Superintendency of Banks. These instructions state that such adjustments should be
recognized against income, except in the case of the permanent portfolio, when an equity
account, Change in unrealized gains (losses) on permanent financial
investments, may be directly charged or credited.

The application of this adjustment
generated net unrealized gains in income of MCh$9,588 and MCh$15,728 and a net unrealized
loss in income of MCh$10,227, in 2001, 2002 and 2003 respectively, which were included in
operating income under Gains (losses) from trading activities. The adjustment
of the permanent portfolio, generated a net debit to equity of MCh$1,898, a net credit of
MCh$9,174 and a net debit of MCh$3,112, in 2001, 2002 and 2003, respectively.

Other investments without a secondary
market (transferable only among financial institutions), are also valued at market price.

The Bank enters into security
repurchase agreements as a form of borrowing. In this regard, the Banks investments
that are sold subject to a repurchase obligation and that serve as collateral for
borrowings are reclassified as investment collateral under agreements to
repurchase. The liability to repurchase the investment is classified as
investments under agreements to repurchase.

The Bank also enters into resale
agreements as a form of investment. Under these agreements the Bank purchases securities,
which are included as assets under the caption investments under agreements to
resell.

(g) Bank premises and
equipment

Bank premises and equipment are
stated at acquisition cost net of accumulated depreciation and have been restated for
price-level changes. Depreciation is calculated using the straight-line method over the
estimated useful lives of the underlying assets. Maintenance and repair costs are charged
to income. The cost of significant renovations and improvements is capitalized.

|Property, plant and equipment | Useful Life
|----------------------------- | -----------
|                             
|Land and buildings            | 5 - 80     
|Furniture and fixtures        | 3 - 10     
|Machinery and equipment       | 2 - 10     
|Vehicles                      | 5          
|Other                         | 6 - 8      

F-12

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

# 1. Summary of
Significant Accounting Policies (continued)

(h) Leasing contracts

The Bank leases certain property that
meets the criteria for direct financing leases. At the time of entering into a direct
financing lease transaction, the Bank records the minimum lease payments receivable as
unearned income. Generally, the lessee acquires the leased asset by remitting all lease
payments due. There are no significant residual values assumed by the Bank. Unearned
income represents the excess of the minimum lease payments receivable plus any estimated
residual value over the cost of the property acquired.

Unearned income is recognized in such
a manner as to produce a constant periodic rate of return on the net investment in the
direct financing lease. The net investment in financing leases is classified as
leasing contracts in the accompanying consolidated balance sheets.

(i) Investments in other
companies

Shares or rights in other companies
which are integral to the operations of the Bank and where the Bank holds a less than
majority interest but has significant influence over the operating activities of the
invested are accounted for under the equity method. Other minority investments are carried
at cost restated for price-level changes.

(j) Allowance for loan
losses

The Bank has set up reserves to cover
possible loan losses in accordance with the instructions issued by the Superintendency of
Banks, as follows:

| | Global loan loss
allowance


A global loan loss allowance is
calculated by multiplying the Banks outstanding loans by the greater of its
risk index or 0.75%. The Banks risk index calculation is based upon a
classification of a portion of its customers outstanding loans into five categories
based upon risk of loss for commercial loans and overdue status for consumer and
residential mortgage loans. The classifications for risk index calculation purposes must
include the largest commercial loans and represent at least 75% of the commercial loan
portfolio, and 100% of consumer and residential mortgage loans. Commercial and consumer
loans are classified based on risk in categories denominated A, B, B -, C or D, while
residential mortgage loans are classified only as A, B or B-. The total exposure of the
bank to each of its customers and the classification of such customers loans are
continuously reviewed by the commercial officers of the bank and by the control risk
division. The provisions required for each category of loans, which are established by the
Chilean Superintendency of Banks, are as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Category | Provisions
as a percentage
of aggregate
exposure
|-------- | ------------------------------------------------
|A        | 0%                                              
|B        | 1                                               
|B-       | 20                                              
|C        | 60                                              
|D        | 90%                                             

| | The resulting weighted average
allowance rate is the risk index utilized in the calculation of the global loan loss
reserve.
| | ----------------------------------------------------------------------------------------------------------------------------

F-13

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

# 1. Summary of
Significant Accounting Policies (continued)

(j) Allowance for loan
losses(continued)

| | Individual loan loss
allowance


Once a loan becomes overdue for more
than 90 days, a specific allowance is calculated for 100% of the uncollateralized portion
of the loan. Individual loan loss reserves are required only to the extent that, in the
aggregate, they exceed the global loan loss reserve.



Voluntary loan loss
allowance


The Bank has made a provision for
voluntary allowance in addition to those required by the rules of the Superintendency of
Banks. Such voluntary reserves cover additional risks inherent in the portfolio.



Charge-offs


Loans are written-off when the
collection efforts have been exhausted but not later than the maximum periods prescribed
by the Superintendency of Banks, which are as follows:


- 24 months past due
(3 months past due for consumer loans) for loans without collateral.
- 36 months
past due for loans with collateral.



Loan loss recoveries


Cash recoveries on written-off loans
including loans which were reacquired from the Central Bank, recorded in memorandum
accounts (see Note 19), are recorded directly to income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(k) Income taxes

Effects of deferred income taxes are
recorded in conformity with Technical Bulletins No. 60 and its related amendments, issued
by the Chilean Association of Accountants (see Note 21).

The income tax provision is
determined based on current Chilean tax legislation.

(l) Consolidated
statements of cash flows

For purposes of reporting cash flows,
cash and cash equivalents include cash and due from banks. For the years ended December
31, 2001, 2002 and 2003 the consolidated statement of cash flows has been prepared in
accordance with Technical Bulletin No.65 of the Chilean Association of Accountants.

(m) Staff severance
indemnities

The Bank has recorded a liability for
long-term severance indemnities in accordance with employment contracts it has with
certain employees. The liability, which is payable to specified retiring employees with
more than 30 years of service, is recorded at the present value of the accrued benefits,
which are calculated by applying a real discount rate to the benefit accrued as of
year-end over the estimated average remaining service period. For the years ended December
31, 2001, 2002 and 2003, the obligation has been discounted using the real interest rate
of 7.0% per annum.

F-14

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

# 1. Summary of
Significant Accounting Policies (continued)

(n) Fees and expenses
related to loans and services

Fees and expenses related to loans
and services are deferred and recognized in income over the term of the loans to which
they relate, and to the period that the services are performed.

(o) Convenience
translation to U.S. dollars

The Bank maintains its accounting
records and prepares its consolidated financial statements in Chilean pesos. The U.S.
dollar amounts disclosed in the accompanying financial statements are presented solely for
the convenience of the reader at the observed exchange rate for December 31, 2003 of
Ch$599.42 per US$1.00. This translation should not be construed as representing that the
Chilean peso amounts actually represent or have been, or could be, converted into U.S.
dollars at such a rate or, any other rate.

(p)
          Translation of financial statements of the Banks foreign branches

The Bank translates the accounting
records of its branch in New York, USA and its agency in Miami, USA to Chilean pesos from
US dollars in accordance with guidelines established by the Superintendency of Banks which
are consistent with Technical Bulletin No. 64, Accounting for investments
Abroad, issued by the Chilean Association of Accountants. All income statement and
balance sheet amounts are translated into Chilean pesos as of the exchange rate in effect
as of the applicable balance sheet date. Under this standard the foreign investment
recorded in the parent companys books is price-level restated, the effects of which
are reflected in income, while any foreign exchange gains or losses between the Chilean
peso and the US Dollar, net of the effects of Chilean inflation, is recorded in
shareholders equity in the account Net adjustment for translation
differences.

(q) Reclassifications

Certain minor reclassifications have
been made to balances in the 2001 and 2002 financial statements in order to conform with
the 2003 presentation.

(r) Assets received in
lieu of payment

Assets received in lieu of payment
are recorded at restated cost less regulatory charge-offs and presented net of a global
valuation allowance if the total of the fair value of those assets is lower than restated
cost. The Superintendency of Banks requires regulatory charge-offs if the asset is not
sold within one year from foreclosure. As instructed, charge-offs are recorded on a
straight-line basis over the following 18-month period.

F-15

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

# 2. Changes in Accounting
Principles

In accordance with Circular No. 3,196
issued by the Superintendency of Banks, effective October 31, 2002 the Bank modified its
accounting treatment of financial investments in mortgage finance bonds issued by the
Bank. This change consisted in reducing from assets the amount recorded for mortgage
finance bonds issued by the Bank, and from liabilities, the respective mortgage finance
bonds obligation. Likewise, the difference between the amount deducted from related assets
and liabilities, was recognized under other assets, and is amortized using the
straight-line method based on the term of the obligation. As of October 31, 2002 the
effect of the indicated change resulted in a decrease of MCh$204,656 from other
financial investments, a decrease of MCh$202,774 from mortgage finance
bonds, and recognizing a net amount of MCh$1,883 under other assets. As
of December 31, 2002 and 2003 the Bank records a net amount of MCh$1,917 and MCh$2,086,
respectively, under Other assets.

# 3. Cash and Due from
Banks

Included in cash and due from banks
are amounts maintained by the Bank with various foreign and local banks, including the
Chilean Central Bank (Central Bank).

In accordance with guidelines
established by the Superintendency of Banks, the Bank must maintain certain non-interest
bearing balances in its account with the Central Bank. The required balances are based
upon specified financial criteria, including the level of the Banks deposits, the
amounts of its foreign borrowings and its average liabilities. These restricted cash
amounts totaled MCh$239,757 and MCh$163,745 as of December 31, 2002 and 2003,
respectively.

F-16

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

# 4. Financial Investments

A summary of financial investments is
as follows:

|                                                                | As of December 31, | Weighted Average
  Nominal Rate as of
  December 31, 2003
          %
|--------------------------------------------------------------- | ------------------ | ---------------------------------------------------------------------
|                                                                |                   
|                                                                | 2002
      MCh$    | 2003
     MCh$                                                       
|                                                                |                    |                                                                      
|Central Bank and Government Securities                          |                    |                                                                      
|Marketable debt securities                                      | 599,067            | 968,401                                                              
|Marketable debt securities with limited secondary        market | 273,446            |                                                                     
|Chilean government securities                                   | 5,532              | 41,848                                                               
|Investments purchased under agreements to resell                | 32,499             | 29,660                                                               
|Investments collateral under agreements to repurchase           | 196,984            | 324,576                                                              
|                                                                |                    |                                                                      
|Subtotal                                                        | 1,107,528          | 1,364,485                                                            
|                                                                |                    |                                                                      
|                                                               
|Corporate Securities and Other Financial Investments           
|Investments in Chilean financial institutions                   | 45,494             | 131,945                                                              
|Foreign government notes                                        | 51,617             | 33,613                                                               
|Investments in foreign countries                                | 279,890            | 186,559                                                              
|Other financial investments                                     | 48,123             | 106,365                                                              
|Investments collateral under agreements to repurchase           | 82,238             | 93,357                                                               
|                                                                |                    |                                                                      
|Subtotal                                                        | 507,362            | 551,839                                                              
|                                                                |                    |                                                                      
|Total                                                           | 1,614,890          | 1,916,324                                                            
|                                                                |                    |                                                                      

Financial investments are classified
at the time of the purchase, based on managements intentions, as either trading or
permanent. The related amounts are as follows:

|          | As of December 31,
|--------- | ------------------
|          | 2002              
|          | MCh$              
|Permanent | 279,187           
|Trading   | 1,335,703         
|          |                   
|Total     | 1,614,890         
|          |                   

F-17

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

# 5. Loans

The loans included in the
accompanying consolidated balance sheets are segregated into subcategories as described
below.

Commercial loans are long-term and
short-term loans made to companies or businesses. These loans are principally granted in
Chilean pesos or UF on an adjustable or fixed rate basis to finance working capital or
investments.

Consumer loans are loans to
individuals granted principally in Chilean pesos or UF, generally on a fixed rate basis,
to finance the purchase of consumer goods or to pay for services. Credit card balances
subject to interest charges are also included in this category.

Mortgage loans are inflation indexed,
fixed rate, long-term loans with monthly payments of principal and interest collateralized
by a real property mortgage. These loans are financed through both the issuance of
mortgage finance bonds. At the time of its issuance the amount of a mortgage loan cannot
be more than 75% of the value of the property if the loan is financed by mortgage finance
bonds.

Foreign trade loans are fixed rate,
short-term loans granted in foreign currencies (principally U.S. dollars) to finance
imports and exports.

Interbank loans are fixed rate,
short-term loans to financial institutions that operate in Chile.

Leasing contracts are agreements for
financing leases of capital equipment and other property.

Other outstanding loans principally
include current account overdrafts, bills of exchange and other mortgage loans, which are
financed by the Banks general borrowings.

Past due loans represent loans that
are overdue as to any payment of principal or interest by 90 days or more.

Contingent loans consist of open and
unused letters of credit together with guarantees granted by the Bank in Ch$, UF and
foreign currencies (principally U.S. dollars).

The following table summarizes the
most significant loan concentrations expressed as a percentage of total loans, excluding
contingent loans and before allowance for loan losses:

|                                                        | As of December 31,
|------------------------------------------------------- | ------------------
|                                                        |                   
|                                                        | 2002%             
|                                                       
|Financial Services                                      | 19.66             
|Residential mortgage loans                              | 17.93             
|Manufacturing                                           | 10.21             
|Commerce                                                | 11.85             
|Agriculture, livestock, forestry, agribusiness, fishing | 8.43              
|Consumer loans                                          | 13.97             

Substantial portions of the
Banks loans are to borrowers doing business in Chile.

F-18

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

# 6. Leasing Contracts

The Banks scheduled cash flows
to be received from leasing contracts have the following maturities as of December 31,
2003:

|                                     | As of December 31, 2003
|------------------------------------ | -----------------------
|                                     |                        
|Maturity                             | Total Receivable       
|                                     |                        
|                                     | MCh$                   
|                                    
|Due within one year                  | 92,946                 
|Due after 1 year but within 2 years  | 61,208                 
|Due after 2 years but within 3 years | 42,440                 
|Due after 3 years but within 4 years | 33,232                 
|Due after 4 years but within 5 years | 25,933                 
|Due after 5 years                    | 78,132                 
|                                     |                        
|Total leasing contracts              | 333,891                
|                                     |                        

Leased assets consist principally of
real estate, industrial machinery, vehicle, and computer equipment. The allowance for
uncollectible lease receivable was MCh$8,273 as of December 31, 2003 (MCh$10,717 as of
December 31, 2002), which forms part of the allowance for loan losses.

# 7. Allowance for Loan
Losses

The changes in the allowance for loan
losses for the periods indicated are as follows:

|                                                   | 2001     | 2002      | 2003    
|-------------------------------------------------- | -------- | --------- | --------
|                                                   | MCh$     | MCh$      | MCh$    
|                                                  
|Balance as of January 1,                           | 121,129  | 137,757   | 218,202 
|Banco de A. Edwards balances as of January 1, 2002 |         | 97,368    |        
|Price-level restatement (1)                        | (3,024)  | (6,498)   | (2,748) 
|Charge-offs                                        | (28,084) | (112,075) | (96,132)
|Provisions established                             | 48,918   | 126,378   | 61,524  
|Provisions released                                | (1,182)  | (24,728)  | (1,455) 
|                                                   |         
|Balance as of December 31,                         | 137,757  | 218,202   | 179,391 
|                                                   |         

_________________


|(1) | Reflects
the effect of inflation and exchange rate changes of branches abroad on the allowance for
loan losses at the beginning of each period, adjusted to constant pesos of December 31,
2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The provisions for loan losses
included in the results of operations for the periods indicated is as follows:

|                       | Years ended December 31,
|---------------------- | ------------------------
|                       |                         
|                       | 2001                    
|                       | MCh$                    
|                      
|Provisions established | (48,918)                
|Provisions released    | 1,182                   
|                       |                         
|Net income charge      | (47,736)                
|                       |                         

F-19

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

8.  Bank Premises
and Equipment, net

The major categories
of Bank premises and equipment net of accumulated depreciation are as follows:

|                                 | As of December 31,
|-------------------------------- | ------------------
|                                 |                   
|                                 | 2002              
|                                 | MCh$              
|Land and buildings               | 97,592            
|Furniture and fixtures           | 22,419            
|Machinery and equipment          | 17,915            
|Vehicles                         | 535               
|Others                           | 2,275             
|                                 |                   
|Bank premises and equipment, net | 140,736           
|                                 |                   

In  accordance  with
rules of the  Superintendency  of Banks,  Bank  premises and  equipment  are  presented
net of accumulated depreciation.

9.  Investments in
other companies

As of December 31,
 2001,  2002 and 2003,  investments  in other  companies  and the Banks  participation
 in such companies results of operations for each of the periods indicated, consist of
the following:

|                                                                           | As of and for the years ended December 31,
|-------------------------------------------------------------------------- | ------------------------------------------
|                                                                           |                                           
|                                                                           | 2001                                      
|                                                                           |                                           
|                                                                           | Investment                                
|                                                                           |                                           
|                                                                           | MCh$                                      
|                                                                          
|Redbanc S.A                                                                | 448                                       
|Soc. Operadora de Tarjetas de Crédito Nexus S.A.                           | 417                                       
|Transbank S.A                                                              | 357                                       
|Servipag Ltda                                                              | 673                                       
|Bolsa de Comercio de Santiago (Stock Exchange)                             | 62                                        
|Sociedad Interbancaria de Depósito de Valores S.A                          | 141                                       
|Artikos Chile S.A                                                          | 673                                       
|Centro de Compensación Automatizado S.A. (CCA S.A.)                        | 141                                       
|Bolsa de Valores de Chile (Stock Exchange)                                 | 323                                       
|Empresa de Tarjetas Inteligentes S.A                                       | 71                                        
|                                                                           |                                           
|Total investments in other companies accounted for under the equity method | 3,306                                     
|Other investments carried at cost                                          | 249                                       
|                                                                           |                                           
|Total investments in other companies                                       | 3,555                                     
|                                                                           |                                           

F-20

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

10.  Other Assets
and Other Liabilities

(a) Other assets

|                                                                    | As of December 31,
|------------------------------------------------------------------- | ------------------
|                                                                    |                   
|                                                                    | 2002              
|                                                                    | MCh$              
|Deferred income tax assets                                          | 70,735            
|Credit card charges in process                                      | 29,029            
|Amounts receivable under spot foreign exchange transaction          | 30,249            
|Assets for leasing                                                  | 23,766            
|Balances with domestic branches                                     | 13,529            
|Deferred asset on bonds issuances                                   | 7,112             
|Software investment                                                 | 2,939             
|Accounts receivable for assets received in lieu of payment sold     | 3,792             
|VAT fiscal credit                                                   | 1,784             
|Deferred fees                                                       | 3,000             
|Deferred asset related to mortgage finance bonds issued by the bank | 1,917             
|Transactions in process                                             | 5,798             
|Deferred expenses                                                   | 1,626             
|Recoverable taxes                                                   | 4,105             
|Materials and supplies                                              | 965               
|Other                                                               | 11,672            
|                                                                    |                   
|Total other assets                                                  | 212,018           
|                                                                    |                   

(b) Other
liabilities

|                                                        | As of December 31,
|------------------------------------------------------- | ------------------
|                                                        |                   
|                                                        | 2002              
|                                                        | MCh$              
|Accounts payable                                        | 58,652            
|Deferred tax liabilities                                | 30,286            
|Amounts payable under spot foreign exchange transaction | 28,482            
|Allowance of income taxes                               | 442               
|Derivative instruments, net                             | 8,566             
|Accrued staff vacation expense                          | 8,697             
|Accrued severance staff indemnities                     | 7,724             
|Deferred liability on bonds issuances                   | 7,112             
|Administration and credit card contract provision       | 2,235             
|Leasing deferred gains                                  | 3,167             
|Commissions deferred                                    | 3,147             
|VAT fiscal debit                                        | 2,194             
|Transactions in process                                 | 2,737             
|Legal contingencies provision                           | 1,099             
|Other                                                   | 9,192             
|                                                        |                   
|Total other liabilities                                 | 173,732           
|                                                        |                   

F-21

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

10.  Other Assets
and Other Liabilities (continued)

(c) Contingent
Liabilities

Contingent
 liabilities consist of open and unused letters of credit,  together with guarantees
granted by the Bank in Chilean  pesos,  UF and foreign  currencies  (principally  U.S.
 dollars).  The liability  represents the Bank's obligations  under such  agreements.
 The Bank's  rights under these  agreements  are  recognized  as assets on the Banks
balance sheets under the caption "Contingent loans". (See note 5).

11. Other Interest
Bearing Liabilities

The  Bank's  long-term
 and  short-term  borrowings  are  summarized  below.  In  accordance  with  the
 guidelines established by the  Superintendency  of Banks,  the Bank does not present a
classified  balance  sheet.  Borrowings are described as  short-term  when they have
 original  maturities of less than one year or are due on demand.  All other borrowings
are described as long-term, including the amounts due within one year on such borrowings.

|                                                     | As of December 31, 2002 | As of December 31, 2003
|---------------------------------------------------- | ----------------------- | -----------------------
|                                                     |                         |                        
|                                                     | Long-term               | Short-term             
|                                                     | MCh$                    | MCh$                   
|                                                    
|Central Bank Credit lines for renegotiation of loans | 3,801                   |                       
|Other Central Bank borrowings                        |                        |                       
|Mortgage finance bonds                               | 1,094,881               |                       
|Bonds                                                | 4,639                   |                       
|Subordinated bonds                                   | 280,431                 |                       
|Borrowings from domestic financial instituitions     | 127                     | 50,866                 
|Foreign borrowings                                   | 335,087                 | 180,360                
|Investments under agreements to repurchase           |                        | 279,442                
|Other obligations                                    | 46,320                  | 31,218                 
|                                                     |                        
|Total other interest bearing liabilities             | 1,765,286               | 541,886                
|                                                     |                        

(a) Central Bank
borrowings

Central Bank
 borrowings  include credit lines for the  renegotiation  of loans and other Central Bank
 borrowings. Credit  lines  were  provided  by the  Central  Bank for the  renegotiation
 of  mortgage  loans due to the need to refinance  debts as a result of the  economic
 recession  and crisis of the  Chilean  banking  system  from 1982 to 1985.  The  credit
 lines for the  renegotiations  of  mortgage  loans are  linked to the UF index and carry
a real annual interest rate of 2.4%.  The maturities of the outstanding amounts are as
follows:

|                                                          | As of December 31, 2003
|--------------------------------------------------------- | -----------------------
|                                                          |                        
|                                                          | MCh$                   
|Due within 1 year                                         | 2,975                  
|Due after 1 year but within 2 years                       |                       
|Due after 2 years but within 3 years                      |                       
|Due after 3 years but within 4 years                      |                       
|Due after 4 years but within 5 years                      |                       
|Due after 5 years                                         |                       
|                                                          |                        
|Total long-term (Credit lines for renegotiation of loans) | 2,975                  
|Total short-term (Other Central Bank borrowings)          | 24,906                 
|                                                          |                        
|Total Central Bank borrowings                             | 27,881                 
|                                                          |                        

F-22

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

11. Other Interest
Bearing Liabilities (continued)

(b) Mortgage
finance bonds

These bonds are used
to finance the granting of mortgage  loans.  The  outstanding  principal  amounts of the
bonds are amortized on a quarterly  basis.  The range of maturities of these bonds is
between five and twenty years.  The bonds are linked to the UF index and carry a weighted
 average  annual rate of interest of 6.2% as of December  31, 2003.

The maturities of
outstanding mortgage bond amounts as of December 31, 2003 are as follows:

|                                     | As of December 31, 2003
|------------------------------------ | -----------------------
|                                     |                        
|                                     | MCh$                   
|Due within 1 year                    | 84,397                 
|Due after 1 year but within 2 years  | 87,257                 
|Due after 2 years but within 3 years | 88,085                 
|Due after 3 years but within 4 years | 86,401                 
|Due after 4 years but within 5 years | 83,345                 
|Due after 5 years                    | 584,967                
|                                     |                        
|Total mortgage finance bonds         | 1,014,452              
|                                     |                        

(c) Bonds

The maturities of
outstanding bonds amounts as of December 31, 2003 are as follows:

|                                     | As of December 31, 2003
|------------------------------------ | -----------------------
|                                     |                        
|                                     | MCh$                   
|Due within 1 year                    | 905                    
|Due after 1 year but within 2 years  | 858                    
|Due after 2 years but within 3 years | 858                    
|Due after 3 years but within 4 years | 506                    
|Due after 4 years but within 5 years |                       
|Due after 5 years                    |                       
|                                     |                        
|Total bonds                          | 3,127                  
|                                     |                        

Bonds are linked to
the UF Index and  carried an average  real  annual  interest  rate of 6.9% as of
 December  31, 2003,  with  interest and  principal  payments due  semi-annually.  The
bonds were  originally  intended to finance loans that had a maturity of greater than one
year.

(d) Subordinated
bonds

In 2002 the Bank
issued Bonds  totaling  UF1,580,000  (known as 6.5%  Bonds) at a discount of UF98,670.
 The 6.5% Bonds are linked to the UF index with  interest  and  principal  payments  due
 semi-annually.  The discount on the issuance of the 6.5% Bonds is amortized  over the
life of the bond. As of December 31, 2003,  the effective  real interest rate is 7.0%,
taking into consideration the discount on issuance.

F-23

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

11.  Other Interest
Bearing Liabilities (continued)

(d) Subordinated
bonds (continued)

The 6.5%  Bonds are
 intended  for the  financing  of loans  having a  maturity  of  greater  than one year.
 As of December 31, 2003 the outstanding maturities of these bonds, which are considered
long-term, are as follows:

|                                     | As of December 31, 2003
|------------------------------------ | -----------------------
|                                     |                        
|                                     | MCh$                   
|Due within 1 year                    | 25,571                 
|Due after 1 year but within 2 years  | 19,307                 
|Due after 2 years but within 3 years | 19,307                 
|Due after 3 years but within 4 years | 19,307                 
|Due after 4 years but within 5 years | 19,307                 
|Due after 5 years                    | 168,398                
|                                     |                        
|Total subordinated bonds             | 271,197                
|                                     |                        

Subordinated  bonds
are  considered in the  calculation of effective  equity for the purpose of
 determining  the Banks minimum capital requirements (See Note 14).

(e) Borrowings from
domestic financial institutions

Borrowings from
domestic financial  institutions are used to fund the Banks general  activities,  carry
a weighted average annual real interest rate of 2.3% and have the following outstanding
maturities as of December 31, 2003.

|                                                      | As of December 31, 2003
|----------------------------------------------------- | -----------------------
|                                                      |                        
|                                                      | MCh$                   
|Due within 1 year                                     | 103                    
|Due after 1 year but within 2 years                   |                       
|Due after 2 years but within 3 years                  |                       
|Due after 3 years but within 4 years                  |                       
|Due after 4 years but within 5 years                  |                       
|Due after 5 years                                     |                       
|                                                      |                        
|Total long-term                                       | 103                    
|Total short-term                                      | 49,779                 
|                                                      |                        
|Total borrowings from domestic financial institutions | 49,882                 
|                                                      |                        

F-24

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

11.  Other Interest
Bearing Liabilities (continued)

(f) Foreign
borrowings

The Bank has
 short-term  and  long-term  borrowings  from  foreign  banks.  The  outstanding
 maturities  of these borrowings as of December 31, 2003 are as follows:

|                                     | As of December 31, 2003
|------------------------------------ | -----------------------
|                                     |                        
|                                     | MCh$                   
|Due within 1 year                    | 431,098                
|Due after 1 year but within 2 years  | 13,015                 
|Due after 2 years but within 3 years | 127                    
|Due after 3 years but within 4 years | 6,620                  
|Due after 4 years but within 5 years |                       
|Due after 5 years                    |                       
|                                     |                        
|Total long-term                      | 450,860                
|Total short-term                     | 267,109                
|                                     |                        
|Total foreign borrowings             | 717,969                
|                                     |                        

All of these loans are
denominated in U.S.  dollars,  are  principally  used to fund the Banks foreign trade
loans and carry an average annual nominal interest rate of 3.8% as of December 31, 2003.

(g) Other
obligations

|                                    | As of December 31,
|----------------------------------- | ------------------
|                                    |                   
|                                    | 2002              
|                                    | MCh$              
|Other long-term obligations:        |                   
|Payable accounts                    | 883               
|Obligations with Chilean government | 45,437            
|                                    |                   
|Total other long-term obligations   | 46,320            
|Other short-term obligations        | 31,218            
|                                    |                   
|Total other obligations             | 77,538            
|                                    |                   

As of December 31,
2003, other obligations had the following maturities:

|                                     | As of December 31, 2003
|------------------------------------ | -----------------------
|                                     |                        
|                                     | MCh$                   
|Due within 1 year                    | 945                    
|Due after 1 year but within 2 years  | 1,200                  
|Due after 2 years but within 3 years | 1,418                  
|Due after 3 years but within 4 years | 1,479                  
|Due after 4 years but within 5 years | 1,408                  
|Due after 5 years                    | 3,396                  
|                                     |                        
|Total long-term                      | 9,846                  
|Total short-term                     | 49,754                 
|                                     |                        
|Total other obligations              | 59,600                 
|                                     |                        

F-25

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

12.  Obligations
Arising From Lease Commitments

The Bank leases
certain  premises under operating  leases.  The following  table shows the future minimum
 payments under the terms of the lease commitments, expressed in constant Chilean pesos
as of December 31, 2003.

|                                                    | As of December 31, 2003
|--------------------------------------------------- | -----------------------
|                                                    |                        
|                                                    | MCh$                   
|Due within 1 year                                   | 5,954                  
|Due after 1 year but within 2 years                 | 4,501                  
|Due after 2 years but within 3 years                | 3,270                  
|Due after 3 years but within 4 years                | 2,690                  
|Due after 4 years but within 5 years                | 2,261                  
|Due after 5 years                                   | 21,366                 
|                                                    |                        
|Total obligations arising from lease    commitments | 40,042                 
|                                                    |                        

The rental expense on
premises was MCh$2,853,  MCh$6,622 and MCh$6,314 for the years ended December 31, 2001,
 2002 and 2003,  respectively,  and is included in the Consolidated  Statements of Income
under Administrative and other expenses.

13.  Derivative
Financial Instruments

(a) Derivative
activities

The Bank  takes
 positions  in the  foreign  exchange  market by the use of  forward  exchange  contracts
 and spot exchange  contracts.  These activities  constitute  treasury  business and help
the Bank to provide  customers with capital  markets  products.   Other  derivative
  transactions   include   primarily   interest  rate  swaps  (paid fixed-received
floating) and rate lock.

(b) Market risk and
risk management activities

All derivative
 instruments  are subject to market risk.  This is defined as the risk that future
changes in market conditions may make an investment  more or less  valuable.  As most of
these  instruments  are recognized at market value for the purposes of Chilean GAAP,
these changes  directly affect reported  income.  The Bank manages exposure to market
 risk in  accordance  with risk  limits  set by senior  management  by buying or selling
 instruments  or entering into off-setting positions.

The Bank is exposed to
credit related losses in the event of  non-performance  by counterparties to these
financial instruments,  risk that is monitored  on an ongoing  basis.  In order to manage
the level of credit risk,  the Bank enters into  transactions with  counterparties  whom
it believes have a good credit standing and, when appropriate, obtains collateral.

The Central Bank
 requires that foreign  exchange  forward  contracts be made only in U.S.  dollars and
other major foreign  currencies.  In the case of the Bank, most forward  contracts are
made in U.S. dollars against the Chilean peso or the UF.  Occasionally,  forward
 contracts are also made in other  currencies,  but only when the Bank acts as an
 intermediary.  Unrealized  gains,  losses,  premiums and  discounts  arising from
foreign  exchange  forward contracts are shown on a net basis under Other assets and Other
liabilities. (See note 10).

F-26

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

13.  Derivative
Financial Instruments (continued)

(b) Market risk and
risk management activities (continued)

The notional amounts
of these contracts as of December 31, 2002 and 2003 are as follows:

|                                                                   |            | Contract
           amounts
|------------------------------------------------------------------ | ---------- | ---------------------------
|                                                                   |            |                            
|Description of transaction                                         | Number of  | Less than                  
|                                                                   | operations | 3 months                   
|                                                                   |            |                            
|                                                                   | 2002       | 2003                       
|                                                                   |            |                            
|Local Market:                                                     
|- Foreign currency future purchase contracts with Chilean currency | 588        | 1,144                      
|- Foreign currency future sale contracts with Chilean currency     | 521        | 1,097                      
|- Foreign currency forward contracts                               | 75         | 21                         
|                                                                  
|Foreign Markets:                                                  
|- Foreign currency future contracts with Chilean currency          |           | 4                          
|- Foreign currency forward contracts                               | 70         | 70                         
|- Foreign currency futures sold                                    | 175        | 179                        
|- Interest rate swaps                                              | 78         | 137                        

The amounts refer to
United States dollar  amounts  purchased or sold, or the  equivalent in United States
 dollars of the foreign  currency  purchased or sold or the future  amount,  or the
amount on which  interest rate contracts are agreed.  The period refers to the contract
maturity from the date of the transaction.

(c) Contracts on
the value of authorized readjustment systems  and on interest rates in Chilean currency.

|                                     |            | Notional contract amounts
|------------------------------------ | ---------- | -------------------------
|                                     |            |                          
|Description of transaction           | Number of  | Less than                
|                                     | operations | 3 months                 
|                                     |            |                          
|                                     | 2002       | 2003                     
|                                     |            |                          
|UF/pesos forward contracts purchased | 17         | 27                       
|UF/pesos forward contracts sold      | 5          | 76                       
|Interest rate swaps                  |           | 10                       

(d) Fair value of
traded instruments

The table below sets
forth the  estimated  fair value of  derivative  financial  instruments  held or issued
by the Bank for trading purposes as of December 31, 2002 and 2003.

|                                                | Fair value as of December 31,
|----------------------------------------------- | -----------------------------
|                                                |                              
|                                                | 2002                         
|                                                | MCh$                         
|                                               
|Contracts to purchase and sell foreign exchange | (7,437)                      
|Interest rate swaps                             | 12,331                       

For those  instruments
 held by the Bank  where no quoted  market  prices  are  available,  fair  values  have
been estimated using modeling and other valuation techniques.

F-27

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

14.  Minimum
Capital Requirements

In  accordance  with
the Chilean  Banking Law,  Chilean  Banks are  required to maintain a minimum  equity
level of UF800,000,  equivalent to  MCh$13,536 as of December 31, 2003. In addition,
 Chilean Banks are required to maintain a minimum  capital  (capital  and  reserves)
 of at least 3% of their  total  assets  net of  provisions,  and an effective equity of
not less than 8% of their  risk-weighted  assets. The effective equity is defined as net
capital base plus subordinated  bonds, up to 50% of the capital and reserves,  plus
voluntary  provisions of up to 1.25%  of  their  risk-weighted  assets.  The  value  of
the  subordinated  bonds  that  can be  considered  in the effective equity should
decrease by 20% per year beginning six years prior to maturity.

The Banks actual
qualifying net capital base and effective equity used to support its  risk-weighted
 assetsas of December 31, 2003, are set forth in the following table:

|                                                                        | As of December 31, 2003
|----------------------------------------------------------------------- | -----------------------
|                                                                        |                        
|                                                                        | MCh$                   
|Basic Capital                                                           | 565,123                
|3% of total assets net of provisions                                    | (278,784)              
|                                                                        |                        
|Excess over minimum required equity                                     | 286,339                
|                                                                        |                        
|Net capital base as a percentage of the total assets, net of provisions | 6.08%                  
|                                                                       
|Effective equity                                                        | 811,685                
|8% of risk-weighted assets                                              | (491,238)              
|                                                                        |                        
|Excess over minimum required equity                                     | 320,447                
|                                                                        |                        
|Effective equity as a percentage of the risk-weighted assets (*)        | 13.22%                 

___________________


|(*) | This ratio has been determined on total assets adjusted by risk on a consolidated basis, as established by
      Circular No.3,178 dated June 7, 2002, from the Superintendency of Banks.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15.  Shareholders Equity

(a)  The
      mergerAt the
      Extraordinary Shareholders  Meeting  of  Banco  de  Chile,  held on  December
      6, 2001, the merger by incorporation of Banco de A. Edwards and Banco de
      Chile, with the later acquiring all assets an assuming all liabilities
      of the former, incorporating all equity, which included net income for
      the year ended December 31, 2001, and shareholders of Banco de A. Edwards
      into Banco de Chile was approved. Later, on December 18, 2001 at Banco
      de A. Edwards  Extraordinary  Shareholders  Meeting  the  merger  was
      approved on the same terms, also obtaining the approval from the Superintendency
      of Banks and Financial Institutions on December 21, 2001. The merger became
      effective as of January 1, 2002.

For this purpose the
 Shareholders  meeting agreed that the merged bank issue  23,147,126,425  registered
 shares, without par value, to be given to Banco de A. Edwards  shareholders in a
proportion of 3.135826295  Banco de Chile shares for each Banco de A. Edwards  share.
 Consequently,  Banco de Chiles paid in capital was divided between a total of
68,079,783,605 shares.

F-28

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

15.  Shareholders Equity
(continued)

(b)  Dividends

Dividends are declared
and paid during the year subsequent to that in which the related net income was earned.
Dividends declared and paid in 2001, 2002 and 2003 in constant Chilean pesos of December
31, 2003 are as follows:

|                                            | Paid during the year ended
     December 31,
|------------------------------------------- | --------------------------------------------
|                                            |                                             
|                                            | 2001                                        
|                                            | MCh$                                        
|Dividends relating to prior year net income | 85,261                                      
|                                            |                                             

16.  Transactions
with Related Parties

In  accordance  with
the rules of the  Superintendency  of Banks,  related  parties are defined as
 individuals  or companies who are directors, officers, or shareholders who own more than
1% of the Bank's shares.

Entities  in which a
 director,  officer  or  shareholder  of the Bank  holds  more than a 5%  interest  as
well as entities that have directors in common with the Bank are also  considered to be
related  parties.  In the following tables, trading and manufacturing  companies are
defined as operating companies,  and companies whose purpose is to hold shares in other
companies are defined as investment companies.

(a)
Loans granted to related parties

Loans to related
parties, all of which are current, are as follows:

|                     | As of December 31,
|-------------------- | ------------------
|                     |                   
|                     | 2001              
|                     |                   
|                     |                   
|                     | Loans             
|                     | MCh$              
|Operating companies  | 51,028            
|Investment companies | 4,322             
|Individuals (1)      | 3,575             
|                     |                   
|Total                | 58,925            
|                     |                   

___________________


|(1) | Includes only debt obligations that are equal to or greater than UF 3,000,  equivalent to approximately  MCh$51
as of December 31, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

The activity in the
balances of loans to related parties are as follows:

|                                                   | 2002     | 2003    
|-------------------------------------------------- | -------- | --------
|                                                   |          |         
|                                                   | MCh$     | MCh$    
|Balance as of January 1, 2002                      | 58,925   | 106,173 
|Banco de A. Edwards balances as of January 1, 2002 | 31,379   |        
|New loans                                          | 75,253   | 55,953  
|Repayments                                         | (56,753) | (47,296)
|Price-level restatement (1)                        | (2,631)  | (1,051) 
|                                                   |          |         
|Balance as of December 31                          | 106,173  | 113,779 
|                                                   |          |         

___________________


|(1) | Reflects the effect of restatement of beginning balances to constant pesos of December 31, 2003.
|--- | ------------------------------------------------------------------------------------------------

F-29

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

16.  Transactions
with Related Parties (continued)

(b) Other
transactions with related parties.

During  the years
 ended  December  31,  2001,  2002 and 2003,  the Bank  incurred  the  following
 expenses  and income as a result of transactions with related parties equal to or
greater than UF 5,000 equivalent to approximately MCh$85 as of December 31, 2003.

|                                                             | Years ended December 31,
|------------------------------------------------------------ | ------------------------
|                                                             |                         
|                                                             | 2001                    
|                                                             |                         
|                                                             | Expense                 
|                                                             | MCh$                    
|                                                             |                         
|Redbanc S.A                                                  | 1,526                   
|Empresa Nacional de Telecomunicaciones S.A                   | 1,148                   
|Operadora de Tarjetas de Crédito Nexus S.A                   | 1,159                   
|Depósito Central de Valores, Depósitos de Valores S.A        |                        
|Entel PCS Telecomunicaciones S.A                             |                        
|Banchile Cía de Seguros de Vida S.A                          |                        
|Entel Telefonía Local S.A                                    | 155                     
|Hoteles Carrera S.A                                          |                        
|Compañía Nacional de Teléfonos Telefónica del Sur S.A        |                        
|Empresa de Tarjetas Inteligentes S.A                         |                        
|Telefónica del Sur Carrier S.A                               |                        
|Corporación Cultural de la Ilustre Municipalidad de Santiago |                        
|Empresa de Servicios Especializados S.A                      |                        
|Línea Aérea Nacional Chile S.A                               |                        
|                                                             |                         
|Subtotal                                                     | 3,988                   
|                                                             |                         
|                                                             |                         
|Transactions between 1,000 and 5,000 UF:                    
|Services expenses                                            | 179                     
|Advisory                                                     |                        
|Telephone expenses                                           | 103                     
|Rental income                                                |                        
|                                                             |                         
|Subtotal                                                     | 282                     
|                                                             |                         
|Total                                                        | 4,270                   
|                                                             |                         

These expense and
revenue items are for services  received and rendered by the Bank from related  parties
at market rates.  Article 89 of the Chilean  Corporations  Law requires that the Banks
transactions with related parties be carried out on a market basis or on terms similar to
those prevailing in the market.

F-30

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

17.  Fees and
income from services and non-operating income and expenses

The Banks fees and
income from services and non-operating income and expenses for the years ended December
31, 2001, 2002 and 2003 are summarized as follows:

|                                                                         | Years ended December 31,
|------------------------------------------------------------------------ | ------------------------
|                                                                         |                         
|                                                                         | 2001                    
|                                                                         |                         
|                                                                         | Income                  
|                                                                         | MCh$                    
|Fees and income from services                                            |                         
|Demand deposits and overdrafts                                           | 12,923                  
|Sight accounts and ATMs                                                  | 6,849                   
|Credit cards                                                             | 7,439                   
|Mutual funds                                                             | 7,999                   
|Insurance                                                                | 5,656                   
|Stock brokerage                                                          | 2,970                   
|Collection of over-due loans                                             |                        
|Receipts and payment of services                                         | 4,700                   
|Credit lines                                                             | 2,158                   
|Financial advisory services                                              | 1,010                   
|Income and revenue from goods received in    lieu of payment             | 347                     
|Letters of credit, guarantees, collaterals and    other contingent loans | 3,376                   
|Collection services                                                      | 2,316                   
|Foreign trade and currency exchange                                      | 1,533                   
|Prepaid loans                                                            | 857                     
|Leasing                                                                  | 724                     
|Custody and trust services                                               | 638                     
|Factoring                                                                | 134                     
|Fees from sales force                                                    |                        
|Teller services (Servipag)                                               |                        
|Other                                                                    | 1,507                   
|                                                                         |                         
|Total                                                                    | 63,136                  
|                                                                         |                         
|                                                                         |                         
|Non-operating income and expenses                                        |                         
|Rental income                                                            | 3,013                   
|Gains on sales of assets received in     lieu of payment                 | 2,874                   
|Income from correspondent banks                                          | 661                     
|Income from sale of fixed assets                                         | 135                     
|Recoveries of expenses                                                   | 695                     
|Securities in companies and shares                                       | 85                      
|Charge-offs and provision of assets received    in lieu of payment       |                        
|Administration and credit card contracts                                 |                        
|Charge-offs                                                              |                        
|Delivery services of bank products                                       |                        
|Leasing expenses                                                         |                        
|Legal contingencies provision                                            |                        
|Charge-offs and provision related to fixed    assets due to the merger   |                        
|Charge-offs of transaction in process related    to the merger           |                        
|Indemnity for termination of rental contracts                            |                        
|Other                                                                    | 208                     
|                                                                         |                         
|Total                                                                    | 7,671                   
|                                                                         |                         

F-31

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

18.  Board of Directors Compensation

The following fees
were paid to members of the Board of Directors as remuneration for their services,  as
established at the general shareholders  meetings,  and for attendance fees:

|                                 | Years ended December 31,
|-------------------------------- | ------------------------
|                                 |                         
|                                 | 2001                    
|                                 | MCh$                    
|Remuneration and attendance fees | 1,245                   
|                                 |                         

19.  Loan Loss
Recoveries

|                                      | Years ended December 31,
|------------------------------------- | ------------------------
|                                      |                         
|                                      | 2001                    
|                                      | MCh$                    
|Loan portfolio previously charged-off | 9,007                   
|Loans reacquired from Central Bank    | 1,028                   
|                                      |                         
|Total                                 | 10,035                  
|                                      |                         

Recovery of loans
reacquired from the Central Bank includes payments  received on such loans,  which at the
date of their repurchase from the Central Bank were deemed to have no value and were
recorded in memorandum accounts.

20.  Foreign
Currency Position

The consolidated
balance sheets include assets and liabilities  denominated in foreign currencies,  which
have been translated to Chilean pesos at the Observed Exchange Rates as of December 31,
2002 and 2003 and assets and  liabilities  denominated in Chilean pesos but that contain
 repayment terms linked to changes in foreign  currency  exchange rates, detailed below:

|                                                | As of December 31, 2002 | As of December 31, 2003
|----------------------------------------------- | ----------------------- | -----------------------
|                                                |                         |                        
|                                                | Payable in              | Payable in             
|                                                | Foreign                 | Chilean                
|                                                | Currency                | Pesos                  
|                                                |                         |                        
|                                                | MCh$                    | MCh$                   
|ASSETS                                          |                         |                        
|Cash and due from banks                         | 162,964                 |                       
|Loans                                           | 872,091                 | 53,447                 
|Contingent loans                                | 203,110                 |                       
|Interbank loans                                 | 6,369                   |                       
|Financial investments                           | 378,769                 | 429,100                
|Leasing contracts                               |                        | 58,931                 
|Other assets                                    | 105,084                 |                       
|                                                |                         |                        
|Total assets                                    | 1,728,387               | 541,478                
|                                                |                         |                        
|                                                |                         |                        
|LIABILITIES                                     |                         |                        
|Deposits                                        | 1,274,470               | 1,200                  
|Contingent liabilities                          | 203,350                 |                       
|Borrowings from domestic financial institutions | 8,941                   |                       
|Foreign borrowings                              | 515,413                 |                       
|Other liabilities                               | 187,799                 | 5,135                  
|                                                |                         |                        
|Total liabilities                               | 2,189,973               | 6,335                  
|                                                |                         |                        
|                                                |                         |                        
|NET (LIABILITIES) ASSETS                        | (461,586)               | 535,143                
|                                                |                         |                        

F-32

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

21.  Income Taxes

The Bank has recorded
the effects of deferred taxes on its  consolidated  financial  statements in accordance
with Technical  Bulletin No.60 and the related  amendments there to issued by the Chilean
Association of Accountants.

As described in these
 accounting  standards,  beginning  January 1, 1999, the Bank  recognized  the
 consolidated  tax effects  generated by the temporary  differences  between financial
and tax values of assets and  liabilities.  At the same date,  the net deferred tax
 determined  was completely  offset  against a net  complementary  account.  Such
complementary  deferred tax balances are being amortized over the estimated  reversal
periods  corresponding to the underlying  temporary  differences as of January 1, 1999.
The net balance to be amortized as of December 31, 2002 was MCh$811,  and as of December
31, 2003 was  MCh$(467).  In accordance  with Technical  Bulletin N° 60,  deferred tax
asset and liability amounts are presented on the balance sheet net of the related
 unamortized  complementary  account balances in the balance sheet. The  corresponding
 movements and effects of which are as follows:

|                                                              | Balance as of |               |                | Balance as of
|------------------------------------------------------------- | ------------- | ------------- | -------------- | -------------
|                                                              | December      | 2003          | 2003           | December     
|                                                              | 31, 2002      | Amortizations | Deferred taxes | 31, 2003     
|                                                              | (1)           |               |                |              
|                                                              |              
|                                                              | MCh$          | MCh$          | MCh$           | MCh$         
|Deferred tax assets                                          
|                                                              |               |               |                |              
|Obligations with repurchase agreements                        | 25,393        |              | 16,682         | 42,075       
|Global allowances for loan losses                             | 21,733        |              | (2,088)        | 19,645       
|Leasing equipment                                             | 5,198         |              | 3,319          | 8,517        
|Voluntary allowances for loan losses                          | 3,392         |              |               | 3,392        
|Charge-offs from financial investment                         | 2,312         |              | (1,981)        | 331          
|Accrued interests and readjustments from risky loan portfolio | 1,674         |              | 262            | 1,936        
|Staff vacations                                               | 1,321         |              | 25             | 1,346        
|Accruals interest and readjustments from past due loans       | 1,060         |              | (253)          | 807          
|Personnel provisions                                          | 908           |              | 596            | 1,504        
|Assets at market value                                        | 773           |              | 1,055          | 1,828        
|Staff severance indemnities                                   | 671           |              | 9              | 680          
|Other adjustments                                             | 8,335         |              | 1,594          | 9,929        
|                                                              |               |               |                |              
|Total                                                         | 72,770        |              | 19,220         | 91,990       
|Complementary account balance                                 | (2,735)       | 2,209         |               | (526)        
|                                                              |               |               |                |              
|Net assets                                                    | 70,035        |               |                | 91,464       
|                                                              |               |               |                |              
|                                                              |               |               |                |              
|Deferred tax liabilities                                      |               |               |                |              
|                                                              |               |               |                |              
|Investments with repurchase agreements                        | 24,548        |              | 17,016         | 41,564       
|Depreciation and price-level restatement of fixed assets      | 4,031         |              | 1,276          | 5,307        
|Transitory assets                                             | 1,346         |              | (234)          | 1,112        
|Other adjustments                                             | 1,993         |              | (733)          | 1,260        
|                                                              |               |               |                |              
|Total                                                         | 31,918        |              | 17,325         | 49,243       
|Complementary account balance                                 | (1,932)       | 939           |               | (993)        
|                                                              |               |               |                |              
|Net liabilities                                               | 29,986        |               |                | 48,250       
|                                                              |               |               |                |              

______________


|(1) | For
presentation purposes, deferred income tax balances as of December 31, 2002 are presented
on a historical basis. For comparison purposes, price-level       restated amounts for
2002 correspond to MCh$ 70,735 for net deferred tax assets and MCh$ 30,286 for net
deferred tax liabilities.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-33

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

21.  Income Taxes
(continued)

Income taxes as
presented in the Consolidated Statements of Income for the years ended December 31, 2001,
2002 and 2003 are summarized as follows:

|                                                               | Years ended December 31,
|-------------------------------------------------------------- | ------------------------
|                                                               |                         
|                                                               | 2001                    
|                                                               | MCh$                    
|                                                              
|Current income tax provision                                   | (3,151)                 
|Amortization of complementary accounts                         | 2,853                   
|Deferred tax effect for the year                               | 2,018                   
|Deferred taxes from previous year                              |                        
|Income tax (reassessment of previous year)                     | (243)                   
|Non-deductible expenses Art. 21                                | (71)                    
|Tax benefit related to absorption of tax losses carry forwards |                        
|                                                               |                         
|Income taxes benefit (expense)                                 | 1,406                   
|                                                               |                         

22.  Commitments
and contingencies

In the ordinary course
of business, the Bank acts as defendant or co-defendant in various litigation matters.
 Although there can be no assurances,  the Bank believes,  based on information
 currently  available,  that the ultimate  resolution of these legal  proceedings would
not be likely to have a material adverse effect on its results of operations, financial
condition, or liquidity.

The Bank is party to
transactions  with off-balance sheet risk in the normal course of its business,  which
exposes the Bank to credit risk in addition to amounts  recognized in the consolidated
 financial  statements.  These transactions  include commitments to extend credit not
otherwise accounted for as contingent loans, such as overdrafts and credit card lines of
credit.  Such commitments are agreements to lend to a customer at a future date, subject
to compliance with the contractual  terms. Since a substantial  portion of these
 commitments is expected to expire without being drawn on, the total  commitment  amounts
do not  necessarily  represent  actual future cash  requirements of the Bank. The amounts
of these loan  commitments are MCh$432,875  and  MCh$578,538  and the amounts of
subscribed  leasing  contracts are MCh$41,847 and MCh$40,190 as of December 31, 2002 and
2003, respectively.

23.  Fiduciary
Activities

The following items
are recorded in memorandum accounts by the Bank and represent fiduciary safekeeping and
custody services:

|                                                            | As of December 31,
|----------------------------------------------------------- | ------------------
|                                                            |                   
|                                                            | 2002              
|                                                            | MCh$              
|Securities held in safe custody                             | 3,754,094         
|Amounts to be collected on behalf of domestic third parties | 153,697           
|Amounts to be collected on behalf of foreign third parties  | 347,327           
|Administration of assets                                    | 38                
|                                                            |                   
|Total fiduciary activities                                  | 4,255,156         
|                                                            |                   

F-34

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

24.  Concentrations
of Credit Risk

Concentrations  of
credit risk (whether on or off-balance  sheet)  arising from financial  instruments
 exist in relation to certain groups of customers.  A group  concentration arises when a
number of parties have similar  economic  characteristics  that would cause their ability
to meet  contractual  obligations to be similarly  affected by changes in economic or
other conditions.  The Bank does not have a significant exposure to any customer or
counterparty.

Counterparty risk

The Bank maintains a
series of deposits,  investments purchased under agreements to resell,  forward contract
agreements and other financial instruments with institutions in the Chilean banking
 sector.  The principal  counterparties  within the Chilean  banking  sector,  excluding
the Central Bank, and the Banks related  exposure to credit risk, as of December 31,
2002 and 2003 are as follows:

|                               | Credit Risk       
|------------------------------ | ------------------
|                               | As of December 31,
|                               |                   
|Bank                           | 2002              
|                               | MCh$              
|Banco del Estado de Chile      | 3,069             
|Banco Santander- Santiago      | 3,921             
|Banco de Crédito e Inversiones | 826               
|BBVA Banco Bhif                | 4,423             
|Banco Bice                     | 64                
|ABN Amro Bank (Chile)          | 767               
|JP Morgan Chase Bank           | 709               
|BankBoston N.A                 | 1,154             
|Banco Security                 | 1,180             
|Banco del Desarrollo           | 650               
|Scotiabank Sud Americano       | 60                
|Citibank N.A                   | 175               
|Corpbanca                      | 3,101             
|HSBC Bank USA                  | 162               
|Others                         | 736               

The Bank maintains a
policy of placing  deposits with a number of different  financial  institutions  and does
not believe that any one of these banks represents an unacceptable credit risk. The Bank
does not usually require collateral from these counterparties.

25.  Sales and
Purchases of Loans

From time to time, the
Bank does sell and purchase loans based on specific  requirements  from customers.
 During the years ended December 31, 2001, 2002 and 2003, the Bank sold loans totaling
MCh$1,316,  MCh$11,658 and MCh$15,286,  respectively,  however,  the Bank does not
originate loans for future sale. The Bank did not retain servicing or any other interest
in the loans sold or retains any risks in the event of non-collection  by the purchaser.
 During the year ended December 31, 2003, the Bank purchased loans amounting to
MCh$11,437.  During  prior  years the Bank did not  purchased  loans.  Any gains or
losses on such  transactions  are  recognized  in  results of  operations  at the time of
the transactions.

The aggregate gains on
sales of loans were MCh$6, MCh$86 and MCh$ for the years ended December 31, 2001, 2002
and 2003, respectively.

F-35

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

26.  Maturity of
Assets and Liabilities

The maturity dates of
assets and liabilities are shown in the following table including accrued interest as of
December 31, 2003.

|                                                          | As of December 31, 2003 |                                    
|--------------------------------------------------------- | ----------------------- | -----------------------------------
|                                                          |                         |                                    
|                                                          | Due within 1 year       | Due after 1 year but within 3 years
|                                                          |                        
|                                                          | MCh$                    | MCh$                               
|ASSETS                                                    |                         |                                    
|Loans (1)                                                 | 2,876,111               | 1,048,747                          
|Securities (2)                                            | 1,907,360               | 8,636                              
|                                                          |                        
|Total                                                     | 4,783,471               | 1,057,383                          
|                                                          |                        
|                                                          |                         |                                    
|LIABILITIES                                               |                         |                                    
|Deposit and other obligations (3)                         | 3,215,921               | 38,320                             
|Mortgage finance bonds                                    | 84,397                  | 175,342                            
|Bonds                                                     | 26,476                  | 40,330                             
|Chilean Central Bank borrowings:                         
|Central Bank credit lines for renegotiations of     loans | 2,975                   |                                   
|Other Central Bank borrowings                             | 24,906                  |                                   
|Borrowings from domestic financial     institutions       | 49,882                  |                                   
|Foreign borrowings                                        | 698,207                 | 13,142                             
|Other obligations                                         | 50,699                  | 2,618                              
|                                                          |                        
|Total                                                     | 4,153,463               | 269,752                            
|                                                          |                        

___________________


|(1) | Excludes
contingent loans, overdue loans (1-89 days) and past due loans (90 days or more).
|--- | ------------------------------------------------------------------------------------------

|(2) | Excludes
 unrealized  losses on  permanent  financial  investments  included  in equity of
 MCh$3,474  and MCh$328  for the years  ended  December  31,  2002 and 2003
 respectively.  In  accordance  with         Superintendency of Banks trading investments
are classified as due within 1 year.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Excludes
demand deposit accounts, saving accounts, investments sold under agreements to repurchase
and contingent liabilities.
|--- | ------------------------------------------------------------------------------------------------------------------------------

27.  Subsequent
Events

On January 1, 2004,
and in accordance with Circular No. 3,246 of the Superintendency of Banks and Financial
 Institutions,  became effective the new standards on determination of Loan Loss
Provisions  established in Chapter 7-10 of this  Superintendencys  accounting  rules.
 Based on an analysis  performed by the Banks  Management,  the application of this new
criteria for determining  provisions is not expected to have a significant  effect on the
financial  situation,  results of operations or cash flows of the Bank and its
subsidiaries  presented in these consolidated financial statements.

In the opinion of Banks
 Management as of the date in which these  consolidated  financial  statements  were
issued there are no  significant  subsequent  events that affect or that could affect the
consolidated financial statements of the Bank as of December 31, 2003.

F-36

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles

The following is a
description of the significant  differences between accounting  principles as prescribed
by the Superintendency of Banks and accounting  principles  generally accepted in Chile
(collectively Chilean GAAP), and accounting principles generally accepted in the United
States of America (U.S. GAAP).

As explained in Notes
1 (a) and 15,  effective  January 1, 2002, the Bank merged with Banco de A. Edwards,  an
entity under the common control of Quiñenco S.A.  (Quiñenco),  a Chilean holding
company. In accordance with merger accounting under Chilean GAAP at that time, the
financial  statements  presented as of December 31, 2001 and for the year then ended are
those of Banco de Chile, the acquiring bank, giving no retroactive effect to the merger.
 Following the accounting  requirements under U.S. GAAP, information presented in this
note has been  restated to reflect the merger with Banco de A.  Edwards as from March 27,
 2001,  the first date in which  control of both of these banks was held by the common
parent.  U.S. GAAP  information for the period between January 1, 2001 and March 27, 2001
reflects the financial  information of Banco de A. Edwards,  the bank previously
controlled by Quiñenco.  Paragraph (a) below provides a description of the merger with
Banco de A. Edwards and provides  combined  financial  statement  information based on
the respective consolidated financial statements of the individual consolidated banks
prepared under Chilean GAAP.

References below to SFAS are
to United States  Statements of Financial  Accounting  Standards.  Pursuant to Chilean
GAAP, the Banks  financial  statements  recognize  certain effects of inflation.  In
addition,  the Bank translates the accounting  records of its branch in New York, USA and
its agency in Miami,  USA to Chilean pesos from US dollars in accordance with guidelines
 established by the Superintendency of Banks, which are consistent with Technical
Bulletin No64,  "Accounting for investments  Abroad",  issued by the Chilean  Association
 of  Accountants.  In the opinion of the Bank,  this foreign  currency  translation
 methodology  forms part of the  comprehensive  basis of  preparation of price-level
 adjusted  financial  statements  required by Chilean  GAAP.  Inclusion  of inflation
 and the effects of  translation  in the  accompanying  consolidated  financial
statements under the Chilean accounting  standard in the financial  statements is
considered  appropriate under the inflationary  conditions that have historically
 affected the Chilean economy even though the cumulative  inflation rate for the last
three years does not exceed 100% and,  accordingly have not been eliminated in the
reconciliation to U.S. GAAP included under paragraph (t) below.

(a) Merger of
entities under common control

Under Chilean GAAP,
 the merger  between Banco de Chile and Banco de A. Edwards was accounted for as a pooling
of interests on a prospective  basis.  As such,  the  historical financial  statements
for periods prior to the merger are not restated and Banco de Chile is considered to be
the  continuing  entity for legal and  accounting  purposes.  Under U.S. GAAP, the merger
of the two banks is accounted for as a merger of entities under common control.  As LQ
Inversiones  Financieras,  a holding company  beneficially  owned by Quiñenco has
 controlled  both Banco de Chile and Banco de A. Edwards since March 27, 2001,  Banco de
Chile was required to restate its  previously  issued U.S. GAAP  historical financial
 statements  to  retroactively  reflect the merged bank as if Banco de Chile and Banco de
A. Edwards  (hereafter  referred to as the Merged  Bank) had been  combined throughout
 the periods  during which common  control  existed.  Therefore  from the period from
March 27, 2001 to January 1, 2002,  U.S.  GAAP  reflects the merger as if it had already
happened,  incorporating two banks, while under Chilean GAAP for the same period only the
historical  financial  information of Banco de Chile is presented in the income
statement.  Furthermore,  under U.S. GAAP, for periods prior to March 27, 2001, the
information  presented in the financial  statements is that of Banco de A. Edwards, as it
had been under Quiñencos control since September 2, 1999.

F-37

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(a) Merger of
entities under common control (continued)

As discussed  above,
 information  presented under Chilean GAAP for the year ended December 31, 2001 includes
only Banco de Chile,  while under U.S. GAAP the Bank is required to present the
historical  financial  statement  information of Banco de A. Edwards for the period
between  January 1, 2001 and March 26, 2001.  Furthermore  for the period between March
27, 2001 and December 31, 2001 under U.S. GAAP the banks are presented on a combined
basis. The effect of combining the banks using the respective  consolidated  financial
statements  prepared in accordance  with Chilean  GAAP, in order to present  comparable
 initial  shareholders  equity  balances and results from  operations of the  applicable
entities prior to the inclusion of any adjustments to U.S. GAAP of the combined bank, is
included in paragraph (t) below.

(b) Push Down
Accounting

As described  above,
 under  Chilean  GAAP,  the merger of Banco de Chile and Banco de A. Edwards is accounted
 for as a pooling of interests  beginning  January 1, 2002 with no retroactive
restatement of historical financial statements or carrying values prior to the merger.

Under U.S. GAAP, when
accounting for a merger of entities under common control,  the book values of the merging
 entities that are held in the books of the common parent must be pushed down to the
merged entity.  This means that goodwill  previously  created in the books of Quiñenco,
 the transferring  entity,  at the time that it acquired each bank and also any fair
value  differences  created from those purchases must be included in the U.S. GAAP
accounting  records of the Merged Bank. In practice this means that the goodwill and fair
value  adjustments  created from Quiñencos  purchases of Banco de A. Edwards during
 September and October,  1999 and from Quiñencos  purchases of Banco de Chile made
during 1999,  2000 and March 2001 are pushed down to the merged  entity.  As this
treatment  does not apply in Chilean GAAP,  there is a significant  difference in the
asset and liability bases under each body of accounting principles.

Quiñenco acquired
Banco de A. Edwards,  through step acquisitions  between September 2, 1999 and October
26, 1999. There were no additional share  transactions  between 1999 and the date of the
merger. Similarly, Quiñenco acquired Banco de Chile through step acquisitions between
October 1999 and March 27, 2001.

Under U.S. GAAP,
 acquisitions  that are accounted for using the purchase  method of accounting  result in
the  identifiable  assets and  liabilities of the acquired bank being  adjusted to their
fair values in the consolidated  financial statements of the acquirer.  Adjustments to
assets acquired and liabilities assumed to fair value and recording the  fair values of
unrecognized  intangible assets are generically  referred to as purchase accounting
 adjustments.  As a result of its acquisitions of Banco de Chile and Banco de  A.
Edwards, the Quiñenco recorded purchase accounting adjustments to reflect differences
related to:

- the
fair value of intangible assets, including brand names and long-term
customer-relationship intangible (core deposit intangibles);
- the
fair values of loans, excluding any adjustments in the acquiree's historical allowance
for loan losses or other contingent liabilities;
- the
accounting for staff severance liabilities;
- the
fair value of bank premises and equipment and other

F-38

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(b) Push Down
Accounting (continued)

Such purchase
 accounting  adjustments and goodwill and any equity method investments or equity
 participation in the results of operations of the acquired banks recorded by the common
parent,  must be recorded in the U.S. GAAP accounting  records of the Merged Bank. The
effects of accounting for the push down of these purchase  accounting  adjustments,
goodwill and any equity  participation  in the results of operations of the acquired
banks into the  accounting  records of the Merged Bank and their  subsequent  effects on
net income is included in paragraphs (t) and (u), below.

(c)  Acquisition of
Banco de A. Edwards

The pooling of
interests method under Chilean GAAP is based on summing the two banks together using
their historical book values and eliminating any inter-bank  balances.  Under U.S. GAAP,
to the extent that the banks were under common  control,  the assets and liabilities of
Banco de A. Edwards were  transferred  into Banco de Chile using the U.S. GAAP carrying
values of such assets and liabilities  included in the records of the common parent.
 However,  as Quiñenco only owned 51.18% of Banco de A. Edwards, to the extent that the
minority interest of Banco de A. Edwards was acquired, through the issuance of Banco de
Chile shares, Banco de Chile is considered to be the acquirer.

Therefore,  Banco de
Chile  calculated  goodwill based on the  difference  between the purchase price (i.e.
the market value of the shares issued by Banco de Chile) and the fair value of the
proportion of assets and liabilities  acquired at the date of the merger.  As part of
this process,  under U.S. GAAP,  Banco de Chile was also required to value the interest
 acquired of  previously  unrecorded  intangible  assets,  such as the Banco de Edwards
 brand name and core  deposit  intangibles,  and to include  these assets in the
financial records of the Merged Bank. Such assets are not recorded under Chilean GAAP.

As a consequence of
the merger between Banco de Chile and Banco de A. Edwards,  Banco de Chile issued
 23,147,126,425 shares in exchange for all the outstanding common shares of Banco de A.
Edwards  using an exchange  ratio of  3.135826295  Banco de Chile shares for each Banco
de A. Edwards  share.  Under U.S.  GAAP Banco de Chile is  considered to have acquired
48.82% of the  outstanding  shares in Banco de A. Edwards,  which  correspond to those
shares that Quiñenco did not own as of that date. The acquisition of these shares has
been accounted for using purchase  accounting as described in the preceding  paragraph.
 The  consideration  paid has been determined using an average of the market value of the
 publicly  traded  Banco de Chile  shares,  which at January 1, 2002 was Ch$ 25.11017
 (historical  Chilean  pesos) per share,  and certain  merger  expenses as described in
paragraph (s) below.

In connection with the
 determination  and accounting for such assets and liabilities  under U.S. GAAP,  Banco
de Chile is required to record the fair value of the proportion of assets and
 liabilities  acquired at the date of the merger.  As part of this  process,  under U.S.
 GAAP,  Banco de Chile was also  required to value the  interest  acquired of previously
 unrecorded  intangible assets, such as the Banco de Edwards brand name, and to include
these assets in the financial records of the merged bank. Such assets were not recorded
under Chilean GAAP.

F-39

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(c)  Acquisition of
Banco de A. Edwards (continued)

Under U.S. GAAP,
purchase allocation of the 48.82% participation acquired from shareholders other than Quiñenco
and its subsidiaries as of January 1, 2002 was as follows:

|                                                              | MCh$     
|------------------------------------------------------------- | ---------
|                                                              |          
|Net book value of Banco de A. Edwards                         | 121,571  
|Incremental fair value of identified intangible assets (1)(2) | 31,458   
|Fair value decrement of identified net assets acquired        | (45,363) 
|                                                              |          
|Fair value of Banco de A. Edwards                             | 107,666  
|                                                              |          
|Purchase price                                               
|Market value of Banco de Chile shares issued                  | (295,192)
|Direct costs of acquisition                                   | (1,187)  
|                                                              |          
|Goodwill                                                      | (188,713)
|                                                              |          

|(1) | Core
deposit intangibles resulting from the acquisition amounted to MCh$28,014 and are being
amortized over the estimated run-off period by product of the                   acquired
customer base at the date of purchase.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Brand
name intangibles resulting from the acquisition amounted to MCh$3,444 and are being
amortized over 10 years.
|--- | ------------------------------------------------------------------------------------------------------------------

The following table
summarizes the estimated fair values of the assets acquired and liabilities assumed at
the date of acquisition.

|                                   | As of January 1,2002
|---------------------------------- | --------------------
|                                   |                     
|                                   | MCh$                
|                                   |                     
|Cash and due from banks            | 123,882             
|Financial investments              | 183,036             
|Loans, net                         | 1,061,509           
|Intangibles                        | 31,458              
|Other                              | 85,024              
|                                   |                     
|Total assets acquired              | 1,484,909           
|                                   |                     
|                                   |                     
|Deposits                           | 841,942             
|Other interest bearing liabilities | 461,920             
|Other liabilities                  | 73,381              
|                                   |                     
|Total liabilities assumed          | 1,377,243           
|                                   |                     
|Net assets acquired                | 107,666             
|                                   |                     

Of the MCh$31,458 of
acquired  intangible  assets,  MCh$28,014 was assigned to core deposits that is subject
to amortization  (using an estimated rate that the bank's  customers are expected to
leave the bank in future years, based on a historical  analyses  performed by the Bank),
and MCh$3,444 has been assigned to a registered  trademark that is being amortized on a
straight-line basis over an estimated 10 year useful life.

The Bank does not
amortize goodwill related to the acquisition of Banco de A. Edwards, following the
provisions of SFAS No. 142, as described in paragraph (d) below.

F-40

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(d) Amortization of
Goodwill and Intangible Assets

The Bank adopted
 Statement of Financial  Accounting  Standard No. 142,  Goodwill  and Other  Intangible
 Assets,  (SFAS 142) as of January 1, 2002.  SFAS 142 applies to all goodwill and
identified intangible assets acquired in a business  combination.  Under the new
standard,  beginning January 1, 2002, all goodwill,  including that acquired before
initial  application of the standard,  and  indefinite-lived  intangible  assets are not
amortized,  but must be tested for impairment at least annually.  Under the transitional
provisions of SFAS 142 goodwill generated in purchase transactions subsequent to June 30,
2001 were not amortized during the year ended December 31, 2001.

The Bank has performed
the  impairment  test of goodwill  required by the standard,  which did not result in any
 impairment.  Under Chilean GAAP,  the Bank does not present any goodwill as of December
31, 2003. Under U.S. GAAP, the carrying value of goodwill,  net of accumulated
 amortization,  related to the 1999 acquisitions of Leasing Andino,  Banco de A. Edwards
and the push-down of goodwill from Quiñenco,  described in paragraphs (q), (c) and (b) to
this note,  respectively,  were MCh$1,872  MCh$188,712  and  MCh$361,504, respectively.

The table below
presents the allocation of the total carrying value of goodwill by segments of the Bank:

|Business Segments     | MCh$   
|--------------------- | -------
|                      |        
|                      |        
|Large Corporate       | 207,098
|Middle Market         | 117,970
|Retail Banking        | 154,421
|International Banking | 39,011 
|Treasury              | 10,625 
|Subsidiaries          | 22,963 
|                      |        
|Total goodwill        | 552,088
|                      |        

The table below
 presents the reported net income and adjusted  earnings  per share  amounts that would
have been for the year ended  December 31, 2001 if  amortization  expense recognized in
that period related to goodwill had been excluded:

|                                | 2001       
|------------------------------- | -----------
|                                | MCh$       
|                                | (Unaudited)
|                                |            
|                                |            
|Reported net (loss) income      | 50,260     
|Add back: Goodwill amortization | 12,456     
|                                |            
|Adjusted net (loss) income      | 62,716     
|                                |            
|Earnings per share, adjusted    | 1.09       
|                                |            

(e) Loan
Origination Commissions and Fees

Under Chilean GAAP, as
from January 1, 2000, Banco de A. Edwards began  recognizing loan origination and service
fees and costs over the term of loans to which they relate,  and the period that the
services are performed.  Banco de Chile began applying this accounting  treatment  during
2001 for loan  origination and service fees and certain costs,  and from January 1, 2002
for those related costs  previously not considered.  Prior to this accounting  change,
 loan origination and service fees were recognized when collected and related direct
costs when incurred.

F-41

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(e) Loan
Origination Commissions and Fees (continued)

Under Statement of
Financial  Accounting  Standard No. 91,  Accounting for Nonrefundable  Fees and Costs
Associated with Origination of Acquiring Loans and Initial Direct Costs of Leases,  loan
 origination  fees and certain direct loan  origination  costs should be recognized over
the term of the related loan as an adjustment to yield. As of December 31, 2002, the
accounting treatment applied under Chilean GAAP is considered similar to U.S. GAAP.

The effect of
accounting for net loan origination fees in accordance with U.S. GAAP is included in the
 reconciliation  of consolidated  net income and  shareholders  equity in paragraph (t)
below.

(f) Deferred Income
taxes

Under Chilean GAAP,
 prior to 1999, the Merged Bank did not record the effects of deferred  income taxes.
 Effective  January 1, 1999, and in accordance  with the new accounting standard under
Chilean GAAP, the Merged Bank was required to record the effects of deferred tax assets
and liabilities  based on the liability  method,  with deferred tax assets and
liabilities  established for temporary  differences  between the financial reporting
basis and the tax basis of the Merged Banks assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized.  As a  transitional  provision
to reduce the impact of adoption of this  standard,  the banks were permitted to record a
contra  ("complementary")  asset or liability as of the date of implementation of the new
accounting  standard,  January 1, 1999, related to the effects of deferred income taxes
from prior years.

These  complementary
 assets and liabilities are to be amortized over the estimated period of reversal of the
temporary  differences that generate the future income tax asset or liability.

Under Statement of
Financial  Accounting Standard No. 109,  Accounting for Income Taxes,  income taxes are
recognized using the liability method in a manner similar to Chilean GAAP. The effects of
recording  deferred income taxes and the elimination of the  complementary  assets and
liabilities  and their  respective  amortization  are included in the reconciliation of
consolidated net income and shareholders equity in paragraph (t) below.

Additional disclosures
required under SFAS No. 109 are further described in paragraph (w) below.

(g) Investments in
other companies

As shown in Note 9,
certain long-term  investments of less than 20% of the outstanding shares in other
companies have been recorded using the equity method of accounting.  Under U.S. GAAP
these  investments  would generally be accounted for at cost less any  non-temporary
 impairment in value. The effect of recording these assets in accordance with U.S. GAAP
is included in the  reconciliation  of consolidated  net income and  shareholders'
 equity in paragraph (t) below.  For 2001, in those cases where each individual bank held
less than 20% of an investment but on a combined basis the Merged Bank held more than
20%, such investments have been restated and  retroactively  accounted for under the
equity method.

F-42

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(h) Repurchase
agreements

The Bank enters into
 repurchase  agreements  as a source of finance.  In this regard,  under  Chilean  GAAP
the Bank's  investments  that have been sold  subject to  repurchase agreements are
reclassified from their investment  category to investment  collateral under agreements
to repurchase.  Under U.S. GAAP, no such  reclassification  is made since, in substance,
 the investment  securities serve only as collateral on the borrowing.  For purposes of
the Article 9 consolidated  balance sheets included in paragraph (v) below, investments
that collateralize such borrowings are shown as trading investments.

(i) Interest income
recognition on non-accrual loans

The Bank suspends the
accrual of interest on loans when it is determined to be a loss or when it becomes past
due.  Previously  accrued but uncollected  interest is not reversed at the time the loan
ceases to accrue interest.

Under U.S. GAAP,
 recognition of interest on loans is generally  discontinued when, in the opinion of
management,  there is an assessment that the borrower will likely be unable to meet all
 contractual  payments as they become due. As a general  practice,  this  occurs  when
loans are 90 days or more  overdue.  Any accrued but  uncollected  interest is reversed
against interest income at that time.

In addition,  under
Chilean GAAP, any payment  received on past due loans is treated as income to the extent
that accrued  interest is due, but has not been recorded because the status of the loan,
 after reducing any recorded accrued  interest  receivable.  Any remaining  amount is
then applied to reduce the outstanding  principal  balance.  Under U.S. GAAP, any payment
received on loans when the  collectibility  of the principal is in doubt is treated as a
reduction of the outstanding  principal balance of the loan until such doubt is removed.
 The effect of the difference in interest recognition on non-accrual loans is not
material to the Banks financial position and results of its operations.

(j) Contingent
assets and liabilities

Under Chilean GAAP the
Bank recognizes  rights and obligations with respect to contingent  loans as contingent
 assets and liabilities.  These  transactions  consist of open and unused letters of
credit,  together with guarantees  granted by the Bank. Under U.S. GAAP, most of these
contingent amounts are not recognized on the balance sheet. If U.S. GAAP had been
followed,  the total assets and  liabilities  of the Bank would have been lower by
MCh$385,585  and  MCh$409,638  as of December 31, 2002 and 2003,  respectively.  This
reclassification is included in the Article 9 consolidated balance sheets in paragraph
(v) below.

For guarantees,  in
accordance to FASB Interpretation No. 45, Guarantors Accounting and Disclosure
 Requirements for Guarantees,  Including Indirect Guarantees of Indebtedness of Others (FIN
No. 45), a guarantor is required to  recognize,  at the inception of a guarantee,  a
liability for the fair value of the  obligation  undertaken in issuing the guarantee.
 The most significant  instruments  impacted for the Bank are performance  bonds,  stand
by letters of credit and foreign office  guarantees.  The required FIN No. 45 disclosures
have been incorporated into paragraph (ad), below. The impact of adoption was not
material to the Banks results of operations, financial position or cash flows.

(k) Allowance for
loan losses

The determination of
the allowance for loan losses and disclosure requirements under U.S. GAAP differs from
that under Chilean GAAP in the following respects:

1) Allowance for loan
losses

Under Chilean GAAP,
the allowance for loan losses is calculated  according to specific  guidelines set out by
the rules of the  Superintendency  of Banks, as described in Note 1 (j).

F-43

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(k) Allowance for
loan losses (continued)

Under U.S. GAAP
 allowances for loan losses should be in amounts  adequate to cover inherent  losses in
the loan  portfolio at the respective  balance sheet dates.  The Bank has estimated its
required reserve under U.S. GAAP in the following manner:

- Allowances
for commercial loans and leasing  operations  classified in loan risk category A or B,
which were not considered  impaired under Statement of Financial         Accounting
 Standard No. 114,  Accounting by Creditors for Impairment of a Loan ("SFAS No. 114"),
 were analyzed and adjusted,  if necessary,  to reflect the estimated         losses not
identified  based on individual  credit  analysis.  The estimations were performed using
historical loan data, in order to estimate the inherent losses in the         Banks loan
portfolio, using patterns and trends based upon historical changes in loan
classifications (migration analysis).

- In
addition, specific allowances were determined for loans on the following basis:

| | i)
            Commercial loans and leasing  operations  greater than MCh$85,  which were
considered  impaired in accordance with the criteria  established by SFAS No. 114, were
            valued at the present value of the expected future cash flows discounted at
the loan's effective  contractual  interest rate, or at market rates in the case of those
            loans that were considered to be collateral dependent.


ii)
           Allowances for commercial loans and leasing  operations which were under
MCh$85 (i.e. those loans,  which were considered  impaired but were not considered in the
            above SFAS No. 114 analysis), were calculated using the weighted average loan
provision, by loan classification, as determined in paragraph (k) i).


iii)
          Allowance for loan losses for mortgage and consumer loans were determined
 based on historical loan  charge-offs,  after  considering  the  recoverability  of the
            underlying collateral.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Based on the
 preceding  estimation  process the Bank  computed its allowance  for loan losses under
U.S.  GAAP,  and compared this estimate with the reported  allowance for the combined
banks determined in accordance with the guidelines  established by the  Superintendency
 of Banks.  The voluntary loan loss allowance for the combined banks,  permitted under
Chilean GAAP, was then deducted from the reserve  requirements  determined in accordance
 with U.S. GAAP to arrive at a cumulative  U.S. GAAP  adjustment to  Shareholdersequity,
as follows:

|                                                                                       | As of December 31,
|-------------------------------------------------------------------------------------- | ------------------
|                                                                                       |                   
|                                                                                       | 2002              
|                                                                                       | MCh$ (1)          
|                                                                                       |                   
|U.S. GAAP loan loss reserve                                                            | 196,539           
|Less: Chilean GAAP loan loss allowance as required by the Superintendency of     Banks | (197,439)         
|Chilean GAAP voluntary loan loss allowance                                             | (20,763)          
|                                                                                       |                   
|U.S. GAAP adjustment                                                                   | (21,663)          
|                                                                                       |                   

___________________


|(1) | A
reclassification of MCh$(49) was made to the 2002 Chilean GAAP amounts in order to
conform with the 2003 presentation.
|--- | ------------------------------------------------------------------------------------------------------------------------

The effects of
applying SFAS No. 114 are included in the reconciliation included in paragraph (t) below.

F-44

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(k) Allowance for
loan losses (continued)

2)
Recognition of income

As of December  31,
2001,  2002 and 2003 the  recorded  investment  in loans for which  impairment  had been
 recognized  in  accordance  with SFAS No.114  totaled  MCh$403,023, MCh$416,147 and
MCh$323,012,  respectively,  with a corresponding valuation allowance of MCh$138,057
MCh$161,595 and MCh$172,372,  respectively. For the years ended December 31, 2001, 2002
and 2003 the average  recorded  investment in impaired loans was  MCh$360,225,
 MCh$397,780 and  MCh$341,974  respectively.  For the years ended December 31, 2002 and
2003,  the Bank  recognized  interest on impaired  loans of  MCh$60,401  and  MCh$122,936
 respectively.  Comparative  information  for the year ended  December  31, 2001 is not
available.  The Bank recognizes  interest on impaired loans on an accrual basis,  except
for past due loans for which the Bank recognizes  interest on a cash basis, as described
in paragraph (i) above. As of December 31, 2002 and 2003, the Bank had made provisions
against all loans which it considered to be impaired.

3)
Loan loss recoveries

Under U.S. GAAP
recoveries of loans previously charged-off are added to the allowance when received;
under Chilean GAAP such recoveries are recognized as other income.

The  following
 presents an analysis  under U.S.  GAAP of the changes in the allowance for loan losses
 during the periods  presented.  As described  above,  under U.S. GAAP all information
 presented as described in paragraph  (a) above,  as of and for the periods prior to
March 27, 2001 has been recast to that of Banco de A. Edwards as a result of the merger
of entities under common control.

|                                                                         | 2001     | 2002      | 2003    
|------------------------------------------------------------------------ | -------- | --------- | --------
|                                                                         | MCh$     | MCh$      | MCh$    
|Allowance for loan losses in accordance with U.S. GAAP, as of January 1, | 85,581   | 195,371   | 196,539 
|Price-level restatement (1)                                              | (5,188)  | (6,498)   | (2,748) 
|Incorporation of Banco de Chile, as of March 27, 2001                    | 100,217  |          |        
|Charge-offs                                                              | (52,871) | (112,075) | (96,132)
|Loan loss recoveries                                                     | 13,737   | 12,033    | 25,391  
|Provisions for loan losses established                                   | 62,292   | 132,436   | 28,824  
|Provisions for loan losses released                                      | (8,397)  | (24,728)  | (1,455) 
|                                                                         |         
|Balances as of December 31,                                              | 195,371  | 196,539   | 150,419 
|                                                                         |         

___________________


|(1) | Reflects
the effect of inflation and exchange rate changes of branches abroad on the allowance for
loan losses under Chilean GAAP at the beginning of each                period, adjusted
to constant pesos of December 31, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4)
Charge-offs

As discussed in Note 1
(j) of these  financial  statements,  under Chilean GAAP the Bank  charges-off  loans
when  collection  efforts have been  exhausted.  Under the rules and regulations
established by the Superintendency of Banks, charge-offs must be made within the
following maximum prescribed limits:

- 24 months after a
loan is past due (3 months after past due for consumer loans) for loans without
collateral;       - 36 months after a loan is past due for loans with collateral.

Under U.S. GAAP,
 loans should be  written-off in the period that they are deemed  uncollectible.  The
Bank believes that the charge-off  policies it applies in accordance  with Chilean GAAP
are substantially the same as those required under U.S. GAAP, and therefore that
differences are not significant to the presentation of its financial statements.

F-45

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(l) Mortgage
Finance Bonds Issued by the Bank

Until October 31,
2002, other financial  investments  include mortgage  finance bonds issued by the Bank
and held for future sale.  Effective  October 31, 2002 the Bank modified its accounting
 treatment of financial  investments in mortgage finance bonds issued by the Bank in
accordance with the instructions of the  Superintendency  of Banks,  reducing from assets
the amount recorded for mortgage finance bonds issued by the Bank,  including a market
value adjustment,  and from liabilities,  the respective mortgage finance bond obligation.

Under U.S. GAAP, this
accounting  treatment would have been always applied,  therefore,  other financial
 investments and the liability for mortgage finance bonds as of December 31, 2001 would
have been lower by MCh$158,730.  For the applicable periods this reclassification was
included in the Article 9 consolidated primary financial statements.

In addition,  as under
U.S. GAAP mortgage  finance bonds are offset  against the  corresponding  liability for
periods  before 2002,  the market value  adjustment  applied under Chilean GAAP before
the  accounting  change would not have been made under U.S.  GAAP.  The effects of this
 difference  between  Chilean and U.S. GAAP have been included in the reconciliation to
U.S. GAAP in paragraph (t) below.

(m) Investment
securities

Under Chilean GAAP the
Bank  classifies  certain  investments as permanent.  These  investments  are stated at
fair market value with  unrealized  gains and losses included in a separate component of
shareholders equity and with realized gains and losses included in other operating
results.

Under U.S. GAAP,
 Statement of Financial  Accounting Standard No. 115,  Accounting for Certain
 Investments in Debt and Equity Securities (SFAS No. 115),  requires that debt and
equity securities be classified in accordance with the Banks intent and ability to hold
the security, as follows:

- Debt securities that the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity  securities and are reported at amortized
               cost.
- Debt and equity  securities  that are bought and held by the Bank,  principally  for the  purpose of  selling  them in the near term,  are  classified  as trading
               securities and reported at fair value, with unrealized gains and losses included in earnings.
- Debt and equity  securities not  classified as either  held-to-maturity  securities or trading  securities  are  classified as  available-for-sale  securities and
               reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity.

Based upon these
 criteria,  the Bank has determined  that under U.S. GAAP,  its  investments  should be
classified as trading,  available-for-sale  and  held-to-maturity. Consequently,
 investments  classified as permanent are considered to be  available-for-sale  and all
other  investments are considered to be trading,  with the exception of certain Central
Bank securities and other investments,  maintained by the Banks branches in the United
States of America,  included in both categories,  which are classified as held-to-maturity.

Securities  maintained
 by the Bank's  branches  abroad and  Central  Bank  securities  classified  as  held-to-maturity  are
stated at fair  market  value.  Under U.S.  GAAP, held-to-maturity  investments are
stated at amortized  cost. The effect of eliminating the market value  adjustment for
these  investments is included in the  reconciliation  of consolidated net income and
shareholders equity in paragraph (t) below.

Investment  securities
 maintained by the Bank's subsidiaries are carried at the lower of price-level restated
cost or market value and are classified as "trading" for U.S. GAAP purposes.  The effect
of the difference in the valuation criteria for these investments is included in the
reconciliation of consolidated net income and shareholders  equity in paragraph (t)
below.

F-46

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(m) Investment
securities (continued)

(1)            Under
Chilean GAAP, the unrealized holdings gains (losses) related to investments  classified
as permanent have been included in Shareholders  equity, which does not differ from the
treatment of  "available-for-sale"  investments  under U.S. GAAP,  except for the
elimination of mortgage finance bonds issued by the Bank for 2001 and 2002, as discussed
in paragraph (l) above.

The following are
required disclosures for investments  classified as available-for-sale  in accordance
with SFAS No115 and the presentation  requirements of Article 9 (See note 28(v)), and
have been prepared using amounts determined in accordance with U.S. GAAP:

Realized  gains and
losses are  determined  using the  proceeds  from sales less the cost of the  identified
 investment  sold.  Gross  gains and losses  realized on the sale of available-for-sale
securities for the year ended December 31, 2001, 2002 and 2003 are as follows:

|                                                    | Years ended December 31,
|--------------------------------------------------- | ------------------------
|                                                    |                         
|                                                    | 2001                    
|                                                    | MCh$                    
|Proceeds on sale of investments resulting in gains  | 34,010                  
|Realized gains                                      | 1,528                   
|Proceeds on sale of investments resulting in losses | 12,054                  
|Realized losses                                     | 204                     

The carrying value and
market value of securities available-for-sale as of December 31, 2002 and 2003 are as
follows:

|                                               | Years ended December 31,
|---------------------------------------------- | ------------------------
|                                               |                         
|                                               | 2002                    
|                                               |                         
|                                               |                         
|Available-for-sale Instruments:                | Carrying 
Value (1)     
|                                               |                         
|                                               | MCh$                    
|Foreign private sector debt securities         | 40,112                  
|Foreign financial institutions debt securities | 1,299                   
|Government securities                          |                        
|Credit linked investments                      | 69,618                  
|Chilean private sector debt securities         |                        
|                                               |                         
|Total                                          | 111,029                 
|                                               |                         

___________________


|(1) | For
the purpose of this table, carrying values are based upon the historical cost of each
investment including applicable adjustments for price-level restatement.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-47

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(m) Investment
securities (continued)

The contractual
maturities of securities, classified by the Bank as available-for-sale, are as follows:

|                                        | As of December 31, 2003
|--------------------------------------- | -----------------------
|                                        |                        
|                                        |                        
|                                        |                        
|Available-for-sale Instruments:         | Within one year        
|                                        |                        
|                                        | MCh$                   
|                                        |                        
|U.S. Government debt securities private | 11,956                 
|Chilean private sector debt securities  |                       
|                                        |                        
|Estimated fair value                    | 11,956                 
|                                        |                        

|(2) | The
following  disclosures,  in addition to those  required  under Chilean GAAP,  are
required  disclosures  for  investments  classified as  held-to-maturity  in accordance
with SFAS No. 115:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | Years ended December 31,
|------------------------------- | ------------------------
|                                |                         
|                                | 2002                    
|                                |                         
|Held-to-maturity Instruments:   | AmortizedCost           
|                                |                         
|                                | MCh$                    
|                                |                         
|U.S. Government debt securities | 39,450                  
|Chilean Central Bank securities | 277,207                 
|Government securities           | 298                     
|                                |                         
|Total                           | 316,955                 
|                                |                         

The contractual
maturities of securities classified by the Bank as held-to-maturity are as follows:

|                                | As of December 31, 2003
|------------------------------- | -----------------------
|                                |                        
|Held-to-maturity Instruments:   | Within one year        
|                                |                        
|                                | MCh$                   
|                                |                        
|U.S. Government debt securities | 21,021                 
|                                |                        
|Estimated fair value            | 21,021                 
|                                |                        

|(3) | Under
U.S. GAAP, the Bank is required to disclose the amounts of unrealized  holding gains and
losses included in income on securities  classified as trading.  For the years ended
December 31, 2001, 2002 and 2003, the Bank recognized in income unrealized holding gains
(losses) of MCh$3,090 MCh$10,852 and MCh$(10,227) respectively, on these securities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-48

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(m) Investment
securities (continued)

During the third
quarter of 2002,  the Bank  determined  that its Argentine  available-for-sale
 securities  had declines in value that were  considered  other than  temporary,
 recording a charge to net income of  MCh$13,778  to record these  securities  at their
market values at that date.  Since that date, the market prices of some  securities have
improved;  however,  the resulting  unrealized  gains have been recorded in other
comprehensive income consistent with the accounting treatment for available-for-sale
securities.

(n) Derivatives

The Bank enters into
derivative  transactions  for its own account and to meet customers risk  management
 needs.  These  transactions are mainly foreign exchange forward  contracts,  which are
made in the most cases in US dollars against the Chilean peso or the UF and, from time to
time, in other  currencies but only when the Bank acts as an  intermediary,  in
accordance  with the  requirements  of the Central Bank that  requires that foreign
 exchange  forward  contracts be made only in US dollars and other major  foreign
 currencies. Other derivative  transactions include primarily interest rate swaps (paid
 fixed-received  floating) and rate lock. These are used for hedging  purposes in order
to manage,  among other risks,  U.S.  interest  rate risk  related to the Yankee bonds of
Chilean  companies bought by the Bank.

In order to manage
 any  credit  risk  associated  with its  derivative  products,  the Bank  grants  lines
of  credit  to  transaction counterparties,  in accordance with its credit policies, for
each derivative transaction.  The counterparty risk exposure is a function of the type of
 derivative,  the  term to  maturity  of the  transaction  and the  volatility  of the
 risk  factors  that  affect  the derivatives market value, which are managed by the
Bank on an on-going basis as market conditions warrant.

As explained in Note 1
(e), under Chilean GAAP the Bank accounts for forward contracts  between foreign
 currencies and U.S. dollars at fair value with realized and unrealized gains and losses
on these  instruments  recognized in other income.  Forward  contracts between the U.S.
 dollar and the Chilean peso or the U.F. are valued at the closing spot  exchange  rate
of each balance  sheet date,  with the initial  discount or premium being amortized over
the life of the contract in accordance with Chilean hedge  accounting  criteria.  The
losses  recognized in income under Chilean GAAP  associated  with these  contracts for
the years ended December 31, 2001, 2002 and 2003 were MCh$41,250,  MCh$24,572 and
MCh$35,385,  respectively.  The Banks interest rate swap agreements are treated as
 off-balance-sheet financial  instruments and the net interest effect,  which
 corresponds to the difference  between interest income and interest expense arising from
such  agreements,  is recorded in net income in the period that such differences
 originate,  except for interest rate and cross currency  swaps  designated as a hedge of
the foreign  investment  portfolio,  which are recorded at their  estimated fair market
values.

Beginning  January 1,
2001,  the Bank  adopted  Statement  of  Financial  Accounting  Standard  No.  133,
 "Accounting  for  Derivative Instruments  and Hedging  Activities",  as amended by
 Statement of  Financial  Accounting  Standard  No.138,  Accounting  for Certain
Derivative  Instruments  and Certain  Hedging  Activities - an amendment of FASB
Statement No. 133"  (collectively  SFAS 133),  which established  comprehensive
 accounting and reporting  standards for derivative  instruments,  including certain
derivative  instruments embedded in other contracts,  and hedging activities.  The
Standard required that all derivative instruments be recorded in the balance sheet at
fair value.  However, the accounting for changes in fair value of the derivative
 instrument depends on whether the derivative instrument  qualifies  as a  hedge.  The
 standards  also  require  formal  documentation  procedures  for  hedging  relationships
 and effectiveness  testing when hedge  accounting is to be applied.  If the derivative
 instrument does not qualify as a hedge,  changes in fair value are reported in earnings
when they occur.  If the  derivative  instrument  qualifies as a hedge,  the  accounting
 treatment varies based on the type of risk being hedged.

F-49

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(n) Derivatives
(continued)

Under U.S. GAAP, the
Bank records its entire portfolio of swap agreements at their estimated fair value and
forward  contracts  between the U.S.  dollar and the  Chilean  peso or UF at the fair
value based on the  forward  exchange  rate.  Under the  previous  accounting standard,
 forward  contracts were also recorded at fair value as they were considered  operational
in nature,  and did not qualify for hedge accounting treatment.

While the Bank enters
into derivatives for the purpose of mitigating its global interest and foreign  currency
risks,  these operations do not meet the  strict  documentation  requirements  to
 qualify  for hedge  accounting  under  U.S.  GAAP.  Therefore  changes in the respective
fair values of all derivative instruments are reported in earnings when they occur.

Current  Chilean
 accounting  rules do not consider the existence of derivative  instruments  embedded in
other contracts and therefore they are not reflected in the financial  statements.  For
U.S.  GAAP  purposes,  certain  implicit or explicit  terms  included in host contracts
that affect some or all of the cash flows or the value of other  exchanges  required by
the contract in a manner similar to a derivative  instrument,  must be separated  from
the host  contract  and  accounted  for at fair value.  The Bank  separately  measures
embedded  derivatives as freestanding  derivative  instruments at their estimated fair
values recognizing changes in earnings when they occur.  Currently  the only host
 contracts  and  instruments  that the Bank has,  which have  implicit or explicit  terms
that must be separately  accounted  for at fair  value,  are service  type  contracts
 related to computer  services  agreements  and credit  linked instruments.  The effect
of accounting  for embedded  derivatives is not material to the Banks  financial
 position and results of its operations.

The effect of
 adopting  the  provisions  of SFAS 133 as of January 1, 2001,  resulted in a  cumulative
 effect on net income of MCh$2, which is presented net of deferred  taxes of MCh$0.3
under the caption  Cumulative  effect of change in  accounting  principles.  The
effects of the differences in accounting for derivative  instruments  between Chilean and
U.S. GAAP on the  consolidated net income and shareholders equity of the Bank are
included in paragraph (t) below.

(o) Minimum dividend

As required by the
Chilean  General  Banking Law, unless  otherwise  decided by a two-thirds vote of its
issued and subscribed  shares, the Bank  must  distribute  a cash  dividend  in an amount
 equal to at least 30% of its net  income  for each  year as  determined  in accordance
with Chilean GAAP, unless and except to the extent the Bank has unabsorbed prior year
losses.

Since the payment of
these  dividends is a legal  requirement  in Chile,  an accrual for U.S.  GAAP  purposes
is made to recognize  the corresponding  decrease  in equity at each  balance  sheet
date.  The Banks  liabilities  would have been  greater by  MCh$15,949  and MCh$39,166
as of December 31, 2002 and 2003,  respectively,  under U.S.  GAAP. The effects of these
 adjustments  on the  shareholdersequity of the Bank are included in paragraph (t) below.

F-50

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(p) Assets received
in lieu of payment

Under  Chilean GAAP,
 assets  received in lieu of payment are carried at cost and have been restated for
 price-level  changes,  less a global  valuation  allowance  if the total of the market
 value of those  assets is lower than the  carrying  amount.  Market  value is determined
based on appraiser  valuations,  as required by the  Superintendency  of Banks.
 Beginning  January 1, 2001, if the asset is not sold within one year,  then  recorded
 asset  amounts must be  written-off  on at least a  straight-line  basis over the
 following 18-month period.

Under U.S. GAAP,
 assets received in lieu of payment are initially  recorded at fair value less any
estimated costs to sell at the date of  foreclosure,  on an individual  asset basis.  The
effect of recording  these assets in accordance with U.S. GAAP is included in the
reconciliation of consolidated net income and shareholders' equity in paragraph (t) below.

(q) Acquisition of
Leasing Andino

On April 23, 1999, the
Bank and its subsidiary  Banchile  Asesorías  Financieras  S.A.  acquired the remaining
35% of shares of Leasing Andino that it did not already own from Orix Corporation for
MCh$13,914.  Under Chilean GAAP, the Bank recorded  goodwill in the amount of MCh$1,223
based on the  differences  between the investment  purchase price and the amount of the
underlying  equity in the carrying value of the investees net assets.  As permitted by
Chilean GAAP,  goodwill can be amortized on an accelerated  basis to the extent of the
Banks net income.  Accordingly  the Bank  completely  amortized the remaining  goodwill
 recorded as a result of this  transaction during the year ended December 31, 2003.

Under U.S.  GAAP, the
 difference  between the cost of an investment and the amount of underlying  equity in
net assets is allocated to the underlying assets and liabilities  based on their
respective fair values at the time of the acquisition.  Any excess of the cost of the
investment over such fair value is treated as goodwill.  Under U.S. GAAP, prior to 2003,
the Bank amortized the resulting  goodwill over an estimated useful life of 10 years on a
straight-line  basis.  Beginning  January 1, 2002, the Bank ceases to amortize  goodwill
related to the acquisition of Leasing Andino, following the provisions of SFAS No. 142,
as described in paragraph (d) above.

The effect of the
 differences  in  purchase  accounting  and the  amortization  of  goodwill  is  included
 in the  reconciliation  of consolidated net income and shareholders' equity in paragraph
(t) below.

(r) Staff severance
indemnities

The  provision  for
staff  severance  indemnities,  included in the account  Other  Liabilities  (see Note
10),  relates to a benefit payable to a defined  number of  employees,  upon  their
 retirement  from the Bank,  conditional  upon  having  completed  30 years of continuous
 service.  The Bank makes indemnity payments upon termination of the applicable
 employees,  and has not set aside assets to fund its benefit  obligation.  Under Chilean
GAAP, the  corresponding  liability is calculated by discounting the benefit accrued
using real interest rates,  as described in Note 1 (m),  considering  current salary
levels of all employees  eligible under the plan and the estimated  average  remaining
 service  period.  Under U.S. GAAP the  corresponding  liability is recorded  using the
shutdown  method, consistent with the accounting criteria applied by its parent company,
Quiñenco.

The effects of
accounting for termination indemnity benefits under U.S. GAAP have been presented in
paragraph (t), below.

F-51

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(s) Merger expenses

During 2001,  under
 Chilean GAAP,  the Bank  recorded  certain  expenses  related to the merger with Banco
de A. Edwards  representing primarily severance costs and professional  expenses.  Under
U.S. GAAP, such expenses would be deferred until the effective date of the merger. The
effect of this difference has been presented in paragraph (t), below.

(t) Summary of
Income Statement and Shareholders' Equity differences

The following is a
reconciliation of consolidated net income under Chilean GAAP to the corresponding U.S.
GAAP amounts:

|                                                                                                         | Years ended December 31,
|-------------------------------------------------------------------------------------------------------- | ------------------------
|                                                                                                         |                         
|                                                                                                         | 2001                    
|                                                                                                         | MCh$                    
|                                                                                                        
|Net income in accordance with Chilean GAAP                                                               | 90,473                  
|U.S. GAAP adjustments:                                                                                  
|Merger of entities under common control (Note 28 (a))                                                    | (14,087)                
|Push Down accounting (Note 28(b))                                                                       
|Goodwill amortization (Note 28 (d))                                                                      | (12,264)                
|Fair value of intangibles                                                                                | (13,600)                
|Fair value of loans                                                                                      | 892                     
|Fair value of staff severance indemnities                                                                | 430                     
|Fair value of premises                                                                                   | (168)                   
|Fair value of other                                                                                      | (196)                   
|Equity participation in Banco de Chile                                                                   | 1,424                   
|Acquisition of Banco Edwards (Note 28(c))                                                               
|Fair value of intangibles                                                                                |                        
|Fair value of loans                                                                                      |                        
|Fair value of other interest bearing liabilities                                                         |                        
|Fair value of deposits                                                                                   |                        
|Fair value of premises                                                                                   |                        
|Fair value of other                                                                                      |                        
|Loan origination commissions and fees (Note 28 (e))                                                      | (663)                   
|Deferred income taxes (Note 28 (f))                                                                      | (2,502)                 
|Investments in other companies (Note 28 (g))                                                             | 27                      
|Allowance for loan losses (Note 28 (k))                                                                  | 13,053                  
|Mortgage finance bonds (Note 28 (l))                                                                     | 43                      
|Held-to-Maturity investments (Note 28 (m))                                                               | (5,188)                 
|Derivatives (Note 28 (n))                                                                                | (9,893)                 
|Assets received in lieu of payment (Note 28 (p))                                                         | 515                     
|Goodwill  Leasing Andino Acquisition (Note 28 (q))                                                      | (192)                   
|Staff severance indemnities (Note 28 (r))                                                                | 839                     
|Merger expenses (Note 28 (s))                                                                            | 2,432                   
|Deferred tax effect of the above U.S. GAAP adjustments (Note     28 (f))                                 | (1,117)                 
|                                                                                                         |                         
|Net income in accordance with U.S. GAAP before      cumulative effect of change in accounting principles | 50,258                  
|                                                                                                         |                         
|Cumulative effect of change in          accounting principles, net of taxes                              | 2                       
|                                                                                                         |                         
|Net income in accordance with U.S. GAAP                                                                  | 50,260                  
|                                                                                                         |                         
|Other comprehensive income, net of tax (Note 28(x)):                                                     | 28                      
|Unrealized holding gains (losses) on available-for-sale            securities, net of tax                | (1,712)                 
|Adjustment for translation differences                                                                   | 1,740                   
|                                                                                                         |                         
|Comprehensive income in accordance with U.S. GAAP                                                        | 50,288                  
|                                                                                                         |                         

F-52

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(t) Summary of
Income Statement and Shareholders' Equity differences (continued)

The following is a
reconciliation of consolidated  shareholders'  equity  differences  under Chilean GAAP to
the corresponding  amounts under U.S. GAAP:

|                                                                     | Years ended December 31,
|-------------------------------------------------------------------- | ------------------------
|                                                                     |                         
|                                                                     | 2002                    
|                                                                     | MCh$                    
|                                                                    
|Shareholders Equity in accordance with Chilean GAAP                 | 624,412                 
|U.S. GAAP adjustments:                                              
|Push Down accounting (Note 28(b))                                   
|Goodwill                                                             | 380,278                 
|Goodwill accumulated amortization (Note 28(d))                       | (18,774)                
|Fair value of intangibles                                            | 173,193                 
|Amortization of fair value of intangibles                            | (28,382)                
|Fair value of loans                                                  | 4,209                   
|Fair value of premises                                               | 11,075                  
|Amortization of fair value of premises                               | (391)                   
|Fair value of other                                                  | 177                     
|Acquisition of Banco Edwards (Note 28 (c))                          
|Goodwill                                                             | 188,712                 
|Fair value of intangibles                                            | 31,459                  
|Amortization of fair value of intangibles                            | (6,014)                 
|Fair value of loans                                                  | (6,239)                 
|Fair value of other interest bearing liabilities                     | (42,319)                
|Fair value of deposits                                               | 261                     
|Fair value of premises                                               | 86                      
|Amortization of fair value of premises                               | (9)                     
|Fair value of other                                                  | (806)                   
|Loan origination commissions and fees (Note 28 (e))                  | 467                     
|Deferred income taxes (Note 28 (f))                                  | 811                     
|Investments in other companies (Note 28 (g))                         | 405                     
|Allowance for loan losses (Note 28 (k))                              | 21,663                  
|Mortgage finance bonds (Note 28 (l))                                 | (1,917)                 
|Held-to-Maturity investments (Note 28 (m))                           | (10)                    
|Derivatives (Note 28 (n))                                            | 3,671                   
|Minimum Dividend (Note 28 (o))                                       | (15,949)                
|Assets received in lieu of payment (Note 28 (p))                     | 614                     
|Goodwill  Leasing Andino Acquisition (Note 28 (q))                  | 1,872                   
|Staff severance indemnities (Note 28 (r))                            | (3,885)                 
|Merger expenses (Note 28(s))                                         |                        
|Deferred tax effect of the above U.S. GAAP adjustments (Note 28 (f)) | (25,910)                
|                                                                     |                         
|Shareholders Equity in accordance with U.S. GAAP                    | 1,292,760               
|                                                                     |                         

F-53

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(t) Summary of
Income Statement and Shareholders' Equity differences (continued)

The following
summarizes the changes in shareholders equity under U.S. GAAP during the years ended
December 31, 2002 and 2003:

|                                                                          | Years ended December 31,
|------------------------------------------------------------------------- | ------------------------
|                                                                          |                         
|                                                                          | 2002                    
|                                                                          | MCh$                    
|                                                                         
|Balance as of January 1                                                   | 1,177,299               
|Capital increase due to merger with Banco de A. Edwards                   | 176,082                 
|Dividends paid                                                            | (101,415)               
|Minimum dividend, previous date                                           | 30,295                  
|Minimum dividend, closing date                                            | (15,949)                
|Unrealized gains (losses) on Available-for-sale investments, net of taxes | 7,692                   
|Absorption of subsidiaries                                                | (109)                   
|Cumulative translation adjustment                                         | 1,742                   
|Net income in accordance with U.S. GAAP                                   | 17,123                  
|                                                                          |                         
|Balance as of December 31                                                 | 1,292,760               
|                                                                          |                         

(u) Net income per
share

The following
disclosure of net income per share information is not generally required for presentation
in the financial statements under Chilean GAAP but is required under U.S. GAAP. Earnings
per share is determined by dividing combined net income by the weighted average number of
total shares outstanding.

|                                                                      | Years Ended December 31,
|--------------------------------------------------------------------- | ------------------------
|                                                                      | 2001                    
|                                                                      |                         
|Chilean GAAP(1)                                                       | Ch$                     
|Earnings per share                                                    | 2.01                    
|                                                                     
|Weighted average number of total shares outstanding (in millions)     | 44,932.7                
|                                                                     
|U.S. GAAP(1)                                                         
|Earnings per share before Cumulative effect of accounting change      | 0.87                    
|Cumulative effect of accounting change per share                      |                        
|                                                                      |                         
|Earnings per share                                                    | 0.87                    
|                                                                      |                         
|Weighted average number of total shares outstanding (in millions) (2) | 57,587.3                
|                                                                      |                         

__________________


|(1) | Basic
and diluted  earnings per share have been  calculated  by dividing net income by the
weighted  average  number of common          shares  outstanding  during the year.  There
are no potentially  dilutive  effects on the earnings of Banco de Chile as it had
         not issued convertible debt or equity securities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Common
shares  outstanding  are presented  giving effect to the weighted  average shares
 outstanding  during the year for the          Merged Bank,  based on the exchange ratio
of 3.135826295  shares of Banco de Chile for each  outstanding  share of Banco de A.
         Edwards, which had  7,381.41 million shares outstanding immediately prior to the
merger.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-54

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(v) Article 9
Presentation of Income Statements and Balance Sheets

The  presentation  of
the  consolidated  financial  statements  differs  significantly  from the format
 required by the Securities and Exchange  Commission  under Rules 210.9 to 210.9-07 of
Regulation S-X (Article 9). The following  financial  statements are presented in
constant  Chilean  pesos of December 31, 2003 and are  presented in a format that
 complies  with the  requirements  of Article 9 of Regulation  S-X. The Income
 Statements  presented for the years ended  December 31, 2001,  2002 and 2003 disclose
the Banks U.S. GAAP income statements in a format that complies with the requirements of
Article 9 of regulation S-X.

The principal
 reclassifications and adjustments,  which were made to the basic Chilean GAAP
consolidated financial statements in order to present them in the Article 9 format, are
as follows:

|1. | Elimination
of contingent assets and liabilities from the balance sheet.
|-- | ------------------------------------------------------------------------

|2. | Presentation
 of  recoveries of loans  previously  charged-off  as a reduction of the provision for
loan losses  instead of as          other income.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Reclassification
of fees relating to contingent loans from interest income under Chilean GAAP to other
income under Article 9.
|-- | ------------------------------------------------------------------------------------------------------------------------------

|4. | Elimination
of the cash clearing account from cash and due from banks.(1)
|-- | -------------------------------------------------------------------------

|5. | Presentation
of forward contracts classified based on legal right to offset.
|-- | ----------------------------------------------------------------------------

|6. | Reclassification
of assets under lease from Other assets under Chilean GAAP to Bank premises and equipment
under Article 9.
|-- | ---------------------------------------------------------------------------------------------------------------------------

|7. | Inclusion
of adjustments to U.S. GAAP described in Note 28(t).
|-- | --------------------------------------------------------------

__________________


|(1) | In
accordance with regulations  issued by the  Superintendency  of Banks,  Chilean banks
include under the caption Cash and            due from banks  amounts  related to
checks from other banks that have been deposited in their  clients  checking  accounts
           that are pending  settlement.  As no cash is involved in the  transaction,
 these amounts  should not be recorded under U.S.            GAAP until the cash is
received, which normally occurs the following business day.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-55

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(v) Article 9
Presentation of Income Statements and Balance Sheets (continued)

The following  income
 statements  presented for the years ended December 31, 2001, 2002 and 2003 have been
prepared in accordance with U.S. GAAP to disclose the Banks consolidated income
statement in accordance with the requirements of Article 9:

Income Statements

|                                                                        | Years ended December 31,
|----------------------------------------------------------------------- | ------------------------
|                                                                        |                         
|                                                                        | 2001                    
|                                                                        | MCh$                    
|INTEREST INCOME:                                                       
|Interest and fees on loans                                              | 593,886                 
|Interest on investments                                                 | 102,901                 
|Interest on deposits with banks                                         | 5,000                   
|Interest under agreements to resell                                     | 9,475                   
|                                                                        |                         
|Total interest income                                                   | 711,262                 
|                                                                        |                         
|                                                                       
|INTEREST EXPENSE:                                                      
|Interest on deposits                                                    | (235,829)               
|Interest on investments sold under agreements to purchase               | (15,682)                
|Interest on short-term debt                                             | (18,560)                
|Interest on long-term debt                                              | (134,514)               
|Price-level restatement, net (1)                                        | (10,176)                
|                                                                        |                         
|Total interest expense                                                  | (414,761)               
|                                                                        |                         
|Net interest income                                                     | 296,501                 
|                                                                       
|PROVISION FOR LOAN LOSSES                                               | (53,895)                
|                                                                        |                         
|                                                                       
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                     | 242,606                 
|                                                                        |                         
|                                                                       
|OTHER INCOME:                                                          
|Fees and commissions                                                    | 49,861                  
|Brokerage and securities income net gain (losses) on trading activities | (8,470)                 
|Net gains (losses) on foreign exchange                                  | 5,775                   
|Other revenue                                                           | 11,568                  
|                                                                        |                         
|Total other income                                                      | 58,734                  
|                                                                        |                         
|                                                                       
|OTHER EXPENSES:                                                        
|Salaries                                                                | (117,943)               
|Net premises and equipment expenses                                     | (22,435)                
|Goodwill amortization                                                   | (12,456)                
|Administration expenses                                                 | (73,070)                
|Other expenses                                                          | (22,731)                
|Minority interest                                                       | (1)                     
|                                                                        |                         
|Total other expenses                                                    | (248,636)               
|                                                                        |                         
|                                                                       
|INCOME BEFORE INCOME TAXES                                              | 52,704                  
|                                                                       
|INCOME TAXES                                                            | (2,446)                 
|                                                                        |                         
|NET INCOME                                                              | 50,258                  
|                                                                        |                         
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING     PRINCIPLES, NET OF TAXES  | 2                       
|                                                                        |                         
|NET INCOME                                                              | 50,260                  
|                                                                        |                         

In connection with
the preparation of the Article 9 income statement:


|(1) | The
 price-level  restatement  includes the effect of  inflation  primarily  resulting  from
the loss in  purchasing  power on     interest  earning  assets and  interest  bearing
 liabilities  due to  inflation.  As the Bank does not  maintain  the  price-level
    adjustment for separate categories of assets and liabilities, such adjustment is
presented as a component of interest expense.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-56

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(v) Article 9
Presentation of Income Statements and Balance Sheets (continued)

The following  balance
 sheets  presented as of December 31, 2002 and 2003 have been prepared in accordance
 with U.S. GAAP to disclose the Banks consolidated balance sheets in accordance with the
requirements of Article 9:

Balance Sheets

|                                                | As of December 31,
|----------------------------------------------- | ------------------
|                                                |                   
|                                                | 2002              
|                                                | MCh$              
|ASSETS                                         
|Cash and due from banks                         | 276,177           
|Term Federal Funds                              | 115,140           
|Interest bearing deposits in other banks        | 33,602            
|Investments under agreements to resell          | 32,499            
|Trading investments                             | 1,017,006         
|Available-for-sale investments                  | 114,499           
|Held-to-maturity investments                    | 316,955           
|                                                |                   
|Subtotal                                        | 1,905,878         
|                                               
|Loans                                           | 5,933,752         
|Unearned income                                 | (70,494)          
|Reserve for loan losses                         | (196,539)         
|                                                |                   
|Loans, net                                      | 5,666,719         
|                                               
|Premises and equipment, net                     | 175,464           
|Goodwill                                        | 552,088           
|Other assets                                    | 383,521           
|                                                |                   
|TOTAL ASSETS                                    | 8,683,670         
|                                                |                   
|                                               
|LIABILITIES AND SHAREHOLDERS EQUITY           
|Deposits:                                      
|Non-interest bearing                            | 1,265,035         
|Interest bearing                                | 3,532,163         
|                                                |                   
|Total deposits                                  | 4,797,198         
|                                               
|Short-term borrowings                           | 262,444           
|Investments sold under agreements to repurchase | 279,442           
|Other liabilities                               | 244,218           
|Long-term debt                                  | 1,807,605         
|                                                |                   
|TOTAL LIABILITIES                               | 7,390,907         
|                                               
|Minority interest                               | 3                 
|                                               
|Shareholders equity:                          
|Common stock                                    | 482,504           
|Other Shareholders equity                      | 810,256           
|                                                |                   
|TOTAL SHAREHOLDERS EQUITY                      | 1,292,760         
|                                                |                   
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY      | 8,683,670         
|                                                |                   

F-57

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(v) Article 9
Presentation of Income Statements and Balance Sheets (continued)

The following is a
reconciliation of total assets presented in accordance with guidelines  established by
the  Superintendency of Banks and the presentation prescribed by Article 9:

|                                                      | As of December 31,
|----------------------------------------------------- | ------------------
|                                                      |                   
|                                                      | 2002              
|                                                      | MCh$              
|                                                     
|Total assets of Bank under Chilean GAAP               | 8,679,770         
|Elimination of assets offset by liabilities:         
|Cash clearing account                                 | (392,188)         
|Contingent loans                                      | (385,585)         
|Repurchased mortgage finance bonds issued by the Bank | 21,428            
|U.S. GAAP adjustments, net                            | 760,245           
|                                                      |                   
|Total assets as per Article 9 presentation            | 8,683,670         
|                                                      |                   

(w) Income taxes

The  reconciliation
 of the provision for income taxes  charged to income under  Chilean GAAP to the
 corresponding  amounts under U.S. GAAP is as follows:

|                                                   | Years ended December 31,
|-------------------------------------------------- | ------------------------
|                                                   |                         
|                                                   | 2001                    
|                                                   | MCh$                    
|                                                  
|Benefit (charge) for the period under Chilean GAAP | 1,173                   
|U.S. GAAP Adjustments:                            
|Deferred tax effect of applying SFAS No. 109       | (2,502)                 
|Deferred tax effect of U.S. GAAP adjustments       | (1,117)                 
|                                                   |                         
|Benefit (Charge) for the period under U.S. GAAP    | (2,446)                 
|                                                   |                         

F-58

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(w) Income taxes
(continued)

Deferred tax assets
(liabilities) are summarized as follows:

|                                                                            | As of December 31,
|--------------------------------------------------------------------------- | ------------------
|                                                                            |                   
|                                                                            | 2002              
|                                                                            | MCh$              
|                                                                           
|Deferred Tax Assets:                                                       
|Leasing equipment                                                           | 5,250             
|Obligations with repurchase agreement                                       | 25,647            
|Global allowance for loan losses                                            | 18,267            
|Voluntary loan loss allowance                                               | 3,426             
|Charge-offs from financial investment                                       | 2,335             
|Accrued interests and readjustments from high risk loan portfolio           | 1,611             
|Staff vacations                                                             | 1,334             
|Accruals interest and readjustments from past due loans                     | 1,071             
|Personnel provisions                                                        | 917               
|Assets at market value                                                      | 1,109             
|Staff severance indemnities                                                 | 1,337             
|Other adjustments                                                           | 8,488             
|Deferred income taxes related to purchase accounting of Banco de A. Edwards | 4,045             
|                                                                            |                   
|Total Deferred Tax Assets                                                   | 74,837            
|                                                                            |                   
|                                                                           
|                                                                           
|Deferred Tax Liabilities:                                                  
|Investments with repurchase agreement                                       | 24,794            
|Depreciation and price-level restatement of bank premises and equipment     | 4,071             
|Transitory assets                                                           | 1,359             
|Deferred income taxes related to push down accounting adjustments           | 27,250            
|Other adjustments                                                           | 2,013             
|                                                                            |                   
|Total Deferred Tax Liabilities                                              | 59,487            
|                                                                           
|                                                                            |                   
|NET DEFERRED TAX ASSETS (LIABILITIES)                                       | 15,350            
|                                                                            |                   

F-59

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(w) Income taxes
(continued)

The  provision for
income taxes under U.S. GAAP differs from the amount of income tax  determined  by
applying the  applicable  Chilean statutory income tax rate to pre-tax income as a result
of the following differences:

|                                                             | Years ended December 31,
|------------------------------------------------------------ | ------------------------
|                                                             |                         
|                                                             | 2001                    
|                                                             | MCh$                    
|                                                            
|Chilean taxes due at the applicable statutory rate (1)       | 8,082                   
|Increase (decrease) in rates resulting from:                
|Non-deductible expenses                                      | 3,126                   
|Non-taxable income                                           | (6,071)                 
|Effect on tax and financial equity restatement (2)           | (940)                   
|Effect of income tax rate change on net deferred tax assets. |                        
|Income tax recovery                                          | (1,075)                 
|Other                                                        | (676)                   
|                                                             |                         
|At effective tax rate                                        | 2,446                   
|                                                             |                         

__________________


|(1) | The
Chilean statutory first category  (corporate)  income tax rate was 15% for 2001, 16% for
2002 and 16.5% for 2003.  Enacted      income tax rate is schedule to be 17% for the
taxation year 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | This
item corresponds to the difference in the basis used for the price-level  restatement
calculation of shareholders equity      for financial and tax purposes.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

(x) Comprehensive
Income

The Bank  presents
 comprehensive  income and its  components  with the  objective to report a measure of
all changes in  shareholdersequity that result from  transactions  and other  economic
 events of the period other than  transactions  with owners  (comprehensive income).
Comprehensive income is the total net income and other non-owner equity transactions that
result in changes in net equity.

The following
represents  accumulated other comprehensive income balance, net of tax, for the years
ended  December 31, 2001,  2002 and 2003:

|                                                               | Year ended December 31, 2003
|-------------------------------------------------------------- | ----------------------------
|                                                               |                             
|                                                               | Before-tax                  
|                                                               | amount                      
|                                                               |                             
|                                                               | MCh$                        
|                                                              
|Beginning balance                                              | 9,093                       
|Price-level restatement (1)                                    | (92)                        
|Unrealized losses on securities available-for-sale:           
|Unrealized losses arising during the period                    | (8,453)                     
|Less: reclassification adjustment for gains included in income | 5,296                       
|                                                               |                             
|Net unrealized losses                                          | (3,157)                     
|Adjustment for translation differences                         | (3,676)                     
|                                                               |                             
|Ending balance                                                 | 2,168                       
|                                                               |                             

F-60

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(x) Comprehensive
Income (continued)

|                                                                    | Year ended December 31, 2002
|------------------------------------------------------------------- | ----------------------------
|                                                                    |                             
|                                                                    | Before-tax                  
|                                                                    | amount                      
|                                                                    |                             
|                                                                    | MCh$                        
|                                                                   
|Beginning balance                                                   | (2,201)                     
|Price-level restatement (1)                                         | 63                          
|Unrealized gains on securities available for sale:                 
|Unrealized gains arising during the period                          | 9,673                       
|Less: reclassification adjustment for losses included in net income | (516)                       
|                                                                    |                             
|Net unrealized gains                                                | 9,157                       
|Adjustment for translation differences                              | 2,074                       
|                                                                    |                             
|Ending balance                                                      | 9,093                       
|                                                                    |                             

|                                                                    | Year ended December 31, 2001
|------------------------------------------------------------------- | ----------------------------
|                                                                    |                             
|                                                                    | Before-tax                  
|                                                                    | amount                      
|                                                                    |                             
|                                                                    | MCh$                        
|                                                                   
|Beginning balance                                                   | 195                         
|Incorporation of Banco de Chile as of March 2001                    | (2,456)                     
|Price-level restatement (1)                                         | 62                          
|Unrealized losses on securities available for sale:                
|Unrealized losses arising during the period                         | (3,377)                     
|Less: reclassification adjustment for losses included in net income | 1,324                       
|                                                                    |                             
|Net unrealized losses                                               | (2,053)                     
|Adjustment for translation differences                              | 2,051                       
|                                                                    |                             
|Ending balance                                                      | (2,201)                     
|                                                                    |                             

____________________


|(1) | Reflects
the effect of inflation on the  comprehensive  income at the beginning of each period,
 adjusted to constant pesos of December 31, 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

(y) Segment
information

The Bank presents
 information in accordance with Statement of Financial  Accounting  Standard No.131  Disclosure
about Segments of an Enterprise and Related  Information,  which  establishes  standards
for reporting  information  about  operating  segments and related disclosures  about
 products and services and geographic  areas.  Operating  segments are defined as
components of an enterprise  about which separate  financial  information is available
 that is regularly  used by the Chief  operating  decision maker in deciding how to
allocate resources and in assessing performance.

The Bank has
 strategically  aligned its operations into six major segments of business based on its
market  segmentation and the needs of its clients and trading  partners.  The Bank
manages and measures the performance of its operations  through these business segments
using an internal profitability reporting system. The internally reported segments are as
follows:

F-61

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(y) Segment
information (continued)

Large Corporate
BankingThe Large  Corporate  Banking  segment  provides  services to domestic
 companies  with annual  sales in excess of  Ch$12,000  million, multinational
 corporations,  financial  institutions,  governmental  entities and companies
 affiliated with Chiles largest  economic groups.  Services  provided  include  deposit
 taking  and  lending in both  Chilean  pesos and  foreign  currency,  trade and  project
financing,  working capital  financing,  foreign trade financing,  lines of credit,
 commercial  mortgage loans and various  non-credit services, such as collection,
supplier payments, payroll management and a wide range of treasury and risk management
products.

Middle Market
Corporate BankingThe middle market corporate  banking segment  provides  services
to companies with annual sales less than Ch$12,000  million.  Services provided include
working capital  financing,  mortgage loans and debt rescheduling as well as alternative
 financing  arrangements such as leasing operations and factoring.

Retail Banking,The
Retail-banking  segment primarily provides individual customers with credit cards,
 residential  mortgage,  auto and consumer loans as well as traditional deposit services
such as checking and savings accounts and time deposits.

International
Banking,The  International  Banking segment includes services offered
 principally  through the Banks New York branch and its agency in Miami, representative
offices in Buenos Aires, São Paulo and Mexico City and a worldwide network of
correspondent banks.

TreasuryThe
Treasury  segment is responsible  for the management of the Banks assets and
 liabilities  and also offers  financial  services to other  segments and external
 customers  such as currency  intermediation,  instruments  developed  for currency and
interest rate risk hedging,  transactions under repurchase  agreements and investment
products based on bonds,  mortgage notes and deposits.  The Treasury segment is also
 responsible  for monitoring  compliance  with  regulatory  deposit  limits,  technical
 reserves and maturity and rate matches.

SubsidiariesThe
 Subsidiaries  segment  includes  non-banking  financial  services  offered through
 separate legal entities  including  securities brokerage, mutual fund and investment
fund management,  financial advisory services,  factoring,  insurance brokerage,
 securitization, collection and sales services.

The financial
 information used to measures the performance of the Bank's business segments is not
necessarily  comparable with similar information from other financial  institutions and
is based on internal  reporting  policies.  The accounting  policies are the same as
those applied under Chilean GAAP, described in Note 1, except as noted below:

- The net  interest
 margin of loans and  deposits is measured  on an  individual  transaction  and client
 basis,  based on the       difference  between the effective  customer rate and the
related Bank's fund transfer price in terms of maturity,  re-pricing and       currency;
- The matching of
interest rates and the insurance of adequate hedging activities are performed within
Treasury Operations.  The       results  associated to the gap  management has been
allocated  among  different  segments in accordance to the amount of interest
      earning assets in each segment;
- The internal
performance profitability system considers capital allocation in each segment in
accordance to Basle guidelines.
- Provisions for loan
losses in each segment are measured on a client basis.

F-62

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(y) Segment
information (continued)

- In terms of costs,
 the Bank's  management  model used considers the allocation of costs that are directly
related and not the       overhead expenses of corporate and support departments,
 voluntary  allowances,  taxes and certain other non-operating income and       expenses;
- Certain  operating
 costs are allocated to each segment based on the type and amount of  transactions.  In
addition,  the Bank       allocates  theoretical  rental costs to each  property-owned
 branch based on market  rental  values so that the results of these       branches are
comparable to rental-property branches.

The following tables
show the results of the Bank by operating segments for the three years ended December 31,
2003:

|                          | Year ended December 31, 2003(1)
|------------------------- | -------------------------------
|                          |                                
|                          | Large Corporate                
|                          |                                
|                          | MCh$                           
|                         
|Operating Revenues        | 88,286                         
|Provisions                | (12,610)                       
|Operating Expenses        | (24,609)                       
|Other income and expenses | (484)                          
|                          |                                
|Net income before taxes   | 50,583                         
|                          |                                

|                          | Year ended December 31, 2002(1) (3) (4)
|------------------------- | ---------------------------------------
|                          |                                        
|                          | Large Corporate                        
|                          |                                        
|                          | MCh$                                   
|                         
|Operating Revenues        | 91,578                                 
|Provisions                | (47,677)                               
|Operating Expenses        | (24,142)                               
|Other income and expenses | (9,469)                                
|                          |                                        
|Net income before taxes   | 10,290                                 
|                          |                                        

|                          | Year ended December 31, 2001(1) (4)
|------------------------- | -----------------------------------
|                          |                                    
|                          | Large Corporate                    
|                          |                                    
|                          | MCh$                               
|                         
|Operating Revenues        | 61,991                             
|Provisions                | (29,419)                           
|Operating Expenses        | (13,072)                           
|Other income and expenses | (1,577)                            
|                          |                                    
|Net income before taxes   | 17,923                             
|                          |                                    

__________________


|(1) | Segment
information disclosed above is based on internal reporting policies and does not conform
to Chilean or U.S. GAAP.
|--- | -------------------------------------------------------------------------------------------------------------------------

|(2) | Other includes
the effect of conforming  management  accounting policies to accounting principles
generally accepted in Chile and     a number of non-allocated  costs, such as corporate
overhead expenses,  voluntary  provisions and depreciation costs. Also included
    within other are amounts of  miscellaneous  income or expenses that are not earned or
incurred by one specific  segment,  including     all external rental income.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The
2002  business  information  has been  adjusted in order to conform  with the  present
 year  information,  as during 2003 the     management  model used to measure the
 performance  of these areas was  improved in order to allocate a higher  proportion  of
the     overhead costs (defined as Other).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Certain
 minor  reclassifications  have  been  made to 2001 and 2002  balances  information  in
order to  conform  with the 2003 presentation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

F-63

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(y) Segment
information (continued)

Information about
geographic areas.

The  financial
 information  presented  below has been  classified  considering  the  country in which
the  related  transactions  were originated.  Those transactions  which originated in the
United States of America,  through Banco de Chiles operations in New York and Miami,
 U.S.A., are primarily  completed with Chilean and Argentine citizens and enterprises,
 and are principally  denominated in U.S. dollars.

A summary of
activities by geographic area is as follows:

|                            | As of December 31,
|--------------------------- | ------------------
|                            |                   
|                            | 2001              
|                            | MCh$              
|Total Interest Revenues    
|Republic of Chile           | 494,898           
|U.S.A                       | 41,432            
|                           
|Total Net Income           
|Republic of Chile           | 80,521            
|U.S.A                       | 9,952             
|                           
|Mortgage Loans             
|Republic of Chile           | 840,503           
|U.S.A                       |                  
|                           
|Commercial Loans           
|Republic of Chile           | 1,564,074         
|U.S.A                       | 120,121           
|                           
|Income Taxes               
|Republic of Chile           | 1,214             
|U.S.A                       | 192               
|                           
|Bank Premises and equipment
|Republic of Chile           | 86,919            
|U.S.A                       | 1,617             
|                           
|Total Assets               
|Republic of Chile           | 5,671,713         
|U.S.A                       | 659,600           

F-64

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(z) Estimated Fair
Value of Financial Instruments and Derivative Financial Instruments

The  accompanying
 tables  provide  disclosure  of the  estimated  fair  value of  financial  instruments
 owned by the  Bank.  Various limitations are inherent in the presentation, including the
following.

- The data
excludes  non-financial assets and liabilities,  such as bank premises and equipment and
excludes values attributable     to deposit and credit card relationships.
- While the data
represents  managements best estimates,  the data is subjective,  involving  significant
 estimates  regarding     current economic and market conditions and risk characteristics.

The  methodologies
 and  assumptions  used depend upon the terms and risk  characteristics  of the various
 instruments and include the following:

- Cash and due
from banks  represents  cash and  short-term  deposits,  which  approximate  fair value
because of the short-term     maturity of these instruments.
- Most of the Banks
securities are considered as trading and therefore are generally carried at quoted market
prices.  Interest     earning assets and liabilities  with an original  maturity of less
than one year are considered to have a fair value,  which is not     materially different
from their book value.
- For interest
 earning assets and interest bearing  liabilities,  which are contracted at variable
 interest rates,  their book     value is considered to be equivalent to their fair value.
- For performing
 loans with  fixed-rates and an original  maturity of greater than one year, the fair
values were calculated by     discounting  contractual  cash flows,  using the Banks
 current  origination  rates for loans with similar  terms and similar risk
    characteristics.
- For loans where
the Banks  management  believes that the amounts  outstanding will not be paid in
accordance with contractual     terms,  the  estimated  cash flows  arising  from the
 liquidation  of  collateralized  assets and other  expected  flows have been
    discounted at an estimated discount rate commensurate with the risk in the collection
of these amounts.
- For
 interest-bearing  liabilities  with fixed rates and an original  contractual  maturity
of greater than one year, the fair     values are calculated by discounting contractual
cash flows at current market origination rates with similar terms.
- The  estimated
 fair value of foreign  exchange  forward  contracts  was  determined  using quoted
 market prices of financial     instruments with similar characteristics.
- The fair value
of interest rate swaps  represents  the  estimated  amount the Bank would expect to
receive or pay to terminate     the contracts or agreements,  taking into account current
interest rates. As no quoted market prices are available for the interest     rate swap
and forward rate  instruments  held by the Bank,  such estimates have been estimated
 using modeling and other  valuation     techniques.

F-65

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28.  Differences
between Chilean and United States Generally Accepted Accounting Principles (continued)

(z) Estimated Fair
Value of Financial Instruments and Derivative Financial Instruments (continued)

The estimated fair
values of financial instruments and derivatives financial instruments are as follows:

|                                                                     | As of December 31, 
|-------------------------------------------------------------------- | -------------------
|                                                                     |                    
|                                                                     | 2002               
|                                                                     |                    
|                                                                     | Carrying Amount (2)
|                                                                     | MCh$               
|ASSETS                                                              
|Cash and due from banks                                              | 276,177            
|Interest bearing deposits in other banks                             | 33,602             
|Term federal funds                                                   | 115,140            
|Accounts receivable under spot foreign exchange     transactions (1) | 30,249             
|Financial investments                                                | 1,480,959          
|Loans, net (3)                                                       | 5,666,719          
|Derivative instruments                                               | 25,099             
|                                                                    
|LIABILITIES                                                         
|Deposits                                                             | 4,797,198          
|Accounts payable under spot foreign exchange    transactions (1)     | 28,482             
|Investments under agreements to repurchase                           | 279,442            
|Short term and long term borrowings                                  | 2,070,048          
|Derivative instruments                                               | 29,994             

__________________


|(1) | Included
under the captions Other assets and Other liabilities.
|--- | ---------------------------------------------------------------

|(2) | The
carrying amounts are based on amounts determined under U.S. GAAP.
|--- | ---------------------------------------------------------------------

|(3) | The
carrying  amounts of loans in the above table excludes  contingent  loans since they
represent  amounts that have not been      disbursed under undrawn letters of credit and
other credit guarantees granted by the Bank.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(aa) Price-level
restatement

The net  charge to
income  for  price-level  restatement  is  comprised  of the  following  restatements  of
 non-monetary  assets  and liabilities. These figures are expressed in constant Chilean
pesos of December 31, 2003.

|                                      | Year ended December 31,
|------------------------------------- | -----------------------
|                                      |                        
|                                      | 2001                   
|                                      | MCh$                   
|                                     
|Shareholders' equity                  | (16,528)               
|Bank premises and equipment           | 4,519                  
|Investment in other companies         | 587                    
|Other, net                            | 1,246                  
|                                      |                        
|Net loss from price-level restatement | (10,176)               
|                                      |                        

F-66

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted
  Accounting Principles (continued)

(ab) Investments in other companies

As of December 31, 2001, 2002 and 2003, investments in other companies and the
Bank's participation in such companies' results of operations for each of the
periods indicated, consist of the following:

|                                                                               | As of and
     for the years ended December 31, |              
|------------------------------------------------------------------------------ | ----------------------------------------------- | -------------
|                                                                               |                                                 |              
|                                                                               | 2001                                            | 2002         
|                                                                               |                                                 |              
|                                                                               | Investment                                      | Income (Loss)
|                                                                               |                                                 |              
|                                                                               | MCh$                                            | MCh$         
|Artikos
  Chile S.A.                                                           | 673                                             | (99)         
|Servipag
  Ltda.                                                               | 673                                             | 84           
|Redbanc
  S.A.                                                                 | 928                                             | 164          
|Soc.
     Operadora de Tarjetas de Crédito
    Nexus S.A.                      | 840                                             | (418)        
|Centro
     de Compensación Automatizado
    S.A.(CCA
S.A.)                    | 141                                             | 34           
|Empresa
  de Tarjetas Inteligentes S.A.                                        | 147                                             | (44)         
|Equity
  participation in Banco de Chile                                       |                                                | 1,423        
|                                                                               |                                                 |              
|Total
  investments in other companies accounted for under
  the equity method | 3,402                                           | 1,144        
|Other
  investments carried at cost                                            | 2,739                                           | 281          
|                                                                               |                                                 |              
|Total investments in other        companies                                    | 6,141                                           | 1,425        
|                                                                               |                                                 |              

(ac) Bank premises
   and equipment, net

The major categories of Bank premises and equipment net of accumulated depreciation
are as follows:

|                                 | As of December
  31,
|-------------------------------- | --------------------
|                                 |                     
|                                 | 2002                
|                                 | MCh$                
|                                 |                     
|Land and buildings               | 111,248             
|Furniture and fixtures           | 19,649              
|Machinery and equipment          | 17,915              
|Vehicles                         | 535                 
|Assets under lease               | 23,766              
|Others                           | 2,351               
|                                 |                     
|Bank premises and equipment, net | 175,464             
|                                 |                     

In accordance with rules of the Superintendency of Banks, bank premises and
 equipment are presented net of accumulated depreciation. As a result no information
 is available for either accumulated depreciation or total bank premises and
equipment.

F-67

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted
Accounting Principles (continued)

(ad) Other assets and other liabilities

(1)
Other assets

|                                                                  | As of December
  31,
|----------------------------------------------------------------- | --------------------
|                                                                  |                     
|                                                                  | 2002                
|                                                                  | MCh$                
|                                                                  |                     
|Intangibles                                                       | 170,255             
|Deferred income tax assets                                        | 74,837              
|Derivative instruments                                            | 25,099              
|Amounts receivable under spot foreign exchange
  transaction      | 30,249              
|Assets received in lieu of payment                                | 19,801              
|Transactions in process                                           | 19,327              
|Deferred asset on bonds issuances                                 | 7,112               
|Investments in other companies                                    | 5,230               
|Deferred software cost                                            | 2,939               
|Accounts receivable for assets received in
  lieu of payment sold | 3,792               
|VAT fiscal credit                                                 | 1,784               
|Deferred loan origination and service costs                       | 3,467               
|Other deferred expenses                                           | 1,626               
|Recoverable taxes                                                 | 4,105               
|Materials and supplies                                            | 966                 
|Dividends receivable                                              | 6,539               
|Brokerage operations                                              | 1,267               
|Prepaid advertising expenses                                      | 872                 
|Other                                                             | 4,254               
|                                                                  |                     
|Total
  other assets                                              | 383,521             
|                                                                  |                     

(2) Other liabilities

|                                                           | As of December
  31,
|---------------------------------------------------------- | --------------------
|                                                           |                     
|                                                           | 2002                
|                                                           | MCh$                
|                                                           |                     
|Accounts
  payable                                         | 35,889              
|Derivative instruments                                     | 29,994              
|Deferred income tax liabilities.                           | 59,487              
|Amounts payable under spot foreign exchange
  transaction. | 28,482              
|Provision for minimum dividend                             | 15,949              
|Accrued severance staff indemnities                        | 11,609              
|Allowance of income taxes                                  | 442                 
|Accrued staff vacation expense                             | 8,697               
|Deferred liability on bond issuances                       | 7,112               
|Administration and credit card contract provision          | 2,235               
|Leasing deferred gains                                     | 3,167               
|Deferred loan origination and service fees                 | 6,445               
|VAT fiscal debit                                           | 2,193               
|Transactions in process                                    | 2,737               
|Legal contingencies provision                              | 1,099               
|Documents in transit                                       | 22,762              
|Other                                                      | 5,919               
|                                                           |                     
|Total other liabilities                                    | 244,218             
|                                                           |                     

F-68

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)

(ad) Other assets and other liabilities, (continued)

(3)
Contingent Liabilities

The Bank's contingent liabilities consist of open and unused
  letters of credit, together with guarantees granted in Chilean pesos, UF and
  foreign currencies (principally U.S. dollars). Under U.S. GAAP these transactions
  represent off-balance sheet activities. The following is a summary of instruments
that are considered financial guarantees in accordance with FIN No. 45:

|                           | Year ended
   December 31, 2003 | As of
  December 31, 2003
|-------------------------- | ------------------------------- | -------------------------
|                           |                                 |                          
|                           | Fees                            | Contract amount          
|                           | MCh$                            | MCh$                     
|Standby letters of credits | 190                             | 32,074                   
|Foreign office guarantees  | 289                             | 24,033                   
|Performance bonds          | 2,775                           | 245,888                  
|                           |                                 |                          
|Total                      | 3,254                           | 301,995                  
|                           |                                 |                          

Guarantees in the form of performance bonds, stand by letters of credit and
 foreign office guarantees are issued in connection with agreements made by customers
 to counterparties. If the customer fails to comply with the agreement, the counterparty
 may enforce the performance bond, stand by letters of credit or foreign office
 guarantees as a remedy. Credit risk arises from the possibility that the customer
 may not be able to repay the Bank for these guarantees. To mitigate credit risk,
 the Bank generally determines the need for specific covenant, guarantee and
 collateral requirements on a case-by-case basis, depending on the nature of
the financial instrument and the customer's creditworthiness.

Guarantees expiration
  per period are as follows:

|                             | Due within 1 year | Due
      after 1 year but within 3
    years | Due
      after 3 years but within 5
    years | Due
    after 5 years | Total  
|---------------------------- | ----------------- | --------------------------------------------- | ---------------------------------------------- | --------------------- | -------
|                             |                   |                                               |                                                |                       |        
|                             | MCh$              | MCh$                                          | MCh$                                           | MCh$                  | MCh$   
|Standby
  letters of credits | 19,920            | 8,989                                         | 3,165                                          |                      | 32,074 
|Foreign
  office guarantees  | 20,161            | 3,872                                         |                                               |                      | 24,033 
|Performance
  bonds          | 176,856           | 56,798                                        | 10,180                                         | 2,054                 | 245,888
|                             |                   |                                               |                                                |                       |        
|Total                        | 216,937           | 69,659                                        | 13,345                                         | 2,054                 | 301,995
|                             |                   |                                               |                                                |                       |        

Under U.S. GAAP, the fair value of the liability is not material to the consolidated
 financial statements.

(ae) Other Interest
   Bearing Liabilities

The Bank's
  long-term and short-term borrowings are summarized below. In accordance with
  the guidelines established by the Superintendency of Banks, the Bank does not
  present a classified balance sheet. Borrowings are described as short-term
  when they have original maturities of less than one year or are due on demand.
 All other borrowings are described as long-term, including the amounts due
  within one year on such borrowings.

|                                                          | As of December
31, 2002 | As of December 31, 2003
|--------------------------------------------------------- | ----------------------- | -----------------------
|                                                          |                         |                        
|                                                          | Long-term               | Short-term             
|                                                          | MCh$                    | MCh$                   
|Central
  Bank Credit lines for renegotiation of    loans | 3,801                   |                       
|Other
  Central Bank borrowings                           |                        |                       
|Mortgage
  finance bonds                                  | 1,137,200               |                       
|Bonds                                                     | 4,639                   |                       
|Subordinated
  bonds                                      | 280,431                 |                       
|Borrowings
  from domestic financial institutions         | 127                     | 50,866                 
|Foreign
  borrowings                                      | 335,087                 | 180,360                
|Investments
  under agreements to repurchase              |                        | 279,442                
|Other
  obligations                                       | 46,320                  | 31,218                 
|                                                          |                        
|Total other interest bearing liabilities                  | 1,807,605               | 541,886                
|                                                          |                        

F-69

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)

(ae) Other Interest Bearing Liabilities (continued)

(1) Central Bank borrowings

Central Bank borrowings include credit lines for the renegotiation of loans and
other Central Bank borrowings. Credit lines were provided by the Central Bank
for the renegotiation of mortgage loans due to the need to refinance debts as
a result of the economic recession and crisis of the Chilean banking system from
1982 to 1985. The credit lines for the renegotiations of mortgage loans are linked
to the UF index and carry a real annual interest rate of 2.4%. The maturities
of the outstanding amounts are as follows:

|                                                            | As of December 31, 2003
|----------------------------------------------------------- | -----------------------
|                                                            |                        
|                                                            | MCh$                   
|Due within 1 year                                           | 2,975                  
|Due after 1 year but within 2 years                         |                       
|Due after 2 years but within 3 years                        |                       
|Due after 3 years but within 4 years                        |                       
|Due after 4 years but within 5 years                        |                       
|Due after 5 years                                           |                       
|Total long-term (Credit lines for renegotiation
  of loans) | 2,975                  
|                                                            |                        
|Total short-term (Other Central Bank borrowings)            | 24,906                 
|                                                            |                        
|Total Central Bank borrowings                               | 27,881                 
|                                                            |                        

(2)
   Mortgage finance bonds

These bonds are used to finance the granting of mortgage loans. The outstanding
 principal amounts of the bonds are amortized on a quarterly basis. The range
 of maturities of these bonds is between five and twenty years. The bonds are
 linked to the UF index and carry a weighted average annual rate of interest
 of 6.2% as of December 31, 2003.

The maturities of outstanding
mortgage bond amounts as of December 31, 2003 are as follows:

|                                     | As
  of December 31, 2003
|------------------------------------ | -------------------------
|                                     |                          
|                                     | MCh$                     
|Due within 1 year                    | 84,397                   
|Due after 1 year but within 2 years  | 87,257                   
|Due after 2 years but within 3 years | 88,085                   
|Due after 3 years but within 4 years | 86,401                   
|Due after 4 years but within 5 years | 83,345                   
|Due after 5 years                    | 622,927                  
|                                     |                          
|Total mortgage finance bonds         | 1,052,412                
|                                     |                          

F-70

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)

(ae) Other Interest Bearing Liabilities (continued)

(3) Bonds

The maturities of outstanding bonds amounts as of December 31, 2003 are as
follows:

|                                     | As
  of December 31, 2003
|------------------------------------ | -------------------------
|                                     |                          
|                                     | MCh$                     
|Due within 1 year                    | 905                      
|Due after 1 year but within 2 years  | 858                      
|Due after 2 years but within 3 years | 858                      
|Due after 3 years but within 4 years | 506                      
|Due after 4 years but within 5 years |                         
|Due after 5 years                    |                         
|                                     |                          
|Total
  bonds                        | 3,127                    
|                                     |                          

Bonds are linked to the UF Index and carried an average real annual interest
 rate of 6.9% as of December 31, 2003, with interest and principal payments due
 semi-annually. The bonds were originally intended to finance loans that had
a maturity of greater than one year.

(4)
Subordinated bonds

In 2002 the Bank issued
  Bonds totaling UF 1,580,000 (known as 6.5% Bonds)
 at a discount of UF 98,670. The 6.5% Bonds are linked to the UF index with interest
 and principal payments due semi-annually. The discount on the issuance of the 6.5%
 Bonds is amortized over the life of the bond. As of December 31, 2003, the
 effective real interest rate is 7.0%, taking into consideration the discount
on issuance.

The 6.5% Bonds are intended for the financing of loans having a maturity of
 greater than one year. As of December 31, 2003 the outstanding maturities
 of these bonds, which are considered long-term, are as follows:

|                                     | As of December 31, 2003
|------------------------------------ | -----------------------
|                                     |                        
|                                     | MCh$                   
|Due within 1 year                    | 25,571                 
|Due after 1 year but within 2 years  | 19,307                 
|Due after 2 years but within 3 years | 19,307                 
|Due after 3 years but within 4 years | 19,307                 
|Due after 4 years but within 5 years | 19,307                 
|Due after 5 years                    | 168,398                
|                                     |                        
|Total subordinated bonds             | 271,197                
|                                     |                        

The value
  of the subordinated bonds that can be considered in the effective
equity should decrease by 20% per year beginning six years prior to maturity.

F-71

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)

(ae) Other Interest Bearing Liabilities (continued)

(5) Borrowings from domestic financial institutions

Borrowings from domestic financial institutions are used to fund the Bank's
 general activities, carry a weighted average annual real interest rate of
 2.3% and have the following outstanding maturities as of December 31, 2003.

|                                                           | As of December 31, 2003
|---------------------------------------------------------- | -----------------------
|                                                           |                        
|                                                           | MCh$                   
|Due within 1 year                                          | 103                    
|Due after 1 year but within 2 years                        |                       
|Due after 2 years but within 3 years                       |                       
|Due after 3 years but within 4 years                       |                       
|Due after 4 years but within 5 years                       |                       
|Due after 5 years                                          |                       
|                                                           |                        
|Total long-term                                            | 103                    
|Total short-term                                           | 49,779                 
|                                                           |                        
|Total borrowings from domestic financial
     institutions | 49,882                 
|                                                           |                        

(6) Foreign borrowings

The Bank has short-term and long-term borrowings from foreign banks. The outstanding
maturities of these borrowings as of December 31, 2003 are as follows:

|                                     | As of December 31, 2003
|------------------------------------ | -----------------------
|                                     |                        
|                                     | MCh$                   
|Due within 1 year                    | 431,098                
|Due after 1 year but within 2 years  | 13,015                 
|Due after 2 years but within 3 years | 127                    
|Due after 3 years but within 4 years | 6,620                  
|Due after 4 years but within 5 years |                       
|Due after 5 years                    |                       
|                                     |                        
|Total
  long-term                    | 450,860                
|Total
  short-term                   | 267,109                
|                                     |                        
|Total
  foreign borrowings           | 717,969                
|                                     |                        

All of these loans are denominated in U.S. dollars, are principally used to
 fund the Bank's foreign trade loans and carry an average, annual nominal
 interest rate of 3.8% as of December 31, 2003.

(7)
   Other obligations

|                                    | As of December
     31,
|----------------------------------- | -----------------------
|                                    |                        
|                                    | 2002                   
|                                    | MCh$                   
|Other long-term obligations:        |                        
|Payable accounts                    | 883                    
|Obligations with Chilean government | 45,437                 
|                                    |                        
|Total other long-term obligations   | 46,320                 
|Other short-term obligations        | 31,218                 
|                                    |                        
|Total other obligations             | 77,538                 
|                                    |                        

F-72

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)

(ae) Other Interest Bearing Liabilities (continued)

As of December 31, 2003, other obligations had the following maturities:

|                                     | As of December 31, 2003
|------------------------------------ | -----------------------
|                                     |                        
|                                     | MCh$                   
|Due within 1 year                    | 945                    
|Due after 1 year but within 2 years  | 1,200                  
|Due after 2 years but within 3 years | 1,418                  
|Due after 3 years but within 4 years | 1,479                  
|Due after 4 years but within 5 years | 1,408                  
|Due after 5 years                    | 3,396                  
|                                     |                        
|Total long-term                      | 9,846                  
|Total short-term                     | 49,754                 
|                                     |                        
|Total other obligations              | 59,600                 
|                                     |                        

(af) Shareholders' Equity

The Bank's paid-in capital consists of 68,079,783,605 authorized shares of
 no fixed nominal value, issued and outstanding as of December 31, 2003. Dividends
 related to the year ended December 31, 2002 were paid-out based on the legal
entities in existence as of the year end.

Dividends are declared and paid during the year subsequent to that in which
the related net income was earned.
Dividends were declared and paid to the respective shareholders of each of
 the merging banks based on prior year net income determined under Chilean GAAP
 for the years ended December 31, 2001, 2002 and 2003 (presented in constant
 Chilean pesos as of December 31, 2003) are as follows:

|                                                        | Paid
    during the year ended December 31,
|------------------------------------------------------- | -------------------------------------------
|                                                        |                                            
|                                                        | 2001                                       
|                                                        | MCh$                                       
|Dividends relating to Banco de Chile                    | n/a                                        
|Dividends per share relating to Banco de Chile          | n/a                                        
|Dividends relating to Banco de A. Edwards (1)(2)        | 1,702                                      
|Dividends per share relating to Banco de A.
    Edwards | 0.07                                       
|                                                        |                                            

___________________


|(1) | On January 1, 2002 Banco de A. Edwards merged
  with Banco de Chile.                                                                                                                                                                                                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Dividends per share of Banco de A. Edwards are calculated with c ommon shares
   outstanding during the year, based on the exchange ratio of 3.135826295 shares
   of Banco de Chile for each outstanding share of Banco Edwards, which had 7,381.41
  million shares and outstanding shares immediately prior to the merger.

(ag) Transactions with Related Parties

In accordance with the rules of the Superintendency of Banks, related parties
 are defined as individuals or companies who are directors, officers, or shareholders
who own more than 1% of the Bank's shares.

Entities in which a director, officer or shareholder of the Bank holds more than
a 5% interest as well as entities that have directors in common with the Bank
are also considered to be related parties. In the following tables, trading and
manufacturing companies are defined as operating companies, and companies whose
purpose is to hold shares in other companies are defined as investment companies.

F-73

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)

(ag) Transactions with Related Parties (continued)

(1) Loans granted to related parties

Loans to related parties, all of which are current, are as follows:

|                       | As of December
     31,
|---------------------- | -----------------------
|                       |                        
|                       | 2001                   
|                       |                        
|                       | Loans
       MCh$      
|Operating
  companies  | 81,377                 
|Investment
  companies | 4,796                  
|Individuals
  (1)      | 4,131                  
|                       |                        
|Total                  | 90,304                 
|                       |                        

___________________


|(1) | Includes only debt obligations that are equal
  to or greater than UF 3,000, equivalent to approximately MCh$51 as of December
  31, 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

The activity in the balances of loans to related parties are as follows:

|                                                     | As of December
     31,
|---------------------------------------------------- | -----------------------
|                                                     |                        
|                                                     | 2001                   
|                                                     |                        
|                                                     | MCh$                   
|Balance as of January 1                              | 36,919                 
|Incorporation of Banco de Chile as of March 31, 2001 | 82,348                 
|New loans                                            | 119,213                
|Repayments                                           | (145,032)              
|Price-level restatement (1)                          | (3,144)                
|                                                     |                        
|Balance as of December 31                            | 90,304                 
|                                                     |                        

___________________


|(1) | Reflects the effect of restatement of beginning
  balances to constant pesos of December 31, 2003.
|--- | --------------------------------------------------------------------------------------------------

F-74

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)

(ag) Transactions with Related Parties (continued)

(2) Other transactions with related parties.

During the years ended December 31, 2001, 2002 and 2003, the Bank incurred the
following expenses and income as a result of transactions with related parties
equal to or greater than UF 5,000 equivalent to approximately MCh$85 as of December
31, 2003.

|                                                                | Years ended December
  31,
|--------------------------------------------------------------- | --------------------------
|                                                                |                           
|                                                                | 2001                      
|                                                                |                           
|                                                                | Expense                   
|                                                                | MCh$                      
|                                                                |                           
|Redbanc S.A.                                                    | 2,776                     
|Empresa Nacional de Telecomunicaciones
  S.A.                   | 1,776                     
|Operadora
     de Tarjetas de Crédito
  Nexus S.A.              | 1,763                     
|Depósito Central de Valores,
  Depósitos de Valores S. A        |                          
|Entel PCS Telecomunicaciones S.A.                               |                          
|Banchile
     Cía. de Seguros
  de Vida S.A.                    |                          
|Entel
  Telefonía Local S.A.                                    | 155                       
|Hoteles Carrera S.A.                                            | 96                        
|Compañía Nacional
  de Teléfonos Telefónica del Sur S.A.        |                          
|Empresa de Tarjetas Inteligentes
  S.A                          | 86                        
|Telefónica
  del Sur Carrier S.A.                               |                          
|Línea Aérea
  Nacional de Chile S.A.                            |                          
|Corporación.
  Cultural de la Ilustre Municipalidad de Santiago |                          
|Empresa de Servicios Especializados
  S.A                       | 942                       
|                                                                |                           
|Subtotal                                                        | 7,594                     
|                                                                |                           
|Transactions between 1,000 and
  5,000 UF:                      |                           
|Services
  expenses                                             | 179                       
|Advisory                                                        |                          
|Telephone
  expenses                                            | 62                        
|Rental
  income                                                 |                          
|                                                                |                           
|Subtotal                                                        | 241                       
|                                                                |                           
|Total                                                           | 7,835                     
|                                                                |                           

These expense and income items are for services received by the Bank from
 related parties at market rates. Article 89 of the Chilean Corporations Law
 requires that the Bank's transactions with related parties be carried out on
a market basis or on terms similar to those prevailing in the market.

F-75

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)

(ah) Fees and income from services

The Bank's fees and income from services and non-operating income and expenses
for the years ended December 31, 2001, 2002 and 2003 are summarized as follows:

|                                                                         | Years ended
     December 31,
|------------------------------------------------------------------------ | -----------------------------
|                                                                         |                              
|                                                                         | 2001                         
|                                                                         |                              
|                                                                         | Income                       
|                                                                         | MCh$                         
|Fees and income from services                                            |                              
|Sight accounts and ATMs                                                  | 9,376                        
|Mutual funds                                                             | 9,279                        
|Insurance                                                                | 7,262                        
|Stock brokerage                                                          | 3,933                        
|Collection of overdue loans                                              |                             
|Collection and payment of services                                       | 3,752                        
|Credit lines                                                             | 3,451                        
|Financial services                                                       | 1,749                        
|Demand deposits and overdrafts                                           | 10,827                       
|Income and expense from goods received in
    lieu of payment            | 604                          
|Contingent fees                                                          | 4,766                        
|Collection services                                                      | 2,962                        
|Foreign trade and currency exchange                                      | 1,979                        
|Prepayment of loans                                                      | 676                          
|Letters of credit guarantees, collaterals
    and other contingent loans | 3,272                        
|Leasing                                                                  | 408                          
|Custody and trust services                                               | 639                          
|Factoring                                                                | 290                          
|Fees from sales force                                                    |                             
|Teller services (Servipag)                                               |                             
|Other                                                                    | 2,755                        
|                                                                         |                              
|Total                                                                    | 67,980                       
|                                                                         |                              

(ai) Non-operating income and expense

|                                                                    | Years ended
     December 31,
|------------------------------------------------------------------- | -----------------------------
|                                                                    |                              
|                                                                    | 2001                         
|                                                                    |                              
|                                                                    | Income                       
|                                                                    | MCh$                         
|Non-operating income and expenses                                   |                              
|Rental income                                                       | 2,448                        
|Gains on sales of assets received in lieu of
    payment            | 4,366                        
|Income from correspondent banks                                     | 838                          
|Income from sale of fixed assets                                    | 201                          
|Recoveries of expenses                                              | 626                          
|Securities in companies and shares                                  | 85                           
|Amortization of intangibles                                         |                             
|Charge-offs and provision of assets received
    in lieu of payment |                             
|Administration and credit card contracts                            |                             
|Charge-offs                                                         |                             
|Income (losses) attributable to investments
    in other companies  | 1,451                        
|Delivery services of bank products                                  |                             
|Asset received in lieu of payment                                   | 515                          
|Legal contingencies provision                                       |                             
|Charge-offs and provision related to fixed
    assets               |                             
|Miscellaneous gains on exchange                                     | 135                          
|Overestimated provision                                             | (12)                         
|Charge-offs of transaction in process related
    to the merger     |                             
|Indemnity for termination of rental contracts                       |                             
|Merger expenses                                                     |                             
|Other                                                               | 915                          
|                                                                    |                              
|Total                                                               | 11,568                       
|                                                                    |                              

F-76

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)

(aj) Pro Forma Information related to the acquisition of Banco de Chile
(Unaudited)

Following the accounting
  requirements under U.S. GAAP, the financial information for the period between
  January 1, 2001 and March 27, 2001 reflects the financial information of the
  predecessor bank, Banco de A. Edwards. On March 27, 2001, Quiñenco, the common parent of the two banks, purchased a controlling
 interest in Banco de Chile. The following unaudited pro forma financial information
 gives effect to Quiñenco's acquisition of Banco de Chile as if it had
 occurred on January 1, 2001. The pro forma results from operations have been
 prepared for informational purposes only and do not purport to be indicative
of the actual results of operations.

The pro
  forma results, under U.S. GAAP, are as follows:

|                             | Year ended December
     31,
|---------------------------- | ----------------------------
|                             |                             
|                             | 2001                        
|                             | MCh$                        
|Interest revenue             | 854,657                     
|Net income                   | 64,799                      
|Earnings per share (Ch$) (1) | 0.95                        

___________________


|(1) | Basic and diluted earnings per share have been
  calculated by dividing net income by the weighted average number of common
  shares outstanding during the year (8,089.8 million shares as of December 31,
  2001) . The Bank has not issued convertible debt or equity securities. Consequently,
  there are no potentially dilutive effects on the earnings of the Bank.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(ak) Pro Forma Information related to the merger of Banco de Chile with Banco
de A. Edwards (Unaudited)

The financial information presented under U.S. GAAP, reflects the merger of
 Banco de Chile with Banco de A. Edwards from March 27, 2001, the first date
 in which control of the banks was held by the common parent, although legally,
 the merger took place on January 1, 2002. As a result of this accounting treatment,
 the financial information for the year ended December 31, 2002 reflects the
 effects of the merger for the whole year (see Note 28 (a) for an explanation
 of the accounting for the merger under U.S. GAAP). The following unaudited pro
 forma financial information gives effect to the merger of the banks as if it
 had occurred on January 1, 2001. These pro forma results from operations have
 been prepared for informational purposes only and do not purport to be indicative
 of the actual results of operations.

The pro forma results, under U.S. GAAP, are as follows:

|                             | Year ended December 31,
|---------------------------- | -----------------------
|                             |                        
|                             | 2001                   
|                             | MCh$                   
|Interest revenue             | 866,097                
|Net income                   | 81,925                 
|Earnings per share (Ch$) (1) | 1.20                   

___________________


|(1) | Basic and diluted earnings per share have been
    calculated by dividing net income by the weighted average number of common
    shares outstanding during the year (68,098.8 millions as of December 31,
    2001 and 2002) . The Bank has not issued convertible debt or equity securities.
    Consequently, there are no potentially dilutive effects on the earnings of
    the Bank.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-77

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

28. Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)

(al) Recent accounting pronouncements

In January 2003, the FASB
  issued FASB Interpretation No. 46, Consolidation
 of Variable Interest Entities (FIN 46). The objective of this FASB Interpretation
 is to determine when a business enterprise should include the assets, liabilities,
 non controlling interests and results of a Variable Interest Entity in its
 consolidated financial statement. The Bank determined that there is no impact
on applying the provisions of FIN 46 on its consolidated financial statements.

On December 12, 2003,
      the American Institute of Certified Public Accountants
     (AICPA) issued Statement of Position (SOP) No. 03-3, Accounting
     for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3).
     SOP 03-3 is effective for loans acquired in fiscal years beginning after
     December 15, 2004. SOP 03-3 requires acquired loans to be recorded at fair value and prohibits
   carrying over valuation allowances in the initial accounting for all loans acquired
   in a transfer that have evidence of deterioration in credit quality since origination,
   when it is probable that the investor will be unable to collect all contractual
   cash flows. Loans carried at fair value, mortgage loans held-for-sale, and loans
   to borrowers in good standing under revolving credit agreements are excluded
   from the scope of SOP 03-3. SOP 03-3 limits the yield that may be accreted to
   the excess of the undiscounted expected cash flows over the investor's initial
   investment in the loan. The excess of the contractual cash flows over expected
   cash flows may not be recognized as an adjustment of yield. Subsequent increases
   in cash flows expected to be collected are recognized prospectively through
   an adjustment of the loan's yield over its remaining life. Decreases in expected
   cash flows are recognized as impairment. The Merged Bank is evaluating the effect
   of the adoption of SOP 03-3, however, management does not expect that the adoption
  will have a material impact on its financial position and results of operations.


29. Merger Expenses

Under Chilean GAAP, the Bank recorded MCh$31,193
 in its consolidated statement of income as of December 31, 2002 for merger expenses
 that have been directly charged to income for the period, as follows:

|                                                      | As
  of December 31, 2002
|----------------------------------------------------- | -------------------------
|                                                      |                          
|                                                      | MCh$                     
|Staff severance indemnities                           | 14,629                   
|Charge-offs and provisions related to fixed    assets | 4,392                    
|Charge-offs software development                      | 3,909                    
|Charge offs of other assets                           | 2,155                    
|Maintenance and remodeling of offices                 | 1,275                    
|Other personnel expenses                              | 1,086                    
|Consulting services                                   | 1,040                    
|Marketing                                             | 590                      
|Indemnity for termination of rental    contracts      | 588                      
|Other                                                 | 1,529                    
|                                                      |                          
|Total                                                 | 31,193                   
|                                                      |                          

During the year 2001, the merger expenses charged to income
amounted to MCh$14,735.

F-78

---



BANCO DE CHILE AND
SUBSIDIARIES

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS             (Restated for general price - level
changes and expressed in millions of constant                                   Chilean
pesos as of December 31, 2003)

30. Relevant Events

(a) Effective January
  1, 2002, Banco de A. Edwards merged with and into Banco de Chile, with Banco
  de Chile as the surviving entity. As a consequence of the merger, Banco de
  Chile acquired the assets and assumed the liabilities of Banco de A. Edwards,
  succeeding said bank in all of its rights and obligations, and incorporating
  the equity of Banco de A. Edwards into Banco de Chile (see Note 9). During
  2003 there were no expenses related to the merger process (expenses of MCh$31,193
 in 2002).

(b) On March 25, 2004, the Board of Directors resolved to issue
  a tender offer for 1,701,994,590 shares issued by Banco de Chile, representing
  2.5% of the total capital, at the price of Ch$31 per share, according to the
  Program to Repurchase Shares, as agreed upon by the General Ordinary Shareholders
  Meeting held on March 20, 2003. The offer was addressed to all shareholders
  of Banco de Chile listed on any of the local Stock Exchanges and remained in
  force from March 27, 2004 until April 26, 2004. During the period of the offer
  there were received acceptance orders for a total amount of 5,000,844,940 shares.
  Due to the reception of acceptance orders for a total amount that exceeds the
  number of shares offered to buy and according with the terms of the offer,
it was applied a pro-rata basis to each acceptance order received and accepted.

___________________

F-79



---

# SIGNATURE

The
registrant, Banco de Chile, hereby certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual
report on its behalf.

| | BANCO DE CHILE
| | --------------
|
|
| | By            
| |               
| |               
| |               

Date:
June 25, 2004

---